This
Settlement Agreement (“Agreement”), dated as of December 30, 2006, relates to a
potential resolution of outstanding issues between Elliott Broidy and Broidy
Capital Management (collectively, “Broidy”) on the one hand and Gabriel
Technologies, and its various officers, directors, subsidiaries and affiliates
on the other hand (collectively, “Gabriel”), on the other
RECITALS
WHEREAS,
on or
about December 9, 2005, Broidy made a loan to the Company in the amount of
Two
Hundred Thousand Dollars ($200,000), as evidenced by that certain Promissory
Note dated on December 9, 2005 (the “First Promissory Note”); and
WHEREAS,
on or
about January 6, 2006, Broidy loaned Gabriel an additional Eight Hundred
Thousand Dollars ($800,000), which was rolled into the First Promissory Note
and
documented by a separate note (the “Convertible Senior Promissory Note”);
and
WHEREAS,
pursuant to the Convertible Senior Promissory Note Broidy received 1,000,000
warrants (the “Convertible Note Warrants”) with an exercise price of
$1;
WHEREAS,
pursuant to Section 3.6 of the Convertible Senior Promissory Note, the strike
price of Broidy’s warrants was to be reduced if certain conditions were met (the
“Convert Price Adjustment”); and
WHEREAS,
pursuant to Section 5 of the Convertible Senior Promissory Note, Broidy received
a twoyear
option to purchase all of Gabriel’s interest in the “C” units of Resilent LLC
d/b/a/ Digital Defense (the “Digital Defense Option”); and
WHEREAS,
concurrent with the Convertible Senior Promissory Note, Gabriel and Broidy
entered into a Side Letter pursuant to which the exercise price of all of
Broidy’s warrants was to be reduced if certain financial targets were not met
(the “Warrant Adjustment Side Letter”); and
WHEREAS,
concurrent with the Convertible Senior Promissory Note the parties entered
into
a Registration Rights Agreement (“Registration Rights Agreement”) that required
Gabriel to register its stock in a timely manner and provided, among other
things, a penalty if the stock was not registered by June 5, 2006 (the
“Registration Adjustment”); and
WHEREAS,
on
February 14, 2006, Broidy loaned Gabriel an additional Two Hundred Thousand
Dollars ($200,000) (“Two Hundred Thousand Dollar Note”) pursuant to which Broidy
received 100,000 warrants for Gabriel common stock and was to receive an
additional 50,000 warrants, all at an exercise price of $1, if the Two Hundred
Thousand Dollar Note was not repaid by March 31, 2006; and
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WHEREAS,
on
November 20, 2006, Broidy loaned Gabriel an additional Eighty Thousand Dollars
($80,000) (“Eighty Thousand Dollar Note”), which was due on December 10, 2006;
and
WHEREAS,
Broidy
is willing to loan an additional One Hundred Thousand Dollars ($100,000) to
Gabriel that shall be used only to pay Gabriel’s payroll and meet its
obligations to its creditors;
WHEREAS,
each of
the Convertible Senior Promissory Note, the Two Hundred Thousand Dollar Note
and
the Eighty Thousand Dollar Note are all in default; and
WHEREAS,
Broidy
wishes to convert the Convertible Senior Promissory Note in its entirety into
One Million Five Hundred Thousand shares of Gabriel common stock under the
terms
of such note, and wishes to exercise One Million of the Convertible Note
Warrants, which after taking into account the Convert Price Adjustment, may
be
exercised without paying any additional consideration to Gabriel, such that
Broidy shall receive Two Million Five Hundred Thousand Shares; and
WHEREAS,
Gabriel
and Broidy wish to enter into a formal settlement arrangement as described
below
(the “Broidy Settlement”) in order to resolve issues between the parties
relating to Broidy’s investments in and loans to Gabriel; and
WHEREAS,
concurrent with the Broidy Settlement, the Board desires to approve and ratify
the Resilent Settlement and Release, as described below; and
WHEREAS,
concurrent with the Broidy Settlement and the Resilent Settlement and Release,
the Board desires to approve and ratify the Broidy Loan, as described
below;
NOW,
THEREFORE,
for
good and valuable consideration the sufficiency of which is hereby acknowledged,
the parties agree as follows:
1.Cancellation
of Prior Notes.
Broidy
shall cancel the Two Hundred Thousand Dollar note, including all interest
accrued thereunder.
2.Broidy
to Retain Only 675,000 Warrants.
After
giving effect to Broidy’s exercise of 1,000,000 of the Convertible Note
Warrants, Broidy shall retain only the 675,000 Gabriel Warrants it owned prior
to entering into the First Promissory Note. The additional warrants it had
received in connection with the various notes and loans described above shall
be
cancelled. The 2,350,000 Gabriel Warrants that had been previously contemplated
in connection with a settlement between Gabriel and Broidy shall not be
issued.
3.Ratchets
to Be Cancelled.
The
Convert Price Adjustment, Digital Defense Option, Warrant Adjustment Side
Letter; Registration Adjustment; Note Default Side Agreement shall all be
cancelled, including without limitation to any Gabriel warrants retained by
Broidy.
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4.Cancellation
of Certificate; Issuance of New Shares.
Broidy
shall surrender for cancellation Gabriel Stock Certificate No. 12307,
representing 3,000,000 shares of Gabriel treasury stock that had been given
as
collateral under the prior notes and loans. Gabriel agrees that the one year
tacking period for the shares issuable to Broidy upon conversion of the
Convertible Senior Promissory Note and exercise of the portion of the
Convertible Note Warrants described above shall begin on January 10, 2006,
the
date that the original Convertible Senior Promissory Note and Convertible Note
Warrants were issued. Gabriel shall provide a letter from its outside legal
counsel to this effect to the transfer agent when requested by Broidy to do
so
after January 6, 2007, provided Broidy and his broker make customary
representations to such counsel. Board hereby authorizes and directs the
officers of the Company to obtain such letter from its outside
legal.
5.Side
Letter Amended.
The
Side Letter Concerning Intellectual Property Rights of Trace Technologies,
dated
January 6, 2006 shall be amended, giving Broidy the right to receive 3% (instead
of 2%) of any gross settlement amount that Gabriel or Trace Technologies, LLC
receive as a result of the Infringing Company infringing upon the intellectual
property of Trace Technologies.
6.Three
Year Option.
The
company shall grant Broidy a three year option to purchase 25% of Gabriel’s A
Unit shares in Resilent (12,368 /4 = 3,092 Units) for a purchase price of
$600,000.
7.Additional
Hundred Thousand Dollar Loan.
Broidy
shall loan the Company an additional One Hundred Thousand Dollars (the “December
Loan”) at an interest rate of 7% per annum, which shall be due on January 31,2007. The December Loan shall be secured by the same security as the Eighty
Thousand Dollar Note - i.e. all of the assets and intellectual property of
Gabriel and all of its subsidiaries, including all proceeds from
litigation.
8.Repayment
of Eighty Thousand Dollar Note.
Gabriel
agrees to pay the Eighty Thousand Dollar Note, including all accrued interest
owed thereunder, as soon as it is able to do so. Gabriel agrees that so long
as
either the Eighty Thousand Dollar Note or the December Loan are outstanding,
the
collateral under the Eighty Thousand Dollar Note and under the December Loan
shall be the same as the collateral for the prior loans Broidy made to
Gabriel.
9.Transfer
of C Resilent Units.
Gabriel
agrees to immediately transfer to Broidy the 2333 C Units that it owns in
Resilent. The Board expressly authorizes and directs the officers of the Company
to execute all documents necessary for such transfer.
10.Option
to Invest.
Gabriel
shall be granted a forty-five day option to make an investment in Resilent.
The
investment shall consist of acquiring 2,000 A Units for a purchase price of
$250,000. This right shall be assignable by Resilent, with the approval of
the
Resilent Board of Directors.
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11.Additional
investments by Gabriel.
Gabriel
shall not be precluded from making additional investments in Resilent on an
ongoing basis, provided such future investments do not result in Gabriel owning
more than a forty-nine (49%) percent ownership percentage in Resilent
Notwithstanding the foregoing, such investment must be approved by the Resilent
Board of Directors.
12.Five
Year Prohibition on Spinoff to Gabriel Shareholders.
For a
period of five years from the date first set forth above Gabriel shall not spin
off the shares that it owns in Resilent to Gabriel shareholders unless asked
to
do so by Broidy or unless Broidy has consented in writing to such
spin-off.
13.Registration
Statement.
Gabriel
shall file a Registration Statement with the Securities and Exchange Commission
on or before March 31, 2007 which shall be sufficient to cover registration
of
all of Gabriel’s outstanding warrants.
14.Notices.
Unless
waived by a party, any notice to be given or to be served upon the Company
or
any party hereto in connection with this Agreement must be in writing, which
may
include facsimile.
15.Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of California.
16.Multiple
Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which shall constitute one and the same
instrument.
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17.Severability.
If any
provision of this Agreement is declared illegal, invalid or unenforceable it
will be severed if the remaining provisions of this Agreement can reasonably
and
fairly be given effect without affecting the legal and economic substance of
the
transactions contemplated by this Agreement in a manner adverse to any party.
To
the full extent, however, that the provisions of such applicable law may be
waived, they are hereby waived to the end that this Agreement shall be deemed
to
be a valid and binding agreement enforceable in accordance with its
terms.
IN
WITNESS WHEREOF, Gabriel Technologies and Broidy Capital Management agree to
the
foregoing as of the date first set forth above.
GABRIEL
TECHNOLOGIES
By:/s/
Keith Feilmeier
Name: Keith
Feilmeier
Title:
Chief
Executive Officer
By:/s/
TJ
O’Brien
Name: TJ
O’Brien
By:/s/
Keith Feilmeier
Name: Keith
Feilmeier
BROIDY
CAPITAL MANAGEMENT
By:/s/
Elliott Broidy
Name:
Elliott
Broidy
Title:
Chairman
and Chief Executive Officer
By:/s/
Elliott Broidy
Name:
Elliott
Broidy
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Dates Referenced Herein and Documents Incorporated by Reference
