UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

☒   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2012

 

or

 

☐   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________________ to ___________________________

 

Commission file number 33-18099-NY

 

QUEST PATENT RESEARCH CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   11-2873662
(State or other jurisdiction of
Incorporation or organization)		   (I.R.S. Employer
Identification No.)

 

411 Theodore Fremd Ave., Suite 206S, Rye, NY   10580-1411
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (888) 743-7577

 

Securities registered under Section 12(g) of the Exchange Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐

 

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐  No ☒

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐  No ☒

 

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this From 10-K. ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐  Accelerated filer ☐ 
Non-accelerated filer ☐ ☐  Smaller reporting company ☒ 
(Do not check if a smaller reporting company)      

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐  No ☒

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $1,517,285 as of June 30, 2014.

 

As of December 15, 2014, the registrant had 263,038,334 shares of common stock outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

  Page
   
PART I  
Item 1. Business 1
Item 1A. Risk Factors 5
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Mine Safety Disclosures 12
     
PART II  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13
Item 6. Selected Financial Data 15
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 20
Item 9A. Controls and Procedures 20
Item 9B. Other Information 21
   
PART III  
Item 10. Directors, Executive Officers and Corporate Governance 22
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 26
Item 13. Certain Relationships and Related Transactions, and Director Independence 27
Item 14. Principal Accounting Fees and Services 27
     
PART IV  
Item 15. Exhibits and Financial Statement Schedules 28

 

 
 

 

EXPLANATORY NOTE

 

As used in this annual report, the terms “we,” “us,” “our,” and words of like import, and the “Company” refers to Quest Patent Research Corporation and its subsidiaries, unless the context indicates otherwise.

 

This annual report of Quest Patent Research Corporation covers periods after June 30, 2003. This report covers the fiscal years ended December 31, 2012, 2011, 2010, 2009, 2008, 2007, 2006, 2005, 2004, and 2003; in lieu of filing separate reports for each of those years. Included in this Form 10-K are our audited financial statements for the fiscal years ended December 31, 2012, 2011, 2010, 2009, and 2008; unaudited annual statements for the fiscal years ended December 31, 2007, 2006, 2005, 2004 and 2003 (per Rule 3-11 of Regulation S-X: Financial Statements of an Inactive Registrant); as well as quarterly financial information for interim periods in 2012 and 2011, none of which have been filed with the SEC. Because of the amount of time that has passed since our last periodic report was filed with the SEC, the information relating to our business and related matters is focused on our more recent periods. We do not intend to file the Quarterly Reports on Form 10-Q for any of the quarters ended June 30, 2003 through September 30, 2010.  We believe that the filing of this expanded annual report enables us to provide information to investors in a more efficient manner than separately filing each of the quarterly reports described above. This annual report should be read together and in connection with the other reports which have been or will be filed by us with the SEC, for a comprehensive description of our current financial condition and operating results. In the interest of complete and accurate disclosure, we have included current information in this annual report for all material events and developments that have taken place through the date of filing of this annual report with the SEC.

 

FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K contain “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially.

 

These risks and uncertainties, many of which are beyond our control, include, and are not limited to:

 

● Our ability to generate revenue from our intellectual property rights, including our ability to license our intellectual property rights and our ability to be successful in any litigation which we may commence in order to seek to monetize our intellectual property rights;
   
● Our ability to acquire intellectual property rights for innovative technologies for which there is a significant potential market;
   
● Our ability to recoup any investment which we may make to acquire or generate revenue from intellectual property rights;
   
● Our ability to identify new intellectual property and obtain rights to that property;
   
● The effect of legislation and court decisions on the ability to generate revenue from patent and other intellectual property rights;
   
● Our ability to obtain the funding that we require in order to develop our business;
   
● Our ability to reduce the cost of litigation through contingent fees with counsel or to obtain third-party financing to enable us to enforce our intellectual property rights through litigation or otherwise;
   
● The development of a market for our common stock; and
   
● Our ability to retain our key executive officers and identify, hire and retain additional key employees.

 

In addition, factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed in other documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Information regarding market and industry statistics contained in this Annual Report on Form 10-K is included based on information available to us that we believe is accurate. It is generally based on industry and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. We do not assume any obligation to update any forward-looking statement. As a result, investors should not place undue reliance on these forward-looking statements.

 

 
 

 

Item 1. Business

 

Overview

 

We are an intellectual property asset management company. Our principal operations include the development, acquisition, licensing and enforcement of intellectual property rights that are either owned or controlled by us or one of our wholly owned subsidiaries.  We currently own, control or manage five intellectual property portfolios, which principally consist of patent rights.  As part of our intellectual property asset management activities and in the ordinary course of our business, it has been necessary for us or the intellectual property owner who we represent to initiate, and it is likely to continue to be necessary to initiate, patent infringement lawsuits and engage in patent infringement litigation. We anticipate that our primary source of revenue will come from the grant of licenses to use our intellectual property, including licenses granted as part of the settlement of patent infringement lawsuits. We also generate revenue from management fees from managing intellectual property portfolios.

 

Intellectual property monetization includes the generation of revenue and proceeds from the licensing of patents, patented technologies and other intellectual property rights.  Patent litigation is often a necessary element of intellectual property monetization where a patent owner, or a representative of the patent owner, seeks to protect its patent rights against the unlicensed manufacture, sale, and use of the owner’s patent rights or products which incorporate the owner’s patent rights. In general, we seek to monetize the bundle of rights granted by the patents through structured licensing and when necessary enforcement of those rights through litigation.

 

We intend to develop our business by acquiring intellectual property rights, either in the form of ownership or an exclusive license to the underlying intellectual property. Our goal is to enter into agreements with inventors of innovative technologies for which there may be a significant market for products which use or incorporate the intellectual property. We seek to purchase all of, or interests in, intellectual property in exchange for cash, securities of our company, the formation or a joint venture or separate subsidiary in which the owner has an equity interest, and/or interests in the monetization of those assets. Our revenue from this aspect of our business can be generated through licensing and, when necessary, litigation efforts as well as intellectual property management fees. We engage in due diligence and a principled risk underwriting process to evaluate the merits and potential value of any acquisition, partnership or joint venture. We seek to structure the terms of our acquisitions, partnerships and joint ventures in a manner that will achieve the highest risk-adjusted returns possible.

 

We employ a due diligence process before completing the acquisition of an intellectual property interest. We begin with an investment thesis supporting the potential transaction and then proceed to test the thesis through an examination of the critical drivers of the value of the underlying intellectual property asset. Such an examination focuses on areas such as title and inventor issues, the quality of the drafting and prosecution of the intellectual property assets, legal risks inherent in licensing programs generally, the applicability of the invention to the relevant marketplace and other issues such as the effects of venue and other procedural issues. However, our financial position may affect our ability to conduct due diligence with respect to intellectual property rights.

 

It is frequently necessary to commence litigation in order to obtain a recovery for past infringement of, or to license the use of, our intellectual property rights. Intellectual property litigation is very expensive, with no certainty of any recovery. To the extent possible we seek to engage counsel on a contingent fee or partial contingent fee basis, which would significantly reduce our litigation cost, but which would reduce the value of the recovery to us. We do not have the resources for us to fund the cost of litigation. To the extent that we cannot fund litigation ourselves, we may enter into an agreement with a third party, which may be the patent owner or the former patent owner who transferred the patent rights to us, or an independent third party. In these cases, if a third party funds the cost of the litigation, that party would be entitled to participate in the recovery.

 

Our Organization

 

We were incorporated in Delaware on July 17, 1987 under the name Phase Out of America Inc. On September 24, 1997, we changed our name to Quest Products Corporation and, on June 6, 2007, we changed our name to Quest Patent Research Corporation. During 2003, 2004, 2005, 2006 and 2007 there were no significant operations. We have been engaged in the intellectual property monetization business since 2008. Our executive principal office is located at 411 Theodore Fremd Ave., Suite 206S, Rye, New York 10580-1411, telephone number is (888) 743-7577. Our website is www.qprc.com. Information contained on our website does not constitute a part of this annual report.

 

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Our Intellectual Property Portfolios

 

Mobile Data

 

The real-time mobile data portfolio relates to the automatic update of information delivered to a mobile device without the need for a manual refreshing. The portfolio is comprised of U.S. Patent No. 7,194,468 “Apparatus and Method for Supplying Information” and all related patents, patent applications, and all continuations, continuations-in-part, divisions, extensions, renewals, reissues and re-examinations relating to all inventions thereof (the “Mobile Data Portfolio”). We initially entered into an agreement with the patent owner, Worldlink Information Technology Systems Limited, whereby we received the exclusive license to license and enforce the Mobile Data Portfolio. Under the agreement we received a monthly management fee and a percentage of licensing revenues. Subsequently Worldlink transferred its remaining interest in the Mobile Data Portfolio to Allied Standard Limited. In October 2012, we entered into an agreement with Allied pursuant to which Allied transferred its entire right title and interest in the Mobile Data Portfolio to Quest Licensing Corporation, which was at the time, a wholly-owned subsidiary. Under the agreement Allied was entitled to receive a 50% interest in Quest Licensing. Quest Licensing’s only intellectual property is the Mobile Data Portfolio. Our agreement with Allied provides that we and Allied will each receive 50% of the net licensing revenues, as defined by the agreement. In June 2013, we entered into an agreement with The Betting Service Limited, an entity controlled by a former director of Worldlink. Pursuant to the agreement, we granted The Betting Service an interest in licensing proceeds from the Mobile Data Portfolio in return for The Betting Service’s assistance in developing certain Mobile Data Portfolio assets. In April 2014, we entered into a further agreement with Allied whereby Allied relinquished certain rights under the October 2012 agreement, including its entitlement to a 50% interest in Quest Licensing, in exchange for our commitment to fund a structured licensing program for the Mobile Data Portfolio.

 

Financial Data

 

The invention describes a universal financial data system which allows its holder to use the device to access one or more accounts stored in the memory of the device as a cash payment substitute as well as to keep track of financial and transaction records and data, such as transaction receipts, in a highly portable package, such as a cellular device (the “Financial Data Portfolio”). The inventive universal data system is capable of supporting multiple accounts of various types, including but not limited to credit card accounts, checking/debit accounts, and loyalty accounts. Our wholly-owned subsidiary, Wynn Technologies Inc., acquired US Patent No. 5,859,419, from the owner, Sol Wynn. In January 2001, we filed a reissue application for the patent, and the United States Patent and Trademark Office issued patent RE38,137. This reissued patent, which contains 35 separate claims, replaces the original patent, which had seven claims. In February 2011, we entered into a new agreement with Sol Li (formerly Sol Wynn), pursuant to which we issued to Mr. Li a 35% interest in Wynn Technologies and warrants to purchase up to 5,000,000 shares of our common stock at an exercise price of $0.001 per share. We also agreed that Mr. Li would receive 40% of the net licensing revenues generated by Wynn Technologies with respect to this patent, which is the only patent owned by Wynn Technologies.

 

Rich Media

 

The rich media portfolio is directed to methods, systems, and processes that permit typical Internet users to design rich-media production content (i.e., rich-media applications), such as websites. The portfolio consists of U.S. Patent No. 7,000,180, “Methods, Systems, and Processes for the Design and Creation of Rich Media Applications via the Internet” and all related patents, patent applications, corresponding foreign patents and foreign patent applications and foreign counterparts, and all continuations, continuations-in-part, divisions, extensions, renewals, reissues and re-examinations relating to all inventions thereof (the “Rich Media Portfolio”). In July 2008, we entered into a consulting and licensing program management agreement with Balthaser Online, Inc., the patent owner, pursuant to which we performed services related to the establishment and management of a licensing program to evaluate and analyze the relevant market and to obtain licenses for the Rich Media Portfolio in exchange for management fees as well as an irrevocable entitlement to a distribution of 15% of all proceeds generated by the Rich Media Portfolio for the remaining life of the portfolio regardless of whether those proceeds are derived from litigation, settlement, licensing or otherwise. Pursuant to this agreement, we received $150,000 as an advance payment for our services plus $7,500 per month, up to $250,000. Our 15% distribution right is subject to reduction to 7.5% in the event that we refuse or are unable to perform the services detailed in the agreement.

 

Online Marketing, Sweepstakes, Promotions & Rewards (VonKohorn Portfolio)

 

The portfolio consists of eleven United States Patents that include patent claims related to, among other areas, online couponing, print-at-home boarding passes and tickets, online sweepstakes; including the promotion by television networks of online sweepstakes (the “Von Kohorn Portfolio”). In December 2009, we entered into an agreement with Intertech Holdings, LLC pursuant to which our wholly-owned subsidiary, Quest NetTech Corporation, acquired by assignment all right, title, and interest in the Von Kohorn Portfolio. Under the agreement, we will receive 20% of adjusted gross recoveries, as defined. In August 2013, we and Intertech Holdings amended the December 2009 agreement to provide that Intertech Holdings will receive 33% of the adjusted gross recoveries and Quest NetTech will receive 67% of adjusted gross recoveries.

 

Flexible Packaging - Turtle PakTM

 

In March 2008, we entered into an agreement with Emerging Technologies Trust whereby our wholly-owned subsidiary, Quest Packaging Solutions Corporation, acquired the exclusive license to make, use, sell, offer for sale or sublicense the intellectual property of Emerging Technologies Trust (the “Turtle Pak™ Portfolio”). The Turtle Pak portfolio relates to a cost effective, high-protection packaging system recommended for fragile items weighing less than ten pounds. The intellectual property consists of two U.S. patents, U.S. Patent No. RE36,412 and U.S. Patent No.6,490,844, and the Turtle PakTM trademark. Turtle Pak™ brand packaging is suited for such uses as electrical and electronic components, medical, dental, and diagnostic equipment, instrumentation products, and control components. Turtle Pak™ brand packaging materials are 100% curbside recyclable.

 

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Other Activities

 

In August 2008, we were engaged by Juridica Investments Limited, a third-party litigation funding provider, to assist in identifying and vetting intellectual property claim investment opportunities. We introduced Juridica to Convolve, Inc., a patent holder involved in asserting its patent rights and desirous of obtaining capital. In consideration for our assistance, we received a fee of $350,000 in 2008.

 

Monetization Activities for our Intellectual Property Portfolios

 

Mobile Data

 

In March 2014, we engaged counsel on a partial contingency fee arrangement and secured funding from a third party to fund legal fees and litigation expenses in connection with a proposed patent infringement action relating to the Mobile Data Portfolio. Through December 31, 2013, we did not generate any revenues from the Mobile Data Portfolio.

 

Universal Financial Data System

 

In August 2010, we entered into a five-year consulting agreement with Alex W. Hart pursuant to which he agreed to serve as a special consultant to us on the development and commercialization of the Data System Patent. Pursuant to this agreement, we issued Mr. Hart an option to purchase 5,000,000 shares common stock at a price of $0.001 per share, through December 31, 2015. Through December 31, 2013, we did not generate any revenue from the Data System Patent.

 

Rich Media

 

In November 2008, Balthaser Online, the patent owner, brought an infringement action in the U.S. District for the Eastern District of Texas against Network Solutions LLC et al. This action was settled. Through December 31, 2012, we received a total of $400,000 under the agreement with Balthaser Online. We do not anticipate any further payments from the Network Solutions action.

 

Online Marketing, Sweepstakes, Promotions & Rewards

 

In September 2011, Quest NetTech brought a patent infringement action in the U.S. District Court for the Middle District of Florida against Valassis Communications, Inc. et al. There were several other defendants in this action, and they settled the action during 2012 and 2013. With respect to each defendant in the action, the parties entered into a mutually agreeable resolution of all claims.

 

In September and October 2013, Quest NetTech brought several patent infringement actions against various entities in the U.S. District for the Eastern District of Texas. These actions have been settled.

 

In July 2014, Quest NetTech brought several patent infringement suits against various entities in the U.S. District for the Eastern District of Texas. These cases are pending. The actions are brought on a partial contingency basis, and Quest NetTech is required to pay the out-of-pocket disbursements of counsel.

 

Through December 31, 2011, we generated revenues of approximately $250,000 from the Von Kohorn Portfolio, and for the year ended December 31, 2012, we generated license fees of approximately $217,500 from this portfolio. During 2014, we received $295,000.

 

In August 2010, Quest NetTech was named as a defendant in a declaratory judgment action filed by Delta Airlines, Inc. in the U.S. District for the District of Delaware. In September 2011, the parties entered into a mutually agreeable resolution of all claims in the action, which included the grant of a license to Delta. The license revenues are included in the revenues from the Von Kohorn Portfolio.

 

Flexible Packaging - Turtle PakTM

 

As the exclusive licensee and manager of the manufacture and sale of licensed product, we sell products to end users and we outsource the manufacture and assembly of the product components and coordinate order receipt, fulfillment and invoicing. Revenues from the TurtlePakTM product sales were approximately $209,000 through December 31, 2011 and approximately $43,000 for the year ended December 31, 2012. We continue to generate modest revenue from this product.

 

3
 

 

Competition

 

We encounter and expect to continue to encounter competition in the areas of intellectual property acquisitions for the sake of licensure from both private and publicly traded companies that engage in intellectual property monetization activities. Such competitors and potential competitors include companies seeking to acquire the same intellectual property assets and intellectual property rights that we may seek to acquire.  Entities such as Acacia Research Corporation, ITUS Corporation, Document Security Systems, Inc., Intellectual Ventures, Wi-LAN, Conversant IP, VirnetX Holding Corp., Marathon Patent Group, Inc., Network-1 Security Solutions, Round Rock Research LLC, IPvalue Management Inc., Vringo Inc., Pendrell Corporation and others derive all or a substantial portion of their revenue from patent monetization activities, and we expect more entities to enter the market. Most of our competitors have longer operating histories and significantly greater financial resources and personnel than we have.

 

We also compete with venture capital firms, strategic corporate buyers and various industry leaders for intellectual property and technology acquisitions and licensing opportunities.  Many of these competitors have more financial and human resources than our company. In seeking to obtain intellectual property assets or intellectual property rights, we seek to both demonstrate our understanding of the intellectual property that we are seeking to acquire or license and our ability to monetize their intellectual property rights. Our weak cash position may impair our ability to negotiate successfully with the intellectual property owners.

 

Other companies may develop competing technologies that offer better or less expensive alternatives to intellectual property rights that we may acquire and/or out-license.  Many potential competitors may have significantly greater resources than we do.  The development of technological advances or entirely different approaches could render certain of the technologies owned or controlled by our operating subsidiaries obsolete and/or uneconomical.

 

Intellectual Property Rights

 

We have five intellectual property portfolios: mobile data, financial data, rich media, Von Kohorn and Turtle Pak. The following table sets forth information concerning our patents and other intellectual property. Each patent or other intellectual property right listed in the table below that has been granted is publicly accessible on the Internet website of the U.S. Patent and Trademark Office at www.uspto.gov.

 

Segment  Type  Number  Title  File Date  Issue / Publication Date  Expiration
Financial
Data		  US Patent  RE38,137  Programmable Multiple Company Credit Card System  01/11/2001  06/10/2003  09/28/2015
Mobile
Data		  US Patent  7,194,468  Apparatus and Method for Supplying Information  02/09/2001  03/20/2007  02/09/2021
Mobile
Data		  US Application  12/617,373  Apparatus and Method for Supplying Information  11/12/2009  05/20/2010  N/A
Mobile
Data		  US Application  13/832,012  Apparatus and Method for Supplying Information  03/15/2013  09/05/2013  N/A
Von Kohorn  US Patent  5,128,752  System and method for generating and redeeming tokens  10/25/1990  07/07/1992  07/17/2009
Von Kohorn  US Patent  5,227,874  Method for measuring the effectiveness of stimuli on decisions of shoppers  10/15/1991  07/13/1993  07/13/2010
Von Kohorn  US Patent  5,249,044  Product information storage, display, and coupon dispensing system  07/11/1991  05/11/1993  07/07/2009
Von Kohorn  US Patent  5,283,734  System and method of communication with authenticated wagering participation  09/19/1991  02/01/1994  09/19/2011
Von Kohorn  US Patent  5,368,129  Retail facility with couponing  07/23/1992  11/29/1994  07/23/2012
Von Kohorn  US Patent  5,508,731  Generation of enlarged participatory broadcast audience  02/25/1993  04/16/1996  04/16/2013
Von Kohorn  US Patent  5,697,844  System and method for generating and redeeming tokens  10/25/1990  07/07/1992  07/17/2009
Von Kohorn  US Patent  5,713,795  System and method for generating and redeeming tokens  10/25/1990  07/07/1992  07/17/2009
Von Kohorn  US Patent  5,759,101  System and method for generating and redeeming tokens  10/25/1990  07/07/1992  07/17/2009
Von Kohorn  US Patent  5,916,024  System and method of playing games and rewarding successful players  12/08/1997  06/29/1999  03/10/2006
Von Kohorn  US Patent  6,443,840  Evaluation of responses of participatory broadcast audience with prediction of winning contestants; monitoring, checking and controlling of wagering, and automatic crediting and couponing  06/01/1998  09/03/2002  03/10/2006
Turtle Pak  US Patent  RE36,412  Article Packaging Kit, System, and Method  06/18/1996  11/30/1999  06/24/2013
Turtle Pak  US Patent  6,490,844  Film Wrap Packaging Apparatus and Method  06/21/2001  12/10/2002  07/10/2021
Turtle Pak  US Trademark  74709827  Turtle Pak - design plus words, letters, and/or numbers  08/01/1995  06/04/1996  N/A
Rich Media  Patent Proceeds Interest  7,000,180  Methods, Systems, And Processes For The Design And Creation Of Rich Media Applications Via The Internet  02/09/2001  02/14/2006  10/16/2023
Rich Media  US Application Proceeds Interest  13/314977  Methods, Systems, And Processes For The Design And Creation Of Rich Media Applications Via The Internet  12/08/2011  04/12/2012  N/A

 

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 Research and Development

 

Research and development expense are incurred by us in connection with the evaluation of patents and in the development of a marketing program. We did not incur research and development expenses during 2012 or 2011. Our research and development expenses, which related primarily to the marketing program, were $1,000 for 2010, $14,172 for 2009 and $24,747 for 2008.

 

Employees

 

As of October 31, 2014, we have no employees other than our two officers, only one of whom, Mr. Scahill, our chief executive officer and president, is full time. Our employees are not represented by a labor union, and we consider our employee relations to be good.

 

ITEM 1A. RISK FACTORS

 

An investment in our common stock involves a high degree of risk.  You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision, and you should only consider an investment in our common stock if you can afford to sustain the loss of your entire investment. If any of the following risks occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

Risks Relating to our Financial Conditions and Operations

 

We have a history of losses and are continuing to incur losses. During the period from 2008, when we changed our business to become an intellectual property management company, through 2012, we generated a cumulative loss of approximately $3,700,000 on cumulative revenues of approximately $1,463,000. Our total assets were approximately $24,000 at December 31, 2012. At December 31, 2012, we had a working capital deficiency of more than $3,500,000. We had negative working capital from our operations for both 2012 and 2011, and our continuing losses are generating an increase in our negative working capital. We used approximately $24,000 in our operations for the year ended 2012. We are continuing to generate losses and negative cash flows, and we cannot give assurance that we can or will ever operate profitably.

 

We require significant funding in order to develop our business. Our business requires substantial funding to evaluate and acquire intellectual property rights and to develop and implement programs to monetize our intellectual property rights. Our failure to develop and implement these programs could both jeopardize our relationships under our existing agreements and could inhibit our ability to generate new business, either through the acquisition of intellectual property rights or through exclusive management agreements. We cannot be profitable unless we are able to obtain the funding necessary to develop our business. We cannot assure you that we will be able to obtain necessary funding or to develop our business.

 

Because of our lack of funds, we may not be able to conduct adequate due diligence on any new intellectual property which we may seek to acquire. We currently have nominal current assets and are operating at a loss. In order to evaluate any intellectual property rights which we may seek to acquire, we need to conduct due diligence on the intellectual property and underlying technology. To the extent that we are unable to perform the necessary due diligence, we will not be able to value any asset which we acquire, which may impair our ability to generate revenue from the intellectual property rights. If any conditions occur, such as defects in the ownership of the intellectual property, infringement on intellectual property rights of others, the existence of better technology which does not require our intellectual property, or other conditions that affect the value of the patents or marketability of the underlying intellectual property rights, we may not be able to monetize the patents and we may be subject to liability to a third party who has rights in the intellectual property.

 

5
 

 

Any funding we obtain may result in significant dilution to our shareholders. Because of our financial position, our continuing losses and our negative working capital from operations, we do not expect that we will be able to obtain any debt financing for our operations. Our stock price has generally been trading at a price which is less than $0.01 per share for more than the past two years. As a result, it will be very difficult for us to raise funds in the equity markets. However, in the event that we are able to raise funds in the equity market, the sale of shares would result in significant dilution to the present shareholders, and even a modest equity investment could result in the issuance of a very significant number of shares.

 

We are dependent upon our chief executive officer. We are dependent upon Jon Scahill, our chief executive officer and president and sole full-time employee, for all aspects of our business including locating, evaluating and negotiating for intellectual property rights from the owners, managing our intellectual property portfolios, engaging in licensing activities and monetizing the rights through licensing and managing and monitoring any litigation with respect to our intellectual property as well as defending any actions by potential licensees seeking a declaratory judgment that they do not infringe. The loss of Mr. Scahill would materially impair our ability to conduct our business. Although we have an employment agreement with Mr. Scahill, the employment agreement does not insure that Mr. Scahill will remain with us.

 

 

Risks Relating to Monetizing our Intellectual Property Rights

 

We may not be able to monetize our intellectual property portfolios. Although our business plan is to generate revenue from our intellectual property portfolios, we have not been successful in generating any significant revenue from our portfolios and we have not generated any revenues from two of our intellectual property portfolios. We cannot assure you that we will be able to generate any significant revenue from our existing portfolios or that we will be able to acquire new intellectual property rights that will generate significant revenue.

 

If we are not successful in monetizing our portfolios, we may not be able to continue in business. Although we have ownership of some of our intellectual property, we also license the rights pursuant to agreements with the owners of the intellectual property. If we are not successful in generating revenue for those parties who have an interest in the results of our efforts, those parties may seek to renegotiate the terms of our agreements with them, which could both impair our ability to generate revenue from our intellectual property and make it more difficult for us to obtain rights to new intellectual property rights. If we continue to be unable to generate revenue from our existing intellectual property portfolios and any new portfolios we may acquire, we may be unable to continue in business.

  

Our inability to acquire intellectual property portfolios will impair our ability to generate revenue and develop our business. We do not have the personnel to develop patentable technology by ourselves. Thus, we need to depend on acquiring rights to intellectual property and intellectual property portfolios from third parties. In acquiring intellectual property rights, there are delays in (i) identifying the intellectual property which we may want to acquire, (ii) negotiating an agreement with the owner or holder of the intellectual property rights, and (iii) generating revenue from those intellectual property rights which we acquire. During these periods, we will continue to incur expenses with no assurance that we will generate revenue. We currently hold intellectual property portfolios from which we have not generated any revenue to date, and we cannot assure you that we will generate revenue from our existing intellectual property portfolios or any additional intellectual properties which we may acquire.

 

Because of our financial condition and our failure to have generated revenues from our existing portfolios, we may not be able to obtain intellectual property rights to the most advanced technologies. In order to generate meaningful revenues from intellectual property rights, we need to be able to identify, negotiate rights to and offer technologies for which there is a developing market. Because of our financial condition and our lack of the generation of any significant revenue from our existing intellectual property portfolios, we may have difficult in negotiating rights to technology for which there which will be a strong developing market, or, if we are able to negotiate agreements for such intellectual property, the terms of our purchase or license may not be favorable to us. Accordingly, we cannot assure you that we will be able to acquire intellectual property rights to the technology for which there is a strong market demand.

 

Potential acquisitions may present risks, and we may be unable to achieve the financial or other goals intended at the time of any potential acquisition. Our ability to grow depends, in large part, on our ability to acquire interests in intellectual property, including patented technologies, patent portfolios, or companies holding such patented technologies and patent portfolios. Accordingly, we intend to engage in acquisitions to expand our intellectual property portfolios and we intend to continue to explore such acquisitions. Such acquisitions are subject to numerous risks, including the following:

 

  ● our failure to have sufficient funding to enable us to make the acquisition;
     
  ● our failure to have sufficient personal to satisfy the seller that we have the personnel to monetize the assets we propose to acquire;

 

● dilution to our stockholders to the extent that we use equity in connection with any acquisition;
   
● our inability to enter into a definitive agreement with respect to any potential acquisition, or if we are able to enter into such agreement, our inability to consummate the potential acquisition;

 

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● difficulty integrating the operations, technology and personnel of the acquired entity;
   
●our inability to achieve the anticipated financial and other benefits of the specific acquisition;
   
● difficulty in maintaining controls, procedures and policies during the transition and monetization process;
   
● diversion of our management’s attention from other business concerns, especially considering that we have only one full-time employee/officer; and
   
● failure of our due diligence process to identify significant issues, including issues with respect to patented technologies and intellectual property portfolios, and other legal and financial contingencies.

 

If we are unable to manage these risks effectively as part of any acquisition, our business could be adversely affected.

 

Our acquisition of intellectual property rights may be time consuming, complex and costly, which could adversely affect our operating results. Acquisitions of patent or other intellectual property assets, which are and will be critical to the development of our business, are often time consuming, complex and costly to consummate. We may utilize many different transaction structures in our acquisitions and the terms of such acquisition agreements tend to be heavily negotiated. As a result, we expect to incur significant operating expenses and may be required to raise capital during the negotiations even if the acquisition is ultimately not consummated. Even if we are able to acquire particular intellectual property assets, there is no guarantee that we will generate sufficient revenue related to those intellectual property assets to offset the acquisition costs. We may also identify intellectual property assets that cost more than we are prepared to spend with our own capital resources. We may incur significant costs to organize and negotiate a structured acquisition that does not ultimately result in an acquisition of any intellectual property assets or, if consummated, proves to be unprofitable for us. These higher costs could adversely affect our operating results.

 

If we acquire technologies that are in the early stages of market development, we may be unable to monetize the rights we acquire. We may acquire patents, technologies and other intellectual property rights that are in the early stages of adoption in the commercial, industrial and consumer markets. Demand for some of these technologies will likely be untested and may be subject to fluctuation based upon the rate at which companies may adopt our intellectual property in their products and services. As a result, there can be no assurance as to whether technologies we acquire or develop will have value that we can monetize. It may also be necessary for us to develop additional intellectual property and file new patent applications as the underlying commercial market evolves, as a result of which we may incur substantial costs with no assurance that we will ever be able to monetize our intellectual property.

 

Our intellectual property monetization cycle is lengthy and costly, and our marketing, legal and sales efforts may be unsuccessful. We expect to incur significant marketing, legal and sales expenses prior to entering into monetization events that generate revenue for us.  We will also spend considerable resources educating potential licensees on the benefits of entering into an agreement with us that may include a non-exclusive license for future use of our intellectual property rights.  Thus, we may incur significant losses in any particular period before any associated revenue stream begins. If our efforts to convince potential licensees of the benefits of a settlement arrangement are unsuccessful, we may need to continue with the litigation process or other enforcement action to protect our intellectual property rights and to realize revenue from those rights.  We may also need to litigate to enforce the terms of existing agreements, protect our trade secrets, or determine the validity and scope of the proprietary rights of others. Enforcement proceedings are typically protracted and complex. The costs are typically substantial, and the outcomes are unpredictable. Enforcement actions will divert our managerial, technical, legal and financial resources from business operations.

 

We may not be successful in obtaining judgments in our favor. We have commenced litigation seeking to monetize our intellectual property portfolios and it may be necessary for us to commence ligation in the future. All litigation is uncertain, and we cannot assure you that any litigation will be decided in our favor or that, if damages are awarded or a license is negotiated, that we will generate any significant revenue from the litigation.

 

Our financial condition may cause both intellectual property rights owners and potential licensees to believe that we do not have the financial resources to commence and prosecute litigation for infringement. Because of our financial condition, both intellectual property rights owners and potential licensees may believe that we do not have the ability to commence and prosecute sustained and expensive litigation to protect our intellection rights with the effect that (i) intellectual property rights owners may be reluctant to grant us rights to their intellectual property and (ii) potential licensees may be less inclined to pay for license rights from us.

 

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Any patents which may be issued to us pursuant to patent applications which we filed or may file may fail to give us necessary protection. We cannot be certain that patents will be issued as a result of any pending or future patent applications, or that any of our patents, once issued, will provide us with adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we will be the first to make additional new inventions or to file patent applications covering those inventions. It is also possible that others may have or may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we may acquire, our continued rights will depend on meeting any obligations to the seller and we may be unable to do so. Our failure to obtain or maintain intellectual property rights for our inventions would lead to the loss of our investments in such activities, which would have a material adverse effect on us.

 

The provisions of Federal Declaratory Judgment Act may affect our ability to monetize our intellectual property. Under the Federal Declaratory Judgment Act, it is possible for a party who we consider to be infringing upon our intellectual property to commence an action against us seeking a declaratory judgment that such party is not infringing upon our intellectual property rights. In such a case, the plaintiff could choose the court in which to bring the action and we would be the defendant in the action. Common claims for declaratory judgment in patent cases are claims of non-infringement, patent invalidity and unenforceability. Although the commencement of an action requires a claim or controversy, a court may find a letter from us to the alleged infringer seeking a royalty for the use of our intellectual property rights to form the basis of a controversy. In such a case, the plaintiff, rather than we, would choose the court in which to bring the action and the timing of the action. In addition, when we commence an action as plaintiff, we may be able to enter into a contingent fee arrangement with counsel, it is possible that counsel may be less willing to accept such an arrangement if we are the defendant. Further, we would not have the opportunity of choosing against which party to bring the action. An adverse decision in a declaratory judgment action could significantly impair our ability to monetize the intellectual property rights which are the subject of the litigation. We have been a defendant in one declaratory judgment action, which resulted in a settlement. We cannot assure you that potential infringers will not be able to use the Declaratory Judgment Act to reduce our ability to monetize the patents that are the subject of the action.

 

A recent Supreme Court decision could significantly impair business method and software patents. In June 2014, the United States Supreme Court, in Alice v. CLS Bank, struck down patents covering a computer-implemented scheme for mitigating “settlement risk” by using a third party intermediary, holding the patent claims to be ineligible as being drawn to a patent-ineligible abstract idea. The courts have been dealing for many years over what business methods are patentable. We cannot predict the extent to which the decision in Alice as well as prior Supreme Court decisions dealing with patents, will be interpreted by courts. To the extent that the Supreme Court decision in Alice gives businesses reason to believe that business model and software patents are not enforceable, it may become more difficult for us to monetize patents which are held to be within the ambit of the patents before the Supreme Court in Alice and for us to obtain counsel willing to represent us on a contingency basis. As a result, the decision in Alice could materially impair our ability to obtain patent rights and monetize those which we do obtain.

 

Legislation, regulations or rules related to obtaining patents or enforcing patents could significantly increase our operating costs and decrease our revenue. We may apply for patents and may spend a significant amount of resources to enforce those patents. If legislation, regulations or rules are implemented either by Congress, the United States Patent and Trademark Office, or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our expenses and revenue. For example, new rules regarding the burden of proof in patent enforcement actions could significantly both increase the cost of our enforcement actions and make it more difficult to sign licenses without litigation, changes in standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions, and any rules requiring that the losing party pay legal fees of the prevailing party could also significantly increase the cost of our enforcement actions. United States patent laws were recently amended with the enactment of the Leahy-Smith America Invents Act, or the America Invents Act, which took effect on March 16, 2013. The America Invents Act includes a number of significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. The America Invents Act and its implementation increases the uncertainties and costs surrounding the enforcement of our patented technologies, which could have a material adverse effect on our business and financial condition. In addition, the U.S. Department of Justice has conducted reviews of the patent system to evaluate the impact of patent assertion entities on industries in which those patents relate. It is possible that the findings and recommendations of the Department of Justice could impact the ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

 

Proposed legislation may affect our ability to conduct our business. There are presently pending or proposed a number of laws which, if enacted, may affect the ability of companies such as us to generate revenue from our intellectual property rights. Typically, these proposed laws cover legal actions brought by companies which do not manufacture products or supply services but seek to collect licensing fees based on their intellectual property rights and, if they are not able to enter into a license, to commence litigation. Although a number of such bills have been proposed in Congress, we do not know which, if any, bills will be enacted into law or what the provisions will be and, therefore, we cannot predict the effect, if any, that such laws, if passed by Congress and signed by the president, would provide. However, we cannot assure you that legislation will not be enacted which would impair our ability to operate by making it more difficult for us to commence litigation against a potential licensee or infringer. To the extent that an alleged infringer believes that we will not prevail in litigation, it would be more difficult to negotiate a license agreement without litigation.

 

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The unpredictability of our revenues may harm our financial condition. Due to the nature of the licensing business and uncertainties regarding the amount and timing of the receipt of license and other fees from potential infringers, stemming primarily from uncertainties regarding the outcome of enforcement actions, rates of adoption of our patented technologies, the growth rates of potential licensees and certain other factors, our revenues, if any, may vary significantly from quarter to quarter, which could make our business difficult to manage, adversely affect our business and operating results, cause our quarterly results to fall below market expectations and adversely affect the market price of our common stock.

 

Our success depends in part upon our ability to retain the qualified legal counsel to represent us in patent enforcement litigation. The success of our licensing business may depend upon our ability to retain the qualified legal counsel to prosecute patent infringement litigation. As our patent enforcement actions increase, it will become more difficult to find the preferred choice for legal counsel to handle all of our cases because many of these firms may have a conflict of interest that prevents their representation of us or because they are not willing to represent us on a contingent or partial contingent fee basis.

 

Our reliance on representations, warranties and opinions of third parties may expose us to certain material liabilities. From time to time, we may rely upon the representations and warranties of third parties, including persons claiming ownership of intellectual property rights, and opinions of purported experts.  In certain instances, we may not have the opportunity to independently investigate and verify the facts upon which such representations, warranties and opinions are made. By relying on these representation, warranties and opinions, we may be exposed to liability in connection with the licensing and enforcement of intellectual property and intellectual property rights which could have a material adverse effect on our operating results and financial condition.

 

In connection with patent enforcement actions, counterclaims may be brought against us and a court may rule unfavorably in counterclaims which may expose us and our operating subsidiaries to certain material liabilities. In connection with patent enforcement actions, it is possible that a defendant may file counterclaims against us or a court may rule that we have violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions.  In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to the counterclaiming defendant, which could be material, and if we or our operating subsidiaries are required to pay such monetary sanctions, attorneys’ fees and/or expenses, such payment could materially harm our operating results, our financial position and our ability to continue in business.

 

Trial judges and juries may find it difficult to understand complex patent enforcement litigation, and as a result, we may need to appeal adverse decisions by lower courts in order to successfully enforce our patents. It is difficult to predict the outcome of patent enforcement litigation at the trial level. It is often difficult for juries and trial judges to understand complex, patented technologies, and, as a result, there is a higher rate of successful appeals in patent enforcement litigation than more standard business litigation. Regardless of whether we prevail in the trial court, appeals are expensive and time consuming, resulting in increased costs and delayed revenue, and attorneys may be less likely to represent us in an appeal on a contingency basis especially if we are seeking to appeal an adverse decision. Although we may diligently pursue enforcement litigation, we cannot predict the decisions made by juries and trial courts.

 

More patent applications are filed each year resulting in longer delays in getting patents issued by the United States Patent and Trademark Office. We hold a number of pending patents and may file or acquire rights to additional patent applications. We have identified a trend of increasing patent applications each year, which we believe is resulting in longer delays in obtaining approval of pending patent applications. The application delays could cause delays in recognizing revenue, if any, from these patents and could cause us to miss opportunities to license patents before other competing technologies are developed or introduced into the market.

 

U.S. Federal courts are becoming more crowded, and as a result, patent enforcement litigation is taking longer. Patent enforcement actions are almost exclusively prosecuted in federal district courts. Federal trial courts that hear patent enforcement actions also hear criminal and other civil cases. Criminal cases always take priority over patent enforcement actions. As a result, it is difficult to predict the length of time it will take to complete an enforcement action. Moreover, we believe there is a trend in increasing numbers of civil lawsuits and criminal proceedings, and, as a result, we believe that the risk of delays in patent enforcement actions will have a significant effect on our business in the future unless this trend changes.

 

Any reductions in the funding of the United States Patent and Trademark Office could have an adverse impact on the cost of processing pending patent applications and the value of those pending patent applications. Our primary assets are our patent portfolios, including pending patent applications before the United States Patent and Trademark Office. The value of our patent portfolios is dependent upon the issuance of patents in a timely manner, and any reductions in the funding of the United States Patent and Trademark Office could negatively impact the value of our assets. Further, reductions in funding from Congress could result in higher patent application filing and maintenance fees charged by the United States Patent and Trademark Office, causing an unexpected increase in our expenses.

 

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The rapid development of technology may impair our ability to monetize intellectual property that we own. In order for us to generate revenue from our intellectual property, we need to offer intellectual property that is used in the manufacture or development of products. Rapid technological developments have reduced the market for products using less advanced technology. To the extent that technology develops in a manner in which our intellectual property is not a necessary element or to the extent that others design around our intellectual property, our ability to license our intellectual property portfolios or successfully prosecute litigation will be impaired. We cannot assure you that we will have rights to intellectual property for most advanced technology or that there will be a market for products which require our technology.

 

The intellectual property management business is highly competitive. A large number of other companies seek to obtain rights to new intellectual property and to market existing intellectual property. Most of these companies have significantly both greater resources that we have and industry contacts which place them in a better position to generate new business. Further, our financial position, our lack of executive personnel and our inability to generate revenue from our portfolio can be used against us by our competitors. We cannot assure you that we will be successful in obtaining intellectual property rights to new developing technologies.

 

As intellectual property enforcement litigation becomes more prevalent, it may become more difficult for us to voluntarily license our intellectual property. We believe that the more prevalent intellectual property enforcement actions become, the more difficult it will be for us to voluntarily license our intellectual property rights. As a result, we may need to increase the number of our intellectual property enforcement actions to cause infringing companies to license the intellectual property or pay damages for lost royalties.

 

Weak global economic conditions may cause potential licensees to delay entering into licensing agreements, which could prolong our litigation and adversely affect our financial condition and operating results. Our business depends significantly on strong economic conditions that would encourage potential licensees to enter into license agreements for our intellectual property rights. The United States and world economies have recently experienced weak economic conditions. Uncertainty about global economic conditions poses a risk as businesses may postpone spending in response to tighter credit, negative financial news and declines in income or asset values. This response could have a material adverse effect on the willingness of parties infringing on our assets to enter into settlements or other revenue generating agreements voluntarily.

 

If we are unable to adequately protect our intellectual property, we may not be able to compete effectively. Our ability to compete depends in part upon the strength of the intellectual property and intellectual property rights that we own or may hereafter acquire in our technologies, brands and content and our ability to protect such intellectual property rights. We rely on a combination of patent and intellectual property laws and agreements to establish and protect our patent, intellectual property and other proprietary rights. The efforts we take to protect our patents, intellectual property and other proprietary rights may not be sufficient or effective at stopping unauthorized use of our patents, intellectual property and other proprietary rights. In addition, effective trademark, patent, copyright and trade secret protection may not be available or cost-effective in every country in which we have rights. There may be instances where we are not able to protect or utilize our patent and other intellectual property in a manner that maximizes competitive advantage. If we are unable to protect our patent assets and intellectual property and other proprietary rights from unauthorized use, the value of those assets may be reduced, which could negatively impact our business. Our inability to obtain appropriate protections for our intellectual property may also allow competitors to enter our markets and produce or sell the same or similar products as those covered by our intellectual property rights. In addition, protecting our intellectual property and intellectual property rights is expensive and diverts our critical and limited managerial resources. If any of the foregoing were to occur, or if we are otherwise unable to protect our intellectual property and proprietary rights, our business and financial results could be impaired. If it becomes necessary for us to commence legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive. In addition, our intellectual property rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings. We also rely on trade secrets and contract law to protect some of our intellectual property rights. We will enter into confidentiality and invention agreements with our employees and consultants. Nevertheless, these agreements may not be honored and they may not effectively protect our right to our un-patented trade secrets and know-how. Moreover, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.

 

Risks Concerning our Common Stock

 

There is a limited market for our common stock, which may make it difficult for you to sell your stock. Our common stock trades on the Pink OTC Markets, Inc. under the symbol “QPRC.” There is a limited trading market for our common stock and there are frequently days on which there is no trading in our common stock. As of December 12, 2014, the last reported sale price was less than $0.01, and, with few exceptions, the price per share has been less than $0.01 for more than the past two years. Accordingly, there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.

 

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Because our common stock is a penny stock, you may have difficulty selling our common stock in the secondary trading market. Our common stock fits the definition of a penny stock and therefore is subject to the rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny stocks.  The SEC rules may have the effect of reducing trading activity in our common stock making it more difficult for investors to purchase and sell their shares.  The SEC’s rules require a broker or dealer proposing to effect a transaction in a penny stock to deliver the customer a risk disclosure document that provides certain information prescribed by the SEC, including, but not limited to, the nature and level of risks in the penny stock market.  The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction.  In addition, the SEC’s rules also require a broker or dealer to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction before completion of the transaction.  The existence of the SEC’s rules may result in a lower trading volume of our common stock and lower trading prices. Further, some broker-dealers will not process transactions in penny stocks.

 

Our lack on internal controls over financial reporting may affect the market for and price of our common stock. Our disclosure controls and our internal controls over financial reporting are not effective. Since we became engaged in the intellectual property management business in 2008 we have not had the financial resources to develop or implement systems that would provide us with the necessary information on a timely basis so as to be able to implement financial controls. Our continued financial condition together with the fact that we have one full time employee makes it difficult for us to implement a system of internal controls over financial reporting, and we cannot assure you that we will be able to develop and implement the necessary controls. The absence of internal controls over financial reporting may inhibit investors from purchasing our shares and may make it more difficult for us to raise debt or equity financing.

 

Our lack of a full-time chief financial officer could affect our ability to develop financial controls, which could affect the market price for our common stock. We do not have a full-time chief financial officer. At present, our chief executive officer, who does not have an accounting background, is also acting as our chief financial officer. We do not anticipate that we will be able to hire a qualified chief financial officer until our financial condition has improved significantly. The lack of an experienced chief financial officer, together with our lack of internal controls, may impair our ability to raise money through a debt or equity financing, the market for our common stock and our ability to enter into agreements with owners of intellectual property rights.

 

Our stock price may be volatile and your investment in our common stock could suffer a decline in value. As of December 12, 2014, there has only been limited trading activity in our common stock.  There can be no assurance that any significant market will ever develop in our common stock in the future.  The price may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include, but are not limited to, the following, in addition to general market and economic conditions:

 

● our low stock price, which may result in a modest dollar purchase or sale of our common stock having a disproportionately large effect on the stock price;
   
● the market’s perception as to our ability to generate positive cash flow or earnings from our intellectual property portfolios;
   
● changes in our or securities analysts’ estimate of our financial performance;
   
● our ability or perceived ability to obtain necessary funding for operations;
   
● the market’s perception of the effects of legislation or court decisions on our business;
   
● the anticipated or actual results of our operations;
   
● the results or anticipated results of litigation by or against us;
   
● changes in market valuations of other intellectual property marketing companies;
   
● any discrepancy between anticipated or projected results and actual results of our operations;
   
● the market’s perception or our ability to continue to make our filings with the SEC in a timely manner;
   
● events or conditions relating to the enforcement of intellectual property rights;
   
● actions by third parties to either sell or purchase stock in quantities which would have a significant effect on our stock price; and
   
● other matters not within our control.

 

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Legislation, court decisions and other factors affecting enforcement of intellectual property rights may affect the price of our stock. Court rulings in intellectual property enforcement actions and new legislation or proposed legislation are often difficult to understand, even when favorable or neutral to the value of our intellectual property rights and our overall business. Investors and market analysts may react without a full understanding of these matters, causing fluctuations in our stock prices that may not accurately reflect the impact of court rulings, legislation, proposed legislation or other developments on our business operations and assets.

 

Raising funds by issuing equity or debt securities could dilute the value of the common stock and impose restrictions on our working capital. If we were to raise additional capital by issuing equity securities, the value of the then outstanding common stock could decline. If the additional equity securities were issued at a per share price less than the per share value of the outstanding shares, which is customary in the private placement of equity securities, the holders of the outstanding shares would suffer a dilution in value with the issuance of such additional shares. Because of the low price of our stock and our working capital deficiency, the dilution to our stockholders could be significant. We may have difficulty in raising funds through the sale of debt securities because of both our financial position, the lack of any collateral on which a lender may place a value, and the absence of any history of significant monetizing of our intellectual property rights. If we are able to raise funds from the sale of debt securities, the lenders may impose restrictions on our operations and may impair our working capital as we service any such debt obligations.

 

Our failure to have filed reports with the SEC may impair the market for and the value of our common stock. We did not file reports with the SEC since 2003. Our failure to have made such filings may affect both the market for our common stock and the value of our common stock as well as the willingness of investors to purchase our stock.

 

We do not intend to pay any cash dividends in the foreseeable future. We have not paid any cash dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future.

 

ITEM 2. PROPERTIES

 

We do not own or lease any real property.

 

ITEM 3. LEGAL PROCEEDINGS

 

In the ordinary course of our business, we actively pursue legal remedies to enforce our intellectual property rights and to stop unauthorized use of our technology as described under “Item 1. Business.” We are not a defendant in any legal proceeding.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not Applicable

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

Our common stock is quoted on the Pink OTC Markets, Inc. OTC Market under the trading symbol QPRC. Because we are quoted on the Pink OTC Markets, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange or another over the counter market.

 

The following table sets forth the high and low bid quotations of our common stock as reported as composite transactions on the Pink OTC Markets for each of the quarters during the three most recent fiscal years. The bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

   High Bid   Low Bid 
Fiscal 2013          
           
First Quarter  $0.0025   $0.001 
Second Quarter  $0.0023   $0.0009 
Third Quarter  $0.0097   $0.0011 
Fourth Quarter  $0.0035   $0.001 
           
Fiscal 2012          
           
First Quarter  $0.003   $0.001 
Second Quarter  $0.002   $0.001 
Third Quarter  $0.002   $0.001 
Fourth Quarter  $0.002   $0.001 
           
Fiscal 2011          
           
First Quarter  $0.004   $0.002 
Second Quarter  $0.003   $0.001 
Third Quarter  $0.002   $0.001 
Fourth Quarter  $0.003   $0.002 

 

As of December 12, 2014, the closing bid quote for our common stock was $0.0016 per share.

 

Stockholders of Record

 

As of November 30, 2014, we had 456 record holders of our common stock. Continental Stock Transfer & Trust Company, 17 Battery Place, New York, NY 10004 is the transfer agent for our common stock.

 

Dividends

 

We have not paid any cash dividends to date and do not anticipate or contemplate paying dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development of our business.

 

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Securities Authorized for Issuance under Equity Compensation Agreements

 

The following table gives information concerning common stock that may be issued upon the exercise of options granted to certain officers, directors and consultants under their respective individual compensation agreements with us as of December 31, 2012.

 

Equity Compensation Agreements Information
Plan category  Number of
securities to be issued
upon exercise
of outstanding
options,
warrants and
rights
(#)		   Weighted-
average
exercise
price of
outstanding
options,
warrants and
rights
($)		   Number of
securities
remaining
available
for future
issuance
under equity
compensation
plans
(excluding
securities
reflected
in column
(a) (#)		 
As of December 31, 2012            
Equity compensation plans approved by security holders   -   $-    - 
Equity compensation plans not approved by security holders   70,000,000   $0.0035    - 
Total   70,000,000   $0.0035    - 
                
As of December 31, 2011               
Equity compensation plans approved by security holders   -   $-    - 
Equity compensation plans not approved by security holders   75,000,000   $0.0039    - 
Total   75,000,000   $0.0039    - 
                
As of December 31, 2010               
Equity compensation plans approved by security holders   -   $-    - 
Equity compensation plans not approved by security holders   40,000,000   $0.0036    - 
Total   40,000,000   $0.0036    - 
                
As of December 31, 2009               
Equity compensation plans approved by security holders   -   $-    - 
Equity compensation plans not approved by security holders   30,000,000   $0.0049    - 
Total   30,000,000   $0.0049    - 
                
As of December 31, 2008               
Equity compensation plans approved by security holders   -   $-    - 
Equity compensation plans not approved by security holders   25,000,000   $0.004    - 
Total   25,000,000   $0.004    - 

 

The following is a summary of the grants of during the years from 2008 through 2012:

 

All of the equity compensation plans are agreements with officers and directors and other persons with which we conduct business.

 

During the year ended December 31, 2008, we issued warrants to purchase 25,000,000 shares of common stock as share-based compensation pursuant to executive employment agreements.  Warrants to purchase 15,000,000 shares were issued to Mr. Scahill and warrants to purchase 5,000,000 shares were issued to each of Herbert Reichlin, our then chief executive officer, chief financial officer and a director, and Burton Goldstein, our then chairman, under their respective executive employment agreements. The employment of Mr. Reichlin and Mr. Goldstein was terminated in 2014.

 

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In March 2010, we granted to Donald DiRenzo, who was then a director, a non-qualified stock option to purchase 5,000,000 share of common stock at $0.0025. This option expired on March 9, 2013.

 

In August 2010, we entered into a five-year consulting agreement relating to the Data System Patent. Pursuant to this agreement, we issued Mr. Alex W. Hart an option to purchase 5,000,000 shares common stock at a price of $0.001 per share, through December 31, 2015.

 

During, 2011, we issued four-year warrants to purchase 30,000,000 shares of common stock at $0.004 per share, to Mr. Jon Scahill, our president, chief operating officer and director, pursuant to his executive employment agreement. In February 2011, we issued warrants to purchase 5,000,000 shares of common stock at $0.001 per share to Mr. Sol Li in connection with the February 8, 2011 agreement relating to the Financial Data Portfolio.

 

No warrants or options were exercised in fiscal years 2008 through 2012.

 

Recent sales of unregistered securities.

 

During the reporting period, the only issuances of equity securities were issuances of options or warrants pursuant to employment agreements with officers, a consulting agreement with Alex W. Hart and an agreement relating to patent rights to Sol Li. All issuances were made pursuant to Section 4(2) (now, Section 4(a)(2)) of the Securities Act as issuances not involving a public offering. All of these issuances are described under “Securities Authorized for Issuance under Equity Compensation Agreements.”

 

ITEM 6. SELECTED FINANCIAL DATA

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors” and elsewhere in this report.

 

Overview

 

During 2003, 2004, 2005, 2006 and 2007 we did not have any significant operations. We have been engaged in the intellectual property monetization business since 2008. Our principal operations include the development, acquisition, licensing and enforcement of intellectual property rights that are either owned or controlled by us or one of our wholly owned subsidiaries.  We currently own, control or manage five intellectual property portfolios, which principally consist of patent rights.  As part of our intellectual property asset management activities and in the ordinary course of our business, it has been necessary for either us or the intellectual property owner who we represent to initiate, and it is likely to continue to be necessary to initiate patent infringement lawsuits and engage in patent infringement litigation. We anticipate that our primary source of revenue will come from the grant of licenses to use our intellectual property, including licenses granted as part of the settlement of patent infringement lawsuits. We also generate revenue from management fees for managing intellectual property portfolios.

 

We seek to generate revenue from two sources. Our primary source of revenue is license fees pursuant to license agreements, which may be negotiated with the licensee or may be the result of the settlement of legal action commenced by us to enforce our intellectual property rights. Because of the nature of our business transactions to date, our license revenues are not distributed over the life of the patent, with the result that we do not have a continuing stream of revenue from our licensees. Our revenue typically reflects one-time license fees and payments in settlement of litigation. Thus, we would recognize revenue when we receive the license fee or settlement payment. Although we intend to seek to develop portfolios of intellectual property rights that provide us for a continuing stream of revenue, to date we have not been successful in doing so, and we cannot give you any assurance that we will be able to generate any significant revenue from licenses that provide a continuing stream of revenue. Thus, to the extent that we continue to generate cash from single payment licenses, our revenue can, and is likely to, vary significantly from quarter to quarter and year to year. Our gross profit from license fees reflects any royalties which we pay in connection with our license. Through December 31, 2012, we did not generate any revenues from our Mobile Data Portfolio or our Data Systems Portfolio. All revenue from our Rich Media Portfolio was generated prior to 2012, and we did not generate any revenue from this portfolio during 2012. We did not generate any revenue from these portfolios in 2013.

 

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To a lesser extent, we generate revenue from sale of packaging materials based on our TurtlePakTM technology. Our gross profit from sales reflects the cost of contract manufacturing and labor. We did not generate any revenue from the TurtlePakTM Portfolio other than from the sale of products using our technology.

 

Liquidity and Capital Resources

 

At December 31, 2012, we had current assets of approximately $24,000, current liabilities of approximately $3,500,000, and a working capital deficiency of approximately $3,500,000.  We have no credit facilities.  Other than salary under the three officers’ employment agreements, we do not contemplate any other material operations in the near future. Our liabilities consist of accrued compensation to officers of approximately $3,100,000, loans from officers and stockholders of approximately $220,000 and accrued interest due to officers and shareholders of approximately $252,000. The accrued liabilities to our present and former officers and directors reflected on our balance sheet at December 31, 2012, have been cancelled during 2014.

 

Our only source of financing, which we will continue to rely on, is borrowing from officers and shareholders.   We believe that, because of our financial condition, our history of losses and negative cash flow from operations, our low stock price and the absence of SEC disclosure relating to us since 2003 make it difficult for us to raise funds in the debt or equity markets.

 

Results of Operations

 

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

 

Revenues for the year ended December 31, 2012 were approximately $261,000, a decrease of $63,000, or 20%, compared to the year ended December 31, 2011, which were approximately 324,000.  Gross profit for 2012 was approximately $183,000, a decrease of $10,000, or 5%, compared to 2011.  The decrease in both revenues and gross profit reflected a decrease in patent service fees resulting from the timing of revenue from licenses which we have entered into with respect to our intellectual property.

 

Operating expenses for the 2012 decreased by approximately $49,000, or 6%, from approximately $849,000 in 2011 to approximately $800,000 in 2012.  Our principal operating expense for 2012 and 2011 was executive compensation, which was approximately $750,000 for 2012 and approximately $801,000 for $2011. Executive compensation included $51,000 of stock-based compensation in 2012.  We did not incur stock-based compensation in 2012.

 

As a result of the foregoing, we had a net loss of approximately $642,000, or $0.003 per share (basic and diluted) for 2012 compared to net loss of approximately $681,000, or $0.003 per share (basic and diluted), for 2011.

 

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

 

Revenues for the year ended December 31, 2011 were approximately $324,000, an increase of $181,000, or 126%, compared to the year ended December 31, 2010, which was approximately $143,000.   Gross profit for 2011 was approximately $194,000, an increase of $70,000, or 57% compared to 2010.  The increase in both revenues and gross profit was due to an increase in patent service fees from our Von Kohorn Portfolio, and in 2010, we did not have any royalties payable with respect to our licensing revenues.

 

Operating expenses for 2011 increased by approximately $60,000, or 8%, compared to 2010.   Our principal operating expense for 2011 and 2010 was executive compensation, which was approximately $801,000 for 2011 and approximately $ 762,000 for 2010. Executive compensation includes stock-based compensation of $51,000 in 2011 and $12,500 in 2010. In 2010, we incurred a gain of $165,806 resulting from the cancellation of certain payables in 2010. We did not have any comparable expense during 2011.

 

As a result of the foregoing, we sustained a net loss of approximately $682,000, or $0.003 per share (basic and diluted), for 2011, compared to net loss of approximately $524,000, or $0.002 per share (basic and diluted), for 2010.

 

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

 

Revenues for the year ended December 31, 2010 were approximately $143,000, an increase of approximately $6,000, or 4%, compared to the year ended December 31, 2009, which was approximately $137,000.  Gross profit for 2010 was approximately $124,000, an increase of $31,000, or 33%, compared to 2009.  The increase in both revenues and gross profit was due to an increase in sales of our TurtlePakTM packaging products. Our gross profit also reflected a decrease in cost of sales of approximately $3,000 and a decrease in royalty expense of $21,000, since we had no royalty expenses in 2010.

 

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Operating expenses for 2010 decreased by approximately $187,000, or 19%, compared to, 2009.  The selling, general and administrative expenses for 2010 decreased by approximately $174,000, or 18%, compared to 2009.  Our principal operating expense for 2010 and 2000 was executive compensation, which was approximately $762,000 for 2010 and approximately $792,000 for 2009. Executive compensation included stock-based compensation of $12,500 in 2010 and 42,500 in 2009. Additionally, in 2009, we incurred rent expenses of approximately $77,000, and we did not incur any rent expenses in 2010. In addition, our insurance expense of approximately $17,000 and our sales and marketing expense of approximately $33,000 in 2009 were greater than in 2010. In 2010, we incurred a gain of $165,806 related to the cancellation of certain payables.

 

As a result of the foregoing, we sustained a net loss of approximately $524,000, or $0.002 per share (basic and diluted), for 2010, compared to net loss of approximately $902,000, or $0.004 per share (basic and diluted), for 2009.

 

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

 

Revenues for the year ended December 31, 2009 were approximately $137,000, a decrease of approximately $461,000, or 77%, compared to the year ended December 31, 2008, which were approximately $598,000.  Gross profit for 2009 was approximately $93,000, a decrease of approximately $458,000 or 83% compared to 2008. The decrease in both revenues and gross profit was due to a decrease in patent service fees of approximately $447,000 and a decrease in packaging sales of approximately $13,000. The revenue in 2008 largely reflected licensing program management fees under our agreement with the owner of the Rich Media Portfolio, pursuant to which we received an initial payment of $150,000 in 2008, with monthly payments of $7,500 for 33.3 months, commencing in August 2008, for a total of $250,000, which payments were recognized when due.

 

Operating expenses for 2009 decreased by approximately $334,000, or 25%, compared to 2008.  Our principal operating expense for 2009 and 2008 was executive compensation, which was approximately $792,500 for 2009 and approximately $1,000,000 for 2008. Executive compensation included stock-based compensation of $42,500 in 2009 and $375,000 in 2008. In addition, business development expenses for 2009 were approximately $14,000 compared to approximately $25,000 for 2008. The business development for the 2008 was associated with a marketing program that began in 2008 and concluded in 2009.

 

As a result of the foregoing, we sustained a net loss of approximately $902,000, or $0.004 per share (basic and diluted), for 2009, compared to net loss of $758,000, or $0.003 (basic and diluted), for 2008.

 

Three months ended March 31, 2012 and 2011

 

Revenues for the three months ended March 31, 2012 were approximately $97,000, an increase of approximately $61,000, or 169%, compared to the three months ended March 31, 2011, which were approximately $36,000. Gross profit for the three months ended March 31, 2012 was approximately $89,000, an increase of approximately $64,000, or 256%, compared to the three months ended March 31, 2011. The increase in both revenue and gross profit was primarily due to an increase in patent service fees of approximately $60,000. The gross profit for the three months ended March 31, 2012, reflects licensing revenues of $82,500 and no royalty expenses. As discussed below, in the quarter ended June 30, 2012, we did not generate any licensing revenues but incurred royalty expenses of approximately $33,000.

 

Operating expenses for the three months ended March 31, 2012 decreased by approximately $47,000, or 19%, compared to the three months ended March 31, 2011. Our principal operating expense for the three months ended March 31, 2012 and 2011 was executive compensation, which was approximately $188,000 for the three months ended March 31, 2012 and approximately $239,000 for the three months ended March 31, 2011. Executive compensation included stock-based compensation of $51,000 in the three months ended March 31, 2011. We did not incur any stock-based compensation expense for the comparable period of 2012.

 

As a result of the foregoing, we sustained a net loss of approximately $119,000, or $0.001 per share (basic and diluted), for the three months ended March 31, 2012, compared to net loss of $230,000, or $0.001 per share (basic and diluted), for the three months ended March 31, 2011.

 

Three and six months ended June 30, 2012 and 2011

 

Revenues for the three months ended June 30, 2012 were approximately $6,000, a decrease of approximately $22,000, or 79%, from the comparable period of 2011, which were approximately $28,000. Revenues for the six months ended June 30, 2012 were $103,000, an increase of approximately $39,000, or 61%, from the comparable period of 2011, which was approximately $64,000. We incurred a negative gross profit of approximately $29,000 for the three months ended June 30, 2012 since we incurred royalty expenses of approximately $33,000 in the second quarter although we did not generate any licensing revenues during the quarter. Gross profit for the six months ended June 30, 2012 was approximately $60,000, which reflects the licensing revenues generated in the March quarter and the royalty expenses incurred in the June quarter. For the three and six months ended June 30, 2011, we generated a gross profit of approximately $21,000 and approximately $46,000, respectively. The changes in both revenue and gross profit were primarily due to the timing of both revenue from licenses entered into with respect to the underlying intellectual property and payment of the royalty costs associated with generating those revenues.

 

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Operating expenses for the three and six months ended June 30, 2012 increased by approximately $7,000, or 4%, and decreased by approximately $40,000, or 9%, respectively, compared to the three and six months ended June 30, 2011. Our principal operating expense for the three and six months ended June 30, 2012 and 2011 was executive compensation, which was approximately $188,000 and $375,000 for the three and six months ended June 30, 2012, respectively, and approximately $188,000 and $426,000 for the three and six months ended June 30, 2011, respectively. Executive compensation includes stock-based compensation of $51,000 in the first quarter of 2011. We did not incur stock-based compensation expense in 2012 or in the second quarter of 2011.

 

As a result of the foregoing, we sustained a net loss of approximately $236,000, or $0.001 per share (basic and diluted), for the three months ended June 30, 2012 and a net loss of approximately $355,000, or $0.002 per share (basic and diluted), for the six months ended June 30, 2012, compared to net loss of $179,000, or $0.001 per share (basic and diluted), for the three months ended June 30, 2011 and a net loss of approximately $409,000, or $0.002 per share (basic and diluted), for the six months ended June 30, 2011.

 

Three and nine months ended September 30, 2012 and 2011

 

Revenues for the three months ended September 30, 2012 were approximately $141,000, an increase of approximately $98,000, or 228% of revenues for the comparable period of 2011, which were approximately $43,000. Revenues for the nine months ended September 30, 2012 were approximately $244,000, an increase of approximately $137,000, or 128%, respectively, compared to the comparable period of 2011, which were approximately $107,000. Gross profit for the three and nine months ended September 30, 2012 were approximately $108,000 and $168,000, respectively, an increase of approximately $68,000, or 170%, and approximately $82,000, or 95%, respectively, compared to the three and nine months ended September 30, 2011, respectively.

 

Operating expenses for the three and nine months ended September 30, 2012 increased by approximately $2,000, or 0.01%, and decreased by approximately $38,000, or 6%, respectively, compared to the three and nine months ended September 30, 2011, respectively. Our principal operating expense for the three and nine months ended September 30, 2012 and 2011 was executive compensation, which was approximately $188,000 and $566,000 for the three and nine months ended September 30, 2012, respectively, and approximately $188,000 and $614,000 for the three and nine months ended September 30, 2011, respectively. Executive compensation includes stock-based compensation of $51,000 in the first quarter of 2011. We did not incur stock-based compensation expense in 2012 or in the second and third quarters of 2011.

 

As a result of the foregoing, we sustained a net loss of approximately $100,000, or $0.000 per share (basic and diluted), for the three months ended September 30, 2012 and a net loss of approximately $454,000, or $0.002 per share (basic and diluted), for the nine months ended September 30, 2012, compared to net loss of $166,000, or $0.001 per share (basic and diluted), and $574,000, or $0.003 per share (basic and diluted), for the three and nine months ended September 30, 2011, respectively.

 

Significant Accounting Policies

 

The discussion and analysis of our financial condition and results of operations is based upon our financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, the salability and recoverability of our products, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Going Concern

 

As shown in the accompanying consolidated financial statements, we have incurred recurring losses and have an accumulated deficit as of more than $13,000,000 as of December 31, 2012 and a negative working capital of more than $3,500,000 as of the same date.  Accrued compensation and obligations in the total amount of $4,170,313 to present and former officers and directors included in liabilities at December 31, 2012 have been cancelled by the officers and directors during 2014. For 2012, we generated minimal revenues in its operations and a negative cash flow from operations. We continue to be dependent on our ability to generate revenues, positive cash flows and additional financing. We cannot assure you that we will be successful in generating future revenues, in obtaining additional debt or equity financing or that such additional debt or equity financing will be available on terms acceptable to us, if at all. Our audit report for the year ended December 31, 2012, does not include a going concern qualification since we have continued in operation for more than twelve months from the date of the financial statements. Unless we take steps to remedy these conditions, these factors will raise substantial doubt about our ability to continue as a going concern, and our auditor’s report for years subsequent to 2012 may include a going concern qualification.

 

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Accounts Receivable

 

Accounts receivable, which generally relate to sales of our TurtlePakTM packaging materials, are recorded at the invoiced amount. Any allowance for doubtful accounts is our best estimate of the amount of probable losses to us from existing accounts receivable. No allowance for doubtful accounts was recorded for the years ended December 31, 2008 through 2012.

 

Intangible Assets

 

Intangible assets consist of patents which are amortized using the straight-line method over their estimated useful lives or statutory lives whichever is shorter and are reviewed for impairment upon any triggering event that may give rise to the assets ultimate recoverability as prescribed under the guidance related to impairment of long-lived assets.

 

Impairment of long-lived assets

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. During 2012, 2011, 2010, 2009, and 2008 there was no impairment of long-lived assets.

 

Revenue Recognition

 

Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable and, (iv) the collectability of amounts is reasonable assured.

 

License Service Fees

 

In general, revenue arrangements provide for the payment of contractually determined fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by us. The intellectual property rights granted may be perpetual in nature, extending until the expiration of the related patents, or can be granted for a defined, relatively short period of time, with the licensee possessing the right to renew the agreement at the end of each contractual term for an additional minimum upfront payment. Pursuant to the terms of these agreements, we have no further obligation with respect to the grant of the non-exclusive retroactive and future licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on our part to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the minimum upfront payment for term agreement renewals. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront fee for the term agreement renewals, and when all other revenue recognition criteria have been met.

 

Certain of our revenue arrangements provide for future royalties or additional required payments based on future licensee activities. Additional royalties are recognized in revenue upon resolution of the related contingency provided that all revenue recognition criteria, as described above, have been met. Amounts of additional royalties due under these license agreements, if any, cannot be reasonably estimated by management. Amounts related to revenue arrangements that do not meet the revenue recognition criteria described above are deferred until the revenue recognition criteria are met.

 

We assess the collectability of fees receivable based on a number of factors, including past transaction history and credit-worthiness of licensees. If it is determined that collection is not reasonably assured, the fee is recognized when collectability becomes reasonably assured, assuming all other revenue recognition criteria have been met, which is generally upon receipt of cash.

 

Sales

 

Our packaging operation customers are end users. Revenue, less reserves for returns, is recognized upon shipment to the customer.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements start on Page F-1

 

19
 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

 

We conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2012, the end of the period covered by this Annual Report on Form 10-K. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our chief executive officer and chief financial officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer concluded that, due to our limited internal audit function, our disclosure controls were not effective as of December 31, 2012, such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to the president and treasurer, as appropriate to allow timely decisions regarding disclosure.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2012, management identified material weaknesses related to (i) our internal audit functions and (ii) a lack of segregation of duties within accounting functions. Therefore, our internal controls over financial reporting were not effective as of December 31, 2012.

 

Management has determined that our internal audit function is significantly deficient due to insufficient segregation of duties within accounting functions.

 

Due to our size and nature, segregation of all conflicting duties is not possible. However, to the extent possible, we plan to implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals. Since we became engaged in the intellectual property management business in 2008 we have not had the financial resources to develop or implement systems that would provide us with the necessary information on a timely basis so as to be able to implement financial controls. Our financial condition makes it difficult for us to implement a system of internal controls over financial reporting.

 

We believe that the foregoing steps will remediate the significant deficiency identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate. Due to the nature of this material weaknesses in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could occur that would not be prevented or detected.

 

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 

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Changes in Internal Control over Financial Reporting.

 

During the period ended December 31, 2012, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

On December 1, 2014, our board of directors approved amended and restated bylaws. The following is a summary of the principal changes in the bylaws.

 

Old bylaws   Restated and amended bylaws
     
The number of directors is three unless otherwise determined by the directors   The number of directors shall be not less than one nor more than nine, as the board of directors shall determine
     
If a director is removed by the stockholders, the director’s replacement shall be elected at the same meeting at which the removal is effected.   If a director is removed by the stockholders, the director’s replacement shall be elected at the same meeting at which the removal is effected.  Otherwise, the board has the power to fill vacancies.
     
No salary shall be paid to directors for service as a director.   The board has the authority to provide for compensation for directors.
     
We can provide indemnification for reasonable expenses incurred in an action, suit or proceeding by reason of the fact that he was a director or officer.  The amount of indemnification shall be fixed by the board of directors except that if there is no disinterested majority of the board available, the amount shall be fixed pursuant to arbitration   With certain limited exceptions, we will indemnify our officers and directors with respect to actions, suits or proceedings not brought in our name and in our name. The indemnification includes both expenses and any amounts paid in judgment, fine and settlement.  The bylaws provide that indemnification, unless ordered by a court, shall be determined by  (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders (but only if a majority of the directors who are not parties to such action, suit or proceeding, if they constitute a quorum of the Board of Directors, presents the issue of entitlement to indemnification to the stockholders for their determination).
     
The bylaws can be amended by directors and stockholders; provided, that the directors cannot amend the by-laws to change the quorum or the filling of vacancies in the board resulting from the removal by stockholders.   The bylaws may be amended, altered or repealed by the vote of a majority of the board of directors; provided, however, that the holders of two-thirds of the outstanding stock of the Corporation entitled to vote in respect thereof, may, by their vote given at an annual meeting or at any special meeting, amend or repeal any Bylaw made by the Board of Directors; provided, however, that no such change to any Bylaw shall alter, modify, waive, abrogate or diminish the Corporation’s obligation to provide the indemnity called for by the bylaws, the certificate of incorporation or applicable law.
     
   

The bylaws provide a procedure action by stockholders can propose nominees for director or matters to be voted at a meeting of shareholders and sets for requirements for potential candidates for nomination as director.

 

The bylaws provide that we shall be entitled to bring a lawsuit against any stockholder that shall sue or otherwise commence an action against us for reimbursement of our litigation expenses in the event that such stockholder is not successful in proving a substantial portion of the material claims filed against us. In the event that we and the stockholder shall settle the litigation, the stockholder shall not be responsible for our litigation expenses.

 

In November 2014, we entered into indemnification agreements with our directors and officers.

 

21
 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table presents information with respect to our officers, directors:

 

Name   Age   Position(s)
Jon C. Scahill   38   Chief executive officer, president, acting chief financial officer, secretary and director
Timothy J. Scahill   47   Chief technology officer and director
Dr. William Ryall Carroll   39   Director

 

Each director serves until our next annual meeting of the stockholders or unless they resign earlier. The board of directors elects officers, who serve at the discretion of the board of directors.

 

Jon C. Scahill has been president and chief executive officer since January 2014 and a director since 2007.  He was appointed secretary in April 2014.  He also served as president and chief operating officer from May 2007 to December 2013. From December 2006 to May 2007, Mr. Scahill was founder and managing director of the Urban-Rigney Group, LLC, a private consultancy specializing in new business/new venture development, operations optimization, and strategic analysis. Prior to launching his consultancy business, Mr. Scahill held numerous positions in sales and marketing, technical management, and product development in the consumer products/flexible packaging arena. Mr. Scahill holds a B.S. in chemical engineering from the University of Rochester and a MBA in finance, strategy and operations from Rochester's Simon Graduate School of Business. In May 2014, Mr. Scahill received his JD from Pace Law School. Mr. Scahill is a registered patent agent admitted to practice before the United States Patent and Trademark Office.

 

Timothy J. Scahill has a director since October 2014 and our chief technology officer since 2007. Mr. Scahill is also currently a managing partner of Managed Services Team LLC, an IT services provider. Prior to Managed Services Team, he was president of Layer 8 Group, Inc. from August 2005 to December 2012, at which time Layer 8 merged with Structured Technologies Inc. to form Managed Services Team LLC. In his roles he has taken the responsibility for business strategy, acquisition, execution, as well as financial management. His entrepreneurial acumen and proven record of successful management with sole discretionary responsibility, demonstrate the scope of his capability and his value to delivering results. He serves on the boards of the Upstate New York Technology Council, is an investor in Greater Rochester Enterprise, Pariemus Rochester and also serves on the Corporate Advisory Board for Habitat for Humanity. He is a member of Greater Rochester Enterprise and CEO Roundtable Chair.

 

22
 

 

Dr. William Ryall Carroll has been a director since October 2014. Dr. Carroll has been associate professor and chairman of the marketing department, St. John’s University College of Business since July 2014. From September 2008 until June 2014, Dr. Carroll was an assistant professor in the marketing department of St. John’s University College of Business. Dr. Carroll is founder, chief executive officer and owner of Raiserve Inc., a web-based platform for monetizing non-profit programmatic work in the area of service formed in October 2014. Dr. Carroll’s research focuses on consumer behavior and behavioral decision theory. Dr. Carroll's work has been published in top academic journals including the Journal of Advertising, Marketing Letters, as well in books such as Psycholinguistic Phenomena in Marketing Communications. In addition to his research Dr. Carroll has taught Marketing at the executive, graduate and undergraduate level across in the United States, Europe and Asia. Prior to pursuing his academic career, Dr. Carroll held various marketing positions at NOP Worldwide Marketing Research Company and Ralston Purina Company. Dr. Carroll earned his BA in Economics from the University of Rochester, his MS in Marketing Research from the University of Texas in Arlington, and his PhD from City University of New York – Baruch College.

 

Timothy J. Scahill and Jon C. Scahill are first cousins.

 

Our directors are appointed for a one-year term to hold office until the next annual meeting of stockholders or until removed from office in accordance with our bylaws.

 

Director Independence

 

Dr. Carroll is an “independent” director based on the definition of independence in the listing standards of the NYSE.

 

Code of Ethics

 

We have not yet adopted a code of ethics that applies to our principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions, since we have been focusing our efforts on developing our business. We expect to adopt a code as we develop our business.

 

Committees of the Board of Directors

 

We do not have any committees of our board of directors.

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of the our common stock and other equity securities, on Form 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.

 

Based solely on our review of the copies of such reports received by us, and on written representations by our officers and directors regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that, with respect to the period ended December 31, 2012, our officers and directors, and all of the persons known to us to own more than 10% of our common stock, filed all required reports on a timely basis, except that Jon Scahill was late in filing his Form 3 and Form 4. Other individuals who were directors but are no longer directors either failed to file Form 3 or were late in filing.

 

23
 

ITEM 11: EXECUTIVE COMPENSATION

 

The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during the period through December 31, 2012, earned by or paid to our executive officers. The value attributable to any Option Awards and Stock Awards reflects the grant date fair values of stock awards calculated in accordance with FASB Accounting Standards Codification Topic 718; as described further in Note 4 – Warrants and Stock Options – Warrants, to our consolidated year-end financial statements, a discussion of the assumptions made in the valuation of these option awards and stock awards..

 

Name
and
Principal
Position		  Year   Salary   Bonus
Awards		   Stock
Awards		   Options/
Warrant Awards (1)		   Non-Equity
Plan
Compensation		   Nonqualified
Deferred
Earnings		   All
Other
Compensation		   Total 
       ($)   ($)   ($)   ($)   ($)   ($)   ($)   ($) 
Burton Goldstein,
Chairman and Secretary		   

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

    

200,000

200,000

200,000

200,000

166,666

150,000

150,000

150,000

150,000

150,000

    

-

-

-

-

-

-

-

-

-

-

    

-

-

-

-

-

-

-

-

-

-

    

-

-

-

-

75,000

-

-

-

-

-

    

-

-

-

-

-

-

-

-

-

-

    

-

-

-

-

-

-

-

-

-

-

    

-

-

-

-

-

-

-

-

-

-

    

200,000

200,000

200,000

200,000

241,666

150,000

150,000

150,000

150,000

150,000

 
Herbert Reichlin,
CEO, CFO, Treasurer		   

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

    

250,000

250,000

250,000

250,000

208,334

150,000

150,000

150,000

150,000

150,000

    

-

-

-

-

-

-

-

-

-

-

    

-

-

-

-

-

-

-

-

-

    

-

-

-

-

75,000

-

-

-

-

-

    

-

-

-

-

-

-

-

-

-

-

    

-

-

-

-

-

-

-

-

-

-

    

-

-

-

-

-

-

-

-

-

-

    

250,000

250,000

250,000

250,000

283,334

150,000

150,000

150,000

150,000

150,000

 
Jon Scahill,
COO and President		   

2012

2011

2010

2009

2008

    

300,000

300,000

300,000

300,000

250,000

    

-

-

-

-

-

    

-

-

-

-

-

    

-

51,000

-

-

225,000

    

-

-

-

-

-

    

-

-

-

-

-

    

-

-

-

-

-

    

300,000

351,000

300,000

300,000

475,000

 

 

Employment Agreements

 

On March 1, 2008, we entered into an employment agreement with Jon C. Scahill, pursuant to which we employed Mr. Scahill as our president and chief operating officer for a period of ten years, subject to renewal, for an annual salary of $300,000. Pursuant to the agreement, we issued Mr. Scahill ten-year warrants to purchase 15,000,000 shares common stock at an exercise price of $0.004 per share, which vested upon execution of the employment agreement, and agreed to issue to Mr. Scahill on the third anniversary of the date of execution of his employment agreement, seven-year warrants to purchase 30,000,000 shares of common stock at an exercise price of $0.004 per share, which we issued in 2011 and which vested on issuance, and we agreed to issue to Mr. Scahill on the fifth anniversary of the execution of his employment agreement, five-year warrants to purchase 15,000,000 shares of common stock at an exercise price of $0.004 per share, which we issued in 2013, and such warrants to vest on issuance.

 

On October 30, 2014, we entered into a restated employment agreement with Mr. Jon Scahill, which was superseded by a restated employment agreement dated as of November 30, 2014. Pursuant to the restated employment agreement, which we agreed to employ Mr. Scahill as president and chief executive officer for a term of three years, commencing January 1, 2014, and continuing on a year-to-year basis unless terminated by either party on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. The agreement provides for an annual salary of $252,000, which may be increased, but not decreased, by the board or the compensation committee. Mr. Scahill is entitled to a bonus if we meet or exceed performance criteria established by the compensation committee. Mr. Scahill is also eligible to participate in any executive incentive plans which we may adopt. Pursuant to the agreement, we issued to Mr. Scahill warrants to purchase 60,000,000 shares, representing the warrants that had been previously covered in his prior employment agreement but which had never been issued, and we issued to Mr. Scahill a restricted stock grant for 30,000,000 shares which vests on January 15, 2015 unless Mr. Scahill is not employed by us other than as a result of his death or disability. Mr. Scahill has the rights of a stockholder with respect to these shares, including the right to vote, subject to forfeiture in the event that the shares do not vest. In the event that we terminate Mr. Scahill’s employment other than for cause or as a result of his death or disability, we will pay him severance equal to his salary for the balance of the term and, if he received a bonus for the previous year, an amount equal to that bonus, as well as continuation of his insurance benefits. Mr. Scahill also waived accrued compensation of $1,167,705, representing his accrued salary for periods prior to January 1, 2014. The restated employment agreement also include mutual general releases between Mr. Scahill and us.

 

On March 1, 2008, we entered into an employment agreement with Burton Goldstein, pursuant to which we employed Mr. Goldstein as our chairman and secretary for a period of seven years, at an annual salary of $200,000. Pursuant to the employment agreement, we issued Mr. Goldstein seven-year warrants to purchase an aggregate of 5,000,000 shares of common stock at an exercise price of $0.004 per share. The warrants vested upon the date of the execution of the employment agreement. On October 10, 2014, we entered into a separation agreement and mutual general release with Mr. Goldstein whereby Mr. Goldstein forgave all loans, accrued interest, accrued salary and accrued benefits and released us from any claim to any compensation and benefits, accrued or otherwise, under any agreement or purported agreement, including the employment agreement dated March 1, 2008. Mr. Goldstein resigned as a director. We agreed that Mr. Goldstein would retain the warrants granted under the employment agreement dated March 1, 2008 and that we would pay Mr. Goldstein 3.25% of our net revenues, provided that our net revenues exceed $1,500,000, up to the aggregate amount of $250,000 with payments in any year not to exceed $125,000. The total accrued compensation and other obligations waived by Mr. Goldstein was $1,342,606.

 

24
 

 

On March 1, 2008, we entered into an employment agreement with Herbert Reichlin, pursuant to which we employed Mr. Reichlin as our chief executive officer, chief financial officer and treasurer for a period of ten years for an annual salary of $250,000. Pursuant to the employment agreement, we issued Mr. Reichlin ten-year warrants to purchase 5,000,000 shares of common stock at $0.004 per share. The warrants vested upon the date of the execution of the employment agreement. In June 2014 Mr. Reichlin’s employment with us was terminated. On October 10, 2014, we entered into a separation agreement and mutual general release with Mr. Reichlin whereby Mr. Reichlin forgave all loans, accrued interest, accrued salary, accrued benefits and released us from any claim to any compensation and benefits, accrued or otherwise, under any agreement or purported agreement, including the employment agreement dated March 1, 2008, at any time between Mr. Reichlin and us. Mr. Reichlin resigned as a director and agreed not seek re-election for a period of 36 months. We agreed that Mr. Reichlin would retain the warrants granted under the employment agreement dated March 1, 2008 and that we would pay Mr. Reichlin 3.25% of our net revenues, provided that our net revenues exceed $1,500,000, up to the aggregate amount of $700,000 with payments in any year not to exceed $300,000. The total accrued compensation and other obligations waived by Mr. Reichlin was $1,660,002.

 

Outstanding Equity Awards at Fiscal Year-End (December 31, 2012)

 

The following table sets forth information as to the outstanding equity awards granted to and held by the officers named in the Summary Compensation Table as of December 31, 2012.

 

Name  Option awards  Stock awards
   Number of securities underlying unexercised options
(#) exercisable		   Number of securities
underlying
unexercised
options
(#) unexercisable		   Equity
incentive
plan awards: Number of
securities
underlying
unexercised
unearned
options
(#)		   Option
exercise price
($)		   Option expiration
date		  Number of shares or units of stock that have not vested
(#)		   Market value of shares of units of stock that have not vested
($)		   Equity
incentive
plan awards: Number of
unearned
shares, units or other rights that have not vested
(#)		   Equity
incentive
plan awards: Market or payout value of
unearned
shares, units or other rights that have not vested
($)
                                   
Burton Goldstein   5,000,000(1)            0.004   March 1, 2015             
                                          
Herbert
Reichlin		   5,000,000(2)             0.004   March 1, 2018                  
                                          
Jon
Scahill		   15,000,000
30,000,000		(3)
(4)		        15,000,000(5)   0.004   March 1, 2018                  

 

 

(1)On March 1, 2008, we issued to Mr. Goldstein seven-year warrants to purchase 5,000,000 shares of common stock at $0.004 per share pursuant to his employment agreement. The warrants vested upon issuance.
(2)On March 1, 2008, we issued to Mr. Reichlin ten-year warrants to purchase 5,000,000 shares of common stock at $0.004 per share. The warrants vested on issuance.
(3)On March 1, 2008, we issued to Mr. Scahill ten-year warrants to purchase 15,000,000 shares of common stock at $0.004 per share. The warrants vested on issuance.
(4)On March 1, 2011, we issued to Mr. Scahill seven-year warrants to purchase 30,000,000 shares of common stock at $0.004 per share. The warrants vested on issuance.
(5)On March 1, 2013, we issued to Mr. Scahill five-year warrants to purchase 15,000,000 shares of common stock at $0.004 per share. The warrants vested on issuance.

 

25
 

 

The warrants described above with respect to Mr. Scahill had not been issued at the time of his restated employment agreement. Pursuant to that agreement, we issued Mr. Scahill a warrant to purchase 60,000,000 shares on October 30, 2014.

 

Directors’ Compensation

 

The following summary compensation table sets forth information concerning compensation in for services rendered in all capacities during the reporting periods, all of which were issued in 2010, earned by or paid to our directors who are not named in the Summary Compensation Table. The value attributable to any option awards reflects the grant date fair values of awards calculated in accordance with Accounting Standards Codification Topic 718.

 

Name  Fees earned or paid in cash
($)		   Stock awards
($)		   Option awards
($)		   Non-equity incentive plan
compensation
($)		   Nonqualified deferred
compensation earnings
($)		   All other compensation
($)		   Total
($)		 
Donald DiRenzo           12,500(1)               12,500 

 

(1)On March 9, 2010, we granted Mr. DiRenzo a non-qualified stock option to purchase 5,000,000 shares of common stock at $0.0025 per share. This option expired on March 9, 2013. Mr. DiRenzo is no longer a director.

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table provides information as to shares of common stock beneficially owned as of November 30, 2014, by:

 

●Each director;
●Each current officer named in the summary compensation table;
●Each person owning of record or known by us, based on information provided to us by the persons named below, at least 5% of our common stock; and
●All directors and officers as a group

 

For purposes of the following table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or sole or shared investment power with respect to a security, or any combination thereof, and the right to acquire such power (for example, through the exercise of warrants granted by us) within 60 days of November 30, 2014.

 

Name and Address(1) of Beneficial Owner  Amount and Nature of
Beneficial Ownership		   % of Class 
         
Jon C. Scahill (2)   91,000,000    28.2%
Herbert Reichlin (3)
19 Fortune Lane
Jericho, New York 11573		   16,316,000    6.1%
Burton Goldstein (4)
22 Herb Hill Rd.
Glen Cove, New York 11547		   14,283,333    5.3%
Dr. William Ryall Carroll   484,633    * 
Timothy J. Scahill   5,000    * 
All officers and directors as a group (three individuals)   91,489,633    28.3%

 

 

* less than 1%. 

(1)The address of Mr. Jon C. Scahill, Dr. Carroll and Mr. Timothy J. Scahill is c/o Quest Patent Research Corporation, 411 Theodore Fremd Ave., Suite 206S, Rye, New York 10580-1411.
(2)The shares beneficially owned by Mr. Jon Scahill represent (a) 1,000,000 shares of common stock owned by him, (b) 30,000,000 shares of common stock issued pursuant to the restricted stock grant pursuant to his restated employment agreement, and (c) 60,000,000 shares of common stock issuable upon exercise of a warrant at an exercise price of $0.004 per share through March 1, 2018. The 30,000,000 shares issued pursuant to the restricted stock grant vest on January 15, 2015 unless Mr. Scahill ceases to be employed by us other than as a result of his death of disability. Thus, Mr. Scahill has the sole right to vote and dispose of these shares, except that these shares cannot be transferred until the shares are vested and his voting and other rights to such shares are subject to forfeiture in the event that the shares do not vest.
(3)The shares beneficially owned by Mr. Reichlin include 5,000,000 shares issuable upon the exercise of warrants.
(4)The shares beneficially owned by Mr. Goldstein include 5,000,000 shares issuable upon the exercise of warrants.

 

26
 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related Transactions

 

Managed Services Team LLC, an entity for which by Timothy Scahill, our chief technology officer and a director, is a managing partner, provides information technology services to us.  We are obligated to pay for these services at usual and customary rates. In 2012, the cost of these services was approximately $1,500.

 

Director Independence

 

Dr. Carroll is an “independent” directors based on the definition of independence in the listing standards of the NYSE.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

For the periods ended December 31, 2012, 2011, 2010, 2009, and 2008, we engaged Malone Bailey, LLP, as our independent auditor. For the years ended December 31, 2012, 2011, 2010, 2009, and 2008, we incurred fees as discussed below, all of which were paid and accrued in 2012:

 

   Fiscal Year Ended 
   December 31,
2012		   December 31,
2011		 
         
Audit fees  $28,000    - 
Audit – related fees   -    - 
Tax fees   -    - 
All other fees   -    - 

 

Audit fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements. All other fees relate to professional services rendered in connection with the review of the quarterly financial statements.

 

Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our audit committee’s policy, pre-approval is generally provided for particular services or categories of services, including planned services, project based services and routine consultations. In addition, the audit committee may also pre-approve particular services on a case-by-case basis. Our audit committee approved all services that our independent accountants provided to us in the past two fiscal years.

 

27
 

 

PART IV

 

ITEM 15. EXHIBITS

 

EXHIBIT

 

Exhibit No.   Description
3.1   Amended and Restated Articles of Incorporation of the Company
3.2   Bylaws of the Company
10.1   Employment Agreement dated March 1, 2008 between the issuer and between the Company and Burton Goldstein
10.2   Separation Agreement and Mutual General Release dated October 10, 2014 between the  Company and Burton Goldstein
10.3   Employment Agreement dated March 1, 2008 between the issuer and between the Company and Herbert  Reichlin
10.4   Separation Agreement and Mutual General Release dated October 10, 2014 between the Company and Herbert Reichlin
10.5   Restated Employment Agreement dated as of November 30, 2014 between the issuer and between the Company and Jon C. Scahill
10.6   Restricted Stock Grant dated October 30, 2014 between the Company and Jon C. Scahill.
10.7   License Agreement dated March 26, 2008 between the Company and  Emerging Technologies Trust
10.8   Licensing Services Agreement dated July10, 2008 between the Company and Balthaser Online, Inc.
10.9   Patent Purchase Agreement dated December 21, 2009 between Company and Intertech Holdings, LLC
10.10   Consulting Agreement dated August 11, 2010 between the Company and Alex W. Hart
10.11   Agreement dated February 8, 2011 between the Company and Sol Li
10.12   Agreement dated June 26, 2013 between the Company and The Betting Service Ltd. and Neil Riches
10.13   Funding Agreement dated March 13, 2014 between the Company and Longford Capital  Fund I, LP (confidential treatment requested)#
10.14   Agreement dated April 1, 2014 between the Company and Allied Standard Limited
10.15   Form of warrant issued to Messrs. Goldstein and Reichlin
10.16   Form of warrant issued to Mr. Jon C. Scahill
10.17   Form of indemnification agreement
31.1   Certification of Chief Executive and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1   Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer
101.INS   XBRL Instance Document*
101.SCH   XBRL Taxonomy Schema Document*
101.CAL   XBRL Taxonomy Calculation Document*
101.DEF   XBRL Taxonomy Linkbase Document*
101.LAB   XBRL Taxonomy Label Linkbase Document*
101.PRE   XBRL Taxonomy Presentation Linkbase Document*

 

# Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted information has been filed separately with the SEC.

 

* In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

28
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date December 15, 2014

 

  QUEST PATENT RESEARCH CORPORATION
     
  By: /s/ Jon C. Scahill
    Name: Jon C. Scahill
    Title:   Chief Executive Officer and President

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes Jon C. Scahill as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to this report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission.

 

Signature   Title   Date
         
/s/ Jon C. Scahill   Director, chief executive officer, acting chief financial officer and president (principal executive, financial and accounting officer)   December 15, 2014
Jon C. Scahill      
         
/s/ Timothy J. Scahill   Director   December 15, 2014
Timothy J. Scahill        
         
/s/ Dr. William Ryall Carroll   Director   December 15, 2014
Dr. William Ryall Carroll        

 

29
 

 

QUEST PATENT RESEARCH CORPORATION

(FORMERLY QUEST PRODUCTS CORPORATION)

DECEMBER 31, 2012

 

Index to Financial Statements

 

    Page 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   F-2 
      
Consolidated Balance Sheets for the years ended December 31, 2012, 2011, 2010, 2009 and 2008   F-3 
      
Consolidated Statements of Operations for the years ended December 31, 2012, 2011, 2010, 2009 and 2008   F-4 
      
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2012, 2011, 2010, 2009 and 2008   F-5 
      
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011, 2010, 2009 and 2008   F-6 
      
Consolidated Balance Sheets (Unaudited) for the quarters ended March 31, 2011; June 30, 2011; September 30, 2011; March 31, 2012, June 30, 2012; and September 30, 2012   F-7 
      
Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2011 and 2012; the three months ended June 30, 2011 and 2012; the three months ended September 30, 2011 and 2012; the six months ended June 30, 2011 and 2012; and the nine months ended September 30, 2011 and 2012   F-8 
      
Consolidated Statement of Cash Flows (Unaudited) for the quarters ended March 31, 2012 and 2011; June 30, 2012 and 2011; September 30, 2012 and 2011   F-9 
      
Consolidated Balance Sheets (Unaudited) for the years ended December 31, 2007, 2006, 2005, 2004 and 2003   F-10 
      
Consolidated Statements of Operations (Unaudited) for the years ended December 31, 2007, 2006, 2005, 2004 and 2003   F-11 
      
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Unaudited) for the years ended December 31, 2007, 2006, 2005, 2004 and 2003   F-12 
      
Consolidated Statements of Cash Flows (Unaudited) for the years ended December 31, 2007, 2006, 2005, 2004 and 2003   F-13 
      
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   F-14 

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

Quest Patent Research Corporation

(Formerly Quest Products Corporation)

Jericho, New York

 

We have audited the accompanying consolidated balance sheets of Quest Patent Research Corporation (a Delaware Corporation) and its subsidiaries (collectively, the “Company”) as of December 31, 2012, 2011, 2010, 2009 and 2008, and the related consolidated statements of operations, shareholders’ deficit, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quest Patent Research Corporation, Inc. and its subsidiaries as of December 31, 2012, 2011, 2010, 2009 and 2008, and the results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ MaloneBailey, LLP

www.malonebailey.com

Houston, Texas

December 11, 2014

 

F-2
 

 

Quest Patent Research Corporation and Subsidiaries

(Formerly Quest Products Corporation)

Consolidated Balance Sheets

 

   As of December 31, 
   2012   2011   2010   2009   2008 
ASSETS                    
Current assets                    
Cash and cash equivalents  $18,579   $42,242   $11,857   $436   $145,790 
Accounts receivable   5,816    1,475    6,522    5,145    26,542 
Security deposit   -    -    -    -    16,000 
Total current assets   24,395    43,717    18,379    5,581    188,332 
                          
Total assets  $24,395   $43,717   $18,379   $5,851   $188,332 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                         
Current liabilities                         
Accounts payable  $-   $-   $-   $161,306   $161,306 
Accrued officers’ compensation   3,071,205    2,473,804    1,844,000    1,178,400    522,400 
10% Loans payable – Officers/Directors   79,490    79,490    79,490    79,490    79,490 
10% Loans payable – third party   138,000    138,000    138,000    138,000    138,000 
Accrued interest   239,581    217,832    196,083    174,334    152,585 
Security deposits payable   -    -    -    4,500    4,500 
Total current liabilities   3,528,276    2,909,126    2,257,573    1,736,030    1,058,281 
                          
Total liabilities   3,528,276    2,909,126    2,257,573    1,736,030    1,058,281 
Stockholders' Deficit                         
Preferred Stock – Par Value $.00003 – authorized 10,000,000 Shares – no shares issued and outstanding                         
Common stock, par value $.00003; authorized 390,000,000 shares; shares issued and outstanding 233,038,334, for the years ended 2012, 2011, 2010, 2009 and 2008, respectively   6,991    6,991    6,991    6,991    6,991 
Additional paid-in capital   9,551,279    9,551,279    9,500,279    9,487,779    9,445,279 
Accumulated deficit   (13,064,810)   (12,423,666)   (11,743,435)   (11,219,513)   (10,317,463)
Total Quest Patent Research Corporation deficit   (3,506,540)   (2,865,396)   (2,236,165)   (1,724,743)   (865,193)
                          
Non-controlling interest in subsidiaries   2,659    (13)   (3,029)   (5,706)   (4,756)
                          
Total stockholders’ deficit   (3,503,881)   (2,865,409)   (2,239,194)   (1,730,449)   (869,949)
                          
Total liabilities and stockholders’ deficit  $24,395   $43,717   $18,379   $5,581   $188,332 

 

See accompanying notes to consolidated financial statements

 

F-3
 

 

Quest Patent Research Corporation and Subsidiaries

(Formerly Quest Products Corporation)

Consolidated Statements of Operations

 

   For the years ended December 31, 
   2012   2011   2010   2009   2008 
Revenues                    
Sales  $43,475   $49,246   $53,249   $46,601   $60,287 
Patent service fees    217,500    275,072    90,000    90,000    537,456 
    260,975    324,318    143,249    136,601    597,743 
Cost of goods sold:                         
Cost of sales    15,975    22,178    19,703    23,024    26,171 
Royalties    61,564    108,621    -    21,000    21,000 
    77,539    130,799    19,703    44,024    47,171 
Gross profit (loss)   183,436    193,519    123,546    92,577    550,572 
                          
Operating expenses                         
Selling, general and administrative expenses   800,158    848,985    787,848    961,920    1,285,673 
Research and other expenses – business development   -    -    1,000    14,172    24,747 
                          
Total operating expenses   800,158    848,985    788,848    976,092    1,310,420 
                          
Loss from operations   (616,722)   (655,466)   (665,302)   (883,515)   (759,848)
                          
Other income (expense)                         
Interest income   -    -    -    84    779 
Other income                  2,180    - 
Other expenses                       (777)
Gain on write-off of accounts payable and accrued liabilities             165,806           
Gain on write-off of loans                       19,265 
Interest expense   (21,750)   (21,749)   (21,749)   (21,749)   (21,749)
    (21,750)   (21,749)   144,057    (19,485)   (2,482)
                          
Net income (loss)   (638,472)   (677,215)   (521,245)   (903,000)   (762,330)
Net loss attributable to non-controlling interest in subsidiaries   (2,672)   (3,016)   (2,677)   950    4,756 
Net Loss Attributable to Quest Patent Research Corporation  $(641,144)  $(680,231)  $(523,922)  $(902,050)  $(757,574)
                          
Earnings (loss) per share Basic and Diluted  $(0.003)  $(0.003)  $(0.002)  $(0.004)  $(0.003)
                          
Weighted average shares outstanding – Basic and Diluted   233,038,334    233,038,334    233,038,334    233,038,334    233,038,334 

 

See accompanying notes to consolidated financial statements

 

F-4
 

 

Quest Patent Research Corporation and Subsidiaries

(Formerly Quest Products Corporation)

Consolidated Statements of Changes in Stockholders' Deficit

 

   Common Stock   Additional
Paid-in		      

Non-controlling

Interest in

  

Total

Stockholders'

 
   Shares   Amount   Capital   Deficit   Subsidiaries   Deficit 
Balances as of December 31, 2007   233,038,334   $6,991   $6,303,166   $(9,559,889)  $-   $(3,249,732)
                               
Compensation expense relating to warrants/options   -    -    375,000    -    -    375,000 
                               
Write off of deferred salaries and expense to related parties   -    -    2,767,113    -    -    2,767,113 
                               
Net loss   -    -    -    (757,574)   (4,756)   (762,330)
                               
Balances as of December 31, 2008   233,038,334    6,991    9,445,279    (10,317,463)   (4,756)   (869,949)
                               
Compensation expense relating to warrants/options   -    -    42,500    -    -    42,500 
                               
Net loss   -    -    -    (902,050)   (950)   (903,000)
                               
Balances as of December 31, 2009   233,038,334    6,991    9,487,779    (11,219,513)   (5,706)   (1,730,449)
                               
Compensation expense relating to warrants/options   -    -    12,500    -    -    12,500 
                               
Net loss   -    -    -    (523,922)   2,677    (521,145)
                               
Balances as of December 31, 2010   233,038,334    6,991    9,500,279    (11,743,435)   (3,029)   (2,239,194)
                               
Compensation expense relating to warrants   -    -    51,000    -    -    51,000 
                               
Net loss   -    -    -    (680,231)   3,016    (677,215)
                               
Balances as of December 31, 2011   233,038,334    6,991    9,551,279    (12,423,666)   (13)   (2,865,409)
                               
Net loss   -    -    -    (641,144)   2,672    (638,472)
                               
Balances as of December 31, 2012   233,038,334   $6,991   $9,551,279   $(13,064,810)  $2,659   $(3,503,881)

 

See accompanying notes to consolidated financial statements

 

F-5
 

 

Quest Patent Research Corporation and Subsidiaries

(Formerly Quest Products Corporation)

Consolidated Statements of Cash Flows

 

   For the year ended December 31, 
   2012   2011   2010   2009   2008 
                     
Cash flows from operating activities:                    
Net loss  $(641,144)  $(680,231)  $(523,922)  $(902,050)  $(757,574)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                         
Earnings Attributable to Non-Controlling Interest   2,672    3,016    2,677    (950)   (4,756)
Share-based compensation        51,000    12,500    42,500    375,000 
Gain on write-off of investment                       777 
Gain on write-off of accounts payable and accrued liabilities   -    -    (165,806)   -    - 
Gain on Write-off of loans                       (19,265)
                          
Changes in operating assets and liabilities:                         
Accounts receivable   (4,341)   5,047    (1,377)   21,397    (26,542)
Accounts payable and accrued expenses   619,150    651,553    687,349    677,749    594,150 
Security deposit   -    -    -    16,000    (16,000)
                          
Net cash provided by (used) in operating activities   (23,663)   30,385    11,421    (145,354)   145,790 
                          
Net increase (decrease) in cash and cash equivalents   (23,663)   30,385    11,421    (145,354)   145,790 
                          
Cash and cash equivalents at beginning of year   42,242    11,857    436    145,790    - 
                          
Cash and cash equivalents at end of year  $18,579   $42,242   $11,857   $436   $145,790 
                          
Non Cash Financing Activities                         
Accrued salary capital contribution   -    -    -    -    2,767,113 

 

See accompanying notes to consolidated financial statements

 

F-6
 

 

Quest Patent Research Corporation and Subsidiaries
(Formerly Quest Products Corporation)
Consolidated Balance Sheets
(Unaudited)

 

  

September 30,
2012

  

June 30,
2012

  

March 31,
2012

  

September 30,
2011

  

June 30,
2011

  

March 31,
2011

 
ASSETS                        
Current assets                        
Cash and cash equivalents  $43,951   $-   $82,910   $10,006   $6,976   $11,177 
Total current assets   43,951    -    82,910    10,006    6,976    11,177 
                               
Total assets   43,951    -    82,910    10,006    6,976    11,177 
                               
LIABILITIES AND STOCKHOLDERS’ DEFICIT                     
Current liabilities                              
Bank Overdraft        2,812                     
Accrued officers’ compensation   2,910,351    2,762,671    2,625,660    2,340,500    2,178,500    2,010,000 
10% Loans payable - Officers/Directors   79,490    85,990    79,490    79,490    79,490    79,490 
10% Loans payable - Third parties   138,000    138,000    138,000    138,000    138,000    138,000 
Accrued interest   234,143    228,706    223,269    212,394    206,957    201,520 
Total current liabilities   3,361,984    3,218,979    3,066,419    2,770,384    2,602,947    2,429,010 
Total liabilities   3,361,984    3,218,979    3,066,419    2,770,384    2,602,947    2,429,010 
                               
Stockholders' Deficit                              
Preferred Stock – Par value $ .00003 – authorized 10,000,000 shares – no shares issued and outstanding                              
Common stock, par value $.00003; authorized 390,000,000 shares; shares issued and outstanding 233,038,334 as of September 30, June 30, and March 31 of 2012 and 2011 respectively   6,991    6,991    6,991    6,991    6,991    6,991 
Additional paid-in capital   9,551,279    9,551,279    9,551,279    9,551,279    9,551,279    9,551,279 
Accumulated deficit   (12,877,814)   (12,778,197)   (12,542,277)   (12,317,677)   (12,151,773)   (11,973,284)
Total Quest Patent Research Corporation deficit   (3,319,544)   (3,219,927)   (2,984,007)   (2,759,407)   (2,593,503)   (2,415,014)
                               
Non-controlling interest in subsidiaries   1,511    948    498    (971)   (2,468)   (2,819)
                               
Total stockholders’ deficit   (3,318,033)   (3,218,979)   (2,983,509)   (2,760,378)   (2,595,971)   (2,417,833)
                               
Total liabilities and stockholders’ deficit  $43,951   $-   $82,910   $10,006   $6,976   $11,177 

 

See accompanying notes to consolidated financial statements

 

F-7
 

 

Quest Patent Research Corporation and Subsidiaries
(Formerly Quest Products Corporation)
Consolidated Statements of Operations
(Unaudited)

 

  

For the three months ended
March 31

  

For the three months ended
June 30 

  

For the three months ended
September 30

  

For the six months ended
June 30

  

For the nine months ended
September 30

 
  

2012

  

2011

  

2012

  

2011

  

2012

  

2011

  

2012

  

2011

  

2012

  

2011

 
Revenues                                        
Sales   14,801    13,369    5,729    10,959    10,759    18,141    20,530   $24,328   $31,289   $42,469 
Patent service fees   82,500    22,500    -    17,475    130,000    25,000    82,500    39,975    212,500    64,975 
    97,301    35,869    5,729    28,434    140,759    43,141    103,030    64,303    243,789    107,444 
                                                   
Cost of goods sold:                                                  
Cost of sales   8,131    10,812    1,178    7,403    5,058    3,122    9,309    18,215    14,367    21,337 
Royalties   -    -    33,437    -    28,128    -    33,437    -    61,565    - 
    8,131    10,812    34,615    7,403    33,186    3,122    42,746    18,215    75,932    21,337 
Gross profit (loss)   89,170    25,057    (28,886)   21,031    107,573    40,019    60,284    46,088    167,857    86,107 
                                                   
Operating expenses                                                  
Selling, general and administrative expenses (including non-cash stock based compensation expense of $51,000 in 2011)   201,833    249,259    201,147    193,732    201,190    198,987    402,980    442,991    604,170    641,981 
                                                   
Total operating expenses   201,833    249,259    201,147    193,732    201,190    198,987    402,980    442,991    604,170    641,981 
                                                   
Loss from operations   (112,663)   (224,202)   (230,033)   (172,701)   (93,617)   (158,968)   (342,696)   (396,903)   (436,314)   (555,874)
                                                   
Other income (expense)                                                  
Interest expense   (5,437)   (5,437)   (5,437)   (5,437)   (5,437)   (5,437)   (10,874)   (10,874)   (16,311)   (16,311)
                                                   
Net income (loss)   (118,100)   (229,639)   (235,470)   (178,138)   (99,054)   (164,405)   (353,570)   (407,777)   (452,625)   (572,185)
                                                   
Net loss attributable to non-controlling interest in subsidiaries   (511)   (210)   (450)   (351)   (563)   (1,497)   (961)   (561)   (1,524)   (2,058)
Net Loss Attributable to Quest Patent Research Corporation   (118,611)   (229,849)   (235,920)   (178,489)   (99,617)   (165,902)   (354,531)  $(408,338)  $(454,149)  $(574,243)
                                                   
Earnings (loss) per share Basic and Diluted   (0.0005)   (0.0011)   (0.0010)   (0.0008)   (0.0004)   (0.0007)   (0.0015)  $(0.0018)  $(0.0020)  $(0.0026)
                                                   
Weighted average shares outstanding - Basic and Diluted   233,038,334    233,038,334    233,038,334    233,038,334    233,038,334    233,038,334    233,038,334    233,038,334    233,038,334    233,038,334 

 

See accompanying notes to consolidated financial statements

 

F-8
 

Quest Patent Research Corporation and Subsidiaries
(Formerly Quest Product Corporation)
Consolidated Statements of Cash Flows
(Unaudited)

 

   For the three months ended
March 31		   For the six months ended
June 30		  

For the nine months ended
September 30

 
   2012   2011   2012   2011   2012   2011 
                         
Cash flows from operating activities:                        
Net loss  $(118,611)  $(229,849)  $(354,531)  $(408,338)  $(454,149)  $(574,243)
Earnings attributable to non-controlling interest   511    210    961    561    1,524    2,058 
Share-based compensation   -    51,000    -    51,000    -    51,000 
                               
Changes in operating assets and liabilities:                              
Accounts receivable   1,475    6,522    1,475    6,522    1,475    6,522 
Accrued expenses   157,293    171,437    302,353    345,374    452,859    512,812 
                               
Net cash provided by (used) in operating activities   40,668    (680)   (49,742)   (4,881)   1,709    (1,851)
                               
Cash flows from financing activities:                              
Repayments on officer loans   -    -    -    -    (7,500)   - 
Proceeds from officer loans   -    -    7,500    -    7,500    - 
Net cash provided by in financing activities   -    -    7,500    -    -    - 
                               
Net increase (decrease) in cash and cash equivalents   40,668    (680)   (42,242)   (4,881)   1,709    (1,851)
                               
Cash and cash equivalents at beginning of period   42,242    11,857    42,242    11,857    42,242    11,857 
                               
Cash and cash equivalents at end of period  $82,910   $11,177   $-   $6,976   $43,951   $10,006 

 

See accompanying notes to consolidated financial statements

 

F-9
 

 

Quest Patent Research Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

 

   As of December 31 
   2007   2006   2005   2004   2003 
                     
ASSETS                    
Current assets                    
Cash and cash equivalents  $-   $2,225   $3,115   $1,847   $103 
Investment in subsidiary   777    941    1,105    1,268    1,432 
Inventory   -    -    -    294    606 
Total current assets   777    3,166    4,220    3,409    2,141 
                          
Property and equipment, net   -    -    -    -    4,064 
License, net   -    -    -    -    1,000 
Patents, net   -    -    -    -    5,000 
Total assets  $777   $3,166   $4,220   $3,409   $12,205 
                          
LIABILITIES AND STOCKHOLDERS’ DEFICIT                         
                
Current liabilities                         
Accounts payable  $161,306   $161,306   $161,306   $248,202   $248,202 
Accrued officers’ compensation   2,608,728    2,308,728    2,008,728    1,708,728    1,408,728 
Loans payable - Officers   79,490    79,490    79,490    79,490    79,490 
Loans payable - shareholders   151,000    151,000    151,000    151,000    151,000 
Accrued interest – shareholder loans   137,101    114,052    91,003    67,954    44,905 
1992 convertible debentures – including accrued interest   -    -    -    22,900    21,900 
Accrued expenses   108,384    108,384    108,384    241,845    241,845 
Security deposits payable   4,500    4,500    4,500    4,500    4,500 
Total current liabilities   3,250,509    2,927,460    2,604,411    2,524,619    2,200,570 
Total Liabilities   3,250,509    2,927,460    2,604,411    2,524,619    2,200,570 
                          
Stockholders' Deficit                         
Preferred Stock – Par Value $.00003 – authorized 10,000,000 Shares – no shares issued and outstanding   -    -    -    -    - 
Common stock, par value $.00003; authorized 390,000,000 shares; shares issued and outstanding 233,038,334, for the years ended 2007, 2006, 2005, 2004, and 2003   6,991    6,991    6,991    6,991    6,991 
Additional paid-in capital   6,303,166    6,303,166     6,288,983    6,202,683    6,116,383 
Accumulated deficit   (9,559,889)   (9,234,451)    (8,896,165)    (8,730,884)   (8,311,739)
Total stockholders’ deficit   (3,249,732)   (2,924,294)    (2,600,191)    (2,521,210)   (2,188,365)
Total liabilities and stockholders’ deficit  $777   $3,166    $ 4,220   $3,409   $12,205 

 

See accompanying notes to consolidated financial statements

 

F-10
 

 

Quest Patent Research Corporation and Subsidiaries

Consolidated Statements of Operations
(Unaudited)

 

   For the years ended December 31, 
   2007   2006   2005   2004   2003 
                     
Sales  $-   $1,829   $4,283   $4,831   $11,860 
Cost of sales   -    520    1,028    1,026    1,205 
Gross profit (loss)   -    1,309    3,255    3,805    10,655 
                          
Operating expenses                         
Selling, general and administrative expenses   302,225    302,199    302,281    302,373    432,036 
Research and development expenses   -    14,183    86,300    86,300    122,078 
Depreciation and amortization expense   -    -    -    10,064    9,244 
Total operating expenses   302,225    316,382    388,581    398,737    563,358 
                          
Loss from operations   (302,225)   (315,073)   (385,326)   (394,932)   (552,703)
                          
Other income (expense)                         
Gain on extinguishment of debt   -    -    23,900    -    - 
Gain on write-off payables   -    -    220,357    -    - 
                          
Interest expense   (23,049)   (23,049)   (24,049)   (24,049)   (22,341)
Equity in minority interest in subsidiary   (164)   (164)   (163)   (164)   (164)
    (23,213)   (23,213)   220,045    (24,213)   (22,505)
                          
Net income (loss)  $(325,438)  $(338,286)  $(165,281)  $(419,145)  $(575,208)
                          
Earnings (loss) per share                         
Basic and Diluted  $(0.0014)  $(0.0015)  $(0.0007)  $(0.0018)  $(0.0025)
                          
Weighted average shares outstanding                         
Basic and Diluted   233,038,334    233,038,334    233,038,334    233,038,334    233,038,334 

 

See accompanying notes to consolidated financial statements

 

F-11
 

 

Quest Patent Research Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders' Deficit
(Unaudited)

 

   Common stock   Additional Paid-In       Non-
controlling		   Stockholders’ 
   Shares   Amount   Capital   Deficit   Interest   Deficit 
                         
Balances as of December 31, 2002   233,038,334   $6,991   $6,000,083   $(7,736,531)  $-   $(1,729,457)
Compensation expense relating to warrants   -    -    116,300    -    -    116,300 
Net loss   -    -    -    (575,208)   -    (575,208)
Balances as of December 31, 2003   233,038,334    6,991    6,116,383    (8,311,739)   -    (2,188,365)
Compensation expense relating to warrants   -    -    86,300    -    -    86,300 
Net loss   -    -    -    (419,145)   -    (419,145)
Balances as of December 31, 2004   233,038,334    6,991    6,202,683    (8,730,884)   -    (2,521,210)
Compensation expense relating to warrants   -    -    86,300    -    -    86,300 
Net loss   -    -    -    (165,281)   -    (165,281)
Balances as of December 31, 2005   233,038,334    6,991    6,288,983    (8,896,165)   -    (2,600,191)
Compensation expense relating to warrants   -    -    14,183    -    -    14,183 
Net loss   -    -    -    (338,286)   -    (338,286)
Balances as of December 31, 2006   233,038,334    6,991    6,303,166    (9,234,451)   -    (2,924,294)
Net loss   -    -    -    (325,438)   -    (325,438)
Balances as of December 31, 2007   233,038,334   $6,991   $6,303,166   $(9,559,889)  $-   $(3,249,732)

 

See accompanying notes to consolidated financial statements

 

F-12
 

 

Quest Patent Research Corporation and Subsidiaries

Consolidated Statements of Cash Flows
(Unaudited)

 

   For the years ended December 31 
   2007   2006   2005   2004   2003 
                     
Cash flows from operating activities:                    
Net loss  $(325,438)  $(338,286)  $(165,281)  $(419,145)  $(575,208)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                         
Depreciation and amortization expense   -    -    -    10,064    9,244 
Warrants issued for compensation   -    14,183    86,300    86,300    116,300 
Equity in net loss of subsidiary   164    164    163    164    164 
Gain on extinguishment of debt   -    -    (22,900)   -    - 
Gain on write-off of accounts payable and accrued liabilities   -    -    (220,357)   -    - 
Changes in operating assets and liabilities:                         
Inventory   -    -    294    312    1,018 
Prepaid expenses   -    -    -    -    474 
Accounts payable   -    -    -    -    (21,965)
Accrued liabilities   -    -    -    -    101,039 
Accrued interest   23,049    23,049    23,049    24,049    22,340 
Accrued officers compensation   300,000    300,000    300,000    300,000    300,000 
Security deposit   -    -    -    -    405 
Deferred rent payable   -    -    -    -    (5,345)
Net cash provided by (used) in operating activities   (2,225)   (890)   1,268    1,744    (51,534)
                          
Cash flows from financing activities:                         
Proceeds from short-term debt - related parties   -    -    -    -    50,490 
Net cash provided by (used in) financing activities   -    -    -    -    50,490 
                          
Net increase (decrease) in cash and cash equivalents   (2,225)   (890)   1,268    1,744    (1,044)
Cash and cash equivalents at beginning of year   2,225    3,115    1,847    103    1,147 
Cash and cash equivalents at end of year  $-   $2,225   $3,115   $1,847   $103 

 

See accompanying notes to consolidated financial statements

 

F-13
 

 

Quest Patent Research Corporation and Subsidiaries

(Formerly Quest Products Corporation)

Notes to Consolidated Financial Statements

 

NOTE 1 – DESCRIPTION OF BUSINESS

 

The Company is a Delaware corporation, incorporated on July 17, 1987 under the name Phase Out of America Inc. On September 24, 1997, the Company changed its name to Quest Products Corporation and on June 6, 2007, the Company changed our name to Quest Patent Research Corporation. During 2003, 2004, 2005, 2006 and 2007 the Company did not have any significant operations. The Company has been engaged in the intellectual property monetization business since 2008.

 

As used herein, the “Company” refers to Quest Patent Research Corporation and its wholly and majority-owned and controlled operating subsidiaries unless the context indicates otherwise. All intellectual property acquisition, development, licensing and enforcement activities are conducted by the Company’s wholly and majority-owned and controlled operating subsidiaries.

 

The Company is an intellectual property asset management company. Its principal operations include the development, acquisition, licensing and enforcement of intellectual property rights that are either owned or controlled by the Company.  The Company currently owns, control or manage five intellectual property portfolios, which principally consist of patent rights.  As part of its intellectual property asset management activities and in the ordinary course of our business, it has been necessary for the Company or the intellectual property owner who the Company represents to initiate, and it is likely to continue to be necessary to initiate, patent infringement lawsuits and engage in patent infringement litigation. We anticipate that our primary source of revenue will come from the grant of licenses to use our intellectual property, including licenses granted as part of the settlement of patent infringement lawsuits. We also generate revenue from management fees for managing intellectual property portfolios.

 

Intellectual property monetization includes the generation of revenue and proceeds from patents and patented technologies and other intellectual property rights.  Patent litigation is often a necessary element of intellectual property monetization where a patent owner, or a representative of the patent owner, seeks to protect its patent rights against the unlicensed manufacture, sale, and use of the owner’s patent rights or products which incorporate the owner’s patent rights. In general, we seek to monetize the bundle of rights granted by the patents through structured licensing and when necessary enforcement of those rights through litigation.

 

The Company has rights to the following five intellectual property portfolios:

 

●Mobile Data, which relates to the automatic update of information delivered to a mobile device without the need for manual refreshing.
●Financial Data, which relates to universal financial data system which allows its holder to use the device to access one or more accounts stored in the memory of the device as a cash payment substitute as well as to keep track of financial and transaction records and data.
●Rich Media, which relates to methods, systems, and processes that permit typical Internet users to design rich-media production content (i.e., rich-media applications), such as websites.
●Von Kohorn, which relates to online couponing, print-at-home boarding passes and tickets, online sweepstakes; including the promotion by television networks of online sweepstakes.
●TurtlePakTM, which relates to a cost effective, high-protection packaging system recommended for fragile items weighing less than ten pounds.

 

Through December 31, 2012, the Company did not generate any revenue from the Mobile Data and Financial Data portfolios. The revenues from the TurtlePakTM intellectual property are sale of products utilizing the technology.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation and financial statement presentation

 

We consolidate entities when we have the ability to control the operating and financial decisions and policies of the entity.  The determination of our ability to control or exert significant influence over an entity involves the use of judgment.  We apply the equity method of accounting where we can exert significant influence over, but do not control the policies and decisions of an entity.   We use the cost method of accounting where we are unable to exert significant influence over the entity.

 

F-14
 

 

The consolidated financial statements include the accounts and operations of:

 

Quest Patent Research Corporation (“The Company”)

Quest Licensing Corporation (1)

Quest Packaging Solutions Corporation (90% owned)

Quest Nettech Corporation (wholly owned)

 

(1)Quest Licensing Corporation was a wholly owned subsidiary of the Company through October 31, 2012 when 50% of its issued and outstanding shares were transferred to Allied Standard Limited (see NOTE 1). Subsequent to October 31, 2012, the Company did not include Quest Licensing Corporation in its consolidated financial statements since there are significant contingencies related to the control of Quest Licensing Corporation.

 

The Company has not included Wynn Technologies Inc. in its consolidated financial statements as there are significant contingencies related to the control of Wynn Technologies Inc.

 

The Company accounts for its investments in Quest Licensing Corporation and Wynn Technologies, Inc. under the equity method whereby the investment accounts are increased for contributions by the Company plus its 50% and 60% shares of income respectively, and reduced for distributions and its 50% and 60% shares of loses incurred, respectively, with the restriction whereby the account balances cannot go below zero.

 

Significant intercompany transaction and balances have been eliminated in consolidation.

 

Use of Estimates

 

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period.  Actual results could differ from those estimates. 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with original maturity dates of three months or less when purchased, to be cash equivalents.

 

Accounts Receivable

 

Accounts receivable are recorded at the invoiced amount. Any allowance for doubtful accounts is the Company’s best estimate of the amount of probable losses to the Company’s existing accounts receivable. No allowance for doubtful accounts was recorded for the years ended December 31, 2008 through 2012.

 

Intangible Assets

 

Intangible assets consist of patents which are amortized using the straight-line method over their estimated useful lives or statutory lives whichever is shorter and are reviewed for impairment upon any triggering event that may give rise to the assets ultimate recoverability as prescribed under the guidance related to impairment of long-lived assets.

 

Impairment of long-lived assets

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. During 2012, 2011, 2010, 2009, and 2008 there was no impairment of long-lived assets.

 

F-15
 

 

Fair value of financial instruments

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is used which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

The fair value hierarchy based on the three levels of inputs that may be used to measure fair value are as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

 

The carrying value reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and short-term borrowings approximate fair value due to the short-term nature of these items.

 

Revenue Recognition

 

Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been substantially performed pursuant to the terms of the arrangement, (iii) amounts are fixed or determinable and, (iv) the collectability of amounts is reasonable assured.

 

License Service Fees

 

In general, revenue arrangements provide for the payment of contractually determined fees in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company. The intellectual property rights granted may be perpetual in nature, extending until the expiration of the related patents, or can be granted for a defined, relatively short period of time, with the licensee possessing the right to renew the agreement at the end of each contractual term for an additional minimum upfront payment. Pursuant to the terms of these agreements, the Company has no further obligation with respect to the grant of the non-exclusive retroactive and future licenses, covenants-not-to-sue, releases, and other deliverables, including no express or implied obligation on the Company’s part to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the agreement, or upon receipt of the minimum upfront payment for term agreement renewals. As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront fee for the term agreement renewals, and when all other revenue recognition criteria have been met.

 

Certain of the Company’s revenue arrangements provide for future royalties or additional required payments based on future licensee activities. Additional royalties are recognized in revenue upon resolution of the related contingency provided that all revenue recognition criteria, as described above, have been met. Amounts of additional royalties due under these license agreements, if any, cannot be reasonably estimated by management.

 

Amounts related to revenue arrangements that do not meet the revenue recognition criteria described above are deferred until the revenue recognition criteria are met.

 

The Company assesses the collectability of fees receivable based on a number of factors, including past transaction history and credit-worthiness of licensees. If it is determined that collection is not reasonably assured, the fee is recognized when collectability becomes reasonably assured, assuming all other revenue recognition criteria have been met, which is generally upon receipt of cash.

 

Sales

 

The Company’s packaging operation customers are end users. Revenue, less reserves for returns, is recognized upon shipment to the customer.

 

Research and development

 

Research and development costs are expensed as incurred.

 

F-16
 

 

Income Taxes

 

Deferred income tax assets and liabilities are recognized for the expected future income tax consequences of events that have been included in the consolidated financial statements or income tax returns. Deferred income tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities using tax rates in effect for the years in which the differences are expected to reverse.

 

In evaluating the ultimate realization of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. Management establishes a valuation allowance if it is more likely than not that all or a portion of the deferred income tax assets will not be utilized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income, which must occur prior to the expiration of the net operating loss carryforwards.

 

The Company also follows the guidance related to accounting for income tax uncertainties effective November 1, 2007.  In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.  No liability for unrecognized tax benefits was recorded as of December 31, 2012, 2011, 2010, 2009 and 2008 and in the interim periods.

 

Share-based compensation

 

The Company accounts for share-based awards issued to employees and non-employees in accordance with Accounting Standards Codification (ASC) 718, “Compensation-Stock Compensation” effective February 1, 2006.   Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period , which is normally the vesting period. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value.

 

Prior to February 1, 2006 and as permitted by ASC 718,  the Company accounted for their stock options in accordance with APB 25, “Accounting for Stock Issued to Employees.”  Employee stock options are granted at or above the market price at dates of grant which does not require the Company to recognize any compensation expense.

 

The Company adopted ASC 718 (then SFAS123R) on February 1, 2006 using the modified prospective method.  In accordance with such method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of ASC 718.

 

Earnings (loss) per share

 

Basic earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if our share-based awards and convertible securities were exercised or converted into common stock. The dilutive effect of our share-based awards is computed using the treasury stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. The incremental shares (difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted earnings per share calculation. Because the Company incurred losses in all period covered by the financial statements, the diluted earnings per shares is the same as the basic earnings per share.

 

Concentration of credit risk

 

We maintain our cash in bank deposit accounts, which at times, may exceed federally insured limits.  We have not experienced any such losses in these accounts. 

 

Recently adopted accounting standards

 

Management does not anticipate that the recently issued but not yet effective accounting pronouncements will materially impact the Company’s financial condition.

 

F-17
 

NOTE 3 – WARRANTS AND STOCK OPTIONS

 

Warrants

 

During the years ended December 31, 2008 and December 31, 2011, the Company issued 25,000,000 and 30,000,000 warrants, respectively, as share-based compensation to executive officers.   The warrants vested immediately, have an exercise price of $0.004 per share and expire as follows: 5,000,000 on March 1, 2015, and 50,000,000 on March 1, 2018.

 

The Company has valued the above warrants in the amount of $375,000 and $51,000, respectively, using the Black-Scholes pricing model.  Variables used in the valuation include (1) discount rate ranging from 0.75% to 3.5%; (2) warrant life of 7 to 10 years; (3) expected volatility ranging from 451.79% to 534.82% and (4) zero expected dividends.

 

In February 2011, the Company issued 5,000,000 warrants at an exercise price of $0.001 to Mr. Li in connection with the February 8, 2011 agreement between the Company and Mr. Li relating to the Company’s Financial Data Portfolio. The warrants expire in September 2015.

 

The Company has valued the above warrants using the Black-Scholes pricing model and considered the amount nominal and did not recognize any compensation expense as such.  Variables used in the valuation include (1) discount rate of 1.44%; (2) warrant life of 4.75 years; (3) expected volatility of 557% and (4) zero expected dividends.

 

A summary of the status of the Company's outstanding stock warrants and changes as set forth below: 

   Number of Warrants (#)   Weighted Average Exercise Price ($)   Weighted Average Remaining Contractual Life (Years) 
Balance - December 31, 2007   -           
Granted   25,000,000    0.004    9.4 
Cancelled               
Forfeited               
Exercised               
Balance - December 31, 2008   25,000,000         9.4 
                
Warrants exercisable at end of year   25,000,000           
Weighted average fair value of options granted during period        0.015      
                
Balance - December 31, 2008   25,000,000    0.004    9.4 
Granted               
Cancelled               
Forfeited               
Exercised               
Balance - December 31, 2009   25,000,000         8.4 
                
Warrants exercisable at end of year   25,000,000           
Weighted average fair value of options granted during period               
                
Balance - December 31, 2009   25,000,000    0.004    8.4 
Granted               
Cancelled               
Forfeited               
Exercised               
Balance - December 31, 2010   25,000,000    0.004    7.4 
                
Warrants exercisable at end of year               
Weighted average fair value of options granted during period               
                
Balance - December 31, 2010   25,000,000    0.004    7.4 
Granted   35,000,000    0.0036    6.68 
Cancelled               
Forfeited               
Exercised               
Balance - December 31, 2011   60,000,000    0.0038    6.98 
                
Warrants exercisable at end of year   60,000,000           
Weighted average fair value of options granted during period        0.0013      
                
Balance - December 31, 2011   60,000,000    0.0038    6.98 
Granted               
Cancelled               
Forfeited               
Exercised               
Balance - December 31, 2012   60,000,000    0.0038    5.98 
                
Warrants exercisable at end of year   60,000,000           
Weighted average fair value of options granted during period               

F-18
 

 

Stock Options

 

During August 2009, the Company granted to a director a non-qualified stock option to purchase 5,000,000 shares at a price of $0.01 per share. This option expired unexercised in August 2012.

 

During March 2010, the Company granted to a director a non-qualified stock option to purchase 5,000,000 shares at a price of $0.0025 per share. This option expired unexercised on March 9, 2013.

 

The Company has valued the above these non-qualified stock options in the amount of $42,500 and $12,500, respectively, using the Black-Scholes pricing model.  Variables used in the valuation include (1) discount rate ranging from 1.43% to 1.78%; (2) option life of 3 years; (3) expected volatility of 564% and (4) zero expected dividends.

 

In August 2010, in connection with a consulting agreement, the Company granted to Mr. Hart a non-qualified stock option to purchase 5,000,000 shares at $0.001 per share. This option will expire on December 31, 2015. The Company has valued this non-qualified stock option in the amount of $6,000 using the Black-Scholes pricing model.  Variables used in the valuation include (1) discount rate of 1.44%; (2) option life of 5 years; (3) expected volatility of 588% and (4) zero expected dividends.

 

A summary of the status of the Company's outstanding stock options and changes as set forth below:

 

   Number of Options (#)   Weighted Average Exercise Price ($)   Weighted Average Remaining Contractual Life (Years) 
Balance - December 31, 2008   -           
Granted   5,000,000    0.01    3 
Exercised               
Forfeit               
Cancelled               
Balance - December 31, 2009   5,000,000    0.01    3 
                
Options exercisable at end of year   5,000,000           
Options expected to vest               
Weighted average fair value of options granted during period        0.0085      
                
Balance - December 31, 2009   5,000,000    0.01    3 
Granted   10,000,000    0.00175    4 
Exercised               
Forfeit               
Cancelled               
Balance - December 31, 2010   15,000,000    0.0045    3.33 
                
Options exercisable at end of year   15,000,000           
Options expected to vest               
Weighted average fair value of options granted during period        0.0009      
                
Balance - December 31, 2010   15,000,000    0.0045    3.33 
Granted               
Exercised               
Forfeit               
Cancelled               
Balance - December 31, 2011   15,000,000    0.0045    2.33 
                
Options exercisable at end of year   15,000,000           
Options expected to vest               
Weighted average fair value of options granted during period               
                
Balance - December 31, 2011   15,000,000    0.0045    2.33 
Granted               
Exercised               
Forfeit   5,000,000           
Cancelled               
Balance - December 31, 2012   10,000,000    0.00175    2 
                
Options exercisable at end of year   10,000,000           
Options expected to vest               
Weighted average fair value of options granted during period               

 

No warrants or options were exercised in fiscal years 2008 through 2012.

 

F-19
 

 

NOTE 4 – NON-CONTROLLING INTEREST

 

The following table reconciles equity attributable to the non-controlling interest related to Quest Packaging Solutions Corporation.

 

   December 31, 
   2012   2011   2010   2009   2008 
Balance, beginning of year  $(13)  $(3,029)  $(5,706)  $(4,756)  $- 
Net income (loss) attributable to non-controlling interest  $2,672   $3,016   $2,677   $(950)  $(4,756)
Balance, end of year  $2,659   $(13)  $(3,029)  $(5,706)  $(4,756)

 

NOTE 5 – INCOME TAXES

 

The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.  As of December 31, 2012, the Company has generated approximately $13,032,000 of net operating loss (“NOL”) carry forwards which will expire in the years 2018 through 2032.  Internal Revenue Code section 382 (“Section 382”) restricts the use of these net operating losses in future periods if the Company has a “substantial change in ownership” as defined by Section 382.  The Company has had significant equity transactions in both the current and prior periods.  Due to this equity activity and the restrictions resulting under Section 382, most of the Company’s NOLs may not be available to offset future taxable income.  The Company has fully reserved the deferred tax asset resulting from the net operating loss carry forwards.

 

Deferred tax asset consisted primarily of the following:

 

   December 31, 
   2012   2011   2010   2009   2008 
Net operating loss carry forward  $3,770,089   $3,325,873   $2,927,325   $2,448,848   $2,017,335 
Valuation allowance  $(3,770,089)  $(3,325,873)  $(2,927,325)  $(2,448,848)  $(2,017,335)
Total  $-   $-   $-   $-   $- 

 

NOTE 6 – RELATED PARTY TRANSACTIONS

 

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The Company has at various times entered into transactions with related parties, including officers, directors and major shareholders, wherein these parties have provided services, advanced or loaned money, or both, to the Company needed to support its daily operations. The Company discloses all related party transactions.

 

During 2003, the Company received loans from Officers and Directors in the amount of $79,490. The loans are payable on demand plus accrued interest at 10% per annum.

 

As of fiscal years ended December 31, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, the balance of Notes Payable to Related Parties was $79,490 for all years, and accrued interest on those notes was $10,105; $18,054; $26,003, $33,952; $41,901; $49,850; $57,799; $65,748; $73,697; and $81,646 respectively.

 

In 2008, as consideration for entering into the executive employment contracts dated March 1, 2008, two officers forgave all deferred salary, in the amount of $2,767,113, and all benefits accrued prior to March 1, 2008.

 

During 2012, the Company contracted with an entity owned by the chief technology officer for the provision of information technology services to the Company.  In 2012, the cost of these services was approximately $1,500.

 

F-20
 

 

NOTE 7 – COMMITMENTS

 

On March 1, 2008, the Company entered into an employment agreement with its chairman, whereby the Company employed the chairman to serve as chairman and secretary for a period of seven years, at an annual salary of $200,000.   Pursuant to the employment agreement, the Company issued the chairman seven-year warrants to purchase an aggregate of 5,000,000 shares of common stock at an exercise price of $0.004 per share. The warrants vested upon the date of the execution of the employment agreement. See Notes 3 and 8.

 

On March 1, 2008, the Company entered into an employment agreement with its chief executive officer, who is also chief financial officer and treasurer, for a period of ten years for an annual salary of $250,000. The chief executive officer is eligible for an annual bonus of 10% of the Company’s consolidated income before taxes.  Pursuant to the employment agreement, the Company issued him ten-year warrants to purchase 5,000,000 shares of common stock at $0.004 per share. The warrants vested upon the date of the execution of the employment agreement. See Notes 3 and 8. The agreement provides that the Company will provide the chief executive officer with a full-size vehicle when it is financially able to do so, and a laptop computer and phone. The agreement also includes a severance provision whereby, if the Company terminates chief executive officer’s employment other than for cause, the Company is to pay the chairman severance compensation equal to three times his average annual compensation for the five years prior to termination and reimbursement of his COBRA expenses.

 

On March 1, 2008, the Company entered into an employment agreement with its president and chief operating officer for a period of ten years, subject to renewal, for an annual salary of $300,000. The president is eligible for an annual bonus of 15% of consolidated income before taxes, as well as a contingent bonus of 20% of net income before taxes on the occurrence of certain events related to the Company’s assets, as established in the agreement.  Pursuant to the agreement, we issued the president ten-year warrants to purchase 15,000,000 shares of common stock at an exercise price of $0.004 per share, which vested upon execution of the employment agreement, and agreed to issue to the president on the third anniversary of the date of execution of his employment agreement, seven-year warrants to purchase 30,000,000 shares of common stock at an exercise price of $0.004 per share, which the Company issued in 2011 and which vested on issuance, and the Company agreed to issue to the president on the fifth anniversary of the execution of his employment agreement, five-year warrants to purchase 15,000,000 shares of common stock at an exercise price of $0.004 per share, such warrants to vest on issuance. See Note 3 and 8. The agreement provides that the Company will provide the president with a full-size vehicle when it is financially able to do so, and a laptop computer and phone. The agreement also includes a severance provision whereby, if the Company terminates the president’s employment other than for cause, the Company is to pay the president severance compensation equal to three times his average annual compensation for the three years prior to termination and reimbursement of his COBRA expenses.

 

NOTE 8 – SUBSEQUENT EVENTS

 

On March 1, 2013, pursuant to the president’s employment agreement (see Note 7), the Company issued the president warrants to purchases 15,000,000 shares of common stock at an exercise price of $0.004. The Company valued the warrants at $21,000 using the Black-Scholes pricing model.  Variables used in the valuation include (1) discount rate of 0.77%; (2) warrant life of 5 years; (3) expected volatility of 548% and (4) zero expected dividends.

 

On March 9, 2013, a non-qualified stock option held by a director, expired unexercised.

 

On March 15, 2013, the Company filed a second continuation application on the Mobile Data Portfolio.

 

On June 26, 2013, the Company entered into an agreement with The Betting Service Limited. Under the agreement, the Company granted The Betting Service an interest in licensing proceeds from the Mobile Data Portfolio in return for The Betting Service’s assistance in developing certain Mobile Data Portfolio assets.

 

On August 5, 2013, the Company executed a rider to the December 21, 2009 agreement with Intertech Holdings, LLC. Under the terms of the rider, the Company receives 67% of adjusted gross recoveries, as defined.

 

In March 2014, the Company entered in to contingent representation agreement with a law firm for representation on a structured licensing program for the Mobile Data Portfolio. Under the terms of the agreement, the law firm receives an agreed upon percentage of net recoveries as defined in the agreement.

 

In March 2014, the Company entered into a funding agreement whereby a third party agreed to provide funds to the Company with which the Company would execute a structured licensing program for the Mobile Data Portfolio. Under the agreement, the third party receives an interest in the proceeds from the program.

 

F-21
 

 

In April 2014, the Company entered into a further agreement with Allied whereby Allied relinquished certain rights under the October 2012 agreement, including its entitlement to a 50% interest in our Quest Licensing subsidiary, in exchange for our commitment to fund a structured licensing program for the Mobile Data Portfolio.

 

On October 10, 2014, the Company entered into a separation agreement and mutual general release with its former chairmen whereby the former chairman forgave all loans, accrued interest, accrued salary, accrued benefits and released us from any claim to any compensation and benefits, accrued or otherwise, under any agreement or purported agreement, including his employment agreement dated March 1, 2008. The Company agreed that the former chairman would retain the warrants granted under the employment agreement dated March 1, 2008 and that we would pay the former chairman 3.25% of our net revenues, provided net revenues of the Company exceed $1,500,000, up to the aggregate amount of $250,000 with payments in any year not to exceed $125,000. The total accrued compensation and other obligations waived by the former chairman was $1,342,606.

 

On October 10, 2014, the Company entered into a separation agreement and mutual general release with its former chief executive officer, who was chief financial officer and treasurer, whereby the former chief executive officer forgave all loans, accrued interest, accrued salary, accrued benefits and released the Company from any claim to any compensation and benefits, accrued or otherwise, under any agreement or purported agreement, including the employment agreement dated March 1, 2008, at any time between the former chief executive officer and the Company. The Company agreed that the former chief executive officer would retain the warrants granted under the employment agreement dated March 1, 2008 and that the Company would pay the former chief executive officer 3.25% of the Company’s net revenues, provided that its net revenues exceed $1,500,000, up to the aggregate amount of $700,000 with payments in any year not to exceed $300,000. The total accrued compensation and other obligations waived by the former chief executive officer was $1,660,002.

 

On October 30, 2014, the Company entered into a restated employment agreement with its chief executive officer, which was superseded by a restated employment agreement dated as of November 30, 2014. Pursuant to the restated employment agreement, the Company agreed to employ the chief executive officer as president and chief executive officer for a term of three years, commencing January 1, 2014, and continuing on a year-to-year basis unless terminated by either party on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. The agreement provides for an annual salary of $252,000, which may be increased, but not decreased, by the board or the compensation committee. The chief executive officer is entitled to a bonus if the Company meets or exceeds performance criteria established by the compensation committee. The chief executive officer is also eligible to participate in any executive incentive plans which we may adopt. We also agreed to issue to the chief executive officer warrants to purchase 60,000,000 shares, representing the warrants that had been previously covered in his prior employment agreement but which had never been issued, and we issued to the chief executive officer a restricted stock grant for 30,000,000 shares which vests on January 15, 2015 unless the chief executive officer is not employed by the Company other than as a result of his death or disability. The chief executive officer has the rights of a stockholder with respect to these shares, including the right to vote, subject to forfeiture in the event that the shares do not vest. In the event that we terminate the chief executive officer’s employment other than for cause or as a result of his death or disability, the Company will pay him severance equal to his salary for the balance of the term and, if he received a bonus for the previous year, an amount equal to that bonus, as well as continuation of his insurance benefits. The chief executive officer also waived accrued compensation of $1,167,705, representing his accrued salary for periods prior to January 1, 2014. The restated agreement also includes mutual releases between the chief executive officer and the Company.

 

 

F-22

 


Exhibit 3.1

 

  FILED
 

 

Certificate of incorporation

OF

PHASE-OUT OF AMERICA, INC.

 

FIRST. The name of this corporation is PHASE-OUT OF AMERICA, INC.

 

SECOND. Its registered office in the State of Delaware is to be located in 725 Market Street in the City of Wilmington country of New Castle . The registered agent in charge thereof is THE COMPANY CORPORATION at same address as above.

 

THIRD. The nature of the business and the objects and purposes proposed to be transacted, promoted and carried on are to do any or all the things herein mentioned, as fully and to the same extent as natural persons might or could do, and in any part of the world, viz:

 

“The purpose of the corporation is to engage in any lawful act or activity for which corporation may be organized under the General Corporation Law of Delaware.”

 

FOURTH. The amount of the total authorized capital stock of this corporation is 100,000,000 share of .0001 Par Value.

 

FIFTH. The name and mailing address of the incorporator is as follows:

 

NAME:   ADDRESS:
     
MARSHA MILLS   725 MARKET ST., WILMINGTON, DE 19801

 

SIXTH. The powers of the incorporator are to terminate upon filing of the certificate of incorporation, and the name(s) and mailing address(es) of person who are to serve as director(s) until the first annual meeting of stockholders or until their successors are elected and quality are as follows:

 

               Name and address of directors Fill in name(s)
BERNIE GUTMAN, 140 BROADWAY, LYNBROOK, NY 11563 and address(es)

 

SEVENTH. The Directors shall have power to make and to alter or attend the By-Laws; to fix the amount to be reversed as working capital, and to authorize and cause to be executed, mortgages and liens without limit as to the amount, upon the property and franchise of the Corporation.

 

With the consent in writing and pursuant to a vote of the holders of a majority of the capital stock issued and outstanding, the Directors shall have the authority to dispose in any manner of the whole property of this corporation.

 

The By-Laws shall determine whether and to what extent the accounts and books of this corporation. or any of them shall be open to the inspection of the stockholders: and no stockholder shall have any right of inspecting any account, or book or document of this Corporation, except as conferred by the law of the By-Laws, or by resolution of the stockholders.

 

The stockholders and directors shall have power to hold their meetings and keep the books, documents and papers of the Corporation outside of the State of Delaware, at such places as may be from time time to time designated by the By-Laws or by resolution of the stockholders or directors, except as otherwise required by the laws of Delaware.

 

It is the intention that the objects, purposes and powers specified in the Third paragraph hereof shall, except where otherwise specified in said paragraph, be nowise limited or restricted by reference to or inference form the terms of any other clause or paragraph in this certificate of incorporation, but that the objects, purposes and powers specified in the Third paragraph and in each of the clauses or paragraph of this charter shall be regarded as independent objects, purposes and powers.

 

EIGHTH. Directors of the corporation shall not be liable to either the corporation or its stockholders for monetary damages for a breach of fiduciary duties unless the breach involves; (1) a director’s duty of loyalty to the corporation or its stockholders; (2) acts or emissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) liability for unlawful payments of dividends or unlawful stock purchases or redemption by the corporation; or (4) a transaction from which the director derived an improper personal benefit.

 

1. THE UNDERSIGNED, for the purpose of forming a Corporation under the laws of the State of Delaware, do make file and record this Certificate and do certify that the facts herein are true; and I have accordingly heresome act my hand.

 

DATED AT: 7/17/87    
Sate of Delaware    
Country of New Castle   /s/ Marsha Mills

  

 
 

 

   

 

CERTIFICATE OF AMENDMENT

OF THE

CERTIFICATE OF INCORPORATION

OF

PHASE-OUT OF AMERICA, INC.

 

Under Section 242 of the
Corporation Law of the State of Delaware

 

PHASE-OUT OF AMERICA, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:

 

FIRST: That the Board of Directors of said corporation, by written unanimous consent filed with the minutes of the board, adopted the following resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of said corporation:

 

"1.   That Article FOURTH of the Certificate of Incorporation be amended and, as amended, read as follows:

 

“FOURTH: The amount of the total authorized capital stock of this corporation is 100,000,000 shares of $.00003 par value.”

 

SECOND: That the aforesaid amendments were duly adopted in accordance with the applicable provisions of section 242 of the General Corporation Law of the State of Delaware.

 

THIRD: Prompt notice of the taking of this corporate action is being given to all stockholders who did not consent in writing, in accordance with Section 228 of the General Corporation Law of the State of Delaware.

 

IN WITNESS WHEREOF, the corporation has caused this certificate to be signed by Bernard Gutman, Chairman of the Board and attested by Drew Gutman, Secretary, this 14th day of June, 1988.

 

  PHASE-OUT OF AMERICA, INC.
     
  Attested By: /s/ Drew Gutman
    Drew Gutman, Secretary

 

By: /s/ Bernard Gutman  
 

Bernard Gutman,

Chairman of the Board

  

 

 
 

 

STATE OF DELAWARE  
SECRETARY OF STATE  
DIVISION OF CORPORATIONS  
FILED 09:00 AM 06/05/1992  
921575105 - 2132451  

 

CERTIFICATE OF AMENDMENT

OF THE

CERTIFICATE OF INCORPORATION

OF

PHASE-OUT OF AMERICA, INC.

 

Under Section 242 of the
Corporation Law of the State of Delaware

 

PHASE-OUT OF AMERICA, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:

 

FIRST: That the Board of Directors of said corporation, by written unanimous consent filed with the minutes of the board, adopted the following resolutions proposing and declaring advisable the following amendment to the Certificate of Incorporation of said corporation:

 

“1.    That Article 'FOURTH' of the Certificate of Incorporation be amended and, as amended, reads as follows:

 

“FOURTH. (a) The Corporation is authorized to issue 100,000,000 shares of voting Common Stock, with a par value of $.00003 per share, and 5,600,000 shares of Preferred Stock, with a par value of $.001 per share.

 

(b)   600,000 shares of the Preferred Stock are designated Series A Preferred Stock, having the following relative rights, preferences and limitations;

 

(1)     Dividends. Cumulative preferential dividends, if and when declared, out of any surplus or net profits, at the rate of twelve percent (12%) of the liquidation preference per annum, payable annually, before any dividends may be declared on the shares of the Company's Common Stock and Series B Preferred stock. The Company will establish a sinking fund equal to 12% of the par value of the issued Series A Preferred Stock for a period of one year, commencing on the date of issuance of such stock, to assure payment of the first year dividend.

 

(2)     Liquidation Preference. A one dollar per share preference over the Common Stock with regard to distribution of assets in the event of any liquidation, dissolution or winding-up of the Company.

 

 
 

 

(3)     Conversion. Commencing one year after issuance of the Series A Preferred Stock, the right to convert shares of Series A Preferred Stock in to shares of Common Stock at any time at the rate of 50% of the “Average Price of Phase-Out Common Stock" (e.g., if such average price were $.20, each share would be convertible into ten Common Shares). The term "Average Price of Phase-Out Common stock" shall mean either (i) the average of all bid and asked prices as are so reported by the National Association of Securities Dealers Automatic Quotations ("NASDAQ") System during the ten day period immediately preceding but not including the date of the written notice of intent or demand to convert; or (ii) the average of the closing bid and asked prices during the aforesaid ten day period if the Common Stock is then listed on a national securities exchange or in the NASDAQ National Market System; or (iii) the average of the high bid and the asked prices quoted in tale pink sheets during the aforesaid ten day period if the Common Stock is not listed on the NASDAQ System or on a national securities exchange). The number of shares of Common Stock into which the Series A Preferred Stock is convertible is subject to adjustment for any dividends, splits or reclassifications of the Company's Common Stock.  In order to exercise the conversion privilege, the holder must surrender to the Company at its principal office the certificate(s) for such Series A Preferred Stock accompanied by proper instruments of surrender and a written notice stating that the holder elects to convert such shares and the name or names in which the certificate(s) for shares of Common Stock should be issued. As promptly as practicable after the receipt of such notice and the surrender of the Series A Preferred Shares, the Company will issue and deliver to such holder or to the written order of such holder certificate(s) for the number of shares of Common Stock issuable upon conversion of such Series A Preferred Stock. Such conversion shall be deemed to have been effected on the date on which such notice shall have been received by the Company and such Series A Preferred stock shall have been surrendered as hereinabove provided. All shares of Common Stock which may be issued upon conversion of the Series A Preferred Stock shall, upon issuance, be validly issued, fully paid, and nonassessable by the Company.

 

(4)     Redemption. Commencing one year after issuance of the Series A Preferred Stock, the Company, upon 30 days written notice, can call such Shares for redemption in whole or in part (pro rata), for par value plus accumulated but unpaid dividends.

 

(5)     Forced Conversion. Commencing two years after issuance of the Series A Preferred Stock, the Company, upon 10 days written notice, can force conversion of all or part (pro rata) of such Stock at the rate discussed above in subparagraph.

 

(6)     Voting Rights. The Series A Preferred Stock shall not have voting rights.

 

- 2 -
 

 

(c)   5,000,000 shares of the Preferred Stock are designated Series B Preferred Stock, having the following relative rights, preferences and limitations:

 

(1)     Dividends. Non-Cumulative dividends, if and when declared, out of any surplus or net profits, at the rate of five percent (5%) of the liquidation preference per annum payable annually.

 

(2)     Liquidation Preference. A one dollar per share preference over the Common Stock with regard to distribution of assets in the event of any liquidation, dissolution or winding-up of the Company.

 

(3)     Conversion. The right to convert shares of Series B Preferred Stock in to shares of Common Stock at any time at the rate of one share of Common Stock for every $.30 worth of par value of the Series B Preferred Stock tendered for conversion (e.g., approximately 3.3 Common Share for every one share of Series B Preferred Stock). In order to exercise the conversion privilege, the holder must surrender to the Company at its principal office the certificate(s) for such Series 8 Preferred Stock accompanied by proper instruments of surrender and a written notice stating that the holder elects to convert such shares and the name or names in which the certificate(s) for shares of Common Stock should be issued. As promptly as practicable after the receipt of such notice and the surrender of the Series B Preferred Shares, the Company will issue and deliver to such holder or to the written order of such holder certificate(s) for the number of snares of Common Stock issuable upon conversion of such series B Preferred Stock. Such conversion shall be deemed to have been effected on the date on which such notice shall have been received by the Company and such Series B Preferred stock shall have been surrendered as hereinabove provided. All shares of Common Stock which may be issued upon conversion of the Series B Preferred Stock shall, upon issuance, be validly issued, fully paid, and nonassessable by the Company.

 

(4)     Voting Rights. The Series B Preferred Stock shall have the right to designate one member to the Company's Board of Directors for as long as the B Preferred is not converted to Common Stock. Aside from this right to designate one director, the Series B Preferred Stock shall have no voting rights.

 

(d)   The Board of Directors or the Company shall be empowered to change the rights, powers, preferences and designations of the Preferred Stock described above with regard to any shares of Preferred Stock that are not issued and outstanding.

 

- 3 -
 

 

SECOND: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of section 242 of the General Corporation Law of the State of Delaware.

 

THIRD: Prompt notice of the taking of this corporate action is being given to all stockholders who did not consent in writing, in accordance with Section 228 of the General Corporation Law of the State of Delaware.

 

IN WITNESS WHEREOF, the corporation has caused this certificate to be signed by Drew Gutman, its President, and

attested by B. Gutman, its Chairman, this 3rd day of June 1992.

 

  PHASE-OUT OF AMERICA, INC.
     
  Attested By: /s/ Drew Gutman
    Drew Gutman, Secretary

 

ATTEST:

 

By: /s/ Bernard Gutman  
 

Bernard Gutman, Chairman

  

 

- 4 -
 

 

CERTIFICATE OF AMENDMENT TO THE

CERTIFICATE OF INCORPORATION

OF

PHASE-OUT OF AMERICA, INC. 

 

Phase-out of American, Inc. (the "Corporation") a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "General Corporation Law"), hereby certifies as follows:

 

A.    The name of the Corporation is Phase-Out of America. A Certificate of Incorporation of the Corporation was filed by the Corporation with the Secretary of State of Delaware on July 17, 1987.

 

B.    This Amendment to the Certificate of Incorporation was duly adopted in accordance with the provisions or Section 242 of the General Corporation Law, and was approved by written consent of the holders of a majority of the outstanding Common Stock of the Corporation in accordance with the provisions of Section 238 of the General Corporation Law.

 

C.    The Article number Fourth of the Certificate of Incorporation of the Corporation is hereby deleted in its entirety and replaced with the following:

 

"FOURTH: Total number of shares of stock that the Corporation is authorized to issue is One Hundred and Thirty Million (130,000,000) shares of Common Stock, par value $.003 per share. All each shares are of one class and are shares of Common Stock."

 

IN WITNESS WHEREOF, the undersigned has caused this Amendment to its Certificate of Incorporation to be duly executed an its behalf as of the 8th day of July, 1996.

 

  Phase-Out of America, Inc.
     
  By: /s/ Irwin Pearl
    Irwin Pearl
President

 

ATTEST:

 

/s/ Drew Gutman  

Drew Gutman

Secretary

  

 

  STATE OF DELAWARE
  SECRETARY OF STATE
  DIVISION OF CORPORATIONS
  FILED 09:00 AM 07/25/1996
  960217711 - 2132451

 

 
 

STATE OF DELAWARE  
SECRETARY OF STATE  
DIVISION OF CORPORATIONS  
FILED 12:00 PM 09/24/1997  
971320146 – 2132451  

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

OF

PHASE-OUT OF AMERICA, INC.

 

**********

 

PHASE-OUT OF AMERICA, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:

 

FIRST:           That the Board of Directors of said corporation, by the unanimous written consent of its members, filed with the minutes of the board, adopted a resolutions proposing and declaring advisable the following amendment to the Certificate of Incorporation of said corporation:

 

RESOLVED, that the Certificate of Incorporation of PHASE-OUT OF AMERICA, INC. be amended by changing the FIRST Article thereof so that, as amended, said Article shall be and read as follows:

 

“FIRST: The name of the corporation is QUEST PRODUCTS CORPORATION.”

 

SECOND:       That in lieu of a meeting and vote of stockholders, the stockholders have given unanimous written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.

 

THIRD:          That the aforesaid amendments was duly adopted in accordance with the applicable provisions of Section 242 and 228 of the General Corporation Law of the State of Delaware.

 

 
 

 

IN WITNESS WHEREOF, said PHASE-OUT OF AMERICA, INC., has caused this certificate to be signed by its Chief Operating Officer & Treasurer this 23rd day of September, 1997.

 

  PHASE-OUT OF AMERICA, INC.
     
  By: /s/ Herbert Reichlin
  Herbert Reichlin,
  Chief Operating Officer & Treasurer

 

 
 

 

  STATE OF DELAWARE
  SECRETARY OF STATE
  DIVISION OF CORPORATIONS
  FILED 02:00 PM 04/06/2000
  001176020 - 2132451

 

CERTIFICATE OF CORRECTION

TO THE

CERTIFICATE OF AMENDMENT OF

CERTIFICATE OF INCORPORATION OF

QUEST PRODUCTS CORPORATION

 

Quest Products Corporation (the “Corporation, a Delaware Corporation, pursuant to Section 103(f) of the General Corporation Law of the State of Delaware,

 

DOES HEREBY CERTIFY THAT:

 

1.     The name of the Corporation is Quest Products Corporation. The Corporation was incorporated under the name “Phase-Out of America, Inc.” on July 17, 1987.

 

2.     A Certificate of Amendment of Certificate of Incorporation of the Corporation was filed by the Secretary of State Delaware July 25, 1996, and said certificate requires correction as permitted by Section 103(f) of The General Corporation Law of the State of Delaware.

 

3.    The inaccuracy or defect of said certificate to be corrected is as follows. (i) the number of shares of stock that the Corporation is authorized to issue was inaccurately set forth in the first sentence of Article 4 of such certificate as "One Hundred and Thirty Million (130,000,000) shares" rather than the correct number, "Two Hundred Million (200,000,000) shares"; and (ii) the par value of such shares was inaccurately set forth therein as “$.003 per share” rather than the correct par value, “$.00003 per share.”

 

4.     Article 4 of the Certificate of Incorporation of the Corporation in correct form is as follows:

 

"4. The total number of shares of stock that the Corporation is authorized to issue is Two Hundred Million(200,000,000) shares of Common Stock, par value $.00003 per share. As such shares are of one class and are shares of Common Stock."

 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Correction to be signed by Burton A. Goldstein, its Chief Executive Officer, this 5th day of April, 2000

 

  QUEST PRODUCTS CORPORATION
     
  By: /s/ Burton A. Goldstein
    Name: Burton A. Goldstein
    Title:   Chief Executive Officer

 

 
 

 

  STATE OF DELAWARE
  SECRETARY OF STATE
  DIVISION OF CORPORATIONS
  FILED 09:00 AM 06/08/2000
  001292688 – 2132451

 

CERTIFICATE OF AMENDMENT

TO THE

CERTIFICATE OF INCORPORATION

OF

QUEST PRODUCTS CORPORATION

 

The name of the corporation is Quest Products Corporation (the “Corporation”) and the name under which it was originally incorporated is Phase-Out of America, Inc. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on July 7, 1987. This Amendment to the Certificate of Incorporation has been duly adopted in accordance with Sections 103, 228 and 242 of the General Corporation Law of the State of Delaware. The text of the Certificate of Incorporation of the Corporation, as amended, is hereby amended to read as follows:

 

1.     The Fourth Article of the Certificate of Incorporation is hereby deleted in its entirety and replaced with the following:

 

“FOURTH: The aggregate number of shares of capital stock that the Corporation has authority to issue is Four Hundred Million consisting of Three Hundred Ninety Million (390,000,000) shares of common stock with a par value of $.00003 per share (the “Common Stock”) and Ten Million (10,000,000) shares of preferred stock, with a par value of $.00003 per share (the “Preferred Stock”).

 

Except as provided by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of Common Stock held by such holder of record on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation.

 

The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby expressly authorized, by resolution or resolutions, to provide for the issuance of one or more series of Preferred Stock and, by filing a certificate pursuant to General Corporation Law of the State of Delaware, to establish from time to time the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and the relative rights, powers, privileges, preferences and limitations of the shares of such series.

 

 
 

 

Shares of Preferred Stock, regardless of series, that are converted into other securities or other consideration shall be retired and cancelled and shall have the status of authorized but unissued shares of Preferred Stock, without designation as to series.”

 

2.     The aforesaid amendments was duly adopted by a majority of the stockholders of the Corporation by written consent in lieu of a meeting, dated as of June 2nd, 2000.

 

IN WITNESS WHEREOF, this Certificate of Amendment to the Certificate of Incorporation which amends the provisions of the Certificate of Incorporation of the Corporation, and which has been duly adopted by written consent of the stockholders of the Corporation in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware, has been executed by Burton A. Goldstein, its Chief Executive Officer, this 2nd day of June, 2000.

 

  QUEST PRODUCTS CORPORATION
     
  By: /s/ Burton A. Goldstein
  Name: Burton A. Goldstein
  Title: Chief Executive Officer

 

- 2 -
 

 

  State of Delaware
  Secretary of State
  Division of Corporations
  Delivered 05:47 PM 06/06/2007
  FILED 04:52 PM 06/06/2007
  SRV 070680622 – 2132451 FILE

 

CERTIFICATE OF AMENDMENT

OF THE

CERTIFICATE OF INCORPORATION

OF

QUEST PRODUCTS CORPORATION

 

FIRST: The name of the corporation is Quest Products Corporation (the “Corporation”).

 

SECOND: The Delaware Secretary of State filed the Certificate of Incorporation on July 17, 1987.

 

THIRD:  The Certificate of Incorporation of the Corporation is hereby amended to change the name of the Certificate of Incorporation is deleted in its entirety, and the following Article is submitted in lieu thereof:

 

“FIRST: The name of the corporation is Quest Patent Research Corporation:

 

FIFTH: The above amendment to the Certificate of Incorporation was authorized by the written consent of the Directors of the Corporation, followed by the written consent of the sole shareholder of the Corporation in accordance with Section 242 of the General Corporation Law of the State of Delaware.

 

 
 

 

IN WITNESS WHEREOF, the undersigned has made and subscribed this certificate on May 9, 2007.

 

  /s/ Herbert Reichlin
  Herbert Reichlin, President

 

 

 

 

 

 



Exhibit 3.2

 

AMENDED AND RESTATED BYLAWS OF

QUEST PATENT RESEARCH CORPORATION

(a Delaware Corporation)

 

(adopted effective as of December 1, 2014)

 

ARTICLE 1

OFFICES

 

SECTION 1.1. Principal Office. The principal offices of the Quest Patent Research Corporation, a Delaware corporation (the “Corporation”) shall be in such location as the Board of Directors of the Corporation (the “Board of Directors”) may determine.

 

SECTION 1.2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.

 

ARTICLE 2

MEETINGS OF STOCKHOLDERS

 

SECTION 2.1. Place of Meeting; Chairman. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. The Chairman of the Board of the Corporation (the “Chairman of the Board”) or any other person specifically designated by the Board of Directors shall act as the Chairman for any meeting of stockholders of the Corporation. The Chairman of the Board (or his or her designee) shall have full authority to control the process of any stockholder meeting, including, without limitation, determining whether any proposals or nominations were properly brought before such meeting, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the Chairman of the Board (or his or her designee) shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, requiring ballots by written consent (except as limited by the Certificate of Incorporation of the Corporation, as amended (the “Certificate of Incorporation”), or by the Delaware General Corporation Law (the “DGCL”), limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot.

 

SECTION 2.2. Annual Meetings. The annual meeting of stockholders of the Corporation shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, subject to any postponement in the Board of Directors’ sole discretion, upon notice of such postponement given in any manner deeded reasonable by the Board of Directors.

 

SECTION 2.3. Special Meetings. Special meetings of the stockholders of the Corporation, for any purpose or purposes, unless otherwise proscribed by the DGCL or by the Certificate of Incorporation, may be called exclusively by: (i) the Chairman of the Board or the Chief Executive Officer, President or other executive officer of the Corporation, (ii) an action of the Board of Directors or (iii) request in writing of the stockholders of record, and only of record, owning not less than sixty-six and two-thirds percent (66 2/3%) of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. The officers or directors shall fix the time and any place, either within or without the State of Delaware, as the place for holding such meeting.

 

 

 

SECTION 2.4. Notice of Meeting. Written notice of the annual and each special meeting of stockholders of the Corporation, stating the time, place and purpose or purposes thereof, and the means of remote communications, if any, by which stockholders or proxy holders may be deemed to be present in person and able to vote at such meeting, shall be given to each stockholder entitled to vote thereat, not less than ten (10) nor more than sixty (60) days before the meeting and shall be signed by the Chairman of the Board, the President or the Secretary of the Corporation (the “Secretary”). The Board of Directors may postpone a special meeting in its sole discretion in any manner it deems reasonable.

 

SECTION 2.5. Business Conducted at Meetings.

 

Section 2.5.1 (a) At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be:

 

(i)       specified in the notice of meeting (or any supplement thereto provided within the notice period specified in Section 2.4) given by or at the direction of the Chairman of the Board, the President or the Board of Directors;

 

(ii)      otherwise properly brought before the meeting by or at the direction of the Board of Directors; or

 

(iii)     otherwise properly brought before the meeting by any stockholder of the Corporation (subject to Section 2.3 and 2.5.1(b) of these Bylaws) who (A) is a stockholder of record on the date of the giving of the notice provided for in this Section 2.5 and on the record date for the determination of stockholders entitled to notice of and to vote at the meeting and (B) complies with the advance notice procedures set forth in this Section 2.5.

 

(b)      Except for proposals properly made in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and included in the Corporation’s notice of meeting, the foregoing clause 2.5.1(a)(iii) shall be the exclusive means for a stockholder to propose business to be brought before an annual or special meeting of stockholders, provided that in the case of a special meeting of stockholders, the item of business is presented by the requisite number of stockholders of the Corporation in accordance with Section 2.3 of these Bylaws. Stockholders seeking to nominate persons for election to the Board of Directors must comply with Section 2.6.2 hereof and this Section 2.5.1 shall not be applicable to director nominations.

 

(c)      In addition to any other applicable requirements set forth in these Bylaws, the U.S. federal securities laws or otherwise, for business to be properly brought before a meeting called by stockholders, such stockholder(s) must have given timely notice thereof in writing to the Secretary. Any special meeting of the Corporation proposed to be called by a stockholder or stockholders in such capacity shall not be required to be held: (i) with respect to any matter, within 12 months after any annual or special meeting of stockholders at which the same matter was included on the agenda, or if the same matter will be included on the agenda at an annual meeting to be held within 90 days after the receipt by the Corporation of such request (the election or removal of directors to be deemed the same matter with respect to all matters involving the election or removal of directors) or (ii) if the purpose of the special meeting is not a lawful purpose or if such request violates applicable law. A stockholder may revoke a request for a special meeting at any time by written revocation delivered to the Secretary, and if, following such revocation, there are un-revoked requests from stockholders holding in the aggregate less than the requisite number of shares entitling the stockholders to request the calling of a special meeting, the Board of Directors, in its discretion, may cancel the special meeting. If none of the stockholders who submitted the request for a special meeting appears or sends a qualified representative to present the nominations proposed to be presented or other business proposed to be conducted at the special meeting, the Corporation need not present such nominations or other business for a vote at such meeting.

 

2
 

 

Section 2.5.2 To be timely, a stockholder’s notice of a proposal to be included at an annual meeting must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than sixty (60) days after the anniversary of the preceding year’s annual meeting, to be timely, notice by the stockholder must be so received not later than the close of business on the tenth (10th) day following the day on which public disclosure of the date of the annual meeting is first given or made (which shall include the making of any and all filings of the Corporation made on the EDGAR system of the U.S. Securities and Exchange Commission (“SEC”) or any similar public database maintained by the SEC, whichever first occurs). In the case of a special meeting of stockholders, notice must be provided not later than the close of business on the tenth (10th) day following the day on which public disclosure of the date of the special meeting is first given or made.

 

Section 2.5.3 A record stockholders’ notice to the Secretary shall set forth in writing as to each matter the stockholder(s) propose to bring before the meeting: (a) a detailed description of the business desired to be brought before the meeting and the reasons for proposing such business, including the complete text of any resolutions, bylaws or certificate of incorporation amendments proposed for consideration, (b) the name and address, as they appear on the Corporation’s books, of the stockholders proposing such business, (c) the class and number of shares of the Corporation which are owned directly or indirectly of record and directly or indirectly beneficially owned by the stockholders and each of its affiliates (within the meaning of Rule 144 promulgated under the Securities Act of 1933, as amended, or any successor rule thereto (“Rule 144”)), including any shares of the Corporation owned or controlled via derivatives, synthetic securities, hedged positions and other economic and voting mechanisms, (d) any material interest of the stockholders in such proposed business and any agreements or understandings to which such stockholders are a party which relate in any way, directly or indirectly, to the proposed business to be conducted, including a description of all arrangements or understandings between such stockholder and any other person or persons (including their names), (e) a representation as to whether or not such stockholder intends to solicit proxies; (f) a representation as to whether or not such stockholder intends to appear in person or by proxy at the applicable meeting, (g) any pending or threatened litigation in which such stockholder is a party or material participant involving the Corporation or any of its officers or directors, or any affiliate of the Corporation, and (g) such other information regarding the stockholder in his, her or its capacity as a proponent of a stockholder proposal that would be required to be disclosed in a proxy statement or other filing with the SEC required to be made in connection with the contested solicitation of proxies pursuant to the SEC’s proxy rules.

 

Section 2.5.4 Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 2.5. The Chairman of the meeting shall, in his or her sole discretion, determine and declare to the meeting whether or not any business was properly brought before the meeting. Any such business not properly brought before the meeting shall not be transacted. If and to the extent that shares of the Corporation’s capital stock is registered under or the Corporation is otherwise subject to the reporting requirements of the Exchange Act, nothing in this Section 2.5 shall affect the right of a stockholder to request inclusion of a proposal in the Corporation’s proxy statement to the extent that such right is provided by an applicable rule of the SEC. Notwithstanding the foregoing, the advance notice provisions of these Bylaws shall apply to all stockholder proposals regardless of whether such proposal is sought to be included in the Corporation’s proxy statement or in a separate proxy statement.

 

3
 

 

SECTION 2.6. Nomination of Directors. Nomination of candidates for election as directors of the Corporation at any meeting of stockholders called for the election of directors, in whole or in part (an “Election Meeting”), must be made by the Board of Directors or by any stockholder entitled to vote at such Election Meeting, in accordance with the following procedures.

 

Section 2.6.1. Nominations made by the Board of Directors shall be made at a meeting of the Board of Directors or by written consent of the directors in lieu of a meeting prior to the date of the Election Meeting. At the request of the Secretary, and if and to the extent that shares of the Corporation’s capital stock is registered under or the Corporation is otherwise subject to the reporting requirements of the Exchange Act, each proposed nominee nominated by the Board of Directors shall provide the Corporation with such information concerning himself or herself as is required, under the rules of the SEC and any applicable securities exchange, to be included in the Corporation’s proxy statement soliciting proxies for his or her election as a director.

 

Section 2.6.2. The exclusive means by which a stockholder may nominate a director shall be by delivery of a notice to the Secretary, not less than sixty (60) days prior to the date of an Election Meeting, setting forth: (a) the name, age, business address and the primary legal residence address of each nominee proposed in such notice, (b) the principal occupation or employment of such nominee, (c) the number of shares of capital stock of the Corporation which are owned directly or indirectly of record and directly or indirectly beneficially owned by the nominee and each of its affiliates (within the meaning of Rule 144), including any shares of the Corporation owned or controlled via derivatives, hedged positions and other economic and voting mechanisms, (d) any material agreements, understandings or relationships, including financial transactions and compensation, between the nominating stockholder and the proposed nominees; (e) such other information concerning each such nominee as would be required, under the rules of the SEC, in a proxy statement soliciting proxies in a contested election of such nominees, and (f) confirming, under penalty of perjury, that such nominee (i) does not meet the definition of a bad actor, as defined in Rule 506(d) of the SEC pursuant to the Securities Act and (ii) the nominee does not have any matters which would have triggered disqualification pursuant to Rule 506(d)(1) of the SEC but for the fact that the event occurred prior to September 23, 2013. Such notice shall include a signed consent of each such nominee to serve as a director of the Corporation, if elected. In addition, any stockholder nominee, to be validly nominated, shall submit to the Secretary the questionnaire required pursuant to Section 2.6.3 of these Bylaws. A stockholder intending to nominate one or more candidates for election as directors must comply with the advance notice bylaw provisions specifically applicable to the nomination of candidates for election as directors for such nomination to be properly brought before the meeting.

 

Section 2.6.3 To be eligible to be a director nominee nominated by a stockholder or stockholders for election or reelection as a director of the Corporation, such nominee must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.6.2 of these Bylaws) to the Secretary at the principal executive offices of the Corporation a written questionnaire (the “Questionnaire”) with respect to the background, qualification and experience of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be in the form approved by the Corporation and provided by the Secretary or such Secretary’s designee) and a written representation and agreement that such person: (a) will abide by the requirements of these Bylaws and the Certificate of Incorporation as in effect at the time of their nomination and as validly amended, (b) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (c) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and (d) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation. If, prior to the Election Meeting, there is a change in any information set forth on the Questionnaire, then such director candidate shall promptly notify the Secretary by submitting a revised Questionnaire.

 

4
 

 

Section 2.6.4. In the event that a person is validly designated by the Board of Directors as a nominee in accordance with this Section 2.6 and shall thereafter become unable or willing to stand for election to the Board of Directors, the Board of Directors may designate a substitute nominee who meets all applicable standards under these Bylaws.

 

Section 2.6.5. If the Chairman of the Election Meeting determines that a nomination was not made in accordance with the foregoing procedures, such nomination shall be void.

 

SECTION 2.7. Quorum; Adjournment.

 

Section 2.7.1 The holders of a majority of the shares of capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy (provided the proxy has authority to vote on at least one matter at such meeting), shall constitute a quorum at any meeting of stockholders for the transaction of business, except when stockholders are required to vote by class, in which event one-third of the issued and outstanding shares of the appropriate class shall be present in person or by proxy (provided the proxy has authority to vote on at least one matter at such meeting) in order to constitute a quorum as to such class vote, and except as otherwise provided by the DGCL or by the Certificate of Incorporation. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to have less than a quorum if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

 

Section 2.7.2 Notwithstanding any other provision of the Certificate of Incorporation or these Bylaws, at any annual or special meeting of stockholders of the Corporation, whether or not a quorum is present, the Chairman of the Board or the person presiding as Chairman of the meeting shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, whether or not a quorum shall be present or represented. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting in accordance with Section 2.4 of these Bylaws. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.

 

SECTION 2.8. Voting; Proxies.

 

Section 2.8.1 Except as provided for below or by applicable law, rule or regulation, when a quorum is present at any meeting of the stockholders, any action by the stockholders on a matter except the election of directors shall be approved if approved by the majority of the votes cast. Except as provided below with respect to Contested Elections, each nominee for director shall be elected by the majority of the votes cast (which includes votes withheld) with respect to that nominee’s election at any meeting for the election of directors at which a quorum is present. Directors shall be elected by a plurality of the votes cast in any Contested Election. For purposes of these Bylaws, a “Contested Election” means an election of directors with respect to which, as of five days prior to the date the Corporation first mails the notice of meeting for such meeting to stockholders, there are more nominees for election than positions on the Board of Directors to be filled by election at the meeting. In determining the number of votes cast in a Contested Election, abstentions and broker non-votes, if any, will not be treated as votes cast. The provisions of this paragraph will govern with respect to all votes of stockholders except as otherwise provided for in the Certificate of Incorporation or by a specific statutory provision superseding the provisions of these Bylaws.

 

5
 

 

Section 2.8.2 Every stockholder having the right to vote shall be entitled to vote in person, or by proxy: (a) appointed by an instrument in writing subscribed by such stockholder or by his or her duly authorized attorney or (b) authorized by the transmission of an electronic record by the stockholder to the person who will be the holder of the proxy or to a firm which solicits proxies or like agent who is authorized by the person who will be the holder of the proxy to receive the transmission subject to any procedures the Board of Directors may adopt from time to time to determine that the electronic record is authorized by the stockholder; provided, however, that no such proxy shall be valid after the expiration of six (6) months from the date of its execution, unless coupled with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed seven (7) years from the date of its execution. If such instrument or record shall designate two (2) or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one (1) be present, then such powers may be exercised by that one (1). Unless required by the DGCL or determined by the Chairman of the meeting to be advisable, the vote on any matter need not be by written ballot. No stockholder shall have cumulative voting rights.

 

SECTION 2.9. Consent of Stockholders. Whenever the vote of the stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, the meeting and vote of stockholders may be dispensed with if stockholders, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, consent in writing to such corporate action being taken; provided, that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required by the DGCL. If the common stock of the Corporation is registered pursuant to the Exchange Act, the effectiveness of such action shall be subject to the provision of the Exchange Act. Notice of any action taken by consent shall be given to stockholders as required by the DGCL.

 

SECTION 2.10. Voting of Stock of Certain Holders. Shares standing in the name of another entity, domestic or foreign, may be voted by such officer, agent or proxy as the governing documents of such entity may prescribe, or in the absence of such provision, as the Board of Directors or governing body of such entity may determine. Shares standing in the name of a deceased person may be voted by the executor or administrator of such deceased person, either in person or by proxy. Shares standing in the name of a guardian, conservator or trustee may be voted by such fiduciary, either in person or by proxy, but no such fiduciary shall be entitled to vote shares held in such fiduciary capacity without a transfer of such shares into the name of such fiduciary. Shares outstanding in the name of a receiver may be voted by such receiver. A stockholder whose shares are pledged shall be entitled to vote such shares, unless in the transfer by the pledgor on the books of the Corporation, he or she has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his or her proxy, may represent the stock and vote thereon.

 

6
 

 

SECTION 2.11. Treasury Stock. The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it; and such shares shall not be counted in determining the total number of outstanding shares.

 

SECTION 2.12. Fixing Record Date. The Board of Directors may fix in advance a date for any meeting of stockholders (which date shall not be more than sixty (60) nor less than ten (10) days preceding the date of any such meeting of stockholders), a date for payment of any dividend or distribution, a date for the allotment of rights, a date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining a consent of stockholders (which date shall not precede or be more than ten (10) days after the date the resolution setting such record date is adopted by the Board of Directors), in each case as a record date (the “Record Date”) for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, to receive payment of any such dividend or distribution, to receive any such allotment of rights, to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, as the case may be. In any such case such stockholders and only such stockholders as shall be stockholders of record on the Record Date shall be entitled to such notice of and to vote at any such meeting and any adjournment thereof, to receive payment of such dividend or distribution, to receive such allotment of rights, to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such Record Date.

SECTION 2.13. Inspectors. The Board of Directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not so appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by such inspector or inspectors and execute a certificate of any fact found by such inspector or inspectors.

 

ARTICLE 3

BOARD OF DIRECTORS

 

SECTION 3.1. Powers. The business, properties and affairs of the Corporation shall be managed by, or under the direction of, its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Subject to compliance with the provisions of the DGCL, the powers of the Board of Directors shall include the power to make a liquidating distribution of the assets, and wind up the affairs of, the Corporation.

 

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SECTION 3.2. Number, Qualifications Term.

 

Section 3.2.1 The number of directors which shall constitute the whole Board of Directors shall be not less than one (1) and not more than nine (9).  Within the limits above specified, the number of the directors of the Corporation shall be determined solely in the discretion of the Board of Directors. Directors need not be residents of Delaware or stockholders of the Corporation. Each director shall be at least eighteen (18) years of age. The Board of Directors shall be divided into classes as provided for in the Certificate of Incorporation.

 

Section 3.2.2 Directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier death, incapacity, resignation or removal. No decrease in the number of directors shall shorten the term of any incumbent director.

 

SECTION 3.3. Vacancies, Additional Directors; Removal From Office; Resignation.

 

Section 3.3.1 If any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification, removal from office or otherwise, or if any new directorship is created by an increase in the authorized number of directors, a majority of the directors then in office, though less than a quorum, or a sole remaining director may choose a successor or fill the newly created directorship. Any director so chosen shall hold office for the unexpired term of his or her predecessor in his or her office and until his or her successor shall be elected and qualified, unless sooner displaced. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

 

Section 3.3.2 Any director, or the entire Board of Directors, may be removed, with or without Cause (as defined below), by the holders of a majority of the shares then entitled to vote at an election of directors, provided such action is taken in accordance with the provisions of Article 2 hereof. Whenever the holders of any class or series are entitled to elect one or more directors by the certificate of incorporation, the removal without cause of a director or directors so elected shall require the vote of the holders of a majority of the outstanding shares of that class or series and not the vote of the outstanding shares as a whole.

 

Section 3.3.3 Any director may resign or voluntarily retire upon giving written notice to the Chairman of the Board or the Board of Directors. Any retirement or resignation of a director shall be effective upon the giving of the notice, unless the notice specifies a later time for its effectiveness. If such retirement or resignation is effective at a future time, the Board of Directors may elect a successor to take office when the retirement or resignation becomes effective.

 

Section 3.3.4 For purposes of this Section 3.3, “Cause” shall mean: (i) the director’s conviction or plea of nolo contendere of a felony involving (a) moral turpitude or (b) a violation of federal or state securities laws, but excluding any conviction based entirely on vicarious liability, (ii) the director’s commission of any material act of dishonesty resulting or intended to result in material personal gain or enrichment of such director at the expense of the Corporation or any of its subsidiaries and which act, if made the subject of criminal charges, would be reasonably likely to be charged as a felony, (iii) the willful failure by such director to perform, or the gross negligence of such director in performing, the duties of a director, or (iv) the director being adjudged legally incompetent by a court of competent jurisdiction; provided, however, that if the director is a party to an employment or other agreement that was approved by the Board of Directors or a committee of the Board of Directors that provides for termination based on cause, as defined in such agreement, Cause shall have the meaning set forth in such agreement and not as defined in this Section 3.3.4.

 

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SECTION 3.4. Regular Meetings. A regular meeting of the Board of Directors shall be held each year, without notice other than this Bylaw provision, at the place of, and immediately prior to and/or following, the annual meeting of stockholders; and other regular meetings of the Board of Directors shall be held during each year, at such time and place as the Board of Directors may from time to time provide by resolution, either within or without the State of Delaware, without other notice than such resolution.

 

SECTION 3.5. Special Meeting. A special meeting of the Board of Directors may be called by the Chairman of the Board or by the President and shall be called by the Secretary on the written request of a two directors. The Chairman of the Board or President so calling, or the directors so requesting, any such meeting shall fix the time and any place, either within or without the State of Delaware, as the place for holding such meeting.

 

SECTION 3.6. Notice of Special Meeting. Written notice (including via email or other electronic delivery) of special meetings of the Board of Directors shall be given to each director at least twenty-four (24) hours prior to the time of a special meeting. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting solely for the purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, except that notice shall be given with respect to any matter when notice is required by the DGCL.

 

SECTION 3.7. Quorum. A majority of the Board of Directors then serving shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the act of a majority of the directors present at any meeting at which there is quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the DGCL, by the Certificate of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, without notice other than announcement at the meeting, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved of by at least a majority of the required quorum for that meeting.

 

SECTION 3.8. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof as provided in Article 4 of these Bylaws, may be taken without a meeting, if a written consent thereto is signed by all of the members of the Board of Directors or of such committee, as the case may be. Evidence of any consent to action under this Section 3.8 may be provided in writing, including electronically via email or facsimile.

 

SECTION 3.9. Meeting by Telephone. Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken by means of a meeting by telephone conference or similar communications method (including by means of the Internet) so long as all persons participating in the meeting can hear each other. Any person participating in such meeting shall be deemed to be present in person at such meeting.

 

SECTION 3.10. Compensation. Directors, as such, may receive reasonable compensation for their services, which shall be set by the Board of Directors, and reimbursement of expenses of attendance at each regular or special meeting of the Board of Directors; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving additional compensation therefor. Members of special or standing committees may be allowed like compensation for their services on committees.

 

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SECTION 3.11. Rights of Inspection. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the Corporation and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and obtain extracts.

 

ARTICLE 4

COMMITTEES OF DIRECTORS

 

SECTION 4.1. Generally. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more additional special or standing committees, each such additional committee to consist of one or more of the directors of the Corporation. Each such committee shall have and may exercise such of the powers of the Board of Directors in the management of the business and affairs of the Corporation as may be provided in such resolution, except as delegated by these Bylaws or by the Board of Directors to another standing or special committee or as may be prohibited by law.

 

SECTION 4.2. Committee Operations. A majority of a committee shall constitute a quorum for the transaction of any committee business. Such committee or committees shall have such name or names and such limitations of authority as provided in these Bylaws or as may be determined from time to time by resolution adopted by the Board of Directors. The Corporation shall pay all expenses of committee operations. The Board of Directors may designate one or more appropriate directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of any members of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another appropriate member of the Board of Directors to act at the meeting in the place of any absent or disqualified member.

 

SECTION 4.3. Minutes. Each committee of directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. The Corporation’s Secretary, any Assistant Secretary or any other designated person shall (a) serve as the Secretary of the special or standing committees of the Board of Directors of the Corporation, (b) keep regular minutes of standing or special committee proceedings, (c) make available to the Board of Directors, as required, copies of all resolutions adopted or minutes or reports of other actions recommended or taken by any such standing or special committee and (d) otherwise as requested keep the members of the Board of Directors apprised of the actions taken by such standing or special committees.

 

ARTICLE 5

NOTICE

 

SECTION 5.1. Methods of Giving Notice.

 

SECTION 5.1.1. Notice to Directors or Committee Members. Whenever under the provisions of the DGCL, the Certificate of Incorporation or these Bylaws, notice is required to be given to any director or member of any committee of the Board of Directors, personal notice is not required but such notice may be: (a) given in writing and mailed to such director or committee member, (b) sent by electronic transmission (including via e-mail) to such director or committee member, or (c) given orally or by telephone; provided, however, that any notice from a stockholder to any director or member of any committee of the Board of Directors must be given in writing and mailed to such director or member and shall be deemed to be given upon receipt by such director or member. If mailed, notice to a director or member of a committee of the Board of Directors shall be deemed to be given when deposited in the United States mail first class, or by overnight courier, in a sealed envelope, with postage or delivery charges thereon prepaid, addressed, to such person at his or her business address. If sent by electronic transmission, notice to a director or member of a committee of the Board of Directors shall be deemed to be given if by (i) facsimile transmission, when receipt of the fax is confirmed electronically, (ii) electronic mail, when delivered to an electronic mail address of the director or member, (iii) a posting on an electronic network together with a separate notice to the director or member of the specific posting, upon the later of (1) such posting and (2) the giving of the separate notice (which notice may be given in any of the manners provided above), or (iv) any other form of electronic transmission, when delivered to the director or member.

 

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SECTION 5.1.2. Notices to Stockholders. Whenever under the provisions of the DGCL, the Certificate of Incorporation or these Bylaws, notice is required to be given to any stockholder, personal notice is not required but such notice may be given: (a) in writing and mailed to such stockholder, (b) by a form of electronic transmission consented to by the stockholder to whom the notice is given or (c) as otherwise permitted by the SEC. If mailed, notice to a stockholder shall be deemed to be given when deposited in the United States mail in a sealed envelope, with postage thereon prepaid, addressed to the stockholder at the stockholder’s address as it appears on the records of the Corporation. If sent by electronic transmission, notice to a stockholder shall be deemed to be given if by (i) facsimile transmission, when directed to a number at which the stockholder has consented to receive notice, (ii) electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice, (iii) a posting on an electronic network together with a separate notice to the stockholder of the specific posting, upon the later of (1) such posting and (2) the giving of the separate notice (which notice may be given in any of the manners provided above), or (iv) any other form of electronic transmission, when directed to the stockholder in the manner approved by the stockholder.

 

SECTION 5.2. Written Waiver. Whenever any notice is required to be given by the DGCL, the Certificate of Incorporation or these Bylaws, a waiver thereof in a signed writing or sent by the transmission of an electronic record attributed to the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

 

ARTICLE 6

OFFICERS

 

SECTION 6.1. Officers. The officers of the Corporation may include the Chairman of the Board, the President, the Treasurer and the Secretary. The officers of the Corporation may also include a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and such other officers and agents with such titles as the Board of Directors may prescribe, including, without limitation, one or more Vice Presidents of any class or designation, Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers. All officers of the Corporation shall hold their offices for such terms and shall exercise such powers and perform such duties as prescribed by these Bylaws, the Board of Directors or President, as applicable. Any two or more offices may be held by the same person. The Chairman of the Board shall be elected from among the directors. No officer need be a director or a stockholder of the Corporation. The Board of Directors may delegate to the Chief Executive Officer, President, Chief Operating Officer and Chief Financial Officer the power to appoint other officers who report, directly or indirectly, to such officer and to prescribe their respective duties and powers; provided, however, that only the Board of Directors shall have the authority to appoint officers who are required to be named pursuant to Item 401(b) of Regulation S-K (“Executive Officers”).

 

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SECTION 6.2. Election and Term of Office. The President, Chairman of the Board, Treasurer, Secretary and other Executive Officers shall be appointed only by, and shall serve only at the pleasure of, the Board of Directors. All other officers of the Corporation may be appointed as the Board of Directors or the Chairman of the Board or President deem necessary and elect or appoint. Each officer shall hold office until his or her successor shall have been chosen and shall have qualified or until his or her death or the effective date of his or her resignation or removal, or until he or she shall cease to be a director in the case of the Chairman of the Board.

 

SECTION 6.3. Removal and Resignation. Any officer or agent of the Corporation may be removed, either with or without Cause, by the affirmative vote of a majority of the Board of Directors and, other than the Chairman of the Board, the Chief Executive Officer (should one be serving) and the President, may also be removed, either with or without cause, by action of the Chairman of the Board, the Chief Executive Officer or the President of the Executive Officer who, pursuant to Section 6.1, appointed such officer, whenever, in his, her or their judgment, as applicable, the best interests of the Corporation shall be served thereby, but such right of removal and any purported removal shall be without prejudice to the contractual rights, if any, of the person so removed. Any Executive Officer or other officer or agent may resign at any time by giving written notice to the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

 

SECTION 6.4. Vacancies. Any vacancy occurring in any required office of the Corporation by death, resignation, removal or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. Any vacancy in any other office may be filled as the Board of Directors, the Chairman of the Board or President deem necessary or as otherwise provided in this Article 6.

 

SECTION 6.5. Compensation. The compensation of the Executive Officers shall be determined by the Board of Directors or a designated committee thereof. No officer who is also a director shall be prevented from receiving such compensation by reason of his or her also being a director.

 

SECTION 6.6. Chairman of the Board. The Chairman of the Board (who may also be designated as Executive Chairman if serving as an employee of the Corporation), if such an officer be elected, shall preside at all meetings of the Board of Directors and of the stockholders of the Corporation. In the Chairman of the Board’s absence, such duties shall be attended to by any vice chairman of the Board of Directors, or if there is no vice chairman, or such vice chairman is absent, then by the President. The Chairman of the Board shall act as liaison between the Board of Directors and the executive officers of the Corporation and shall be responsible for general oversight of such executive officers. The Chairman of the Board may also, but shall not be required to, hold the position of Chief Executive Officer of the Corporation, if so elected or appointed by the Board of Directors. The Chairman of the Board shall formulate and submit to the Board of Directors matters of general policy for the Corporation and shall perform such other duties as usually appertain to the office or as may be prescribed by the Board of Directors. He or she may sign with the President or any other officer of the Corporation thereunto authorized by the Board of Directors certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors, and any deeds or bonds, which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated or reserved by these Bylaws or by the Board of Directors to some other officer or agent of the Corporation, or shall be required by law to be otherwise executed.

 

SECTION 6.7. Chief Executive Officer. The Chief Executive Officer shall, in general, perform such duties as usually pertain to the position of chief executive officer of a public company and such duties, not inconsistent therewith, as may be prescribed by the Board of Directors.

 

SECTION 6.8. President. The President shall, subject to the oversight by and control of the Board of Directors and the Chief Executive Officer, have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect.

 

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SECTION 6.9. Chief Financial Officer. The Chief Financial Officer shall, in general, perform such duties as usually pertain to the position of chief financial officer of a public company and such duties, not inconsistent therewith, as may be prescribed by the Board of Directors.

 

SECTION 6.10. Chief Operating Officer. The Chief Operating Officer shall perform such duties, not inconsistent with such position, as may be prescribed by the Board of Directors.

 

SECTION 6.11. Treasurer. The Treasurer shall perform such duties, not inconsistent with such position, as may be prescribed by the Board of Directors.

 

SECTION 6.12. Secretary. The Secretary, who may or may not be an Executive Officer, as the Board of Directors shall determine, shall keep the minutes of the meetings of the stockholders, the Board of Directors and committees of directors and shall perform such other duties, not inconsistent with such position, as may be prescribed by the Board of Directors.

 

ARTICLE 7

CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION

 

SECTION 7.1. Contracts, etc. Subject to the provisions of Section 6.1 of these Bylaws, the Board of Directors may authorize any officer, officers, agent or agents to enter into and/or execute any and all agreements, deeds, bonds, mortgages, contracts and other obligations or instruments in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

 

SECTION 7.2. Checks, etc. All checks, demands, drafts or other orders for the payment of money, and notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as shall be determined by the Board of Directors, the Chief Executive Officer or the Chief Financial Officer.

 

SECTION 7.3. Bank Accounts and Drafts. In addition to such bank accounts as may be authorized by the Board of Directors, the primary financial officer or any person designated by said primary financial officer, whether or not an employee of the Corporation, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he or she may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation in accordance with the written instructions of said primary financial officer, or other person so designated by such primary financial officer.

 

SECTION 7.4. Voting of Securities Owned by Corporation. All stock and other securities of any other corporation owned or held by the Corporation for itself, or for other parties in any capacity, and all proxies with respect thereto shall be executed by the person authorized to do so by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board, the Chief Executive Officer, the President or any Vice President.

 

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ARTICLE 8

SHARES OF STOCK

 

SECTION 8.1. Issuance. Each stockholder of the Corporation shall be entitled to a certificate or certificates showing the number of shares of stock registered in his or her name on the books of the Corporation; provided, however, that the Corporation may provide for stock to be issued in uncertificated form, including book entry, in which event physical certificates need not be issued. If uncertificated stock ownership is maintained, the Board of Directors may permit the issuance of physical certificates at the request of stockholders. Stock certificates shall be in such form as may be determined by the Board of Directors or the Chief Executive Officer. Any or all the signatures on the certificate may be a facsimile. In case any officer who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as if such officer had not ceased to be such officer at the date of its issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designation, preferences and relative participating, option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class of stock; provided that except as otherwise provided by the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish to each stockholder who so requests the designations, preferences and relative participating, option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, stolen, destroyed or mutilated certificate a new certificate (or uncertificated shares in lieu of a new certificate) may be issued therefor upon such terms and with such indemnity, if any, to the Corporation as the Board of Directors may prescribe. In addition to the above, all certificates (or uncertificated shares in lieu of a new certificate) evidencing shares of the Corporation’s stock or other securities issued by the Corporation shall contain such legend or legends as may from time to time be required by the DGCL.

 

SECTION 8.2. Lost Certificates. The Board of Directors may direct that a new certificate or certificates (or uncertificated shares in lieu of a new certificate) be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates (or uncertificated shares in lieu of a new certificate), the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate or certificates alleged to have been lost, stolen or destroyed, or both and otherwise comply with the regulations of any transfer agent may require.

 

SECTION 8.3. Transfers. In the case of shares of stock represented by a certificate, upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the Corporation by the registered holder thereof, or by his or her attorney thereunto authorized by power of attorney and filed with the Secretary and the Corporation’s transfer agent, if any. The Corporation’s transfer agent may require payment of a transfer fee, and any transfer may be subject to payment by the transferring stockholder of the transfer fee.

 

SECTION 8.4. Registered Stockholders. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.

 

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SECTION 8.5. Uncertificated Shares. The Board of Directors may approve the issuance of uncertificated shares of some or all of the shares of any or all of its classes or series of capital stock.

 

ARTICLE 9

DIVIDENDS

 

SECTION 9.1. Declaration. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Certificate of Incorporation and the DGCL.

 

ARTICLE 10

INDEMNIFICATION

 

SECTION 10.1. Power to Indemnify in Actions, Suits, or Proceedings Other Than Those by or in the Right of the Corporation. Subject to Section 10.3, the Corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person (or the legal representative of such person) is or was a director or officer of the Corporation or any predecessor of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

 

SECTION 10.2. Power to Indemnify in Actions, Suits or Proceedings By or in the Right of the Corporation. Subject to Section 10.3, the Corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person (or the legal representative of such person) is or was a director or officer of the Corporation or any predecessor of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

 

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SECTION 10.3. Authorization of Indemnification. Any indemnification under this Article 10 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 10.1 or Section 10.2 of this Article 10, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination: (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders (but only if a majority of the directors who are not parties to such action, suit or proceeding, if they constitute a quorum of the Board of Directors, presents the issue of entitlement to indemnification to the stockholders for their determination). Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

 

SECTION 10.4. Advances for Expenses. To the extent that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith. The payment of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article 10 or otherwise.

 

SECTION 10.5. Good Faith Defined. To the fullest extent permitted by applicable law, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term “another enterprise” as used in this Section 10.4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 10.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 10.1 or Section 10.2.

 

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SECTION 10.6. Indemnification by a Court. Any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Sections 10.1 and Section 10.2. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 10.1 or Section 10.2, as the case may be. The absence of any determination thereunder shall not be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 10.5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

 

SECTION 10.7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article 10 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 10.1 and 10.2 of this Article 10 shall be made to the fullest extent permitted by law. The provisions of this Article 10 shall not be deemed to preclude the indemnification of any person who is not specified in Section 10.1 or 10.2 of this Article 10 but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise. The Corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.

 

SECTION 10.8. Insurance. To the fullest extent permitted by the DGCL or any other applicable law, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was a director, officer, employee or agent of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article 10.

 

SECTION 10.9. Certain Definitions. For purposes of this Article 10, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article 10.

 

SECTION 10.10. Survival of Indemnification and Advancement of Expenses. The rights to indemnification and advancement of expenses conferred by this Article 10 shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, administrators and other personal and legal representatives of such a person.

 

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SECTION 10.11. Limitation on Indemnification. Notwithstanding anything contained in this Article 10 to the contrary, the Corporation shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

 

10.11.1   for which payment has actually been made to or on behalf of the party seeking indemnification under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or

10.11.2   for an accounting of profits made from the purchase and sale (or sale and purchase) by the director or officer of securities of the Corporation within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or

10.11.3   in connection with any proceeding (or any part of any proceeding) initiated by person seeking indemnification, including any proceeding (or any part of any proceeding) initiated by the person seeking indemnification against the Corporation or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the proceeding (or any part of any proceeding) prior to its initiation, or (ii) the Corporation provides the indemnification, in its sole discretion, pursuant to the powers vested in the Corporation under applicable law; or

10.11.4   for conduct that is determined to be in violation of federal or state insider trading laws; or

10.11.5   conduct that is determined to be knowingly fraudulent or deliberately dishonest or to constitute willful misconduct.

SECTION 10.12. Indemnification of Employees and Agents. The Corporation may, but shall not be required to, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article 10 to directors and officers of the Corporation.

 

SECTION 10.13. Effect of Amendment or Repeal. Neither any amendment or repeal of any Section of this Article 10, nor the adoption of any provision of the Certificate of Incorporation or the Bylaws inconsistent with this Article 10, shall adversely affect any right or protection of any director, officer, employee or other agent established pursuant to this Article 10 existing at the time of such amendment, repeal or adoption of an inconsistent provision, including without limitation by eliminating or reducing the effect of this Article 10, for or in respect of any act, omission or other matter occurring, or any action or proceeding accruing or arising (or that, but for this Article 10, would accrue or arise), prior to such amendment, repeal or adoption of an inconsistent provision.

 

SECTION 10.14. Lawsuit for Expenses. The Corporation shall be entitled to bring a lawsuit against any stockholder that shall sue or otherwise commence an action against the Corporation for reimbursement of the litigation expenses of the Corporation in the event that such stockholder is not successful in proving a substantial portion of the material claims filed against the Corporation. In the event that the Corporation and the Stockholder shall settle the litigation, the Stockholder shall not be responsible for the litigation expenses of the Corporation.

 

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ARTICLE 11

MISCELLANEOUS

 

SECTION 11.1. Books. The books of the Corporation may be kept within or without the State of Delaware (subject to any provisions contained in the DGCL) at such place or places as may be designated from time to time by the Board of Directors.

 

SECTION 11.2. Fiscal Year. The fiscal year of the Corporation shall be such fiscal year as may be designated by the Board of Directors.

 

SECTION 11.3. Ratification. Any transaction, questioned in any lawsuit on the ground of lack of authority, defective or irregular execution, adverse interest of director, officer or stockholder, non-disclosure, miscomputation or the application of improper principles or practices of accounting, may be ratified before or after judgment, by the Board of Directors or by the stockholders, and if so ratified shall have the same force and effect as if the questioned transaction had been originally duly authorized. Such ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction.

 

ARTICLE 12

AMENDMENTS

 

These Bylaws may be amended, altered or repealed by the vote of a majority of the Board of Directors; provided, however, that the holders of two-thirds of the outstanding stock of the Corporation entitled to vote in respect thereof, may, by their vote given at an annual meeting or at any special meeting, amend or repeal any Bylaw made by the Board of Directors; provided, however, that no such change to any Bylaw shall alter, modify, waive, abrogate or diminish the Corporation’s obligation to provide the indemnity called for by Article 10 of these Bylaws, the Certificate of Incorporation or applicable law.

 

# # #

 

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Exhibit 10.1

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This Agreement, dated as of March 1, 2008 (the "Effective Date"), is between Quest Patent Research Corporation, a Delaware corporation, (the "Company") and Burton Goldstein, an individual ("Employee").

 

1. Term: The Company shall employ Employee for the period (the "Term") commencing on the Effective Date and ending upon the earlier of (i) the seventh anniversary of the Effective Date; or (ii) the date upon which Employee's employment is terminated in accordance with Section 5.

 

2. Position and Responsibilities

 

2.A. Position: Employee is employed by the Company to render services to the Company in the position of Chairman of the Board of Directors Employee shall perform such duties and responsibilities as are normally related to such position in accordance with the standards of the industry and any additional duties now or hereafter assigned to Employee by the Board of Directors. Employee shall abide by the Company's rules, regulations, and practices as they may from time-to-time be adopted or modified.

 

2.B. Other Activities: Except upon the prior written consent of the Company, Employee will not, during the Term, engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that might interfere with Employee's duties and responsibilities hereunder or create a conflict of interest with the Company. During the Term, Employee shall devote a substantial amount of his business time and attention to the Company except for such time as Employee shall devote to his other separate non-conflicting business interests.

 

2.C. No Conflict: Employee represents and warrants that Employee's execution of this Agreement, his employment with the Company, and the performance of his proposed duties under this Agreement shall not violate any obligations Employee may have to any other employer, person or entity, including any obligations with respect to proprietary or confidential information of any other person or entity.

 

3. Compensation and Benefits

 

3.A. Base Salary: In consideration of the services to be rendered under this Agreement, the Company shall pay Employee a salary at the rate of two hundred thousand ($200,000) Dollars per year ("Base Salary"). The Base Salary shall be paid as funds are available in accordance with compensation policies to be determined by the Company from time to time.. Employee's Base Salary will be reviewed at least annually in accordance with the Company's established procedures for adjusting salaries for similarly situated employees and may be increased in the sole discretion of the Company's Compensation Committee. The Base Salary may not be decreased, except upon a mutual written agreement between the parties. Unpaid salary under this agreement shall be accrued until paid.

 

Executive Employment Agreement - Burton GoldsteinPage 1
 

 

3.B. Signing Bonus: As a signing bonus, and as consideration for Employee's deference of base salary until such time as the company is in a position to pay such salary, the Company shall transfer to Employee 5,000,000 cashless Warrants of the Company's Common Stock, with a strike price of $0.004 per share, said Warrants to expire on the expiration date of this Employment Agreement. Said Warrants shall be considered fully vested as of the execution date of this Employment Agreement.

 

3.C. Regular Bonus: Employee shall be entitled to receive an annual bonus from a bonus pool to be established by the Company for certain key employees. The amount of the bonus pool as well as Employee's bonus shall be determined on an annual basis by the Board of Directors but it is anticipated that Employee's bonus shall not be less than fifty thousand ($50,000) dollars.

 

3.D. Stock and Stock Options: Employee currently owns Common Stock and/or Preferred Stock in the Company. The Company's Compensation Committee, in its sole discretion, may grant Employee one or more stock, stock options, warrants or other equity rights.

 

3.E(1) Employee Representations: In connection with the Warrants in the Common Stock to be granted to Employee pursuant to Section 3.B and any future grants of stock, stock options, warrants or other equity rights pursuant to this Section 3.D, Employee represents and warrants that:

 

3.E(1)(a) Employee is an "accredited investor" within the meaning of Rule 501 of the General Rules and Regulations under the Securities Act of 1933, as amended;

 

3.E(1)(b) Employee has sufficient knowledge and experience in financial and investment matters so that Employee is able to evaluate the risks and merits of Employee's investment in the Company's Stock and is able financially to bear the economic risks thereof;

 

3.E(1)(c) Employee will acquire the Warrants in the Company Stock for Employee's own account and not with a view to or for sale in connection with any distribution thereof in violation of any securities laws, and Employee has no present or future intention of selling or distributing any of such securities in violation of any securities laws; and

 

3.E(1)(d) Employee is familiar with the business and financial condition, properties and operations and prospects of the Company, and has been afforded the opportunity to ask questions and receive answers from the Company's officers and directors concerning the business and financial condition. Properties, operations and prospects of the Company, and has asked such questions as Employee desires to ask and all such questions have been answered to Employee's full satisfaction.

 

Executive Employment Agreement - Burton GoldsteinPage 2
 

 

3.E(2) Stock Certificate Legend: The Company may, if required by securities laws, cause to conspicuously appear on all Stock Certificates representing the Company's Stock which are issued and delivered to Employee, upon exercise of Warrants, pursuant to the provisions of Section 3.B or this Section 3.D, the legend set forth below, the provisions of which are agreed to by Employee:

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL (I) SUCH OFFERING AND SALE OR OTHER TRANSFER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,

 

OR (II) THE HOLDER HEREOF PROVIDES THE COMPANY WITH (A) A WRJT FEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED TRANSFER OF SUCH SECURITY MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT, OR (B) SUCH OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER OF THIS SECURITY MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT.

 

3.F. Benefits: The Company will provide Employee with benefits in accordance with the benefit plans established by the Company for similarly-situated executives from time to time in the Company's sole discretion. The Company will seek to establish a medical and dental insurance plan and a 401K Plan as promptly as practicable after the Effective Date. The Company shall also provide Employee with at least four weeks of paid vacation leave annually, which shall be governed by the Company's regular policies and practices regarding vacation leave (as may be amended from time to time in the Company's sole discretion).

 

3.G. Expenses: The Company shall reimburse Employee for all reasonable business expenses incurred in the performance of his duties hereunder in accordance with the Company's expense reimbursement guidelines.

 

3.H. Company Vehicle: The Company, when it is financially able to do so, will pay the cost of leasing or owning a Company vehicle for Company use, which shall be a full-sized sedan or a full-sized truck or sport utility vehicle. In addition, the Company will reimburse Employee for all operating expenses, maintenance and fees, including but not limited to, automobile insurance. In the event Employee's employment is terminated, the Employee will promptly surrender the vehicle to the Company pursuant to this Section 3.G.

 

3.I. Laptop Computer/Cellular Telephone: The Company will provide Employee with a laptop computer, with normal business software installed, and a cellular phone PDA/Smart Phone.

 

Executive Employment Agreement - Burton GoldsteinPage 3
 

 

3.J. Indemnification: The Company agrees to defend and indemnify Employee against any liability that Employee incurs within the scope of his employment with the Company to fullest extent permitted by the Company's articles and by-laws and applicable state corporate law.

 

4. Forgiveness of Salary Accrued Prior To Effective Date

 

4.A. As further and additional consideration for entering into this Employment Agreement, Employee hereby relinquishes and forgives all deferred salary and all benefits accrued prior to the Effective Date hereof.

 

5. Termination of Employment; Severance

 

5.A. Termination By the Company: The Company may terminate Employee's employment with the Company for Cause prior to the scheduled expiration date of the Term.

 

5.B. Severance: If Employee's employment is terminated by the Company prior to the scheduled expiration date of the Term (other than a termination by the Company for Cause), Employee will be eligible to receive the following: (i) an amount equal three (3) times employee's average annual total compensation, calculated by averaging the total salary and bonus compensation for the five years prior to termination ("Severance") payable as follows: 50% of the Severance shall be paid as a lump sum within a reasonable period not to exceed sixty (60) days following the termination date and 50% of the Severance will be paid as salary continuation for twelve (12) months following the termination date; and (ii) reimbursement for any COBRA payments made by Employee for COBRA coverage during the twelve (12) months following the termination date. Employee shall not be entitled to any Severance payments or benefit continuation unless Employee executes a general release in favor of the Company in customary form to be provided by the Company. Employee shall not be entitled to any other payments or benefits upon termination of his employment pursuant to this Section 5.B, except as provided in Section 6.E and Section 3.1.

 

5.C. Termination For Cause: For purposes of this Agreement, "Cause" shall mean: (i) Employee commits a crime involving dishonesty, breach of trust, or physical harm to any person;

 

(ii) Employee willfully engages in conduct that is in bad faith and materially injurious to the Company, including but not limited to, misappropriation of trade secrets, fraud or embezzlement;

 

(iii) Employee commits a material breach of this Agreement, which breach is not cured within twenty (20) days after written notice to Employee from the Company; (iv) Employee willfully fails to implement or follow a reasonable and lawful policy or directive of the Company, which breach is not cured within twenty (20) days after written notice to Employee from the Company; or (v) Employee engages in a pattern of failure to perform job duties diligently and professionally, which pattern is not cured within twenty (20) days after written notice to Employee from the Company. Prior to the date of any termination for Cause, the Company's Board of Directors shall meet and the Employee shall have an opportunity to present to the Board any information relevant to the event constituting Cause, unless waived by Employee.

 

Executive Employment Agreement - Burton GoldsteinPage 4
 

 

The Company may terminate Employee's employment For Cause at any time, without any advance notice. Upon any termination for Cause pursuant to this Section 4.C, the Company shall pay to Employee all compensation to which Employee is entitled up through the date of termination, and thereafter, all of the Company's obligations under this Agreement shall cease, except as provided in Section 6.E and Section 3.1.

 

5.D. By Disability: If Employee becomes eligible for the Company's long term disability benefits or if, in the reasonable opinion of the Company's Board of Directors, Employee shall be unable to carry out the responsibilities and functions of the position held by Employee by reason of any physical or mental impairment for more than forty-five (45) consecutive days or more than sixty (60) days in any twelve-month period, then, to the extent permitted by law, the Company may terminate Employee's employment for "Disability". Upon any termination for Disability pursuant to this Section 5.D, the Company shall pay to Employee all compensation to which Employee is entitled up through the date of termination, and thereafter, Company shall continue to pay Employee's salary and bonus for a period not to exceed two (2) years from the date of termination for Disability. Nothing in this Section shall affect Employee's rights under any disability plan in which he is a participant.

 

5.E. Termination By Employee: Employee may terminate his/her employment with the Company at any time for any reason, including no reason at all, upon sixty (60) days advance written notice. The Company shall have the option, in its sole discretion, to make Employee's termination effective at any time prior to the end of such notice period as long as the Company provides Employee with all compensation to which he is entitled up through the last day of the sixty (60) day notice period. Thereafter, all obligations of the Company under this Agreement shall cease, except as provided in Section 6.E and Section 3.1.

 

5.F. By Death: Employee's employment shall terminate automatically upon his death. The Company shall pay to Employee's beneficiaries or estate, as appropriate, any compensation then due and owing through the date of death. Thereafter, all obligations of the Company under this Agreement shall cease, except as provided in Section 6.E and Section 3.!. Nothing in this Section shall affect any entitlement of Employee's heirs to the benefits of any life insurance plan or other applicable benefits.

 

6. Additional Termination Obligations

 

6.A. Employee agrees that all property, including, without limitation, all equipment, tangible proprietary information, documents, records, notes, contracts, and computer-generated materials provided to or prepared by Employee incident to his or her employment belong to the Company and shall be promptly returned to the Company upon termination of Employee's employment.

 

6.B. Upon termination of Employee's employment, Employee shall be deemed to have resigned from all offices and directorships then held with the Company. Following any termination of employment, Employee shall cooperate with the Company in the winding up or transferring to other employees of any pending work and shall also cooperate with the Company in the defense of any action brought by any third party against the Company that relates to Employee's employment by the Company.

 

Executive Employment Agreement - Burton GoldsteinPage 5
 

 

6.C. Employee agrees that following termination of his or her employment, Employee shall not access or use any of the Company's computer systems, e-mail systems, voicemail systems, intranet system or other system, except as authorized by the Company in writing.

 

6.D. Intentionally Omitted.

 

6.E. Upon any termination of Employee's employment with the Company, including as a result of the expiration of the Term, Employee shall be entitled to all benefits as provided in applicable Company benefit plans, any salary earned through the date of such termination, and reimbursement of all expenses incurred through the date of termination in accordance with the Company's policies.

 

7. Inventions and Proprietary Information; Nonsolicitation

 

7.A. Employee acknowledges that because of his/her position in the Company, Employee will have access to intellectual property and confidential information. During the term of his employment (plus any period in which the Company is paying the Employee Severance) and for one (1) year thereafter, Employee shall not, for Employee or any third party, directly or indirectly, (i) interfere with any business of any kind in which the Company (or any affiliate) is engaged, including, without limitation, by conducting business with, diverting or attempting to divert any of its suppliers or customers, or (ii) solicit, induce, recruit, hire or encourage any person employed by the Company during the preceding six months to leave their employment with the Company. If Employee voluntarily leaves his employment with the Company during the term of the employment, Employee agrees not to take any job or position or engage in any activity or business in direct competition with the business activities of the Company as of the last day of Employee's services for the Company. This agreement not to compete with the Company shall be for a period of two (2) years following Employee's voluntary separation from the Company and shall apply to any business activities throughout the United States.

 

8. If anyone or more provisions of this Section 6 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

 

9. Dispute Resolution.  The parties agree that any dispute between Employee (and his or her attorneys, successors, and assigns) and the Company (and its affiliates, shareholders, directors, officers, employees, members, agents, successors, attorneys, and assigns) relating in any manner whatsoever to Employee's employment or termination of employment shall be submitted to mandatory arbitration before a tribunal of the American Arbitration Association and of the rules promulgated there under, such arbitration to be before a single arbitrator. The arbitration shall be commenced only in the City and State of New York.

 

Executive Employment Agreement - Burton GoldsteinPage 6
 

 

10. Employee acknowledges that he is obligated under this Agreement to render services of a special, unique, unusual, extraordinary and intellectual character, thereby giving this Agreement peculiar value so that the loss thereof cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, in addition to other remedies provided by law, the Company shall have the right to injunctive relief for any actual or threatened violation of Section 6 of this Agreement in addition to any other remedies it may have.

 

11. Entire Agreement: This Agreement is intended to be the final, complete. and exclusive statement of the terms of Employee's employment by the Company and may not be contradicted by evidence of any prior or contemporaneous statements or agreements, except for agreements specifically referenced herein (including the Company's Proprietary Information and Inventions Agreement, attached as Exhibit A, and any agreements related to the stock currently held by Employee).

 

12. Amendments: Waivers: This Agreement may not be amended except by a writing signed by Employee and by a duly authorized representative of the Company other than Employee. Delay or failure of either party to exercise any right under this Agreement shall not constitute a waiver of such right by such party.

 

13. Assignment: Employee agrees that Employee will not assign any rights or obligations under this Agreement. Nothing in this Agreement shall prevent the consolidation. merger or sale of the Company or a sale of all or substantially all of its assets.

 

14. Severability: if any provision of this Agreement shall be held by a court or arbitrator to be invalid. unenforceable, or void, such provision shall be enforced to fullest extent permitted by law, and the remainder of this Agreement shall remain in full force and effect. In the event that the time period or scope of any provision is declared by a court or arbitrator of competent jurisdiction to exceed the maximum time period or scope that such court or arbitrator deems enforceable, then such court or arbitrator shall reduce the time period or scope to the maximum time period or scope permitted by law.

 

15. Taxes: All amounts paid under this Agreement (including, without limitation. Base Salary Signing Bonus and Severance) shall be paid less all applicable state and federal tax withholdings.

 

16. Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

 

Executive Employment Agreement - Burton GoldsteinPage 7
 

 

17. Interpretation: This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party. Captions are used for reference purposes only and should be ignored in the interpretation of the Agreement.

 

18. Binding Agreement: Each party represents and warrants to the other that the person(s) signing this Agreement below has authority to bind the party to this Agreement and that this Agreement will legally bind both the Company and Employee. This Agreement will be binding upon and benefit the parties and their heirs, administrators, executors, successors and permitted assigns. To the extent that the practices, policies, or procedures of the Company, now or in the future, are inconsistent with the terms of this Agreement, the provisions of this Agreement shall control. Any subsequent change in Employee's duties or compensation will not affect the validity or scope of the remainder of this Agreement.

 

19. Employee Acknowledgment: Employee acknowledges Employee has had the opportunity to consult legal counsel concerning this Agreement, that Employee has read and understands the Agreement, that Employee is fully aware of its legal effect, and that Employee has entered into it freely based on his own judgment and not on any representations or promises other than those contained in this Agreement.

 

20. Date of Agreement: The parties have duly executed this Agreement as of the date first written above.

 

IN WITNESS WHEREOF the undersigned have executed this Agreement as of the day and year first written above. The parties hereto agree that facsimile signatures shall be as effective as if originals.

 

Quest Patent Research Corporation   Burton Goldstein
         
By: /s/ Herbert M. Reichlin   By: /s/ Burton Goldstein
         
Its: Chief Executive Officer      

 

 

Executive Employment Agreement - Burton Goldstein Page 8

 



Exhibit 10.2

 

SEPARATION AGREEMENT AND MUTUAL GENERAL RELEASE

 

This Separation Agreement and Mutual General Release (“Agreement”) is made and entered into by and between Burton A. Goldstein (the “Executive”) and Quest Patent Research Corporation, a Delaware corporation (the “Company”).

 

WHEREAS, Executive had been employed by the Company since on or about December 1, 1997, and is a party to an Employment Agreement with the Company dated March 1, 2008 (the “Employment Agreement”) and Executive’s employment with the Company was terminated on June 20, 2014 (the “Termination Date”);

 

WHEREAS, under the terms of the Employment Agreement the Executive was granted five (5) million warrants to purchase the common stock of the Company at an exercise price of $0.004, the warrants vested upon execution of the Employment Agreement and expire on March 1, 2015 (the “2008 Warrants”);

 

WHEREAS, the Executive claims principal and accrued interest of approximately $12,500 and $13,440 respectively on various loans Executive made to the Company during the period from approximately February 2002 through June 2003 (the “Goldstein Loan”);

 

WHEREAS, Executive resigned from the Board of Directors of the Company on August 27, 2014 (the “Resignation Date”);

 

WHEREAS, on August 4, 2014, the Company filed a complaint in the Court of Chancery for the State of Delaware for a declaratory judgment seeking to have the Court declare the Employment Agreement void ab initio (the “Delaware Action”); and

 

WHEREAS, the parties desire to settle all claims and issues that have, or could have been raised, in relation to the Delaware Action, the Goldstein Loan, the Executive’s employment with, and/or service as a member of the Board of Directors (the “Board”) of the Company and arising out of or in any way related to the acts, transactions or occurrences between Executive and Company to date, including, but not limited to, the Delaware Action, the Goldstein Loan, and the Executive’s employment with, and/or service as a member of the Board of Directors of the Company or the termination of that employment, on the terms set forth herein.

 

NOW, THEREFORE, for and in consideration of the mutual promises and the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Executive, intending to be legally bound, hereby agree as follows:

 

1.Definitions. Terms defined in the preamble have their assigned meanings, and the following terms have the meanings assigned to them.

 

1.1.“Claims” means any and all legally waivable claims, wages, demands, rights, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, debts, costs, expenses, attorneys’ fees, damages, judgments, orders, liabilities, complaints, controversies and promises of any kind or nature whatsoever, in law or equity, known or unknown, suspected or unsuspected, and whether or not concealed or hidden.

 

 
 

 

1.2.“Company Affiliates” means the Company’s direct and indirect subsidiaries, affiliates, companies, divisions, and units.

 

1.3.“Company Information” means all Company documentation and data including, without limitation all financial information, accounting records, corporate records, data, materials, papers, books, files, documents, records, reports, memoranda, customer information and lists, marketing information, data base information and lists, mailing lists, shareholder lists, and notes, including but not limited to any property describing or containing any Confidential Information; stamps, seals; and all other property which Executive received, prepared, helped prepare or had prepared by a third party on behalf of Company or at Executive’s direction in connection with and in the course of Executive’s employment with the Company or otherwise in Executive’s possession or control.

 

1.4.“Confidential Information” means information related to the business of the Company that is not publicly available including attorney client communications, certain financial information concerning the business of the Company, and proprietary business materials.

 

1.5.“Net Revenues of the Company” means, with respect to any calendar year, gross revenues from all Patent Enforcement Proceedings less the cost of all (i) associated attorneys’ fees; (ii) disbursements, distributions or payments to investors under funding agreements; and (iii) distributions to partners with a contractual right to share in the proceeds, such as for example: Allied Standard Limited, The Betting Service Limited, Neil Riches, and Sol Li. To the extent the Company has other revenues from the sale of other products or services not related to or derived from patents, Net Revenues of the Company is hereby further defined to include gross revenues from the sale of any such products or services less the cost of those goods or services sold.

 

1.6.“Patent Enforcement Proceedings” means any and all activities related in any way to patents, including, but not limited to, (i) patent licensing; (ii) judgments, settlements and/or agreements related to patents; and (iii) patent sales. This definition of Patent Enforcement Proceedings is intended by the parties to have the broadest possible application.

 

1.7.“Qualifying Year” means any calendar year during which Net Revenues of the Company exceed one-million five-hundred thousand dollars (US$1,500,000.00).

 

1.8.“Released Parties” means the Company, the Company Affiliates, and associated organizations, past and present, and each of them, as well as its and their trustees, directors, officers, shareholders, agents, attorneys, employees, contractors, insurers, representatives, assigns, and successors, past and present, and each of them.

 

1.9.“Separation Date” means the effective date of this Agreement as evidenced by signature of the parties.

 

1.10.“Separation Package” has the meaning assigned in Section 4.

 

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2.Termination of Employment Agreement; Other Agreements and Plans. Executive and the Company mutually acknowledge and agree that the Employment Agreement is hereby terminated, and that the Employment Agreement, along with any other agreement between the Executive and the Company, are of no further force and effect and are superseded as of the Separation Date. Notwithstanding the foregoing, the Executive shall retain the 2008 Warrants (as defined above) as set forth in Section 4.1 below. All terms and conditions relating to Executive's separation from the Company and the Company's entire obligations with respect thereto shall be as set forth in this Agreement. In addition, and for the avoidance of doubt, this Agreement supersedes any and all agreements set forth in the Employment Agreement and any other agreement between the Company and Executive with respect to compensation and termination of benefits and the Company's obligations with respect thereto, including, but not limited to, annual base salary, cash bonuses, warrants to purchase the stock of the Company, loan repayment obligations, and any other fringe benefits and perquisite programs.

 

3.Termination and Resignation. The Executive’s employment with the Company and the Company Affiliates terminated effective as of the Termination Date. The Executive resigned from any and all directorships on the Board of the Company or Company Affiliates as of the Resignation Date. From and after the Separation Date, Executive will not be, and will not hold himself out as, an employee, officer or director of the Company and will not say or do anything purporting to bind the Company. Executive agrees that, given his termination and resignation from the Company, Executive no longer serves in any and all officer, committee and/or director positions, if any, that he held with Company, effective as of the Resignation Date. The Executive understands and agrees that from and after the Resignation Date, he was no longer authorized to incur any expenses, obligations or liabilities on behalf of the Company or the Company Affiliates.

 

4.Separation Package. Subject to the provisions detailed in this Section 4, Company agrees to provide Executive with the following Separation Package set forth herein. Executive acknowledges and agrees that this Separation Package is the Executive’s exclusive compensation and remedy with respect to his separation from the Company and that this Separation Package constitutes adequate legal consideration for the promises and representations made by him in this Agreement.

 

4.1.Equity Consideration. The Executive shall retain the 2008 Warrants and Company shall provide to Executive an executed warrant grant in the form attached hereto as Exhibit A, dated as of the execution of this Agreement.

 

4.2.Cash Consideration.

 

4.2.1.Payment. The Company shall pay the Executive the total sum of two-hundred fifty thousand dollars (US$250,000.00) (the “Cash Consideration”) as follows:

 

Beginning with calendar year 2015, and continuing until the Cash Consideration is paid in full, an amount equal to three and one-quarter percent (3.25%) of Net Revenues of the Company in any Qualifying Year.

 

For the avoidance of doubt, in the event that the Company's Net Revenues in a specific calendar year total $1,500,000 or less, Executive shall be entitled to be paid the sum of $0.00. If Net Revenues in a specific calendar year total $1,600,000, Executive shall be entitled to be paid the sum of $52,000 ($1,600,000 x 3.25%) for that specific calendar year.

 

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4.2.2.Timing of Payment. Payment, if any, under this Section 4.2 shall be made no later than April15th in the year following a Qualifying Year but shall not exceed one-hundred twenty-five thousand dollars (US$125,000.00) in any year payment is made.

 

5.No Other Consideration. Executive agrees that Executive will not seek any payment, benefit, compensation or consideration of any kind from Company arising from Executive’s employment with the Company through the Separation Date, or any purported loan to or note obligation of the Company other than as set forth in Section 4. Except as specifically provided for in Section 4, the Executive shall not be entitled to receive any compensation or benefits of employment from the Company or any Company Affiliate following the Separation Date.

 

6.Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. The first twelve thousand five hundred dollars (US$12,500) in payments of Cash Consideration provided for in Section 4.2 will be considered a return of principal in relation to the Goldstein Loan and the remaining payments will be reported on an IRS Form 1099 and will not be subject to withholdings or deductions. Executive understands and agrees that the Company is providing him with no representations regarding tax obligations or consequences that may arise from this Agreement and the issuance of the consideration provided for herein, Executive agrees to be solely responsible for the payment of all applicable income, transfer, sales, use and other taxes under federal, state, local or other law, and any other charges of any type or kind which are or may become due and owing by Executive as a result of the payments or transfers or use of property from the Company to the Executive hereunder, without seeking any further payment from the Company

 

7.Accounting. For every calendar year beginning with 2014, the Company shall provide the Executive with a detailed written accounting regarding the Net Revenues of the Company for such year. This accounting shall contain information sufficient to calculate the Net Revenues of the Company and shall provide detail about the specific categories set forth in the definition of Net Revenues of the Company as set forth in Section 1.5 above. This Accounting shall be provided by the Company to the Executive within ninety (90) days of the conclusion of the calendar year at issue. The Executive may request additional information about the calculation of Net Revenues of the Company and the Company shall provide such information on a timely basis. In the event that the gross revenues of the Company do not exceed $1,500,000 in a specific calendar year, the Company shall have no obligation to account to Executive during that calendar year provided that the Company has filed its 10K for that calendar year.

 

8.Release.

 

8.1.Executive does hereby unconditionally, irrevocably and absolutely release, acquit, forever discharge, and agree to hold the Released Parties, and Company does hereby unconditionally, irrevocably and absolutely release, acquit, forever discharge, and agree to hold the Executive, harmless from all Claims related in any way to the transactions or occurrences between them to date and all actions taken by Executive on behalf or relating to the Company, in either case to the fullest extent permitted by law, including, but not limited to, Executive’s employment with the Company, the termination of Executive’s employment with the Company, Executive’s service on the Board, the Goldstein Loan, and all other Claims arising directly or indirectly out of or in any way connected with the Executive’s employment with the Company and service on the Board. This release is intended to have the broadest possible application and includes, but is not limited to, any tort, contract, common law, constitutional or other statutory claims, all claims for reprisal or retaliation under federal or state law, and all claims for attorney’s fees, costs and expenses.

 

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8.1.1.For the avoidance of doubt, with respect to the Goldstein Loan, to the extent any valid loan obligation to Executive exists, Executive does hereby unconditionally, irrevocably and absolutely release, acquit, forever discharge, and forgive all principal and accrued interest owed, or claimed to be owed, to Executive by the Released Parties.

 

8.1.2.For the avoidance of doubt, with respect to any claim by Executive to accrued compensation under any agreement, or purported agreement, at any time between Executive and the Company, Executive does hereby unconditionally, irrevocably and absolutely release, acquit, forever discharge all such accrued compensation owed, or claimed to be owed, to Executive by the Released Parties.

 

8.2.The parties acknowledge that they may discover facts or law different from, or in addition to, the facts or law that they know or believe to be true with respect to the Claims released in this Agreement and agree, nonetheless, that this Agreement and the releases contained in it shall be and remain effective in all respects notwithstanding such different or additional facts or the discovery of them.

 

8.3.The parties declare and represent that they intend this Agreement to be complete and not be subject to any claim of mistake, and that the releases herein express final, full and complete releases, and regardless of the adequacy or inadequacy of the consideration, the parties intend the releases herein to be final and complete. The parties execute these releases with the full knowledge that these releases cover all possible claims between them to date, to the fullest extent permitted by law, except as otherwise provided in this Agreement.

 

8.4.The parties expressly waive their right to recovery of any type, including damages or reinstatement, in any administrative or court action, whether state or federal, and whether brought by either party, or on either party's behalf, related in any way to the matters released herein.

 

8.5.The general release and other provisions contained in this Section 8 shall become effective immediately upon execution of this Agreement by the Parties.

 

8.6.Notwithstanding paragraphs 8.1 – 8.5 above, the parties do not release and discharge (a) any claim for breach of this Agreement; and any claim that cannot be released by law.

 

9.Representations Concerning Legal Actions. Executive represents that, as of the date of this Agreement, he has not filed any lawsuits, charges, complaints, petitions, claims or other accusatory pleadings against Company or any of the other Released Parties in any court or with any governmental agency. Executive further agrees that, to the fullest extent permitted by law, he will not prosecute, nor allow to be prosecuted on his behalf, in any administrative agency, whether state or federal, or in any court, whether state or federal, any claim or demand of any type related to the matters released above, it being the intention of the parties that with the execution of this release, the Released Parties will be absolutely, unconditionally and forever discharged of and from all obligations to or on behalf of Executive related in any way to the matters discharged herein.

 

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10.Dismissal of Delaware Action. The Company covenants that within five (5) days of the effective date of this Agreement, the Executive, or counsel for the Executive, and counsel for the Company shall execute and file a stipulation of dismissal, with prejudice, of the Delaware Action.

 

11.Cooperation by Executive. The Executive agrees to fully cooperate with the Company in accomplishing the separation and agrees to immediately provide the Corporation—including its auditor, counsel, and/or agent—with any and all books, records, paperwork, documentation, memoranda, etc. requested by the Company in the Executive’s possession, custody or control.

 

12.Cooperation by Company. With respect to the 2008 Warrants, in the event the Executive exercises some or all of such warrants, the Company shall take all reasonable and necessary steps in order to ensure that the shares of stock can be issued and shall do so at its own cost and expense.

 

13.Return of Company Information. The Executive represents, warrants and covenants that the Executive has returned to the Company (or will return to the Company within five (5) business days of the execution of this Agreement) any and all Company Information in the Executive’s possession or control. The Company agrees to pay the shipping costs in connection with the Executive’s return of such documents.

 

13.1.Third Party Possession. To the extent Executive is unable to provide certain Company Information, the Executive shall at the time of execution of this Agreement provide an itemized list, attached as Schedule 1, of all such Company Information, the name and contact information for the party in possession of such information, and the reason Executive is unable to regain possession from the third party.

 

14.Confidentiality. Executive acknowledges that, throughout and as an incident to his employment with the Company, the Executive has become acquainted with and received Confidential Information. Accordingly, Executive will not, at any time, reveal, divulge, or make known to any person, firm or corporation any Confidential Information made known to the Executive or of which the Executive has become aware, regardless of whether developed, prepared, devised, or otherwise created in whole or in part by the efforts of the Executive. The Executive further agrees that he will retain all Confidential Information in trust for the sole benefit of the Company, and will not divulge or deliver any Confidential Information to any unauthorized person except as required by the order of any court or similar tribunal or any other governmental body or agency of appropriate jurisdiction. The Executive acknowledges that the Confidential Information is of incalculable value to the Company and is the exclusive property of the Company, and that the Company would suffer irreparable damage if any of the Confidential Information is improperly disclosed or used, and that, therefore, the Company shall be entitled to an injunction, without the posting of any bond or other security, prohibiting Executive from any such disclosure, attempted disclosure, violation or threatened violation. Executive agrees to notify the Company, in writing, at least ten (10) days prior to the response deadline or appearance date (whichever is earlier) for any such court order, subpoena, or notice of deposition issued by the court or investigating agency which seeks disclosure of the information referenced in this section and agrees to cooperate with the Company in obtaining a protective order or such similar protection as the Company may deem appropriate to preserve the confidential nature of such information. The foregoing obligations to maintain the Confidential Information shall not apply to any Confidential Information that is, or without any action by the Executive becomes, generally available to the public.

 

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14.1.Regulatory Filings. The Company shall not be prohibited from filing this Agreement and related agreements with the Securities and Exchange Commission and/or other governmental agencies to the extent required by applicable laws or regulations.

 

15.No Continuing Relationship. The Executive and the Company acknowledge that any employment, contractual or other relationship between the Executive and the Company terminated as of the Separation Date and that they have no further employment, contractual or other relationship except as may arise out of this Agreement and the Executive’s exercise of the 2008 Warrants. The Executive waives any right or claim to reinstatement as an employee of the Company, and will not seek reelection to the Board of the Company at any time in the future.

 

16.No Admission.

 

16.1.Executive acknowledges and agrees that this Agreement is not intended by Company to be construed, and will not in any way be construed, in any legal, administrative or other similar proceeding, as an admission by the Company that it has engaged in, or is now engaging in, wrongful conduct with respect to Executive or any other person, or that Executive has any claims whatsoever against Company, and Company specifically disclaims any liability to or wrongful acts against Executive or any other person, on the part of itself, its employees or its agents.

 

16.2.Company acknowledges and agrees that this Agreement is not intended by Executive to be construed, and will not in any way be construed, in any legal, administrative or other similar proceeding, as an admission by the Executive that he has engaged in, or is now engaging in, wrongful conduct with respect to Company or any other person, or that Company has any claims whatsoever against Executive, and Executive specifically disclaims any liability to or wrongful acts against Company or any other person, on the part of himself or his agents.

 

17.Obligations Regarding Section 16 Reporting. The Executive understands and agrees that the Company will not undertake to file any Forms 4 or 5 or other reports with the Securities and Exchange Commission on his behalf. The Executive further understands and agrees that all responsibility for Section 16 compliance under the Securities Exchange Act of 1934 is his own and that the Company will not have any responsibility or liability with respect to any failure to file (or delinquent filing of) a Form 4 or 5, any violation of Section 16(a) of the Securities Exchange Act of 1934 or any short swing profits under Section 16(b) of that Act.

 

18.Unemployment. The Executive expressly acknowledges and agrees he has no claim to, and will not make any claim for, unemployment benefits, from any federal, state, local government agency or private entity, as a result of his prior employment with the Company, his subsequent termination from the Company, and/or this Agreement.

 

19.No Representation. The Executive agrees and acknowledges that in executing this Agreement he does not rely and has not relied on any representation or statement by any of the Released Parties or by any of the Released Parties’ agents, representatives or attorneys with regard to the subject matter, basis or effect of this Agreement.

 

20.Consultation with Legal Counsel. Executive expressly acknowledges that, before signing this Agreement:

 

20.1.Executive has been given adequate time to decide whether to sign this Agreement, including, without limitation, the waiver and release set forth in Section 8, and Executive does so only after full reflection and analysis;

 

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20.2.Executive was advised of his right to consult with legal counsel and/or other advisors selected by Executive regarding the terms and conditions of this Agreement, and that Executive has obtained and considered such legal counsel as he deems necessary;

 

20.3.Executive knows and understands the contents of this Agreement;

 

20.4.Executive is fully aware of the legal and binding effect of this Agreement; and

 

20.5.Executive enters into this Agreement of his own free will, and without any inducement not described in this Agreement, and not under duress or coercion of any nature, with the full intent of releasing any and all Claims as set forth in this Agreement.

 

21.Remedies. The Company and/or the Executive shall be entitled to injunctive or other equitable relief to enforce the covenants of this Agreement, such relief to be without the necessity of posting a bond, cash or otherwise, without limiting other possible remedies of the Company and/or the Executive.

 

22.No Assignment: The Executive represents that he has not heretofore assigned or transferred, or purported to assign or transfer, to any person or entity, any claim or any portion thereof or interest therein, and the Executive agrees to indemnify, defend and hold harmless each and all of the Released Parties against any and all disputes based on, arising out of, or in connection with any such transfer or assignment, or purported transfer or assignment, of any claims or any portion thereof or interest therein.

 

23.Severability. If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given their intended effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable. If, however, a court of competent jurisdiction finds that any release by the Executive in Section 8 above is illegal, void, or unenforceable, the Executive will promptly sign a release, waiver, and/or agreement that is legal and enforceable to the greatest extent permitted by law.

 

24.Notice. All notices, requests, demands and other communications hereunder to either party shall be in writing and shall be delivered, either by hand, by electronic may, by facsimile, by overnight courier or by certified mail, return receipt requested, duly addressed as indicated below or to such changed address as the party may subsequently designate:

 

To the Company:

 

Jon Scahill, President & CEO

 

411 Theodore Fremd Ave., Suite 206S, Rye, NY 10580

 

Email: jscahill@qprc.com

 

Fax: 800-411-1560

 

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Copy to attorney for the Company:

 

Alfred Fabricant, Partner Brown Rudnick LLP

 

7 Times Square, New York, New York 10036

 

Email: afabricant@brownrudnick.com

 

Fax: 212-938-2983

 

To the Executive:

 

Burton Goldstein

 

22 Herb Hill Rd., Glen Cove, NY 11542

 

Email: brtnglds@yahoo.com

 

25.Governing Law and Jurisdiction. This Agreement is made and shall be interpreted, enforced and governed under Delaware law, without regard to conflict of laws principles. Any and all disputes arising out of or relating to this Agreement shall be resolved exclusively in the Delaware Chancery Court, and both the Company and the Executive hereby submit to the personal jurisdiction of that court for purposes of resolving any such disputes.

 

26.Counterparts. This Agreement may be executed in one or more counterparts. The execution of a signature page of this Agreement shall constitute the execution of the Agreement, and the agreement shall be binding on each party upon the date of signature, if each party executes such counterpart. A copy, facsimile or electronically transmitted signatures shall be given the same force and effect as original signatures.

 

27.Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Executive and the Company (and the Released Parties) and each party’s respective heirs, representatives, executors, administrators, successors and assigns.

 

28.Construction. Throughout this Agreement, nouns, pronouns and verbs will be construed as masculine, feminine, neuter, singular or plural, whichever will be applicable. All references herein to "Sections" will refer to corresponding provisions of this Agreement. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. The word "including" will mean including without limitation. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

29.Expenses. Each of the parties hereto shall pay its own fees and expenses incurred in connection with this Agreement and the consummation of the transactions contemplated hereby.

 

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30.Entire Agreement: This Agreement is intended to and does constitute and contain the entire agreement and understanding concerning: the Executive’s employment with and separation from the Company; the Goldstein Loan; and the other subject matters addressed herein between the parties, and supersedes and replaces all prior negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matters hereof. It is agreed that there are no collateral agreements or representations, written or oral, regarding the terms and conditions of the Executive’s employment with and separation from the Company, the Goldstein Loan, and settlement of all claims between the parties other than those set forth in this Agreement. The Executive represents and agrees that no promises, statements or inducements have been made to him which caused him to sign this Agreement other than those which are expressly stated in this Agreement. This is an integrated document and may not be altered except by written agreement signed by an officer designated by the Company, and the Executive.

 

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, AND INTENDING TO BE LEGALLY BOUND, THE PARTIES TO THIS AGREEMENT HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW AND SHALL BE EFFECTIVE AS TO SEPARATE PORTIONS HEREOF ON THE RESPCETIVE DATES SET FORTH BELOW.

 

QUEST PATENT RESEARCH CORPORATION   BURTON A. GOLDSTEIN
     
BY: /s/ Jon C. Scahill   BY: /s/ Burton A. Goldstein
       Jon Scahill, President & CEO    
DATE: October 10, 2014   DATE: October 10, 2014

 

 

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Exhibit 10.3

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This Agreement, dated as of March 1, 2008, (the "Effective Date"), is between Quest Patent Research Corporation, a Delaware corporation, (the "Company") and Herb Reichlin, an individual ("Employee").

 

1. Term: The Company shall employ Employee for the period (the "Term") commencing on the Effective Date and ending upon the earlier of (i) the tenth anniversary of the Effective Date; or (ii) the date upon which Employee's employment is terminated in accordance with Section 5.

 

2. Position and Responsibilities

 

2.A. Position: Employee is employed by the Company to render services to the Company in the position of Chief Executive Officer. Employee shall perform such duties and responsibilities as are normally related to such position in accordance with the standards of the industry and any additional duties now or hereafter assigned to Employee by the Board of Directors. Employee shall abide by the Company's rules, regulations, and practices as they may from time-to-time be adopted or modified.

 

2.B. Activities: Except upon the prior written consent of the Company, Employee will not, during the Term, (i) accept any other full time employment, or (ii) engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that might interfere with Employee's duties and responsibilities hereunder or create a conflict of interest with the Company. During the Term, Employee shall devote substantially all of his business time and attention to the Company except for such time as Employee shall devote to his separate accounting practice.

 

2.C. No Conflict: Employee represents and warrants that Employee's execution of this Agreement, his employment with the Company, and the performance of his proposed duties under this Agreement shall not violate any obligations Employee may have to any other employer, person or entity, including any obligations with respect to proprietary or confidential information of any other person or entity.

 

3. Compensation and Benefits

 

3.A. Base Salary: In consideration of the services to be rendered under this Agreement, the Company shall pay Employee a salary at the rate of two hundred fifty thousand ($250,000) Dollars per year ("Base Salary"). The Base Salary shall be paid as funds are available in accordance with compensation policies to be determined by the Company from time to time. Employee's Base Salary will be reviewed at least annually in accordance with the Company's established procedures for adjusting salaries for similarly situated employees and may be increased in the sole discretion of the Company's Compensation Committee. The Base Salary may not be decreased, except upon a mutual written agreement between the parties. Unpaid salary under this agreement shall accrue until paid.

 

Executive Employment Agreement - Herb ReichlinPage 1
 

 

3.B. Signing Bonus: As a signing bonus, and as consideration for Employee's deference of base salary until such time as the company is in a position to pay such salary, the Company shall transfer to Employee 5,000,000 cashless Warrants of the Company's Common Stock, with a strike price of $0.004 per share, said Warrants to expire on the expiration date of this Employment Agreement. Said Warrants shall be considered fully vested as of the execution date of this Employment Agreement.

 

3.C. Regular Bonus: Employee shall receive as an annual bonus 10% of the Company's consolidated income before taxes.

 

3.D. Stock and Stock Options: Employee currently owns Common Stock and/or Preferred Stock in the Company. The Company's Compensation Committee, in its sole discretion, may grant Employee one or more stock, stock options, warrants or other equity rights.

 

3.E. Employee Representations: In connection with the Warrants in the Common Stock to be granted to Employee pursuant to Section 3.B and any future grants of stock, stock options, warrants or other equity rights pursuant to this Section 3.D, Employee represents and warrants that:

 

3.E(1)(a) Employee is an "accredited investor" within the meaning of Rule 501 of the General Rules and Regulations under the Securities Act of 1933, as amended;

 

3.E(1)(b) Employee has sufficient knowledge and experience in financial and investment matters so that Employee is able to evaluate the risks and merits of Employee's investment in the Company's Stock and is able financially to bear the economic risks thereof;

 

3.E(1)(c) Employee will acquire the Warrants in the Company Stock for Employee's own account and not with a view to or for sale in connection with any distribution thereof in violation of any securities laws, and Employee has no present or future intention of selling or distributing any of such securities in violation of any securities laws; and

 

3.E(1)(d) Employee is familiar with the business and financial condition, properties and operations and prospects of the Company, and has been afforded the opportunity to ask questions and receive answers from the Company's officers and directors concerning the business and financial condition, properties, operations and prospects of the Company, and has asked such questions as Employee desires to ask and all such questions have been answered to Employee's full satisfaction.

  

Executive Employment Agreement - Herb ReichlinPage 2
 

 

3.E(2) Stock Certificate Legend: The Company may, if required by securities laws, cause to conspicuously appear on all Stock Certificates representing the Company's Stock which are issued and delivered to Employee, upon exercise of Warrants, pursuant to the provisions of Section 3.B or this Section 3.D, the legend set forth below, the provisions of which are agreed to by Employee:

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL (I) SUCH OFFERING AND SALE OR OTHER TRANSFER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, OR (II) THE HOLDER HEREOF PROVIDES THE COMPANY WITH (A) A WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED TRANSFER OF SUCH SECURITY MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT, OR (B) SUCH OTHER EVIDENCE AS MAYBE REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER OF THIS SECURITY MAYBE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT.

 

3.F. Benefits: The Company will provide Employee with benefits in accordance with the benefit plans established by the Company for similarly-situated executives from time to time in the Company's sole discretion. The Company will seek to establish a medical and dental insurance plan and a 401K Plan as promptly as practicable after the Effective Date. The Company shall also provide Employee with at least four weeks of paid vacation leave annually, which shall be governed by the Company's regular policies and practices regarding vacation leave (as may be amended from time to time in the Company's sole discretion).

 

3.G. Expenses: The Company shall reimburse Employee for all reasonable business expenses incurred in the performance of his duties hereunder in accordance with the Company's expense reimbursement guidelines.

 

3.H. Company Vehicle: The Company, when it is financially able to do so, will pay the cost of leasing or owning a Company vehicle for Company use, which shall be a full-sized sedan or a full-sized truck or sport utility vehicle. In addition, the Company will reimburse Employee for all operating expenses, maintenance and fees, including but not limited to, automobile insurance. In the event Employee's employment is terminated, the Employee will promptly surrender the vehicle to the Company pursuant to this Section 3.G.

 

3.I. Laptop Computer/Cellular Telephone: The Company will provide Employee with a laptop computer, with normal business software installed, and a cellular phone PDNSmart Phone.

 

Executive Employment Agreement - Herb ReichlinPage 3
 

 

3.J. Indemnification: The Company agrees to defend and indemnify Employee against any liability that Employee incurs within the scope of his employment with the Company to fullest extent permitted by the Company's articles and by-laws and applicable state corporate law.

 

4. Forgiveness of Salary Accrued Prior To Effective Date

 

4.A. As further and additional consideration for entering into this Employment Agreement, Employee hereby relinquishes and forgives all deferred salary and all benefits accrued prior to the Effective Date hereof.

 

5. Termination of Employment; Severance

 

5.A. Termination By the Company: The Company may terminate Employee's employment with the Company for Cause prior to the scheduled expiration date of the Term.

 

5.B. Severance: If Employee's employment is terminated by the Company prior to the scheduled expiration date of the Term (other than a termination by the Company for Cause), Employee will be eligible to receive the following: (i) an amount equal three (3) times employee's average annual total compensation, calculated by averaging the total salary and bonus compensation for the five years prior to termination ("Severance") payable as follows:

 

50% of the Severance shall be paid as a lump sum within a reasonable period not to exceed sixty (60) days following the termination date and 50% of the Severance will be paid as salary continuation for twelve (12) months following the termination date; and (ii) reimbursement for any COBRA payments made by Employee for COBRA coverage during the twelve (12) months following the termination date. Employee shall not be entitled to any Severance payments or benefit continuation unless Employee executes a general release in favor of the Company in customary form to be provided by the Company. Employee shall not be entitled to any other payments or benefits upon termination of his employment pursuant to this Section S.B, except as provided in Section 6.E and Section 3.1.

 

5.C. Termination For Cause: For purposes of this Agreement, "Cause" shall mean: (i) Employee commits a crime involving dishonesty, breach of trust, or physical harm to any person; (ii) Employee willfully engages in conduct that is in bad faith and materially injurious to the Company, including but not limited to, misappropriation of trade secrets, fraud or embezzlement; (iii) Employee commits a material breach of this Agreement, which breach is not cured within twenty (20) days after written notice to Employee from the Company; (iv) Employee willfully fails to implement or follow a reasonable and lawful policy or directive of the Company, which breach is not cured within twenty (20) days after written notice to Employee from the Company; or (v) Employee engages in a pattern of failure to perform job duties diligently and professionally, which pattern is not cured within twenty (20) days after written notice to Employee from the Company. Prior to the date of any termination for Cause, the Company's Board of Directors shall meet and the Employee shall have an opportunity to present to the Board any information relevant to the event constituting Cause, unless waived by Employee. The Company may terminate Employee's employment For Cause at any time, without any advance notice. Upon any termination for Cause pursuant to this Section 4.C, the Company shall pay to Employee all compensation to which Employee is entitled up through the date of termination, and thereafter, all of the Company's obligations under this Agreement shall cease, except as provided in Section 6.E and Section 3.1.

 

Executive Employment Agreement - Herb ReichlinPage 4
 

 

5.D. By Disability: If Employee becomes eligible for the Company's long term disability benefits or if, in the reasonable opinion of the Company's Board of Directors, Employee shall be unable to carry out the responsibilities and functions of the position held by Employee by reason of any physical or mental impairment for more than forty-five (45) consecutive days or more than sixty (60) days in any twelve-month period, then, to the extent permitted by law, the Company may terminate Employee's employment for "Disability". Upon any termination for Disability pursuant to this Section S.D, the Company shall pay to Employee all compensation to which Employee is entitled up through the date of termination, and thereafter, Company shall continue to pay Employee's salary and bonus for a period not to exceed two (2) years from the date of termination for Disability. Nothing in this Section shall affect Employee's rights under any disability plan in which he is a participant.

 

5.E. Termination By Employee: Employee may terminate his/her employment with the Company at any time for any reason, including no reason at all, upon sixty (60) days advance written notice. The Company shall have the option, in its sole discretion, to make Employee's termination effective at any time prior to the end of such notice period as long as the Company provides Employee with all compensation to which he is entitled up through the last day of the sixty (60) day notice period. Thereafter, all obligations of the Company under this Agreement shall cease, except as provided in Section 6.E and Section 3.1.

 

5.F. By Death: Employee's employment shall terminate automatically upon his death. The Company shall pay to Employee's beneficiaries or estate, as appropriate, any compensation then due and owing through the date of death. Thereafter, all obligations of the Company under this Agreement shall cease, except as provided in Section 6.E and Section 3.1. Nothing in this Section shall affect any entitlement of Employee's heirs to the benefits of any life insurance plan or other applicable benefits.

 

6. Additional Termination Obligations

 

6.A. Employee agrees that all property, including, without limitation, all equipment, tangible proprietary information, documents, records, notes, contracts, and computer-generated materials provided-to or prepared by Employee incident to his or her employment belong to the Company and shall be promptly returned to the Company upon termination of Employee's employment.

 

6.B. Upon termination of Employee's employment, Employee shall be deemed to have resigned from all offices and directorships then held with the Company. Following any termination of employment, Employee shall cooperate with the Company in the winding up or transferring to other employees of any pending work and shall also cooperate with the Company in the defense of any action brought by any third party against the Company that relates to Employee's employment by the Company.

 

Executive Employment Agreement - Herb ReichlinPage 5
 

 

6.C. Employee agrees that following termination of his or her employment, Employee shall not access or use any of the Company's computer systems, e-mail systems, voicemail systems, intranet system or other system, except as authorized by the Company in writing.

 

6.D. Intentionally Omitted.

 

6.E. Upon any termination of Employee's employment with the Company, including as a result of the expiration of the Term, Employee shall be entitled to all benefits as provided in applicable Company benefit plans, any salary earned through the date of such termination, and reimbursement of all expenses incurred through the date of termination in accordance with the Company's policies.

 

7. Inventions and Proprietary Information; Nonsolicitation

 

7.A. Employee acknowledges that because of his/her position in the Company, Employee will have access to intellectual property and confidential information. During the term of his employment (plus any period in which the Company is paying the Employee Severance) and for one (1) year thereafter, Employee shall not, for Employee or any third party, directly or indirectly, (i) interfere with any business of any kind in which the Company (or any affiliate) is engaged, including, without limitation, by conducting business with, diverting or attempting to divert any of its suppliers or customers, or (ii) solicit, induce, recruit, hire or encourage any person employed by the Company during the preceding six months to leave their employment with the Company. If Employee voluntarily leaves his employment with the Company during the term of the employment, Employee agrees not to take any job or position or engage in any activity or business in direct competition with the business activities of the Company as of the last day of Employee's services for the Company. This agreement not to compete with the Company shall be for a period of two (2) years following Employee's voluntary separation from the Company and shall apply to any business activities throughout the United States.

 

8. If anyone or more provisions of this Section 6 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

 

9. Dispute Resolution

 

10. The parties agree that any dispute between Employee (and his or her attorneys, successors, and assigns) and the Company (and its affiliates, shareholders, directors, officers, employees, members, agents, successors, attorneys, and assigns) relating in any manner whatsoever to Employee's employment or termination of employment shall be submitted to mandatory arbitration before a tribunal of the American Arbitration Association and of the rules promulgated there under, such arbitration to be before a single arbitrator. The arbitration shall be commenced only in the City and State of New York.

 

Executive Employment Agreement - Herb ReichlinPage 6
 

 

11. Employee acknowledges that he is obligated under this Agreement to render services of a special, unique, unusual, extraordinary and intellectual character, thereby giving this Agreement peculiar value so that the loss thereof cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, in addition to other remedies provided by law, the Company shall have the right to injunctive relief for any actual or threatened violation of Section 6 of this Agreement in addition to any other remedies it may have.

 

12. Entire Agreement: This Agreement is intended to be the final, complete, and exclusive statement of the terms of Employee's employment by the Company and may not be contradicted by evidence of any prior or contemporaneous statements or agreements, except for agreements specifically referenced herein (including the Company's Proprietary Information and Inventions Agreement, attached as Exhibit A, and any agreements related to the stock currently held by Employee).

 

13. Amendments; Waivers: This Agreement may not be amended except by a writing signed by Employee and by a duly authorized representative of the Company other than Employee. Delay or failure of either party to exercise any right under this Agreement shall not constitute a waiver of such right by such party.

 

14. Assignment: Employee agrees that Employee will not assign any rights or obligations under this Agreement. Nothing in this Agreement shall prevent the consolidation, merger or sale of the Company or a sale of all or substantially all of its assets.

 

15. Severability: If any provision of this Agreement shall be held by a court or arbitrator to be invalid, unenforceable, or void, such provision shall be enforced to fullest extent permitted by law, and the remainder of this Agreement shall remain in full force and effect. In the event that the time period or scope of any provision is declared by a court or arbitrator of competent jurisdiction to exceed the maximum time period or scope that such court or arbitrator deems enforceable, then such court or arbitrator shall reduce the time period or scope to the maximum time period or scope permitted by law.

 

16. Taxes: All amounts paid under this Agreement (including, without limitation, Base Salary, Signing Bonus and Severance) shall be paid less all applicable state and federal tax withholdings.

 

17. Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

 

Executive Employment Agreement - Herb ReichlinPage 7
 

 

18. Interpretation: This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party. Captions are used for reference purposes only and should be ignored in the interpretation of the Agreement.

 

19. Binding Agreement Each party represents and warrants to the other that the person(s) signing this Agreement below has authority to bind the party to this Agreement and that this Agreement will legally bind both the Company and Employee. This Agreement will be binding upon and benefit the parties and their heirs, administrators, executors, successors and permitted assigns. To the extent that the practices, policies, or procedures of the Company, now or in the future, are inconsistent with the terms of this Agreement, the provisions of this Agreement shall control. Any subsequent change in Employee's duties or compensation will not affect the validity or scope of the remainder of this Agreement.

 

20. Employee Acknowledgment: Employee acknowledges Employee has had the opportunity to consult legal counsel concerning this Agreement, that Employee has read and understands the Agreement, that Employee is fully aware of its legal effect, and that Employee has entered into it freely based on his own judgment and not on any representations or promises other than those contained in this Agreement.

 

21. Date of Agreement: The parties have duly executed this Agreement as of the date first written above.

 

IN WITNESS WHEREOF the undersigned have executed this Agreement as of the day and year first written above. The parties hereto agree that facsimile signatures shall be as effective as if originals.

 

Quest Patent Research Corporation   Herb Reichlin
         
By: /s/ Burton Goldstein   By: /s/ Herb Reichlin
         
  Its: Chairman of the Board      

 

 

Executive Employment Agreement - Herb Reichlin Page 8
 



Exhibit 10.4

 

SEPARATION AGREEMENT AND MUTUAL GENERAL RELEASE

 

This Separation Agreement and Mutual General Release (“Agreement”) is made and entered into by and between Herbert M. Reichlin (the “Executive”) and Quest Patent Research Corporation, a Delaware corporation (the “Company”).

 

WHEREAS, Executive had been employed by the Company since on or about December 1, 1997, and is a party to an Employment Agreement with the Company dated March 1, 2008 (the “Employment Agreement”) and Executive’s employment with the Company was terminated on June 20, 2014 (the “Termination Date”);

 

WHEREAS, under the terms of the Employment Agreement the Executive was granted five (5) million warrants to purchase the common stock of the Company at an exercise price of $0.004, the warrants vested upon execution of the Employment Agreement and expire on March 1, 2018 (the “2008 Warrants”);

 

WHEREAS, the Executive claims principal and accrued interest of approximately $41,990 and $43,678 respectively on various loans Executive made to the Company during the period from approximately February 2002 through June 2003 (the “Reichlin Loan”);

 

WHEREAS, Executive currently serves on the Board of Directors of the Company;

 

WHEREAS, on August 4, 2014, the Company filed a complaint in the Court of Chancery for the State of Delaware for a declaratory judgment seeking to have the Court declare the Employment Agreement void ab initio (the “Delaware Action”); and

 

WHEREAS, the parties desire to settle all claims and issues that have, or could have been raised, in relation to the Delaware Action, the Reichlin Loan, the Executive’s employment with, and/or service as a member of the Board of Directors (the “Board”) of the Company and arising out of or in any way related to the acts, transactions or occurrences between Executive and Company to date, including, but not limited to, the Delaware Action, the Reichlin Loan, and the Executive’s employment with, and/or service as a member of the Board of Directors of the Company or the termination of that employment, on the terms set forth herein.

 

NOW, THEREFORE, for and in consideration of the mutual promises and the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Executive, intending to be legally bound, hereby agree as follows:

 

1.Definitions. Terms defined in the preamble have their assigned meanings, and the following terms have the meanings assigned to them.

 

1.1.“Claims” means any and all legally waivable claims, wages, demands, rights, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, debts, costs, expenses, attorneys’ fees, damages, judgments, orders, liabilities, complaints, controversies and promises of any kind or nature whatsoever, in law or equity, known or unknown, suspected or unsuspected, and whether or not concealed or hidden.

 

 
 

 

1.2.“Company Affiliates” means the Company’s direct and indirect subsidiaries, affiliates, companies, divisions, and units.

 

1.3.“Company Information” means all Company documentation and data including, without limitation all financial information, accounting records, corporate records, data, materials, papers, books, files, documents, records, reports, memoranda, customer information and lists, marketing information, data base information and lists, mailing lists, shareholder lists, and notes, including but not limited to any property describing or containing any Confidential Information; stamps, seals; and all other property which Executive received, prepared, helped prepare or had prepared by a third party on behalf of Company or at Executive’s direction in connection with and in the course of Executive’s employment with the Company or otherwise in Executive’s possession or control.

 

1.4.“Confidential Information” means information related to the business of the Company that is not publicly available including attorney client communications, certain financial information concerning the business of the Company, and proprietary business materials.

 

1.5.“Net Revenues of the Company” means, with respect to any calendar year, gross revenues from all Patent Enforcement Proceedings less the cost of all (i) associated attorneys’ fees; (ii) disbursements, distributions or payments to investors under funding agreements; and (iii) distributions to partners with a contractual right to share in the proceeds, such as for example: Allied Standard Limited, The Betting Service Limited, Neil Riches, and Sol Li. To the extent the Company has other revenues from the sale of other products or services not related to or derived from patents, Net Revenues of the Company is hereby further defined to include gross revenues from the sale of any such products or services less the cost of those goods or services sold.

 

1.6.“Patent Enforcement Proceedings” means any and all activities related in any way to patents, including, but not limited to, (i) patent licensing; (ii) judgments, settlements and/or agreements related to patents; and (iii) patent sales. This definition of Patent Enforcement Proceedings is intended by the parties to have the broadest possible application.

 

1.7.“Qualifying Year” means any calendar year during which Net Revenues of the Company exceed one-million five-hundred thousand dollars (US$1,500,000.00).

 

1.8.“Released Parties” means the Company, the Company Affiliates, and associated organizations, past and present, and each of them, as well as its and their trustees, directors, officers, shareholders, agents, attorneys, employees, contractors, insurers, representatives, assigns, and successors, past and present, and each of them.

 

1.9.“Separation Date” means the effective date of this Agreement as evidenced by signature of the parties.

 

1.10.“Separation Package” has the meaning assigned in Section 4.

 

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2.Termination of Employment Agreement; Other Agreements and Plans. Executive and the Company mutually acknowledge and agree that the Employment Agreement is hereby terminated, and that the Employment Agreement, along with any other agreement between the Executive and the Company, are of no further force and effect and are superseded as of the Separation Date. Notwithstanding the foregoing, the Executive shall retain the 2008 Warrants (as defined above) as set forth in Section 4.1 below. All terms and conditions relating to Executive's separation from the Company and the Company's entire obligations with respect thereto shall be as set forth in this Agreement. In addition, and for the avoidance of doubt, this Agreement supersedes any and all agreements set forth in the Employment Agreement and any other agreement between the Company and Executive with respect to compensation and termination of benefits and the Company's obligations with respect thereto, including, but not limited to, annual base salary, cash bonuses, warrants to purchase the stock of the Company, loan repayment obligations, and any other fringe benefits and perquisite programs.

 

3.Termination and Separation. The Executive’s employment with the Company and the Company Affiliates terminated effective as of the Termination Date. As of the Separation Date, the Executive shall be deemed to have resigned from any and all positions with the Company and the Company Affiliates, including any directorships on the Board of the Company or Company Affiliates. From and after the Separation Date, Executive will not be, and will not hold himself out as, an employee, officer or director of the Company and will not say or do anything purporting to bind the Company. Executive agrees that, given his separation from the Company, Executive will no longer serve in any and all officer, committee and/or director positions, if any, that he held with Company, effective as of the Separation Date. The Executive understands and agrees that from and after the Separation Date, he is no longer authorized to incur any expenses, obligations or liabilities on behalf of the Company or the Company Affiliates.

 

4.Separation Package. Subject to the provisions detailed in this Section 4, Company agrees to provide Executive with the following Separation Package set forth herein. Executive acknowledges and agrees that this Separation Package is the Executive’s exclusive compensation and remedy with respect to his separation from the Company and that this Separation Package constitutes adequate legal consideration for the promises and representations made by him in this Agreement.

 

4.1.Equity Consideration. The Executive shall retain the 2008 Warrants and Company shall provide to Executive an executed warrant grant in the form attached hereto as Exhibit A, dated as of the execution of this Agreement.

 

4.2.Cash Consideration.

 

4.2.1.Payment. The Company shall pay the Executive the total sum of seven-hundred thousand dollars (US$700,000.00) (the “Cash Consideration”) as follows:

 

Beginning with calendar year 2015, and continuing until the Cash Consideration is paid in full, an amount equal to three and one-quarter percent (3.25%) of Net Revenues of the Company in any Qualifying Year.

 

For the avoidance of doubt, in the event that the Company's Net Revenues in a specific calendar year total $1,500,000 or less, Executive shall be entitled to be paid the sum of $0.00. If Net Revenues in a specific calendar year total $1,600,000, Executive shall be entitled to be paid the sum of $52,000 ($1,600,000 x 3.25%) for that specific calendar year.

 

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4.2.2.Timing of Payment. Payment, if any, under this Section 4.2 shall be made no later than April15th in the year following a Qualifying Year but shall not exceed three-hundred thousand dollars (US$300,000.00) in any year payment is made.

 

5.No Other Consideration. Executive agrees that Executive will not seek any payment, benefit, compensation or consideration of any kind from Company arising from Executive’s employment with the Company through the Separation Date, or any purported loan to or note obligation of the Company other than as set forth in Section 4. Except as specifically provided for in Section 4, the Executive shall not be entitled to receive any compensation or benefits of employment from the Company or any Company Affiliate following the Separation Date.

 

6.Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. The first forty one thousand nine hundred ninety dollars (US$41,990) in payments of Cash Consideration provided for in Section 4.2 will be considered a return of principal in relation to the Reichlin Loan and the remaining payments will be reported on an IRS Form 1099 and will not be subject to withholdings or deductions. Executive understands and agrees that the Company is providing him with no representations regarding tax obligations or consequences that may arise from this Agreement and the issuance of the consideration provided for herein, Executive agrees to be solely responsible for the payment of all applicable income, transfer, sales, use and other taxes under federal, state, local or other law, and any other charges of any type or kind which are or may become due and owing by Executive as a result of the payments or transfers or use of property from the Company to the Executive hereunder, without seeking any further payment from the Company

 

7.Accounting. For every calendar year beginning with 2014, the Company shall provide the Executive with a detailed written accounting regarding the Net Revenues of the Company for such year. This accounting shall contain information sufficient to calculate the Net Revenues of the Company and shall provide detail about the specific categories set forth in the definition of Net Revenues of the Company as set forth in Section 1.5 above. This Accounting shall be provided by the Company to the Executive within ninety (90) days of the conclusion of the calendar year at issue. The Executive may request additional information about the calculation of Net Revenues of the Company and the Company shall provide such information on a timely basis. In the event that the gross revenues of the Company do not exceed $1,500,000 in a specific calendar year, the Company shall have no obligation to account to Executive during that calendar year provided that the Company has filed its 10K for that calendar year.

 

8.Release.

 

8.1.Executive does hereby unconditionally, irrevocably and absolutely release, acquit, forever discharge, and agree to hold the Released Parties, and Company does hereby unconditionally, irrevocably and absolutely release, acquit, forever discharge, and agree to hold the Executive, harmless from all Claims related in any way to the transactions or occurrences between them to date and all actions taken by Executive on behalf or relating to the Company, in either case to the fullest extent permitted by law, including, but not limited to, Executive’s employment with the Company, the termination of Executive’s employment with the Company, Executive’s service on the Board, the Reichlin Loan, and all other Claims arising directly or indirectly out of or in any way connected with the Executive’s employment with the Company and service on the Board. This release is intended to have the broadest possible application and includes, but is not limited to, any tort, contract, common law, constitutional or other statutory claims, all claims for reprisal or retaliation under federal or state law, and all claims for attorney’s fees, costs and expenses.

 

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8.1.1.For the avoidance of doubt, with respect to the Reichlin Loan, to the extent any valid loan obligation to Executive exists, Executive does hereby unconditionally, irrevocably and absolutely release, acquit, forever discharge, and forgive all principal and accrued interest owed, or claimed to be owed, to Executive by the Released Parties.

 

8.1.2.For the avoidance of doubt, with respect to any claim by Executive to accrued compensation under any agreement, or purported agreement, at any time between Executive and the Company, Executive does hereby unconditionally, irrevocably and absolutely release, acquit, forever discharge all such accrued compensation owed, or claimed to be owed, to Executive by the Released Parties.

 

8.2.The parties acknowledge that they may discover facts or law different from, or in addition to, the facts or law that they know or believe to be true with respect to the Claims released in this Agreement and agree, nonetheless, that this Agreement and the releases contained in it shall be and remain effective in all respects notwithstanding such different or additional facts or the discovery of them.

 

8.3.The parties declare and represent that they intend this Agreement to be complete and not be subject to any claim of mistake, and that the releases herein express final, full and complete releases, and regardless of the adequacy or inadequacy of the consideration, the parties intend the releases herein to be final and complete. The parties execute these releases with the full knowledge that these releases cover all possible claims between them to date, to the fullest extent permitted by law, except as otherwise provided in this Agreement.

 

8.4.The parties expressly waive their right to recovery of any type, including damages or reinstatement, in any administrative or court action, whether state or federal, and whether brought by either party, or on either party's behalf, related in any way to the matters released herein.

 

8.5.The general release and other provisions contained in this Section 8 shall become effective immediately upon execution of this Agreement by the Parties.

 

8.6.Notwithstanding paragraphs 8.1 – 8.5 above, the parties do not release and discharge (a) any claim for breach of this Agreement; and any claim that cannot be released by law.

 

9.Representations Concerning Legal Actions. Executive represents that, as of the date of this Agreement, he has not filed any lawsuits, charges, complaints, petitions, claims or other accusatory pleadings against Company or any of the other Released Parties in any court or with any governmental agency. Executive further agrees that, to the fullest extent permitted by law, he will not prosecute, nor allow to be prosecuted on his behalf, in any administrative agency, whether state or federal, or in any court, whether state or federal, any claim or demand of any type related to the matters released above, it being the intention of the parties that with the execution of this release, the Released Parties will be absolutely, unconditionally and forever discharged of and from all obligations to or on behalf of Executive related in any way to the matters discharged herein.

 

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10.Dismissal of Delaware Action. The Company covenants that within five (5) days of the effective date of this Agreement, the Executive, or counsel for the Executive, and counsel for the Company shall execute and file a stipulation of dismissal, with prejudice, of the Delaware Action.

 

11.Cooperation by Executive. The Executive agrees to fully cooperate with the Company in accomplishing the separation and agrees to immediately provide the Corporation—including its auditor, counsel, and/or agent—with any and all books, records, paperwork, documentation, memoranda, etc. requested by the Company in the Executive’s possession, custody or control.

 

12.Cooperation by Company. With respect to the 2008 Warrants, in the event the Executive exercises some or all of such warrants, the Company shall take all reasonable and necessary steps in order to ensure that the shares of stock can be issued and shall do so at its own cost and expense.

 

13.Return of Company Information. The Executive represents, warrants and covenants that the Executive has returned to the Company (or will return to the Company within five (5) business days of the execution of this Agreement) any and all Company Information in the Executive’s possession or control. The Company agrees to pay the shipping costs in connection with the Executive’s return of such documents.

 

13.1.Third Party Possession. To the extent Executive is unable to provide certain Company Information, the Executive shall at the time of execution of this Agreement provide an itemized list, attached as Schedule 1, of all such Company Information, the name and contact information for the party in possession of such information, and the reason Executive is unable to regain possession from the third party.

 

14.Confidentiality. Executive acknowledges that, throughout and as an incident to his employment with the Company, the Executive has become acquainted with and received Confidential Information. Accordingly, Executive will not, at any time, reveal, divulge, or make known to any person, firm or corporation any Confidential Information made known to the Executive or of which the Executive has become aware, regardless of whether developed, prepared, devised, or otherwise created in whole or in part by the efforts of the Executive. The Executive further agrees that he will retain all Confidential Information in trust for the sole benefit of the Company, and will not divulge or deliver any Confidential Information to any unauthorized person except as required by the order of any court or similar tribunal or any other governmental body or agency of appropriate jurisdiction. The Executive acknowledges that the Confidential Information is of incalculable value to the Company and is the exclusive property of the Company, and that the Company would suffer irreparable damage if any of the Confidential Information is improperly disclosed or used, and that, therefore, the Company shall be entitled to an injunction, without the posting of any bond or other security, prohibiting Executive from any such disclosure, attempted disclosure, violation or threatened violation. Executive agrees to notify the Company, in writing, at least ten (10) days prior to the response deadline or appearance date (whichever is earlier) for any such court order, subpoena, or notice of deposition issued by the court or investigating agency which seeks disclosure of the information referenced in this section and agrees to cooperate with the Company in obtaining a protective order or such similar protection as the Company may deem appropriate to preserve the confidential nature of such information. The foregoing obligations to maintain the Confidential Information shall not apply to any Confidential Information that is, or without any action by the Executive becomes, generally available to the public.

 

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14.1.Regulatory Filings. The Company shall not be prohibited from filing this Agreement and related agreements with the Securities and Exchange Commission and/or other governmental agencies to the extent required by applicable laws or regulations.

 

15.No Continuing Relationship. The Executive and the Company acknowledge that any employment, contractual or other relationship between the Executive and the Company terminated as of the Separation Date and that they have no further employment, contractual or other relationship except as may arise out of this Agreement and the Executive’s exercise of the 2008 Warrants. The Executive waives any right or claim to reinstatement as an employee of the Company, and will not seek reelection to the Board of the Company.

 

15.1.Directorship. Notwithstanding the foregoing, Executive may seek reelection to the Board of the Company after the thirty-six (36) month anniversary of the effective date of this Agreement.

 

16.No Admission.

 

16.1.Executive acknowledges and agrees that this Agreement is not intended by Company to be construed, and will not in any way be construed, in any legal, administrative or other similar proceeding, as an admission by the Company that it has engaged in, or is now engaging in, wrongful conduct with respect to Executive or any other person, or that Executive has any claims whatsoever against Company, and Company specifically disclaims any liability to or wrongful acts against Executive or any other person, on the part of itself, its employees or its agents.

 

16.2.Company acknowledges and agrees that this Agreement is not intended by Executive to be construed, and will not in any way be construed, in any legal, administrative or other similar proceeding, as an admission by the Executive that he has engaged in, or is now engaging in, wrongful conduct with respect to Company or any other person, or that Company has any claims whatsoever against Executive, and Executive specifically disclaims any liability to or wrongful acts against Company or any other person, on the part of himself or his agents.

 

17.Obligations Regarding Section 16 Reporting. The Executive understands and agrees that the Company will not undertake to file any Forms 4 or 5 or other reports with the Securities and Exchange Commission on his behalf. The Executive further understands and agrees that all responsibility for Section 16 compliance under the Securities Exchange Act of 1934 is his own and that the Company will not have any responsibility or liability with respect to any failure to file (or delinquent filing of) a Form 4 or 5, any violation of Section 16(a) of the Securities Exchange Act of 1934 or any short swing profits under Section 16(b) of that Act.

 

18.Unemployment. The Executive expressly acknowledges and agrees he has no claim to, and will not make any claim for, unemployment benefits, from any federal, state, local government agency or private entity, as a result of his prior employment with the Company, his subsequent termination from the Company, and/or this Agreement.

 

19.No Representation. The Executive agrees and acknowledges that in executing this Agreement he does not rely and has not relied on any representation or statement by any of the Released Parties or by any of the Released Parties’ agents, representatives or attorneys with regard to the subject matter, basis or effect of this Agreement.

 

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20.Consultation with Legal Counsel. Executive expressly acknowledges that, before signing this Agreement:

 

20.1.Executive has been given adequate time to decide whether to sign this Agreement, including, without limitation, the waiver and release set forth in Section 8, and Executive does so only after full reflection and analysis;

 

20.2.Executive was advised of his right to consult with legal counsel and/or other advisors selected by Executive regarding the terms and conditions of this Agreement, and that Executive has obtained and considered such legal counsel as he deems necessary;

 

20.3.Executive knows and understands the contents of this Agreement;

 

20.4.Executive is fully aware of the legal and binding effect of this Agreement; and

 

20.5.Executive enters into this Agreement of his own free will, and without any inducement not described in this Agreement, and not under duress or coercion of any nature, with the full intent of releasing any and all Claims as set forth in this Agreement.

 

21.Remedies. The Company and/or the Executive shall be entitled to injunctive or other equitable relief to enforce the covenants of this Agreement, such relief to be without the necessity of posting a bond, cash or otherwise, without limiting other possible remedies of the Company and/or the Executive.

 

22.No Assignment: The Executive represents that he has not heretofore assigned or transferred, or purported to assign or transfer, to any person or entity, any claim or any portion thereof or interest therein, and the Executive agrees to indemnify, defend and hold harmless each and all of the Released Parties against any and all disputes based on, arising out of, or in connection with any such transfer or assignment, or purported transfer or assignment, of any claims or any portion thereof or interest therein.

 

23.Severability. If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given their intended effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable. If, however, a court of competent jurisdiction finds that any release by the Executive in Section 8 above is illegal, void, or unenforceable, the Executive will promptly sign a release, waiver, and/or agreement that is legal and enforceable to the greatest extent permitted by law.

 

24.Notice. All notices, requests, demands and other communications hereunder to either party shall be in writing and shall be delivered, either by hand, by electronic may, by facsimile, by overnight courier or by certified mail, return receipt requested, duly addressed as indicated below or to such changed address as the party may subsequently designate:

 

To the Company:

 

Jon Scahill, President & CEO

 

411 Theodore Fremd Ave., Suite 206S, Rye, NY 10580

 

Email: jscahill@qprc.com

 

Fax: 800-411-1560

 

8
 

 

Copy to attorney for the Company:

 

Alfred Fabricant, Partner Brown Rudnick LLP

 

7 Times Square, New York, New York 10036

 

Email: afabricant@brownrudnick.com

 

Fax: 212-938-2983

 

To the Executive:

 

Herbert Reichlin

 

19 Fortune Lane, Jericho, NY 11573

 

Email: herbr@optonline.net

 

25.Governing Law and Jurisdiction. This Agreement is made and shall be interpreted, enforced and governed under Delaware law, without regard to conflict of laws principles. Any and all disputes arising out of or relating to this Agreement shall be resolved exclusively in the Delaware Chancery Court, and both the Company and the Executive hereby submit to the personal jurisdiction of that court for purposes of resolving any such disputes.

 

26.Counterparts. This Agreement may be executed in one or more counterparts. The execution of a signature page of this Agreement shall constitute the execution of the Agreement, and the agreement shall be binding on each party upon the date of signature, if each party executes such counterpart. A copy, facsimile or electronically transmitted signatures shall be given the same force and effect as original signatures.

 

27.Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Executive and the Company (and the Released Parties) and each party’s respective heirs, representatives, executors, administrators, successors and assigns.

 

28.Construction. Throughout this Agreement, nouns, pronouns and verbs will be construed as masculine, feminine, neuter, singular or plural, whichever will be applicable. All references herein to "Sections" will refer to corresponding provisions of this Agreement. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. The word "including" will mean including without limitation. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

29.Expenses. Each of the parties hereto shall pay its own fees and expenses incurred in connection with this Agreement and the consummation of the transactions contemplated hereby.

 

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30.Entire Agreement: This Agreement is intended to and does constitute and contain the entire agreement and understanding concerning: the Executive’s employment with and separation from the Company; the Reichlin Loan; and the other subject matters addressed herein between the parties, and supersedes and replaces all prior negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matters hereof. It is agreed that there are no collateral agreements or representations, written or oral, regarding the terms and conditions of the Executive’s employment with and separation from the Company, the Reichlin Loan, and settlement of all claims between the parties other than those set forth in this Agreement. The Executive represents and agrees that no promises, statements or inducements have been made to him which caused him to sign this Agreement other than those which are expressly stated in this Agreement. This is an integrated document and may not be altered except by written agreement signed by an officer designated by the Company, and the Executive.

 

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, AND INTENDING TO BE LEGALLY BOUND, THE PARTIES TO THIS AGREEMENT HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW AND SHALL BE EFFECTIVE AS TO SEPARATE PORTIONS HEREOF ON THE RESPECTIVE DATES SET FORTH BELOW.

 

QUEST PATENT RESEARCH CORPORATION   HERBERT M. REICHLIN
     
BY: /s/ Jon C. Scahill   BY: /s/ Herbert M. Reichlin
     
DATE: October 10, 2014   DATE: October 10, 2014

 

 

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Exhibit 10.5

 

RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

 

AGREEMENT dated as this 30th day of November, 2014, by and between Quest Patent Research Corporation, a Delaware corporation with its principal office at 411 Theodore Fremd Ave, Suite 206S, Rye, New York 10580 (the “Company”), and Jon C. Scahill, residing at (the “Executive”).

 

W I T N E S S E T H:

 

WHEREAS, the Company has engaged Executive as its chief executive officer and desires to continue to obtain the benefits of Executive’s knowledge, skill and ability in connection with managing the operations of the Company and to continue to employ Executive on the terms and conditions hereinafter set forth; and

 

WHEREAS, Executive desires to provide his services to the Company and to accept employment by the Company on the terms and conditions hereinafter set forth;

 

WHEREAS, on July 24, 2014, the Company and Executive entered into an executive employment agreement dated as of January 1, 2014, which was superseded by a restated employment agreement dated as of October 30, 2014 (collectively, the “Prior Employment Agreement”); and

 

WHEREAS, the Company and Executive desire to amend restate the Prior Employment Agreement in its entirety, with this restated executive employment replacing in its entirety the Prior Employment Agreement;

 

NOW, THEREFORE, in consideration of the mutual promises set forth in this Agreement, the parties agree as follows:

 

1. Employment and Duties.

 

(a) Subject to the terms and conditions hereinafter set forth, the Company hereby employs the Executive as its President and Chief Executive Officer, and he shall have the duties and responsibilities associated with the chief executive officer of a public corporation. The Executive shall report to the Company’s board of directors (the “Board”). Executive shall also perform such other duties and responsibilities as may be determined by the Board, as long as such duties and responsibilities are consistent with those of the Chief Executive Officer. Additionally, during the Term, as hereinafter defined, the Company shall include the Executive as one of the Board’s nominees for election as a director of the Company.

 

(b) The Executive shall serve as a director of the Company or any of its subsidiaries, if elected, and in such executive capacity or capacities with respect to any affiliate of the Company to which he may be elected or appointed, provided that such duties are consistent with those of the Company’s chief executive officer. The Executive shall receive no additional compensation for services rendered pursuant to this Section 1(b).

 

(c) Unless terminated earlier as provided for in Section 6 of this Agreement, this Agreement shall have an initial term (the “Initial Term”) of three years commencing as of January 1, 2014 and expiring on December 31, 2016, and shall continue on a year-to-year basis unless terminated by either party on not less than 90 days’ written notice prior to the expiration of the Initial Term or any one-year extension. The Initial Term and the one-year extension are collectively referred to as the “Term.”

 

 
 

 

2. Executive’s Performance. Executive hereby accepts the employment contemplated by this Agreement. During the Term, Executive shall devote substantially all of his business time to the performance of his duties under this Agreement, and shall perform such duties diligently, in good faith and in a manner consistent with the best interests of the Company.

 

3. Compensation and Other Benefits.

 

(a) For his services to the Company during the Term, the Company shall pay the Executive an annual salary (“Salary”) at the rate of $252,000.00. The Executive’s Salary shall be reviewed at least annually by the Company’s compensation committee and may be increased (but not decreased) in the sole discretion of the compensation committee. All Salary payments shall be payable in such installments as the Company regularly pays its executive officers, but not less frequently than semi-monthly. In the event that the Company does not have a compensation committee, all references in this Agreement to the compensation committee shall be deemed to refer to the Board without the participation or attendance by the Executive.

 

(b) The Executive shall be entitled to an annual bonus (the “Bonus”) if the Company meets or exceeds performance criteria established by the compensation committee.

 

(c) The Company shall grant the Executive the following equity incentive compensation:

 

(i) A warrant to purchase 60,000,000 shares of the Company’s common stock at an exercise price of $0.004 per share, which is not less than the fair market value on the date of this Agreement and is the same price per share as reflected in the Prior Employment Agreement, the warrant being immediately exercisable and having an exercise period which ends on March 1, 2018.

 

(ii) A restricted stock grant of 30,000,000 shares of the Company’s common stock, pursuant to which the Executive’s right to the share vests on January 15, 2015, provided, that the if the Executive is not employed by the Company at such date other than as a result of his death or disability his rights to the shares shall be forfeited; provided, further, that the Executive shall have the voting rights to the shares immediately upon issuance.

 

(iii) The Executive shall be eligible to participate in any equity incentive plan which the Company may, from time to time, adopt, it being understood that any awards or grants pursuant to such plans shall be in the sole discretion of the compensation committee.

 

(iv) The Executive acknowledges that (A) the equity incentive compensation set forth in s 3(d)(i) and 3(d)(ii) of this Agreement replaces and supersedes any incentive compensation authorized or granted pursuant to the Prior Employment Agreement as well as any other agreements or understandings, formal or informal, which were executed or agreed upon prior to the execution of this Agreement, and (B) no previously authorized equity compensation has been issued to the Executive.

 

(d) In addition to Salary, Bonus and equity incentive, the Executive shall receive the following benefits during the Term, to the extent that they are provided to other key employees of the Company :

 

(i) Major medical health insurance for the Executive and members of his immediate family.

 

(ii) Accident and life insurance and officer’s life insurance to the extent such benefits.

 

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(iii) Retirement plans, including 401(k) plans.

 

(iv) Other benefit plans.

 

(v) Vacation in accordance with Company policy; provided, that the Executive shall be entitled to not less than four weeks of vacation per year, which may be taken in accordance with the Company’s vacation policy; provided, that the Executive shall not be entitled to carry more than two weeks of vacation time to another year.

 

(vi) A laptop computer, with normal business software installed, and a cellular phone with normal business applications included, and the related telephone service.

 

4. Reimbursement of Expenses. The Company shall reimburse the Executive, upon presentation of proper expense statements, for all authorized, ordinary and necessary out-of-pocket expenses reasonably incurred by Executive during the Term in connection with the performance of his services pursuant to this Agreement in accordance with the Company’s expense reimbursement policy.

 

5. Waiver of Accrued Compensation. In recognition of the Company’s financial condition, the Executive hereby irrevocably and unconditionally forgives and waives his right to receive salary for periods prior to January 1, 2014 in the aggregate amount of $1,167,705.

 

6. Termination of Employment.

 

(a) This Agreement and Executive’s employment shall terminate immediately upon the death of the Executive.

 

(b) This Agreement and Executive’s employment, may be terminated by the Executive or by the Company on not less than thirty (30) days’ written notice in the event of Executive’s Disability. The term “Disability” shall mean any illness, disability or incapacity of the Executive which prevents him from substantially performing his regular duties for a period of three (3) consecutive months or four (4) months, even though not consecutive, in any twelve (12) month period.

 

(c) The Company may terminate this Agreement and the Executive’s employment for cause, in which event no further Salary, Bonus or other benefits shall be payable to Executive subsequent to the date of termination. The term “Cause” shall mean:

 

(i) repeated failure to perform material instructions from the Board, provided that such instructions are reasonable and consistent with Executive’s duties as set forth in Section 1 of this Agreement, which failure shall not have been cured within 30 days of his receipt of written notice setting forth in reasonable detail the nature of such failure;

 

(ii) a breach of Sections 7, 8 or 9 of this Agreement;

 

(iii) fraud, dishonesty, gross misconduct or other breach of trust whereby the Executive obtains personal gain or benefit at the expense of or to the detriment of the Company;

 

(iv) a conviction of or plea of nolo contendere or similar plea by the Executive of any felony;

 

(v) a conviction of or plea of nolo contendere or similar plea by of any other crime involving theft or misappropriation of property;

 

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(d) If the Company proposes to terminate this Agreement pursuant to clause (i) of Section 6(c), and the Executive disputes the basis for termination, the Executive shall have a reasonable opportunity to respond to the Board and to be represented before the Board by counsel.

 

(e) The Executive may terminate this Agreement on 30 days’ written notice for Good Reason. As used in this Agreement, the term “Good Reason” shall mean:

 

(i) Any change in the duties to be performed by the Executive, without the consent of the Executive, which represent a diminution of the duties set forth in Section 1 of this Agreement or which are inconsistent with the duties set forth in said Section 1.

 

(ii) Any change in the Executive’s title, without the consent of the Executive, such that the Executive is no longer the Company’s chief executive officer.

 

(iii) Any termination by the Executive of this Agreement within twelve months following a change of control of the Company. A change of control shall occur or be deemed to have occurred if (A) any “person” (as such term is used in s 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% percent or more of the combined voting power of the Company’s then outstanding securities, or (B) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute a least a majority thereof unless the election of each new director was nominated, ratified or approved by at least two-thirds (2/3) of the directors then still in office who were either directors at the beginning of such period or who were elected or appointed with the approval or ratification of at least two-thirds (2/3) of the directors who were directors at the beginning of such period, or (C) a sale by the Company of all or substantially all of its business and assets to an entity which is not affiliated with the Company or (D) the Board of Directors shall have determined that an event, other than as described in clauses (A), (B) or (C) of this Section 6(e)(iii), results in a change of control. Notwithstanding the foregoing, the following stock issuances or acquisitions shall not be treated as a change of control:

 

(A) Any acquisitions of Common Stock or securities convertible into or exchangeable for Common Stock if such acquisition was acquired directly from the Company; and

 

(B) Any acquisition of Common Stock or securities convertible into Common Stock by any employee benefit plan or employee stock ownership plan or any related trust.

 

(iv) Any material breach by the Company of the terms of this Agreement, which shall not have been cured within 30 days after notice from the Executive setting forth the nature of the breach.

 

(f) In the event that either (x) the Company terminates Executive’s employment other than as provided in Sections 6(a), (b) and (c) of this Agreement or (y) the Executive terminates this agreement for Good Reason, the prohibitions of Section 8 of this Agreement shall terminate and the Company shall pay to Executive as severance payments:

 

(i) Accrued Salary, Bonus (on a pro rata basis, based on the most recent Bonus paid or accrued to the Executive) and vacation pay through the date of termination.

 

(ii) The Executive’s Salary as provided in this Agreement for the balance of the Term, (B) the Bonus paid to Executive for the previous year, both of which shall be paid in twelve (12) equal monthly installments commencing within the month following the month in which Executive’s termination occurs.

 

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(iii) Continued coverage for a period or twelve months following termination, at the Company’s expense, under medical benefit plans in effect during such period; provided, however, that in the event that the insurance carriers for such benefit plans do not permit the inclusion of individuals who are no longer employees, the Company shall pay to the Executive the amount it would pay the insurance company for the Executive’s coverage if he continued as an employee of the Company.

 

(g) In the event that the Company terminates this Agreement pursuant to Sections 6(a), 6(b) or 6(c) or the Executive terminates this Agreement pursuant to Section 6(b) or terminates this Agreement other than for Good Reason, the Executive shall be entitled to all accrued salary, bonus, vacation pay and other benefits through the date of his death.

 

(h) Any payments due to the Executive pursuant to this Agreement shall be subject to deduction for all federal and state withholding taxes, FICA, Medicare and any other applicable deductions.

 

7. Trade Secrets and Proprietary Information.

 

(a) The Executive recognizes and acknowledges that the Company, through the expenditure of considerable time and money, has developed and will continue to develop in the future information concerning customers, clients, marketing, patents, products, services, business, research and development activities and operational methods of the Company and its customers or clients, contracts, financial or other data, technical data or any other confidential or proprietary information possessed, owned or used by the Company, the disclosure of which could or does have a material adverse effect on the Company, its business, any business it proposes to engage in, its operations, financial condition or prospects and that the same are confidential and proprietary and considered “confidential information” of the Company for the purposes of this Agreement. In consideration of his employment, the Executive agrees that he will not, during or after the Term, without the consent of the Board make any disclosure of confidential information now or hereafter possessed by the Company, to any person, partnership, corporation or entity either during or after the term here of, except that nothing in this Agreement shall be construed to prohibit Executive from using or disclosing such information (a) if such disclosure is necessary in the normal course of the Company’s business in accordance with Company policies or instructions or authorization from the Board, (b) such information shall become public knowledge other than by or as a result of disclosure by a person not having a right to make such disclosure, (c) complying with legal process as provided in Section 7(b) of this Agreement, or (d) subsequent to the Term, if such information shall have either (i) been developed by Executive independent of any of the Company’s confidential or proprietary information or (ii) been disclosed to Executive by a person not subject to a confidentiality agreement with or other obligation of confidentiality to the Company. For the purposes of Sections 7, 8 and 9 of this Agreement, the term “Company” shall include the Company, its parent, its subsidiaries and affiliates.

 

(b) In the event that any confidential information is required to be produced by Executive pursuant to legal process, the Executive shall give the Company notice of such legal process within a reasonable time, but not later than ten business days prior to the date such disclosure is to be made, unless Executive has received less notice, in which event the Executive shall immediately notify the Company. The Company shall have the right to object to any such disclosure, and if the Company objects (at the Company’s cost and expense) in a timely manner, the Executive shall not make any disclosure until there has been a court determination on the Company’s objections. If disclosure is required by a court order, final beyond right of review, or if the Company does not object to the disclosure, the Executive shall make disclosure only to the extent that disclosure is required by the court order, and the Executive will exercise reasonable efforts, to obtain reliable assurance that confidential treatment will be accorded the Confidential Information.

 

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(c) The Executive shall, upon expiration or termination of the Term, or earlier at the request of the Company, turn over to the Company all documents, papers, computer disks or other material in the Executive’s possession or under the Executive’s control which may contain or be derived from confidential information. To the extent that any confidential information is on Executive’s hard drive or other storage media, he shall, upon the request of the Company, cause such information to be erased from his computer disks and all other storage media.

 

8. Covenant Not To Solicit or Compete.

 

(a) During the period from the date of this Agreement until one (1) year following the date on which Executive’s employment is terminated, subject to Section 6(f) of this Agreement, Executive will not, directly or indirectly:

 

(i) Persuade or attempt to persuade any person or entity which is or was a customer, client or supplier of the Company to cease doing business with the Company, or to reduce the amount of business it does with the Company (the terms “customer” and “client” as used in this Section 8 to include any potential customer or client to whom the Company submitted bids or proposals, or with whom the Company conducted negotiations, during the term of Executive’s employment or during the twelve (12) months preceding the termination of his employment;

 

(ii) solicit for himself or any other person or entity other than the Company the business of any person or entity which is a customer or client of the Company, or was a customer or client of the Company within one (1) year prior to the termination of his employment;

 

(iii) persuade or attempt to persuade any employee of the Company, or any individual who was an employee of the Company during the one (1) year period prior to the termination of this Agreement, to leave the Company’s employ, or to become employed by any person or entity other than the Company; or

 

(iv) engage in any business in the United States whether as an officer, director, consultant, partner, guarantor, principal, agent, employee, advisor or in any manner, which directly competes with the business of the Company as it is engaged in at the time of the termination of this Agreement, unless, at the time of such termination or thereafter during the period that the Executive is bound by the provisions of this Section 8, the Company ceases to be engaged in such activity, provided, however, that nothing in this Section 8 shall be construed to prohibit the Executive from owning an interest of not more than five (5%) percent of any public company engaged in such activities.

 

(b) The Executive acknowledges that the restrictive covenants (the “Restrictive Covenants”) contained in Sections 7 and 8 of this Agreement are a condition of his employment and are reasonable and valid in geographical and temporal scope and in all other respects. If any court or arbitrator determines that any of the Restrictive Covenants, or any part of any of the Restrictive Covenants, is invalid or unenforceable, the remainder of the Restrictive Covenants and parts thereof shall not thereby be affected and shall remain in full force and effect, without regard to the invalid portion. If any court or arbitrator determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable because of the geographic or temporal scope of such provision, such court or arbitrator shall have the power to reduce the geographic or temporal scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable.

 

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9. Ownership of Intellectual Property.

 

(a) “Inventions” means all inventions, ideas, discoveries, developments, methods, data, information, improvements, original works, know-how, including, but not limited to, algorithms, technology, trade secrets, processes, codes and hardware (whether or not reduced to practice and whether or not protectable under state, federal, or foreign patent, copyright, trade secrecy or similar laws) which:

 

(i) relate to the Company’s business at the time of conception or reduction to practice or actual or demonstrably anticipated research or development of Company that were conceived, created or developed by the Executive (whether alone or with others, whether or not during working hours or on the Company’s premises or whether or not using material or property provided by the Company) during the Term or having conceived, created or developed prior to the Term while Executive was employed by the Company; and/or

 

(ii) were conceived, created or developed by the Executive (whether alone or with others) during the Term, even if having possibly conceived, created or developed prior to the Term but completed while in the employ of the Company, or which result from any work performed by the Executive for Company.

 

(b) All Inventions are, will be, and shall constitute “works-for-hire” and the exclusive property of the Company, and the Company may use and exploit them without restriction or additional compensation to the Executive. The Executive shall promptly and fully disclose to the Company any and all Inventions. The Executive shall maintain complete written records of all Inventions and of all work or investigations done or carried out by the Executive at all stages thereof, which records shall be the exclusive property of the Company and will be treated as confidential information for all purposes of this Agreement.

 

(c) The Executive hereby irrevocably assigns and transfers to the Company, its successors, assigns or Affiliates, as the case may be, all of Executive’s right, title and interest in and to any Inventions without additional consideration therefor from the moment of their creation or inception, to be held and enjoyed by the Company, its successors, assigns or Affiliates, as the case may be, to the full extent of the term for which any intellectual property protection may be granted and as fully as the same would have been held by Executive had this Agreement, or such assignment or transfer not been made. In addition to the foregoing assignments of Inventions to the Company, Executive hereby irrevocably assigns and transfers to the Company: (i) all worldwide patents, trademarks, copyrights, mask works, trade secrets, applications for the foregoing and other intellectual property rights in any Inventions; and (ii) any and all “Moral Rights” (as defined below) that Executive may have in or with respect to any Inventions. Executive hereby forever waives and agrees never to assert any and all Moral Rights Executive may have in or with respect to any such Inventions, even after the termination of Executive’s employment.

 

(d) “Moral Rights” means any right to claim authorship of any Inventions, or to withdraw from circulation or control the publication or distribution of any Inventions, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a moral right.

 

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(e) Executive agrees to cooperate fully in obtaining patent, copyright or other proprietary protection for such Inventions, all in the name of the Company, its successors, assigns or Affiliates, as the case may be, and at the Company’s cost and expense, and shall execute and deliver all requested applications, assignments and other documents and take such other actions as the Company, its successors, assigns or Affiliates, as the case may be, shall request in order to perfect, enforce and exploit the Company’s, its successors,’ assigns’ or Affiliates,’ as the case may be, right in the Inventions (including transfer of possession to the Company, its successors, assigns or Affiliates, as the case may be, of all Inventions embodied in tangible materials), including granting Company a non-revocable, royalty-free license in any pre-existing works. Executive irrevocably designates and appoints the Company and its duly authorized officers and agents as his agents and attorneys-in-fact to execute and file any and all applications and other necessary documents and to do all other lawfully permitted acts to further perfect the and enforce the Company’s, its successors,’ assigns’ or Affiliates,’ as the case may be, right in the Inventions and to further the prosecution, issuance or enforcement of patents, copyrights, trade secrets and similar protections related to the Inventions with the same legal force and effect as he had executed them himself. The Executive shall receive no additional compensation for complying with Executive’s obligations under this Section 9. The Executive agrees that to the extent this Agreement shall be construed in accordance with the laws of any state that limits the assignability to the Company, its successors, assigns or Affiliates, as the case may be, of the Inventions, this Agreement shall be interpreted not to apply to any Invention which a court rules or the Company agrees is subject to such state limitation.

 

(f) Any copyrightable work created by the Executive in connection with or during the performance of his employment duties, whether published or unpublished, shall be the property of the Company as author and owner of copyright in such work.

 

(g) The Executive warrants and represents that there are no Inventions (whether patentable or not), patents, trade secrets, trademarks, trade names, copyrights, or other intellectual property owned by him prior to entering into employment with the Company hereunder, and that he has not executed and will not execute any document or instrument in conflict herewith.

 

(h) An “Affiliate” shall mean any person or entity which controls, is controlled by or is under common control with the Company.

 

10. Injunctive Relief. The Executive agrees that his violation or threatened violation of any of the provisions of Sections 7, 8 or 9 of this Agreement shall cause immediate and irreparable harm to the Company. In the event of any breach or threatened breach of any of said provisions, the Executive consents to the entry of preliminary and permanent injunctions by a court of competent jurisdiction prohibiting the Executive from any violation or threatened violation of such provisions and compelling the Executive to comply with such provisions. This Section 10 shall not affect or limit, and the injunctive relief provided in this Section 10 shall be in addition to, any other remedies available to the Company at law or in equity or in arbitration for any such violation by the Executive. Subject to Section 8(b) of this Agreement, the provisions of Sections 7, 8, 9 and 10 of this Agreement shall survive any termination of this Agreement and the Executive’s employment.

 

11. Indemnification. The Company shall provide Executive with payment of legal fees and indemnification to the maximum extent permitted by the Company’s Certificate of Incorporation, By-Laws, and the Delaware General Corporation Law.

 

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12. Mutual Releases.

 

(a) For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Executive does hereby release and discharge, to the maximum extent permitted by law, the Company, its directors and officers acting in such capacities, and its attorneys and their respective heirs, executors, administrators, successors and assigns (collectively, the “Company Releasees”) from any and all actions, causes of action, suits, debts, sums of money, accounts, reckonings, notes, bonds, warrants, bills, specialties, covenants, contracts, controversies, agreements, liabilities, obligations, undertakings, promises, damages, claims and demands whatsoever, in law, admiralty or equity which against them or any of them, Executive and his heirs, executors and administrators ever had, now have or in the future can, shall or may have, against any of the Company Releasees for, upon or by reason or any matter, cause or thing arising from the beginning of the world to the date of this Release; provided, however, nothing in this Section 12(a) shall in any manner reduce, release or otherwise affect any of the Company’s obligations under this Agreement or any indemnification agreement to which the Company and Executive are parties.

 

(b) For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company does hereby release and discharge, to the maximum extent permitted by law, Executive and his heirs, executors, administrators, successors and assigns (collectively, the “Executive Releasees”) from any and all actions, causes of action, suits, debts, sums of money, accounts, reckonings, notes, bonds, warrants, bills, specialties, covenants, contracts, controversies, agreements, liabilities, obligations, undertakings, promises, damages, claims and demands whatsoever, in law, admiralty or equity which against them or any of them, the Company and its successors and assigns ever had, now have or in the future can, shall or may have, against any of the Executive Releasees for, upon or by reason or any matter, cause or thing arising from the beginning of the world to the date of this Release; provided, however, nothing in this Section 12(b) shall in any manner reduce, release or otherwise affect any of the Executive’s obligations under this Agreement or any indemnification agreement to which the Company and Executive are parties.

 

13. Representations and Warranties of the Parties.

 

(a) The Executive represents, warrants, covenants and agrees that he has a right to enter into this Agreement, that he is not a party to any agreement or understanding, oral or written, which would prohibit performance of his obligations under this Agreement, and that he will not use in the performance of his obligations hereunder any proprietary information of any other party which he is legally prohibited from using.

 

(b) The Company represents, warrants and agrees that it has full power and authority to execute and deliver this Agreement and perform its obligations hereunder.

 

14. Miscellaneous.

 

(a) The Executive will cooperate with the Company in connection with any application by the Company’s to obtain key-man life insurance on his life, on which the Company will be the beneficiary. Such cooperation shall include the execution of any applications or other documents requiring his signature and submission of insurance applications and submission to a physical.

 

(b) Any notice, consent or communication required under the provisions of this Agreement shall be given in writing and sent or delivered by hand, overnight courier or messenger service, against a signed receipt or acknowledgment of receipt, or by registered or certified mail, return receipt requested, or telecopier, email or similar means of communication (collectively “electronic communications”) if receipt is acknowledged or if transmission is confirmed by mail as provided in this Section 14(b), to the parties at their respective addresses set forth at the beginning of this Agreement or by electronic delivery to the telecopier or email set forth on the signature page of this Agreement, with notice to the Company being sent to the attention of the individual who executed this Agreement on behalf of the Company. Either party may, by like notice, change the person, address or electronic communications number or address to which notice is to be sent. If no telecopier number is provided for either party, notice to such party shall not be sent by telecopier.

 

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(c) This Agreement shall in all respects be construed and interpreted in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York applicable to contracts executed and to be performed wholly within such State, without regard to principles of conflicts of laws except that the provisions of Section 11 shall be governed by the Delaware General Corporation law.

 

(d) Except for actions, suits, or proceedings taken pursuant to or under Section 6, 7, 8 or 9 of this Agreement, any dispute concerning this Agreement or the rights of the parties hereunder shall be submitted to binding arbitration in New York City before a single arbitrator under the rules of the American Arbitration Association. The award of the arbitrator shall be final, binding and conclusive on all parties, and judgment on such award may be entered in any court having jurisdiction. The arbitrator shall have the power, in his discretion, to award counsel fees and costs to the prevailing party. The arbitrator shall have no power to modify or amend any specific provision of this Agreement except as expressly provided in Section 14(c) of this Agreement.

 

(e) Notwithstanding the provisions of Section 14(b) of this Agreement, with respect to any claim for injunctive relief or other equitable remedy pursuant to Section 10 of this Agreement or any claim to enforce an arbitration award or to compel arbitration, the parties hereby (i) consents to the exclusive jurisdiction of the United States District Court for the Southern District of New York and Supreme Court of the State of New York in the County of New York or Westchester, (ii) agree that any process in any action commenced in such court under this Agreement may be served upon him personally, either (A) by certified or registered mail, return receipt requested, or by Federal Express or other courier service which obtains evidence of delivery, with the same full force and effect as if personally served upon him in New York City or Suffolk County, as the case may be, or (B) by any other method of service permitted by law, and (iii) waives any claim that the jurisdiction of any such court is not a convenient forum for any such action and any defense of lack of in personam jurisdiction with respect thereof.

 

(f) If any term, covenant or condition of this Agreement or the application thereof to any party or circumstance shall, to any extent, be determined to be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law, and any court or arbitrator having jurisdiction may reduce the scope of any provision of this Agreement, including the geographic and temporal restrictions set forth in Section 8 of this Agreement, so that it complies with applicable law.

 

(g) This Agreement constitute the entire agreement of the Company and the Executive as to the subject matter hereof, superseding all prior or contemporaneous written or oral understandings or agreements, including the Prior Employment Agreement and any and all other previous employment agreements or understandings, all of which are hereby terminated, with respect to the subject matter covered in this Agreement (except that any non-disclosure provisions contained therein, which shall continue in effect except to the extent modified by this Agreement). This Agreement may not be modified or amended, nor may any right be waived, except by a writing which expressly refers to this Agreement, states that it is intended to be a modification, amendment or waiver and is signed by both parties in the case of a modification or amendment or by the party granting the waiver. No course of conduct or dealing between the parties and no custom or trade usage shall be relied upon to vary the terms of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

 

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(h) Neither party hereto shall have the right to assign or transfer any of its or his rights hereunder except in connection with a merger of consolidation of the Company or a sale by the Company of all or substantially all of its business and assets.

 

(i) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and permitted assigns.

 

(j) The headings in this Agreement are for convenience of reference only and shall not affect in any way the construction or interpretation of this Agreement.

 

(k) No delay or omission to exercise any right, power or remedy accruing to either party hereto shall impair any such right, power or remedy or shall be construed to be a waiver of or an acquiescence to any breach hereof. No waiver of any breach hereof shall be deemed to be a waiver of any other breach hereof theretofore or thereafter occurring. Any waiver of any provision hereof shall be effective only to the extent specifically set forth in an applicable writing. All remedies afforded to either party under this Agreement, by law or otherwise, shall be cumulative and not alternative and shall not preclude assertion by such party of any other rights or the seeking of any other rights or remedies against any other party.

 

[Signatures on following page]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

Telecopier and Email Signature
     
  QUEST PATENT RESEARCH CORPORATION
     
  By: /s/ William Ryall Carroll
    Dr. William Ryall Carroll, director
     
  By: /s/ Timothy J. Scahill
    Timothy J. Scahill, director
     
    /s/ Jon C. Scahill
   

Jon C. Scahill

 

 

 

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Exhibit 10.6

 

QUEST PATENT RESEARCH CORPORATION

 

RESTRICTED STOCK GRANT AGREEMENT

 

THIS AGREEMENT, dated and effective as of October 30, 2014 (the “Grant Date”) by and between Quest Patent Research Corporation, a Delaware corporation (the “Company”), and Jon C. Scahill (the “Executive”), is entered into as follows:

 

WHEREAS, on October 30, 2014, the board of directors of the Company has determined that, as an inducement to the Executive to put forth his best efforts to further the interests of the Company, and subject to the restrictions stated below, the Executive should be granted shares of the Company’s common stock, par value $0.00003 (“Common Stock”); and

 

WHEREAS, the grant of restricted shares of Common Stock is provided for in the Executive’s Restated Employment Agreement, as approved by the board of directors of Company;

 

NOW, THEREFORE, the parties hereby agree as follows:

 

1. Grant of Shares. The Executive is hereby granted, effective on the Grant Date and subject to the terms and conditions of this Agreement, 30,000,000 shares (the “Shares”) of Common Stock.

 

2. Issuance of Stock. As soon as practicable, the Company shall cause the shares of Stock to be issued in the Executive’s name. The certificate for the Shares shall include the Company’s standard restricted stock legend and the following additional legend, which may be removed from the certificate upon the vesting of the Shares.

 

THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RESTRICTED STOCK AGREEMENT DATED AS OF OCTOBER 30, 2014, AND, UNTIL VESTED AS PROVIDED THEREIN, ARE SUBJECT TO FORFEITURE AS PROVIDED IN SAID RESTRICTED STOCK AGREEMENT.

 

3. Vesting.

 

The interest of the Executive in the Shares shall become vested on January 15, 2015. In the event that the Executive is not employed by the Company at such date other than as a result of his death or disability his rights to the Shares shall be forfeited and the Shares shall be cancelled by the Company with no further action on the part of the Executive.

 

4. Shareholder Rights. Commencing on the Grant Date, the Executive shall have all the rights of a shareholder with respect to the Stock; provided, however, that such rights shall terminate on the date of forfeiture in the event that the Shares become forfeited pursuant to Section 3 of this Agreement. Accordingly, the Executive shall have the right to vote the Shares and to receive any cash dividends paid to or made with respect to the Shares subject to the forfeiture provisions of said Section 3.

 

5. Taxes.

 

(a) The Executive shall be liable for any and all taxes, including withholding taxes, arising out of this grant.

 

 
 

 

(b) The Executive has reviewed with his own tax advisor the applicable tax consequences of the grant of the Shares hereunder, including withholding taxes, and is relying upon such advisor and not on any statements or representations of the Company or any of its agents. The Executive understands and agrees that he, and not the Company, shall be solely responsible for his own tax liability that may arise as a result of the transactions contemplated by this Agreement.

 

6. Accredited Status of the Executive. The Executive represents that he is an accredited investor, as defined in Rule 501 of the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended. The Company is relying on this representation in issuing the Shares to the Executive.

 

7. Miscellaneous.

 

(a) This Agreement constitute the entire agreement of the Company and the Executive as to the subject matter hereof, superseding all prior or contemporaneous written or oral understandings or agreements, all of which are hereby terminated, with respect to the subject matter covered in this Agreement. This Agreement may not be modified or amended, nor may any right be waived, except by a writing which expressly refers to this Agreement, states that it is intended to be a modification, amendment or waiver and is signed by both parties in the case of a modification or amendment or by the party granting the waiver. No course of conduct or dealing between the parties and no custom or trade usage shall be relied upon to vary the terms of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

 

(b) The parties hereby agree to execute such further instruments and to take such action as may reasonably be necessary to carry out the intent of this Agreement.

 

(c) Any notice, consent or communication required under the provisions of this Agreement shall be given in writing and sent or delivered by hand, overnight courier or messenger service, against a signed receipt or acknowledgment of receipt, or by registered or certified mail, return receipt requested, or telecopier, email or similar means of communication (collectively “electronic communications”) if receipt is acknowledged or if transmission is confirmed by mail as provided in this Section 7(c), to the parties at their respective addresses, telecopier or email set forth on the signature page of this Agreement, with notice to the Company being sent to the attention of any individual who executed this Agreement on behalf of the Company. Either party may, by like notice, change the person, address or electronic communications number or address to which notice is to be sent. If no telecopier number is provided for either party, notice to such party shall not be sent by telecopier.

 

(d) Nothing in this Agreement shall be construed as giving the Executive any right to remain in the employ of the Company or any of its affiliates, or any rights as a stockholder except as to the Shares issued hereunder. The loss of existing or potential profit in the Shares will not constitute an element of damages in the event of termination of the Executive’s employment or service for any reason, even if the termination is in violation of an obligation of the Company or one of its affiliates to the Executive.

 

(e) The grant of the Shares reflected in this Agreement shall not give the Executive any right to similar grants in future years.

 

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(f) If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future law, such provision shall be fully severable and severed, and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision were never a part hereof, and the remaining provisions of the Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or its severance.

 

(g) This Agreement is to be construed in accordance with, enforced under, and governed by the laws of the State of New York.

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the date first written above.

 

Address, Telecopier and Email   Signature
     
411 Theodore Fremd Ave, Suite 206S   QUEST PATENT RESEARCH CORPORATION
Rye, New York 10580      
Telecopier: 800-411-1560   By:  /s/ William Ryall Carroll
Email:     Dr. William Ryall Carroll, director
       
    By: /s/ Timothy J. Scahill 
      Timothy J. Scahill, director
       
24 Greenhaven Rd.
Rye, NY 10580 		     
     
Telecopier:   /s/ Jon C. Scahill
Email: jscahill@qprc.com   Jon C. Scahill

 

 

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Exhibit 10.7

 

LICENSE AGREEMENT

 

This License Agreement, effective as of the date of execution by both parties, is by and between Emerging Technologies Trust, a trust organized and operated under the laws of the Commonwealth of Massachusetts, including all associated, affiliated and subsidiary entities, with a principal office at 16018 Harbour Palms Dr., Ft. Myers, FL 33908 (“COMPANY”) and Quest Packaging Solutions Corporation, 240 East 75th Street, New York, NY 10021-2929, a corporation formed under the laws of the state of New York (hereinafter “LICENSEE”). COMPANY and LICENSEE are herein collectively and jointly referred to as the “Parties.”

 

WHEREAS, COMPANY is the owner of all right, title, and interest to United States Patent No. 6,490,844 entitled FILM WRAP PACKAGING APPARATUS AND METHOD (attached hereto as Exhibit A); United States Patent No. 5,323,896 entitled ARTICLE PACKING KIT, SYSTEM AND METHOD (attached hereto as Exhibit B); and United States Patent Reissue No. RE36,412 entitled ARTICLE PACKING KIT, SYSTEM AND METHOD (attached hereto as Exhibit C), including but not limited to, all rights to existing or yet to be filed domestic and foreign patents and patent applications, together with any continuations, continuations-in-part or divisional applications thereof, and all patents issuing thereon (including reissues, renewals and re-examinations of the foregoing); design patents, invention disclosures; mask works; copyrights, and copyright applications and registrations; Web addresses, trademarks, service marks, trade names, and trade dress, in each case together with any applications and registrations therefor and all appurtenant goodwill relating thereto; trade secrets, commercial and technical information, know-how, proprietary or confidential information, including engineering, production and other designs, notebooks, processes, drawings, specifications, formulae, and technology; computer and electronic data processing programs and software (object and source code), data bases and documentation thereof; other inventions, trade secrets or proprietary information (whether patented or not) relating to the Inventions covered by these patents; utility models; registered designs, certificates of invention and all other intellectual property relating to the Inventions covered by these patents under the laws of any country throughout the world (hereinafter the “PSM Invention”).

 

 
 

 

WHEREAS, LICENSEE desires to become a worldwide exclusive licensee of the PSM Invention, including the exclusive rights to make, use, sell, offer for sale, sub-license, import, and enforce the PSM invention throughout the world;

 

WHEREAS, LICENSEE has committed to keep confidential and protect, as hereinafter set forth, all Proprietary Information underlying or attendant to the PSM Invention;

 

WHEREAS, COMPANY is willing to grant to LICENSEE, a royalty bearing, worldwide and exclusive right in the PSM Invention, including the exclusive rights to make, use, sell, offer for sale, license and import throughout the world the PSM invention, as well as the exclusive right to enforce the rights associated with the PSM invention if said rights are believed to be infringed by or appropriated by others;

 

NOW THEREFORE, in consideration of the promises, mutual covenants and agreements contained herein, the parties agree as follows:

 

1.DEFINITIONS

 

1.1.“Licensed Products,” as used herein, shall mean any product that incorporates, in whole or in part, the PSM invention, including any product that incorporates one or more claims of the PSM patents attached hereto as Exhibits A, B, and C or any product covered by patent rights obtained by COMPANY in the future and relating to the PSM invention.

 

2
 

 

1.2.“Proprietary Information” shall mean: (1) any and all information (whether or not marked “confidential”), in whatever form, provided or disclosed by a party to the other for purposes of this License Agreement (whether such information was provided before or after the date of this Agreement), including, but not limited to, any and all information relating directly or indirectly to the Licensed Product, potential products, customers, customer information, vendor lists or vendor information, brokers, funding sources, lenders, brokers, sellers of goods and/or services who may refer their customers, as well as their agents and representatives, techniques, processes, methods, design, technologies, merchandising, scheduling, supply channels, operational strategies, inventory control, purchasing, cost control, opportunity assessment, business information, software information, inventions, financial data, financial plans, products, equipment, sales information, cost data, personnel, product tests, pricing policies, business plans or business strategies, information regarding any acquisition or joint venture arrangements or other enterprises with which a party has business relationships, and information disclosed by either or to the other party or its assigns, employees, or agents which is deemed confidential under this Agreement (whether by the receipt of documents, orally or through observation) and (2) any and all information, in whatever form, prepared by either party or its representatives or assigns, based upon information provided or disclosed hereunder (whether such information was prepared before or after the date of this Agreement). Notwithstanding, no information shall be deemed proprietary if such information was publicly known prior to the date of this agreement or if such information was known to Licensee, or their respective Directors, Officers agents or representatives.

 

3
 

 

2.CONFIDENTIALITY

 

2.1.For purposes of this License Agreement, and all transactions contemplated hereby, the parties agree that Proprietary Information shall only be used by a party solely in connection with its evaluation, manufacture, license, sub-license, sale, offer for sale, importation or enforcement of the rights associated with the Licensed Product and shall not be used, in whole in part, for any other purpose or reason whatsoever (the “Authorized Use”). Such Proprietary Information shall be kept confidential by the other party, and shall not be disclosed, in whole or in part, to any person, except in connection with the evaluation, manufacture, license, sub-license sale, offer for sale or importation of the Licensed Product.

 

2.2.Notwithstanding anything to the contrary, herein, Licensee shall have absolute discretion, to the extent hereinafter provided, to determine all means and methods for maintaining the confidentiality of the Proprietary Information in such form, and subject to such protections, as may be required to maintain the confidentiality of the Proprietary Information and ensure that the rights associated with the Licensed Products and PSM Invention are not diminished for any uses other than the transactions permitted hereunder, during and after termination of this Agreement.

 

4
 

 

3.OBLIGATIONS OF COMPANY

 

3.1.COMPANY hereby grants to LICENSEE an exclusive, subject to termination of existing license with AdvancePak, Inc., worldwide royalty-bearing license to make, use, sell, offer for sale and/or import throughout the world the PSM Invention and the Licensed Products. COMPANY also hereby grants to LICENSEE the exclusive right to enter into sub-licenses with third parties to sub-license said third parties to make, use, sell, sub-license, offer for sale and/or import throughout the world, the PSM Invention and Licensed Products and any rights associated with the Licensed Product and the PSM invention. COMPANY agrees that the rights granted to LICENSEE pursuant to this agreement are exclusive rights, and that these exclusive rights prohibit COMPANY from entering into agreements with any other entities, individuals, or third parties to license, in whole or in part, any or all of the rights associated with the PSM Invention and the Licensed Products, and also prohibit COMPANY from licensing others to make, use, sell, offer for sale and/or import the PSM Invention and the Licensed Products including expressly all trademarks associated with the PSM Invention and/or any product covered by one or more claims of the patents attached hereto as Exhibits A, B, and C anywhere in the world, including, but not limited to, in the United States, Europe, Canada, and Australia, and also prohibit COMPANY and any of its subsidiaries or assigns from competing with LICENSEE in making, using, selling, offering for sale or importing the Licensed Products, including any product covered by one or more claims of the patents attached hereto as Exhibits A, B, and C.

 

5
 

 

3.2.COMPANY hereby grants to LICENSEE the right to apply for patent rights anywhere in the world relating to the PSM invention (“Future Patents”). COMPANY shall own any patents acquired by LICENSEE pursuant to this paragraph, provided however that LICENSEE shall retain an exclusive worldwide royalty-bearing license to make, use, sell, offer for sale and/or import throughout the world, any product covered by one or more claims of the Future Patents for the life of such Future Patents. COMPANY hereby grants to LICENSEE the exclusive right to enter into sub-licenses with third parties to sub-license said third parties to make, use, sell, sub-license, offer for sale and/or import throughout the world, any product covered by one or more claims of the Future Patents. COMPANY agrees that the rights granted to LICENSEE in the Future Patents are exclusive rights, and that these exclusive rights prohibit COMPANY from entering into agreements with any other entities, individuals, or third parties to license, in whole or in part, any or all of the rights associated with the Future Patents, and also prohibit COMPANY from licensing others to make, use, sell, offer for sale and/or import any product covered by one or more claims of the Future Patents anywhere in the world, including, but not limited to, in the United States, Europe, Canada, and Australia, and also prohibit COMPANY and any of its subsidiaries or assigns from competing with LICENSEE in making, using, selling, offering for sale or importing any product covered by one or more claims of the Future Patents. The costs for obtaining the Future Patents, including fees and other costs associated with prosecution of said patents, shall be included within the reasonable costs of doing business and, as such, shall be deducted from any revenues received by LICENSEE before any share of profits are distributed to COMPANY.

 

6
 

 

3.3.COMPANY hereby grants to LICENSEE the exclusive right but not the obligation to enforce the rights associated with the PSM invention, including but not limited to the rights associated with the patents attached hereto as Exhibits A, B and C and the Future Patents, against third parties, including third party infringers of said rights as well as all trademarks and tradedress associated with the PSM Invention. These rights shall include, but not be limited to, the right to initiate legal action, the right to enter into mediation and/or arbitration, and the right to enter into settlement agreements with third parties and to set the amount of any settlement (hereinafter “Enforcement Efforts”). COMPANY shall not have the right to enforce any rights associated with the PSM invention, including but not limited to the patents attached hereto as Exhibits A, B and C and the Future Patent, and the trademarks and tradedress associated with the PSM Invention without LICENSEE’s prior written approval.

 

3.4.COMPANY hereby assigns to LICENSEE an accounts receivable from AdvancePak, Inc. in the amount of approximately $126,000 (“the Accounts Receivable”), as well as the exclusive right to collect and to enforce the Accounts Receivable in a court of law or other tribunal. Recovered proceeds to go to the Company less out of pocket costs incurred to obtain recovery as well as legal fees up to 33% of the recovered amount after deducting all such costs.

 

7
 

 

3.5.COMPANY hereby licenses to LICENSEE the exclusive rights to use the “Turtle Pak” trademark (Serial Number 74709827/Registration Number 1978526) , brand name, and associated trade dress.

 

4.OBLIGATIONS OF LICENSEE

 

4.1.As consideration for the license rights granted herein by COMPANY, LICENSEE agrees to pay COMPANY the following:

 

4.1.1.Definitions:

 

4.1.1.1.The term “Royalties” shall mean 5% of Net Sales as further described herein, that directly result from activities licensed by COMPANY to LICENSEE pursuant to this Agreement.

 

4.1.1.2.The term “Net Sales” shall mean the LICENSEE’s or a SUB-LICENSEE’s gross sales (as described below) of Licensed Product, less adjustments for credits, returns and reimbursements, and net of sales and excise taxes paid directly or indirectly by Licensee, and shipping costs actually paid and separately itemized by Licensee.

 

8
 

 

4.1.2.Upon the commencement of the license agreement hereunder and subject to the expiration of the license agreement with AdvancePak, Inc., Licensee agrees to pay to Company on a monthly basis a sum equal to the Royalties earned in the prior month.

 

4.1.3.Beginning with month 7 following the commencement of the license hereunder, Licensee agrees that in the event that Royalties payable hereunder to Company in any given month are less that $9,000, Licensee shall nonetheless remit to Company for such month the sum of $9,000 with the excess amount over Royalties actually payable for such month being treated as an advance draw against future Royalties. All advance draw monies shall be carried forward until the first month or months in which Royalties payable to Company exceed the sum of $9,000 (nine thousand dollars) credited in full to Licensee.

 

4.1.4.Payments made to COMPANY pursuant to paragraph 4.1 shall be made on a monthly basis, one month and fifteen days after the end of the month in which the invoices are paid.

 

4.1.5.A technology transfer fee shall be charged to any sublicense. Such fee shall be a minimum of $10,000, unless both parties agree to a lesser amount, the fee shall be divided equally between the Company and Licensee

 

4.1.6In the event of the institution of a lawsuit or other proceeding to enforce any of the patent or trademark rights granted hereunder, Licensee agrees to advance the costs of such lawsuit including reasonable attorneys fees and in the event of a monetary recovery Licensee and Company agree that all costs and reasonable attorneys fees shall be deducted off the top from the gross recovery and that the net recovery shall be divided 90% to Licensee and 10% to Company.

 

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4.2.LICENSEE shall provide COMPANY upon request with quarterly statements of expenses and receivables and COMPANY shall have a right once per year to audit LICENSEE’s expenses and receivables to ensure compliance with paragraph 4.1 of this Agreement, provided that COMPANY notify LICENSEE in writing of its intent to perform such an audit no later than thirty (30) days before said audit is to commence. The cost of such an audit shall be borne solely and exclusively by COMPANY.

 

5.OTHER COVENANTS

 

5.1.COMPANY hereby waives any and all rights to sue to enjoin LICENSEE, or any of its customers, licensees, sub-licensees, suppliers or users, from making, using, offering for sale, selling or importing the Licensed Products and/or to seek any compensation in addition to the Royalties provided hereunder for making, using, offering for sale, selling or importing the Licensed Product or for sub-licensing third parties to make, use, sell, offer for sale and/or import throughout the world the Licensed Product while this Licensee Agreement remains in effect.

 

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5.2.COMPANY hereby assumes the risk of and waives any and all rights to sue LICENSEE for any decisions relating to or any adverse effects of Enforcement Activities pursued by LICENSEE pursuant to paragraph 3.3 of this Agreement, including but not limited to, failing to obtain a favorable verdict in a suit for patent infringement and/or accepting settlement terms not agreeable to COMPANY. COMPANY understands that enforcement of intellectual property involves substantial risks. COMPANY agrees to assume these risks, including the risk that patent rights owned by COMPANY and asserted by LICENSEE against third parties may be invalidated or held unenforceable in a court of law.

 

5.3.LICENSEE agrees that upon commencement of license agreement hereunder, LICENSEE shall deliver to COMPANY stock certificates representing 10% of the outstanding and issued shares of Quest Packaging Solutions Corporation.

 

6.TERM

 

6.1.This License Agreement shall terminate ten (10) years after the execution date of this Agreement, provided that COMPANY shall have the right to terminate the agreement with sixty (60) days prior written notice if after the first 12 months after this Agreement is executed, LICENSEE fails to make at least $9000 per month in Licensed Profits. LICENSEE shall have the right to cancel this contract at any time and for any reason.

 

6.2.LICENSEE shall have the absolute right to extend the term of this AGREEMENT to twenty (20) years, provided that LICENSEE is not in default at the date of termination or is not then subject to notice of termination and written notice of LICENSEE’s intent to extend said term is provided to COMPANY within the last two years of this Agreement, and not later than four (4) months before the termination date of this Agreement.

 

11
 

 

7.NONINTERFERENCE AND COOPERATION

 

7.1.COMPANY agrees not to engage in any activity that would interfere with or substantially hinder LICENSEE’s business or LICENSEE’s attempts to sub-license the Licensed Products or the rights associated with the PSM Invention to third parties. COMPANY understands that LICENSEE retains the sole discretion of whether and to whom to offer sublicenses to, and COMPANY has no right to select, prevent or otherwise interfere with a sub-license agreement entered into, or to be entered into, by LICENSEE.

 

7.2.COMPANY agrees not to engage in any action inconsistent with this Agreement that would be critical of LICENSEE or adverse to the interests of LICENSEE or to any of LICENSEE’s subsidiaries, sub-licensees or assigns. COMPANY agrees to act generally in a manner that is in the best interests of LICENSEE and in a manner that would not detract from or hinder any business dealings or relationships consistent with this Agreement entered into by LICENSEE or by others on LICENSEE’s behalf.

 

12
 

 

7.3.COMPANY agrees to provide whatever information is reasonably necessary to assist LICENSEE and any sub-licensees of the Licensed Products and/or the rights associated with the PSM Invention or Future Patents or technology and their respective personnel in understanding all technical aspects relating to the PSM invention, including the patents attached hereto as Exhibits A, B and C and the Future Patents.

 

7.4.COMPANY agrees to assist LICENSEE, subject to reimbursement of all reasonable expenses, whenever reasonably required in acquiring sub-licensees of the Licensed Products and/or the rights associated with the PSM invention, including but not limited to, attending and assisting with the preparation of sales presentations with prospective customers and/or licensees.

 

7.5.COMPANY agrees to do whatever is reasonably necessary, at the request of LICENSEE, to assist LICENSEE in applying for and obtaining Future Patents relating to the PSM invention. COMPANY also agrees to execute all documents and to fully cooperate in enabling LICENSEE to comply with the requirements of any domestic or foreign patent office and/or the terms of any agreement relating to such patents and/or the PSM invention.

 

8.REPRESENTATIONS AND WARRANTIES

 

8.1.COMPANY represents and warrants that: (1) it is the owner of all right, title and interest in the PSM invention and the Licensed Products and (2) it has the right and the authority to enter into this License Agreement without breaching any other agreement or obligation to any third party.

 

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8.2.LICENSEE represents that it has the right and the authority to enter into this License Agreement without breaching any other agreement or obligation to any third party.

 

8.3.COMPANY represents and warrants that the only known licenses that have been granted in the PSM Invention and Licensed Products is the license to AdvancePak, Inc.

 

9.GENERAL PROVISIONS

 

9.1.The parties agree that this License Agreement shall be personal to each party and shall be nontransferable and non-assignable without the prior written consent of the other party, which consent the parties agree not to unreasonably withhold or unreasonably delay.

 

9.2.If and to the extent that the performance by a party (an “Affected Party”) of any of its obligations pursuant to this License Agreement is prevented, hindered or delayed directly by an act of God, riot, war, earthquake, acts of terrorism or government proclamation beyond the reasonable control of the Affected Party (excluding labor disputes or strikes) (each, a “Force Majeure Event”), and such non-performance, hindrance or delay could not have been prevented by reasonable precautions, then the Affected Party shall be excused for such hindrance, delay or non-performance, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues and the Affected Party continues to use commercially reasonable efforts to recommence performance whenever and to whatever extent reasonably possible without delay, including, but not limited to, the use of alternate sources, workaround plans or other means; provided, however, that the use of such alternate sources, workaround plans or other means shall cease, upon the cessation of the Force Majeure Event.

 

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9.3.No waiver of any breach of any provision of this License Agreement or failure to exercise any right under this License Agreement shall constitute a waiver of any prior, concurrent or subsequent breach or failure to exercise any right of the same or any provisions hereof, and no waiver shall be effective unless made in writing and signed by an authorized representative of the waiving party.

 

9.4.This License Agreement sets forth the entire agreement and understanding between the parties as to the subject matter and merges all prior discussions between them, and neither of the parties shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein, or in any written agreement between the parties executed subsequent to the date of execution hereof; and signed by a proper duly authorized representative of the party to be bound thereby.

 

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9.5.The section headings used in this License Agreement and the attached Exhibits shall be intended for convenience only and shall not be deemed to supersede or modify any provisions.

 

9.6.This License Agreement may not be modified, amended or supplemented except by written agreement executed by the duly authorized representatives of each of the parties. No waiver of any provision of this License Agreement shall be valid or effective unless made in writing and signed by a duly authorized representative of the party to be bound by such waiver.

 

9.7.Notices relating to this License Agreement shall be in writing and shall be considered served when deposited as certified or registered U.S. mail, return receipt requested, in a sealed envelope with sufficient postage affixed, addressed as follows:

 

COMPANY:

 

Emerging Technologies

 

Chuck Jones, Trustee

 

16018 Harbour Palms Dr.

 

Fort Myers, FL 33908

 

LICENSEE:

 

Quest Packaging Solutions Corporation

 

Attention: Jon Scahill (President/COO Quest Patent Reserch Corporation)

 

240 East 75th Street, New York, NY 10021-2929

 

16
 

 

9.8.Nothing contained in this License Agreement shall be construed as creating any relationship of agency, partnership, franchise, joint ventures, employment or similar relationship between the parties. Neither party shall hold itself out as having such authority.

 

9.9.Each Party hereto represents and warrants that no promise or other inducement to enter into this License Agreement has been made to such Party that is not expressly set forth in this License Agreement.

 

9.10.Each of the parties represents and warrants that it has the full power and authority to enter into this License Agreement, and that there are no other persons or entities whose consent to this License Agreement or whose joinder herein is necessary to make fully effective the provisions of this License Agreement.

 

9.11.Each party represents that it has had the opportunity to be represented by counsel of its choice in negotiating this License Agreement. This License Agreement shall therefore be deemed to have been negotiated and prepared at the joint request, direction, and instruction of each of the parties, at arms length, with the advice and participation of counsel, and will be interpreted in accordance with its terms without favor to either party.

 

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9.12.This License Agreement shall be governed by, interpreted and construed in accordance with the laws of New York, without reference to conflict of laws principles. Venue for any dispute arising under or resulting from this License Agreement shall be in the State of New York, and each of the parties hereby irrevocably submits to the jurisdiction of the United States Federal Courts (or, if such court does not have subject matter jurisdiction, a state court) sitting in New York in any action, suit or proceeding brought against it by the other party arising under, resulting from, or related to this License Agreement.

 

9.13.If any provision of this License Agreement shall be determined to be invalid, illegal or unenforceable under any controlling body of law (including European competition law) that provision shall be reformed, construed and enforced to the maximum extent permissible, or, if not possible, excised from this agreement, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

9.14.All provisions of this License Agreement which are by their nature intended to survive the expiration or termination of this License Agreement shall survive such expiration or termination.

 

9.15.This License Agreement may be signed in counterparts, each of which shall be deemed an original hereof, but all of which together shall constitute one and the same instrument.

 

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IN WITNESS WHEREOF, the Parties involved have caused this License Agreement to be executed their duty authorized representatives.

 

Emerging Technologies Trust   QUEST PACKAGING SOLUTIONS COPORATION
         
By: /s/ William C. Jones   By:
         
Title: Trustee   Title: President/COO Quest Patent Research Corporation
         
Date: March 26, 2008   Date: March 26, 2008

 

 

 

19

 



Exhibit 10.8

 

Licensing Services Agreement

 

This Licensing Services Agreement is entered into this 10th day of July, 2008 between Balthaser Online, Inc. (“BOI”), Quest Patent Research Corporation (“Quest”), and Dickstein Shapiro LLP (“DS”).

 

WHEREAS, BOI has contemporaneously herewith entered into a certain Patent Investment Agreement (the “PIA”) between and among BOI, Neil Balthaser, Juridica Investments Limited (“JIL”) and Quest concerning and related to U.S. Patent No. 7,000,180 ) (“180 Patent”), the terms of which are incorporated herein by this reference (with capitalized terms in this Agreement having the meanings ascribed in the PIA, unless this Agreement assigns a different meaning thereto), and

 

WHEREAS, BOI, Quest, and DS are desirous of entering into a separate agreement providing for the performance by Quest of certain services related to developing and maintaining a licensing program for the ‘180 Patent,

 

NOW THEREFORE, BOI, Quest, and DS agree as follows:

 

1.   BOI agrees that Quest shall be paid, solely out of the Facility provided by JIL under the PIA and/or from available funds in the Escrow Account referred to in the PIA (hereinafter referred to as “the escrow”), certain fees as indicated below in consideration for performing services related to building a licensing program to obtain non-exclusive licenses for the ‘180 Patent. These services (the “Services”) shall be performed solely at the direction of DS or other lead counsel on behalf of BOI and shall include, but are not limited to: monitoring and analysis of the relevant markets; identifying revenues and market shares of prospective infringers; when directed by DS or other lead counsel on behalf of BOI, communicating with prospective licensees, analyzing sales revenues of accused infringers in order to formulate licensing proposals; and providing litigation support in connection with developing the damages case against Alleged Infringers. It is further acknowledged that Quest began performing these services in or about March, 2008 and has continued to perform these services for the benefit of BOI, and the other parties to the PIA in helping to develop licensing strategies for the ‘180 Patent. Quest has also brought BOI and Juridica Investments Limited together to facilitate the Patent Investment Agreement.

 

 
 

 

2.    In consideration for Quest's past, present and ongoing services to BOI, Quest shall receive the following: (i) the sum of $150,000, to be paid in cash at closing by JIL out of the Facility as a Litigation Cost, and (ii) in addition to such sum, the sum of $7,500 per month ("Monthly Fees") to be paid as a consulting fee to Quest (as a further disbursement for Litigation Costs) by DS, with approval for such disbursements out of the JIL Facility and/or out of the escrow being hereby authorized by BOI and JIL up to but not exceeding a total of $250,000 in monthly payments (which shall be an absolute cap on all additional disbursements to Quest); and (iii) an irrevocable entitlement to a distribution of a percentage of all proceeds generated by the '180 Patent as set forth in the PIA for the remaining life of the Patent, regardless of whether those proceeds are derived from litigation, settlement, licensing or otherwise (except for those proceeds received by or through the retained rights by BOI for Pro:Fx). Quest's distribution percentage shall be in accordance with the percentages set forth in Schedule A to the Patent Investment Agreement. The PIA contemplates that New Litigation may be undertaken by BOI under the PIA as well. In the event that the parties decide to pursue such New Litigation, Quest shall have a right of first refusal to provide services to BOI on substantially the same terms and conditions as provided hereunder,(subject, at all times, to the absolute cap on Monthly Fees set out above. If it does elect to provide those services, it shall execute a new Services Agreement with terms substantially similar to this Agreement and shall, with respect to the New Litigation, receive its cash payments from a financing facility like the one provided by JIL and shall remain entitled to receive its full distribution percentage as set forth in the PIA at Schedule A with respect to the initial Litigation. If Quest is unable to or decides not to provide such services, it shall not be entitled to receipt of cash payments, but shall remain entitled to receipt with respect to Patent Proceeds derived from the New Litigation of 50% of the Quest Percentage described in the PIA, with the other 50% percentage distribution from the New Litigation to revert to BOI. This irrevocable percentage of all proceeds generated by the '180 Patent shall be reduced by 50% only in the event that in the New Litigation Quest refuses or is unable to continue to perform the same or similar services for BOI's benefit as those services described in this document. No other reduction of Quest's percentage of distribution from Patent Proceeds is contemplated by the parties. Under no circumstances shall either BOI or any of its officers, directors, or affiliates be responsible or liable for payment to Quest of any cash payments, reimbursement of expenses, or payments of a distribution percentage with respect to Patent Proceeds, as Quest shall look solely to the JIL Facility and/or the escrow for payment of any and all amounts owed it, whether hereunder or under the NA.

 

3.    Quest shall provide its services in accordance with and subject to, and Quest shall be bound by the promises of confidentiality contained in, the PIA and in any Nondisclosure Agreements executed by the parties hereto or to the PIA. The results of such services shall all constitute "work product".

 

4.    This Agreement, together with the PIA, constitutes the entire understanding and agreement between the parties relating to the Services provided by Quest and supersedes any and all prior agreements, whether written or oral, that may exist between or among the parties regarding the Services. This Agreement may be amended only by a written instrument signed by each party. It may be signed in counterparts. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of New York, without giving effect to any choice of law rules that may direct the application of the laws of any other jurisdiction. Venue for any legal action shall be either state or federal court sitting in New York, New York. The waiver by one party of any breach of this Agreement, or the failure by one party to enforce at any time, or for any period of time, any of the terms and conditions of this Agreement, shall be limited to the particular instance and shall not operate or be deemed to waive any future breaches of this Agreement and shall not be construed to be a waiver of any other provision. This Agreement shall not be assigned by either party without first obtaining the prior written consent of the other party, which consent shall not be unreasonably withheld. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns.

 

 
 

 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth above.

 

SIGNED:

 

Balthaser Online, Inc.   Quest Patent Research Corporation
         
By: /s/ Neil Balthaser   By: /s/ Jon Scaill
Title: President   Title: President & COO
Date: July 11, 2008   Date: 7/11/08

 

Agreed:

 

Dickstein Shapiro LLP

 

By:
Title: Partner
Date: 7/10/08

 

 

 

 



Exhibit 10.9

 

INTELLECTUAL PROPERTY PURCHASE
AND ASSIGNMENT AGREEMENT

 

This INTELLECTUAL PROPERTY PURCHASE & ASSIGNMENT AGREEMENT (the "Agreement") effective as of the date last signed below (the "Effective Date"), is by and between Intertech Holdings, LLC (the "Assignor"), a Delaware limited liability company having a principal business address el Meadow Lane, Woodcliff Lake, New Jersey 07677, and Quest NetTech Corporation, a Texas Corporation (the "Assignee"), having a business address at 251 W81st St, Suite 7B, New York, NY 10024. Assignor, and Assignee are each a "Party" to this Agreement and collectively, the "Parties" to this Agreement.

 

INTRODUCTION

 

WHEREAS, Assignor is the owner of all right, title and interest in United States Patents 5,128,752, 5,227,874, 5,249,044, 5,283,734, 5,368,129 and 5,508,731 and defined herein as the "Patent Portfolio";

 

WHEREAS, Assignor wishes to sell and Assignee wishes to purchase all right, title, and interest in the Patent Portfolio, including, without limitation, all rights to sue for past, present, and future infringement, including the right to collect and receive any damages, royalties, or settlements for such infringements, all rights to sue for injunctive or other equitable relief, and any and all causes of action relating to any of the inventions or discoveries thereof ("collectively the Patent Rights");

 

WHEREAS, Assignee will engage in activities to license third parties under the Patent Rights for fees to be determined by the Assignee in their sole discretion ("Licensing Activities");

 

NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is hereby acknowledged by Assignor, and Assignee, the Parties hereto agree as follows:

 

1.      Definitions:

 

1.1. "Compensable Costs" shall mean reasonable and necessary, attorney's fees, expert fees, and other expenses incurred in support of Licensing Activities including those required to answer and prosecute any reexamination proceedings and Litigation Costs. Any such Compensable Costs shall be no higher than such costs would be on the open market. Assignee shall pay any maintenance fees due on The Patents, however, such maintenance fees shall be considered Compensable Costs.

 

 
 

 

1.2. "Litigation Costs" shall mean any costs or expenses that the Assignee may bear (such as litigation attorney's fees, out of pocket disbursements, court costs). Such Litigation Costs shall be fronted and advanced by the Assignee. Any fee arrangement with contingency fee counsel shall be no higher than the market rates for contingency fee counsel. Any Litigation Costs shall be no higher than the market price of such costs. If the Assignee engages a contingency fee counsel in which the Assignee or any of its principals own an equity stake, or otherwise derive salary from, Buyer shall disclose such arrangement to Seller.

 

2.      Assignment. Assignor hereby sells, assigns, transfers, and conveys to Assignee, and its successors and assigns, all right, title, and interest in the Patent on Portfolio. The Assignment of rights granted herein include, but are not limited to: the right to prosecute existing and further patent applications, file further applications, receive new patents, collect royalties and enforce any past, present or future causes of action, enforcement rights, claims, or demands presently or hereafter accruing with respect to the same, including the right to sue or bring other actions for past, present, and future infringement thereof anywhere in the world as well as the right to collect damages and obtain injunctive relief as a result thereof. Notwithstanding the above, Assignee shall not acquire any rights to collect royalties pursuant to license agreements that have been previously executed by predecessors in interest to the any of the patents in the Patent Portfolio. Any such pre-existing royalty agreements shall remain with the original party that is entitled to receive any such royalty payments.

 

2.1 Assignor agrees that, effective as of the date of execution of this agreement, Assignor hereby terminates the exclusive license agreement between Assignor and Applied Interact, LLC and Applied Interact, LLC, hereafter, has no rights whatsoever to the listed Patents including the rights to practice the patents, license or sublicense the patents, or enforce the patents in a legal proceeding.

 

3.       Assignment Form. Concurrent with execution of this Agreement, Assignee shall execute the assignment annexed to this Agreement as Exhibit A, and shall agree to execute other assignment forms as may be requested by Assignee for the purpose of recording Assignee's interest in the Patent Portfolio.

 

4.      Further Assurances.

 

4.1. Assignor further agrees that Assignor will: execute, verify, acknowledge and deliver all such further papers, including applications, powers of attorney, and instruments of transfer, to facilitate Assignee's right to obtain, prosecute, perfect, protect, maintain, defend or enforce the Patent Portfolio. In the event that Assignee is unable for any reason whatsoever to secure Assignor's signature to any document when so required to effectuate fully this Agreement, after reasonable efforts to do so, Assignor hereby irrevocably designates and appoints Assignee and Assignee's duly authorized officers and agents (to be selected by Assignee), as Assignor's agents and attorneys-in-fact to act for and on its behalf and instead of it, to execute and file any such document and to do all other lawfully permitted acts to further the purposes of the foregoing, with the same legal force and effect as if executed by Assignor.

 

2
 

 

4.2. Assignee will be responsible for fronting and advancing all costs, expenses and fees associated with the Licensing Activities of the Patent Rights. The Licensing Activities will be backed by a commitment by Assignee to provide, as necessary, reasonable Compensable Costs

 

4.3. Assignee will engage a contingency fee counsel to represent the Assignee in litigations. Assignee shall front and advance any Litigation Costs. Any fee arrangement with contingency fee counsel shall be no higher than the market rates for contingency fee counsel. Any Litigation Costs shall be no higher than the market price of such costs. Any fee arrangement may be on a full or partial contingency basis. If such arrangement is on a partial contingency basis, any partial or full payment of litigation attorney's fees or out of pocket disbursements shall constitute Compensable Costs. If the Assignee engages a contingency fee counsel in which the Assignee or any of their principals own an equity stake, or otherwise derive salary from, Assignee shall disclose such arrangement to Assignor.

 

4.4. Assignee or its designee will retain full control over the Patent Portfolio, including but not limited to the sole right to choose prospective licensees or litigation defendants and to set the terms of any license and/or litigation settlement.

 

4.5. Assignor will reasonably cooperate with Assignee, in such a way as to not to interfere with the other business activities of Assignor's principals, in any and all Licensing Activities or other proceedings involving the Patent Portfolio and will use reasonable efforts to secure the cooperation of its agents, employees and representatives.

 

4.6. Assignor agrees to provide reasonable cooperation requested by Assignee and its agents in support of the Licensing Activities. However, any legal expenses incurred as a result of such cooperation, in responding to a subpoena in connection with licensing activities, or if the Assignor or its members or directors are named as parties in any litigation in furtherance of the Licensing Activities, shall be, at the option and election of Assignee, either advanced by Assignee, or provided by legal counsel representing the Assignee in any licensing activities, at no out of pocket cost to the Assignor or its Members or directors, except that any such costs or expenses shall be Compensable costs.

 

3
 

 

5.      Delivery. Upon execution of this Agreement, Assignor shall deliver the following to Assignee: (a) executed originals of the Assignment in Exhibit A hereto, (b) all files and original documents owned or controlled by Assignor relating to the filing and prosecution of the Patent and Patent Application Portfolio and the invention of the subject matter thereof (hereinafter collectively referred to as "Deliverables").

 

6.      Payment. In consideration of Assignor's obligations under this Agreement, including without limitation the sale and assignment of the Patent and Patent Application Portfolio and the transfer of all rights therein to Assignee, Assignee shall pay the following amounts as part of the purchase price of the Patent Portfolio:

 

6.1. After recovery of the Compensable Costs by Assignee which shall include all Litigation Costs, Assignor shall receive eighty percent (80%) of the Adjusted Gross Recoveries, which is determined by the net proceeds from Licensing Activities after recovery of any Compensable Costs by Buyer. Assignee shall provide Assignor with quarterly reports setting forth the Licensing Activities of the Assignee for the previous calendar quarter. Such quarterly reports shall be provided within 30 days after the end of each calendar quarter which end on March 31, June 30, September 30 and December 31.

 

7.      Representations and Warranties.

 

7.1. Representations and Warranties of Assignor. Assignor represents and warrants to Assignee the following:

 

7.1.1. This Agreement has been duly executed and delivered by Assignor and constitutes a valid and binding obligation of Assignor enforceable in accordance with its terms and that Assignor has the right and authority to enter into this Agreement.

 

7.1.2. The execution, delivery, and performance of this Agreement and the assignment of the rights contemplated by this Agreement (a) does not violate any provision of law, (b) does not conflict with or result in any breach of any of the terms, conditions, or provisions of, or constitute (with or without notice or lapse of time or both) a default under or a violation of, Assignor's operating or governing agreement or any indenture, loan, or credit agreement, note agreement, deed of trust, mortgage, security agreement, or other agreement, lease or other instrument, commitment or arrangement to which Assignor is a party, and (c) does not result in the imposition of any lien or other encumbrance on the Patent or Patent Application Portfolio.

 

4
 

 

7.1.3. Assignor or its wholly owned subsidiary Applied Interact, LLC is the sole and exclusive owner of all right, title and interest in the Patent and Patent Application Portfolio and to sue for infringement thereof.

 

7.1.4. The Patent and Patent Application Portfolio is free and clear of licenses, liens, mortgages, security interests, claims and restrictions on transfer or encumbrances of any kind to or of any person or entity.

 

7.1.5. Except for the declaratory judgment action filed by Delta Airlines against Assignor in the United States District Court for the District of Delaware on December 8, 2009, Assignor is not aware of and does not know of any private, governmental, judicial, administrative, or regulatory action, suit, proceeding, claim, or investigation, pending before any agency, court, or tribunal, or panel, or to Assignor's best knowledge, threatened against Assignor relating to or involving the Patent Portfolio which would restrain or invalidate this agreement.

 

7.1.6. To the best of Assignor's knowledge the issued patents of the Patent Portfolio are not presently the subject of any reexamination, reissue, interference or similar proceeding and the Assignor has not received any notice concerning such a proceeding.

 

7.1.6.1. To the best of Assignor's knowledge the issued patents of the Patent and Patent Application Portfolio have not been declared invalid or unenforceable in any proceeding, are not the subject of any other proceeding to invalidate any claim thereof, and are not currently at issue in any litigation.

 

7.1.7. Assignor has disclosed to Assignee the entire extent of its claim or ownership of the Patent and Patent Application Portfolio as defined by this Agreement.

 

7.2. Representations and Warranties of Assignee. Assignee represents and warrants to Assignor that Assignee has the right and authority to enter into this Agreement.

 

8.      Performance Commitment. Assignee agrees that in the event that it does not execute patent licenses (with a total aggregate value of no less than ($250,000) or file and serve litigation complaints against at least 10 unrelated entities within 18 months after the transfer of The Patent Portfolio to Assignee, the Assignee shall transfer the Patent Portfolio back to Assignor at the Assignor's request. In the event of such transfer back to Assignor, Assignee shall not be entitled to recover any monies, including but not limited to any fronting or advance of Compensable Costs, and shall waive any claim it may have against Seller, its directors or members.

 

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8.2 Not withstanding the above, to the extent there are pending litigation at the time of such transfer back to Assignor, Assignor agrees to be bound by any contingency fee agreements entered into by the Assignee during the 18 month period. Except that, not withstanding the preceding, Assignor does not have to agree to be bound by any contingency fee agreement that would require Assignor to provide or pay capital, fees or any costs prior to a resolution of any such litigation.

 

9.     Confidentiality.

 

9.1 The Parties have entered into a certain Common Interest and Confidentially Agreement dated October 21, 2009 {the "Confidentiality Agreement") and the Parties agree that the terms and conditions of this Agreement shall be governed and controlled by the Confidentiality Agreement, a copy of which is annexed hereto and the provisions of which are incorporated herein and made a part hereof as if set forth verbatim. Notwithstanding the foregoing, it is agreed and understand that the Assignee may disclose the terms and conditions of this Agreement to its officers, directors, note holders, investors and stockholders and such parties may in turn disclose the terms and conditions of this agreement with their tax and legal advisors.

 

10.    Relationship of the Parties. Notwithstanding any provision hereof, for all purposes of this Agreement each Party shall be and act as an independent contractor and shall neither bind nor attempt to bind the other Party in any manner.

 

11.    General.

 

11.1. Successors and Assigns. This Agreement, and each of its provisions, will be binding on and inure to the benefit of Assignor, and Assignee as well as Assignee's respective successors and assigns.

 

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11.2. Notices. Unless otherwise specified herein, all notices, requests, payments, demands, and other communications required to or permitted to be given under this Agreement shall refer to this Agreement and be delivered by hand, or dispatched by prepaid air courier addressed to the following:

 

For Assignor:

 

Jaime Siegel

1 Meadow Lane

Woodcliff Lake, NJ 07677

 

For Assignee:

 

Jon Scahill

251 W81st St.

Suite 7B

New York, NY 10024

 

With copy to:

 

Dickstein Shapiro

1633 Broadway

New York, NY 10019

Attn: Alfred Fabricant

 

11.3. Waiver. The failure of a Party to require performance by another Party of any provision hereof shall not affect the full right to require such performance at any time thereafter; nor shall the waiver by either Party of a breach of any provision hereof be taken or held to be a waiver of the provision itself.

 

11.4. Inspection. Assignor shall have, upon reasonable notice, right of inspection as to all contracts executed by the Assignee and audit rights as to distribution of all recoveries.

 

11.5. Severability. The provisions of this Agreement are severable, and should any provisions be determined, by agreement of the Parties or by a court of competent jurisdiction, to be invalid, illegal, or unenforceable, the remaining provisions shall be valid and shall remain in full force effect. Further, if modification of any provision is required, such modification shall, if possible, be done to make the provision valid and enforceable.

 

11.6. Controlling Law; Jurisdiction. This Agreement and all of its provisions shall be governed by, construed and interpreted in accordance with, the laws of the State of New York, as applicable to contracts executed and delivered in New York between New York residents and which are to be performed wholly within New York, without regard to principles of conflicts of law. The Parties agree that any dispute arising out of this Agreement (including any of its provisions) shall be subject to the exclusive jurisdiction of the United States District Court for the Southern District of New York. Each Party hereby agrees to submit to the personal and exclusive jurisdiction, subject matter jurisdiction, and venue of such court and not to seek the transfer of any case or proceeding out of such court. If the Court declines jurisdiction, then the Parties agree that any dispute will be subject to the exclusive jurisdiction of the State Courts of New York.

 

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11.7. Entire Agreement Modification. This Agreement (together with all exhibits hereto) constitutes the entire agreement between the Parties concerning the subject matter hereof. This Agreement replaces and fully supersedes any prior verbal or written understandings, term-sheets, communications, or representations between the Parties. This Agreement shall not be modified (including, without limitation, any ability to make changes to this section and the modification provision) except by a subsequently dated written amendment signed by a duly authorized representative of each Party.

 

12.    Counterparts. This Agreement may be executed in multiple counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument.

 

IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed by the signature of its duly authorized officer as of the date written below.

 

Intertech Holdings, LLC   Quest NetTech Corporation
       
By: /s/ Jaime Siegel   By: /s/ Jon C. Scahill
         
Member of Board of Members   Jon C. Scahill
[TITLE]   Chairman

 

NOTARIAL CERTIFICATION OF ASSIGNOR

 

I, JOAN MINICVECI, a Notary Public of STATE OF NEW JERSEY, hereby certify that JAIME SIEGEL, who executed the attached document before me on DECEMBER 21, 2002 has proven to me on the basis of satisfactory evidence, that he/she had and has full authority to execute documents on behalf of Assignor, a Limited Liability Company organized under the laws of the State of Deleware, doing business at 1 MEADOW LANE, WOODCLIFF LAKE, NJ.

 

/s/ Joan Minicveci  
Notary Public  

 

My commission expires: 9/30/2012

 

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EXHIBIT A

 

ASSIGNMENT

 

WHEREAS, Intertech Holdings, LLC(the "Assignor"), having a principal business address I Meadow Lane, Woodcliff Lake, New Jersey 076777 is hereafter referred to as Assignor, have acquired all right title and interest to the inventions of certain new and useful improvements disclosed in certain patents and patent applications recited in the Patent and Patent Application Portfolio List attached hereto, for which applications for a United States Letters Patent were executed and Patents have been granted;

 

WHEREAS, Quest NetTech Corporation a Texas corporation, herein referred to as "Assignee" whose mailing address is 251 W81st St., Suite 7B, New York, NY 10024 is desirous of acquiring the entire right, title and interest in the same;

 

NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, Assignor agrees as follows: Assignor agrees to assign, and hereby does assign, to the Assignee its entire right, title and interest in and to each of the patents listed below, as well as to the "Assigned Applications" in the United States of America and all other countries, where "Assigned Applications" means the patents and patent applications recited in the attached Patent List, as well as any and all pending patent applications, including any and all inventions, discoveries and other subject matter described therein, any divisional, continuation, continuation-in-part, substitute, reissue, re-examination or other application claiming priority to or benefit of the patent applications pursuant to any law or treaty, and any patent issuing from the foregoing. this Assignment expressly and specifically, without limitation, assigns to Assignee all rights to sue for past, present, and future infringement, including the right to collect and receive any monetary damages, royalties, or settlements for such infringements, all rights to sue for injunctive or other equitable relief, and any and all causes of action anywhere in the world. Assignor agrees to assign, and hereby does assign, to Assignee the right to claim such priority or benefit. Assignor has not previously conveyed, nor are they aware of an obligation to convey, their rights in the Assigned Applications to a third party. Assignor hereby authorizes the U.S. Patent and Trademark Office, and any other governmental agency in the world, to issue to Assignee all patents resulting from the Assigned Applications and to record Assignee's ownership thereof. At Assignee's reasonable request Assignor agrees, without further remuneration, to execute and deliver documents prepared at Assignee's expense and to provide other cooperation, such as testimony at Assignee's sole cost and expense, as may be reasonably required to evidence or protect Assignee's rights in the Assigned Applications. Assignee may assign or transfer all or part of its rights set forth herein in its sole discretion. Assignor agrees that Assignee may affix hereto or hereon an indication, with its signature, of its acceptance of the assignment and other provisions hereof. If any provision hereunder is unenforceable, the requirements of the provisiOn shall remain to the full extent permissible by law and the offending portions thereof shall be deemed replaced, to the extent possible, with a provision most closely reflecting the purpose of the offending provision.

 

9
 

 

PATENT LIST

 

5,128,752

5,227,874

5,249,044

5,283,734

5,368,129

5,508,731

 

/s/ Jaime Siegel  
Intertech Holdings, LLC  
(Date) 12/21/09  

 

NOTARIAL CERTIFICATION OF ASSIGNOR

 

I, JOAN MINICVECI, a Notary Public of STATE OF NEW JERSEY, hereby certify that JAIME SIEGEL, who executed the attached document before me on DECEMBER 21, 2009 has proven to me on the basis of satisfactory evidence, that he/she had and has full authority to execute documents on behalf of Assignor, a Limited Liability Company organized under the laws of the State of Deleware, doing business at 1 MEADOW LANE, WOODCLIFF LAKE, New Jersey 07677.

 

/s/ Joan Minicveci  
Notary Public  

 

My commission expires: 9/30/2012

 

10
 

 

Second Rider and Amendment to Intellectual Property Purchase And
Assignment Agreement Dated as of December 21, 2009

 

This Second Rider and Amendment (hereinafter "Second Rider") is intended by the parties hereto to modify and amend the terms of the Intellectual Property Purchase And Assignment Agreement dated as of December 21, 2009 along with the Rider and Amendment to Intellectual Property Purchase And Assignment Agreement (collectively "the Agreement"). Upon execution hereof, this Second Rider shall be affixed to and become a part of the Agreement. In consideration for the payment of the sum of ten dollars ($10.00) by Quest NetTech Corporation to Intertech Holdings, LLC, the receipt of which is hereby acknowledged and for other good and valuable consideration, the parties hereto agree as follows:

 

1. The Parties agree to the following revisions to the Agreement:

 

a. the time period of Paragraph 8 of the Agreement, "one hundred eighty 180 days after (i) a final non-appealable judgment is entered in the Delta Lawsuit (as defined in the Rider) as to all parties; or (ii) a final non-appealable Order of Dismissal With Prejudice is entered in the Delta Lawsuit against all parties with respect to all claims and counterclaims (the "Performance Period")" is stricken from the Agreement and replaced with the following "for as long as Quest NetTech Corporation is actively engaged in efforts to monetize the Patent Portfolio through licensing or litigation ("Performance Period")."

 

b. added to the Patent List in Exhibit A of the Agreement are patent numbe 5697844, 5713795, 5759101, 5916024, and 6443840

 

2. Except as expressly provided herein all other terms and provisions of the Agreement shall remain in full force and effect.

 

Intertech Holdings, LLC   Quest NetTech Corporation
       
By: /s/ Jaime Siegel   By: /s/ Jon C. Scahill
         
Dated: October 25, 2011   Dated: October 25, 2011

 

11
 

 

Third Rider and Amendment to Intellectual Property Purchase And
Assignment Agreement Dated as of December 21, 2009

 

This Third Rider and Amendment (hereinafter "Third Rider") is intended by the parties hereto to modify and amend the terms of the Intellectual Property Purchase And Assignment Agreement dated as of December 21, 2009 along with the Rider and Amendment to Intellectual Property Purchase And Assignment Agreement and the Second Rider and Amendment to Intellectual Property Purchase And Assignment Agreement (collectively "the Agreement"). Upon execution hereof, this Third Rider shall be affixed to and become a part of the Agreement. In consideration for the payment of the sum of ten dollars ($10.00) by Quest NetTech Corporation to Intertech Holdings, LLC, the receipt of which is hereby acknowledged and for other good and valuable consideration, the parties hereto agree as follows:

 

1. The Parties agree to the following revisions to the Agreement:

 

a. the Payment provision of Paragraph 6.1 of the Agreement, "[a]fter recovery of the Compensible Costs by Assignee which shall include all Litigation Costs Assignor shall receive eighty percent (80%) of the Adjusted Gross Recoveries, which is determined by the net proceeds from Licensing Activities after recovery of any Compensable Costs by Buyer. Assignee shall provide Assignor with quarterly reports setting forth the Licensing Activities of the Assignee and SPE for the previous calendar quarter. Such quarterly reports shall be provided within 30 days after the end of each calendar quarter which end on March 31, June 30, September 30 and December 31" is stricken from the Agreement and replaced with the following "[a]fter recovery of the Compensible Costs by Assignee which shall include all Litigation Costs, but exclude any contingency legal fees, the cost of which is the responsibility of and to be borne by Assignee, Assignor shall receive thirty-three percent (33%) of the Adjusted Gross Recoveries, which is determined by the net proceeds from Licensing Activities after recovery of any Compensable Costs by Buyer. Assignee shall make disbursement to Assignor from Adjusted Gross Recoveries from Licensing Activities and provide Assignor with accounting reports setting forth the calculation of said disbursements within 30 days of receipt of said funds by Assignee."

 

2. Except as expressly provided herein all other terms and provisions of the Agreement shall remain in full force and effect.

 

Intertech Holdings, LLC   Quest NetTech Corporation
       
By: /s/ Jaime Siegel   By: /s/ Jon C. Scahill
  JAIME SIEGEL     JON C. SCAILL
         
Dated: 8/5/13   Dated: 8/5/13

 

 

 

12

 



Exhibit 10.10

 

Quest Patent Research Corporation
19 Fortune Lane
Jericho, New York 11753
516-364-3500

 

August 11, 2010

 

Mr. Alex W. "Pete" Hart

P. O. Box 3398

Rancho Santa Fe, CA 92067

 

Dear Pete:

 

This letter sets forth the conditions of your Consulting Agreement with Quest Patent Research Corporation, which will be formalized in an Agreement dated August 10, 2010.

 

Your duties will be to use your best efforts to locate and approach appropriate organizations to participate in Quest's Q Card project. This will include introducing Quest and assisting in completing agreements with all such institutions.

 

You will receive options to purchase, at a price of $.001 per share, 5 million shares of Quest stock which can be exercised at any time during the five-year Agreement either on a cash or cashless basis.

 

The Consulting Agreement will be in effort until December 31, 2015,

 

The Consulting Agreement can be terminated by either party with 30 days notice. However, if Quest terminates the agreement, you will have two years from the date of such termination to exercise your options.

 

Expenses incurred in performance of your duties will be mutually agreed upon and reimbursed when Quest is financially able to do so.

 

In addition, compensation will be mutually agreed upon if any efforts on your part result in Quest securing financing for any patents in its portfolio.

 

Your signature below will acknowledge acceptance of these conditions.

 

We are pleased to have you on board again and look forward to working with you. Sincerely,

 

Herbert M. Reichlin Chief Executive Officer

 

 

Sincerely,   Accepted:
     
/s/ Herbert M. Reichlin   /s/ Alex W. “Pete” Hart
Herbert M. Reichlin   Alex W. “Pete” Hart
Chief Executive Officer    
     



Exhibit 10.11

 

Agreement Between Quest Patent Research Corporation, Wynn Technologies, Inc.,
And Sol Li (formerly Sol Wynn)

 

This document sets forth all of the material terms of the agreement between Quest Patent Research Corporation (formerly Quest Products Corporation)("Quest"), Wynn Technologies Inc., and Sol Li (formerly Sol Wynn) ("Mr. Li") effective as of February 8„ 2011 (hereinafter "the Agreement"). In consideration for the mutual promises and obligations set forth herein the parties hereto agree as follows:

 

1.All prior written and oral agreements between the parties hereto are hereby terminated and of no further force and effect;
2.The parties hereto intend that this Agreement shall be a mutually binding and enforceable agreement which sets forth all of the material terms and obligations between the parties, however, the parties intend and contemplate that they will enter into a more formal written agreement, incorporating all of the terms hereof, as soon as U.S. Patent number RE38,137E (hereinafter "the Patent") is acquired from Howard Wagner and/and or his successors and assigns ("Wagner") as described in paragraph 3, below;
3.Upon the execution hereof by the parties, Quest shall use its best efforts to acquire the Patent from Wagner on behalf of Wynn Technologies, Inc. To be effective, the acquisition shall require that all right, title and interest to the Patent be assigned to Wynn Technologies, Inc., and the assignment document recorded in the United States Patent Office within 15 days of the acquisition. If all right, title and interest to the Patent is not acquired by Wynn Technologies Inc., within forty five (45) days from the date of execution of all parties of this Agreement, then this Agreement shall terminate and be of no further force and effect in which case the parties shall have whatever legal rights and claims they had as if this Agreement had never been entered into by the parties;
4.In the event that the timely acquisition contemplated in paragraph 3, above occurs, then in such case the parties agree that all rights, claims, causes of action or other disputes of any kind or description, whether known or unknown, between the parties as well as their officers, directors, shareholders, agents and representatives, as well as any and all claims against Mr. Wagner, are as of the date of recording of the Patent in the U.S. Patent Office, forever mutually released by the parties;
5.As of the date of execution hereof, it is acknowledged that Mr. Li is the holder of 35% of the common stock, consisting of 3500 shares in Wynn Technologies Inc., and nothing set forth or contemplated herein shall alter or change his stock ownership in Wynn Technologies Inc.;
6.Upon the acquisition of the Patent and the recording of the assignment with the U.S. Patent Office, Mr. Li shall receive a grant of warrants to purchase up to five million shares of the common stock of Quest at a strike price of $0.001 per share. The warrants shall vest to Mr. Li 50% upon the recording of the Patent with the U.S. Patent Office and 50% after the passage of one (1) year following the recording of the Patent with the U.S. Patent Office or the sale or licensing of the Patent, whichever occurs first. All vested warrants must be exercised no later than the final expiration date of the Patent. Any vested warrants not exercised by that date shall expire.

 

  
 

 

7.Following the acquisition of the Patent contemplated in paragraph 3, above, Quest
and Wynn Technologies Inc., agree to use their best efforts to monetize the Patent, which efforts may include enforcement of the Patent in legal proceedings against persons or entities believed to be practicing the claims of the Patent;
8.In furtherance of all efforts by Quest and Wynn Technologies Inc., to monetize the Patent, Mr. Li agrees to cooperate fully, as the inventor of the patent, in providing all relevant facts and information surrounding his conception of the invention described in the Patent as well as all of his efforts to reduce the invention to practice. This cooperation may require, among other things, the attendance by Mr. Li at meetings, by phone or in person, with prospective licensees as well as Mr. Li's testimony at deposition and trial in any patent infringement proceedings to enforce the Patent. Mr. Li shall be reimbursed for all out of pocket travel expenses, lodging, meals (from place of departure to destination), costs actually expended by him in connection with providing the cooperation contemplated hereunder and a per diem compensation of $200 per day;
9.Following the acquisition of the Patent as contemplated in paragraph 3, above, all revenues or monies generated by the Patent from any source for the life of the Patent ("gross proceeds") shall be divided as follows between the parties after first deducting all actual costs, disbursements and expenses actually paid and incurred by Quest and/or Wynn Technologies Inc., in connection with the monetization and enforcement of the Patent ("Net Proceeds"): Sixty percent (60%) of the Net Proceeds shall be retained by Wynn Technologies Inc., forty percent (40%) of the Net Proceeds shall be paid and distributed on a quarterly basis to Mr. Li, or any person or entity designated by Mr. Li;
10.Wynn Technologies, Inc. shall not transfer, assign, sell, hypothecate or otherwise encumber the Patent without the express written consent of Mr. Li unless, as of the date of such transfer, assignment, sale, hypothecation, or other encumbrance, Mr. Li has received a total of at least $250,000. U.S. It is understood and agreed that following any such transfer or assignment of the Patent, Mr. Li shall continue to receive his forty percent (40%) share of the Net Proceeds of any and all monies paid to Wynn Technologies Inc., in connection with the Patent.
 11A detailed profit and loss statement shall accompany every quarterly payment of Net Proceeds. Mr. Li shall also have the right to examine financial records of Wynn Technologies, Inc. upon 15 days written notice;
12.Quest and Wynn Technologies, Inc. shall use their best efforts to insure that all costs, expenses and disbursements incurred or expended are reasonable in light of the efforts taken to monetize the Patent.
13.Mr. Li shall be informed in writing at least once every quarter regarding the status of any developments on the efforts of monetization of the Patent, including potential licensing prospects and legal proceedings;

 

This Agreement shall be construed in accordance with, and governed by the laws of the State of California. The parties agree that upon written notice of material breach and a thirty (30) day opportunity to cure any such claimed breach, any disputes between the parties and all matters related thereto shall be subject to mandatory and binding arbitration before a single arbitrator under the Rules of The American Arbitration Association, such arbitration to take place in Los Angeles, California or San Francisco , California, at the election of Quest or Wynn Technologies Inc.

 

2
 

 

Agreed to this  9  day of February, 2011

 

  Quest Patent Research Corporation
   
  By: /s/ Herbert M. Reichlin
     
  Wynn Technologies, Inc.,
   
  By: /s/ Herbert M. Reichlin

 

  Sol Li
     
    /s/ Sol M. Li

 

 

3

 

 



Exhibit 10.12 

 

AGREEMENT BETWEEN QUEST LICENSING INC., THE BETTING SERVICE LIMITED AND NEIL RICHES

 

Quest Licensing Inc., ("Quest"), agrees to modify its prior agreements to secure the committed cooperation of Neil Riches in the upcoming patent licensing and enforcement activities of the patent and the patent continuations in The United States. Such cooperation will include providing all documents related to the patent and its original prosecution in Europe and in the United States; assisting Quest in securing the cooperation of the named inventors on the patent; attending meetings in the United States with counsel, depositions and trials in the United States when required and otherwise cooperating with Quest's efforts to license and enforce the patent(s) in the United States. This cooperation is material to the proposed modifications set forth herein.

 

Quest has agreements with Allied Standard and, in turn, Allied has agreements with Worldlink Technology Management (US) Limited ("WTMUS") Under these agreements, WTMUS receives 15% of the net revenues collected after the first $2.5 million and up to $25 million. After $25 million WTMUS' share of the net revenues collected increases to 20%. WTMUS does not receive any distribution of proceeds unless and until at least $2.5 million of revenues are realized from the Patent, net of costs.

 

It has now been represented to Quest that on or about April 15, 2013, Worldlink Technology Management (US) Ltd., transferred to Worldlink Technology Management (UK) Ltd. ("Worldlink") all rights to the Patent Proceeds that it owned pursuant to the above referenced agreements (hereinafter "the Patent Proceeds"). It has been further represented to Quest that on or about April 26, 2013 Worldlink sold to The Betting Service Limited the business and assets of Worldlink, including specifically the Patent Proceeds pursuant to an Agreement of Sale and that as of the date of this proposal the Patent Proceeds are owned by The Betting Service Limited. These representations are material to this agreement and Quest is relying upon these representations in agreeing to modify the terms of the previous agreements. In the event, for any reason, that the transactions and transfers with The Betting Service are rescinded or cancelled or determined to be null and void then in such case Quest's obligations to pay Patent Proceeds to The Betting Service under this agreement shall immediately cease.

 

In consideration for the promise and commitment of Neil Riches to cooperate with Quest in connection with Quest's licensing and enforcement activities in the United States, and in recognition of the transfers and sales that have occurred as recited above, Quest agrees to modify the previously agreed payments to WTMUS so that The Betting Service Limited ("The Betting Service") will be entitle to share in all net revenues realized in connection with the licensing and enforcement of the patent in the United States after Quest has received from net revenues the sum of $50,000. Under the existing agreements Quest receives the first $50,000 net of costs to reimburse Quest for an undisputed obligation.

 

Thereafter, under the existing agreement Quest is entitled to receive 70% of all net revenues collected until the sum of $350,000 is realized with Allied to receive 30%. Quest agrees to modify that provision to allow The Betting Service to receive 20% of the net revenues collected between $50,000 and $350,000.

 

 
 

 

In addition, under the existing agreements Quest is entitled to receive 60% of the net revenues until the sum of $2.5 million is collected with Allied to receive 40%. Under this modified agreement The Betting Service will receive 20% of the net revenues collected between $350,000 and $2.5 million.

 

After $2.5 million of net revenues are distributed in the manner stated above, the split between Quest and Allied is set at 50/50. Quest agrees to modify the above referenced agreements to allow The Betting Service to receive 22.5% of the collected net revenues for all revenues over $2.5 million. Quest also promises to use its best efforts to secure from Allied, for the benefit of The Betting Service an additional 2.5% of the collected net revenues for each of the categories of payment described above.

 

Quest agrees that the reasonable costs of travel, including airfare, meals and hotel, for Neil Riches or for any of the named inventors who provide their requested cooperation shall be paid or reimbursed by Quest or its counsel as a disbursement in the enforcement matters.

 

It is further agreed that in the event that Neil Riches leaves his association, for any reason, with The Betting Service than in such case all payments of Patent Proceeds to The Betting Service shall be reduced by 5% with such 5% payment of the Patent Proceeds to be paid instead directly to Neil Riches.

 

If the terms of this agreement are acceptable, please sign where indicated below and forward the documents previously held in escrow. By signing this document and returning it along with the documents previously held in escrow, you expressly acknowledge that Quest and its counsel are free to use all of such documents in any manner they see fit including to prosecute the patent continuations, and in connection with all actions to license and enforce the patent(s).

 

Agreed as of this 26th day of June, 2013  
   
/s/ Neil Riches  
Neil Riches  

 

The Betting Service Limited  
   
/s/ Brian Fox  
BRIAN FOX  

  

 
 

 

Agreed as of this 26th day of June, 2013  
   
Quest Licensing Inc.  
   
/s/ Jon Scahill  
By: Jon Scahill  
       President   

 

 

 

 



Exhibit 10.13

 

Confidential Treatment Requested

 

FUNDING AGREEMENT

 

This Funding Agreement, dated as of March 11, 2014, is entered into by and between Longford Capital Fund I, LP (“LCF”), a Delaware limited partnership, on the one hand, and Quest Patent Research Corporation (“QPRC”), a Delaware corporation, and its subsidiary, Quest Licensing Corporation (“QLC” and, together with QPRC, each a “Claim Owner” and “collectively “Claim Owner”), a New York corporation, on the other hand (LCF and Claim Owner are collectively referred to herein as the “Parties” and individually as a “Party”).

 

RECITALS

 

WHEREAS, QPRC, through its subsidiary QLC, the owner of all right, title and interest to United States Patent Number 7,194,468 entitled APPARATUS AND A METHOD FOR SUPPLYING INFORMATION, possesses certain Claims, as defined in Section 2 below, for which it intends to seek redress.

WHEREAS, LCF is prepared to fund certain Attorneys’ Fees, Expenses, Inter Partes Review Expenses and Operating Expenses as each is defined in Section 2 below, associated with the Claims, and Claim Owner is prepared to assign LCF a portion of the Proceeds, as defined in Section 2 below, of the Claims pursuant to the terms of this Agreement.

NOW, THEREFORE, in consideration for the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

1.CONSTRUCTION

1.1              For purposes of this Agreement, defined terms shall have the meanings set forth in Section 2 below.

1.2              Headings are for information only and do not form part of the operative provisions of this Agreement.

1.3              References to this Agreement include references to the Recitals.

1.4              In this Agreement, unless a clear contrary intention appears:

(a)words denoting the singular include the plural and vice versa;
   
(b)words denoting any gender include all genders;
   
(c)all references to “$” or dollars shall mean U.S. Dollars;
   
(d)the word “or” shall include both the adjunctive and the disjunctive meaning thereof; and
   
(e)the words “include,” “includes,” and “including” shall be deemed to be followed by the phrase “without limitation.”

 

 

Confidential Treatment Requested

1.5              The terms of this Agreement have been negotiated between the Parties in an arm’s length transaction, and shall not be construed for or against either Party by reason of the drafting or preparation hereof.

2.DEFINITIONS

The following terms shall have the meanings given below:

2.1              “Adverse Claim” means any claim, cause of action, suit, or demand, including any counterclaim or third-party claim that is adverse to Claim Owner, Claim Owner’s Affiliates, Claim Owner’s Attorneys, LCF, Longford Investment Group, LLC, Longford Advisors, LLC, Longford Capital Management, LP, or LCF’s interests pursuant to this Agreement; provided that “Adverse Claim” shall not include any non-monetary counterclaim relating directly to the Claims brought by a Defendant, including allegations regarding the invalidity, non-infringement, or unenforceability of any of the Patents, except to the extent that any such non-monetary counterclaim is in connection with, arises out of, or is otherwise related to any breach (or is based on or relates to facts or circumstances the existence of which would constitute a breach) of any representations or warranties or covenants made by Claim Owner in this Agreement.

2.2              “Agreement” means, collectively, this Agreement, together with all exhibits, schedules and amendments hereto, including all documents expressly incorporated herein by reference.

2.3              “Affiliate” means as to any Person (i) any other Person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person or its respective successors or (ii) if such Person is an individual, a spouse, parent, sibling, or descendant of such Person, or a trust over which such Person has sole investment and dispositive power for the benefit of such Person, spouse, parent, sibling, or descendant. The term “control” including the terms “controlling,” “controlled by,” and “under common control with” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting shares, by contract, or otherwise. Affiliates includes such entities whether now existing or later established by investment, merger, or otherwise, including the successors and assigns of such Person. In the case of the United States Government, Affiliates also includes departments or agencies of the United States Government.

2.4              “Assigned Rights” means all of Claim Owner’s Rights in and to the Proceeds in an amount equal to the sum of 100% of LCF’s Invested Capital plus LCF’s Profit that is due in accordance with Section 4.2.

2.5              “Attorneys’ Fees” means the fees charged by Claim Owner’s Attorneys to prosecute the Claims to completion, including pre-trial, trial, and collections of any settlements, judgments, and awards, and to defend any non-monetary counterclaims brought against the Claim Owner by any of the Defendants relating directly to the Claims, including allegations regarding invalidity, non-infringement, or unenforceability of the Patents. Claim Owner’s Attorneys have agreed to represent Claim Owner on a fixed fee and partial contingency arrangement. For the avoidance of any doubt, LCF shall pay Attorneys’ Fees of up to ● as follows: (i) a retention fee of ●, to be paid to Claim Owner’s Attorneys within 10 business days after the full execution of this Agreement; (ii) a fixed fee of ● per month, to be paid to Claim Owner’s Attorneys’ within the first 5 business days of each month for the first ● months, commencing with the first full calendar month after the full execution of this Agreement; (iii) a fixed fee of ● per month, to be paid to Claim Owner’s Attorneys within the first 5 business days of each month for months ● after the full execution of this Agreement (the amounts paid under clause (ii) and (iii), the “Fixed Fee Payments”); and (iv) a trial fee of ●, to be paid to Claim Owner’s Attorneys 5 business days prior to the commencement of trial. If the Claims are resolved, no further Fixed Fee Payments will be made. If the Claims are stayed for any reason, including as a result of inter partes review, no Fixed Fee Payments will be made during the pendency of the stay.

 

2
 

 Confidential Treatment Requested

 

2.6             “Authorization” means an authorization, consent, approval, resolution, license, exemption, filing, notarization, or registration.

2.7              “Authorized” means any act or Authorization required to make an action legally binding on a Party.

2.8             “Claims” means all threatened or actual legal claims, actions, suits, arbitrations, causes of action, or proceedings before any supranational, national, state, municipal, or local entity or governmental authority, whether located within or without the United States, including any U.S. District Court, and demands asserted by Claim Owner or its Affiliates against one or more of the Defendants or against any other parties threatened with or added to a claim, action, suit, arbitration, cause of action, or proceeding brought against any of the Defendants relating to claims of patent infringement of any of the Patents that are or may be included by or on behalf of Claim Owner against the accused parties or included in any settlement or resolution of that Claim.

2.9            “Claim Owner’s Attorneys” means the law firm of MoloLamken LLP.

2.10         “Closing” means the closing of the transactions contemplated hereby pursuant to Section 6.

2.11         “Closing Date” means the date on which each of the conditions set forth in Section 6 of this Agreement is satisfied or waived by the applicable Party.

2.12         “Compensable Costs” means the Expenses plus any Inter Partes Review Expenses. For the avoidance of doubt, Claim Owner and Claim Owner’s Attorneys have agreed to a cap on the amount of Compensable Costs for which LCF’s Committed Amount may be used of ● (the “Compensable Cost Cap”), with any overage being the responsibility of Claim Owner or Claim Owner’s Attorneys.

2.13         “Confidential Information” means all documents and information (whether written or oral), including all communications, contracts, and agreements, exchanged by the Parties related to the Parties’ relationship, the Funding Documents, or the Claims. The term Confidential Information does not include information that: (i) becomes generally available to the public other than as a result of a breach by a Party of this Agreement, (ii) is already in the receiving Party’s possession, provided that such information is not known by the receiving Party to be subject to a contractual or legal obligation of confidentiality to the disclosing Party, or (iii) becomes available to the receiving Party on a non-confidential basis from a source other than the disclosing Party, provided that such source is not known by the receiving Party to be bound by a contractual or legal obligation of confidentiality to the disclosing Party. 

3
 

Confidential Treatment Requested

2.14          “Defendants” means Bloomberg LP, and at least four additional Persons, which shall be identified by Claim Owner within 90 days of the full execution of this Agreement, and all additional Persons against which Claims are threatened, alleged, or asserted by Claim Owner under this Agreement.

2.15          “Disputes” has the meaning set forth in Section 10.3.

2.16          “Dollar” or “Dollars” means United States Dollars.

2.17          “Due Diligence Fee” means an amount equal to $105,000 in respect of attorneys’ fees and expenses incurred by LCF in connection with the second stage of its due diligence investigation.

2.18          “Escrow Holder” means the third-party escrow company mutually selected by LCF and Claim Owner.

2.19          “Event of Default” means any event or circumstance specified as such in Section 9.1 of this Agreement. An Event of Default is “continuing” if it has not been remedied or waived in accordance with this Agreement.

2.20          “Expenses” means reasonable out-of-pocket expenses actually incurred by Claim Owner’s Attorneys in connection with the prosecution of the Claims and defending any non-monetary counterclaims brought against the Claim Owner by any of the Defendants relating directly to the Claims, including allegations regarding invalidity, non-infringement, or unenforceability of the Patents. The reasonableness of Expenses incurred by Claim Owner’s Attorneys will be determined in accordance with the commercially reasonable costs typically charged for such Expenses. Expenses include reasonable and documented expert and consulting fees; local counsel fees; e-discovery vendors; litigation support services for audio and visual presentations; jury consultants; focus groups; photocopying; postage and delivery; computer-assisted research; filing fees; court reporters and other transcription services; and reasonable travel expenses. Expenses do not include Attorneys’ Fees, Inter Partes Review Expenses, or any fees or expenses relating to costs or damages awards against Claim Owner resulting from any Adverse Claim. For the avoidance of doubt, Claim Owner and Claim Owner’s Attorneys have agreed to a cap on the amount of Expenses for which LCF’s Committed Amount may be used of $1.3 million, with any overage being the responsibility of Claim Owner or Claim Owner’s Attorneys.

2.21          “Funding Documents” means, collectively, this Agreement, the Perfection Documents, and any other document contemplated by this Agreement.

4
 

Confidential Treatment Requested

2.22          “Inter Partes Review Expenses” means attorneys’ fees and out-of-pocket expenses actually incurred by Claim Owner or Claim Owner’s Attorneys in connection with the defense of an inter partes review of the Patents. For the avoidance of doubt, Claim Owner and Claim Owner’s Attorneys have agreed to a cap on the amount of Inter Partes Review Expenses for which LCF’s Committed Amount may be used of ●, with any overage being the responsibility of Claim Owner or Claim Owner’s Attorneys. If inter partes review does not occur, such ● set aside for the Inter Partes Review Expenses may be reallocated to pay other reasonable Expenses at the request of Claim Owner’s Attorneys, and with the prior written approval of LCF.

2.23          “Joint-Order Escrow Account” means an escrow account held by Escrow Holder, in which the Proceeds of the Claims will be deposited immediately following receipt thereof pursuant to Section 4.2 of this Agreement. Escrow Holder will distribute all Proceeds deposited in the Joint-Order Escrow Account in accordance with the jointly executed written instructions of the Parties to this Agreement.

2.24          “LCF’s Commitment” has the meaning set forth in Section 3.1.

2.25          “LCF’s Committed Amount” has the meaning set forth in Section 3.1.

2.26          “LCF’s Invested Capital” means the sum of the Due Diligence Fee and all other money actually paid by LCF for Attorneys’ Fees, Expenses, Inter Partes Review Expenses, and Operating Expenses.

2.27          “LCF’s Profit” means LCF’s agreed upon share of the Proceeds of the Claims, after receiving the Realization Multiple, calculated as set forth in Sections 4.2(b), 4.2(c), and 4.2(d).

2.28          “Lien” means any mortgage, deed of trust, pledge, lien (common law, statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including any conditional sale or title retention arrangement, any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security.

2.29          “Material Adverse Event” means any event or occurrence that LCF believes could have a material adverse effect on its investment including: (a) a material adverse change in, or material adverse effect upon, any of the Claims, including the dismissal of one or more of the Claims, a change in the law related to one or more of the Claims, a change in Claim Owner’s Attorneys, a change in the court or jurisdiction in which any of the Claims is pending, a change in the judge, magistrate, or arbitrator before whom any of the Claims is pending, or a change in strategy with respect to the assertion or prosecution of any of the Claims; (b) a material adverse change in, or a material adverse effect upon, the financial condition, operations, assets, business or properties of Claim Owner; (c) Claim Owner’s failure to provide reasonable support and cooperation or inability to perform any of its obligations under any provision of any Funding Document; (d) a material adverse effect upon the legality, validity, binding effect or enforceability of any provision of any Funding Document; or (e) Claim Owner’s failure to identify, within 90 days of the full execution of this Agreement, four Persons in addition to Bloomberg against which Claims will be threatened, alleged, or asserted as required by Section 2.14 herein and are satisfactory to LCF in its sole discretion.

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Confidential Treatment Requested

2.30          “Operating Expenses” means attorneys’ fees and out-of-pocket expenses actually incurred by Claim Owner in conjunction with the assertion of the Claims. For the avoidance of doubt, Claim Owner has agreed to a cap on the amount of Operating Expenses for which LCF’s Committed Amount may be used of ●, to be paid by LCF to Claim Owner for the shorter of the period of ● months, or until the resolution of the Claims, as follows: (1) ● to be paid within 10 business days of the full execution of this Agreement; (2) in months ● following the initial ● payment, ● per month within the first 5 business days of each month, commencing with the first full calendar month after the full execution of this Agreement; and (3) in months ● following the initial ● payment, ● per month within the first 5 business days of each month.

2.31          “Patents” means: (i) US Patent No. 7,194,468 and any continuations, continuations-in-part, divisionals, reissues, reexaminations, renewals, supplemental examinations and all other patents or patent applications based on or claiming priority from any of the foregoing; and (ii) any and all other patents owned or acquired by Claim Owner that are asserted, sold to, licensed, alleged, or claimed against any of the Defendants.

2.32          “Perfection Documents” means any agreement, document, or financing statement (and any amendments or continuation statements related thereto) that LCF deems necessary or desirable to perfect the security interest provided by Section 5 of this Agreement.

2.33          “Person” means any individual, firm, company, corporation, partnership, limited liability company, government, state, or agency, or subdivision of a state (or governmental entity), or any association, trust, joint venture, or consortium (whether or not having separate legal personality).

2.34          “Proceeds” means any and all gross, pre-Tax (i) monetary recovery or the value of any other consideration received, or to be received, directly or indirectly by Claim Owner, its Affiliates, related Persons, or any of their permitted assigns as a direct or indirect result of, part of, in connection with, relating to, or arising from, awards, damages, Royalties (including the Value of Royalties), monies, lump-sum payments, up-front payments, settlement amounts, distribution of property, cash value of equities, judgments, settlements, injunctions, sales, contracts, or other cash and non-cash amounts paid, received, or to be received by (which shall include amounts being set off against or otherwise reducing any obligation of Claim Owner or any of its Affiliates), transferred, owed, or inuring, directly or indirectly, to Claim Owner or any of its Affiliates or related Persons, whether as a direct or indirect result of, as part of, arising from, in connection with, or relating to, (x) awards or payments of attorneys’ fees, costs and expenses, settlement (reached before and after the initiation of litigation, arbitration, mediation, or a complaint, but after the execution of this Agreement), voluntary dismissals, and awards of sanctions (as permitted by applicable law), license, judgment, order, voluntary dismissals, including any award of sanctions, as permitted by applicable law, or any resolution of the Claims (or any part of the Claims); or (y) contracts, licensing agreements, or royalty agreements from Defendants or from any other parties added to the same action against Defendants, plus (ii) interest received in connection therewith agreed in a settlement or awarded in a judgment. For the avoidance of doubt, Proceeds shall be determined prior to deducting (and shall be gross of) any portion thereof that may be payable by Claim Owner to Claim Owner’s Attorneys.

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2.35          “Representative” means the employees, officers, directors, partners, members, shareholders, co-investors, potential co-investors, agents, advisors, consultants, accountants, attorneys, trustees, or authorized representatives a Party.

2.36          “Rights” means all rights, titles, claims, options, powers, privileges, and interests.

2.37          “Royalties” means any monies or cash payable, owed to, or inuring to Claim Owner, its Affiliates, or related Persons, or any of their permissible assigns, as a result of a settlement, license, royalties, or other resolution of the Claims, whether voluntary or ordered or adjudicated by the court or a jury, where such monies or cash are payable over a period greater than one year.

2.38          “Security” means a mortgage, charge, pledge, lien, or other security interest securing any obligation of any Person or any other agreement or arrangement having a similar effect.

2.39          “Taxes” means any non-U.S., U.S. federal, state, local, municipal, or other governmental taxes, duties, levies, fees, excises, or tariffs, arising as a result of or in connection with any amounts of property received or paid under this Agreement, including: (i) any state or local sales or use taxes; (ii) any import, value-added, consumption, or similar tax; (iii) any business transfer tax; (iv) any taxes imposed or based on or with respect to or measured by any net or gross income or receipts of any of the Parties; (v) any withholding or franchise taxes, taxes on doing business, gross receipts taxes or capital stock or property taxes; or (vi) any other tax now or hereafter imposed by any governmental or taxing authority on any aspect of this Agreement, the Proceeds, the Investment or the Assigned Rights, and “pre-Tax” shall mean before deduction of any of the foregoing.

2.40          “Value of Royalties” shall mean the following:

(a)                The total cash value of the sum of all monies or cash payable to Claim Owner, its Affiliates or related Persons or their assigns during the entire term of any settlement agreement or license agreement, to the extent LCF determines that it can reasonably calculate the cash value with certainty as of the effective date of such settlement agreement or license agreement; or

(b)               To the extent LCF determines that it cannot reasonably calculate such cash value with certainty as of the date of such settlement agreement or license agreement, the total cash value shall be calculated as the greater of five percent (5%) and the royalty rate specified in the settlement agreement, license agreement or as adjudicated by the court or jury (or if multiple royalty rates apply, the blended rate as determined by LCF); multiplied by the average of total net sales of the products, services or methods covered by the settlement agreement or the license agreement (the “Licensed Products”) for the three-year period preceding the effective date of such settlement agreement and/or license agreement; multiplied by the term of the settlement agreement or license agreement, expressed in years or fractional years; multiplied by a projected growth rate determined by LCF and based on sales of the Licensed Products over that three year period. If less than three years of data is available, LCF may calculate the average sales and the projected growth rate based on the available data.

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2.41          To the extent the settlement agreement or license agreement grants a term license with a right of renewal entitling Claim Owner, its Affiliates or related Persons or their assigns to additional Royalties, any subsequent renewals, including license re-negotiations if any, shall be subject to this Section 2.41 for determining the Value of Royalties and Proceeds owed to LCF under this Agreement.

3.FUNDING ARRANGEMENT

3.1              Committed Capital. Subject to the terms and conditions of this Agreement (including Section 3.2), LCF commits to pay Attorneys’ Fees, Expenses, Inter Partes Review Expenses, and Operating Expenses in an aggregate amount not to exceed ● (such amount, “LCF’s Committed Amount” and LCF’s obligation to make payments up to such amount in accordance with and subject to this Section 3, “LCF’s Commitment”), subject to and in accordance with the caps on Attorneys’ Fees, Expenses, Inter Partes Review Expenses and Operating Expenses.

3.2              Billing Records and Oversight. Claim Owner is required to submit monthly billing records to LCF detailing the Compensable Costs for which reimbursement is sought, which shall be provided by Claim Owner’s Attorneys after redaction of privileged information. These records must contain detailed descriptions, including the date each submission was incurred, the amount of each submission, the reason for each submission and, if applicable, written request for reimbursement or payment in respect thereof. Within 30 days following the receipt of such billing records and such written request for reimbursement or payment, LCF shall pay to, or on behalf of, Claim Owner the Compensable Costs for which payment is sought by Claim Owner from LCF; provided that, for the avoidance of doubt, (i) the aggregate amount of money to be paid by LCF pursuant to this Agreement that may be used for Compensable Costs shall not exceed the Compensable Cost Cap and (ii) the aggregate amount of money to be paid by LCF pursuant to this Agreement shall not exceed LCF’s Committed Amount. LCF reserves the right not to pay any Compensable Costs that it deems commercially unreasonable. in its sole discretion, provided that LCF shall act in good faith in making its determination of the reasonableness of Compensable Costs, and may terminate LCF’s Commitment as set forth in Section 3.7 of this Agreement. Claim Owner’s Attorneys will review billing records prior to Claim Owner’s sending them to LCF to ensure that they do not contain privileged information. It shall be the responsibility of Claim Owner to submit the billing records and requests for reimbursement or payment to LCF in accordance with this Section 3.2.

3.3              Limitation on LCF’s Funding Obligations. Except for LCF’s obligation to Fund LCF’s Committed Amount in accordance with this Agreement, LCF has no obligation to pay any fees, expenses, or other sums relating to the Claims. LCF has no obligation to pay fees or expenses incurred by Claim Owner or Claim Owner’s Attorneys in conjunction with any Adverse Claim. Similarly, LCF has no obligation to pay any settlements, judgments, or awards against Claim Owner relating to any Adverse Claim, including any fee awards against Claim Owner.

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3.4              Acknowledgements Regarding the Scope and Nature of LCF’s Capital Commitment. The Parties recognize and acknowledge that (i) pursuant to the terms of this Agreement, LCF is purchasing the Assigned Rights from Claim Owner and an ownership interest in Assigned Rights is being sold, transferred, and assigned by Claim Owner to LCF; (ii) the Assigned Rights irrevocably assigned to LCF hereunder are being transferred to LCF in consideration for LCF entering into this Agreement; (iii) unless expressly stated otherwise herein (including pursuant to Section 9.2(a) below), LCF’s sole recourse with respect to the Realization Multiple and LCF’s Profit shall be contingent upon, and to the extent of, the recovery of Proceeds, and (iv) notwithstanding anything herein to the contrary, in the event LCF has complied with its obligations under this Agreement and Claim Owner receives Proceeds in an amount equal to or greater than the sum of the Realization Multiple and LCF’s Profit but does not remit, upon receipt, the total of the Realization Multiple and LCF’s Profit to LCF, then Claim Owner shall be liable to LCF for any such deficiency.

3.5              LCF’s Commitment Not a Loan. Any amount funded by LCF in respect of LCF’s Committed Amount is not a loan. LCF is not acquiring ownership of the Claims, it being acknowledged and agreed, for the avoidance of doubt, that LCF is acquiring ownership of the Assigned Rights. Claim Owner remains the sole owner of the Claims. Neither LCF, Longford Investment Group, LLC, Longford Advisors, LLC, Longford Capital Management, LP, nor their lawyers will provide any legal professional services or legal advice to Claim Owner and Claim Owner agrees to seek such advice exclusively from Claim Owner’s Attorneys or other licensed lawyers.

3.6              Exclusivity. During the term of this Agreement, Claim Owner shall not directly or indirectly through any of its Representatives or Affiliates or otherwise (i) encourage, solicit, initiate or participate in any way in discussions or negotiations with; (ii) provide any information to; or (iii) permit access of the type contemplated by Sections 3.8 and 3.9 hereof to any Person (other than LCF) for the purpose of securing from such entity funding for the assertion of any of the Claims.

3.7              Right of Withdrawal. LCF reserves the right to withdraw LCF’s Commitment and terminate this Agreement at any time upon a Material Adverse Event within (10) days written notice to Claim Owner and upon such notice LCF shall not be required to make any further payments under this Agreement. In the event LCF exercises this right of withdrawal and this Agreement is terminated, and notwithstanding the prohibition contained in Section 3.6 above, Claim Owner may accept or deploy the capital of another third-party lender or capital source to continue the prosecution of the Claims. If Claim Owner continues to prosecute the Claims following a withdrawal by LCF of LCF’s Commitment, and Proceeds are realized from the Claims (or if Proceeds are realized following LCF's withdrawal even though Claim Owner ceases to prosecute the Claims), LCF shall receive from the Proceeds of the Claims, as “first-money-out” an amount equal to LCF’s Invested Capital through the date of its withdrawal (less the aggregate amount of any distributions made under Section 4.2(a) below), plus ● of the aggregate Proceeds of the Claims, but under no event will aggregate payments to LCF under this Section 3.7 exceed a sum equal to ● of the aggregate of LCF’s Invested Capital. These amounts shall be paid by Claim Owner to LCF within ten (10) days of any Proceeds being paid or transferred to, inuring to or received by Claim Owner (or for its benefit) (and for the purposes of this Section 3.7, Royalties shall be deemed to have been received as of the date of the effectiveness of any license agreement or settlement). Claim Owner shall notify LCF promptly upon the occurrence of a Material Adverse Event.

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3.8              Access. During the term of this Agreement, Claim Owner shall provide LCF, Longford Investment Group, LLC, Longford Advisors, LLC, and Longford Capital Management, LP, and their respective auditors, legal counsel, and other authorized representatives complete and unlimited access to inspect, investigate and audit all non-privileged information relating to the Claims, including (i) corporate documents, (ii) documents related to the business, operations, assets, liabilities, and obligations of Claim Owner, (iii) non-privileged communications, and (iv) contracts of Claim Owner. In addition, Claim Owner shall cooperate and promptly respond to all due diligence inquiries. Claim Owner shall consult independent legal counsel in order to protect privileged communications as disclosure of privileged communications could result in waiver of the attorney-client privilege, thus potentially adversely affecting the Claims. If Claim Owner is aware of material privileged communications that could affect LCF’s decision to invest or monitoring of its investment, or to withdraw LCF’s Commitment, Claim Owner, after consulting independent legal counsel, will disclose the existence, but not the substance, of such communications.

3.9              Matter Monitoring. Claim Owner shall instruct the Claim Owner’s Attorneys to keep LCF informed of the progress of the prosecution of the Claims and to provide to LCF all non-privileged information and documentation related to the prosecution of the Claims, including providing (i) reports on settlement negotiations, electronic copies of all pleadings, notices of court hearings, court rulings, and all other non-privileged information as soon as practicable after receipt or creation of such information, and (ii) regular quarterly status reports and timely disclosure of important documents and material events or changes regarding the prosecution of the Claims pursuant to Exhibit A hereto. Claim Owner shall not be obligated to provide access to documents the disclosure of which would violate a court order. In no event shall Claim Owner be obligated to disclose any privileged information related to the prosecution of the Claims at any time or for any purpose. Notwithstanding the preceding sentence, pursuant to Section 7.1(i) below, if Claim Owner is aware of information that it reasonably believes could affect LCF’s decision to make LCF’s Commitment, or to withdraw LCF’s Commitment, and Claim Owner is prohibited from disclosing such information because it is privileged, Claim Owner is required to disclose to LCF the fact that such information exists and Claim Owner’s assessment, after consultation with counsel, of such information and its effect, if any, on the claims and defenses, even if it cannot disclose the substance of that information. Claim Owner agrees to make the disclosures regarding the matters set forth on Exhibit A in accordance with the terms set forth on Exhibit A. All information provided by Claim Owner shall be in consultation with its counsel, and all such information shall be true and accurate in all material respects as of the date provided.

4.PROCEEDS FROM THE CLAIMS

4.1              Assignment of an Interest in the Proceeds. In consideration for LCF’s Commitment, Claim Owner hereby irrevocably assigns to LCF the Assigned Rights.

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4.2               Payment Priority of Proceeds. Upon any Proceeds being received, transferred, paid or inuring to Claim Owner (or for its benefit) (a "Realization Event"), such Proceeds shall immediately be deposited in a Joint-Order Escrow Account for distribution in accordance with LCF’s and Claim Owner’s joint-written instructions pursuant to the provisions of this Agreement and shall be promptly paid to LCF and Claim Owner, in the following amounts and priority (and for the purposes of this Section 4.2, Royalties shall be deemed to have been received as of the date of the effectiveness of any license agreement or settlement):

(a)                Realization Multiple. First, ● to LCF, until LCF has received in the aggregate under this clause (a) and Section 4.3 an amount equal to 100% of the aggregate of LCF’s Invested Capital as of the time of such payment (the “Realization Multiple”);

(b)               Exposure Reduction Payment. Second, ● to LCF and ● to Claim Owner, until LCF has received under this clause (b) and clause (a) above in the aggregate an amount equal to LCF’s Committed Amount;

(c)                Commitment Multiple. Third, ● to LCF and ● to Claim Owner until LCF has received under this clause (c) an additional amount equal to ● of LCF’s Committed Amount;

(d)               Tail. Thereafter, ● to LCF and ● to Claim Owner.

4.3              If, upon the payment of Proceeds with respect to any Realization Event, the aggregate Proceeds paid to LCF under Section 4.2 or this Section 4.3 do not, in the aggregate, at least equal the aggregate of LCF's Invested Capital as of the date of such Realization Event, then Claim Owner shall promptly pay to LCF the amount of cash necessary so that such shortfall does not exist, provided that the amount so payable by Claim Owner in connection with such Realization Event shall not exceed an amount equal to the aggregate payments received by Claim Owner under Section 4.2 with respect to such Realization Event and any prior Realization Events. In addition, if upon the earlier of 6 years from the date of the full execution of this Agreement and the date on which all of the Claims have been settled, dismissed, litigated to completion, or otherwise disposed of, the aggregate amounts paid to LCF under Section 4.2 or this Section 4.3 do not in the aggregate at least equal the aggregate of LCF's Invested Capital as of such date, then Claim Owner shall promptly pay to LCF the amount of cash necessary so that such shortfall does not exist, provided that the aggregate amounts so payable by Claim Owner shall not exceed the aggregate amounts of Proceeds received by Claim Owner pursuant to Section 4.2. 

5.SECURITY INTEREST

5.1              Security Interest. As collateral security for the obligations of Claim Owner hereunder, Claim Owner grants and assigns to LCF a security interest in all of the Proceeds (to the extent that the right to those Proceeds have not been assigned to LCF pursuant to Section 4.1), provided that LCF shall be entitled to recover and retain out of the Proceeds, only such amounts to which LCF is entitled under Section 4.2 of this Agreement and further LCF shall remit to Claim Owner any funds from the Proceeds, that exceed the amounts to which LCF is due in accordance with Section 4.2. Claim Owner shall execute and deliver to LCF at the Closing, and LCF may file with any necessary filing offices, the Perfection Documents for the purpose of perfecting LCF’s Rights in and to the Proceeds, and as notice to third parties that Claim Owner has conveyed any interest that it may have in or to the Proceeds. As soon as LCF shall have received the full amount due to it under Section 4.2 of this Agreement with respect to all of the Claims, the security interest granted under this Section will terminate.

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6.CLOSING

6.1            Conditions Precedent to the Investment. LCF’s Commitment shall not be effective unless and until, on the Closing Date, each of the following conditions are satisfied (or waived in writing by LCF):

(a)               The representations and warranties of Claim Owner contained in Section 7.1 of this Agreement are true and accurate in all material respects on and as of the date hereof and the Closing Date;

(b)              No Event of Default has occurred or would result from the transactions being consummated at such time;

(c)               LCF has received the Officer’s Certificates attached hereto as Exhibit B and Exhibit C, executed by the President of Claim Owner, dated as of the Closing Date, certifying as to the matters set forth in Section 6.1(a) and Section 6.1(b); and

(d)              The Claim Owner’s Attorneys have executed and delivered to LCF the letter agreement attached hereto as Exhibit D (including the engagement letter referenced therein).

6.2              Closing. Subject to the terms and provisions of Section 6.1, the obligations of the Parties hereunder shall become effective when Claim Owner has delivered to LCF the Perfection Documents, fully executed and Authorized by or on behalf of Claim Owner (if necessary).

7.REPRESENTATIONS, WARRANTIES, AND INVESTMENT-RELATED DISCLOSURES

7.1              Claim Owner’s Representations, Warranties, and Investment-Related Disclosures. Claim Owner makes the representations, warranties, and Covenants set out in this Section 7.1 to LCF as of the date of this Agreement, Closing Date and thereafter for the duration of this Agreement:

(a)               Claim Owner is seeking significant license agreements and monetary damages against Defendants by pursuing the Claims.

(b)              The Patents are exclusively owned by Claim Owner.

(c)              No third party has the right to grant any licenses in and to any of the Patents.

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(d)               There are no inventorship challenges, opposition, reexamination, or nullity proceedings or interferences declared, commenced or provoked, or to the knowledge of Claim Owner, threatened, with respect to any Patents. Claim Owner has complied with its duty of candor and disclosure to the United States Patent and Trademark Office and any relevant foreign patent or trademark office with respect to the Patents and have made no material misrepresentation with respect to such Patents. No Patent has been intentionally abandoned. Claim Owner has no knowledge of any information that would preclude Claim Owner from having clear title to the Patents or affecting their patentability, validity, or enforceability.

(e)                Use of LCF’s Committed Amount. Claim Owner shall use LCF’s Committed Amount for the purposes set forth in accordance with Section 3.2 hereof and for no other purpose, unless LCF shall have agreed in writing to Claim Owner’s using such funds for another purpose prior to such repurposing.

(f)                Organization and Good Standing. QPRC and QLC are corporations with their chief executive offices located at 19 Fortune Lane, Jericho, New York 11753. QPRC is duly organized and validly existing under the laws of the State of Delaware and is a corporation in good standing with the Delaware Secretary of State, the New York Secretary of State and all other applicable government entities. “Quest Patent Research Corporation” is the correct legal name of QPRC indicated in the public record of its jurisdiction of organization which shows QPRC to be organized, and its employer identification number is 11-2873662. QLC is duly organized and validly existing under the laws of the State of New York and is a corporation in good standing with the New York Secretary of State and all other applicable government entities. “Quest Licensing Corporation” is the correct legal names of QLC indicated in the public record of the jurisdiction of its organization which shows QLC to be organized, and its New York Department of State ID number is 36697766.

(g)               Authorization and Enforceability. Claim Owner has the requisite power and authority to execute and deliver this Agreement and the other Funding Documents, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Claim Owner of this Agreement and the other Funding Documents and the consummation of the transactions contemplated hereby and thereby have been duly Authorized by all required action on the part of Claim Owner. Claim Owner has consulted independent legal counsel prior to entering into this Agreement.

(h)               Due Execution. This Agreement and the other Funding Documents have been duly executed and delivered by Claim Owner, and, assuming the due authorization, execution and delivery hereof and thereof by LCF, constitute the valid and legally binding obligations of Claim Owner enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors’ rights generally and by general principles of equity.

(i)                 Litigation. There is no claim, action, suit, proceeding, arbitration, investigation, or inquiry pending before any court or governmental entity threatened against Claim Owner. There is not in existence at present and, except in connection with the Claims, Claim Owner is not aware of the potential for any order, judgment, or decree of any court or other tribunal or any agency enjoining or requiring Claim Owner to take any action of any kind or to which Claim Owner or its assets are subject or bound.

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(j)                 Title to Property; Absence of Liens and Encumbrances, Etc. As of the date of this Agreement and the Closing Date, Claim Owner is solvent and owns and has good and marketable title to its assets, including but not limited to the Patents and the Proceeds, free and clear of all liens and encumbrances or other Security or any Adverse Claim in favor of any Person other than LCF.

(k)               No Conflicts. The execution, delivery and performance by Claim Owner of this Agreement and the other Funding Documents in accordance with their respective terms do not and will not, after the giving of notice, or the lapse of time or both, or otherwise (i) conflict with, result in a breach of, or constitute a default under the constituent documents of Claim Owner, or any law, statute, ordinance, rule or regulation, or any court or administrative order or process or, except as is not expected to result in a Material Adverse Event, any contract, agreement, arrangement, commitment or plan to which Claim Owner is a party or by which Claim Owner or its assets are bound (including any agreement or arrangement between Claim Owner or its Affiliates and MoloLamken LLP), (ii) require the consent, waiver, approval, permit, license, clearance or authorization of, or any declaration or filing with, any court or public agency or other authority, or (iii) except as is not expected to result in a Material Adverse Event, require the consent of any Person under any material agreement, arrangement, or commitment of any nature.

(l)                 Investment-related Disclosures. Claim Owner acknowledges that it has superior knowledge regarding the Claims, due at least in part to its involvement and familiarity with the facts underlying the Claims. Moreover, Claim Owner acknowledges that it will have access to privileged information regarding the prosecution of the Claims that is not available to LCF. In connection with entering into this Agreement, Claim Owner has provided (or has caused Claim Owner’s Attorneys to provide) certain information to LCF, including information pertaining to the Claims and potential defenses thereto, and material factual information underlying the Claims. All such information has been provided by Claim Owner in consultation with its counsel, and Claim Owner hereby warrants that all such information was true and accurate in all material respects as of the date it was provided and as of the Closing Date. Claim Owner acknowledges that LCF has relied on the accuracy and completeness of this information in agreeing to make LCF’s Commitment. Claim Owner confirms that it has disclosed, and will continue to disclose, all non-privileged material facts in their possession that Claim Owner reasonably believes could affect LCF’s decision to make (or to withdraw) LCF’s Commitment.

(m)             Liens of LCF. The Liens granted to LCF pursuant to this Agreement are duly perfected, first priority Liens with respect to the Proceeds that may be perfected under the UCC by the filing of financing statements. No Claim Owner has transferred any interest in or created any Lien upon any of the Proceeds or the Patents.

(n)               Claim Owner has consulted independent legal counsel regarding the use of third-party financing in connection with the Claims and has determined that this Agreement is in compliance with all applicable laws and regulations.

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(o)               Cap on Attorneys’ Fees, Expenses, Inter Partes Review Expenses, and Operating Expenses. Claim Owner has agreed to cap Attorneys’ Fees, Expenses, Inter Partes Review Expenses, and Operating Expenses for which LCF’s Committed Amount may be used as follows: (1) Attorneys’ Fees - ●, (2) Expenses - ●, (3) Inter Partes Review Expenses - ●, and (4) Operating Expenses - ●, with any overage being the responsibility of Claim Owner or Claim Owner’s Attorneys.

7.2              LCF’s Representations and Warranties. LCF makes the representations and warranties set out in this Section 7.2 to Claim Owner as of the date of this Agreement and the Closing Date.

(a)                Organization and Good Standing. LCF is duly organized and validly existing under the laws of the State of Delaware and is a limited partnership in good standing with the Illinois Secretary of State.

(b)               Authorization and Enforceability. LCF, through its undersigned representative, has the requisite power and authority to execute and deliver this Agreement and the other Funding Documents, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by LCF of this Agreement and the other Funding Documents and the consummation of the transactions contemplated hereby and thereby have been duly Authorized by all required action on the part of LCF.

(c)                Due Execution. This Agreement and the other Funding Documents have been duly executed and delivered by LCF as appropriate, and, assuming the due Authorization, execution and delivery hereof and thereof by Claim Owner or any other third party thereto, they constitute the valid and legally binding obligations of LCF enforceable in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors’ rights generally and by general principles of equity.

(d)               No Conflicts. The execution, delivery and performance by LCF of this Agreement and the other Funding Documents in accordance with their respective terms do not and will not, after the giving of notice, or the lapse of time or both, or otherwise (i) conflict with, result in a breach of, or constitute a default under the Certificate of Limited Partnership, or the limited partnership agreement, of LCF or any law, statute, ordinance, rule or regulation, or any court or administrative order or process, or any material contract, agreement, arrangement, commitment or plan to which LCF is a party or by which LCF or its assets are bound, (ii) require the consent, waiver, approval, permit, license, clearance or authorization of, or any declaration or filing with, any court or public agency or other authority, or (iii) require the consent of any Person under any material agreement, arrangement, or commitment of any nature.

(e)                No Practice of Law. LCF, Longford Investment Group, LLC, Longford Advisors, LLC, and Longford Capital Management, LP and their respective members and partners are not a law firm and do not provide legal advice. No attorney-client relationship is intended, sought, or created by or through the execution of this Agreement. LCF, Longford Investment Group, LLC, Longford Advisors, LLC, and Longford Capital Management, LP and their respective members and partners have not provided, nor will provide at any time in the future, legal advice to Claim Owner regarding or in conjunction with this Agreement or the Claims.

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(f)                Independent Decisions. LCF will not seek to influence the professional judgment of Claim Owner’s legal counsel or otherwise exert control over any threatened or actual litigation. Further, LCF will not constrain, coerce, or otherwise pressure Claim Owner to take any action that it believes is adverse to Claim Owner’s interests, including negotiating or settling the Claims in a manner other than Claim Owner believes is in its best interests.

8.ADDITIONAL COVENANTS AND TAXES

8.1              Covenants. For so long as Claims exist, any amount is outstanding, or obligation of Claim Owner is remaining under this Agreement, or the other Funding Documents, each Claim Owner shall (unless it has obtained prior written consent from LCF to the contrary), at its sole cost and expense:

(a)                obtain, comply with and use commercially reasonable efforts to do all that is necessary to remain solvent and carry on its business;

(b)               prosecute, and to the best of its ability take all necessary actions to ensure that it prosecutes, the Claims with all due skill and care, including maintaining the appointment of Claim Owner’s Attorneys to act on the behalf of Claim Owner with respect to the prosecution of the Claims;

(c)                not, without the prior written consent of LCF, accept or deploy the capital of any third-party lender or capital source other than LCF in connection with the prosecution of the Claims;

(d)               not allow any other Person other than LCF to hold any Security or Adverse Claim over the Patents, the Claims, or the Proceeds, or any rights thereto; notwithstanding the foregoing, in the event that Claim Owner wishes to grant a subordinate security interest in the Proceeds, Claim Owner may do so if (i) the terms of the obligations being secured thereby (including terms of payment by Claim Owner, interest rates, covenants, remedies, defaults and other material terms) are satisfactory to LCF in its sole discretion (notwithstanding the foregoing, LCF will not object to the amount received (or to be received) by Claim Owner from the secured party in exchange for the obligations being secured by such subordinate security interest), and (ii) such obligations being secured thereby have been expressly subordinated in right of payment to all obligations of Claim Owner to LCF hereunder by the execution and delivery of a subordination agreement, in form and substance satisfactory to LCF in its sole discretion;

(e)                not transfer, sell, assign, or otherwise dispose of any of its Rights in or under any of the contracts or agreements relating to the Claims or the Proceeds;

(f)                not transfer, sell, assign, or otherwise dispose of any of the Patents;

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(g)               take all actions required or necessary to maintain the Patents in force and not allow any of the Patents to lapse or expire, including but not limited to diligently prosecuting all pending patent applications and paying all maintenance or renewal fees as required by the United States Patent and Trademark Office and other patent offices and administrative agencies around the world;

(h)               keep and maintain books and records currently in its possession and essential to the prosecution of the Claims;

(i)                 not grant any interest in or create any Lien upon any of the Patents, Claims or the Proceeds (except interests in and Liens in favor of LCF); notwithstanding the foregoing, in the event that Claim Owner wishes to grant a subordinate security interest in the Proceeds, Claim Owner may do so if (i) the terms of the obligations being secured thereby (including terms of payment by Claim Owner, interest rates, covenants, remedies, defaults and other material terms) are satisfactory to LCF in its sole discretion (notwithstanding the foregoing, LCF will not object to the amount received (or to be received) by Claim Owner from the secured party in exchange for the obligations being secured by such subordinate security interest), and (ii) such obligations being secured thereby have been expressly subordinated in right of payment to all obligations of Claim Owner to LCF hereunder by the execution and delivery of a subordination agreement, in form and substance satisfactory to LCF in its sole discretion;

(j)                 not challenge the validity, perfection, or priority of the Liens granted to LCF;

(k)               take such action and execute, acknowledge and deliver, at its sole cost and expense, such agreements, instruments or other documents as LCF may require from time to time in order (i) to perfect and protect, or maintain the perfection of, the security interest and Liens purported to be created hereby; (ii) to enable LCF to exercise and enforce its rights and remedies hereunder in respect of the Proceeds; or (iii) otherwise to effect the purposes of this Agreement, including: (A)  executing and filing (to the extent, if any, that Claim Owner’s signature is required thereon) or authenticating the filing of, such financing or continuation statements, or amendments thereto, and (B) taking all actions required by law in any relevant Uniform Commercial Code jurisdiction, or by other law as applicable in any foreign jurisdiction. Claim Owner shall not take or fail to take any action which would in any manner impair the validity or enforceability of LCF’s security interest in and Lien on the Proceeds; and

(l)                 timely file all tax returns with the appropriate taxing authority and timely pay all Taxes due, whether or not shown on such tax returns; and

(m)             Use LCF’s Commitment solely for the purposes set forth in Sections 2 and 3 hereof and for no other purpose, unless LCF shall have agreed in writing to Claim Owner’s using such funds for another purpose prior to such repurposing.

8.2              Taxes. All Taxes shall be the financial responsibility of the Party obligated to pay such Taxes as determined by applicable law and neither Party is or shall be liable at any time for any of the other Party’s Taxes incurred in connection with or related to amounts paid under this Agreement. No Tax shall be withheld on any Proceeds payable to LCF hereunder unless required by law. If any applicable law requires the deduction or withholding of any tax from any such payment to LCF, then the Claim Owner shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant taxing authority in accordance with applicable law and the sum payable to LCF shall be increased as necessary so that, after such deduction or withholding has been made, LCF receives an amount equal to the sum it would have received had no such deduction or withholding been made. Each Party shall indemnify, defend and hold the other Party harmless from and against any Taxes owed by or assessed against the other Party that are the obligations of such Party and from any claims, causes of action, costs, expenses, reasonable attorneys’ fees, penalties, assessments and any other liabilities of any nature whatsoever related to such Taxes.

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8.3              Successor or Replacement Attorneys. If Claim Owner’s Attorneys resign or cease to act as the attorneys for Claim Owner related to the assertion or prosecution of the Claims, then Claim Owner shall appoint successor attorneys to act as its counsel, provided that such appointment shall be subject to the prior written consent of LCF (it being acknowledged and agreed, for the avoidance of doubt, that any change in Claim Owner’s Attorneys shall constitute a Material Adverse Event unless such change is agreed to in advance and in writing by LCF), and provided further that, prior to appointing such successor attorneys, Claim Owner shall cause such successor attorneys to execute and deliver to LCF a letter agreement with the same terms and provisions as the letter agreement attached hereto as Exhibit D. Should such successor or replacement attorneys be so appointed, all references to obligations of Claim Owner’s Attorneys shall, where appropriate and effective of the date of their appointment, be deemed to be a reference to such successor or replacement attorneys.

8.4              Conduct of Business. Claim Owner shall conduct its business in the regular and ordinary course, consistent with past practices. Claim Owner shall keep LCF timely apprised of material commitments and material changes in Claim Owner’s business, operations, and financial condition, and material developments with respect to the Claims.

8.5              Disclosure. Claim Owner shall disclose all non-privileged material facts in its possession that could affect LCF’s decision to make (or to withdraw) LCF’s Commitment.

9.EVENTS OF DEFAULT

9.1              Events of Default. Each of the events or circumstances set out below is an Event of Default:

(a)                Non-payment. Claim Owner fails to pay or distribute when due any amount payable or distributable pursuant to this Agreement at the place and in the currency in which it is expressed to be payable.

(b)               Other Obligations. Claim Owner fails to comply with any provision of the Funding Documents (other than those referred to in subsection (a) above) and such failure to comply is not cured within thirty (30) days of LCF providing written notice to Claim Owner.

(c)                Misrepresentation. Any representation, warranty, or statement made by Claim Owner in this Agreement, in the other Funding Documents, or any other document delivered by or on behalf of Claim Owner under or in connection herewith or therewith is or proves to have been incorrect or misleading in any material respect.

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(d)            Insolvency.

(i)          Claim Owner fails to pay its debts as they become due or suspends making payments on any of its material financial obligations; or

(ii)         The value of Claim Owner’s assets is less than its liabilities (taking into account contingent and prospective liabilities and contingent and prospective assets).

(e)            Insolvency Proceedings. Any legal proceedings are taken in relation to:

(i)          the suspension of payments, winding up, dissolution, liquidation, administration or reorganization (by way of voluntary arrangement, scheme of arrangement, or otherwise) of Claim Owner;

(ii)         the filing of a voluntary petition for relief under the United States Bankruptcy Code by Claim Owner or the filing of an involuntary petition for relief against Claim Owner which is not dismissed within 45 days of such filing;

(iii)        the appointment of a liquidator, receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of Claim Owner or substantially all of Claim Owner’s assets; or

(iv)        enforcement of any Security or Adverse Claim over all or substantially all Claim Owner’s assets.

(f)             A majority change of control of Claim Owner.

9.2              Rights and Remedies. During the continuance of an Event of Default, LCF may, in its sole and absolute discretion, upon written notice to Claim Owner and opportunity to cure in accordance with this Agreement, do any one or more of the following:

(a)                declare Claim Owner’s obligation to pay the Realization Multiple pursuant to this Agreement immediately due and payable in full from Proceeds that have been received by Claim Owner;

(b)               except as otherwise provided herein, without notice to or demand upon Claim Owner, make such payments and do such acts, on behalf of Claim Owner, as LCF reasonably considers necessary or reasonable to protect its rights under this Agreement; or

(c)                except as otherwise provided herein, in addition to the foregoing, LCF shall have all rights and remedies provided by law and any rights and remedies contained in any Funding Document (including enforcing its security interest in the Proceeds); or 

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(d)               LCF’s Commitment shall terminate, such that LCF shall not be required to make the payments contemplated by Section 3.

10.GOVERNING LAW; WAIVER OF SPECIFIC DEFENSES; DISPUTES

10.1          Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule, and shall be construed and enforced in accordance with the law.

10.2          Specific Waivers. To the greatest extent permissible by law, Claim Owner irrevocably waives and forever and unconditionally releases, discharges and quitclaims any claims, counterclaims, defenses, causes of action, remedies, or rights it or its successors in interest has or may in the future have arising from any doctrine, rule, or principle of law or equity that this Agreement, or the relationships or transactions contemplated by this Agreement (i) are against the public policy of any jurisdiction with which Claim Owner has a connection, or (ii) are unconscionable, or (iii) constitute champerty, maintenance, barratry, or any impermissible transfers, assignments or splitting of property, fees or causes of action, or (iv) violate the rules of professional ethics applicable to Claim Owner, LCF, or any of their lawyers.

10.3          Arbitrable Claims. All actions, disputes, claims and controversies under common law, statutory law, rules of professional ethics, or in equity of any type or nature whatsoever, whether arising before or after the date of this Agreement, and directly relating to: (a) this Agreement or any amendments and addenda hereto, or the breach, invalidity or termination hereof; (b) any previous or subsequent agreement between LCF and Claim Owner related to the subject matter hereof to the extent set forth in Section 12.2; (c) any act or omission committed by LCF or its Representatives with respect to this Agreement, or by any member, employee, agent, or lawyer of LCF with respect to this Agreement, whether or not arising within the scope and course of employment or other contractual representation of LCF (provided that such act arises under a relationship, transaction or dealing between LCF and Claim Owner); or (d) any act or omission committed by Claim Owner with respect to this Agreement, or by any employee, agent, partner or lawyer of Claim Owner with respect to this Agreement whether or not arising within the scope and course of employment or other contractual representation of Claim Owner (provided that such act arises under a relationship, transaction or dealing between LCF and Claim Owner) (collectively, the “Disputes”), will be subject to and resolved by binding arbitration under this Section 10.3 and Section 10.4 below. The Parties agree that the arbitrators have exclusive jurisdiction, to the exclusion of any court (except as specifically provided with regard to prejudgment, provisional, or enforcement proceedings in Section 10.5), to decide all Disputes.

10.4          Administrative Body; Situs. Any Dispute arising out of or relating to this Agreement, including the breach, termination, enforcement, interpretation or validity thereof, or the determination of the scope or applicability of this Agreement to arbitrate, shall be determined by arbitration in New York, New York, before a panel of three arbitrators. The arbitration shall be administered using the arbitration rules of the American Arbitration Association (“AAA”) current at the time the Dispute is brought, which rules are deemed to be incorporated herein by reference. Each Party shall, upon written request, promptly provide the other Party with copies of all information on which the producing party may rely in support of or in opposition to any claim or defense and a report of any expert whom the producing Party may call as a witness in the arbitration hearing. Moreover, in the event of a Dispute, Claim Owner waives any objection to the production of privileged information relating to the underlying litigation and the Claims.

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10.5          Prejudgment and Provisional Remedies. Either Party may commence judicial proceedings only for the purpose(s) of: (i) enforcement of the arbitration provisions; (ii) obtaining appointment of arbitrator(s); (iii) preserving the status quo of the Parties pending arbitration as contemplated herein; (iv) preventing the disbursement by any Person of disputed funds; (v) preserving and protecting the rights of either Party pending the outcome of the arbitration, or (vi) seeking injunctive relief for breach of the confidentiality provisions contained in Section 11. Any such action or remedy will not waive a Party’s right to compel arbitration of any Dispute, and any Party may also file court proceedings to have judgment entered on the arbitration award. In any action for prejudgment or provisional relief, any court in which such relief is sought shall determine the availability of such relief without regard to any defenses that may be asserted by the other Party, and any such defenses shall be referred to the exclusive jurisdiction of the arbitrators under Section 10.3. The Parties further agree that a court shall not defer or delay granting prejudgment or provisional relief while any such arbitration takes place. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

10.6          Attorneys’ Fees. If either Claim Owner or LCF brings any other action for judicial relief with respect to any Dispute (other than those precisely described in Section 10.5), the Party bringing such action will be liable for and immediately pay all of the other Party’s costs and expenses (including attorneys’ fees) incurred to stay or dismiss such action and remove or refer such Dispute to arbitration. If either Claim Owner or LCF brings or appeals an action to vacate or modify an arbitration award and such Party does not prevail, such Party will pay all costs and expenses, including attorneys’ fees, incurred by the other Party in defending such action.

10.7          Enforcement. Any award rendered under this Section shall not be subject to appeal and shall be enforceable in any and all jurisdictions, including in the State of Illinois and the State of New York.

10.8          Confidentiality of Awards. All arbitration proceedings, including testimony or evidence at hearings, will be kept confidential, although any award or order rendered by the arbitrator(s) pursuant to the terms of this Agreement may be confirmed as a judgment or order in any state or federal or other national court of competent jurisdiction where proceedings are necessary or appropriate to enforce any award or order. This Agreement concerns transactions involving commerce among several state and foreign countries.

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10.9          Indemnification. Claim Owner agrees to indemnify, defend, and hold harmless, LCF, Longford Investment Group, LLC, Longford Advisors, LLC, and Longford Capital Management, LP, and their respective Representatives from and against all claims by third parties relating to, or arising out of, this Agreement including, without limitation, all claims threatened, alleged or asserted by Claim Owner’s Attorneys. For the avoidance of any doubt, Claim Owner agrees to advance to LCF, Longford Investment Group, LLC, Longford Advisors, LLC, and Longford Capital Management, LP, and their respective Representatives all defense costs, including attorneys’ fees and expenses, for any third-party claim relating to, or arising out of, this Agreement.

11.CONFIDENTIALITY

11.1          Confidential Information. The Parties shall limit the distribution and disclosure of Confidential Information to their Representatives who have a “need to know” to such information. The Party disclosing the Confidential Information to its Representatives shall ensure that such Representatives adhere to, and comply with, all terms and obligations of confidentiality, use and protection of the Confidential Information as accepted by the Parties under this Agreement.

11.2          Limitations on Disclosure of Confidential Information. The Parties and their Representatives shall not disclose Confidential Information, or the fact that the Parties entered into this Agreement, unless: (i) the Parties agree in writing that such disclosure is acceptable, (ii) such disclosure is required in connection with the enforcement or protection of a Party’s rights with respect to this Agreement, or (iii) such disclosure is required by law or regulation, governmental or regulatory authority, court order or judicial process; provided, that each Party agrees to give the other Party (to the extent not prohibited by applicable law, regulation, governmental or regulatory authority, court order or judicial process) written notice of any required disclosure and cooperate in obtaining a protective order or similar protection to preserve the confidential nature of the Confidential Information.

11.3          Public Disclosure. Neither LCF nor Claim Owner shall issue any press release or make any public statement with respect to the existence of this Agreement or the transaction contemplated hereby, except as may be required by applicable law, regulation, governmental, or regulatory authority, judicial process, or court order (in which case the party seeking to issue such press release or make such public statement will, to the extent not prohibited by applicable law, regulation, governmental or regulatory authority, court order, or judicial process, consult the other and obtain the other’s approval, which shall not be unreasonably withheld, before issuing any such press release or otherwise making any such public statement). Claim Owner shall keep this Agreement confidential and not disclose it, or any part of it, or any drafts of it, to third parties, except as may be required by applicable law, regulation, governmental or regulatory authority, judicial process, or court order.

12.MISCELLANEOUS

12.1          Privileged Information. Subject to the provisions of Sections 7.1(j) and 3.8, LCF will not request from Claim Owner, and Claim Owner is not required to provide to LCF, documents and information protected by the attorney-client privilege. Claim Owner understands and acknowledges that in the event its Representatives provide privileged information to LCF, such disclosure may be deemed waiver of the applicable privilege. In the event that Claim Owner inadvertently provides privileged information to LCF, LCF will return such information to Claim Owner without reviewing the information.

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12.2          Entire Agreement and Amendments. Except as set forth in Section 2(f) of that certain Letter Agreement, dated as of February 17, 2014, by and between LCF and Claim Owner, this Agreement and the other Funding Documents constitute the entire agreement between the Parties with respect to the matters covered herein and supersede all prior agreements, promises, representations, warranties, statements, and understandings with respect to the subject matter hereof as between Claim Owner and LCF. This Agreement may not be amended, altered, or modified except by an amendment or supplement to this Agreement executed by all Parties hereto.

12.3          Partial Invalidity; Severability. If, at any time, any provision of this Agreement or of the other Funding Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provisions under the law of any other jurisdiction shall in any way be affected or impaired.

12.4          Remedies and Waivers. No failure to exercise, nor any delay in exercising, on the part of LCF or Claim Owner, of any right or remedy under this Agreement or the other Funding Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. No provision of this Agreement may be waived except in writing signed by the party granting such waiver.

12.5          Assignment. This Agreement shall inure to the benefit of, and be binding upon the respective successors and assigns of the Parties. Claim Owner shall not assign or delegate its rights or obligations under this Agreement or the other Funding Documents without the prior written consent of LCF, which should not be unreasonably withheld.

12.6          Notices.

(a)                All notices, reports and other communications required or permitted under this Agreement shall be in writing. They shall be delivered by hand or sent by regular mail, courier, email or other reliable means of electronic communication to the Parties at their addresses indicated below or at such other address as may be specified hereafter in writing by any of the Parties to the other Party in accordance with this Section 12.6.

  Claim Owner:   LCF:
       
  Jon Scahill   William P. Farrell, Jr.
  Quest Patent Research Corporation   Managing Director
  19 Fortune Lane   Longford Capital Management LP
  Jericho, NY 11753   150 North Michigan Avenue, Suite 2800
  Email: jscahill@qprc.com   Chicago, Illinois 60601
      Email: wfarrell@longfordcapital.com

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Confidential Treatment Requested

(b)               Any notice, report or other communication hereunder shall be deemed to have been delivered and received (i) on the date delivered, if delivered personally by hand or sent by courier, (ii) on the date sent, if sent by email or other form of electronic communication provided that confirmation of delivery is received by the sending party, and (iii) five (5) business days after mailing, if placed in the US mail, by registered or certified mail, first class postage prepaid, with a request for a confirmation of delivery.

(c)                Any notice, report or other communication sent under this Agreement that is sent by fax, email or other electronic communication must be confirmed by sending a hard paper copy thereof to the recipient in accordance with subsection (a) above, provided, the effective date of such notice, report or other communication shall be as specified in subsection (b) above. If the recipient actually received a fax, email or other electronic form of a notice, report or other communication, then the notice, report or other communication shall be deemed to have been given and delivered even if the sender fails to send a hard copy as called for in this subsection or the sender does not receive a confirmation of delivery under subsection (b)(ii) above.

12.7          Survival After Termination. The provisions of Sections 1, 2 (with respect to applicable defined terms), Section 3.6, 4.2, 4.3, 10, 11, and 12 shall survive the termination of this Agreement.

12.8          Costs and Expenses. Claim Owner shall be solely responsible for and bear the costs and expenses, including attorneys’ fees, expenses of accountants, brokers, financial advisors, and other representatives and advisors, it incurs at any time in connection with pursuing, or consummating the transaction contemplated by, this Agreement or other Funding Documents.

12.9          No Presumption Against Drafter. This Agreement has been negotiated by the Parties and their respective counsel and will be fairly interpreted in accordance with its terms and without any strict construction in favor of or against a Party.

12.10        Counterparts. This Agreement may be executed in counterparts which, when read together, shall constitute a single instrument, and this has the same effect as if the signatures on the counterparts were on a single copy hereof. A composite copy of this Agreement may be compiled comprising a single copy of the text of this Agreement and one or more copies of the signature pages containing collectively the signatures of all Parties. A facsimile or an electronic mail signature shall be considered due execution and shall be binding upon the signatories hereto with the same force and effect as if the signature were an original, not a facsimile signature.

12.11        No Third-Party Beneficiaries. Except as otherwise set forth in Section 10.9, this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, it being acknowledged and agreed, for the avoidance of doubt, that (i) Longford Investment Group, LLC, Longford Advisors LLC, Longford Capital Management, LP, and their respective Representatives are express third-party beneficiaries of this Agreement for the purposes of Section 10.9 and (ii) Claim Owner’s Attorneys are not third-party beneficiaries of this Agreement.

[Signature pages follow]

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IN WITNESS WHEREOF, the Parties execute this Agreement effective as of the date first set forth above.

 

QUEST PATENT RESEARCH LONGFORD CAPITAL FUND I,
CORPORATION    
  BY: Longford Investment Group, LLC,
    its General Partner

 

By: /s/ Jon C. Scahill   By: /s/ William P. Farrell, Jr.
  Jon Scahill     William P. Farrell, Jr.
  President and COO     Managing Director
         
Dated: March 11, 2014 Dated: March 13, 2014

 

QUEST LICENSING CORPORATION  
     
By: /s/ Jon C. Scahill  
  Jon Scahill  
  President  
     
Dated: March 11, 2014  

 

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EXHIBIT A

 

General Principles for Disclosure of Material Events or Changes

Claim Owner or Claim Owner’s Attorneys (“you,” “your”) shall timely inform LCF of any new or unexpected developments regarding the assertion of prosecution of the Claims, including material changes in:

●Strategy;
●The public profile or any public report about the Claims;
●Facts or law, including factual or legal assumptions about the Claims;

 

●Developments that may affect the outcome of the Claims; and

 

●Your expectations about the likely outcome and timing of the Claims.

You shall timely inform LCF of any

 

●Occurrence of any Event of Default, including a majority change of control in Claim Owner; and

 

●The occurrence of any of the matters set forth in the definition of “Material Adverse Event.”

Please be sure to select the appropriate persons to receive email notification. If in doubt, you may also notify LCF by email or telephone in addition to your posted message.

 

Regular and Timely Disclosure of Important Documents

 

Please send LCF all documents related to the prosecution of the Claims, including:

 

●Copies of all documents filed with any court or arbitration panel;

●Deposition transcripts and other discovery materials;

 

●All rulings and orders by any court or arbitration panel;

 

●Key documents related to any material event or change in the prosecution of the Claims;

 

●Any documents related to possible settlement or other resolution of the Claims; and

 

●Any scheduling order or other documents that relate to timing of potential resolution of the Claims.

 

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Quarterly Matter Monitoring Report

 

In addition to the general principles of disclosure outlined herein, you will be required to provide LCF with a quarterly Matter Monitoring Report (the “Monitoring Report”) within 21 days after the end of each calendar quarter end (“Quarterly Reporting Date”).

 

LCF understands that material developments may arise in conjunction with the prosecution of the Claims between Quarter Reporting Dates. Accordingly and as more particularly described in the Agreement, please update LCF if there are material developments as and when they occur.

 
 

 

Confidential Treatment Requested

 

EXHIBIT B

 

QUEST PATENT RESEARCH CORPORATION

 

OFFICER’S CERTIFICATE

 

Dated as of March 11, 2014

 

The undersigned President and Chief Operating Officer of Quest Patent Research Corporation, a Delaware corporation (the “Company”), hereby certifies to Longford Capital Fund I, LP, a Delaware limited partnership (“LCF”), pursuant to Section 6.1(c) of the Funding Agreement, dated as of March 11, 2014 (the “Agreement”), by and between LCF, Quest Licensing Corporation and the Company, as follows:

 

1.The representations and warranties of the Company contained in Section 7.1 of the Agreement are, to the best of my knowledge, true and accurate in all material respects on and as of the date hereof.

 

2.No Event of Default (as defined in the Agreement) has occurred at or prior to the date hereof or would result from the transactions contemplated under the Agreement being consummated on the date hereof.

 

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the first date written above.

 

  /s/ Jon C. Scahill
  Jon Scahill
  President

 

 
 

 

Confidential Treatment Requested

 

EXHIBIT C

 

QUEST LICENSING CORPORATION

 

OFFICER’S CERTIFICATE

 

Dated as of March 11, 2014

 

The undersigned President of Quest Licensing Corporation, a Delaware corporation (the “Company”), hereby certifies to Longford Capital Fund I, LP, a Delaware limited partnership (“LCF”), pursuant to Section 6.1(c) of the Funding Agreement, dated as of March 11, 2014 (the “Agreement”), by and between LCF, Quest Patent Research Corporation and the Company, as follows:

 

1.The representations and warranties of the Company contained in Section 7.1 of the Agreement are, to the best of my knowledge, true and accurate in all material respects on and as of the date hereof.

 

2.No Event of Default (as defined in the Agreement) has occurred at or prior to the date hereof or would result from the transactions contemplated under the Agreement being consummated on the date hereof.

 

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the first date written above.

 

  /s/ Jon C. Scahill
  Jon Scahill
  President

 

 
 

Confidential Treatment Requested

 

EXHIBIT D

 

March 11, 2014

 

Longford Capital Fund I, LP
c/o Longford Capital Management LP
150 North Michigan Avenue, Suite 2800
Chicago, Illinois 60601
Attention: William P. Farrell, Jr.

 

Re: Quest Patent Research Corporation Funding Agreement

 

Reference is made to that certain Funding Agreement, dated as of March 11, 2014 (the “Agreement”), by and between Longford Capital Fund I, LP (“LCF”), a Delaware limited partnership, and Quest Patent Research Corporation and Quest Licensing Corporation (collectively, “Claim Owner”). Capitalized terms used but not defined herein have the respective meanings as set forth in the Agreement.

 

The law firm of MoloLamken LLP (“MoloLamken”) hereby (i) acknowledges that MoloLamken has reviewed the Agreement and understands the rights granted to LCF (and the obligations of Claim Owner) thereunder, including, without limitation, the terms and provisions of Sections 3.6, 3.7, 4, 5.1, 7.1, 8.1(d), 8.1(h), 8.1(i), 8.1(j), 9 and 11 of the Agreement and any other terms and provisions applicable to Claim Owner’s Attorneys (collectively, the “Specific Sections”), (ii) acknowledges and agrees with the provisions of Section 4 of the Agreement and the priority of payment in favor of LCF established thereby, (iii) confirms and agrees that the terms and provisions of the Agreement (including, without limitation, the terms and provisions of the Specific Sections) do not, and will not, conflict with the terms and provisions of any current or future agreement or arrangement between MoloLamken and Claim Owner (or its Affiliates) in connection with, or relating to, any of the Claims; (iv) confirms and agrees that all costs and fees have been disclosed; (v) confirms and agrees that all proceeds of the civil litigation will be deposited in a Joint-Order Escrow Account for distribution in accordance with LCF’s and Claim Owner’s joint-written instructions pursuant to the provisions of the Agreement; (vi) confirms and agrees that if the Claims are resolved, no further Fixed Fee Payments (as defined in Section 2.5 of the Agreement) will be made to MoloLamken; (vii) confirms and agrees that if the Claims are stayed for any reason, including as a result of inter partes review, no further Fixed Feed payments will be made to MoloLamken during the pendency of the stay; (viii) confirms and agrees that if MoloLamken resigns or ceases to act as the attorneys for Claim Owner related to the assertion or prosecution of the Claims, then no further Fixed Fee Payments will be made to MoloLamken; (ix) confirms and agrees that MoloLamken is following the written instructions of the Claim Owner with regard to the non-recourse civil litigation advance; and (x) agrees that if any terms of the Agreement conflict with any terms of any agreement between Claim Owner and MoloLamkin, then the terms of the Agreement will control. MoloLamken agrees and acknowledges that it is not a third-party beneficiary of the Agreement.

 

MoloLamken agrees to represent Claim Owner pursuant to the economic and other terms contained in the Agreement, including the cap on Attorneys’ Fees, Expenses, and Inter Partes Review Expenses, and the terms of that certain Engagement Letter between MoloLamken and Claim Owner dated March 3, 2014, a copy of which is attached hereto as Schedule I. MoloLamken has disclosed to LCF its fee agreement and Engagement Letter with Claim Owner and the terms fo that agreement are the terms by which MoloLamken is representing Claim Owner and proceeding in this matter.

  

MOLOLAMKEN LLP  
     
By: /s/ Steven F. Molo  
  Name: Steven F. Molo  
  Title:  Partner  

 

 
 

Confidential Treatment Requested

 

Schedule I

 

March 3, 2014

 

Jon Scahill

President & COO

Quest Patent Research Corp.

19 Fortune Lane

Jericho, NY 11753

 

RE:MoloLamken LLP / Quest Patent Research Corp. - Engagement Letter

 

Dear Mr. Scahill:

 

Thank you for selecting MoloLamken LLP. We are pleased to serve as your counsel. This letter will confirm our discussion with you regarding our engagement and describe the basis on which our Firm will provide legal services to you.

 

Scope of Engagement

 

We have been engaged to represent Quest Licensing Corporation (“QLC”), a subsidiary of Quest Patent Research Corporation (“Quest”) (collectively, the “Client” or “you”), in connection with the campaign for the monetization of QLC’s U.S. Patent No. 7,194,468 and related patents (“the matter”). Our engagement is limited to the performance of the following services: (i) conducting a pre-complaint licensing campaign, (ii) litigating one or more actions relating to the matter in federal district court, and/or (iii) representing the Client in inter partes review proceedings relating to the matter. Our engagement does not extend to any appeal. Because we are not your general counsel, our acceptance of this engagement does not involve an undertaking to represent you or your interests in any other matter.[1]

 

 

 

1 In particular, our present engagement does not include responsibility for review of your insurance policies to determine the possibility of coverage for the claim asserted in this matter, for notification of your insurance carriers about the matter, or for advice to you about your disclosure obligations concerning the matter under the federal securities laws or any other applicable law.

 

 
 

Confidential Treatment Requested

 

Absent written modification – e-mail is acceptable – we agree that our Scope of Work on the matter is limited to the following: serving as counsel in the above-referenced licensing campaign and litigations.

 

Identification of the Client

  

Our client in this matter will be solely the Client as identified above. Our representation of the Client in this matter does not necessarily give rise to a lawyer-client relationship between the Firm and any of the Client’s affiliates, subsidiaries, directors, officers, employees, or agents.

 

Client Responsibilities

 

You agree to pay our statements for services and expenses as provided below. In addition, you agree to be candid and cooperative with us and to keep us informed with complete and accurate factual information, documents, and other communications relevant to the subject matter of our representation or otherwise reasonably requested by us. You have been, and may continue to be, represented by other counsel in this matter and you agree that we are not responsible for their conduct in representing you.

 

Because it is important that we be able to contact you at all times to consult with you regarding your representation, you agree to inform us, in writing, of any changes in your name, address, telephone number, e-mail address, or other relevant changes regarding you or your business.

 

Advice About Possible Outcomes

 

Either at the commencement or during the course of our representation, we may express opinions or beliefs concerning the litigations or various courses of action and the results that might be anticipated. Any such statement made by any lawyer of our Firm is intended to be an expression of opinion only, based on information available to us at the time, and should not be construed by you as a promise or guarantee. We cannot and do not guarantee or promise any outcome. To the extent that we are representing you in a contested matter or investigation, there are many factors outside our control that may play a role in a given outcome.

 

Termination of Engagement

 

You may at any time terminate our services and representation. We reserve the right to withdraw our representation, as limited by the applicable rules of professional conduct, upon written notice to you. In the event that we terminate the engagement, we will take such steps as are reasonably practicable to protect your interest in the above litigations. You agree that failure to pay past-due fees and expenses may be grounds for withdrawal, and we shall be entitled to payment on a quantum meruit basis for any recovery achieved following our withdrawal. For purposes of this provision the quantum meruit calculation is subject to the fee schedule set forth in Exhibit A which is incorporated into this letter, and additionally takes into consideration fee arrangements for substitute counsel that Client necessarily retains to complete the engagement.

 

 
 

Confidential Treatment Requested

 

Conclusion of Representation: Retention and Disposition of Documents

 

Your papers and property will be returned to you upon request. Unless you instruct us differently in writing, after seven years following the conclusion of the matter, we will, at the Firm’s option, return all of the files to you at your cost or simply destroy them.

 

Post-Engagement Matters

 

You are engaging the Firm to provide legal services in connection with a specific matter. After that matter concludes, changes may occur in the applicable laws or regulations that could have an impact upon your future rights and liabilities. Unless you engage us after completion of the matter to provide additional advice on issues arising from the matter, the Firm has no continuing obligation to advise you with respect to future legal developments.

 

Fees

 

Our preference is to establish fee arrangements with clients that promote efficiency and reward success. Our fee agreement is set forth in Exhibit A, which is incorporated into this letter.

 

Costs

 

We believe that in operating our business, we should be responsible for overhead. Accordingly, we do not charge for ordinary electronic research or incidental copying. However, in the course of our work there are sometimes extraordinary expenses for which the Client must be responsible. We may include on our statements separate charges for services such as non-incidental photocopying, printing costs for printed briefs, outside messenger and delivery service, travel, and filing fees. Such expenses may also include process servers, court reporters, and witness fees. Should we retain outside vendors—for example, local counsel, jury consultants, experts, e-discovery vendors, litigation support services, investigators—who may be necessary, in our judgment, to represent your interests in the litigations, you will be informed first and their fees and expenses generally will be billed directly to you. Client shall have the right to approve the selection of local counsel, expert witnesses, e-discovery vendors, jury consultants and litigation support services for audio and visual presentations. We understand that you have an established budget for costs for the matter and we agree to work with you to have actual expenses meet that budget. In the event that projected costs are anticipated to exceed that established budget, the Firm agrees to obtain the approval of Client prior to incurring such costs.

 

Payment of Statements

 

We will render an invoice each month via email and, if you request, via regular mail. Payment is due promptly upon receipt of our statements.

 

 
 

Confidential Treatment Requested

 

Work with Co-Counsel

 

You have been represented by other outside counsel in preparing for the matter. You agree that the Firm is not responsible and not liable for any work, errors, or omissions of other outside counsel prior to the Firm’s appearance in the matter. Should additional counsel be necessary for the representation, the Client shall be responsible for the payment of any fees of that additional counsel.

 

Conflicts and Prospective Waiver

 

The nature of our practice is such that occasionally the Firm may concurrently represent a client that is adverse to another client in a case or matter that is not substantially related to our current representations of either client. We would do this only if, in our professional judgment, we can undertake the concurrent representation without adversely limiting the responsibilities we have to either client. In such a situation, we consider the needs of both clients before undertaking any such representation. Given the nature of our practice, you agree that attorneys at the Firm may represent a party with interests adverse to yours under those circumstances. If we discover a conflict after work has begun, you agree to use reasonable efforts to help us resolve the conflict to the satisfaction of all parties. We agree, however, that your prospective consent to conflicting representation will not apply where, as a result of our representation of you, we have obtained sensitive, proprietary, or other confidential information that, if known to our other client, could be used by the other client to your material disadvantage, unless any confidential information we have obtained would be screened from the lawyers working for our other client.

 

Resolution of Disputes

 

We look forward to a productive relationship as your counsel. In the unlikely event that there is a dispute between us regarding our fees, you may have a right to arbitrate such dispute pursuant to Part 137 of the Rules of the Chief Administrator of the Appellate Division of the Supreme Court of New York for engagements governed by New York Law. For other matters, you may have a right to arbitrate subject to applicable rules. If so, we will provide you with a copy of those rules.

 

To the extent that anything in this letter conflicts with billing guidelines or policies you may have, you understand and agree that the terms set forth herein that are unrelated to your billing policies and guidelines control and are a condition of our undertaking this representation regardless of whether this letter is countersigned. You agree that your consent to our commencement of work shall serve as acknowledgment and agreement to the terms of this letter.

 

 
 

Confidential Treatment Requested

 

Please review this letter, sign it, and return it to me.

 

Very truly yours,

 

/s/ Steven F. Molo

 

Steven F. Molo, Molo Lamken LLP

 

AGREED TO AND ACCEPTED:

Quest Patent Research Corporation

 

  Signature:    /s/ Jon C. Scahill  
  By: Jon Scahill  

 

 
 

Confidential Treatment Requested

 

Exhibit A

Fee Agreement

  

1. Client shall pay the Firm the sum of ● upon engagement.

 

2. Client shall pay the firm the sum of ● per month on the first business day of the month, for ● consecutive months, for the Firm’s role in the matter. This sum will represent payment for the Firm’s work in the matter, and does not include payment for services performed by third parties, including but not limited to Co-Counsel, experts, consultants, and e-discovery vendors.

 

3. If the matter is not concluded within ● months of this engagement, Client shall pay the firm ● per month for the following ● months. After the first ● months, there will be no more monthly payments.

 

4. The fees identified in Paragraphs 2 and 3 above are based on the assumption that each action relating to the matter is litigated in one federal district. Each additional district in which an action is to be litigated will add ● to the monthly fee.

 

5. Client agrees to pay the Firm ● of the amount of any recovery achieved through pre-filing negotiations with any potential defendant in the matter, net of any litigation funder’s disbursed costs.

 

6. Client agrees to pay the Firm ● of the amount of any recovery achieved through litigation against any defendant in the matter, net of any litigation funder’s disbursed costs.

 

7. Once the total contingency fees paid in the matter exceed 4 times the total amount of monthly fees paid in the matter, Client will start receiving a credit for the monthly fees paid to date. For each additional dollar the Firm is paid in contingent fees, Client will receive a dollar credit up to the full amount of monthly fees paid.

 

8. Alternatively, the Firm will track its time expended on the matter. Once the contingent payments equal 3 times the fees the Firm would have earned had it billed the Client at hourly rates, for each additional dollar the Firm is paid in fees based on contingent fee payments, Client will receive a dollar credit up to the full amount of monthly fees paid.

 

9. Client agrees to pay the Firm a fixed trial fee of ● payable one week before the start of each trial.

 

10. In the event a defendant or potential defendant initiates an inter partes review in connection with the matter, Client will pay the firm a flat fee of ● for the first challenge, and ● for each additional challenge. If the corresponding litigation(s) are stayed during the course of the inter partes review(s), this will toll the applicable litigation monthly fee.

 

11. In the event Client obtains funding through third party litigation financing providing a lump sum payment upon closing of the financing transaction rather than providing a line of credit, Client agrees that proceeds sufficient to pay the total monthly fees described in Paragraph 4 above, plus 10% to cover the firm’s extraordinary expenses that would be due to the Firm and not to any vendor, shall be deposited in the Firm’s client escrow account and drawn on to pay the monthly fees in accordance with this agreement. The funds deposited in the Firm’s client escrow account are to be used in the first instance to pay the Firm and are not to be used to pay any third-party vendor who may render services related to the representation, including but not limited to experts, consultants, and e-discovery vendors.

 

12. This agreement applies only to pre-judgment proceedings in the matter. Any post-judgment proceedings would be subject to a separate agreement between Client and the Firm.

 

 
 

Confidential Treatment Requested

 

AMENDMENT NO. 1

 

TO

 

FUNDING AGREEMENT

 

This Amendment No. 1, dated as of April 24, 2014 (this "Amendment"), to the Funding Agreement between Longford Capital Fund I, LP a Delaware limited partnership ("LCF"), on the one hand, and Quest Patent Research Corporation, a Delaware corporation ("QPRC"), and its subsidiary Quest Licensing Corporation, a New York corporation ("QLC"), on the other hand, dated as of March 11, 2014 (the "Funding Agreement"), is made between LCF, QPRC, QLC and Quest Licensing Corporation, a Delaware corporation (QLCDE").

 

WHEREAS, LCF, QPRC and QLC are parties to the Funding Agreement;

 

WHEREAS, QLC wishes to assign certain Patents and other assets and rights related thereto to QLCDE (the "Assignment"), a wholly-owned subsidiary of QPRC, pursuant to the assignment attached hereto as Exhibit A (the "Assignment Agreement");

 

WHEREAS, the parties hereto wish to enter into this Amendment No. 1 in order to make certain amendments to the Funding Agreement in connection with such Assignment.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

2. Unless otherwise defined herein, capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Funding Agreement.

 

3. The definition of Claim Owner set forth in the Funding Agreement is hereby amended so that QLCDE, QPRC and QLC, shall each be a "Claim Owner" and "collectively shall be "Claim Owner."

 

4. Subject to (i) QLCDE, QPRC and QLC executing and delivering to LCF this Amendment No. 1 and (ii) QLCDE delivering to LCF as of the date hereof a fully executed Officer's Certificate in the form attached hereto as Exhibit B, and notwithstanding anything in the Funding Agreement to the contrary, LCF hereby consents to the Assignment pursuant to the Assignment Agreement attached hereto as Exhibit A hereto.

 

5. QLCDE acknowledges and agrees to perform and fulfill all terms, covenants, conditions and obligations required to be performed and fulfilled by Claim Owner, on and after the date hereof, under the Funding Agreement as if it was an original party thereto, including, without limitation, the obligation to make all payments due or payable hereafter under the Funding Agreement as they become due and payable. QLCDE further acknowledges and agrees to be subject to each restriction to which Claim Owner is subject under the Funding Agreement as if it was an original party thereto. Without derogating from the generality of the foregoing, and notwithstanding anything set forth in the Assignment Agreement, QLCDE acknowledges and agrees that any sale, transfer, assignment, disposition or conveyance by it of, or grant of an interest by it in, any of the rights, title, assets or properties assigned to it under the Assignment Agreement is subject to the restrictions set forth in the Funding Agreement. In addition, QLCDE makes all of the representations and warranties made by Claim Owner under the Funding Agreement (except that QLCDE makes the representations and warranties set out in Section 7.1 of the Funding Agreement to LCF not as of the date of the Funding Agreement and as of Closing Date, but as of the date of this Amendment No. 1 and thereafter for the duration of the Funding Agreement (as amended hereby)).

 

 
 

Confidential Treatment Requested

 

6. QLCDE further represents and warrants to LCF, as of the date of this Amendment No. 1 and thereafter for the duration of the Funding Agreement (as amended hereby), as follows: (a) QLCDE is a corporation with its chief executive offices located at 19 Fortune Lane, Jericho, New York 11753; (b) it is duly organized and validly existing under the laws of the State of Delaware and is a corporation in good standing with the Delaware Secretary of State and all other applicable government entities; and (c) "Quest Licensing Corporation" is the correct legal name of QLCDE indicated in the public record of the jurisdiction of its organization which shows QLCDE to be organized, and its Delaware Department of State File Number is 5505053.

 

7. From and after the date hereof, any references to the Funding Agreement shall mean the Funding Agreement, as amended by this Amendment No. 1.

 

8. QLCDE agrees to deliver to LCF on the date of this Amendment No. 1 the Officer's Certificate attached hereto as Exhibit B.

 

9. This Amendment No. 1 and the rights and obligations of the parties hereunder shall be governed by the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule, and shall be construed and enforced in accordance with the law.

 

10. This Amendment No. 1 may be executed in counterparts which, when read together, shall constitute a single instrument, and this has the same effect as if the signatures on the counterparts were on a single copy hereof. A composite copy of this Amendment No. 1 may be compiled comprising a single copy of the text of this Amendment No. 1 and one or more copies of the signature pages containing collectively the signatures of all parties. A facsimile or an electronic mail signature shall be considered due execution and shall be binding upon the signatories hereto with the same force and effect as if the signature were an original, not a facsimile signature.

 

11. Except as specifically amended hereby, the Funding Agreement shall remain in full force and effect.

 

 
 

Confidential Treatment Requested

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 to the Funding Agreement as of the date first written above.

 

QPRC: LCF:
   

QUEST PATENT RESEARCH

LONGFORD CAPITAL FUND I, LP

   
 CORPORATION BY: Longford Investment Group, LLC,
    its General Partner

 

By: /s/ Jon C. Scahill   By /s/ William P. Farrell, Jr.
  Jon Scahill     William P. Farrell, Jr
  President and COO     Managing Director
       
Dated: April 24, 2014   Dated: April 25, 2014

 

QLC:

 

QUEST LICENSING CORPORATION

 

By: /s/ Jon C. Scahill  
  Jon Scahill  
  President  
     
Dated April 24, 2014  

  

QLCDE

 

QUEST LICENSING CORPORATION

 

By: /s/ Jon C. Scahill  
  Jon Scahill  
  President  
     
Dated April 24, 2014  

 

 
 

Confidential Treatment Requested

 

EXHIBIT A

 

ASSIGNMENT

 

WHEREAS, Quest Licensing Corporation, a New York corporation (the “Assignor”), having a principal business address at 19 Fortune Lane, Jericho, New York, is the owner of all right title and interest to the inventions of certain new and useful improvements disclosed in certain patents and patent applications recited in the Patent List attached hereto, for which applications for a United States Letters Patent were executed and Patents have been granted;

 

WHEREAS, Quest Licensing Corporation, a Delaware corporation (“Assignee”), whose mailing address is 19 Fortune Lane, Jericho, New York, is desirous of acquiring the entire right, title and interest in the same;

 

NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, Assignor agrees as follows: Assignor agrees to assign, and hereby does assign, to the Assignee its entire right, title and interest in and to each of the patents listed below, as well as to the "Assigned Applications" in the United States of America and all other countries, where "Assigned Applications" means the patents and patent applications recited in the attached Patent List, as well as any and all pending patent applications, including any and all inventions, discoveries and other subject matter described therein, any divisional, continuation, continuation-in-part, substitute, reissue, re-examination or other application claiming priority to or benefit of the patent applications pursuant to any law or treaty, and any patent issuing from the foregoing. This Assignment expressly and specifically, without limitation, assigns to Assignee all rights to sue for past, present, and future infringement, including the right to collect and receive any monetary damages, royalties, or settlements for such infringements, all rights to sue for injunctive or other equitable relief, and any and all causes of action anywhere in the world. Assignor agrees to assign, and hereby does assign, to Assignee the right to claim such priority or benefit. Assignor has not previously conveyed, nor are they aware of an obligation to convey, their rights in the Assigned Applications to a third party. Assignor hereby authorizes the U.S. Patent and Trademark Office, and any other governmental agency in the world, to issue to Assignee all patents resulting from the Assigned Applications and to record Assignee's ownership thereof. At Assignee's reasonable request Assignor agrees, without further remuneration, to execute and deliver documents prepared at Assignee's expense and to provide other cooperation, such as testimony at Assignee's sole cost and expense, as may be reasonably required to evidence or protect Assignee's rights in the Assigned Applications. Assignee may assign or transfer all or part of its rights set forth herein in its sole discretion. Assignor agrees that Assignee may affix hereto or hereon an indication, with its signature, of its acceptance of the assignment and other provisions hereof. If any provision hereunder is unenforceable, the requirements of the provision shall remain to the full extent permissible by law and the offending portions thereof shall be deemed replaced, to the extent possible, with a provision most closely reflecting the purpose of the offending provision.

 

 
 

Confidential Treatment Requested

 

PATENT LIST

 

7,194,468

 

ASSIGNED APPLICATIONS

 

09/926,751

11/673,691

12/617,373

13/832,012

 

  /s/ Jon C. Scahill  
 

Quest Licensing Corporation

  
  A New York Corporation, Assignor  
       
  (Dated) April 24, 2014  

 

NOTARIAL CERTIFICATION OF ASSIGNOR

  

I, Lee LaMonica, A Notary Public of State of New York Westchester County, hereby certify that Jon C. Scahill, who executed the attached document before me on 4/24/2014, has proven to me on the basis of satisfactory evidence, that he/she had and has full authority to execute documents on behalf of Assignor, a corporation doing business at 19 Fortune Lane Jericho, New York.

 

/s/ Lee LaMonica  
Notary Public  
   
My commission expires: 4/30/2015

 

 
 

Confidential Treatment Requested

 

EXHIBIT B

 

QUEST LICENSING CORPORATION

OFFICER'S CERTIFICATE

Dated as of April 24, 2014

  

The undersigned President of Quest Licensing Corporation, a Delaware corporation (the "Company"), hereby certifies to Longford Capital Fund I, LP, a Delaware limited partnership ("LCF"), pursuant to Section 6.1(c) of the Funding Agreement between LCF, Quest Patent Research Corporation, a Delaware corporation ("QPRC"), and Quest Licensing Corporation, a New York Corporation ("QLC"), dated as of March 11, 2014 (as amended by the Amendment No. 1 thereto, by and between LCF, QPRC, QLC and the Company, dated as of April 24, 2014, the "Agreement"), as follows:

 

1. The representations and warranties of the Company contained in Section 7.1 of the Agreement are, to the best of my knowledge, true and accurate in all material respects on and as of the date hereof.

 

2. No Event of Default (as defined in the Agreement) has occurred at or prior to the date hereof or would result from the transactions contemplated under the Agreement being consummated on the date hereof.

  

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the first date written above.

 

/s/ Jon C. Scahill                  

Jon Scahill

President

 

 

 

 



Exhibit 10.14

 

Agreement between Quest Patent Research Corporation, Quest Licensing Corporation and Allied Standard Limited

 

WHEREAS,

 

Quest Licensing Corporation ("Quest") is the owner by assignment from Allied Standard Limited ("Allied"), dated October 31, 2012, of all of its right title and interest in and to, including all rights to sue for past infringement as well as all rights to all pending continuation and/or divisional patent applications claiming priority to, United States Patent Number 7,194,468 entitled APPARATUS AND A METHOD FOR SUPPLYING INFORMATION ("the '468 Portfolio").

 

WHEREAS,

 

On October 31, 2012, Allied and Quest entered into an Agreement entitled Agreement Between Quest Licensing Corporation and Allied Standard Limited ("the Quest Agreement"). Under the Quest Agreement, Allied was entitled to receive 50% of the issued and outstanding stock in Quest, as well as assume certain obligations in connection with the monetization of the '468 Portfolio. A copy of the Quest Agreement is attached as Exhibit A.

 

WHEREAS,

 

Quest Patent Research Corporation ("QPRC") was to retain ownership of the remaining 50% of the issued and outstanding stock in Quest.

 

WHEREAS,

 

QPRC, Quest, and Allied are willing to, and have agreed to modify the Quest Agreement on the terms set forth below.

 

WHEREAS,

 

In consideration for QPRC agreeing to fund a monetization program for the '468 Portfolio, Allied agrees to relinquish its entitlement to receive 50% of the issued and outstanding stock in Quest while continuing to retain its entitlement to payment of License Fees as set forth specifically in Paragraphs 8 and 9 of the Quest Agreement. The conditional promise to relinquish its entitlement to receive 50% of the issued and outstanding stock in Quest by Allied will only become a binding obligation upon the full and complete execution of this agreement by Allied Standard and Quest, and further upon the full and complete execution by Quest of a formal retainer agreement with outside counsel and further upon payment of the initial retainer to outside counsel.

 

 
 

 

NOW THEREFORE, in consideration of the promises and undertakings set forth herein and the other good and valuable consideration described more fully below, QPRC, Quest and Allied (collectively "the Parties") hereby agree as follows:

 

1) Allied relinquishes its entitlement under the Quest Agreement to 50% of the issued and outstanding shares of Quest.

 

2) Except for the right to receive License Fees, if any, generated from the monetization of the '468 Portfolio, as expressly set forth in Paragraphs 8 and 9 of the Quest Agreement, and except as expressly provided in paragraphs 3 and 4, immediately below, Allied has no further rights or interests in Quest and the '468 Portfolio, effective as of:

 

  a. the execution of this Agreement by QPRC and Allied;

 

  b. the execution of a formal retainer agreement with outside counsel engaged to commence the monetization program; and

 

  c. the confirmation of payment of the initial retainer in the amount of $100,000 within 30 days.

 

3) Quest agrees that it shall not transfer, assign or sell the '468 Portfolio, to any third party without the express prior written consent of Allied, which consent shall not be unreasonably withheld. With notice to Allied, Quest may transfer the '468 Portfolio to another wholly owned subsidiary of QPRC which shall undertake the same obligations.

 

4) Quest further agrees that in calculating the amounts due to Allied under Paragraphs 8 and 9 of the Quest Agreement, it shall not include as costs and expenses to be deducted before distribution to the partners, without Allied's prior written consent, which consent shall not be unreasonably withheld, the salaries of any Quest employee, any office rental costs or any extraordinary expenditures which are hereby defined to mean expenditures outside of those necessarily incurred in the ordinary course of the business of managing the '468 Portfolio enforcement and licensing program.

 

2
 

 

5) Quest agrees that if the Moto Lampken law firm withdraws or is replaced as counsel in the enforcement proceedings, Quest will retain substitute legal counsel of comparable skills and reputation and shall advise Allied of any contemplated change of counsel as soon as Quest becomes aware of such facts.

 

6) QPRC represents that it is a corporation duly formed and existing under the laws of the State of Delaware and that it has the authority to enter into this agreement and to bind the company to the obligations set forth.

 

7) Quest represents that is a corporation duly formed and existing under the laws of the State of New York and that it has the authority to enter into this agreement and to bind the company to the obligations set forth. Allied hereby acknowledges that in the Quest Agreement and in the Assignment document executed as part of the Quest Agreement, Quest was mistakenly identified as a Delaware corporation rather than a New York corporation and hereby further confirms that at the time it executed the Quest Agreement and the Assignment it intended to do so without regard to the state of incorporation of Quest which was not material to the transaction.

 

8) Allied Standard represents that is a corporation duly formed and existing under the laws of Hong Kong, China and that it has the authority to enter into this agreement and to bind the Company to the obligations set forth herein.

 

9) The provisions of this Agreement are severable and distinct from one another, and, if at any time any of such provisions is or becomes invalid, illegal or unenforceable, the validity, legality or enforceability of the others shall not in any way be affected or impaired thereby.

 

10) The parties hereto agree to execute any additional documents in the future which may be necessary to effectuate the intent of the parties or to cure any mistakes or inaccuracies.

 

3
 

  

11) This Agreement and any disputes or claims related thereto or arising out of or in connection with its subject matter shall be governed exclusively by and under the laws of the State of New York, without reference to its choice of law and conflict of law provisions. The Parties further agree that all disputes arising hereunder shall be resolved in the federal and state courts located in the State of New York located in New York City, which shall be the exclusive forum for the resolution of all such disputes and the Parties hereby agree to submit to the personal jurisdiction of such courts and to accept service of process by certified or registered mail return receipt requested.

 

New York, New York

Agreed to this 1st day of April, 2014

  

QUEST PATENT RESEARCH CORPORATION   ALLIED STANDARD LIMITED
         
By: /s/ Jon Scahill   By:
Jon Scaill, President Authorised Signatory

   

Quest Licensing Corporation  
         
By: /s/ Jon Scahill  
Jon Scaill, President

 

 

 

4

 



Exhibit 10.15

 

Common Stock Purchase Warrant

of

Quest Patent Research Corporation

 

1.Grant: Burton Goldstein (“Holder”), is entitled to purchase from Quest Patent Research Corporation, a Delaware corporation (the “Company”), five million (5,000,000) shares of the common stock, par value $0.00003 per share (“Common Stock”), of the Company at an exercise price per share (the “Exercise Price”) of four tenths of one cent ($0.004).

 

2.Vesting of Warrants: This Warrant is granted and deemed to be effective as of March 1, 2008 (the “Grant Date”). Commencing on such date, the Warrant is exercisable by Holder. This Warrant shall expire on March 1, 2018 (the “Expiration Date”).

 

3.Exercise: The Warrant may be exercised only by Holder (or his guardian or legal representative) and may not be transferred by Holder except by will or the applicable laws of descent and distribution. However, in the event that Holder shall decease and the exercise period is still open (prior to the Expiration Date), the Warrant may be exercised for a period of one year (not to extend past the Expiration Date) by Holder’s estate. The Warrant may be exercised, in whole or in part, from time to time (to the extent vested pursuant to Section 2 hereof) by written notice to the Secretary of the Company at its principal office specifying the number of shares to be purchased and enclosing the purchase price therefore in cash or by check or by cashless exercise. The Company shall cause certificates for any shares of Common Stock purchased hereunder to be delivered following the receipt of such notice and payment.

 

4.Adjustments: In the event that the outstanding shares of the Common Stock shall be changed in number, class or character by reason of any split-up, change of par value, stock dividend, combination or reclassification of shares, recapitalization, merger, consolidation, reorganization, liquidation or other corporate change, or shall be changed in value by a reason of any so-called spin-off, dividend in partial liquidation or other special distribution or transaction having an effect similar to any of the foregoing, the Company shall make such adjustments, if any, in the number, kind and purchase price of shares covered by the Warrant as the Board of Directors may determine to be appropriate in order to prevent dilution or enlargement of the rights of Holder that otherwise would result.

 

5.Miscellaneous: Notwithstanding any other provision hereof, the Warrant shall not be exercisable if such exercise would involve a violation of any applicable Federal or State securities law. The Company may require as a condition to the exercise of this Warrant that appropriate provisions be made for payment of any applicable federal, state or local withholding taxes in connection with the grant, exercise or disposition of the Warrant.

 

 
 

 

 

Executed on the ___ day of October 2014, but effective as of the Grand Date.

 

  Quest Patent Research Corporation
   
   
  Jon Scahill
  President & CEO

 

The undersigned Holder hereby acknowledges receipt of an executed original hereof and accepts the Warrant granted hereunder on and subject to the terms stated herein.

 

Holder acknowledges that he/she has been informed that the shares of Common Stock to be issued upon exercise of the Warrant have not been registered under the Securities Act of 1933 (the “Securities Act”) and agrees that he will not make any disposition of such shares unless either (a) such shares have been registered under the Securities Act or (b) an exemption from the registration provisions of the Securities Act is applicable to the Holder’s proposed disposition of such shares. The certificates representing shares of Common Stock issuable upon exercise of the Warrant shall bear a legend substantially as follows:

 

“The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares have been acquired for investment and may not be sold, transferred or assigned in the absence of an effective registration statement for these shares under the Securities Act of 1933 or an opinion of the Company’s counsel that registration is not required under said Act.”

 

   
  Burton Goldstein
  Holder

 

 

 



Exhibit 10.16

 

WA- 1  

Warrant to Purchase

 

**60,000,000**

 

Shares of Common Stock

 

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OR CONVERSION OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL (1) SUCH OFFERING AND SALE OR OTHER TRANSFER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, OR (II) THE HOLDER HEREOF PROVIDES THE COMPANY WITH (A) A WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION SHALL BE REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY TO THE EFFECT THAT THE PROPOSED TRANSFER OF SUCH SECURITY MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT, OR (B) SUCH OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER OF THIS SECURITY MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT.

 

Void after 5:30 P.M. New York City time on March 1, 2018

 

SERIES A COMMON STOCK PURCHASE WARRANT

 

OF

 

QUEST PATENT RESEARCH CORPORATION

 

Initial Issuance Date: March 1, 2008

 

This is to certify that, FOR VALUE RECEIVED, Jon Scahill or registered assigns (“Holder”), is entitled to purchase, on the terms and subject to the provisions of this Warrant, from Quest Patent Research Corporation, a Delaware corporation (the “Company”), sixty million (60,000,000) shares of the common stock, par value $0.00003 per share (“Common Stock”), of the Company at an exercise price per share (the “Exercise Price”) of four tenths of one cent ($0.004), during the period (the “Exercise Period”) commencing on the Initial Issuance Date and ending at 5:30 P.M. New York City time, on the tenth anniversary of the Initial Issuance Date; provided, however, that if such date is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day on which such banks are not authorized to be closed.

 

(a) EXERCISE OF WARRANT.

 

(1) This Warrant may be exercised in whole at any time or in part from time to time during the Exercise Period by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares of Common Stock specified in such form. Payment of the Exercise Price shall be made by wire transfer or check (subject to collection) in the amount of the Exercise Price payable to the order of the Company. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder to purchase the balance of the shares of Common Stock purchasable hereunder or indicate on the Warrant the extent to which the Warrant has been exercised and the remaining number of shares issuable upon exercise of this Warrant following such exercise. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder; provided, however, that if payment of the Exercise Price is made by check, the Company shall not issue the Common Stock until the Company has been advised by its bank that the check has cleared. The shares of Common Stock issued or issuable upon exercise of this Warrant are referred to as the “Warrant Shares.”

 

 
 

 

(2) In lieu of exercising this Warrant by payment of the Exercise Price pursuant to Section (a)(1) of this Warrant, the Holder shall have the right to convert this Warrant, in whole or in part to the extent that this Warrant has not been exercised pursuant to said Section (a)(1), for the number of shares of Common Stock determined by (i) multiplying (x) the number of shares as to which this Warrant is being exercised by (y) the difference between the current value per share of Common Stock and the Exercise Price per share, as in effect on such date, and (ii) dividing the result so obtained by the current value per share of Common Stock. The date of exercise shall mean, for purposes of this Section (a)(2), the date on which this Warrant accompanied by the notice of cashless exercise is received by the Company or its counsel or transfer agent; provided, however, that if this Warrant is exercised or converted and delivery of this Warrant is made by an overnight courier or overnight mail service which provides evidence of delivery, the date of exercise shall mean the date that this Warrant accompanied by the notice of exercise, is delivered to the overnight courier or mail service. The current value per share of Common Stock shall be determined as follows:

 

(A) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the Nasdaq Stock Market (“Nasdaq”), the Toronto Stock Exchange or any exchanges related to the Toronto Stock Exchange or other automated quotation system or is quoted on the OTC Bulletin Board, the OTCQX, OTCQB, or OTC Pink or other service which provides information as to the last sale price, the current value shall be the reported last sale prices of one share of Common Stock on such exchange, market or system on the trading day prior to the date of exercise of this Warrant, or if, on any of such dates, no such sale is made on such day, the last reported sale on such exchange, market or system shall be used; or

 

(B) If the Common Stock is not so listed or admitted to unlisted trading privileges or traded, the current value shall be the mean average of the reported last bid and asked prices of one share of Common Stock as reported by Nasdaq, the Toronto Stock Exchange, the National Quotation Bureau, Inc., Pink Sheets, Inc. or other similar reporting service selected by the Company’s board of directors, on the last trading day prior to the date of the exercise of this Warrant; or

 

(C) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value of one share of Common Stock shall be an amount, not less than book value, determined in such reasonable manner as may be prescribed by the board of directors of the Company.

 

(b) RESERVATION OF SHARES. The Company hereby agrees that at all times from and after the issuance of this Warrant, there shall be reserved for issuance upon exercise of this Warrant such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of this Warrant and that it shall not, without the prior approval of the holders of a majority of the Warrants then outstanding, increase the par value of the Common Stock in a manner such that the exercise price is less than the par value.

 

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(c) FRACTIONAL SHARES. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. Any fractional shares shall be rounded up to the next higher whole number of shares.

 

(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Subject to the provisions of Section (j) of this Warrant, upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.

 

(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this Warrant, be entitled to any voting or other rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth in this Warrant.

 

(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment in case the Company shall, subsequent to the Initial Issuance Date, (i) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock (ii) subdivide or reclassify its outstanding Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding Common Stock into a smaller number of shares or otherwise effect a reverse split, the Exercise Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision and the number of shares of Common Stock (or other securities) issuable upon exercise of this Warrant shall be proportionately adjusted to reflect such transaction. As a result of such adjustment, the Holder of this Warrant exercised after such date shall be entitled to receive for the aggregate Exercise Price, the aggregate number and kind of shares which, if this Warrant had been exercised immediately prior to such time, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed in this Section (f) shall occur. In no event shall the Exercise Price per share be less than the par value per share.

 

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(g) OFFICER’S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of Section (f) of this Warrant, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer’s certificate showing the adjusted Exercise Price and the adjusted number of shares of Common Stock issuable upon exercise of each Warrant, determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment. Each such officer’s certificate shall be made available at all reasonable times for inspection by the Holder, and the Company shall, forthwith after each such adjustment, mail, by first class mail, a copy of such certificate to the Holder at the Holder’s address set forth in the Company’s Warrant Register.

 

(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (1) if the Company shall pay any dividend or make any distribution upon Common Stock (other than a cash dividend payable out of retained earnings) or (2) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights or (3) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail, return receipt requested, to the Holder, at least ten days prior to the date specified in clauses (i) and (ii), as the case may be, of this Section (h) a notice containing a brief description of the proposed action and stating the date on which (i) a record is to be taken for the purpose of such dividend, distribution or rights, or (ii) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.

 

(i) RECLASSIFICATION, REORGANIZATION OR MERGER.

 

(1) In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger in which the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i)(1) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances.

 

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(2) Notwithstanding the provisions of Section (i)(1) of this Warrant, in the event of a Specified Merger, as hereinafter defined, this Warrant, if not exercised prior to the effective time of the Specified Merger, shall, at the effective time of the Specified Merger, without any action on the part of the holder, become and be converted into the right to receive cash or securities equal to the amount determined by multiplying the number of shares of Common Stock issuable upon exercise of this Warrant by the amount by which (i) the consideration payable with respect to one share of Common Stock in the Specified Merger exceeds (ii) the Exercise Price. A Specified Merger shall mean the merger or consolidation of the Company into another corporation or entity or the sale by the Company of all or substantially all of its business and assets in a transaction in which the net proceeds or other consideration from such sale are distributed to the Company’s stockholders in liquidation of their shares of Common Stock, if, and only if, the sole consideration to be received by the holders of the Common Stock is cash, including any contingent cash, and/or securities all of which are listed on the New York Stock Exchange or the Nasdaq Stock Market. Securities issued in the Specified Merger shall be valued at the average closing price thereof on the principal stock exchange or market on which the securities are listed or traded for the five-day period ending the day prior to the effective date of the Specified Merger. Payment to the holder of this Warrant with respect to any such securities shall be payable in either cash and/or in such securities (valued as herein provided), as the Company shall determine. If, in a Specified Merger, the value of the consideration payable with respect to one share of Common Stock is less than the Exercise Price, no payment shall be made to the holder of this Warrant, and this Warrant shall terminate.

 

(j) TRANSFER TO COMPLY WITH THE SECURITIES ACT. This Warrant or the Warrant Shares or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows:

 

(1) To a person who, in the opinion of counsel for the Company, is a person to whom this Warrant or Warrant Shares may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act and in compliance with applicable state securities laws with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section (j) with respect to any resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; or

 

(2) To any person upon delivery of a prospectus then meeting the requirements of the Securities Act and state securities laws relating to such securities and the offering thereof for such sale or disposition.

 

(k) GOVERNING LAW. This Warrant shall be governed and construed in accordance with the laws of the State of New York applicable to contracts wholly performed within the borders of such state and without giving effect to conflicts of law provisions thereof. The Company and, by acceptance of this Option, the Holder, agrees that any legal suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be instituted exclusively in New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York and hereby: (i) waive any objection which they may now have or hereafter have to the venue of any such suit, action or proceeding, and (ii) irrevocably consent to the jurisdiction of the New York Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding.

 

(l) NO RIGHT OF REDEMPTION. The Company shall have no right to call this Warrant for redemption.

 

Dated as of November 30, 2014

 

  QUEST PATENT RESEARCH CORPORATION
   
  By:  
    Jon C. Scahill, Chief Executive Officer

  

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PURCHASE FORM

 

Dated:                , 20  

 

The undersigned hereby irrevocably exercises this Warrant to the extent of purchasing _______ shares of Common Stock and hereby makes payment of $____________ in payment of the Exercise Price therefor.

 

INSTRUCTIONS FOR REGISTRATION OF STOCK

 

Name:  
  (Please typewrite or print in block letters)

 

Signature:    

   

Social Security or Employer Identification No.________________________

 

ASSIGNMENT FORM

 

 

 

FOR VALUE RECEIVED,_______________________________________________________

hereby sells, assigns and transfer unto

 

Name:  
  (Please typewrite or print in block letters)

  

Address:    

  

Social Security or Employer Identification No._______________________

 

The right to purchase Common Stock represented by this Warrant to the extent of _________shares as to which such right is exercisable and does hereby irrevocably constitute and appoint __________________ attorney to transfer the same on the books of the Company with full power of substitution.

 

Dated:                , 20  

 

Signature:    

  

Signature Medallion Guaranteed:

 

 

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NOTICE OF CASHLESS EXERCISE

 

(To be executed by the Warrant Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant by means of a cashless exercise)

 

 

 

To:Quest Patent Research Corporation:

 

In accordance with the Warrant, the undersigned hereby irrevocably elects to purchase ______________ shares of Common Stock (“Common Stock”), $0.00003 par value, of Quest Patent Research Corporation by means of a cashless exercise. The number of shares to be issued upon cashless exercise is determined as follows:

  

Number of shares to be issued equals (A x (B-C))/B

 

For purpose of the foregoing formula:

 

A= the total number shares with respect to which this Warrant is then being exercised.

 

B= the last reported sale price (as reported by Bloomberg) of the Common Stock on the trading day immediately preceding the date of the Exercise Notice.

 

C= the Warrant Exercise Price then in effect at the time of such exercise.

 

As a result of the cashless exercise, unless this Warrant is being exercised in full, the number of shares of Common Stock issuable upon exercise of this Warrant shall be reduced by A (the total number of shares with respect to which the Warrant is being exercised).

 

Number of shares as to which this Warrant is exercisable:                                             

 

Number of shares as to which the Warrant is being exercised:                                             

 

Number of shares remaining after exercise:                                             

 

The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of:

 

   
   
   
   
   
(Please print name and address)  
   
   
(Please insert Social Security or Tax Identification Number)  

 

Dated:       Name of Warrant Holder:
         
      (Print)   
         
      (By:)    
         
      (Name:)    
         
      (Title:)    
         
      Signature must conform in all respects to name of Warrant Holder as specified on the face of the Warrant

 

 

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Exhibit 10.17

 

INDEMNIFICATION AGREEMENT

 

THIS INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into as of November 21, 2014, between Quest Patent Research Corporation, a Delaware corporation (the “Company”), and Jon C. Scahill (“Indemnitee”).

 

WITNESSETH:

 

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors, officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

 

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities to the extent that such insurance can be obtained at reasonable cost to the Company;

 

WHEREAS, although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to the Company only at high premiums and with exclusions, while directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself;

 

WHEREAS, The Bylaws of the Company and the General Corporation Law of the State of Delaware (“DGCL”) provide for indemnification of the officers and directors of the Company and that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;

 

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

 

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

 

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

 

WHEREAS, this Agreement is a supplement to and in furtherance of the Bylaws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and

 

WHEREAS, Indemnitee may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity, and Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and

 

 
 

 

NOW, THEREFORE, in consideration of Indemnitee’s agreement to continue to serve as a director and officer from and after the date hereof, the parties hereto agree as follows:

 

1. Indemnity of Indemnitee. The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof.

 

(a) Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of his Corporate Status (as hereinafter defined), the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful.

 

(b) Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitee’s behalf, in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.

 

(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

2. Additional Indemnity. In addition to, and without regard to any limitations on, the indemnification provided for in Section 1 of this Agreement, but subject to the laws of Delaware, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Company’s obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.

 

2
 

 

3. Contribution.

 

(a) Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

 

(b) Without diminishing or impairing the obligations of the Company set forth in Section 3(a), if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction or events from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the transaction or events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which applicable law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.

 

(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors, or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.

 

(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

 

3
 

 

4. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness, or is made (or asked) to respond to discovery requests, in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

 

5. Advancement of Expenses. Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.

 

6. Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public policy of the State of Delaware and federal law and public policy, subject only to limitations expressly provided in this Agreement. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:

 

(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.

 

(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board (1) by a majority vote of the Disinterested Directors, even though less than a quorum, (2) by a committee of Disinterested Directors designated by a majority vote of the disinterested directors, even though less than a quorum, (3) if there are no Disinterested Directors or if the Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee, or (4) if so directed by the Board, by the stockholders of the Company. For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee. In the event of a Change of Control, the determination of indemnification shall be made by Independent Counsel.

 

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(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent Counsel shall be selected as provided in this Section 6(c). The Independent Counsel shall be selected by the Board. Indemnitee may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 13 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Company’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 6(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c), regardless of the manner in which such Independent Counsel was selected or appointed.

 

(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 

(e) Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise (as hereinafter defined), including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

 

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(f) If the person, persons or entity empowered or selected under Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such sixty (60) day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided further, that the foregoing provisions of this Section 6(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.

 

(g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

 

(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

 

(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

 

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7. Remedies of Indemnitee.

 

(a) In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within one hundred eighty (180) days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 7(a). The Company shall not oppose Indemnitee’s right to seek any such adjudication.

 

(b) In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(b).

 

(c) If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

 

(d) In the event that Indemnitee, pursuant to this Section 7, seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors’ and officers’ liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 13 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.

 

(e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.

 

(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

 

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8. Non-Exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation.

 

(a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-laws, any agreement, a vote of stockholders, a resolution of directors of the Company, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Certificate of Incorporation, By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has directors’ and officers’ liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

 

(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.

 

9. Exception to Right of Indemnification. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

 

(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or

 

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(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or

 

(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation, or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or

 

(d) for conduct that is determined to be in violation of federal or state insider trading laws; or

 

(e) conduct that is determined to be knowingly fraudulent or deliberately dishonest or to constitute willful misconduct.

 

10. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 7 hereof) by reason of his Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement, and until the expiration of all applicable statutes of limitation.

 

11. Security. To the extent requested by Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.

 

12. Enforcement.

 

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.

 

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

 

(c) The Company shall not seek from a court, or agree to, a “bar order” which would have the effect of prohibiting or limiting the Indemnitee’s rights to receive advancement of expenses under this Agreement.

 

13. Definitions. For purposes of this Agreement:

 

(a) “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

 

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(b) “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

 

(i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing thirty five percent (35%) or more of the combined voting power of the Company’s then outstanding securities;

 

(ii) Change in Board. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 13(b)(i), 13(b)(iii) or 13(b)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a least a majority of the members of the Board;

 

(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty one percent (51%) of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the Board or other governing body of such surviving entity;

 

(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and

 

(v) Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement.

 

(c) “Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the request of the Company.

 

(d) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

 

(e) “Enterprise” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary.

 

(f) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission thereunder.

 

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(g) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

 

(h) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have or could reasonably be deemed to have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(i) “Person,” as used in Section 13(a) and Section 13(b), shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that the term “Person” shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

(j) “Proceeding” includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of his or her Corporate Status, by reason of any action taken by him or of any inaction on his part while acting in his or her Corporate Status; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under this Agreement.

 

14. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.

 

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15. Entire Agreement. This Agreement constitutes the entire agreement of the parties as to the subject matter hereof, superseding all prior or contemporaneous written or oral understandings or agreements, all of which are hereby terminated, with respect to the indemnification by the Company of Indemnitee. This Agreement may not be modified or amended, nor may any right be waived, except by a writing which expressly refers to this Agreement, states that it is intended to be a modification, amendment or waiver and is signed by both parties in the case of a modification or amendment or by the party granting the waiver. No course of conduct or dealing between the parties and no custom or trade usage shall be relied upon to vary the terms of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. No delay or omission to exercise any right, power or remedy accruing to either party hereto shall impair any such right, power or remedy or shall be construed to be a waiver of or an acquiescence to any breach hereof. No waiver of any breach hereof shall be deemed to be a waiver of any other breach hereof theretofore or thereafter occurring. Any waiver of any provision hereof shall be effective only to the extent specifically set forth in an applicable writing. All remedies afforded to either party under this Agreement, by law or otherwise, shall be cumulative and not alternative and shall not preclude assertion by such party of any other rights or the seeking of any other rights or remedies against any other party.

 

16. Notice By Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.

 

17. Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given (a) upon personal delivery to the party to be notified, (b) when sent by electronic mail or facsimile upon confirmation of receipt by the recipient, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier which provides evidence of delivery, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the Company and Indemnitee at their respective addresses, telecopier numbers or emails set forth on the signature page of this Agreement or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

 

18. No Assignment. The Agreement and all obligations under this Agreement are personal to the Company and Indemnitee and may not be transferred or delegated by such party at any time, except as contemplated by Section 19.

 

19. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

 

20. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

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21. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

22. Interpretation. In this Agreement, unless the context indicates otherwise:

 

(a) Any pronoun shall include the corresponding masculine, feminine or neuter forms, and the singular for shall include the plural and vice versa.

 

(b) “Including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding or succeeding such term and shall be deemed in each case to be followed by the words “without limitation.”

 

(c) The words “herein,” “hereto,” and “hereby” and other words of similar import in this Agreement shall be deemed in each case to refer to this Agreement as a whole and not to any particular section or other subdivision of this Agreement.

 

(d) The term “or” means “and/or.”

 

23. Counterpart; Facsimile. This Agreement may be executed and delivered by facsimile signature or by email in portable document format (PDF) in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same Agreement.

 

24. Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

Signature Page Follows

 

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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.

 

Address, Telecopier and Email   Signature
    QUEST PATENT RESEARCH CORPORATION
411 Theodore Fremd Ave, Suite 206S      
Rye, New York 10580      
Attention:   By:  
Telecopier:     Dr. William Ryall Carroll, director
Email:    

 

    By:

    Timothy J. Scahill, director

[Address]      
       
Telecopier:    
Email: jscahill@qprc.com   Jon C. Scahill
       

 

 

14

 

 



Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Jon C. Scahill, certify that:

 

1.    I have reviewed this annual report on Form 10-K of Quest Patent Research Corporation;

 

2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
     
  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
     
  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
  
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Dated:  December 15, 2014 By: /s/ Jon C. Scahill
   

Chief Executive Officer and
Acting Chief Financial Officer

(Principal Executive,
Financial and Accounting Officer)



Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Quest Patent Research Corporation (the “Company”) on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jon C. Scahill, chief executive officer of the Company, and I, [???], chief financial officer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:

 

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated:  December 15, 2014 By: /s/ Jon C. Scahill
   

Chief Executive Officer and
Acting Chief Financial Officer

(Principal Executive,
Financial and Accounting Officer)

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