As filed with the Securities and Exchange Commission on [•], 2013

Registration No. 333      

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

FORM S-1

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933



 

xG Technology, Inc.

(Exact Name of Registrant as Specified in its Charter)

   
Delaware   519100   20-585-6795
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)


 

240 S. Pineapple Avenue, Suite 701
Sarasota, FL 34236
(941)-953-9035

(Address, including Zip Code, and Telephone Number,
including Area Code, of Registrant’s Principal Executive Offices)

John C. Coleman
xG Technology, Inc.
240 S. Pineapple Avenue, Suite 701
Sarasota, FL 34236
(941)-953-9035

(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)

The Company Corporation
2711 Centerville Road
Wilmington, DE 19808
(800)-474-8135



 

Copy to:

 
David E. Danovitch, Esq.
Robinson Brog Leinwand Greene
Genovese & Gluck P.C.
875 Third Avenue — 9 th Floor
New York, New York 10022
  Yvan-Claude Pierre, Esq.
William N. Haddad, Esq.
Reed Smith LLP
599 Lexington Avenue
22 nd Floor
New York, New York 10022
(212) 521-5400


 

Approximate date of commencement of proposed sale to the public: Upon after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 
Large Accelerated Filer o   Accelerated Filer o
Non-Accelerated Filer o   Smaller Reporting Company x

 


 
 

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CALCULATION OF REGISTRATION FEE

   
Title of Each Class of Securities to be Registered   Proposed Maximum
Aggregate Offering
Price (1) (2)
  Amount of
Registration Fee
Common Stock, $0.01 par value per share (3)   $ 15,000,000     $ 2,046.00  
Underwriters’ Warrants to purchase common stock (4)   $ 0     $ 0  
Common Stock, underlying Underwriters’ Warrants (5)   $ 562,500     $ 61.38  
TOTAL   $ 15,562,500     $ 2,107.38  

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.
(2) In accordance with Rule 457(o) under the Securities Act, the number of shares being registered and the proposed maximum offering price per share are not included in this table. Includes the offering price of additional shares that the underwriters have the option to purchase from the Registrant to cover over-allotment, if any.
(3) Pursuant to Rule 416 under the Securities Act, the shares of common stock registered hereby also include an indeterminate number of additional shares of common stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions.
(4) In accordance with Rule 457(g) under the Securities Act, no separate registration fee is required with respect to the warrants registered hereby.
(5) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The warrants are exercisable at a per share exercise price equal to 125% of the public offering price. The proposed maximum aggregate offering price of the underwriters’ warrants is $562,500, which is equal to 125% of $450,000 (3% of $15,000,000)


 

Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with section 8(A) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the commission, acting pursuant to said section 8(A), may determine.


 
 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

   
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION   DATED MARCH 6, 2013

      Shares
Common Stock

[GRAPHIC MISSING]

This is a firm commitment initial public offering of       shares of common stock of xG Technology, Inc.

Currently, our common stock is traded on the AIM market of the London Stock Exchange, or AIM, under the symbols “XGT:LN” and “XGTU:LN”. The closing price of our shares on AIM on March 6, 2013 was $0.30 per share. At present, there is a very limited market for our common stock in the AIM market. We intend to continue trading on AIM upon completion of this offering and will apply to list our common stock on The NASDAQ Capital Market under the symbol “XGT.”

We are an “emerging growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for future filings.

Investing in our common stock involves a high degree of risk. See “ Risk Factors” beginning on page 10 of this prospectus for a discussion that should be considered in connection with an investment in our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

   
  Per Share   Total
Public offering price   $     $  
Underwriting discounts and commissions (1)   $     $  
Offering proceeds to us, before expenses   $     $  

(1) The underwriters will receive compensation in addition to the discounts and commissions. See “Underwriting” for a full description of compensation payable to the underwriters.

We have granted a 45-day option to the underwriters to purchase up to       additional shares of common stock solely to cover over-allotments, if any.

The underwriters expect to deliver our shares to purchasers in the offering on or about      , 2013.

Aegis Capital Corp

The date of this prospectus is [    ], 2013


 
 

TABLE OF CONTENTS

TABLE OF CONTENTS

 
  Page
Summary     2  
The Offering     6  
Summary Financial Data     8  
Risk Factors     10  
Cautionary Note Regarding Forward-Looking Statements     27  
Use of Proceeds     28  
Determination of Offering Price     28  
Dilution     29  
Management’s Discussion and Analysis of Financial Condition and Results of Operations     31  
Business     42  
Management     62  
Executive Compensation     69  
Principal Stockholders     82  
Related Party Transactions     77  
Description of Securities     84  
Shares Eligible for Future Sale     87  
Underwriting     90  
Legal Matters     97  
Experts     97  
Where You Can Find Additional Information     97  
Index to Financial Statements     F-1  
Glossary     G-1  

You should rely only on the information contained in this prospectus. Neither we nor the underwriters have authorized anyone to provide you with information that is different. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, prospects, financial condition and results of operations may have changed since that date.

Information contained in, and that can be accessed through, our web site, www.xgtechnology.com , does not constitute part of this prospectus.

The xG logo is a trademark of xG Technology, Inc. All other trademarks and service marks appearing in this prospectus are the property of their respective holders.

This prospectus includes market and industry data that has been obtained from third party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management’s knowledge of such industries has been developed through its experience and participation in these industries. While our management believes the third party sources referred to in this prospectus are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this prospectus or ascertained the underlying economic assumptions relied upon by such sources. Internally prepared and third party market forecasts, in particular, are estimates only and may be inaccurate, especially over long periods of time. In addition, the underwriters have not independently verified any of the industry data prepared by management or ascertained the underlying estimates and assumptions relied upon by management. Furthermore, references in this prospectus to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article is not incorporated by reference in this prospectus.

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SUMMARY

This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read the entire prospectus carefully before making an investment decision, especially the “Risk Factors” and the financial statements and the related notes. Unless the context provides otherwise, all references herein to “xG”, the “Company”, we”, “our” and “us” refer to xG Technology, Inc.

Our Company

xG Technology, Inc. has developed a broad portfolio of innovative intellectual property that we believe will enhance wireless communications. Our intellectual property is embedded in proprietary software algorithms that offer cognitive interference mitigation and spectrum access solutions.

We have generated material revenues in 2008 and 2009 attributed to the Company’s BSN250 voice-only product line. Upon the introduction of various smartphones in 2007 (and later) which could handle both voice and data, the Company made the decision it was necessary to enhance its voice-only product line to include data services. Beginning in July 2009, the Company focused on enhancing its BSN250 and TX70 product line for data services and we delivered such a system to the US Army in 2011. The US Army subsequently requested our BSN250 should integrate with commercial off the shelf (COTS) smartphones. In 2013, the Company will introduce a new product line that can handle both voice and data services. These new products are called xAP (base station) and the xMod which is able to communicate to any COTS device. We have generated significant net losses for the past several years and we expect to continue to realize net losses for the immediate future. We estimate that we will begin to generate revenues again sufficient to cover the cost of our operations once our new voice and data products are delivered to customers in the second half of 2013.

Our Company was founded on the premise that the wireless communications industry is facing a spectrum crisis as demand for flexible, affordable voice and data access rapidly grows. We have developed frequency-agnostic cognitive radio solutions to address this increasing demand by eliminating the need to acquire scarce and expensive licensed radio spectrum and thus ideally lowering the total cost of ownership for wireless broadband access. With such fast growing demand straining network capacity, our intellectual property is also designed to help wireless broadband network operators make more efficient use of existing spectrum allocations. We are targeting numerous industries world-wide, such as telecommunications, cable, defense, and public safety, and markets ranging from rural to urban areas and expeditionary deployments.

The implementation of our cognitive radio intellectual property is xMax®. We believe the xMax® system, represents the only commercially available cognitive radio network system that is designed to include interference mitigation by spatial processing. xMax® implements our proprietary interference mitigation software that can increase capacity on already crowded airwaves by improving interference tolerance, enabling the delivery of a comparatively high Quality of Service where other technologies would not be able to cope with the interference. We believe that the xMax® system will also, when in a future development operating on more than one radio channel, deliver dynamic spectrum access by scanning and finding unused or underused frequencies (unlicensed as well as licensed) and dynamically tuning to them, significantly increasing their usable capacity.

Our system is frequency agnostic, although currently designed to operate within the 902 – 928 MHz license-free band. xMax® is intended to serve as a mobile voice over internet protocol (“VoIP”) and broadband data system that utilizes an end-to-end Internet Protocol (“IP”) system architecture. The xMax® product and service suite includes a line of access points, network bridges, mobile switching centers, network management systems, deployment tools, and customer support. The xMax ® system will allow mobile operators to utilize free, unlicensed 902 – 928 MHz ISM band spectrum (which spectrum is available in most of the Americas) instead of purchasing scarce expensive licensed spectrum. Our xMax® system will also enable enterprises to set up a mobile communications network in an expeditious and cost effective manner. In addition, we believe that our xMax ® cognitive radio technology can also be used to provide additional capacity to licensed spectrum by identifying and utilizing unused bandwidth within the licensed spectrum.

We are executing on our sales and marketing strategy and have entered into agreements both direct with end-customers as well as with indirect channel network partners. These customer engagements primarily relate

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to two of our target markets in rural telecommunications and defense. Together, they comprise commitments to purchase xMax® cognitive radio networking equipment, engineering services and other hardware worth approximately $33.0 million. See further in the section entitled “Customers” below.

As at December 31, 2012, 55.02% of the shares of our common stock are owned by MBTH. MBTH was co-founded in 2010 by Rick Mooers, Roger Branton and George Schmitt in order to invest in, and provide expertise and guidance to, and other support to xG Technology. Richard Mooers, Roger Branton, and George Schmitt are directors of MBTH as well as directors of the Company. MBMG, a merchant bank owned by family entities or trusts related to Richard Mooers and Roger Branton, has a 74.46 percentage interest in MBTH as of December 31, 2012. George Schmitt has a direct 6.11% ownership interest in MBTH as of December 31, 2012 and has been granted an option to purchase MBTH shares sufficient to give him 5% of the equity ownership of MBTH shares and its subsidiaries. Since its foundation, MBTH has provided xG Technology with significant financial and other support to us, including the May 2011 Shareholder Loan that is being converted into common stock of the Company and a $5 million subscription to the Bridge Loan. In addition, after joining MBTH, George Schmitt, CEO of MBTH, became one of our directors and has agreed to become our Executive Chairman upon this registration statement becoming effective and Larry Townes, another director of MBTH, has also agreed to become one of our directors upon this registration statement becoming effective. For further details on the financial support given by MBTH to us and other transactions and arrangements between us and MBTH, please see the section entitled “ Related Party Transactions, Other Transactions”.

Below is a diagram that provides a high-level overview of the xMax® network architecture:

[GRAPHIC MISSING]

Our Strategy

We are developing a broad portfolio of innovative intellectual property that we believe will enhance wireless communications. Leveraging elements of our intellectual property portfolio, we plan to introduce a range of spectrum agnostic, cognitive radio solutions that span numerous industries and applications. We believe that these products, together with our ability to leverage our patent portfolio, present us with an attractive revenue model. Our strategy is initially to commercialize our intellectual property portfolio by developing and selling network equipment using our proprietary software algorithms to offer cognitive interference mitigation and spectrum access solutions. In the future, our strategy is for our intellectual property to be embedded by partners in a semiconductor chip that could be sold to third party equipment manufacturers and inserted in their devices and to license our intellectual property to other customers in vertical markets world-wide. Our technology roadmap currently projects this transition to begin in 2015.

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Risks That We Face

we are an early-stage company with a history of losses and we may never achieve sustained profitability;
our business depends upon our ability to generate sustained sales of our products and technology;
we need to establish and maintain effective distribution channels;
our business depends on our ability to continually develop and commercialize wireless technologies and technologies designed to mitigate interference within the wireless spectrum;
need to obtain or maintain patents or other appropriate protection for the intellectual property utilized in our technologies; and
we will need to compete with companies with larger resources than we have.

Market Overview

Our management believes that we are witnessing rapidly increasing demand in the marketplace for mobile bandwidth. The surge in demand is attributable to the proliferation of smartphones, tablet PCs and other broadband-centric devices, as well as the shift to data and video-intensive services. A Cisco report (the Cisco Visual Networking Index, February 2012) indicates that in 2011 more than 50% of the data traffic on mobile networks was video, and they forecast video traffic to account for over 70% of total mobile data traffic by 2016.

There has also been an increase in mobile voice demand as more people unplug their wired phones and rely on wireless devices for all of their calling needs. According to Cisco’s report, as well as several studies undertaken by the Federal Communications Commission (“FCC”), the demand for wireless services will continue to grow in the coming years. Cisco predicts mobile data traffic will increase 18-fold between 2011 and 2016, a 78% compounded annual growth rate (“CAGR”), reaching 10.8 billion Gigabytes per month.

The FCC has pledged to “source” 500 MHz of additional spectrum within the next 10 years, 300 MHz of which is supposed to be identified and made available within the next five years (FCC Mobile Broadband Report, 2010). In July 2012, the US President's Council of Advisors on Science and Technology (“PCAST”) reported to Congress with proposals on the next steps to respond to the mandate to clear the 500MHz of spectrum for commercial use. The report noted that simply clearing and reallocating spectrum would not be sustainable and pointed to a recent study by the National Telecommunications and Information Administration (NTIA) which found that clearing of just one 95 MHz band will take 10 years, cost $18 billion, and cause significant disruption. Among its key recommendations are to adopt new technologies, including cognitive radios, that could help use existing spectrum more efficiently, stating that “the use of new radio technologies, including cognitive radios, will be an important tool in helping increase spectrum capacity and utilization”. The PCAST authors stated that agile (cognitive) radio technologies that make it possible for computerized radio systems to share spectrum on a vastly more efficient basis would make it possible to move from an era of scarcity to one of abundance.

Recognizing the spectrum constraints on fast growing needs for wireless connectivity, in September 2012 the European Commission published a communication promoting the shared use of radio spectrum resources. A study conducted for the European Commission showed that finding additional shared spectrum resources for wireless broadband could create significant net economic benefits for the European Union. With an increase of between 200 to 400 MHz in shared access spectrum for wireless broadband, the scenarios evaluated in the study showed a net increase in the value to the European economy of the order of several hundred billion Euros by 2020. The Commission, therefore, proposed steps to foster the development of wireless innovations in the EU to ensure that the currently allocated spectrum is exploited to the fullest extent possible. This has been followed by Ofcom, the telecommunications regulator in the UK, moving to complete the process to release TV Whites Spaces for shared use.

The commercial cellular networks do not represent the only services that are running out of capacity due to spectrum limitations. Wireless users around the globe, such as industrial and enterprise users, public safety agencies and those who use unlicensed spectrum (such as Wi-Fi and TV White Spaces), are demanding more

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spectrum, but are not being allocated the necessary spectrum due to the fact that regulators are under pressure to dedicate more and more spectrum to commercial mobile carriers as the demand for both voice and broadband access continues to increase.

While the spectrum currently available cannot satisfy the future growth of wireless data, we believe that getting more use out of spectrum (both licensed and unlicensed) by sharing it will provide a more effective and efficient solution for the industry than merely demanding more spectrum. More effective utilization of the available spectrum can be accomplished in a number of different ways. Advancements in radio technology, such as the movement to the LTE standard from the previous 3G networks, for example, will allow for better spectrum utilization. This has been attributed to the incorporation of new advanced technologies such as multiple in, multiple out (“MIMO”) and Orthogonal Frequency-Division Multiple Access (“OFDMA”) to reduce multiuser interference.

We believe that deployment of cognitive radio networks offers the best solution to addressing the pressing need for more efficient use of spectrum.

Company Information

The Company was organized as a limited liability company under the laws of the State of Delaware on August 26, 2002 under the name JTS Acquisitions, LLC. On March 21, 2003, we changed our name to xG Technology, LLC. Pursuant to a certificate of conversion and a certificate of incorporation filed with the State of Delaware on November 8, 2006, xG Technology, LLC converted to a Delaware corporation under the name xG Technology, Inc. On November 20, 2006, xG was first admitted and commenced trading of its shares on the Alternative Investment Market of the London Stock Exchange (“AIM”) and currently trades under the symbols “XGT:LN” and “XGTU:LN.” Our executive offices are located at 240 S. Pineapple Avenue, Suite 701, Sarasota, FL 34236, and our telephone number is (941) 953-9035. Our website address is www.xgtechnology.com . Information contained in our website does not form part of the prospectus and is intended for informational purposes only.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. We will remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenue exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period. Pursuant to Section 102 of the JOBS Act, we have provided reduced executive compensation disclosure and have omitted a compensation discussion and analysis from this prospectus. Pursuant to Section 107 of the JOBS Act, we have elected to utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

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THE OFFERING

Common stock offered by us:    
    [          ] shares
Over-allotment option:    
    We have offered the underwriters a 45-day option to purchase up to [     ] additional shares of our common stock from us at the initial public offering price, less underwriting discounts and commissions. The option may be exercised only to cover any over-allotments.
Common stock outstanding after this offering:    
    [          ] shares
Use of proceeds:    
    We estimate that the net proceeds from our sale of shares of our common stock in this offering will be approximately $   million, or approximately $   million if the underwriters exercise their over-allotment option in full, based upon an assumed initial public offering price of $   per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
   
    We expect to use the net proceeds of this offering for general corporate purposes, including working capital, product development, marketing activities, expanding our internal sales organization and further developing sales channels, funding the set-up of contract manufacturing production lines and other capital expenditures and repaying certain indebtedness. In addition, we may use a portion of the net proceeds from this offering we receive for acquisitions of, or investments in, complementary businesses, products, technologies or other assets.
Risk Factors:    
    See the section entitled “Risk Factors” beginning on page 10 for a discussion of factors to consider carefully before deciding whether to purchase shares of our common stock.
Proposed NASDAQ Symbol:    
    “XGT.”

The number of shares of our common stock to be issued and outstanding after this offering is based on 211,427,890 shares of common stock issued and outstanding as of February 28, 2013, and excludes:

10,000,000 shares of common stock issuable upon the exercise of the option granted to MB Technology Holdings, LLC (“MBTH”) on February 7, 2011 (as amended by agreement between us and MBTH as of January 16, 2013) at an exercise price of $0.38 per share (or any other such price as may be approved by our Board before exercise having regard to the issue price per new share of any future equity financing of us by a third party) (the “Modified Exercise Price”);
10,000,000 shares of common stock issuable upon the exercise of the option granted to MBTH on February 7, 2011 (as amended by agreement between us and MBTH as of January 16, 2013) at the Modified Exercise Price per share;
2,000,000 shares of common stock issuable upon the exercise of the conversion rights granted to Treco International, S.A. (“Treco”) on October 6, 2011 at a conversion price of $1.00;
Up to 39,473,684 shares of common stock issuable upon the exercise of the conversion rights granted to MBTH on May 19, 2011 (as amended by agreement between us and MBTH as of January 16, 2013) at a conversion price of $0.38 per share (or any other such price as may be approved by our Board before conversion having regard to the issue price per new share of any future equity financing of us by a third party) in accordance with an uncommitted convertible loan facility in the principal amount of $15,000,000 (the “May 2011 Shareholder Loan”) and 5,000,000 shares of common stock issuable upon the exercise in full of such conversion rights, termination of

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the May 2011 Shareholder Loan and the discharge of all MBTH’s collateral over the Company’s assets. MBTH has given us notice of its intention to convert the May 2011 Shareholder Loan into shares of our common stock. See further “Management’s Discussion and Analysis: Liquidity”;
576,613 shares of common stock issuable as of January 31, 2013 by way of compensation to MBTH for the difference between the interest payment of 8% that we pay MBTH under the May 2011 Shareholder Loan and the interest of 9.5% that MBTH pays to its investors for monies raised by MBTH to fund advances by MBTH to us under the May 2011 Shareholder Loan;
1,500,000 shares in our common stock issuable upon exercise of the rights to be granted to MBTH to subscribe for new shares at a subscription price of $0.01 per new share if the holders of warrants to subscribe for MBTH shares or exchange for existing shares in our common stock held by MBTH (the “MBTH Warrants”) are exercised by the holders thereof (the “Additional Warrants”). MBTH Warrants were granted by MBTH, on the basis of one warrant per every $10 invested in MBTH, to investors in MBTH of funds for MBTH to lend to us under the May 2011 Shareholder Loan. The actual number of Additional Warrants to be granted by us depends on the cost to MBTH resulting from the exercise of the MBTH Warrants;
5,000,000 shares in our common stock issuable upon exercise of the options agreed to be granted to MBTH on January 16, 2013 at an exercise price of $0.25 per share in consideration for ongoing strategic and commercial advisory services provided by MBTH to us, subject to us having published our 2012 annual results and otherwise not being in a close period;
Any shares issuable upon the exercise of conversion and subscription rights granted to MBTH under the promissory note issued by us to MBTH pursuant to the subscription agreement between us and MBTH dated January16, 2013 (together, the “Bridge Loan”);
Shares reserved for future issuances under our 2013 Long Term Stock Incentive Plan, once established. As of the date of this prospectus, we will not issue any further options/shares pursuant to the 2004, 2005, 2006, 2007 and 2009 Plans. All future grants will be made pursuant to the 2013 Plan. The amount of shares reserved for future issuances under our 2013 Plan will be equal to 15% of the amount of shares outstanding, which calculation shall be made on the first trading day of a new fiscal year;
300,000 warrants issued to Secure Strategy Group exercisable at $1.00 per share;
500,000 shares of common stock issuable upon the exercise of warrants granted to Mats Wennberg which are exercisable at $0.225 per share; and
Any shares issuable upon the exercise of the Underwriters’ warrants.

Unless otherwise indicated, all information in this prospectus assumes a public offering price of
$     per share of common stock.

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SUMMARY FINANCIAL DATA

The following table presents a summary of certain historical financial information. Historical results are not necessarily indicative of future results and you should read the following summary financial data in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, all included elsewhere in this prospectus. The summary financial data for the years ended December 31, 2012 and 2011 were derived from our audited financial statements, which are included elsewhere in this prospectus. Our financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States. The summary financial data in this section are not intended to replace the financial statements and are qualified in their entirety by the financial statements and related notes included elsewhere in this prospectus.

xG TECHNOLOGY, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)

   
  Year Ended December 31,
     2012   2011
ASSETS
                 
Current assets
                 
Cash   $ 271     $ 133  
Prepaid expenses and other current assets     16       44  
Due from related party           1,500  
Total current assets     287       1,677  
Property and equipment, net     1,725       2,140  
Intangible assets, net     17,608       14,537  
Total assets   $ 19,620     $ 18,354  
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 
Current liabilities
                 
Accounts payable   $ 655     $ 686  
Accrued expenses     754       564  
Accrued bonuses     2,633       1,375  
Accrued interest to related parties     1,169       169  
Due to related party     1,098        
Convertible notes payable to related party     17,198       6,883  
Total current liabilities     23,507       9,677  
Convertible notes payable to related party     2,000       2,000  
Total liabilities     25,507       11,677  
Commitments
                 
Stockholders' equity (deficit)
                 
Series A Convertible Preferred Stock - $0.01 par value per share:
                 
25,000,000 shares authorized, none issued or outstanding As of December 31, 2011 and 2010
                 
Common stock, – $0.01 par value, 250,000,000 shares authorized, 211,468,130 and 210,575,954 shares issued at December 31, 2012 and 2011, respectively     2,115       2,106  
Additional paid in capital     116,132       114,906  
Accumulated deficit     (124,112 )       (110,325 )  
Treasury stock, at cost – 80,000 shares and 40,000 shares at December 31, 2012 and 2011, respectively     (22 )       (10 )  
Total stockholder's equity (deficit)     (5,887 )       6,677  
Total liabilities and stockholders' equity (deficit)   $ 19,620     $ 18,354  

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xG TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)

   
  For the Year Ended December 31,
     2012   2011
Revenue
  $     $ 150  
Cost of revenue and operating expenses
                 
Cost of components and personnel           50  
General and administrative expenses     5,543       5,505  
Development     4,806       5,249  
Stock based compensation     554       1,020  
Amortization and depreciation     2,063       1,806  
Total cost of revenue and operating expenses     12,966       13,630  
Loss from operations     (12,966 )       (13,480 )  
Other income (expense)
                 
Interest expense, net     (535 )       (1,847 )  
Impairment     (286 )       (341 )  
Total other income (expense)     (821 )       (2,188 )  
Loss before income tax provision     (13,787 )       (15,668 )  
Income tax provision            
Net loss   $ (13,787 )     $ (15,668 )  
Basic and diluted net loss per share     (0.07 )       (0.09 )  
Weighted average number of shares outstanding basic and diluted     211,098       180,082  

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RISK FACTORS

Our business faces many risks and an investment in our common stock involves significant risks. Prospective investors are strongly encouraged to consider carefully the risks described below, as well as other information contained herein before investing. Investors are further advised that the risks described below may not be the only risks we face. Additional risks that we do not yet know of, or that we currently think are immaterial, may also negatively impact our business operations or financial results. If any of the events or circumstances described in this section occurs, our business, financial condition or results of operations could suffer. Prospective investors in our common stock should consider the following risks before deciding whether to purchase shares of our common stock.

Risks Related to the Company and Our Business

We have a history of operating losses and we expect to continue to realize net losses for at least the next 12 months.

We have recorded a net loss in each reporting period since our inception. Our net loss in the year ended December 31, 2012 was approximately $13,787,000. Our accumulated deficit at December 31, 2012 was approximately $124,112,000 The Company began its research and development activities in 2002, and has had significant net losses and will likely continue to incur net losses until we can successfully commercialize our products and technology. The Company expects to continue to have development costs as it develops the next generation of products. We intend to invest significantly in our business before we expect cash flows from operations will be adequate to cover our anticipated expenses. In addition, at this stage of our development we are subject to the following risks:

our results of operations may fluctuate significantly, which may adversely affect the value of an investment in our common stock;
we may be unable to develop and commercialize our products; and
it may be difficult to forecast accurately our key operating and performance metrics because of our limited operating history.

Our operating expenses will increase as we make further expenditures to enhance and expand our operations in order to support additional growth in our business and public company reporting and compliance obligations.

Historically, we limited our investment in infrastructure, however, in the future we expect our infrastructure investments to increase substantially to support our anticipated growth and as a result of our becoming a public reporting company in the United States. We intend to make additional investments in systems and personnel in order to expand our business and continue to expand our operations to support anticipated growth in our business. In addition, we may determine the need in the future to make changes to our sales model, which changes may result in higher selling, general and administrative expenses as a percentage of our revenues. We also expect to incur additional operating costs as a public reporting company following the completion of this offering. As a result of these factors, we expect our operating expenses to increase.

We may require additional capital in the future to develop new products. If we do not obtain any such additional financing, if required, our business prospects, financial condition and results of operations will be adversely affected.

We may require additional capital in the future to develop new products. We believe that the proceeds of this offering and revenues from operations will be sufficient to satisfy our needs for at least the next 18 months. We may need to obtain significant additional financing, both in the near and long term, to make planned capital expenditures, cover operating expenses and fund our ongoing development. We may not be able to secure adequate additional financing when needed on acceptable terms, or at all. To execute our business strategy, we may issue additional equity securities in public or private offerings, potentially at a price lower than our initial public offering price or the market price of our common stock at the time of such issuance. If we cannot secure sufficient additional funding we may be forced to forego strategic opportunities or delay, scale back and eliminate future product development.

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Defects or errors in our products and services or in products made by our suppliers could harm our brand and relations with our customers and expose us to liability. If we experience product recalls, we may incur significant expenses and experience decreased demand for our products.

Our products are inherently complex and may contain defects and errors that are only detectable when the products are in use. Because our products are used for both personal and business purposes, such defects or errors could have a serious impact on our end customers, which could damage our reputation, harm our customer relationships and expose us to liability. Defects or impurities in our components, materials or software, equipment failures or other difficulties could adversely affect our ability, and that of our customers, to ship products on a timely basis as well as customer or licensee demand for our products. Any such shipment delays or declines in demand could reduce our revenues and harm our ability to achieve or sustain desired levels of profitability. We and our customers may also experience component or software failures or defects that could require significant product recalls, rework and/or repairs that are not covered by warranty reserves.

We expect to base our inventory purchasing decisions on our forecasts of customers’ demand, and if our forecasts are inaccurate, our operating results could be materially harmed.

As our customer base increases, we expect to place orders with our contract manufacturers based on our forecasts of our customers’ demand. Our forecasts will be based on multiple assumptions, each of which may cause our estimates to be inaccurate, affecting our ability to provide products to our customers. When demand for our products increases significantly, we may not be able to meet demand on a timely basis, and we may need to expend a significant amount of time working with our customers to allocate limited supply and maintain positive customer relations, or we may incur additional costs in order to rush the manufacture and delivery of additional products. If we underestimate customers’ demand, we may forego revenue opportunities, lose market share and damage our customer relationships. Conversely, if we overestimate customer demand, we may purchase more inventory than we are able to sell at any given time or at all. In addition, we grant our distributors stock rotation rights, which require us to accept stock back from a distributor’s inventory, including obsolete inventory. As a result of our failure properly to estimate demand for our products, we could have excess or obsolete inventory, resulting in a decline in the value of our inventory, which would increase our costs of revenues and reduce our liquidity. Our failure to accurately manage inventory relative to demand would adversely affect our operating results.

Although certain technical problems experienced by users may not be caused by our products, our business and reputation may be harmed if users perceive our solution as the cause of a slow or unreliable network connection, or a high profile network failure.

We expect that our products will be in many different locations and user environments and will be capable of providing mobile broadband connectivity and interference mitigation, among other applications. The ability of our products to operate effectively can be negatively impacted by many different elements unrelated to our products. Although certain technical problems experienced by users may not be caused by our products, users often may perceive the underlying cause to be a result of poor performance of our technology. This perception, even if incorrect, could harm our business and reputation. Similarly, a high profile network failure may be caused by improper operation of the network or failure of a network component that we did not supply, but other service providers may perceive that our products were implicated, which, even if incorrect, could harm our business, operating results and financial condition.

We may fail to recruit and retain qualified personnel.

We expect to rapidly expand our operations and grow our sales, development and administrative operations. This expansion is expected to place a significant strain on our management and will require hiring a significant number of qualified personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other companies for qualified personnel in the areas of our activities. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our marketing and development activities, and this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

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We rely on key executive officers, and their knowledge of our business and technical expertise would be difficult to replace.

We are highly dependent on our executive officers because of their expertise and experience in the telecommunications industry. We have three year employment agreements with our executive officers containing customary non-disclosure, non-compete, confidentiality and assignment of inventions provisions. We do not have “key person” life insurance policies for any of our officers. The loss of the technical knowledge and management and industry expertise of any of our key personnel could result in delays in product development, loss of customers and sales and diversion of management resources, which could adversely affect our operating results.

We and our contract manufacturers purchase some components, subassemblies and products from a limited number of suppliers. The loss of any of these suppliers may substantially disrupt our ability to obtain orders and fulfill sales as we design in and qualify new components.

We rely on third party components and technology to build and operate our products, and we rely on our contract manufacturers to obtain the components, subassemblies and products necessary for the manufacture of our products. Shortages in components that we use in our products are possible, and our ability to predict the availability of such components is limited. While components and supplies are generally available from a variety of sources, we and our contract manufacturers currently depend on a single or limited number of suppliers for several components for our products. If our suppliers of these components or technology were to enter into exclusive relationships with other providers of wireless networking equipment or were to discontinue providing such components and technology to us and we were unable to replace them cost effectively, or at all, our ability to provide our products would be impaired. We and our contract manufacturers generally rely on purchase orders rather than long-term contracts with these suppliers. As a result, even if available, we and our contract manufacturers may not be able to secure sufficient components at reasonable prices or of acceptable quality to build our products in a timely manner. Therefore, we may be unable to meet customer demand for our products, which would have a material adverse effect on our business, operating results and financial condition.

Our intellectual property protections may be insufficient to properly safeguard our technology.

Our success and ability to compete effectively are, in large part, dependent upon proprietary technology that we have developed internally. Given the rapid pace of innovation and technological change within the wireless and broadband industries, the technological and creative skill of our personnel, consultants and contractors and their ability to develop, enhance and market new products and upgrades to existing products are critical to our continued success. We rely primarily on patent laws to protect our proprietary rights. As of February 28, 2013, in the US, we have 43 patents granted, 16 patent applications pending, and 5 provisional applications pending. Internationally, we have 51 patents granted, 82 patent applications pending, and 10 Patent Cooperation Treaty (PCT) applications. There can be no assurance that patents pending or future patent applications will be issued, or that if issued, we would have the resources to protect any such issued patent from infringement. Further, we cannot patent much of the technology that is important to our business. To date, we have relied on copyright, trademark and trade secret laws, as well as confidentiality procedures, non-compete and/or work for hire invention assignment agreements and licensing arrangements with our employees, consultants, contractors, customers and vendors, to establish and protect our rights to this technology and, to the best extent possible, control the access to and distribution of our technology, software, documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use this technology without authorization. Policing unauthorized use of this technology is difficult. There can be no assurance that the steps we take or will take will prevent misappropriation of, or prevent an unauthorized third party from obtaining or using, the technology we rely on. In addition, effective protection may be unavailable or limited in some jurisdictions. Litigation may be necessary in the future to enforce or protect our rights.

We may be subject to claims of intellectual property infringement or invalidity. Expenses incurred with respect to monitoring, protecting, and defending our intellectual property rights could adversely affect our business.

Competitors and others may infringe on our intellectual property rights, or may allege that we have infringed on theirs. Monitoring infringement and misappropriation of intellectual property can be difficult and

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expensive, and we may not be able to detect infringement or misappropriation of our proprietary rights. We may also incur significant litigation expenses in protecting our intellectual property or defending our use of intellectual property, reducing our ability to fund product initiatives. These expenses could have an adverse effect on our future cash flows and results of operations. If we are found to infringe on the rights of others we could be required to discontinue offering certain products or systems, to pay damages, or purchase a license to use the intellectual property in question from its owner. Litigation can also distract management from the day-to-day operations of the business.

Enforcement of our intellectual property rights abroad, particularly in China, is limited and it is often difficult to protect and enforce such rights.

Patent protection outside the United States is generally not as comprehensive as in the United States and may not protect our intellectual property in some countries where our products are sold or may be sold in the future. Even if patents are granted outside the United States, effective enforcement in those countries may not be available. Many companies have encountered substantial intellectual property infringement in countries where we sell, or intend to sell, products or have our products manufactured.

In particular, the legal regime relating to intellectual property rights in China is limited and it is often difficult to protect and enforce such rights. The regulatory scheme for enforcing China’s intellectual property laws may not be as developed as regulatory schemes in other countries. Any advancement of an intellectual property enforcement claim through China’s regulatory scheme may require an extensive amount of time, allowing intellectual property infringers to continue largely unimpeded, to our commercial detriment in the Chinese and other export markets. In addition, rules of evidence may be unclear, inconsistent or difficult to comply with, making it difficult to prove infringement of our intellectual property rights. As a result, enforcement cases involving technology, such as copyright infringement of software code, or unauthorized manufacture or sale of products containing patented inventions, may be difficult or not possible to sustain.

These factors may make it increasingly complicated for us to enforce our intellectual property rights against parties misappropriating or copying our technology or products without our authorization, allowing competing enterprises to harm our business in the Chinese or other export markets by affecting the pricing for our products, reducing our own sales and diluting our brand or product quality reputation.

The intellectual property rights of others may prevent us from developing new products or entering new markets.

The telecommunications industry is characterized by the rapid development of new technologies, which requires us to continuously introduce new products and expand into new markets that may be created. Therefore, our success depends in part on our ability to continually adapt our products and systems to incorporate new technologies and to expand into markets that may be created by new technologies. If technologies are protected by the intellectual property rights of others, including our competitors, we may be prevented from introducing new products or expanding into new markets created by these technologies. If the intellectual property rights of others prevent us from taking advantage of innovative technologies, our financial condition, operating results or prospects may be harmed.

We rely on the availability of third-party licenses. If these licenses are available to us only on less favorable terms or not at all in the future, our business and operating results would be harmed.

We have incorporated third-party licensed technology into our products. It may be necessary in the future to renew licenses relating to various aspects of these products or to seek additional licenses for existing or new products. There can be no assurance that the necessary licenses will be available on acceptable terms or at all. The inability to obtain certain licenses or other rights, or to obtain those licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in delays in product releases until such time, if ever, as equivalent technology could be identified, licensed or developed and integrated into our products and might have a material adverse effect on our business, operating results and financial condition. Moreover, the inclusion in our products of intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietary rights in our products.

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Our customers could also become the target of litigation relating to the patent and other intellectual property rights of others.

Any litigation relating to the intellectual property rights of others could trigger technical support and indemnification obligations in licenses or customer agreements that we may enter into. These obligations could result in substantial expenses, including the payment by us of costs and damages relating to claims of intellectual property infringement. In addition to the time and expense required for us to provide support or indemnification to our customers, any such litigation could disrupt the businesses of our customers, which in turn could hurt our relationships with such customers and cause the sale of our products to decrease. No assurance can be given that claims for indemnification will not be made, or that if made, such claims would not have a material adverse effect on our business, operating results or financial conditions.

If our technology does not work as well as planned or if we are unsuccessful in developing and selling new products or in penetrating new markets, our business and operating results would suffer.

Our success and ability to compete are dependent on technology which we have developed or may develop in the future. There is a risk that the technology that we have developed or may develop may not work as intended, or that the marketing of the technology may not be as successful as anticipated. Further, the markets in which we and our customers compete or plan to compete are characterized by constantly and rapidly changing technologies and technological obsolescence. Our ability to compete successfully depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost effective basis to keep pace with market needs and satisfy the demands of customers. A fundamental shift in technologies in any of our target markets could harm our competitive position within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenue and a loss of customer wins to our competitors. The development of new technologies and products generally require substantial investment and can require long development and testing periods before they are commercially viable. We intend to continue to make substantial investments in developing new technologies and products and it is possible that that we may not successfully be able to develop or acquire new products or product enhancements that compete effectively within our target markets or differentiate our products based on functionality, performance or cost and that our new technologies and products will not result in meaningful revenue. Any delays in developing and releasing new or enhanced products could cause us to lose revenue opportunities and customers. Any technical flaws in product releases could diminish the innovative impact of our products and have a negative effect on customer adoption and our reputation. If we fail to introduce new products that meet the demands of our customers or target markets or do not achieve market acceptance, or if we fail to penetrate new markets, our revenue will not increase over time and our operating results and competitive position would suffer.

Computer malware, viruses, hacking and phishing attacks could harm our business and results of operations.

Computer malware, viruses, and computer hacking and phishing attacks have become more prevalent in our industry, and may occur on our systems in the future. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, and availability of our products and technical infrastructure to the satisfaction of our users may harm our reputation and our ability to attract and retain customers.

If we do not effectively manage changes in our business, these changes could place a significant strain on our management and operations.

Our ability to grow successfully requires an effective planning and management process. The expansion and growth of our business could place a significant strain on our management systems, infrastructure and other resources. To manage our growth successfully, we must continue to improve and expand our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources may not be adequate to support a changing and growing company. If our management fails to respond effectively to changes and growth in our business, including acquisitions, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

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If we are unable to expand our sales and marketing capabilities or enter into more agreements with third parties to sell and market any products we may develop, we may be unable to generate product revenue.

We are currently building our internal sales organization for the sales, marketing and distribution of our products. Part of the proceeds of the Offering is intended to be used to expand our internal sales organization and develop further our channels to market. In order to commercialize xMax® or any of our other products, we must build our sales, marketing, distribution, managerial and other non-technical capabilities or make arrangements with other parties to perform these services. The expansion of our own sales force to market any products we may develop will increase our operating costs and be time consuming. We cannot be certain that we would be able to successfully develop this capacity. If we are unable to expand our sales and marketing capability or any other non-technical capabilities necessary to commercialize any product we may develop, we will need to contract with other parties to market and sell any products we may develop. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with other parties, we may not be able to generate product revenue and may not become profitable.

If our estimates relating to our critical accounting policies are based on assumptions or judgments that change or prove to be incorrect, our operating results could fall below expectations of financial analysts and investors, resulting in a decline in our stock price.

The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of financial analysts and investors, resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our financial statements include those related to revenue recognition, inventory, product warranties, allowance for doubtful accounts, stock-based compensation expense and income taxes.

Our exposure to the credit risks of our customers may make it difficult to collect accounts receivable and could adversely affect our operating results and financial condition.

In the course of our sales to customers, we may encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts receivable. Economic conditions may impact some of our customers’ ability to pay their accounts payable. While we will attempt to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, we have written down accounts receivable and written off doubtful accounts in prior periods and may be unable to avoid accounts receivable write-downs or write-offs of doubtful accounts in the future. Such write-downs or write-offs could negatively affect our operating results for the period in which they occur.

Demand for our defense-related products depends on government spending.

The U.S. military market is largely dependent upon government budgets, particularly the defense budget. The funding of government programs is subject to Congressional appropriation. Although multi-year contracts may be authorized in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may be expected to continue for several years. Consequently, programs are often only partially funded and additional funds are committed only as Congress makes further appropriations. No assurance can be given that an increase in defense spending will be allocated to programs that would benefit our business. A decrease in levels of defense spending or the government's termination of, or failure to fully fund, one or more of the contracts for which our products may be utilized could have a material adverse effect on our financial position and results of operations.

Our failure to obtain and maintain required certifications could impair our ability to bid on defense contracts.

In order for us to participate in certain government programs we could be required to obtain and maintain quality certification and certain standards for Department of Defense wireless security such as certification by

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the Joint Interoperability and Test Command, (or “JITC”) and to meet production standards in order to be eligible to bid on government contracts. If we fail to maintain these certifications or any additional certification which may be required, we will be ineligible to bid for contracts which may impair our financial operations and consequently, our ability to continue in business.

Our failure to obtain FCC equipment authorization could impair our ability to deliver under the equipment purchase, reseller and teaming agreements the Company has entered into.

The Company applied for equipment authorization with the FCC on February 18, 2009 for its BSN250. On March 31, 2009, the Company was granted equipment authorization under the FCC rules Part 15. The Company has not yet applied for equipment authorization for its xAP and xMod products. The Company anticipates the process to be similar to the six-week process for the BSN250. In the event the Company is unable to secure the appropriate FCC equipment authorizations for its xAP and xMod, the Company would not be in a position to fulfill its obligation under the equipment purchase, reseller and teaming agreements entered into. Therefore, the Company would not expect payment under these contracts which may impair our financial operations and consequently, our ability to continue in business.

Amounts included in our total backlog and order backlog may not result in actual billings or revenue or translate into profits.

Our total backlog represents future product and service billings that we expect to generate pursuant to contracts that we have entered into with our utility customers and meter manufacturers. Our total backlog includes our order backlog, which represents future billings for open purchase orders and other firm commitments. We anticipate that our total backlog and order backlog will fluctuate from period to period throughout our fiscal year 2013 and beyond.

As an emerging company our backlog is significant when compared to our historical revenue and the revenue we anticipate in the foreseeable future. We cannot guarantee that our total backlog or order backlog will result in actual billings in the originally anticipated period or at all. In addition, the purchase agreements and contracts reflected in our total backlog and order backlog may not generate margins that we anticipate. Given that we have only recently begun to market our current product and service offerings, we only recently began to track total backlog and order backlog on a consistent basis as performance measures and as a result, we do not have significant experience in determining the level of realization that we will actually achieve on our total backlog and order backlog.

Our customer contracts are typically structured as purchase and service agreements. The deployments called for under our agreements could extend for a number of years. Total backlog is an estimate based upon contractual terms, existing purchase orders and other available information regarding the amount and timing of expected future purchase orders to be placed by our customers and distributors, including non-binding forecasts.

No assurance can be made that firm purchase orders will yield revenues in the amounts we estimate, within the time period we expect, or at all. Total backlog is subject to adjustments due nature of our customer deployments. Adjustments can result from a variety of factors, including changes in the nature or scope of customer deployments, the impact of contingency provisions related to future delivery or performance, customer cancellations, market conditions, delayed regulatory approvals and customer defaults. If our total backlog or order backlog fails to materialize as expected, we could experience a material reduction in future billings, revenue, and operating results.

Regulation of the telecommunications industry could harm our operating results and future prospects.

The traditional telecommunications industry is highly regulated, and our business and financial condition could be adversely affected by changes in regulations relating to the Internet telecommunications industry. Currently, there are few laws or regulations that apply directly to access to or commerce on IP networks, but future regulations could include sales taxes and tariffs in previously unregulated areas and provider access charges. We could be adversely affected by regulation of IP networks and commerce in any country where we market equipment and services to service or content providers. Regulations governing the range of services and business models that can be offered by service providers or content providers could adversely affect those customers' needs for products designed to enable a wide range of such services or business models. For

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instance, the U.S. Federal Communications Commission has issued regulations governing aspects of fixed broadband networks and wireless networks. These regulations might impact service provider and content provider business models and as such, providers' needs for Internet telecommunications equipment and services. In addition, many jurisdictions are evaluating or implementing regulations relating to cyber security, privacy and data protection, which could affect the market and requirements for networking and security equipment.

In addition, environmental regulations relevant to electronic equipment manufacturing or operations may impact our business and financial condition adversely. For instance, the European Union has adopted regulations on Electronic waste, e-waste, e-scrap, or waste electrical and electronic equipment (“WEEE”), Restriction of the Use of certain Hazardous Substances (“ROHS”) and Registration, Evaluation, Authorisation and Restriction of Chemical substances (“REACH”). In addition, some governments have regulations prohibiting government entities from purchasing security products that do not meet specified indigenous certification criteria even though those criteria may be in conflict with accepted international standards. Similar regulations are in effect or under consideration in several jurisdictions where we do business.

The adoption and implementation of such regulations could decrease demand for our products, increase the cost of building and selling our products and impact our ability to ship products into affected areas and recognize revenue in a timely manner. Any of these impacts could have a material adverse effect on our business, financial condition, and results of operations.

To the extent that we subcontract work under our contracts, any failures by our subcontractors could impair our relations with the contracting agencies.

We may use subcontractors to perform work or provide materials for contracts that we may secure and we may become dependent upon the subcontractors to meet the quality and delivery requirements of the contracting agency. To the extent that the products or services provided by the subcontractors do not meet the required specifications or are delivered late, the contract may be terminated by the U.S. government for default. Such a default could result in our disqualification from bidding on contracts, which could adversely affect our financial operations.

Our ability to sell our products will be highly dependent on the quality of our support and services offerings, and our failure to offer high quality support and services would have a material adverse effect on our sales and results of operations.

Once our products are deployed, our channel partners and end-customers will depend on our support organization to resolve any issues relating to our products. A high level of support will be important for the successful marketing and sale of our products. In many cases, our channel partners will likely provide support directly to our end-customers. We will not have complete control over the level or quality of support provided by our channel partners. These channel partners may also provide support for other third-party products, which may potentially distract resources from support for our products. If we and our channel partners do not effectively assist our end-customers in deploying our products, succeed in helping our end-customers quickly resolve post-deployment issues or provide effective ongoing support, it would adversely affect our ability to sell our products to existing end-customers and could harm our reputation with potential end-customers. In some cases, we guarantee a certain level of performance to our channel partners and end-customers, which could prove to be resource-intensive and expensive for us to fulfill if unforeseen technical problems were to arise.

As an emerging growth company within the meaning of the Securities Act, we will utilize certain modified disclosure requirements, and we cannot be certain if these reduced requirements will make our common stock less attractive to investors.

We are an emerging growth company within the meaning of the rules under the Securities Act. We have in this prospectus utilized, and we plan in future filings with the SEC to continue to utilize, the modified disclosure requirements available to emerging growth companies, including reduced disclosure about our executive compensation and omission of compensation discussion and analysis, and an exemption from the requirement of holding a nonbinding advisory vote on executive compensation. In addition, we will not be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act, including the additional testing of

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our internal control over financial reporting as may occur when outside auditors attest as to our internal control over financial reporting, and we have elected to delay adoption of new or revised accounting standards applicable to public companies. As a result, our stockholders may not have access to certain information they may deem important.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards as they become applicable to public companies. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenue exceeds $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

We have not performed an evaluation of our internal control over financial reporting, such as required by Section 404 of the Sarbanes-Oxley Act, nor have we engaged our independent registered public accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for any period reported in our financial statements. Had we performed such an evaluation or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, material weaknesses may have been identified. For so long as we qualify as an “emerging growth company” under the JOBS Act, which may be up to five years following this offering, we will not have to provide an auditor’s attestation report on our internal controls in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. During the course of the evaluation, documentation or attestation, we or our independent registered public accounting firm may identify weaknesses and deficiencies that we may not otherwise identify in a timely manner or at all as a result of the deferred implementation of this additional level of review.

Risks Relating to Our Industry

Our industry is subject to rapid technological change, and we must make substantial investments in new products, services and technologies to compete successfully.

New technological innovations generally require a substantial investment before they are commercially viable. We intend to continue to make substantial investments in developing new products and technologies, and it is possible that our development efforts will not be successful and that our new technologies will not result in meaningful revenues. Our future success will depend on our ability to continue to develop and introduce new products, technologies and enhancements on a timely basis. Our future success will also depend on our ability to keep pace with technological developments, protect our intellectual property, satisfy customer requirements, meet customer expectations, price our products and services competitively and achieve market acceptance. The introduction of products embodying new technologies and the emergence of new industry standards could render our existing products and technologies, and products and technologies currently under development, obsolete and unmarketable. If we fail to anticipate or respond adequately to technological developments or customer requirements, or experience any significant delays in development, introduction or shipment of our products and technologies in commercial quantities, demand for our products and our customers’ and licensees’ products that use our technologies could decrease, and our competitive position could be damaged.

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We may be subject to infringement claims in the future.

We may be unaware of filed patent applications and issued patents that could include claims covering our products. Parties making claims of infringement may be able to obtain injunctive or other equitable relief that could effectively block our ability to sell or supply our products or license our technology and could cause us to pay substantial royalties, licensing fees or damages. The defense of any lawsuit could divert management’s efforts and attention from ordinary business operations and result in time-consuming and expensive litigation, regardless of the merits of such claims. These outcomes may (i) stop us selling products or using technology that contains the allegedly infringing intellectual property; (ii) redesign those products that contain the allegedly infringing intellectual property; (iii) pay substantial damages to the party whose intellectual property rights we may be found to be infringing; (iv) result in the loss of existing customers or prohibit the acquisition of new customers; (v) cause us to attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all; (vi) materially and adversely affect our brand in the market place and cause a substantial loss of goodwill; (vii) cause our stock price to decline significantly; (viii) materially and adversely affect our liquidity, including our ability to pay debts and other obligations as they become due; or (ix) lead to our bankruptcy or liquidation.

Our industry is highly competitive and we may not be able to compete effectively.

The communications industry is highly competitive, rapidly evolving, and subject to constant technological change. We expect that new competitors are likely to join existing competitors. Many of our competitors may be larger and have greater financial, technical, operational, marketing and other resources and experience than we do. In the event that a competitor expends significant resources we may not be able to successfully compete. In addition, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide products. If our competitors were to provide better and more cost effective products than our products we may not be able to capture any significant market share.

Regulation of Voice over Internet Protocol (“VoIP”) services is developing and therefore uncertain and future legislative, regulatory or judicial actions could adversely affect our business.

VoIP services have developed in an environment largely free from government regulation. However, the United States and other countries have begun to assert regulatory authority over VoIP and are continuing to evaluate how VoIP will be regulated in the future. Both the application of existing rules to us and our prospective customers and the effects of future regulatory developments are uncertain. Future legislative, judicial or other regulatory actions could have a negative effect on our business. In addition, future regulatory developments could increase our cost of doing business and limit its growth.

Changes in current laws or regulations or the imposition of new laws or regulations could impede the sale of our products or otherwise harm our business.

Although our technology is designed to be frequency agnostic (i.e., capable of operating at any frequency) our current range of products is being designed to be optimized for operation in the 902-928MHz band, which is presently a spectrum that is not licensed in the United States. Changes in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding the usage of unlicensed spectrum may materially and adversely impact our future prospects, the viability of our current business model, and will negatively impact our expectation for future sales of our products and our business, financial condition and results of operations.

New regulations or standards or changes in existing regulations or standards in the United States or internationally related to our products may result in unanticipated costs or liabilities, which could have a material adverse effect on our business, results of operations and future sales, and could place additional burdens on the operations of our business.

Our products may be subject to governmental regulations in a variety of jurisdictions. In order to achieve and maintain market acceptance, our technology and products will have to comply with these regulations as well as a significant number of industry standards. In the United States, our technology and products will have to comply with various regulations defined by the Federal Communications Commission, or FCC, and others.

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We may also have to comply with similar international regulations. For example, our wireless communication products operate through the transmission of radio signals, and radio emissions are subject to regulation in the United States and in other countries in which we intend to do business. In the United States, various federal agencies including the Center for Devices and Radiological Health of the Food and Drug Administration, the FCC, the Occupational Safety and Health Administration and various state agencies have promulgated regulations that concern the use of radio/electromagnetic emissions standards. Member countries of the European Union have enacted similar standards concerning electrical safety and electromagnetic compatibility and emissions, and chemical substances and use standards.

As these regulations and standards evolve, and if new regulations or standards are implemented, we may be required to modify our technology or products or develop and support new versions of our technology or products, and our compliance with these regulations and standards may become more burdensome. The failure of technology or our products to comply, or delays in compliance, with the various existing and evolving industry regulations and standards could prevent or delay introduction of our technology or products, which could harm our business. End-customer uncertainty regarding future policies may also affect demand for communications products, including our products. Moreover, channel partners or end-customers may require us, or we may otherwise deem it necessary or advisable, to alter our technology or products to address actual or anticipated changes in the regulatory environment. Our inability to alter our technology or products to address these requirements and any regulatory changes may have a material adverse effect on our business, operating results and financial condition.

Compliance with environmental, health and safety laws and regulations, including new regulations requiring higher standards, may increase our costs, limit our ability to utilize supply chains, and force design changes to our products.

Our operations are subject to a variety of environmental, health and safety laws and regulations and equivalent local, state, and regulatory agencies in each of the jurisdictions in which we currently operate or may operate in the future. The manufacturing of our products uses substances regulated under various federal, state, local laws and regulations governing the environment and worker health and safety. If we and our contract manufacturers do not comply with these laws including any new regulations, such non-compliance could reduce the net realizable value of our products, which would result in an immediate charge to our income statements. Our non-compliance with such laws could also negatively impact our operations and financial position as a result of fines, penalties that may be imposed on us, and the cost of mandated remediation or delays to our contract manufacturers, thus we may suffer a loss of revenues, be unable to sell our products in certain markets and/or countries, be subject to penalties and enforced fees and/or suffer a competitive disadvantage. Costs to comply with current laws and regulations and/or similar future laws and regulations, if applicable, could include costs associated with modifying our products, recycling and other waste processing costs, legal and regulatory costs and insurance costs. We cannot assure you that the costs to comply with these new laws or with current and future environmental and worker health and safety laws will not have a material adverse effect on our business, operating results and financial condition.

Governmental regulations affecting the import or export of products or affecting products containing encryption capabilities could negatively affect our revenues.

The United States and various foreign governments have imposed controls, export license requirements, and restrictions on the import or export of some technologies, especially encryption technology. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring certification, notifications, review of source code, or the escrow and governmental recovery of private encryption keys. For example, Russia and China recently have implemented new requirements relating to products containing encryption and India has imposed special warranty and other obligations associated with technology deemed critical. Governmental regulation of encryption or IP networking technology and regulation of imports or exports, or our failure to obtain required import or export approval for our products, could harm our international and domestic sales prospects and adversely affect our revenue expectation. In addition, failure to comply with such regulations could result in penalties, costs, and restrictions on import or export privileges or adversely affect sales to government agencies or government funded projects.

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If wireless devices pose safety risks, we may be subject to new regulations, and demand for our products and those of our licensees and customers may decrease.

Concerns over the effects of radio frequency emissions, even if unfounded, may have the effect of discouraging the use of wireless devices, which may decrease demand for our products and those of our licensees and customers. In recent years, the FCC and foreign regulatory agencies have updated the guidelines and methods they use for evaluating radio frequency emissions from radio equipment, including wireless phones and other wireless devices. In addition, interest groups have requested that the FCC investigate claims that wireless communication technologies pose health concerns and cause interference with airbags, hearing aids and medical devices. Concerns have also been expressed over the possibility of safety risks due to a lack of attention associated with the use of wireless devices while driving. Any legislation that may be adopted in response to these expressions of concern could reduce demand for our products and those of our licensees and customers in the United States as well as foreign countries.

Risks Related to the Market

Recent global economic trends could adversely affect our business, liquidity and financial results.

Recent global economic conditions, including a disruption of financial markets, could adversely affect us, primarily through limiting our access to capital. In addition, the continuation or worsening of general market conditions in economies important to our businesses may adversely affect our clients’ level of spending and ability to obtain financing, leading to us being unable to generate the levels of sales that we require. Current and continued disruption of financial markets could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

Risks Relating to This Offering and an Investment in Our Common Stock

Our insiders and affiliated parties beneficially own a significant portion of our stock.

As of February 28, 2013, our executive officers, directors and affiliated parties beneficially own approximately 85.3% of our outstanding common stock. As a result, our executive officers, directors and affiliated parties will have significant influence to:

elect or defeat the election of our directors;
amend or prevent amendment of our articles of incorporation or bylaws; and
effect or prevent a merger, sale of assets or other corporate transaction.

In addition, sales of significant amounts of shares held by our directors and executive officers, or the prospect of these sales, could adversely affect the valuation of our Company.

Exercise of options or warrants or conversion of convertible securities may have a dilutive effect on your percentage ownership, may result in a dilution of your voting power and an increase in the number of shares eligible for future resale in the public market which may negatively impact the trading price of our shares of common stock.

The exercise or conversion of some or all of our outstanding options, warrants, or convertible securities could result in significant dilution in the percentage of ownership of investors in this offering and in the percentage ownership interests of our existing common stockholders and in a significant dilution of voting rights and earnings per share.

At the effective date of this offering, we anticipate having outstanding options to purchase an aggregate of up to 25,000,000 shares of our common stock, including (i) the options to purchase 20,000,000 shares of common stock at an exercise price of $0.38 per share granted to MBTH and (ii) the options to purchase 5,000,000 shares of common stock at an exercise price of $0.25 per share granted to MBTH; outstanding warrants to purchase up to [•] shares of common stock, including (i) the warrants to subscribe up to 1,500,000 shares in our common stock at a subscription price of $0.01 per share granted to MBTH, (ii) the warrant to purchase 300,000 shares of our common stock issued to Secure Strategy Group exercisable at $1.00 per share, (iii) the warrant to purchase 500,000 shares of our common stock exercisable at $0.225 per share granted to Mats Wennberg and (iv) the warrants to purchase [•] shares of common stock at an exercise price of $[•] per

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share granted pursuant to this offering to the Underwriters; and outstanding securities convertible into (i) up to 39,473,684 shares of our common stock issuable to MBTH at a conversion price of $0.38 per share (or any other such price as may be approved by our board before conversion having regard to the issue price per new share of any future equity financing of us by a third party) pursuant to the May 2011 Shareholder Loan, with an additional 5,000,000 shares of our common stock also issuable to MBTH upon the exercise in full of such conversion rights, termination of the May 2011 Shareholder Loan and the discharge of all MBTH’s collateral over our assets and (ii) 2,000,000 shares of our common stock issuable to Treco at a conversion price of $1.00 per share. Additionally, the issuance of up to 24,531,618 shares of common stock upon exercise of stock options outstanding under our stock incentive plans and any shares issuable upon the exercise of conversion and subscription rights granted under the promissory note and warrants issued pursuant to the Bridge Loan will further dilute our stockholders’ voting interests. To the extent options and/or warrants and/or conversion rights are exercised, additional shares of common stock will be issued, and such issuance will dilute stockholders.

In addition to the dilutive effects described above, the exercise of those securities would lead to an increase in the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our shares. Substantial dilution and/or a substantial increase in the number of common shares available for future resale may negatively impact the trading price of our shares of common stock.

We may seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing securities that would dilute your ownership. Depending on the terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our shares of common stock and warrants.

We have financed our operations, and we expect to continue to finance our operations, acquisitions, if any, and the development of strategic relationships by issuing equity and/or convertible securities, which could significantly reduce the percentage ownership of our existing stockholders. Further, any additional financing that we secure may require the granting of rights, preferences or privileges senior to, or pari passu with, those of our common stock. Any issuances by us of equity securities may be at or below the prevailing market price of our stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of our stock to decline. We may also raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments senior to our common shares. The holders of any securities or instruments we may issue may have rights superior to the rights of our common stockholders. If we experience dilution from issuance of additional securities and we grant superior rights to new securities over common stockholders, it may negatively impact the trading price of our shares of common stock and you may lose all or part of your investment.

There can be no assurances that our shares will be listed on the NASDAQ Capital Market and, if they are, our shares will be subject to potential delisting if we do not meet or continue to maintain the listing requirements of the NASDAQ Capital Market.

We have applied to list the shares of our common stock on the NASDAQ Capital Market, or NASDAQ. An approval of our listing application by NASDAQ will be subject to, among other things, our fulfilling all of the listing requirements of NASDAQ. In addition, NASDAQ has rules for continued listing, including, without limitation, minimum market capitalization and other requirements. Failure to maintain our listing, or de-listing from NASDAQ, would make it more difficult for shareholders to dispose of our common stock and more difficult to obtain accurate price quotations on our common stock. This could have an adverse effect on the price of our common stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our common stock is not traded on a national securities exchange.

We currently have a limited trading volume, which results in higher price volatility for, and reduced liquidity of, our common stock.

There has been no public market for our common stock in the U.S. prior to this offering. Since 2006, our shares of common stock have been listed for trading on the AIM market. However, historically there has been limited volume of trading in our common stock on the AIM market, which has limited the liquidity of our common stock on that market. We cannot predict whether or how investor interest in our common stock on

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the AIM market might translate to the market price of our common stock or the development of an active trading market in the U.S. or how liquid that market might become.

The public offering price for our common stock was determined through negotiations with the underwriters based on a number of factors, including the historic trading prices of our common stock on the AIM market, which might not be indicative of prices that will prevail in the trading market for our common stock after the offering. An active trading market for our shares in the U.S. may never develop or be sustained following this offering. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. The absence of an active trading market increases price volatility and reduces the liquidity of our common stock. As long as this condition continues, the sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered and, if an active market for our common stock does not develop, it may be difficult to sell shares you purchase in this offering without depressing the market price for the shares, or at all. In addition, in the event that an active trading market does not develop, the price of our common stock may not be a reliable indicator of the Company’s fair value.

Furthermore, if we cease to be listed on AIM or NASDAQ, holders would find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock, and the market value of our common stock would likely decline.

If and when a larger trading market for our common stock develops, the market price of our common stock is still likely to be highly volatile and subject to wide fluctuations, and you may be unable to resell your shares at or above the price at which you acquired them.

The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including, but not limited to:

variations in our revenues and operating expenses;
actual or anticipated changes in the estimates of our operating results or changes in stock market analyst recommendations regarding our ordinary shares, other comparable companies or our industry generally;
market conditions in our industry, the industries of our customers and the economy as a whole;
actual or expected changes in our growth rates or our competitors' growth rates;
developments in the financial markets and worldwide or regional economies;
announcements of innovations or new products or services by us or our competitors;
announcements by the government relating to regulations that govern our industry;
sales of our common stock or other securities by us or in the open market; and
changes in the market valuations of other comparable companies

In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our common stock. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management's attention and resources, which could materially and adversely affect our business, operating results and financial condition.

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Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.

Our amended and restated certificate of incorporation and our bylaws, that will become effective upon closing of the offering, will contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:

providing for a classified board of directors with staggered, three year terms;
authorizing the board to issue, without stockholder approval, preferred stock with rights senior to those of our common stock;
prohibiting stockholder action by written consent;
limiting the persons who may call special meetings of stockholders; and
requiring advance notification of stockholder nominations and proposals.

In addition, the provisions of Section 203 of the Delaware General Corporation Law govern us. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the consent of our board of directors.

These and other provisions in our amended and restated certificate of incorporation and our bylaws, that will become effective upon closing of the offering, and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it would be without these provisions. See the section entitled “Description of Capital Stock.”

Beneficial holders of ordinary shares through the Depository Trust Company will not be legal shareholders of the Company and therefore will have no direct rights as shareholders and must act through their participating broker to exercise those rights.

The underwriters have designated that Cede & Co., as nominee for the Depository Trust Company, or DTC, will hold the ordinary shares in this offering on behalf of, and as nominee for, investors who purchase ordinary shares. We and DTC have no contractual relationship. Investors who purchase the common shares (although recorded as owners within the DTC system) are legally considered holders of beneficial interests in those shares only and will have no direct rights against the Company. Investors who purchase common stock in this offering must look solely to their participating brokerage in the DTC system for payment of dividends, the exercise of voting rights attaching to the common stock and for all other rights arising with respect to the common stock.

Under our Bylaws that will be adopted upon this Registration Statement becoming effective, the minimum notice period required to convene a general meeting is 10 calendar days. When a general meeting is convened, you may not receive sufficient notice of a shareholders' meeting to permit you to withdraw your common stock from the DTC system to allow you to directly cast your vote with respect to any specific matter. In addition, a participating DTC brokerage firm may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We cannot assure you that you will receive voting materials in time to ensure that you can instruct your participating DTC brokerage, or its designee, to vote your shares. As a result, you may not be able to exercise your right to vote and you may lack recourse if your common stock are not voted as you requested. In addition, if you hold your shares indirectly through the DTC system, you will not be able to call a shareholder meeting.

Upon the completion of this offering, our common stock will be listed on two separate stock markets and investors seeking to take advantage of price differences between such markets may create unexpected volatility in our share price; in addition, investors may not be able to easily move shares for trading between such markets.

Our common stock is already admitted to trading on AIM and we are applying for our shares additionally to be listed and traded on The NASDAQ Capital Market. Price levels for our ordinary shares could fluctuate

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significantly on either market, independent of our share price on the other market. Investors could seek to sell or buy our shares to take advantage of any price differences between the two markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on either exchange and the volumes of shares available for trading on either exchange. In addition, holders of shares in either jurisdiction will not be immediately able to transfer such shares for trading on the other market without effecting necessary procedures with our transfer agent. This could result in time delays and additional cost for our shareholders. Further, if we are unable to continue to meet the regulatory requirements for listing on AIM or NASDAQ, we may lose our listing on AIM or NASDAQ, which could impair the liquidity of our shares.

In the event that our common stock is delisted from NASDAQ U.S. broker-dealers may be discouraged from effecting transactions in shares of our common stock because they may be considered penny stocks and thus be subject to the penny stock rules.

The SEC has adopted a number of rules to regulate “penny stock” that restricts transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our securities have in the past constituted, and may again in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common stock, which could severely limit the market liquidity of such shares and impede their sale in the secondary market.

A U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks”.

Stockholders should be aware that, according to SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section of this prospectus entitled “Use of Proceeds.” The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders.

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We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our common stock.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition, investors must rely on sales of their common stock after price appreciation as the only way to realize their investment, and if the price of our stock does not appreciate, then there will be no return on investment. Investors seeking cash dividends should not purchase our common stock.

Non-U.S. investors may have difficulty effecting service of process against us or enforcing judgments against us in courts of non-U.S. jurisdictions.

We are a company incorporated under the laws of the State of Delaware. All of our directors and officers reside in the United States. It may not be possible for non-U.S. investors to effect service of process within their own jurisdictions upon our company and our directors and officers. In addition, it may not be possible for non-U.S. investors to collect from our company, its directors and officers, judgments obtained in courts in such non-U.S. jurisdictions predicated on non-U.S. legislation.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

The requirements of being a U.S. public company may strain our resources and divert management’s attention.

As a U.S. public company, we will be or become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of NASDAQ, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert resources of our management and harm our business and operating results.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, contains forward-looking statements that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new products or services; our statements concerning litigation or other matters; statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s goals and objectives; trends affecting our financial condition, results of operations or future prospects; our financing plans or growth strategies; and other similar expressions concerning matters that are not historical facts. Words such as “may”, “will”, “should”, “could”, “would”, “predicts”, “potential”, “continue”, “expects”, “anticipates”, “future”, “intends”, “plans”, “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from what is expressed in or suggested by the forward-looking statements.

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of common stock offered by us will be approximately $     million, based upon an assumed public offering price of $     per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ over-allotment option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds will be approximately $     million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility, and increase our visibility in the marketplace. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds of this offering. However, we currently intend to use the net proceeds to us from this offering, together with existing cash, primarily for general corporate purposes, including working capital, product development, marketing activities, expanding our internal sales organization and further developing sales channels, funding the set-up of contract manufacturing production lines, and other capital expenditures and repaying certain indebtedness. We may also use a portion of the net proceeds for the acquisition of, or investment in, businesses, products, technologies or other assets that complement our business, although we have no present commitments or agreements to enter into any material acquisitions or investments. We will have broad discretion over the uses of the net proceeds in this offering. Pending these uses, we intend to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market funds, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.

DIVIDEND POLICY

We have never declared dividends on our equity securities, and currently do not plan to declare dividends on shares of our common stock in the foreseeable future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors deemed relevant by our board of directors.

DETERMINATION OF OFFERING PRICE

The offering price of the common stock has been arbitrarily determined and bears no relationship to any objective criterion of value. The price does not bear any relationship to our assets, book value, historical earnings or net worth. No valuation or appraisal has been prepared for our business.

Prior to this offering, there has been no public market in the United States for our shares. The public offering price will be determined through negotiations between us and Aegis Capital Corp., as representative of the underwriters. The factors to be considered in determining the public offering price may include our future prospects and those of our industry in general, sales, earnings and certain of our other financial operating information in recent periods, and the market prices of securities and certain financial and operating information of companies engaged in activities similar to those we engage in. The price of our shares on AIM during recent periods will also be considered in determining the public offering price. It should be noted, however, that historically there has been a limited volume of trading in our shares on AIM. Therefore, the price of our shares on AIM will only be one factor in determining the public offering price. The estimated public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.

We cannot assure you that the public offering price will correspond to the price at which the shares will trade in the public market subsequent to the offering or that an active trading market for the shares will develop in the United States and continue after the offering.

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Market Price Information for Our Shares

We expect our shares to be listed on The NASDAQ Capital Market upon consummation of this offering. They have not previously been listed on The NASDAQ Capital Market or any other U.S. market. However, our shares are currently listed on AIM under the symbol “XGTU.” Our shares began trading on AIM in November 2006.

As of March 5, 2013, there were 211.4 million shares outstanding and approximately 230 holders of record of our shares. On a fully diluted basis, there would be 305.3 million shares outstanding.

On March 6, 2013, the last reported sale price of our shares listed on AIM was $0.30 per share.

The following table shows the high and low market prices for our shares for each fiscal quarter for the two most recent fiscal years. Market prices for our shares have fluctuated significantly since they were listed on AIM and trading volume on AIM have been very small in relation to the number of our total outstanding shares. As a result, the market prices shown in the following table may not be indicative of the market prices at which our shares will trade after this offering.

   
  Share Price
     (US Dollars)
     High   Low
Quarter
                 
Fourth Quarter 2012     0.40       0.20  
Third Quarter 2012     0.50       0.15  
Second Quarter 2012     0.75       0.40  
First Quarter 2012     0.80       0.50  
Fourth Quarter 2011     0.90       0.30  
Third Quarter 2011     1.55       0.55  
Second Quarter 2011     0.70       0.205  
First Quarter 2011     N/A*       N/A*  

* XGTU began on May 11, 2011

DILUTION

The historical net tangible book value of our common stock as of December 31, 2012 was approximately $(23.5) million, or $(0.11) per share based upon 211.4 million shares of common stock outstanding on such date. Historical net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by the total number of shares of common stock outstanding.

If you invest in shares in our common stock, your interest will be diluted to the extent of the difference between the offering price per share of the shares in our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after completion of this offering. After giving effect to the receipt of the net proceeds from our sale in this offering of      shares of common stock at an assumed initial public offering price of $     per share, the mid-point of the price range set forth on the cover page of this prospectus, applying proceeds as set forth in Use of Proceeds and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2012 would have been approximately $    , or $     per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $     per share to our existing stockholders and an immediate dilution of $     per share to investors purchasing common stock in this offering.

The following table illustrates this dilution on a per share basis to new investors:

   
Assumed initial public offering price per share            $  
Pro forma as adjusted net tangible book value per share as of December 31, 2012 before giving effect to this offering   $                

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Increase in pro forma as adjusted net tangible book value per share attributed to new investors purchasing shares from us in this offering            
Pro forma net tangible book value per share after giving effect to this offering               
Dilution in pro forma net tangible book value per share to new investors in this offering         $       

Each $1.00 increase (decrease) in the assumed initial public offering price of $     per share would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $     per share and the dilution to new investors by $     per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of             shares in the number of shares of our common stock offered by us would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by approximately $     per share and the dilution to new investors by $     per share, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions. If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share of our common stock, as adjusted to give effect to this offering, would be $     per share, and the dilution in pro forma as adjusted net tangible book value per share to investors in this offering would be $     per share of our common stock.

The table below summarizes as of December 31, 2012, on a pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by our existing stockholders and (ii) to be paid by new investors purchasing shares in our common stock in this offering at an assumed initial public offering price of $     per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

         
  Shares Purchased   Total Consideration   Average Price Per Share
     Number   Percent   Amount   Percent
Existing stockholders     211,388,130       %     $ 118,247       %     $ 1.79  
New investors              %                %        
Total              100.0 %                100.0 %        

(Dollars in thousands, except per share data)

The total number of shares of our common stock reflected in the discussion and tables above is based on 211,388,130 shares of our common stock outstanding, as of December 31, 2012, and excludes:

80,000 of treasury shares; and
exercise of the underwriters’ over-allotment option to purchase up to an additional [|B1] shares of common stock; and
exercise of any options, warrants or conversion rights outstanding as of December 31, 2012.

To the extent that any outstanding options are exercised, new options are issued under our 2013 Long Term Incentive Plan or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. If all outstanding options under our 2004, 2005, 2006, 2007 and 2009 Stock Incentive Plans as of January 31, 2013 were exercised, then our existing stockholders, including the holders of these options, would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon the closing of this offering. In such event, the total consideration paid by our existing stockholders, including the holders of these options, would be approximately $     million, or     %, the total consideration paid by our new investors would be $     million, or     %, the average price per share paid by our existing stockholders would be $     and the average price per share paid by our new investors would be $    .

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

Overview

xG Technology, Inc. has developed a broad portfolio of innovative intellectual property that we believe will enhance wireless communications. Our intellectual property is embedded in proprietary software algorithms that offer cognitive interference mitigation and spectrum access solutions.

We have generated material revenues in 2008 and 2009 attributed to the Company’s BSN250 voice-only product line. Upon the introduction of various smartphones in 2007 (and later) which could handle both voice and data, the Company made the decision it was necessary to enhance its voice-only product line to include data services. Beginning in July 2009, the Company focused on enhancing its BSN250 and TX70 product line for data services and we delivered such a system to the US Army in 2011. The US Army subsequently requested our BSN250 should integrate with commercial off the shelf (COTS) smartphones. In 2013, the Company will introduce a new product line that can handle both voice and data services. These new products are called xAP (base station) and the xMod which is able to communicate to any COTS device. We have generated significant net losses for the past several years and we expect to continue to realize net losses for the immediate future. We will begin to generate revenues again sufficient to cover the cost of our operations once our new voice and data products are delivered to customers in the second half of 2013.

The implementation of our cognitive radio intellectual property is xMax®. We believe the xMax® system, represents the only commercially available cognitive radio network system that is designed to include interference mitigation by spatial processing. xMax® implements our proprietary interference mitigation software that can increase capacity on already crowded airwaves by improving interference tolerance, enabling the delivery of a comparatively high Quality of Service where other technologies would not be able to cope with the interference. We believe that the xMax® system will also, when in a future development operating on more than one radio channel, deliver dynamic spectrum access by scanning and finding unused or underused frequencies (unlicensed as well as licensed) and dynamically tuning to them, significantly increasing their usable capacity.

Our revenues in fiscal 2012 decreased to $0.0 million from $0.15 million in fiscal 2011. The $0.15 million was earned under a contract with the U.S. Army to trial the 1.1 voice and data version of our xMax® system.

We had net losses of $15.7 million and $13.8 million in fiscal 2011 and fiscal 2012, respectively. Fiscal 2012 reflected a stock–based compensation charge of $0.6 million, of which $0.4 million was for employees and $0.2 million was for non-employees. Excluding the impact of stock-based compensation expense, in fiscal 2012, we had a non-GAAP net loss attributable to common stockholders of $13.2 million. Our GAAP net loss in fiscal 2011 reflected a stock-based compensation charge of $1.0 million, of which $0.7 million was for employees and $0.3 million was for non-employees.

We are executing on our sales and marketing strategy and have entered into agreements both direct with end-customers as well as with indirect channel network partners. These customer engagements primarily relate to two of our target markets in rural telecommunications and defense. Together, they comprise commitments to purchase xMax® cognitive radio networking equipment, engineering services and other hardware worth approximately $33.0 million as described below.

Purchase Agreements

The Company has announced that it has received purchase orders, for an estimated $19.5 million, from the following companies: Northeast Florida Communications (based in FL), Electra Telephone Company and Tatum Telephone Company (both based in Texas); Choctaw Telephone Company and MoKan Dial Telephone

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Company (both based in Kansas); Haxtun Telephone Company (based in Colorado); Walnut Hill Telephone Company (based in Arkansas); TelAtlantic Wireless (based in Virginia); Assist Wireless (based in Texas) and Carolina Satellite Networks (based in Virginia). The orders, in aggregate, consist of $16.6 million for xMax® cognitive radio networking equipment, including xMax® wireless access points, xMSC mobile switching centers and xMod personal hotspots (capable of supporting existing smartphones, tablets and laptops) and an estimated $2.9 million for engineering services and other hardware.

Larry Townes, an incoming director of the Company is a substantial shareholder of these companies. Many of these orders are with Townes Tele-Communications which is the parent company of Northeast Florida Communications, Electra Telephone Company, Tatum Telephone Company, Choctaw Telephone Company, MoKan Dial Telephone Company, Haxtun Telephone Company and Walnut Hill Telephone. Therefore the entry by the Company into the equipment purchase agreements and engineering services agreements is considered to be related party transactions for an estimate of $7.4 million.

Reseller agreements

Reseller agreements have been entered into with the following wireless solutions providers: PMC Associates (based in New Jersey), Communications Marketing Southeast (based in Georgia) and Mobile-One Communications (based in Florida). Together, they provide for purchase commitments over the three year term of the agreements of a minimum of an aggregate of $6.0 million of xMax® cognitive radio networking equipment. We have also entered into a reseller agreement with Telemedicine MM Systems (based in New York) to resell $2.5 million worth of xMax® mobile broadband equipment over the two year term of the agreement, and with Cornet Technology, Inc. (based in North Virginia) to resell $5.0 million worth of xMax® mobile broadband equipment over the three year term of the agreement, subject to placing purchase orders.

Teaming Agreements have also been entered into with Force 3, Inc. (“Force 3”), SAIC and CACI, Inc. The Force 3 teaming agreement was made in connection with the U.S. Army ITES-3H (Information Technology Enterprise Solutions-3 Hardware) contract awards process under which, if Force 3 is awarded the ITES-3H contract, xG’s xMax® cognitive radio solutions and services will be used to fulfill the cellular wireless component of the award. The teaming agreement with CACI provides for the joint preparation of a response to the Request for Proposal entitled Technical, Administrative, and Operation Support Services (TAOSS) (formerly known as CERDEC S&TCD effort) to be issued by the CERDEC Space and Terrestrial Communications Directorate and the allocation of work to be performed under any resulting prime contract.

In addition to the sales backlog of $7.4 million that was outstanding at December 31, 2012, the Company has added $12.1 million of additional sales orders from January 1, 2013 through February 28, 2013. At February 28, 2013 the total backlog of reseller agreements was $13.5 million and the total backlog of purchase orders was $19.5 million for a total of $33.0 million. See further in the section entitled “Customers” below.

We anticipate being in a position to begin to fulfill orders from mid-2013 as we implement our technology into software and equipment with features specified to our customers, and once we receive equipment authorization from the FCC. Revenues will be recognized over the respective lives of the agreements according to the delivery and transfer of ownership and risk of xMax® equipment and the provision of services.

As at December 31, 2012, 55.02% of the shares of our common stock are owned by MBTH. MBTH was co-founded in 2010 by Rick Mooers, Roger Branton and George Schmitt in order to invest in, and provide expertise and guidance to, and other support to xG Technology. Richard Mooers, Roger Branton, and George Schmitt are directors of MBTH as well as directors of the Company. MBMG, a merchant bank owned by family entities or trusts related to Richard Mooers and Roger Branton, has a 74.46 percentage interest in MBTH as of December 31, 2012. George Schmitt has a direct 6.11% ownership interest in MBTH as of December 31, 2012 and has been granted an option to purchase MBTH shares sufficient to give him 5% of the equity ownership of MBTH shares and its subsidiaries. Since its foundation, MBTH has provided xG Technology with significant financial and other support to us, including the May 2011 Shareholder Loan that is being converted into common stock of the Company and a $5 million subscription to the Bridge Loan. In addition, after joining MBTH, George Schmitt, CEO of MBTH, became one of our directors and has agreed to become our Executive Chairman upon this registration statement becoming effective and Larry Townes,

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another director of MBTH, has also agreed to become one of our directors upon this registration statement becoming effective. For further details on the financial support given by MBTH to us and other transactions and arrangements between us and MBTH, please see the section entitled “ Related Party Transactions, Other Transactions”.

Key Components of Our Results of Operations and Financial Condition

Revenues

We expect that our future revenues will be derived from the sale of wireless networking equipment and embedded software and the supply of deployment and support services.

In 2011, we earned revenues from the trial and evaluation of the 1.1 voice and data version of our xMax® system by the U.S. Army and the U.S. Army’s Communications-Electronics Research, Development and Engineering Center (“CERDEC”). Given our relationship with the U.S. Army at the time, these revenues were earned through direct business development and strategic sales efforts, although our contractual counterparty was a contractor already engaged by the U.S. Army and to whom a program budget had already been awarded. In the future, our plan is to sell our intellectual property, xMax® equipment and engineering services through a combination of an internal sales organization and a network of channel partners, such as prime contractors, in certain vertical markets. See further in the section entitled “Sales and Marketing”. In connection with such future sales of our products, we anticipate generating additional revenues from the provision of services, such as maintenance and support.

In the future, our strategy is for our technology to be embedded by partners in a semiconductor chip that could be sold to third party equipment manufacturing partners and inserted in their devices and to license our intellectual property to other customers in vertical markets world-wide. Our technology roadmap currently projects this transition to begin in 2015.

Cost of Revenue and Operating Expenses

Our cost of revenue and operating expenses is comprised primarily of the costs of components and personnel. In addition, it includes tooling, labor and other costs associated with engineering, testing and quality assurance and stock-based compensation.

Our strategy is to outsource our manufacturing and order fulfillment and utilize contract manufacturers (see further in the section entitled “Manufacturing and Suppliers”). We also evaluate and utilize other vendors for various portions of our supply chain from time to time. Our product organization consists of employees engaged in new product introduction and management activities, and engineering.

We classify our operating expenses as general and administrative, development, stock based compensation and amortization and depreciation expenses.

General and administrative expenses include salary and benefit expenses and payroll taxes, as well as the costs of trade shows, marketing programs, promotional materials, professional services, facilities, general liability insurance, and travel. As our technology and product portfolios and targeted markets expand, we will need to employ alternative sales models, such as building our direct sales force and channel partner network. These sales models would likely increase our costs. Over time, we expect our administrative expenses to increase in absolute dollars as we continue to actively promote our products and introduce new technologies, products and services. In addition, we expect expenses to increase as we make additional investments in information technology systems and personnel to support our anticipated revenue growth and to comply with our public company reporting obligations.
Development expenses consist primarily of salary and benefit expenses and payroll taxes, as well as costs for prototypes, facilities and travel. Over time, we expect our development costs to increase as we continue making significant investments in developing new products and developing new versions of our existing products.
Stock-based compensation relates to the grant of stock options and warrants to directors, employees and contractors under the Company’s stock incentive plans.

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Amortization of patents and licenses are measured initially at purchase cost and are amortized on a straight line basis over their useful lives which range between 18.5 to 20 years. Amortization of capitalized software development costs are amortized on a straight line basis over their useful lives which is estimated to be 5 years. Depreciation expenses is computed using the straight-line method over estimated useful asset lives, which range from 3 to 7 years commencing the month following the purchase.

Corporate Performance Bonus

In 2011, we established a corporate performance bonus matrix for eligible employees and contractors based on the achievement of certain milestones, including timely completion of engineering projects, adherence to operating budgets, and revenue produced by vertical market. Each milestone weighted according to importance for the current year as determined by the CEO and CFO. Eligible employees and contractors had the ability to earn up to 200% of their base compensation for 2012. The end of year evaluation of performance is made at the company level and not on the level of each individual. Bonuses may be paid in cash or in shares, at the discretion of the directors. For 2012, a 20% (of salary) corporate performance bonus was awarded to all executive officers, employees and eligible contractors of the Company. For 2011, a 22.5% (of salary) corporate performance bonus was awarded. The bonuses awarded for 2011 and 2012 are allocated to general & administrative and development expenses.

Recently Issued Accounting Pronouncements

We are an emerging growth company within the meaning of the rules under the Securities Act, and we will utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies. For example, we will not have to provide an auditor’s attestation report on our internal controls in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. In addition, Section 107 of the JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards as they become applicable to public companies.

Critical Accounting Policies and Estimates

Upon the filing of our initial registration statement, we intend to utilize the extended transition period provided in Securities Act Section 7(a)(2)(B) as allowed by Section 107(b)(1) of the JOBS Act for the adoption of new or revised accounting standards as applicable to emerging growth companies. As part of the election, we will not be required to comply with any new or revised financial accounting standard until such time that a company that does not qualify as an “issuer” (as defined under Section 2(a) of the Sarbanes-Oxley Act of 2002) is required to comply with such new or revised accounting standards.

We prepare our financial statements in accordance with GAAP. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. In other cases, management’s judgment is required in selecting among available alternative accounting standards that provide for different accounting treatment for similar transactions. The preparation of financial statements also requires us to make estimates and assumptions that affect the amounts we report as assets, liabilities, revenues, costs and expenses and affect the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. In many instances, we could reasonably use different accounting estimates, and in some instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, our actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

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Intangible Assets

Capitalized software costs incurred in the design and development of software for sale to others as a separate product or embedded in a product and sold as part of the product as a whole are charged to expense until technological feasibility is established, and amortized on a straight-line basis over five years, beginning when the products are offered for sale or the enhancements are integrated into the products. Management is required to use its judgment in determining whether capitalized software costs meet the criteria for immediate expense or capitalization, in accordance with GAAP. The unamortized capitalized costs of a computer software product are compared to the net realizable value of that product and any excess is written off.

Patent and licenses are measured initially at purchase cost and are amortized on a straight line basis over their useful lives which range between 18.5 to 20 years.

Property, Plant and Equipment

Property, plant and equipment are presented at cost at the date of acquisition. Depreciation is computed using the straight-line method over estimated useful asset lives, which range from 3 to 7 years commencing the month following the purchase.

Impairment of Long-Lived Assets

Long lived assets including certain intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by that asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Impairment of intangible assets amounted to $18,000 and $0 for the years ended December 31, 2012 and 2011, respectively. Impairment of property and equipment amounted to $268,000 and $0 for the years ended December 31, 2012 and 2011, respectively.

Revenue Recognition

The Company recognizes revenues when persuasive evidence of an arrangement exists, services have been rendered, the price is fixed and determinable, and collectability is reasonably assured. Revenues from management and consulting, time-and-materials service contracts, maintenance agreements and other services are recognized as the services are provided or at the time the goods are shipped and title has passed.

Income Taxes

The Company accounts for income taxes using the assets and liability method. Accordingly deferred tax assets and liabilities are recognized for the future tax consequence attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized.

The Company files U.S. federal and state income tax returns. The Company recognizes liabilities for uncertain tax positions based on the two-step process prescribed by GAAP. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefits as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an

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additional charge to the tax provision in the period. The Company recognizes interest and penalties as incurred in finance income (expense), net in the Statements of Operations. There were no liabilities recorded for uncertain tax positions at December 31, 2012 or 2011.

Stock Based Compensation

The Company accounts for stock-based awards to employees in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options.

The grant date fair value is determined using the Black-Scholes-Merton (“lack-Scholes” ) pricing model. For all employee stock options, the Company recognizes expense over the employee's requisite service period (generally the vesting period of the equity grant). The Company's option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable accounting principles. Such options are valued using the Black-Scholes option pricing model.

Results of Operations

Years Ended December 31, 2012 and 2011

The following table sets forth certain information concerning our results of operations for the periods shown:

xG TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT NET LOSS PER SHARE DATA)

   
  For the Year Ended December 31,
     2012   2011
Revenue   $     $ 150  
Cost of revenue and operating expenses
                 
Cost of components and personnel           50  
General and administrative expenses     5,543       5,505  
Development     4,806       5,249  
Stock based compensation     554       1,020  
Amortization and depreciation     2,063       1,806  
Total cost of revenue and operating expenses     12,966       13,630  
Loss from operations     (12,966 )       (13,480 )  
Other income (expense)
                 
Interest expense, net     (535 )       (1,847 )  
Impairment     (286 )       (341 )  
Total other income (expense)     (821 )       (2,188 )  
Loss before income tax provision     (13,787 )       (15,668 )  
Income tax provision            
Net loss   $ (13,787 )     $ (15,668 )  
Basic and diluted net loss per share     (0.07 )       (0.09 )  
Weighted average number of shares outstanding basic and diluted     211,098       180,082  

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Revenue

Revenues decreased $0.15 million from $0.15 million for the year ended December 31, 2011 to $0.00 million for the year ended December 31, 2012. During the year ended December 31, 2011, the revenues were attributable to the trial and evaluation of the 1.1 voice and data version of our xMax® system by the U.S. Army and CERDEC.

Cost of Revenue and Operating Expenses

Cost of components and personnel

Cost of components and personnel decreased $0.05 million from $0.05 million in the year ended December 31, 2011 to $0.00 million in the year ended December 31, 2012 as equipment production costs were only incurred in 2011 in order to fulfill the contract with the US Army to deploy a trial xMax® cognitive cellular network as well as supplying xMax® equipment for trial and laboratory evaluation with CERDEC.

General and Administrative

General and administrative expenses remained the same at $5.5 million in the year ended December 31, 2011 and the year ended December 31, 2012. There was a slight increase of $0.2 million in payroll related costs, offset by approximately the same amount in facility expenses.

Average headcount in sales and administration was 18 in the year ended December 31, 2011 and 17 in the year ended December 31, 2012. Over time, we expect our administrative expenses to increase in absolute dollars due to continued growth in headcount to support our business and operations as a public company.

Development Expenses

Development expenses decreased $0.4 million, or 8.4%, from $5.2 million in the year ended December 31, 2011 to $4.8 million in the year ended December 31, 2012.

There was a decrease of $0.9 million related to expenses incurred for the year ended December 31, 2011 for demonstrations at the US Army base in Fort Bliss, Texas, tower sites needed for our Fort Lauderdale network and costs incurred for demonstrations in Lewisville, Arkansas. This was offset by an increase in payroll, facility, and miscellaneous development expenses of $0.5 million.

The average headcount in development decreased slightly from 47 in the year ended December 31, 2011 and 46 in the year ended December 31, 2012.

Over time, we expect our development costs to increase as we continue making significant investments in developing new products and developing new versions of our existing products.

Stock Based Compensation

Stock based compensation decreased $0.5 million, or 45.7%, from $1.0 million in the year ended December 31, 2011 to $0.5 million in the year ended December 31, 2012. The decrease arose from the decrease in the number of employees who received option grants in fiscal 2012.

We had approximately $1.6 million of unrecognized stock-based compensation expense related to unvested stock options, net of estimated forfeitures, as of December 31, 2012, which we expect to be recognized over the next three years.

Pursuant to an agreement upon inception of engagement of a non-employee, a warrant to purchase 1,520,633 of our common shares had been granted to the non-employee, with vesting to be based upon the performance of services. By mutual agreement with us, on March 22, 2012, the non-employee agreed these warrants will not be exercised and they have been cancelled. The cumulative compensation expense of $194,000 recognized through December 31, 2011 was reversed during 2012 upon cancelation.

During the years ended December 31, 2011 and 2010, we recognized stock based compensation expense attributable to this warrant of $96,000 and $98,000 respectively for a total of $194,000 of cumulative compensation expense.

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Amortization and Depreciation

Amortization and depreciation expenses increased $0.3 million, or 14.2%, from $1.8 million in the year ended December 31, 2011 to $2.1 million in the year ended December 31, 2012. The increase is attributed to a full year of amortization on products sold in 2011 and available for sale in 2012 as compared to a partial year of amortization in 2011.

Other Income (Expense)

Other expense was comprised of net interest expense and impairment charges. Net interest expense fell from $1.8 million in the year ended December 31, 2011 to $0.5 million in the year ended December 31, 2012.

While the indebtedness under our convertible shareholder loans with MBTH increased from $6.8 million at December 31, 2011 to $17.2 million at December 31, 2012, interest expense decreased $1.3 million due to minimum interest charges incurred in refinancing previous loans with MBTH in 2011 along with $0.5 million attributed to accretion of a debt discount on the $10 million loan with MBTH.

Impairment charges included $0.3 million in the year ended December 31, 2011 related to inventory. For the year ended December 31, 2012, $18,000 was related to intangible assets and $268,000 for property & equipment.

Liquidity and Capital Resources

Our operations primarily have been funded through cash generated by financing. Cash comprises cash in hand and demand deposits. Our cash balances were $271,000 and $133,000 at the years ended December 31, 2012 and 2011 respectively.

As of February 28, 2013, the Company had drawn down $15.0 million of principal balance under the May 2011 Convertible Note with MBTH, a related party, and $5.3 million under the Bridge Loan.

In fiscal 2011, we repurchased 40,000 of our shares for an aggregate of $0.01 million and in fiscal 2012; we repurchased a further 40,000 of our shares for an aggregate of $0.01 million.

In March 2012, we issued 400,000 of our shares at a price of $1.00 per share for net proceeds of $0.4 million. We used the proceeds for working capital purposes.

In 2012, we received proceeds of $2,000 from 8,332 options exercised but did not receive any proceeds of option exercises in 2011 because all options exercised during 2011 were net settled through cashless exercises.

Capital Resources

As a means for financing our operations, on January 16, 2013 we entered into a convertible Bridge Loan that matures in one year with MBTH and other investors for the Company to borrow principal advances in the amount of up to $10 million. MBTH has committed $5 million under the Bridge Loan. As of February 28, 2013, $5.3 million of principal balance was outstanding under the Bridge Loan. In addition, MBTH has provided us a notice to convert the $15 million May 2011 Shareholder Loan into shares of our common stock.

The financial statements have been prepared assuming that the Company will continue as a going concern. We have incurred recurring operating losses including net losses of $13.8 million and $15.7 million in the years ended December 31, 2012 and 2011, respectively. Additionally, we have incurred negative operating cash flows including cash used in operations of $5.6 million and $7.6 million in the years ended December 31, 2012 and 2011, respectively. We expect to incur further losses in the development of our business which casts a substantial doubt about our ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital and to fulfill its existing backlog. As of February 28, 2013 the Company has a total backlog of $33.0 million. The ability to recognize revenue and ultimately cash receipts, on the existing backlog is contingent upon, but not limited to, receiving FCC equipment authorization and acceptable performance of the delivered equipment and services. The Company currently estimates that it will begin to fulfill orders associated with its back log in mid-2013. We intend to meet our financial needs for operations through continued financing under the Bridge Loan until we are able to begin recognizing revenue and ultimately cash

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receipts. However, there is no assurance additional funding will be available for the next twelve months from December 31, 2012 to continue as a going concern.

There can be no assurances that we will be successful in raising additional capital through equity or bridge loan financing, or on terms that would be favorable to the Company. New investors could cause substantial dilution to existing stockholders.

Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending to support development efforts, the timing of new product introductions, market acceptance of our products and overall economic conditions.

The following table sets forth the major components of our statements of cash flows data for the periods presented.

   
  Year Ended December 31, 2012
$'000
  Year Ended December 31, 2011
$'000
Net cash used by operating activities   $ (5,561 )     $ (7,607 )  
Net cash used by investment activities     (5,006 )       (6,023 )  
Net cash inflow from financing activities     10,705       13,672  
Net Increase in Cash   $ 138     $ 42  

Cash Flows from Operating Activities

Net cash used in operating activities for the year ended December 31, 2012 was $5.6 million after a net loss of $13.8 million, which was partially offset by $1.5 million paid to personnel and other liabilities by MBTH and non-cash charges of $0.5 million in stock-based compensation and $0.1 million for share-based consulting and other services. Changes in operating assets and liabilities consisted primarily of a $1.1 million due MBTH for costs paid on behalf of the Company and $1.2 million in interest accrued under the May 2011 Shareholder Loan and $1.3 million accrued under our corporate performance-related bonus program for employees and contractors.

Net cash used in operating activities for the year ended December 31, 2011 was $7.6 million after a net loss of $15.7 million, which was partially offset by non-cash charges of $1.0 million in stock-based compensation and $0.2 million in share-based consulting and other services. Changes in operating assets and liabilities consisted primarily of a $1.9 million increase in accrued expenses, $1.4 million accrual for a corporate performance-related bonus accrued to be paid to employees and contractors in shares, and increases of $0.2 million in both accounts payable and inventory.

Cash Flows from Investing Activities

We have invested in product and technology development and our patent portfolio, with $4.8 million accounted for as investment in intangible assets in the year ended December 31, 2011, and $4.5 million in the year ended December 31, 2012. In addition, the Company’s investment in property and equipment, comprising the purchase of vehicles, externally purchased software for internal use and hardware development costs, of $1.2 million in the year ended December 31, 2011 fell by $0.7 million, or 56.1%, to $0.5 million in the year ended December 31, 2012.

Cash Flows from Financing Activities

During the year ended December 31, 2012, net financing activities consisted primarily of proceeds from further advances under the May 2011 Shareholder Loan. Proceeds from convertible promissory notes issued to MBTH under the May 2011 Shareholder Loan totaled $10.3 million. Proceeds from the issuance of new shares amounted to $0.4 million. This was partially offset by the repurchase of a further 40,000 of our shares for total consideration of $0.01 million.

In the year ended December 31, 2011, financing activities consisted primarily of proceeds from the issuance of convertible promissory notes. Proceeds from convertible promissory notes from MBTH, a related party, totaled $13.7 million, of which $10.0 million was converted into new shares during fiscal 2011.

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Contractual Obligations

We lease our engineering headquarters in Sunrise, Florida, under an operating lease that expires on April 18, 2016. We also lease warehouse space and deployment sites under short term leases. The following table summarizes our contractual obligations as of December 31:

 
Year Ending  
2013   $ 308,000  
2014     303,000  
2015     311,000  
2016     121,000  
     $ 1,043,000  

We currently assemble our products. During the normal course of business, we procure components based upon our design, development and production needs. Our plan is to retain one or more contract manufacturers for volume manufacture, testing, quality assurance and shipping of our products. In order for the contract manufacturers to set up their production lines, we will be required to fund certain expenditures, such as the provision to the manufacturers of production test equipment, which will be one of the use of proceeds of this offering (see further in the section entitled “Use of Proceeds”). We periodically review the potential liability and to date no accruals have been recorded. Our financial position and results of operations could be negatively impacted if we were required to compensate our suppliers for any future liabilities incurred.

Convertible Debt

On May 19, 2011 (as modified by agreement between the Company and MBTH dated January 16, 2013, the Company entered into a convertible promissory note whereby the Company borrowed principal advances in the amount of up to $15 million with MBTH (subject to increase by mutual agreement). The loan is payable on final maturity, May 19, 2016, or earlier demand, and is convertible, at MBTH’s option, into shares of the Company at a price of $0.38 per share (as so modified). Interest is payable semi-annually in cash or shares, at the Company’s option, at the rate of 8% per year. MBTH has provided us a notice to convert the $15 million May 2011 Shareholder Loan into shares of our common stock.

Under a subscription agreement between us and MBTH dated January 16, 2013 and the promissory note issued by us to MBTH pursuant to such agreement, MBTH committed to advance to us $5 million as part of a new convertible bridge loan for up to an aggregate of $10 million. The Bridge Loan is to refinance advances by MBTH to us under the May 2011 Shareholder Loan in excess of $15 million and for general corporate purposes, including additional working capital and product development. The Bridge Loan is for a term of one year and is convertible, at each loan note holder’s option, into new shares at any time prior to final maturity at 95% of the price of any future equity financing completed by us (including this public offering). Interest is payable at 20%. per annum, semi-annually in cash or shares, at the option of each loan note holder. The Bridge Loan may be prepaid by us in whole (or in part), subject to payment of a minimum of six months’ interest if prepaid within the first six months. We may redeem 50% of the Bridge Loan without prepayment penalty by forcing a conversion into shares, provided that the shares are marginable and freely tradable on a liquid exchange, and provided further that, if such forced conversion is effected within six months from the date of the Bridge Loan, then we shall pay six months’ interest on the unpaid and unconverted principal balance of the Bridge Loan immediately before such forced conversion (such interest being payable in cash or shares, at the option of each loan note holder). For every $10 of principal amount of Bridge Loan advanced by a loan note holder, the loan note holder will be issued one warrant to subscribe one share at a subscription price of $0.01 per share. The warrants are exercisable for a period of five years from issue. We agreed to pay an origination fee of 5% to note holders. As of February 28, 2013, $5.3 million of principal balance was outstanding under the Bridge Loan.

On October 6, 2011, we entered into a convertible promissory note for $2 million in favor of Treco, a related party, as part of the settlement compensation to Treco for terminating the infrastructure agreement. The loan is payable on final maturity, October 6, 2018 and is convertible, at Treco’s option, into our shares at a price of $1.00 per share. Interest at the rate of 9% per year is payable semi-annually in cash or shares, at our option. As of December 31, 2011, $2 million of principal balance was outstanding under the $2 million

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Convertible Note. By way of payment of interest that had accrued and was due, on May 2, 2012, we issued to Treco 156,522 new shares and on October 8, 2012, we issued to Treco an additional 200,000 new shares.

Commitments and Contingencies

Except as otherwise disclosed elsewhere in this document, we have no material commitments or contingent liabilities. The Company has an employment contract with its CEO that would require a one-year severance payment in the event the Company terminates his services under certain circumstances.

Warranties and Indemnifications

We may in the future enter into standard indemnification agreements with many of our distributors and OEMs, as well as certain other business partners in the ordinary course of business. These agreements may include provisions for indemnifying the distributor, OEM or other business partner against any claim brought by a third party to the extent any such claim alleges that an xMax® product infringes a patent, copyright or trademark or violates any other proprietary rights of that third party. The maximum amount of potential future indemnification is unlimited. The maximum potential amount of future payments we could be required to make under these indemnification agreements is not estimable.

Based upon our historical experience and information known as of February 28, 2013, we do not believe it is likely that we currently have significant liability for the above indemnities.

Off-Balance Sheet Arrangements

As of December 31, 2012 and 2011 we had no off-balance sheet arrangements.

Quantitative and Qualitative Disclosure about Market Risk

Interest Rate Fluctuation Risk

We had cash of $0.3 million and $0.1 million as of December 31, 2012 and 2011, respectively. Our cash consists of cash in hand and demand deposits.

Because our cash is immediately available, it is relatively insensitive to interest rate changes. In future periods, when the balances of our cash and cash equivalents increase, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives to preserve principal while maximizing income without significantly increasing risk.

The fair value of our cash would not be significantly affected by either a 10% increase or decrease in interest rates.

Foreign Currency Exchange Risk

We expect that our sales transactions will primarily be denominated in U.S. dollars and therefore substantially all of our revenue will not be subject to foreign currency risk. Furthermore, our operating expenses are currently substantially incurred inside the U.S. and are denominated in U.S. dollars and are not be subject to foreign currency risk. Accordingly, we do not believe that a change in exchange rates would have a material impact on our results of operations.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

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BUSINESS

Overview

xG Technology, Inc. has developed a broad portfolio of innovative intellectual property that we believe will enhance wireless communications. Our intellectual property is embedded in proprietary software algorithms that offer cognitive interference mitigation and spectrum access solutions.

We have generated material revenues in 2008 and 2009 attributed to the Company’s BSN250 voice-only product line. Upon the introduction of various smartphones in 2007 (and later) which could handle both voice and data, the Company made the decision it was necessary to enhance its voice-only product line to include data services. Beginning in July 2009, the Company focused on enhancing its BSN250 and TX70 product line for data services and we delivered such a system to the US Army in 2011. The US Army subsequently requested our BSN250 should integrate with commercial off the shelf (COTS) smartphones. In 2013, the Company will introduce a new product line that can handle both voice and data services. These new products are called xAP (base station) and the xMod which is able to communicate to any COTS device. We have generated significant net losses for the past several years and we expect to continue to realize net losses for the immediate future. We anticipate generating revenues again sufficient to cover the cost of our operations once our new voice and data products are delivered to customers in the second half of 2013.

Company Background

The Company was organized as a Delaware limited liability company under the laws of the State of Delaware on August 26, 2002 under the name JTS Acquisitions, LLC. On March 21, 2003, we changed our name to xG Technology, LLC. Pursuant to a certificate of conversion and a certificate of incorporation filed with the State of Delaware on November 8, 2006, xG Technology, LLC converted to a Delaware corporation under the name xG Technology, Inc. On November 20, 2006, xG was first admitted and commenced trading in its shares on the Alternative Investment Market of the London Stock Exchange (“AIM”) and trades under the symbols “XGT:LN” and “XGTU:LN”. Our executive offices are located at 240 S. Pineapple Avenue, Suite 701, Sarasota, FL 34236, and our telephone number is (941) 953-9035.

We are an emerging growth company within the meaning of the rules under the Securities Act. We have in this prospectus utilized, and we plan in future filings with the SEC to continue to utilize, the modified disclosure requirements available to emerging growth companies, including reduced disclosure about our executive compensation and omission of compensation discussion and analysis, and an exemption from the requirement of holding a nonbinding advisory vote on executive compensation. In addition, we will not be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act, including the additional testing of our internal control over financial reporting as may occur when outside auditors attest as to our internal control over financial reporting, and we have elected to delay adoption of new or revised accounting standards applicable to public companies. As a result, our stockholders may not have access to certain information they may deem important.

As at December 31, 2012, 55.02% of the shares of our common stock are owned by MBTH. MBTH was co-founded in 2010 by Rick Mooers, Roger Branton and George Schmitt in order to invest in, and provide expertise and guidance to, and other support to xG Technology. Richard Mooers, Roger Branton, and George Schmitt are directors of MBTH as well as directors of the Company. MBMG, a merchant bank owned by family entities or trusts related to Richard Mooers and Roger Branton, has a 74.46 percentage interest in MBTH as of December 31, 2012. George Schmitt has a direct 6.11% ownership interest in MBTH as of December 31, 2012 and has been granted an option to purchase MBTH shares sufficient to give him 5% of the equity ownership of MBTH shares and its subsidiaries. Since its foundation, MBTH has provided xG Technology with significant financial and other support to us, including the May 2011 Shareholder Loan that is being converted into common stock of the Company and a $5 million subscription to the Bridge Loan. In addition, after joining MBTH, George Schmitt, CEO of MBTH, became one of our directors and has agreed to become our Executive Chairman upon this registration statement becoming effective and Larry Townes, another director of MBTH, has also agreed to become one of our directors upon this registration statement becoming effective. For further details on the financial support given by MBTH to us and other transactions and arrangements between us and MBTH, please see the section entitled “ Related Party Transactions, Other Transactions”.

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The wireless communications industry is facing a spectrum crisis as demand for flexible, affordable voice and data access rapidly grows. We developed frequency-agnostic cognitive radio solutions that are designed to address this increasing demand by eliminating the need to acquire scarce and expensive licensed radio spectrum and so lowering the total cost of ownership for wireless broadband access. With fast growing demand straining network capacity, our intellectual property is also designed to help wireless broadband network operators make more efficient use of existing spectrum allocations. We are targeting numerous industries world-wide, such as telecommunications, cable, defense, and public safety, and markets ranging from rural to urban areas and expeditionary deployments.

The implementation of our cognitive radio intellectual property is xMax®. We believe the xMax® system, represents the only commercially available cognitive radio network system that is designed to include interference mitigation by spatial processing. xMax® implements our proprietary interference mitigation software that can increase capacity on already crowded airwaves by improving interference tolerance, enabling the delivery of a comparatively high Quality of Service where other technologies would not be able to cope with the interference. We believe that the xMax® system will also, when in a future development operating on more than one radio channel, deliver dynamic spectrum access by scanning and finding unused or underused frequencies (unlicensed as well as licensed) and dynamically tuning to them, significantly increasing their usable capacity.

Our system is frequency agnostic although currently designed to operate within the 902 – 928 MHz license-free band. xMax® is intended to serve as a mobile voice over internet protocol (“VoIP”) and broadband data system that utilizes an end-to-end Internet Protocol (“IP”) system architecture. The xMax® product and service suite includes a line of access points, network bridges, mobile switching centers, network management systems, deployment tools, and customer support. The xMax® system will allow mobile operators to utilize free, unlicensed 902 – 928 MHz ISM band spectrum (which spectrum is available in most of the Americas) instead of purchasing scarce expensive licensed spectrum. Our xMax® system will also enable enterprises to set up a mobile communications network in an expeditious and cost effective manner. In addition, we believe that our xMax® cognitive radio technology can also be used to provide additional capacity to licensed spectrum by identifying and utilizing unused bandwidth within the licensed spectrum.

We are executing on our sales and marketing strategy and have entered into agreements both direct with end-customers as well as with indirect channel network partners. These customer engagements primarily relate to two of our target markets in rural telecommunications and defense. Together, they comprise commitments to purchase xMax® cognitive radio networking equipment, engineering services and other hardware worth approximately $33.0 million. See further in the section entitled “Customers” below.

Our Strategy

We have developed a broad portfolio of innovative intellectual property that we believe will enhance wireless communications. Leveraging elements of our intellectual property portfolio, we are introducing a range of spectrum agnostic, cognitive radio solutions that span numerous industries and applications. We believe that these products, together with our ability to leverage our patent portfolio, present us with an attractive revenue model. Our strategy is initially to commercialize our intellectual property portfolio by developing and selling network equipment using our proprietary software algorithms to offer cognitive interference mitigation and spectrum access solutions. In the future, our strategy is for our intellectual property to be embedded by partners in a semiconductor chip that could be sold to third party equipment manufacturers and inserted in their devices and to license our intellectual property to other customers in vertical markets world-wide. Our technology roadmap currently projects this transition to begin in 2015.

Market Overview

Our Market

We are witnessing rapidly increasing demand in the marketplace for mobile bandwidth. The surge in demand is attributable to the proliferation of smartphones, tablet PCs and other broadband-centric devices, as well as the shift to data and video-intensive services. A Cisco report (the Cisco Visual Networking Index, February 2012) indicates that in 2011 more than 50% of the data traffic on mobile networks was video, and they forecast video traffic to account for over 70% of total mobile data traffic by 2016.

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There has also been an increase in mobile voice demand as more people unplug their wired phones and rely on wireless devices for all of their calling needs. According to Cisco’s report, as well as several studies undertaken by the Federal Communications Commission (“FCC”), the demand for wireless services will continue to grow in the coming years, as shown in the chart below. Cisco predicts mobile data traffic will increase 18-fold between 2011 and 2016, a 78% CAGR, reaching 10.8 billion Gigabytes per month.

[GRAPHIC MISSING]

Source: Mobile Broadband: The Benefits of Additional Spectrum (FCC Report 10/2010)

In early 2009, Congress directed the Federal Communications Commission (FCC) to develop a National Broadband Plan to ensure every American has “access to broadband capability.” After conducting thirty-six public workshops and engaging in significant collaboration and conversations with other government agencies and Congress, the FCC released the National Broadband Plan in early 2010. Within the Plan the FCC acknowledges that “the current spectrum policy framework sometimes impedes the free flow of spectrum to its most highly valued uses.” The Plan states that “Wireless broadband is poised to become a key platform for innovation in the U.S. over the next decade. As a result, U.S. spectrum policy requires reform to accommodate the new ways that industry is delivering wireless services. These reforms include making more spectrum available on a flexible basis, including for unlicensed and opportunistic uses.”

Specific recommendations within the report that indicate a favorable regulatory environment for cognitive radio technology include: “Recommendation 5.13: The FCC should spur further development and deployment of opportunistic uses across more radio spectrum.” The Plan further states that, “the FCC and NTIA should take steps to expand the environment in which new, opportunistic technologies can be developed and improved. And “The FCC should allow opportunistic radios to operate on spectrum currently held by the FCC (such as in certain license areas where spectrum was not successfully auctioned).”

On March 27, 2012 the U.S. Department of Commerce, through the NTIA, released a report in which they announced, “In the past, the federal government has freed up spectrum for exclusive commercial use by clearing a spectrum band of federal users, who typically relocated to other bands. However, given the growing demand for spectrum by both industry and the federal agencies, it is increasingly difficult to find desirable spectrum that can be vacated by federal users as well as spectrum in which to relocate these federal users. Due to the scarcity of spectrum, the complexity of federal operations, and the time and cost of relocating federal users, the old approach alone is no longer feasible.”

The report further states “NTIA proposes a new path forward for spectrum repurposing that relies on a combination of relocating federal users and sharing spectrum between federal agencies and commercial users. Spectrum sharing will be a vital component to satisfying the growing demand for spectrum, and federal and non-federal users will need to adopt innovative spectrum-sharing techniques to accommodate this demand.”

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In July 2012, The President’s Council of Advisors on Science and Technology (PCAST) issued a report to the US President titled “Realizing the Full Potential of Government-Held Spectrum to Spur Economic Growth” in which “It concludes that the traditional practice of clearing government-held spectrum of Federal users and auctioning it for commercial use is not sustainable. In light of changes made possible by modern technology, we recommend that you issue a new Memorandum that states it is the policy of the U.S. government to share underutilized spectrum to the maximum extent consistent with the Federal mission, and requires the Secretary of Commerce to identify 1,000 MHz of Federal spectrum in which to implement shared-use spectrum pilot projects.” The report noted that simply clearing and reallocating spectrum would not be sustainable and pointed to a recent study by the National Telecommunications and Information Administration (NTIA) which found that clearing of just one 95 MHz band will take 10 years, cost $18 billion, and cause significant disruption. Among its key recommendations are to adopt new technologies, including cognitive radios, that could help use existing spectrum more efficiently, stating that “the use of new radio technologies, including cognitive radios, will be an important tool in helping increase spectrum capacity and utilization”. The PCAST authors stated that agile (cognitive) radio technologies that make it possible for computerized radio systems to share spectrum on a vastly more efficient basis would make it possible to move from an era of scarcity to one of abundance.

Moreover, on July 6, 2012 a Presidential Executive Order was issued regarding the Assignment of National Security and Emergency Preparedness Communications Functions. The order establishes that the federal government must be able to communicate with the public, other agencies, other levels of government and businesses “at all times and circumstances” and in all locations, both domestically and internationally. To ensure this, the order mandates the establishment of emergency communications capabilities that are “survivable, resilient, enduring and effective”. These capabilities are not available in traditional public system networks, but the xMax® cognitive radio system has been designed from the ground up to meet the very survivability, redundancy, mobility, interoperability, and resiliency requirements specified by this Order.

Recognizing the spectrum constraints on fast growing needs for wireless connectivity, in September 2012 the European Commission published a communication promoting the shared use of radio spectrum resources. A study conducted for the European Commission showed that finding additional shared spectrum resources for wireless broadband could create significant net economic benefits for the European Union. With an increase of between 200 to 400 MHz in shared access spectrum for wireless broadband, the scenarios evaluated in the study showed a net increase in the value to the European economy of the order of several hundred billion Euros by 2020. The Commission, therefore, proposed steps to foster the development of wireless innovations in the EU to ensure that the currently allocated spectrum is exploited to the fullest extent possible. This has been followed by Ofcom, the telecommunications regulator in the UK, moving to complete the process to release TV Whites Spaces for shared use.

While it appears to management that spectrum regulation is developing in a favorable manner, we have, nonetheless, chosen to release the initial xMax® product line on the unlicensed 900 MHz ISM band (902 – 928 MHz) in order to minimize our exposure to regulatory risk (see further under the section entitled “Government Regulations, Regulators’ Role in spectrum”). The unlicensed bands are well established and although these bands are allocated for Industrial Scientific and Medical (ISM) use (e.g., microwave ovens and industrial equipment), a major use has been unlicensed (Part 15) systems such as Wi-Fi, Bluetooth, and ZigBee. In the period 1995 – 2005, most of the cordless phones marketed in the US were in the 902 – 928 MHz band, but conflicts with the other uses and availability of DECT equipment has greatly decreased sales of 902 – 928 MHz cordless phones.

The rules for these bands sprung from FCC Docket 81-413 which sought to end an implicit prohibition of spread spectrum/CDMA technology that resulted from a focus on FDMA spectrum uses. This resulted in rules adopted in 1985 that allow unlicensed spread spectrum systems to use these bands for almost any possible application subject to a 1W power limit. When wireless LAN use became of interest several years later, these time-tested rules allowed U.S. market access without FCC deliberations. The 2.4 and 5.8 GHz bands are used for Wi-Fi today. In a similar fashion, we are launching our initial software-defined product offering programmed to operate on unlicensed spectrum in order to speed commercialization of our intellectual property without requiring FCC or NTIA deliberations on opportunistic access. Because we have designed our core technology to be usable beyond the unlicensed band that its initial product offering operates on, we

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believes that we are well positioned to benefit from possible future regulatory reforms that support wider spread use of spectrum sharing and opportunistic access techniques.

The growth of wireless data over the past few years has made the subject of available spectrum a pressing priority. In fact, the current situation has been referred to as a “looming spectrum crisis”. (FCC Chairman Julius Genachowski, speech to CTIA, October 2009). Responses to this “crisis” have included lobbying efforts to persuade the FCC to find new sources of licensed spectrum and proposals to reallocate existing licensed spectrum. Demand for more spectrum and capacity has also been a key factor in industry consolidation. The rationale given for the AT&T/Cingular merger was based on the fact that AT&T had more spectrum than Cingular, and by combining the companies they could more efficiently serve their customers. Likewise, Verizon’s $3.6 billion bidding to buy unused wireless spectrum and AT&T’S $39 billion attempt to acquire T-Mobile was primarily driven by AT&T’s desire to secure additional spectrum and cell sites in order to provide more capacity across its network.

Our company and our technology and products are based on our belief that there is insufficient spectrum available to satisfy the current and future growth of wireless data. However, we also believe that this crisis is not solely a result of insufficient amounts of available spectrum, but also the result of inefficient use of the currently available spectrum. Rather than merely demanding more spectrum we believe that the more appropriate response to the call for increased bandwidth would be to shift the focus to getting more use out of spectrum that has already been allocated. More effective utilization of the available spectrum can be accomplished in a number of different ways. Advancements in radio technology, such as the movement to the LTE standard from the previous 3G networks, for example, have allowed for better spectrum utilization. This has been attributed to the incorporation of new advanced technologies such as multiple in, multiple out (“MIMO”) and Orthogonal Frequency-Division Multiple to reduce multiuser interference.

Other methods being employed by network operators to meet bandwidth requirements have included off-loading some of the demand to unlicensed Wi-Fi hotspots and selling in-building femtocells that make use of a customer’s own wired Internet connection. Another approach is to build more cell sites closer together. Each cell site would cover a smaller area, and thus offer the ability to reuse frequencies more times in a larger geographic coverage area. However, such would entail more costs, and is time consuming due to local permitting and other considerations. Many of these approaches have been driven by the need to receive more capacity out of limited spectrum.

While the spectrum currently available cannot satisfy the future growth of wireless data, the idea of getting better use out of spectrum (both licensed and unlicensed) by sharing it is receiving increased attention as a more effective and efficient solution for the industry than simply identifying new spectrum. This has led to industry and policy makers to consider technology-based approaches, such as cognitive radio and opportunistic (i.e. shared) spectrum use.

Users of commercial cellular networks are not the only users that are running out of capacity due to spectrum limitations. Wireless users around the globe such as industrial and enterprise users, public safety agencies and those who use unlicensed spectrum (such as Wi-Fi and White Spaces) are also lacking necessary spectrum, but are not being allocated the necessary spectrum due to the fact that regulators have historically prioritized commercial mobile carriers in the allocation of spectrum assets as the demand for both voice and broadband access continues to increase.

We believe that deployment of cognitive radio networks offers the best solution to addressing the pressing need for more efficient use of spectrum.

Radio Spectrum — A Primer

Radio spectrum is a finite resource. In order to utilize this limited radio spectrum better, we have essentially been limited to reallocating swaths held by existing users, who either have to lose some of their spectrum or be have to move to other portions of the band.

The best spectrum for two-way radio or cellular types of communications is in lower frequencies. These frequencies are scarce due to technical, historical, and regulatory reasons. A large part of the spectrum (30MHz to 900MHz) that is well suited for cellular and land mobile radio (LMR) is occupied by existing business, industrial, public safety, and other license holders. Additionally, only a fraction of this spectrum is

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practical for mobile commercial consumption as the usage of lower frequencies requires antennas, filters and other components that do not fit into a portable handheld device. There are also many services that have long used valuable spectrum in frequencies that could be reassigned for mobile data and voice since those services could use some other spectrum efficiently.

The availability of widespread high-speed wireless broadband has led to customer uptake that was far greater than the network operators, device manufacturers, and application developers had predicted. The introduction of the iPhone by Apple was a starting point for soaring broadband wireless service demand, and since that time, new applications, including streaming video for TV and movie services, have proliferated. Network operators are struggling with how to keep up with this demand. AT&T reported that 4% of its iPhone customers were accounting for more than 50% of the data traffic on its 3G network, and a Cisco report indicates that today more than 50% of the data traffic on mobile networks is video. This trend is expected to accelerate as network operators begin deploying 4G (fourth-generation cellular services). However, 4G does not fully address the current spectrum issues, and in fact may make it worse as new bandwidth and spectrum-intensive services are brought to market.

A report from the FCC’s Office of Broadband Development cites a technical paper showing the demand for broadband services outstripping spectrum capacity as early as the end of 2012 (Figure 2).

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Source: Office of Broadband Development (FCC)

Cognitive Radio Networks — A primer

The industry definition of a cognitive radio is a device that, unlike a traditional radio, can dynamically find and use available frequency to improve throughput and connectivity. This can be done via real-time sensing that allows the radio to scan for unused frequencies and then instantly tune to such frequencies. Cognitive radios can also rely on a database that can tell it what channels are available (usually based on the radio’s location and known spectrum restrictions in that area).

Either or both of these techniques can be used to help the cognitive radio avoid interference and optimize its throughput and connection reliability on a dynamic basis. With detailed information about its local radio frequency (“RF”) environment, cognitive radios are able to change power output, frequency and receive or transmit parameters, in order to extract latent (unused) bandwidth and capacity from crowded unlicensed, as well as underutilized licensed, wireless spectrum.

The key elements of cognitive radio technology include spectrum sensing, spectrum management, spectrum mobility, spectrum sharing, and spatial processing:

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Spectrum sensing may be defined as interference-based detection of transmitters with the ability to look at a portion of the spectrum to see if it contains any transmitters that could cause interference to the cognitive radio system. Making the end user devices and network infrastructure cognitive enables both to dynamically react to a wide range of conditions. In the xMax® system, the end user radio is used to inform the network of changes in the RF environment, core infrastructure and other relevant conditions. This allows the network itself, and not just the radios, to adapt dynamically. When only the radio itself is cognitive, each radio will individually optimize its parameters and throughput based on local conditions, without regard to overall system performance. What may be optimal for the radios on an individual basis may not lead to overall network optimization in terms of coverage, throughput or other measures.

Spectrum management is the ability of the system to capture the best available spectrum for use at any given point in time. It is based on the premise that both terminals and base stations can be directed to change their operating frequencies dynamically as needed to keep the communications from interfering with others in that portion of the spectrum, or of being interfered with by others in the same spectrum. By propagating and collecting data from individual radios across the network, a cognitive system approach can make the entire network smarter, and optimize total network throughput. This enables new and useful features such as self-RF planning that can simplify, and reduce the cost of, the deployment and operation of the network. After the RF data is collected, better utilization and performance can be achieved automatically and continuously. This makes the network vastly more adaptable, self-sustaining and self-optimizing in many ways. The ability for the network to provide a level of self-RF planning is only one example of what a cognitive network can offer. Because a cognitive radio network can self-optimize and self-configure, little-to-no frequency coordination between cognitive radio nodes or other radio networks operating in the same frequencies is needed. This leads to an often overlooked benefit of having a self-planning, self-optimizing network: it reduces or eliminates the need for skilled radio technicians. These cognitive radio networks use software, powerful on-board computing power and real-time RF sensing to supplant expensive and overburdened radio technicians. The smart network goes beyond self-frequency planning to also encompass dynamic capacity shifting. That is to say that when a cell is lightly loaded, it can automatically abandon one or more channels in any given sector, thus making those channels available for adjacent cells to use if loading at that cell justifies the need for more spectrum. In addition to the ability to shift spectrum resources around to other cells, it also makes the network as a whole a good neighbor to other systems that might be trying to use the same spectrum in a shared band (like TV White Spaces) by using the minimum amount of spectrum at any given time. Moreover, these capabilities will allow xMax® networks themselves to become mobile, adapting to new spectrum conditions and terrain “on-the-go”, which will make xMax® an excellent solution for expeditionary deployments by defense, public safety and emergency agencies.

Spectrum mobility refers to the ability to make use of spectrum dynamically, commonly called dynamic spectrum access (DSA). The system can decide to change bands or channels within the spectrum in which they are operating.

Spectrum sharing is the ability for a cognitive radio system to operate in shared spectrum (unlicensed spectrum, for example), detect stations that interfere with the transmissions, mitigate that interference if possible, or avoid it by changing operating frequencies or other system parameters. By enabling xMax® to tolerate high levels of interference before requiring the radios to switch channels, more “gray spectrum” (containing interference or jamming) can be used in place of white spectrum (clean and interference-free). This makes these white spectrum channels available for other radios that cannot mitigate the interference on their current channel. The overall capability increases the network’s total throughput and capacity greatly —  without consuming additional scarce spectrum resources.

Spatial processing is the use of multiple integrated receiver chains known as MIMO systems that can provide another layer of resistance to interferers. MIMO processing allows better use of the radio channel to improve link budget and data rates. By employing advanced signal processing techniques, we believe that our system can also be used to track and mitigate interference from multiple mobile transmitters using sophisticated signal processing algorithms. The ability to mitigate, rather than simply run away from interference will be critical going forward. We believe that there will be no more “white spaces” and that all spectrum will be made up of “gray spaces” (interference laden frequencies) caused by a system’s own self-interface or that which is caused by other nearby systems.

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We believe that a true cognitive or intelligent radio network will make use of most, if not all, of these capabilities in order to be able dynamically to keep the system operating by mitigating or avoiding interference that may show up in the frequencies the cognitive network is currently using. If the interference becomes too severe, an intelligent system will be able to locate other spectrum and shift the radio links to new frequencies nearly instantaneously. Using cognitive radio techniques, the cognitive network can intelligently share spectrum and extract more bandwidth via “opportunistic use” of shared spectrum resources.

Today’s cognitive radio systems are taking advantage of new antenna technology (such as MIMO) and digital signal processors (DSPs) with advanced, innovative software algorithms. This evolution has also yielded a class of DSPs that are incredibly powerful, yet still energy-efficient. These and other technologies are enabling a new generation of smart (i.e., cognitive) radios. In general, the limiting factor in high capacity wireless systems is interference. As stated above, there are a number of ways to deal with interference to keep the communications link up and running. Unlike traditional systems (such as 3G and 4G), cognitive systems can recognize and then deal with interference locally and in real-time, thus greatly increasing the capacity of new and existing spectrum.

Products

xMax® :  the first implementation of xG’s innovative cognitive radio intellectual property is xMax®. Operating initially within the 902-928 MHz license-free band, xMax® is a mobile voice over internet protocol (“VoIP”) and broadband data system that utilizes an end-to-end Internet Protocol (“IP”) system architecture. The xMax® technology we are developing is spectrum agnostic. In any spectrum band that xMax® will operate in, we will break the band into channels and sub channels. We will then use spatial processing and adaptive modulation to mitigate interference in that band. If the band becomes unusable because of overwhelming interference, we will then use dynamic spectrum access to change to another channel or band. The xMax® product suite we are currently developing is band specific due to the current limitations in RF technology that can be produced for a given size, cost and complexity. Multiband, small, portable devices today require custom developed integrated circuits, which are on our technology roadmap, but not currently available. The mid-term objective is to transition implementation of xMax® to a licensing and semiconductor chip business model, which is anticipated to begin in 2015.

The xMax® system design represents a turnkey network solution that will include rapid-deploy self-organizing access points (base stations), fixed and mobile personal Wi-Fi hotspots, mobile switching centers, as well as network management and deployment tools. A key feature of the xMax® system is the ability to leverage off-the-shelf commercial mobile devices (such as smartphones, laptops and tablets), resulting in reduced network infrastructure, maintenance and operational costs. The xMax® system will allow mobile operators to utilize free, unlicensed 902-928 MHz ISM band spectrum (available in most of the Americas) instead of having to purchase scarce licensed spectrum which can be prohibitively expensive. In addition, mobile network operators will be able to use xMax® cognitive radio technology to add additional capacity to licensed spectrum by identifying and utilizing unused bandwidth in those frequencies.

Our xMax® system is designed to utilize an advanced cognitive radio technology that incorporates OFDM and MIMO to increase interference tolerance, allow mobility, and improve resistance to fading. All xMax® products leverage an array of high-performance, low-cost digital signal processors (DSPs) that enable multidimensional signal processing that mitigates interference and dynamically optimizes available spectrum. xMax’s software defined radios (SDR) are designed to be inherently frequency-agile, which will allow network access points and user devices to automatically retune and operate on clearer channels within the band. This innovative signal processing will enable xMax® to deliver a licensed spectrum experience using unlicensed spectrum.

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Below is a diagram that provides a high-level overview of the xMax® network architecture:

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The product portfolio that we are creating by combining advanced computer processing power and novel wireless design means that a technology solution is becoming a viable alternative to past public and private spectrum acquisition policies. We employ a multifaceted cognitive radio approach that combines sophisticated interference mitigation capabilities with innovative dynamic spectrum access attributes. The former features MIMO smart antenna technologies. Employed in concert, these capabilities will help squeeze additional usable spectrum out of airwaves once considered unusable for advanced mobile communications.

xMod:

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The xMax® xMod is a device that allows users of Wi-Fi-enabled smartphones, tablets, notebooks and other devices to access the Internet through the xMax® cognitive radio network. The xMod acts as a transparent protocol bridge that connects end user devices to the wide-area xMax® network using secure Wi-Fi links, USB or Ethernet cables. It supports not only fixed users but will also supports mobile users and has been designed to provide exceptional QoS (Quality of Service) and MoS (Mean Opinion Score) while supporting calls, texting (SMS) and broadband data streams over the xMax® network.

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The xMod includes a Wi-Fi router chip that allows it to simultaneously support multiple external devices wirelessly. It will enable operators to deploy long-range xMax® networks that can integrate with the large installed base of Wi-Fi and Ethernet-capable devices. Subscribers will easily be able to install and set up an xMod to support any device having a Wi-Fi, USB or Ethernet connection. By incorporating xMax® radios and 2x4 MIMO technology, xMods can provide range and reliability that management believes is superior to Wi-Fi-based wide-area systems.

The xMod and xMax® system is designed to support nomadic and mobile connectivity (including high-speed handoffs) which will allow xMax® operators to offer on-the-go services that differ from those of fixed services, such as cable and DSL. It will be possible to deploy xMax® in fixed, mobile or nomadic configurations. When a planned later version of xMax® delivering higher data rates is deployed in a fixed manner rural telecommunications operators could recover the cost of the network via the Universal Service Fund (“USF”) subsidy mechanism. Recent regulatory reform has begun to transition USF support from telephone to broadband services. Because xMax® can carry both voice and data, we believe that xMax® is well suited for rural carriers to handle such a migration. As with all the components in the xMax® family of products, the xMod is designed to offer increased range, flexibility, throughput and reliability, while reducing network deployment and management costs. Management believes this will make xMax® an attractive solution for WISPs, mobile telecommunications operators and other service providers.

xAP:

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The xMax® xAP is an all-IP wireless access point that will deliver wide area coverage and reliability even when there is significant interference. The xAP brings together innovative technologies including Software Defined Radio (SDR), cognitive networking and a 2x4 MIMO in a compact and affordable broadband access point. These capabilities will enable the xAP to deliver wide area coverage and broadband throughput for fixed, nomadic and mobile applications.

xMax® radios and 2x4 MIMO technologies give the xAP range and reliability surpassing Wi-Fi-based systems. The xAP (as well as all xMax® components) will support nomadic and fully mobile connectivity, including high-speed handoff that will allow xMax® operators to offer on-the-go services that differ from those of fixed services, such as cable and DSL. As part of the xMax® family of products, the xAP is designed to offer increased coverage, throughput and robustness while reducing network deployment and management costs, making it, we believe, an attractive solution for WISPs, mobile telecommunications operators and other service providers. When implemented, Self-Organizing Networking (SON) technology will simplify and speed deployment for commercial, private and tactical networks.

The xAP is a small, single channel device that will provide a data rate of up to 3 Mbps per channel and supports a range of 1 to 5 miles (non-line-of-sight) and up to 8 miles (line-of-sight), depending on conditions. The xMax® system is designed so that it will be possible to collocate multiple xAPs in order to increase system capacity. xAPs are GPS time-synchronized to avoid self-interference, which increases overall system

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capacity and load leveling. These features, along with deterministic Media Access Control (MAC) for high-quality voice calls, give the xMax® system improved scalability in real-world conditions.

Having numerous accessible channels will allow neighboring network nodes (made up of one or more xAPs) to utilize non-interfering channels automatically when employing the network self-planning features that are in our technology roadmap. This will allow the network to grow and scale more easily without the operator having to redesign the network RF plan each time a device moves, or when xAPs or users are added or removed from the network.

xMSC

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The xMax® Mobile Switching Center (xMSC) is the backbone network element in the xMax® regional network. The xMSC bridges the delivery of the voice and data services, and manages all elements in the regional network (access points and xMods).

The xMSC acts as an aggregation point for the connected xAPs. It performs routing and security functions. The xMSC is typically connected to the Global Information Grid (GIG) and one or more VoIP soft switches.

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xMonitor/xDrive:

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These software tools provide integrated and comprehensive network and element management for the xMax® network, as well as mobile network throughput and coverage optimization.

xMonitor is a component of the xMSC that monitors the status and health of all xAPs, xMSC elements, and VoIP core elements. It provides end-to-end IP network management and monitoring services. xMonitor is a web-based application that will be installed at an operator’s Network Operation Center, enabling remote management of network status. The program runs as a live application that continuously collects data from the network, updating the aggregated information without user intervention. It can be programmed to display specific views around the clock — providing an at-a-glance heads-up display from which to survey the network.

xDrive is a drive mapping utility designed to gather, display and log performance statistics from the xMod. It will allow field technicians to map the coverage of a deployment of xAPs, as well as providing xMod to xAP to link statistics.

Competition

The wireless technology sector is intensely competitive and is rapidly evolving. Several vendors have researched and experimented with cognitive radios. This research predominately falls under the traditional industry defined use of a cognitive radio where cognitive capabilities are restricted to dynamic spectrum access (“DSA”) within the radio device. However, we believe that only a few vendors are undertaking development across all the key elements of cognitive technology: spectrum sensing, spectrum management, spectrum mobility, spectrum sharing, and spatial processing.

As an example, both Spectrum Bridge and Microsoft have developed a database approach to frequency reuse. This method was developed specifically to enable unlicensed broadband systems to coexist with existing TV transmitters in the TV White Spaces band.

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We not only face competition from other companies developing cognitive radio solutions but we are also competing for sales to end-user customers with companies offering solutions utilizing other technologies for access to licensed and unlicensed spectrum, such as LTE and Wi-Fi.

In the cognitive radio market, our competitors include, Neul Ltd., Shared Spectrum Corporation and Adaptrum.

End-customers in the rural broadband market are being offered a choice of solutions based on alternative technologies, such as LTE and Wi-Fi. Global communications networking equipment vendors such as Ericsson, Huawei, Alcatel-Lucent and others are actively selling and deploying LTE and, to a lesser extent, WiMax equipment with rural telecommunications operators that own, or can lease, appropriate licensed spectrum frequencies. We also face competition for equipment sales with Ruckus Wireless, Ubiquiti Networks and Cambium Networks, which have also targeted markets for communications systems around the world similar to our target markets. Although these companies are vastly larger than we are, with significantly greater resources, we believe that we or our channel partners will need to convince end users to consider our offerings as a viable alternative to these larger companies if we are to succeed.

It is not uncommon for a single rural operator to deploy a mix of technologies (such as LTE and Wi-Fi) to address differing applications, spectrum holdings and economics across their market areas. As new technologies are introduced and spectrum availability and costs increase, we anticipate that rural telecommunications operators will continue to deploy a growing range of innovative solutions that deliver voice and data communications to their customers.

The main vendor in the public safety market is Motorola Solutions, which is a global player that holds a highly dominant market share in the U.S. of over 80% in public safety and government wireless networks.

In the defense market, there are several large and significant companies that provide wireless communications systems to U.S. and international military agencies, including Harris Corporation, ITT Industries, Raytheon, Boeing, Thales Communications and Lockheed Martin. It is common for one competitor to be a subcontractor to another competitor who is the prime contractor and vice versa as programs of record ramp up and ramp down over time.

A number of our current or potential competitors have long operating histories, significant brand recognition, large customer bases and significantly greater financial, technical, sales, marketing and other resources than we do. As an emerging technology company, our brand is not as well known as incumbents in those markets. Potential customers may prefer to purchase from their existing suppliers rather than a new supplier, regardless of product performance or features.

Competitive Positioning

Regulatory risk  — we believe that our choice initially to develop our cognitive radio technology utilizing the unlicensed 902 – 928 band exposes us to less regulatory risk than companies building products upon newly available TV White Space frequencies. Whereas the 902 – 928MHz band has withstood multiple attempts to redefine the rules regarding its use, newer frequency bands such as TV White Spaces have yet to demonstrate their permanence. Specific initiatives to license off TV White Space frequencies for cellular carrier use are being promoted by licensed spectrum stakeholders. While our core technology can be adapted for operation upon such newly available frequencies once their staying power has been demonstrated, we believe that we are not subject to the same make-or-break dependency upon the availability of TV White Spaces as are most other cognitive radio product companies.

Mobility  — we are specifically developing our product line to support mobility. We believe that mobility is an important differentiator with regard to our offering in the marketplace. Designed to do its own RF planning automatically by utilizing an extended range of non-interfering channels without manual intervention, xMax® will offer the ability to make the entire network infrastructure mobile, with xAP base stations able to move in relation to each other as well as to xMods and users. We believe this feature will be unique to xMax® and will address a major capability gap for defense, homeland security, and public safety agencies which all require “on the move” communications networks. These agencies currently have no equipment or capacity for this identified and urgently needed capability.

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Supports both real-time VoIP and data sessions utilizing a single set of infrastructure  — Most IP systems do not carry large numbers of simultaneous voice conversations. We have focused on designing a core technology that is capable of carrying both mass-scale voice and data sessions on the same network.

Interference mitigation  — Whereas most efforts to date focus on interference avoidance, we have extended our core competency into the realm of interference mitigation. In a world where wireless demand is certain to result in more, not less, congested airwaves, we believe that our intellectual property that can help to ameliorate interference is a unique competitive advantage in the marketplace.

Strong engineering management team  — We maintain a strong, product-driven, engineering team with a track record within the Ad-Hoc wireless networking domain with Motorola Mesh Networks.

No federal government unlimited use licenses  — We have solely funded the development of our intellectual property, which is, accordingly, unencumbered by any federal government unlimited use licenses.

Strong Patent Portfolio  — We maintain a strong intellectual property portfolio that presents a barrier to entry to other firms that may attempt to develop cognitive radio network technology.

We believe we compete favorably on these factors. However, our industry is evolving rapidly and is becoming increasingly competitive. Other developers could develop alternative wireless cognitive networks and other technologies that may adversely affect our ability to attract and retain customers. These competitors may include companies of which we may not be currently aware.

Sales and Marketing

Our strategy is to sell intellectual property, and the equipment in which our intellectual property is initially implemented, globally direct and through an indirect channel network that we will leverage in order to upscale our selling efforts without the significant cost of a large direct sales force. Our channel partners will utilize their own internal and external sales representatives to provide lead generation among their established customer base and beyond, pre-sales support, product fulfillment and, in certain circumstances, post-sales customer service and support. In certain cases, service providers may also act as a channel partner for sales of our solutions to their existing customers or new enterprise accounts.

Our sales team currently is comprised of business development, relationship and account executives and a channel manager. This sales team is focused on supporting our current customers, as well as nurturing relationships with prospective customers in key domestic and international markets. Our relationship managers support the development of sales presentation materials and training of our channel partner sales personnel to assist them in marketing our services, either directly or indirectly to their customers. We also directly train and support selected key customers and technology providers in order to grow an active client base and solidify relationships. We are currently using the SalesLogix Customer Relationship Management (CRM) tool to manage our sales activity and manage these relationships.

We also have an exclusive relationship with one of the leading grant writing and funding specialist firms in the United States, Gilmore Tragus Strategies, LLC (“GTS”). GTS has written applications for, and their customers have been awarded, over $1 billion in local, state and federal funding initiatives over the past ten years. Having a partner like GTS gives our sales team and channel partners a competitive advantage by being able to assist customers with funding.

As of February 28, 2013, our business development, sales and marketing team consisted of eight full-time employees or contractors, supported by outside marketing professionals.

Customers

Although still at an early stage, we have begun to implement our sales and marketing strategy, both through direct sales to end-customers and indirect sales to channel network partners and we have entered into a number of equipment purchase, reseller and teaming agreements as a result. These customer engagements span our target markets in rural telecommunications and defense.

Purchase Agreements

The Company has announced that it has received purchase orders, for an estimated $19.5 million, from the following companies: Northeast Florida Communications (based in FL), Electra Telephone Company and

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Tatum Telephone Company (both based in Texas); Choctaw Telephone Company and MoKan Dial Telephone Company (both based in Kansas); Haxtun Telephone Company (based in Colorado); Walnut Hill Telephone Company (based in Arkansas); TelAtlantic Wireless (based in Virginia); Assist Wireless (based in Texas) and Carolina Satellite Networks (based in Virginia). The orders, in aggregate, consist of $16.6 million for xMax® cognitive radio networking equipment, including xMax® wireless access points, xMSC mobile switching centers and xMod personal hotspots (capable of supporting existing smartphones, tablets and laptops) and an estimated $2.9 million for engineering services and other hardware.

Larry Townes, an incoming director of the Company is a substantial shareholder of these companies. Many of these orders are with Townes Tele-Communications which is the parent company of Northeast Florida Communications, Electra Telephone Company, Tatum Telephone Company, Choctaw Telephone Company, MoKan Dial Telephone Company, Haxtun Telephone Company and Walnut Hill Telephone. Therefore the entry by the Company into the equipment purchase agreements and engineering services agreements is considered to be related party transactions for an estimate of $7.4 million.

Reseller Agreements

Reseller agreements have been entered into with the following wireless solutions providers: PMC Associates (based in New Jersey), Communications Marketing Southeast (based in Georgia) and Mobile-One Communications (based in Florida). Together, they provide for purchase commitments over the three year term of the agreements of a minimum of an aggregate of $6.0 million of xMax® cognitive radio networking equipment. We have also entered into a reseller agreement with Telemedicine MM Systems (based in New York) to resell $2.5 million worth of xMax® mobile broadband equipment over the two year term of the agreement, and with Cornet Technology, Inc. (based in North Virginia) to resell $5.0 million worth of xMax® mobile broadband equipment over the three year term of the agreement, subject to placing purchase orders.

Teaming Agreements have also been entered into with Force 3, Inc. (“Force 3”), SAIC and CACI, Inc. The Force 3 teaming agreement was made in connection with the U.S. Army ITES-3H (Information Technology Enterprise Solutions-3 Hardware) contract awards process under which, if Force 3 is awarded the ITES-3H contract, xG’s xMax® cognitive radio solutions and services will be used to fulfill the cellular wireless component of the award. The teaming agreement with CACI provides for the joint preparation of a response to the Request for Proposal entitled Technical, Administrative, and Operation Support Services (TAOSS) (formerly known as CERDEC S&TCD effort) to be issued by the CERDEC Space and Terrestrial Communications Directorate and the allocation of work to be performed under any resulting prime contract.

In addition to the sales backlog of $7.4 million that was outstanding at December 31, 2012, the Company has added $12.1 million of additional sales orders from January 1, 2013 through February 28, 2013. At February 28, 2013 the total backlog of reseller agreements was $13.5 million and the total backlog of purchase orders was $19.5 million for a total of $33.0 million.

These agreements contain certain conditions to payment to us, including (depending on the agreement) FCC equipment authorization, delivery of equipment and services, acceptable performance of equipment, delivery of purchase orders and favorable customer financing. In the event that the systems that we deliver to these potential customers do not satisfy certain technical expectations or requirements of those customers, we will not receive any revenue from these purchase orders.

We anticipate being in a position to begin to fulfill orders from mid-2013 as we implement our technology into software and equipment with features specified to our customers, and our equipment has been certificated by the FCC. Revenues will be recognized over the respective lives of the agreements according to the delivery and transfer of ownership and risk of xMax® equipment and the provision of services.

Manufacturing and Suppliers

Our strategy is to retain contract manufacturers to manufacture, test, assure the quality of, and ship our products. We will primarily utilize contract manufacturers located in the United States to ensure proximity between the manufacturer and our design and development engineers and with the initial customers we anticipate winning.

Our internal manufacturing organization will consist of a small number of supply chain managers, employees and contractors who will supervise the manufacture of our products at contract manufacturer sites.

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We will rely on our contract manufacturers, test engineers and our internal quality assurance resources to implement quality assurance programs designed to assure high product quality and reliability. Our plan is to pre-qualify for retention more than one contract manufacturer from time to time.

In the future, it is our strategy to focus on our core strengths, which are innovation and technology design and the development, creation and exploitation of our intellectual property. Accordingly, we ultimately plan to become a designer, developer and fabless supplier of xMax® integrated circuits and system software solutions for xMax® products where we would supply integrated circuits produced by third party manufacturing partners under license, software, reference designs, features, tools and technical support. We expect this transition to begin from 2015.

We rely on third party components and technology to build our products, and we procure components, subassemblies and products necessary for the manufacture of our products based upon our design, development and production needs. Once we have retained a contract manufacturer, they will be responsible for obtaining these components, subassemblies and products. While components and supplies are generally available from a variety of sources, we currently depend on a single or limited number of suppliers for several components for our products. We are using a single source digital signal processor that may be difficult to replace with an equivalent performance device. In the longer term, we are planning to adapt the xMax® system to run on multiple low cost platforms. We rely on purchase orders rather than long-term contracts with our suppliers. We do not currently stockpile enough components to mitigate any potential supply disruption if we are required to re-engineer our products to use alternative components.

Intellectual Property

Our business is significantly based on the creation, acquisition, use and protection of intellectual property. Some of this intellectual property is in the form of software code, patented technology and trade secrets that we use to develop our technologies, solutions and products. We have developed a broad portfolio of intellectual property that covers wired and wireless communications systems. As of February 28, 2013, in the U.S., we have 43 patents granted, 16 patent applications pending, and 5 provisional applications pending. Internationally, we have 51 patents granted, 82 patent applications pending, and 10 Patent Cooperation Treaty (PCT) applications.

Areas of our development activities for xMax® and beyond that have culminated in filings and/or awarded patents include:

Spatial Processing (MIMO)
Self-Organizing Networks
RF Modulation
Compression (protocols, payload, signaling, etc.)
Modulators/Demodulators
Antennas/Shielding
Wired and Wireless Networks
Media Access Control Protocols
Interference Mitigation
Cognition enabling over the air protocols (MAC layer)
Wireless data compression
Dynamic Spectrum Access (DSA)
Quality of Service

We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We control access to our proprietary technology by entering into confidentiality and

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invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties. We also actively engage in monitoring activities with respect to infringing uses of our intellectual property by third parties.

In addition to these contractual arrangements, we also rely on a combination of trade secret, copyright, trademark, trade dress, domain name and patents to protect our products and other intellectual property. We typically own the copyright to our software code, as well as the brand or title name trademark under which our products are marketed. We pursue the registration of our domain names, trademarks, and service marks in the United States and in locations outside the United States. Our registered trademarks in the United States include “xG”, and “xMax®”, the names of our suite of products, among others.

Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in the United States or other countries in which our products are sold or distributed. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, protecting our intellectual property rights is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business, thereby harming our operating results.

Companies in the mobile wireless communications technology and other industries may own large numbers of patents, copyrights and trademarks and may frequently request license agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. We may face allegations by third parties, including our competitors and non-practicing entities, that we have infringed their trademarks, copyrights, patents and other intellectual property rights. As our business grows, we will likely face more claims of infringement.

Government Regulations

Regulators’ Role in Spectrum

In the past, all radios were designed with the assumption that they were operating in a spectrum band that was free of interference. There was no requirement to design radios with the ability to dynamically change channels or change spectrum bands in response to interference. These radios required pristine, dedicated licensed spectrum to operate. This led to the FCC and other regulators worldwide licensing spectrum to a particular network operator, for example, cellular paging or wireless service provider so that interference would be carefully controlled. Because of this past legacy, significant blocks of spectrum were underutilized. Even in spectrum bands that might be considered to be highly utilized, valuable spectrum can sit idle in sparsely populated areas or at certain hours of the day when network use dramatically drops.

There are also applications such as paging that have fallen out of favor and contribute to this underutilization. Despite the dramatic drop in the use of pagers, a large amount of spectrum is still dedicated to this application. This regulatory policy has led to inefficient use of spectrum and consequently the declaration of a spectrum crisis. While regulators are continuing to allocate spectrum based upon this assumption that radios do not have the ability to share spectrum, they are now starting to embrace the concept of shared spectrum and the opportunistic use of spectrum enabled by cognitive radio networks.

Regulators are starting to ease the rules relative to the allocation and access of spectrum. A good example of this is the shared use of TV broadcast spectrum via the creation of TV White Spaces (TVWS) for wireless broadband. The FCC and other spectrum regulatory agencies like the UK’s Ofcom have begun the process to allow cognitive radios to use freed-up spectrum resulting from the transition from analog to digital TV broadcasts. For example, TV white space continues to gain momentum in the US and Europe with multiple deployments and trials being supported by some of the world's largest technology companies. Furthermore, a new group has been formed called AIR.U that is being funded by Microsoft, Google and others to utilize TV White Spaces to bring high-speed Internet services to rural campuses, schools and other institutions in the US. Similar initiatives are being undertaken in the UK with extensive trials being done in both urban and rural settings using TV White Spaces. In addition to two of the largest technology companies mentioned above, Nokia is also taking a leading role in the UK's TV White Space trials. While there have been rumors circulating that the FCC was somehow taking back TV White Spaces, there appears to be no actual indication of this taking place. In fact, the FCC appears to be approving more TV White Space database administrators

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as well as certifying additional radio platforms for operation in TV White Spaces. It is possible, nonetheless, that over time, TV White Spaces could be reclaimed by Congress or the FCC and re-auctioned for licensed use. However, that is a risk any unlicensed spectrum faces and has never actually occurred in the US. Other countries globally are also seriously considering creating their own TV white space allocations. These countries include Canada, Brazil and the EU.

Operators and consumers are able to use available unlicensed spectrum bands for the delivery of new applications and inexpensive broadband capacity. An example of this is the data offload efforts of some carriers that use 802.11 Wi-Fi (in the 2.4 and 5.8 GHz unlicensed bands) in densely populated areas where their 3G network is congested. This allows carriers to continue supporting mobile voice and data services over their licensed spectrum, while data that can be consumed at a fixed location (airport, coffee shop, office, etc.) is forced over an unlicensed Wi-Fi link. However, the popularity of Wi-Fi and other devices that use these frequencies has resulted in crowded and noisy spectrum that not only has to support the carriers’ smartphone data, but all other applications from other devices in that band as well. The interference in these bands affects the capacity and efficiency of this spectrum for conventional radios. However, where conventional radios see “walls of interference”, cognitive radios can uncover “windows of opportunity” and recover up to 85% of the total unused bandwidth in these frequencies.

The FCC’s Part 15 rules that govern use of the 902 – 928MHz ISM band and other unlicensed spectrum bands are well established and are considered responsible for creating an environment where technology and innovation has flourished. They are recognized as having helped create an industry that has generated tens of thousands of high technology jobs, added billions of dollars to the United States economy, and brought the benefits of a wide variety of convenient, economical communications devices to business, industry, education, health care providers and consumers alike. While there have been some attempts to challenge them, they have always been reaffirmed and we have every reason to believe they will remain so.

Even during the recent debates over spectrum policy, there have been no suggestions put forth by the FCC, the Congress or industry to repurpose the ISM unlicensed band to a licensed one that could be auctioned off. The reallocation of a band that is in active use by so many devices would be prohibitively disruptive. Given the long history and widespread use of the ISM band for such a wide array of communications, we feel very confident that it will remain open to use by technologies such as xMax® for the foreseeable future.

While devices operating upon unlicensed bands do not require FCC licensing, they are not unregulated and must meet the Federal Code of Regulation (CFR) FCC Part 15, which is a common testing standard for most electronic equipment. FCC Part 15 covers the regulations under which an intentional, unintentional, or incidental radiator that can be operated without an individual license. FCC Part 15 covers as well the technical specifications, administrative requirements and other conditions relating to the marketing of FCC Part 15 devices.

In order to reduce regulatory risk and gain familiarity with the requirements we elected to obtain FCC equipment authorization on some of its pre-commercial prototype xMax® devices. FCC authorized testing laboratories were used to make measurements to ensure that the prototype equipment complied with the appropriate technical standards. Although not required unless specifically requested, we submitted a sample unit and representative data to the Commissions demonstrating compliance. Multiple briefings were also scheduled with the FCC Chief of the Office of Engineering Technology (OET) and staff, which is responsible for Equipment Certifications in an effort to inform them of our design approaches and objectives. While our commercial xMax® product offering will again require equipment authorization prior to sales, we believe that we are well positioned to meet such regulatory requirements, both from our prior experience certifying its prototype equipment and the fact that our engineering management team has specific prior experience obtaining FCC equipment authorization for other unlicensed devices.

Underserved and underpenetrated markets.   Wireless networks are emerging as an attractive alternative for addressing both the broadband access needs of underserved and underpenetrated markets and for offering a host of other services and solutions. According to a forecast by Gartner, fixed network household broadband penetration rates for 2009 and 2010 in emerging countries were a fifth of the broadband penetration in developed countries, whereas the aggregate number of households in emerging countries was approximately

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four times the aggregate number of households in developed countries. We believe this is due to the lack of an established network infrastructure and the high initial deployment costs of wired networks. Gartner also estimates that fixed network household broadband penetration in emerging markets will increase from 10% in 2008 to 19% in 2013. We believe this estimate understates the global penetration rates that could be achieved if carrier class wireless solutions were broadly available at a fraction of the established market costs.

Limitation of existing solutions .  Existing wireless networking technologies such as standard 802.11 based Wi-Fi, WiMAX and LTE have been designed to satisfy the increasing demand for broadband access and support mobility. According to a Gartner forecast in May 2011, aggregate end-user spending on wireless networking equipment for Enterprise WLAN, wireless broadband access, and LTE solutions, are expected to grow from $5.2 billion in 2010 to $22.5 billion in 2015, representing a CAGR of 34%. However, these existing alternative networking solutions often fail to meet the price-performance requirements of wireless networking in emerging markets, which in turn has led to low penetration and large populations of unaddressed users in these areas. As a result, there is a strong need for cost-effective solutions to deliver wireless networking solutions to consumers and enterprises in underserved and underpenetrated markets. These solutions must be robust and provide service equivalent to that of alternative wired and wireless solutions while simultaneously meeting the economic objectives of network operators and service providers in these markets.

Increasing use of the unlicensed spectrum .  Private industry in underserved and underpenetrated markets worldwide has responded to the lack of wired infrastructure by deploying wireless networks utilizing unlicensed RF spectrum. These network operators and service providers often cannot afford the capital outlay to acquire licenses for the licensed RF spectrum and have consequently designed their wireless networks for the unlicensed RF spectrum. In the absence of affordable broadband access in the licensed spectrum, the number of users of the unlicensed RF spectrum has increased for communications equipment, as well as consumer devices such as cordless phones, baby monitors and microwave ovens. As a result of high demand for the unlicensed RF spectrum, use of this spectrum to provide high quality wireless networking has become more challenging and congestion is limiting the growth of wireless networks.

Government incentives for broadband access .  Governments around the world are increasingly taking both regulatory and financial steps to expand access to broadband networks and increase availability of advanced broadband services to consumers and businesses. For example, in many countries, including the United States, the responsible regulatory agencies have released the spectrum previously used for broadcast TV, known as the TV White Space, to relieve some of the congestion. The United States and other countries have adopted stimulus plans to increase the delivery of robust broadband access in unserved and underserved areas. The World Bank has reported that 12 countries and the EU have committed an aggregate of $122.4 billion in broadband stimulus funds to date.

Employees

As of February 28, 2013, we employed 57 full time equivalent employees, contractors or consultants, which included 37 in development, 5 officers, 5 in general and administrative, 3 in business development, 2 in operations and 5 in sales and marketing. As of that date, we had 56 full time equivalent employees, contractors or consultants, based in the United States. We also engage a number of temporary employees and consultants. None of our employees are represented by a labor union or is a party to a collective bargaining agreement. We believe that we have good relations with our employees.

Properties

Our corporate headquarters and marketing and business development office are located in Sarasota, Florida, in an office consisting of a total of 3,403 square feet. This office is made available to us under the MBC management contract. For our research and development, engineering, sales and support personnel we also have an office in Sunrise, Fort Lauderdale, Florida consisting of 12,832 square feet pursuant to a lease that expires on May 11, 2016.

We believe our current facilities are sufficient for our current needs and will be adequate, or that suitable additional or substitute space will be available on commercially reasonable terms, for the foreseeable future.

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Legal Proceedings

From time to time, we are a party to litigation and subject to claims incident to the ordinary course of business. Future litigation may be necessary to defend ourselves and our customers by determining the scope, enforceability and validity of third party proprietary rights or to establish our proprietary rights.

As of February 28, 2013, the Company does not have any litigation matters pending.

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MANAGEMENT

Executive Officers and Directors

The following table sets forth the names, ages and positions of all of the directors and executive officers of the Company and the positions they hold as of the date hereof.

   
Name   Age   Position
Richard L. Mooers   49   Executive Chairman of the Board and Director
John C. Coleman   59   Chief Executive Officer, Chief Operating Officer and Director
Roger G. Branton*   45   Chief Financial Officer, Secretary and Director
Joseph Bobier   53   Chief Technology Officer
James Woodyatt*   45   President and Director
Gary Cuccio**   66   Director
Kenneth Hoffman**   56   Director
George F. Schmitt   69   Director
Raymond M. Sidney**   43   Director
Palmi Sigmarsson*   51   Director
Mats Wennberg*   54   Director
Larry C. Townes**   63   Director

* It is intended that these named directors will resign as directors upon the effectiveness of this Registration Statement.
** It is intended that these named persons, who will meet the requirements of “independence” under the pertinent NASDAQ rules, will be appointed as directors upon the effectiveness of this Registration Statement.

Richard L. Mooers, Executive Chairman of the Board and Executive Director

Richard Mooers has been involved in telecommunications activities for over 20 years and has significant expertise in accounting, risk management, and controls. For the past 10 years he has served in a variety of positions with our company since its founding in August, 2002. Mr. Mooers has served as our Executive Chairman and a director of the board since inception. He also serves as Chairman and Director of MBTH a company he co-founded with Roger Branton and George Schmitt in 2010. Richard graduated summa cum laude from the University of Maine, with a Bachelor of Science degree in business administration in 1985. He remains one of the major investors in the Company. Mr. Mooers will resign as Executive Chairman upon the effective date of this Registration Statement.

Mr. Mooers was selected to serve on our board based on his extensive experience with technology and telecommunications companies, including as a founder, executive and investor.

John C. Coleman, Chief Executive Officer, Chief Operating Officer and Executive Director

Mr. Coleman brings to us 34 years of combined experience in expeditionary operations from both government service and the private sector. Since June 2010, he has served as the Chief Executive Officer and Chief Operating Officer of the Company. From January 2009 to June 2012, he was the Chief Executive Officer of Joint Command and Control Consulting (JC3), a consulting services firm he founded that is focused on the development, integration, and delivery of mature and emerging technologies in support of expeditionary operations, particularly as related to command, control, and communications. In conjunction with its strategic partners, JC3 provides C4ISR-related systems, service, training, and support to expeditionary responders, both civil and military. He also served as a Vice-President of Hunter Defense Technology, a position he held from July 2006 to December 2008. In the thirty years preceding private sector employment, Mr. Coleman served the United States as a U.S. Marine Officer. Defining the character of his service upon retirement, Mr. Coleman was awarded the nation’s Distinguished Service Medal, an honor very rarely and only under exceptional circumstance bestowed to Marines below the rank of General Officer. He retired from the U.S. Marine Corp as a Colonel. He possesses top secret clearance which gives him access to several of our major markets. Currently, Mr. Coleman serves as a member of the board of xG.

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Mr. Coleman was selected to serve on our board based on his extensive experience in the military and his top secret clearance, which are critical elements of our Company’s ability to conduct business with the segments of the government and Homeland Security that we have targeted.

Roger G. Branton, Chief Financial Officer, Secretary and Executive Director

For the past 10 years he has served in a variety of positions with our company since its founding in August, 2002. Mr. Branton currently and has served as our Chief Financial Officer and Director since inception. He also serves in similar capacities at MBTH, a company he co-founded with Richard Mooers and George Schmitt in 2010. He graduated from West Chester University in Pennsylvania with a Bachelor of Science degree in accounting. He trained as a certified public accountant in 1989. Mr. Branton will resign as a Director upon the effective date of this Registration Statement.

Mr. Branton was selected to serve on our board based on his extensive experience in finance and telecommunications companies, including as a founder, executive and investor.

Joseph Bobier, Chief Technology Officer

Together with Richard Mooers and Roger Branton, Joseph Bobier co-founded xG Technology, Inc. in August, 2002. Mr. Bobier has served as our Chief Technology Officer since inception. He invented much of xG's core technology, and holds several additional patents for wireless technology. Joe continues to advance the technology through patent filings. He received his initial training in the US Navy where he was schooled in advanced electronics and satellite communications. He qualified for and earned the highest licensing designation recognized by the FCC. He holds several US and foreign patents for electronic designs in the area of photovoltaics.

Mr. Bobier has lectured for organizations including NASA and British Petroleum in the areas of photovoltaic power systems, electronic power conversion and telemetry systems.

James Woodyatt, President and Executive Director

Mr. Woodyatt has served as our President since April 20, 2012 and as a director of the Company since January 2007. He also served as our Deputy Chief Executive Officer from June 2007 to April 20, 2012, at which time James assumed the President title. From February 2006 until October 2011, James served as President of Veegoo Holding SA, a company he co-founded in 2006 and as a Managing Director of Veegoo Capital Services SA, a group which is active in business advisory and private equity. Mr. Woodyatt will resign as a Director upon the effective date of this Registration Statement.

Mr. Woodyatt was selected to serve on our board based on his extensive experience in the finance and capital market industries.

Gary Cuccio, Director

Mr. Cuccio has agreed to serve as a director commencing upon the effective date of this Registration Statement. Gary Cuccio has over 35 years of broad operating experience in wireless, software, engineering, operations, sales and marketing. Mr. Cuccio currently serves as Chairman of Openet Telecom Ltd. Based in Dublin, Ireland, Openet Telecom is a venture-backed software company providing IP mediation to leading Telco’s on a global basis. Mr. Cuccio also serves on the board of mBlox as the chairman of its audit committee. mBlox is a venture-backed startup providing a service bureau for SMS messages in the wireless space. Headquartered in London and Sunnyvale, CA, mBlox operates in Europe, the U.S. and Asia. Previously, Mr. Cuccio was CEO of ATG, a CLEC based in California, Oregon, and Washington. Prior to ATG, Mr. Cuccio was CEO of LHS group (Nasdaq: LHSG), a Telco billing software supplier. LHS was acquired by Sema, a French software company, in Q3, 2000 for $6.8BB. Mr. Cuccio was also COO of Omnipoint, a PCS mobile wireless carrier. Mr. Cuccio’s experience also includes several positions held at Airtouch, most notably Vice President of Operations for Europe, Vice President, Asia and President of Airtouch Paging. The company was merged with Vodafone in 1999. He has also served as chairman of the board and audit committee chairman of privately held companies and has helped sell and merge several public and privately held companies. Mr. Cuccio started his career with 27+ years at Pacific Tel in Operations, Engineering, Customer Service and Sales & Marketing, ending his tenure there as VP / General Manager.

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Mr. Cuccio received his AMP from Harvard University, his MBA from St. Mary’s College and his BA in Political Science from California State University Los Angeles.

Mr. Cuccio was selected to serve on our board based on his 45 years of experience with technology and communications companies as well as his financial and audit committee background. Mr. Cuccio qualifies as an “audit committee financial expert” within the meaning of the SEC regulations.

Kenneth Hoffman, Director

Mr. Hoffman has agreed to serve as a director commencing upon the effective date of this Registration Statement. Mr. Hoffman joined the Company in August 2010 as an advisor. Ken Hoffman is Vice President of Regulatory Affairs for Florida Power & Light Company, the rate-regulated subsidiary of NextEra Energy, Inc. (NYSE: NEE), one of the nation’s leading electricity-related services companies. He is responsible for providing assistance in the management and oversight of FPL’s regulatory activities before state regulators and the State Legislature on energy matters. Mr. Hoffman joined FPL in 2008 after a successful career in private law practice specializing in the representation of public utilities and telecommunications companies before the Florida Public Service Commission, the Florida Legislature and the Florida courts. He has over 25 years’ experience representing various types of telecommunications carriers including wireless before regulatory and legislative bodies. His expertise in regulatory proceedings in Florida will be helpful as we grow and face potential regulatory actions. Prior to joining FPL, he was a shareholder at Rutledge Ecenia Purnell & Hoffman, PA, in Tallahassee, Florida for 14 years.

Mr. Hoffman was selected to serve on our board based on his extensive experience in the utility industry, a key industry segment to utilize our products and services.

George F. Schmitt, Director

Mr. Schmitt has over 40 years of broad telecom experience in wireless and wireline companies and has built wireless networks in a dozen countries. He is a major investor in xG Technology through his holdings in MBTH and is currently serving a member of our board, having joined in March 2011. Mr. Schmitt has agreed to serve as our Executive Chairman upon the effective date of this Registration Statement. He also serves as the Chief Executive Officer of MBTH, a position he has held since December 2010. Mr. Schmitt currently sits on the board of directors of Kentrox and Calient. Mr. Schmitt previously served as a director of TeleAtlas, Objective Systems Integrators, Omnipoint and LHS Group. Mr. Schmitt is a principal of Sierra Sunset II, LLC and serves as a Trustee of St. Mary’s College. Previously, Mr. Schmitt was CEO and a director of Espire Communications which filed Chapter 11 bankruptcy 10 years ago. In addition, Mr. Schmitt has served as a director of many privately held companies including Voice Objects, Knowledge Adventure, Jungo and Cybergate, among others. Mr. Schmitt has also served as Financial Vice President of Pacific Telesis and chaired the Audit Committees of Objective Systems Integrations and TeleATLAS. Mr. Schmitt received an M.S. in Management from Stanford University, where he was a Sloan Fellow, and a B.A. in Political Science from Saint Mary’s College.

Mr. Schmitt was selected to serve on our board based on his extensive experience with technology and networking companies and broad experience in the telecommunications industry and his status as a significant investor in our company.

Raymond M. Sidney, Director

Dr. Sidney has agreed to serve as a director commencing upon the effective date of this Registration Statement. Dr. Sidney has established several real estate investment ventures and been involved with a number of companies, including Covia Labs, Hemedex, Edison2 and Commuter Cars as an investor, board member or advisor. He also serves on the Vision Circle of the X PRIZE Foundation. Prior to this, Dr. Sidney was the second software engineer hired at Google, Inc. Previously, Dr. Sidney had worked as a security expert and software engineer at RSA Labs and D.E. Shaw & Co., among other companies. He provided the implementation expertise for RC6, RSA's candidate cipher for NIST's quest for AES, a successor to the Data Encryption Standard. Dr. Sidney attended Caltech and Harvard, and he received a bachelor’s degree in mathematics from Harvard in 1991. He then entered the graduate program in mathematics at MIT, where he specialized in cryptography and received a PhD in 1995. His higher mathematics knowledge will be helpful to

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our development team. Dr. Sidney’s business experience includes running and investing in startups through his venture capital company, Big George Ventures. In addition, he is active in many educational and environmental undertakings in the Lake Tahoe area.

Mr. Sidney was selected to serve on our board based on his extensive experience with technology companies and broad experience in the venture capital industry.

Palmi Sigmarsson, Director

Palmi has been a licensed securities broker since 1989. For the last 20 years, he has been working as an investment advisor to several pension funds high net worth private investors and large corporations in Scandinavia. Palmi graduated from the University of Iceland in 1986 with a master’s degree in business administration. From 1987 to 1990 Palmi served as head of an institutional securities brokerage at Iceland Investment Corporation, which was the first listed securities company in Iceland. From 1991 to 1995, Palmi was the managing director of Reykjavik Securities (Handsal hf.), a licensed securities company. From 1991 to 1993, Palmi was also appointed as a representative of Icelandic securities companies to a committee formed by the Icelandic securities industry, tasked with reviewing the Icelandic securities law. He also headed two privatization projects for the Icelandic government. He moved on to work at Spectra Kapitalforvaltning AB, a licensed securities company, from 1996 until 2004, where he headed the Icelandic branch of the company. He currently runs his own advisor company, PS Consulting ehf, which focuses on providing advice to both private and corporate professional investors. Palmi serves on the xG Technology, Inc. Board of Directors' Audit and Remuneration Committees. Mr. Sigmarsson will resign as a Director upon the effective date of this Registration Statement.

Mr. Sigmarsson was selected to serve on our board due to his knowledge of the European financial community and industry.

Larry C. Townes, Director

Mr. Townes has agreed to serve as a director commencing upon the effective date of this Registration Statement. He also currently serves as the Chief Executive Officer of Townes Tele-Communications, Inc., a position he has held since 1981. At Townes Tele-Communications, a holding company with widely diversified business interests, Mr. Townes directs the operations as Chairman of the board. These interests include eight incumbent rural telephone companies operating in seven states, wireless operations which include cellular radio service, petroleum exploration and production, and agricultural operations and related riparian rights in northern Texas. In addition, he has been active as a board member and investor in MB Technology Holdings, LLC. He is the owner of a bank in Arkansas and Texas. Mr. Townes also serves on the boards of a number of other privately held companies. He has relevant experience in business undertakings around the world.

Mr. Townes was selected to serve on our board based on his extensive experience with technology and networking companies and broad experience in the telecommunications industry.

Mats Wennberg, Director

Mr. Wennberg has served as a director of the Company since 2004 and also served as our Chief Executive Officer from January 2004 to September 2005. At present, he serves as Chief Executive Officer of Wennberg Consulting AB, a management services company which he founded in 2002. In addition, he serves as the managing director of Wennberg Industries AB, a company which has invested in a number of early stage software focused companies. Mr. Wennberg will resign as a Director upon the effective date of this Registration Statement.

Mr. Wennberg was selected to serve on our board due to his knowledge of the European financial community and industry.

On April 20, 2012, our board of directors voted to increase the number of directors fixed by the board from 7 to 12.

Board Composition and Committees and Director Independence

Our board of directors currently consists of seven members: Richard L. Mooers, John C. Coleman, Roger G. Branton, James Woodyatt, George F. Schmitt, Palmi Sigmarsson and Mats Wennberg. Richard L. Mooers,

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George F. Schmitt and John C. Coleman, will serve until our next annual meeting and until their successors are duly elected and qualified, while the other directors will resign from the board and Gary Cuccio, Kenneth Hoffman, Larry C. Townes and Ray Sidney will be appointed to the board upon the effectiveness of the Registration Statement of which this prospectus forms a part, in order to comply with Rule 5602 of the Nasdaq Stock Market Rules regarding the independence of the members of the board of directors.

In making the determination of whether a member of the board is independent, our board considers, among other things, transactions and relationships between each director and his immediate family and the Company, including those reported under the caption “Related Party Transactions”. The purpose of this review is to determine whether any such relationships or transactions are material and, therefore, inconsistent with a determination that the directors are independent. On the basis of such review and its understanding of such relationships and transactions, our board affirmatively determined that Gary Cuccio, Kenneth Hoffman, Larry C. Townes and Ray Sidney, who will collectively comprise the majority of our board upon effectiveness of this Registration Statement, are “independent” directors, as that term is defined in the Nasdaq Stock Market Rules.

Board Committees

Upon effectiveness of this Registration Statement, our board of directors will establish a new audit committee and a compensation committee and a governance and nominations committee. Each committee will have its own charter, which will be available on our website at www.xgtechnology.com. Information contained on our website is not incorporated herein by reference. Each of the board committees has the composition and responsibilities described below.

Audit Committee

Upon the effectiveness of this Registration Statement, we will have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act of 1934, as amended (the Exchange Act”). The members of our Audit Committee will, upon effectiveness of this Registration Statement, be Gary Cuccio, Ken Hoffman and Larry Townes. Each of these Committee members is “independent” within the meaning of Rule 10A-3 under the Exchange Act and the NASDAQ Stock Market Rules. Our board has determined that Gary Cuccio shall serve as the “audit committee financial expert”, as such term is defined in Item 407(d)(5) of Regulation S-K. Gary Cuccio currently serves as Chairman of the Audit Committee of mBlox, Inc. and Openet Telecom Ltd. In the past he also served on the Audit Committee of Objective Systems Integration, Inc. and Affinity Internet, Inc. Gary Cuccio will serve as Chairman of our Audit Committee.

The Audit Committee oversees our accounting and financial reporting processes and oversees the audit of our financial statements and the effectiveness of our internal control over financial reporting. The specific functions of this Committee include:

selecting and recommending to our board of directors the appointment of an independent registered public accounting firm and overseeing the engagement of such firm;
approving the fees to be paid to the independent registered public accounting firm;
helping to ensure the independence of our independent registered public accounting firm;
overseeing the integrity of our financial statements;
preparing an audit committee report as required by the SEC to be included in our annual proxy statement;
reviewing major changes to our auditing and accounting principles and practices as suggested by our company’s independent registered public accounting firm, internal auditors (if any) or management;
reviewing and approving all related party transactions; and
overseeing our compliance with legal and regulatory requirements.

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Compensation Committee

Upon the effectiveness of this Registration Statement, the members of our Compensation Committee will be Gary Cuccio, Ken Hoffman and Ray Sidney and Larry Townes. Each such member is “independent” within the meaning of the NASDAQ Stock Market Rules. In addition, each member of our Compensation Committee qualifies as a “non-employee director” under Rule 16b-3 of the Exchange Act. Our Compensation Committee assists the board of directors in the discharge of its responsibilities relating to the compensation of the board of directors and our executive officers. Larry Townes will serve as Chairman of our Compensation Committee.

The Committee’s compensation-related responsibilities include:

assisting our board of directors in developing and evaluating potential candidates for executive positions and overseeing the development of executive succession plans;
reviewing and approving on an annual basis the corporate goals and objectives with respect to compensation for our chief executive officer;
reviewing, approving and recommending to our board of directors on an annual basis the evaluation process and compensation structure for our other executive officers;
providing oversight of management’s decisions concerning the performance and compensation of other company officers, employees, consultants and advisors;
reviewing our incentive compensation and other stock-based plans and recommending changes in such plans to our board of directors as needed, and exercising all the authority of our board of directors with respect to the administration of such plans;
reviewing and recommending to our board of directors the compensation of independent directors, including incentive and equity-based compensation; and
selecting, retaining and terminating such compensation consultants, outside counsel and other advisors as it deems necessary or appropriate.

Governance and Nominations Committee

Upon the effectiveness of this Registration Statement, the members of our Governance and Nominations Committee will be Gary Cuccio, Ken Hoffman, Ray Sidney and Larry Townes,. Each such member is “independent” within the meaning of the NASDAQ Stock Market Rules. The purpose of the Governance and Nominations Committee is to recommend to the board nominees for election as directors and persons to be elected to fill any vacancies on the board, develop and recommend a set of corporate governance principles and oversee the performance of the board. Ken Hoffman will serve as chairman of our Governance and Nominations Committee.

The Committee’s responsibilities include:

Selecting director nominees. The governance and nominations committee recommends to the board of directors nominees for election as directors at any meeting of stockholders and nominees to fill vacancies on the board. The governance and nominations committee would consider candidates proposed by stockholders and will apply the same criteria and follow substantially the same process in considering such candidates as it does when considering other candidates. The governance and nominations committee may adopt, in its discretion, separate procedures regarding director candidates proposed by our stockholders. Director recommendations by stockholders must be in writing, include a resume of the candidate's business and personal background and include a signed consent that the candidate would be willing to be considered as a nominee to the board and, if elected, would serve. Such recommendation must be sent to the Company's Secretary at the Company's executive offices. When it seeks nominees for directors, our governance and nominations committee takes into account a variety of factors including (a) ensuring that the board, as a whole, is diverse and consists of individuals with various and relevant career experience, relevant technical skills, industry knowledge and experience, financial expertise (including expertise that could qualify a director as a “financial expert”, as that term is defined by the rules of the SEC), local or

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community ties and (b) minimum individual qualifications, including strength of character, mature judgment, familiarity with the Company's business and industry, independence of thought and an ability to work collegially. The Company is of the view that the continuing service of qualified incumbents promotes stability and continuity in the board room, contributing to the ability of the board of directors to work as a collective body, while giving the Company the benefit of the familiarity and insight into the Company’s affairs that its directors have accumulated during their tenure. Accordingly, the process of the governance and nominations committee for identifying nominees reflects the Company’s practice of re-nominating incumbent directors who continue to satisfy the committee’s criteria for membership on the board of directors, whom the committee believes continue to make important contributions to the board of directors and who consent to continue their service on the board of directors. The board has not adopted a formal policy with respect to its consideration of diversity and does not follow any ratio or formula to determine the appropriate mix; rather, it uses its judgment to identify nominees whose backgrounds, attributes and experiences, taken as a whole, will contribute to the high standards of board service. The governance and nominations committee may adopt, and periodically review and revise as it deems appropriate, procedures regarding director candidates proposed by stockholders;
Reviewing requisite skills and criteria for new board members and board composition. The governance and nominations committee reviews with the entire board of directors, on an annual basis, the requisite skills and criteria for board candidates and the composition of the board as a whole;
Hiring of search firms to identify director nominees. The governance and nominations committee has the authority to retain search firms to assist in identifying board candidates, approve the terms of the search firm's engagement, and cause the Company to pay the engaged search firm's engagement fee;
Selection of committee members. The governance and nominations committee recommends to the board of directors on an annual basis the directors to be appointed to each committee of the board of directors;
Evaluation of the board of directors. The governance and nominations committee will oversee an annual self-evaluation of the board of directors and its committees to determine whether it and its committees are functioning effectively;
Evaluation of the board of directors. The governance and nominations committee will oversee an annual self-evaluation of the board of directors and its committees to determine whether it and its committees are functioning effectively; and
Development of Corporate Governance Guidelines. The governance and nominations committee will develop and recommend to the board a set of corporate governance guidelines applicable to the Company.

The governance and nominations committee may delegate any of its responsibilities to subcommittees as it deems appropriate. The governance and nominations committee is authorized to retain independent legal and other advisors, and conduct or authorize investigations into any matter within the scope of its duties.

Code of Ethics

Our board of directors has adopted a Code of Business Ethics and Conduct (the “Code of Conduct”) which constitutes a “code of ethics” as defined by applicable SEC rules and a “code of conduct” as defined by applicable NASDAQ rules. We require all employees, directors and officers, including our principal executive officer and principal financial officer to adhere to the Code of Conduct in addressing legal and ethical issues encountered in conducting their work. The Code of Conduct requires that these individuals avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity. The Code of Conduct contains additional provisions that apply specifically to our Chief Executive Officer, Chief Financial Officer and other finance department personnel with respect to accurate reporting. The Code of Conduct is available on our website at www.xgtechnology.com. The Company will post any amendments to the Code of Conduct, as well as any waivers that are required to be disclosed by the rules of the SEC on such website. Information contained on

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our website is not a part of, and is not incorporated into, this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

EXECUTIVE COMPENSATION

The compensation provided to our “named executive officers” for 2012 is set forth in detail in the 2012 Summary Compensation Table and other tables and the accompanying footnotes and narrative that follow this section. This section explains our executive compensation philosophy, objectives and design, our compensation-setting process, our executive compensation program components and the decisions made for compensation in respect of 2012 for each of our named executive officers.

Our named executive officers for 2012 who appear in the 2012 Summary Compensation Table are:

 
Richard L. Mooers   Executive Chairman and Director
John C. Coleman   Chief Executive Officer, Chief Operating Officer and Director
Roger G. Branton   Chief Financial Officer, Secretary and Director
James Woodyatt   President and Director
Joe Bobier   Chief Technology Officer

Summary Compensation Table

The following table summarizes information regarding the compensation awarded to, earned by or paid to, our Executive Chairman, Chief Executive Officer, Chief Financial Officer and our two other most highly compensated executive officers during 2012 and 2011. We refer to these individuals in this prospectus as our named executive officers.

             
Name and Principal Position   Year   Salary
($)
  Cash Bonus
($)
  Stock Awards
($) (1)
  Option Awards
($) (2)
  All Other Compensation
($) (3)
  Total
($)
Richard L. Mooers
Executive Chairman
    2011       357,500       0       80,440       0       9,250       447,190  
    2012       357,500       0       71,500       0       18,809       447,809  
John C. Coleman
Chief Executive Officer
    2011       250,000       0       58,050       216,500       47,300       571,850  
    2012       250,000       0       50,000                44,707       344,707  
Roger G. Branton
Chief Financial Officer
    2011       275,000       0       62,280       0       6,600       343,880  
    2012       275,000       0       55,000       0       10,780       340,780  
James Woodyatt
President
    2011       165,000       0       37,125       75,880       1,550       279,555  
    2012       165,000       0       33,000       0       1,729       199,729  
Joe Bobier
Chief Technology Officer
    2011       275,000       0       61,875       54,200       4,700       395,775  
    2012       275,000       0       55,000       0       10,979       340,979  

(1) Amounts represent corporate performance-related bonuses to be paid in cash or stock subject to board approval.
(2) Amounts relate to grants of stock options made under the 2009 Stock Incentive Plan. With respect to each stock option grant, the amounts disclosed generally reflect the grant date fair value computed in accordance with FASB ASC Topic 718 “Stock Compensation”.
(3) Includes employer-paid insurance and, for Mr. Coleman, a housing allowance.

Corporate Performance Bonus

In 2011, we established a corporate performance bonus matrix for eligible employees and contractors based on the achievement of certain milestones, including timely completion of engineering projects, adherence to operating budgets, and revenue produced by vertical market. Each milestone weighted according to importance for the current year as determined by the CEO and CFO. Eligible employees and contractors had the ability to earn up to 200% of their base compensation for 2012. The end of year evaluation of performance is made at the company level and not on the level of each individual. Bonuses may be paid in cash or in shares, at the discretion of the directors. For 2012, a 20% (of salary) corporate performance bonus

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was awarded to all executive officers, employees and eligible contractors of the Company. For 2011, a 22.5% (of salary) corporate performance bonus was awarded. The bonuses awarded for 2011 and 2012 are allocated to general & administrative and development expenses.

Philosophy

We operate in a new and rapidly evolving industry sector. To succeed in this environment, we must continually refine our strategy, continue development of our technologies, successfully commercialize our technologies and sell our products and expand our international operations. To achieve these objectives, we need to attract and retain a highly talented team of engineering, sales and marketing, business development and administrative professionals. We also expect our team to possess and demonstrate strong leadership and management capabilities.

Objectives

We believe in providing a total compensation package to our executive team through a combination of base salary, discretionary bonuses, and grants under our long-term equity incentive compensation plan and our executive compensation programs are designed to achieve the following objectives:

attract and retain talented and experienced executive officers, whose knowledge, skills and performance are critical to our success;
motivate these executive officers to achieve our business objectives;
promote teamwork while also recognizing the role each executive plays in our success; and
align the interests of our executive officers and stockholders.

Design

We believe that making equity awards a key component of executive compensation aligns the interests of our executive team with the long-term interests of our stockholders.

As our company has grown, so has our need to secure executive talent. To do so, we have determined that it is increasingly necessary to offer significant cash compensation as well as equity compensation. We do not affirmatively set out in any given year, or with respect to any given new hire package, to apportion compensation in any specific ratio between cash and equity, or between long-term and short-term compensation. Rather, total compensation may skew more heavily toward either cash or equity, or short-term or long-term compensation, as a result of factors described below. We will continue to evaluate our philosophy, objectives and design as circumstances require. At a minimum, we expect to review executive compensation annually.

Compensation-Setting Process

Role of Our Compensation Committee

During 2012, our Compensation Committee was responsible, together with our board of directors, for overseeing our executive compensation program, establishing our executive compensation philosophy and programs, and determining specific executive compensation, including cash and equity. During 2012, the members of our Compensation Committee were Mats Wennberg, George Schmitt and Palmi Sigmarsson. Upon effectiveness of this Registration Statement, the members of our Compensation Committee will be Gary Cuccio, Ken Hoffman and Ray Sidney and Larry Townes, with Mr. Townes serving as Chairman. Unless otherwise stated, the discussion and analysis below is based on decisions by the Compensation Committee.

During 2012, our Compensation Committee considered one or more of the following factors when setting executive compensation, as further explained in the discussions of each compensation element below:

the experiences and individual knowledge of the members of our board of directors regarding executive compensation, as we believe this approach helps us to compete in hiring and retaining the best possible talent while at the same time maintaining a reasonable and responsible cost structure;
individual negotiations with executive officers, particularly in connection with their initial compensation package, as these executive officers have generally been leaving meaningful compensation opportunities at their prior employers in order to work for us;

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the recommendations of our Executive Chairman;
corporate and/or individual performance, as we believe this encourages our executive officers to focus on achieving our business objectives;
the executive’s existing equity award and stock holdings;
internal pay equity of the compensation paid to one executive officer as compared to another — that is, that the compensation paid to each executive should reflect the importance of his or her role to the company as compared to the roles of the other executive officers, while at the same time providing a certain amount of parity to promote teamwork; and
the potential dilutive effect of new equity awards on our stockholders.

With our transition to being a company listed on NASDAQ, our compensation program following this offering may, over time, vary significantly from our historical practices. For example, we expect that following this offering, in setting executive compensation, the compensation committee may review and consider, in addition to the items above, factors such as the achievement of predefined milestones, tax deductibility of compensation, the total compensation that may become payable to executive officers in various hypothetical scenarios, the performance of our common stock and compensation levels at public peer companies.

Role of Board and Management

In setting compensation for 2012, our Executive Chairman worked closely with members of our board, particularly Messrs. Schmitt and Branton, in managing our executive compensation program, including reviewing existing compensation for adjustment (as needed), determining bonus payments and establishing new hire packages. Our finance department works with our Chairman to gather financial and operational data that the Chairman reviews in making his recommendations. Our Chief Financial Officer currently serves on the board and presents information and answers questions. No executive officer participated directly in the final determinations regarding the amount of any component of his or her own compensation package.

Executive Compensation Program Components

Base Salary

We provide base salary as a fixed source of compensation for our executive officers, allowing them a degree of certainty when having a meaningful portion of their compensation “at risk” in the form of equity awards covering the shares of a company for whose shares there has been limited liquidity to date. The board of directors recognizes the importance of base salaries as an element of compensation that helps to attract highly qualified executive talent.

Base salaries for our executive officers were established primarily based on individual negotiations with the executive officers when they joined us and reflect the scope of their anticipated responsibilities, the individual experience they bring, the board members’ experiences and knowledge in compensating similarly situated individuals at other companies, our then-current cash constraints, and a general sense of internal pay equity among our executive officers.

The board does not apply specific formulas in determining base salary increases. In determining base salaries for 2012 for our continuing named executive officers, no adjustments were made to the base salaries of any of our named executive officers as the board or compensation committee determined, in their independent judgment and without reliance on any survey data, that existing base salaries, taken together with other elements of compensation, provided sufficient fixed compensation for retention purposes.

Cash Bonuses or Bonuses Paid in Shares

Prior to this offering, our employees, including our executive officers, have been eligible to earn discretionary performance bonuses based on individual performance. The amount of individual bonus earned was determined in a subjective manner, without specific weightings or a formula.

In 2012, we set targets for the award of corporate performance-related bonuses, expressed as a percentage of base salary, for our employees, including our executive officers. The overall corporate performance of the Company, as evaluated by our board, was with reference to specific pre-established corporate goals, and was

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the critical factor for determining corporate performance-related bonuses. Each participant could earn an annual bonus of up to 100% of his earned base salary, which our board felt was an appropriate percentage given such payment can be paid in stock or cash at the board’s discretion.

For our 2012 bonus program, our Chief Executive Officer established, in consultation with the board, objectives and key results, for officers and senior management which also applies to all employees of the Company.

No corporate performance-related bonus payouts were made in cash in 2012, although an aggregate of $1.3 million has been accrued from 2012 and $1.4 million from 2011, which is expected to be paid in shares.

Equity Compensation

As a majority-held company, we have historically used options as the principal component of our executive compensation program. Consistent with our compensation objectives, we believe this approach has allowed us to attract and retain key talent and aligned our executive team’s contributions with the long-term interests of the company and our stockholders. We grant stock options with an exercise price not less than the fair market value of our common stock on the date of grant, so these options will have value to our executive officers only if the fair market value of our common stock increases after the date of grant and the date of vesting. Typically, stock options granted to our executive officers vest over three years.

In addition, our board has approved certain executive grants of options containing accelerated vesting provisions upon an involuntary termination (both termination without cause and resignation for good reason) as well as upon certain material change in control transactions. Our board believes these accelerated vesting provisions reflect current market practices, based on the collective knowledge and experiences of our board members (and without reference to specific peer group data), and allow us to attract and retain highly qualified executive officers. In addition, we believe these accelerated vesting provisions will allow our executive officers to focus on closing a transaction that may be in the best interest of our stockholders even though the transaction may otherwise result in a termination of their employment and, absent such accelerated vesting, a forfeiture of their unvested equity awards. Additional information regarding accelerated vesting prior to, upon or following a change in control is discussed below under “— Potential Payments Upon Termination or Change in Control.”

In determining the form, size and material terms of executive equity awards, our board customarily considered, among other things, individual negotiations with the executive officers at their time of hire, the executive officer’s total compensation opportunity, the need to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value, internal pay equity as among our executive officers, notable performance accomplishments, adjustments to duties and the retention implications of existing grants.

Our board of directors made the grants to our executive officers set forth below. In determining the size of the equity grants, our board generally considered the CEO’s recommendations, the executive officer’s existing equity award holdings (including the unvested portion of such awards), internal pay equity, our retention and incentive goals, and, as applicable, negotiations with the executive at the time of his hiring. In particular, the board awarded the following options:

         
Name   Exercise price per share   Date of grant   Date from which exercisable (vest over three years)   Expiry date   Number of
options
John Coleman   $ 0.250       April 14, 2011       April 14, 2012       April 14, 2021       1,000,000  
James Woodyatt   $ 0.225       April 14, 2011       April 14, 2012       April 14, 2021       350,000  
Joseph Bobier   $ 0.225       April 14, 2011       April 14, 2012       April 14, 2021       250,000  
Post-Employment Compensation

In hiring our executive officers, we recognized that many of our desired candidates were leaving the security of employment with more mature companies where they had existing severance and change of control compensation rights. Accordingly, we sought to develop compensation packages that could attract qualified candidates to fill our most critical positions. At the same time, we were sensitive to the need to integrate new executive officers into our existing executive compensation structure. We believe these equity acceleration provisions will help our executive officers maintain continued focus and dedication to their responsibilities to

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help maximize stockholder value if there is a potential transaction that could involve a change in control of our company and a potential for the termination of their employment.

All of our executive officers are employees-at-will except our chief executive officer, John Coleman who has a three year employment agreement. For a summary of the material terms and conditions of this employment agreement, see “Employment Agreements”.

Employee Benefits

We provide standard health, dental, vision, life and disability insurance benefits to our executive officers, on the same terms and conditions as provided to all other eligible employees. Our executive officers may also participate in our broad-based 401(k) plan, which currently does not include a company match or discretionary contribution. We believe these benefits are consistent with the broad based employee benefits provided at the companies with whom we compete for talent and therefore are important to attracting and retaining qualified employees.

We provide certain temporary living expenses to the Chief Executive Officer recognizing that such costs were critical to our ability to attract this individual to join us.

Equity Granting Policies

We encourage our named executive officers to hold a significant equity interest in our company, but have not set specific ownership guidelines.
While our board of directors has delegated authority to our compensation committee to grant equity awards to executive officers, all equity awards previously granted to our executive officers have been granted by our full board of directors.

Outstanding Equity Awards at Fiscal Year-End 2012

The following table presents information regarding outstanding options held by our named executive officers as of December 31, 2012:

         
  Exercise price per share   Date of grant   Date fully Exercisable (subject to vesting)   Expiry date   Number of options
Joseph Bobier   $ 0.27       March 1, 2004       March 1, 2007       March 1, 2014       1,000,000  
Richard Mooers (1)   $ 0.55       January 2, 2005       January 2, 2008       January 2, 2015       1,075,000  
Roger Branton (2)   $ 0.55       January 2, 2005       January 2, 2008       January 2, 2015       1,075,000  
Richard Mooers (1)   $ 2.00       January 19, 2006       January 19, 2009       January 19, 2016       2,750,000  
Roger Branton (2)   $ 2.00       January 19, 2006       January 19, 2009       January 19, 2016       2,750,000  
Joseph Bobier   $ 2.00       January 19, 2006       January 19, 2009       January 19, 2016       100,000  
James Woodyatt   $ 5.50       January 10, 2007       January 10, 2010       January 10, 2017       750,000  
John Coleman   $ 0.25       March 8, 2010       March 8, 2013       March 8, 2020       50,000  
John Coleman   $ 0.20       June 16, 2010       June 16, 2013       June 16, 2020       500,000  
John Coleman   $ 0.250       April 14, 2011       April 14, 2014       April 14, 2021       1,000,000  
James Woodyatt   $ 0.225       April 14, 2011       April 14, 2014       April 14, 2021       350,000  
Joseph Bobier   $ 0.225       April 14, 2011       April 14, 2014       April 14, 2021       250,000  

(1) Held by family entities or trusts for the benefit of the children of Richard Mooers and his wife.
(2) Held by trusts and entities for the benefit of Roger Branton, his wife and minor children.

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Management-Non-Employee Director Compensation

Outstanding Equity Awards at Fiscal Year-End 2012 — Current Directors

         
  Exercise price per share   Date of grant   Date fully Exercisable (subject to vesting)   Expiry date   Number of options
Mats Wennberg   $ 0.55       January 2, 2005       January 2, 2008       January 2, 2015       250,000  
Mats Wennberg   $ 2.00       January 19, 2006       January 19, 2009       January 19, 2016       1,000,000  
Palmi Sigmarsson   $ 2.00       January 19, 2006       January 19, 2009       January 19, 2016       1,250,000  
Palmi Sigmarsson   $ 0.225       April 14, 2011       April 14, 2014       April 14, 2021       500,000  

Outstanding Equity Awards at Fiscal Year-End 2012 — Incoming Directors upon Effective Date

The new incoming directors have received stock option awards of 500,000 at a strike price of $.45 each. These options were granted during 2012 and are accounted for as non-employee options to consultants for services provided during 2012 through 2015. The incoming directors upon effective date include Larry Townes, Gary Cuccio, Ken Hoffman and Ray Sidney. The Company does not presently pay a cash fee for serving on the board; however, the Company does reimburse non-employee directors for reasonable expenses incurred to attend board meetings.

Tax and Accounting Considerations

Deductibility of Executive Compensation

Section 162(m) of the Code limits the amount that a public company may deduct from federal income taxes for remuneration paid to executive officers (other than the chief financial officer) to one million dollars per executive officer per year, unless certain requirements are met. Section 162(m) provides an exception from this deduction limitation for certain forms of “performance-based compensation”, as well as for the gain recognized by executive officers upon the exercise of qualifying compensatory stock options. While our board is mindful of the benefit to us of the full deductibility of compensation, our board believes that it should not be constrained by the requirements of Section 162(m) where those requirements would impair flexibility in compensating our executive officers in a manner that can best promote our corporate objectives. We have not adopted a policy that requires that all compensation be deductible. We intend to continue to compensate our executive officers in a manner consistent with the best interests of the company and our stockholders.

Taxation of “Parachute” Payments and Deferred Compensation

Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to an excise tax if they receive payments or benefits in connection with a change in control that exceeds certain prescribed limits, and that the company, or a successor, may forfeit a deduction on the amounts subject to this additional tax. Section 409A of the Code also imposes additional significant taxes on the individual in the event that an executive officer, director or other service provider receives “deferred compensation” that does not meet the requirements of Section 409A of the Code. We did not provide any executive officer, including any named executive officer, with a “gross-up” or other reimbursement payment for any tax liability that he or she might owe as a result of the application of Sections 280G, 4999, or 409A of the Code during 2011, and we have not agreed and are not otherwise obligated to provide any named executive officers with such a “gross-up” or other reimbursement.

Accounting Treatment

The accounting impact of our compensation programs is one of many factors that are considered in determining the size and structure of our programs, so that we can ensure that our compensation programs are reasonable and in the best interests of our stockholders. Authoritative accounting guidance on stock compensation requires companies to measure the compensation expense for all share-based payment awards made to employees and directors, including stock options, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables above, even though our executive officers may never realize any value from their awards. Authoritative accounting guidance also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award.

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Compensation Recovery Policies

The compensation committee has not determined whether it would attempt to recover bonuses from our executive officers if the performance objectives that led to the bonus determination were to be restated, or found not to have been met to the extent originally believed by the compensation committee. However, as a public company subject to the provisions of Section 304 of the Sarbanes-Oxley Act of 2002, if we are required as a result of misconduct to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws, our chief executive officer and chief financial officer may be legally required to reimburse us for any bonus or other incentive-based or equity-based compensation they receive. In addition, we will comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and will adopt a compensation recovery policy once final regulations on the subject have been adopted.

Compensation Risk Assessment

In connection with this offering, our board of directors expects to review the potential risks associated with the structure and design of our various compensation plans, including a comprehensive review of the material compensation plans and programs for all employees. Our material plans and programs operate within our larger corporate governance and review structure that serves and supports risk mitigation.

Pension Benefits

We do not have any defined benefit pension plans.

Nonqualified Deferred Compensation

We do not offer any nonqualified deferred compensation plans.

Potential Payments upon Termination or Change in Control

John Coleman is covered by an employment agreement that calls for potential payments upon Termination or Change in Control, see summary section below.

Employment Agreements

The Company has an employment agreement with its CEO, John Coleman, for a term of three years. Mr. Coleman’s agreement was effective on August 1, 2011. It provides that he will receive a salary of no less than $250,000 per year, subject to annual increases as determined by the Board. In addition, he is entitled to incentive compensation not to exceed two (2) times his base salary. The incentive compensation is payable in shares of common stock at the Company’s discretion. He is also entitled to participate in all other benefits that the Company may provide to other senior executives. The agreement contains a non-compete and non-solicitation provision. Mr. Coleman’s employment agreement is included as an exhibit to this registration statement.

Employee Stock Incentive Plans

The Directors believe that it is important that directors and key personnel are appropriately motivated and rewarded and accordingly the Company has introduced various stock plans respectively entitled the xG Technology, Inc. 2004, 2005, 2006, 2007 and 2009 Stock Incentive Plans in which qualifying employees, directors and other individuals are eligible to participate. As at the date of this document, options in respect of 33,525,000 Common Shares have been initially granted, of which 3,283,188 have been exercised and 5,710,194 have been forfeited, which leaves 24,531,618 yet to be exercised. 13,350,000 are held by the directors and the balance by current and former employees and consultants. The Company will not issue any additional options/shares under the 2004, 2005, 2006, 2007 and 2009 Stock Incentive Plans. Instead, the Company will adopt the 2013 Stock Incentive Plan which will provide for the issuance of options/shares equal to 15% of the total outstanding shares after the offering, less the 24,531,618 shares that have already been issued under the former plans. The 15% calculation shall be made on the first trading day of a new fiscal year.

The purpose of the 2013 Plan is to provide additional incentive to those officers, employees, consultants and non-employee directors of the Company and its parents, subsidiaries and affiliates whose contributions are essential to the growth and success of the Company’s business. The 2013 Plan may be administered by the board or a board-appointed committee.

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Eligible recipients of option awards are employees, officers, consultants or directors (including non-employee directors) of the Company or of any parent, subsidiary or affiliate of the Company. The board has the authority to grant to any eligible recipient any options, restricted stock or other awards valued in whole or in part by reference to, or otherwise based on, our common shares.

The provisions of each option granted need not be the same with respect to each option recipient. Option recipients shall enter into award agreements with us, in such form as the board shall determine.

(i) Exercise price:   The per share exercise price of shares purchasable under an option shall be determined by the board in its sole discretion at the time of grant.
(ii) Option term:   The term of each option shall be fixed by the board but no option shall be exercisable more than ten years after the date of grant.
(iii) Exercisability:   Options shall be exercisable at such time or times and subject to such terms and conditions as the board shall determine. Options may be exercised in whole or in part by the option recipient providing written notice along with the full purchase price, which purchase price may be payable in cash, pursuant to cashless exercise procedures approved by the board, or with unrestricted common shares owned by the option recipient for at least six months prior to the date of exercise, or any combination of the foregoing.
(iv) Restrictions:   Options are not transferable other than by will or the laws of descent and distribution and shall be exercisable during the option recipient’s lifetime only by the option recipient. Except as otherwise provided in an award agreement, if an option recipient’s employment with, or service as a director of, the Company or any parent, subsidiary or affiliate terminates for any reason other than death or disability, options granted to such recipient that are exercisable at the time of termination shall remain exercisable for a period of not less than 90 days (one year in the case of termination by reason of death or disability), on which date they shall expire, and if not exercisable at the time of such termination shall expire on the date of such termination.
(v) Non-employee director stock options:   The exercise price per common share of the Company purchasable pursuant to an option granted to a non-employee director shall be the fair market value of such share on the date of grant. Such option shall be exercisable as the board shall determine and shall expire ten years after the date of grant.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Other than compensation arrangements, the following is a description of transactions to which we were a participant or will be a participant to, in which:

the amounts involved exceeded or will exceed the lesser of 1% of our total assets or $120,000; and
any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

Compensation arrangements for our directors and named executive officers are described elsewhere in this prospectus.

Issuance of Common Stock Warrants

On April 14, 2011, Mats Wennberg, a non-executive director was awarded a warrant to subscribe at $0.225 per share for 500,000 common shares in consideration for payment of a premium of $26,000.

Stock Options

We have granted stock options to our executive officers and certain of our directors. For a description of these options, see the section titled “Executive Compensation —  Outstanding Equity Awards at Fiscal Year-End 2012 ” and “— Management — Non-Employee Director Compensation.”

Convertible Shareholder Loans from MBTH

We have entered into four convertible shareholder loans with MBTH. As described below, the first two convertible shareholder loans with MBTH have been refinanced and have ceased to be outstanding and the third convertible shareholder loan with MBTH has been converted into shares of our common stock. The only convertible shareholder loan with MBTH remaining outstanding is the May 2011 Shareholder Loan, which MBTH has given us notice to convert into shares of our common stock.

On July 6, 2010, we entered into a convertible promissory note (the “$1.5 million Convertible Note”) whereby we borrowed principal advances in the amount of $1.5 million from MBTH, a related party, with a maturity date of January 7, 2012. The $1.5 million Convertible Note was repayable at maturity or, in the event of an equity fund raising prior to maturity, convertible, at MBTH’s option, into new shares at a price per share equivalent to the price paid by investors in such a capital raise. The note bore interest at a rate of 8% per year and was payable at maturity. Additionally, a facility fee of 2% was payable by us at maturity. The loan facility was secured against substantially all of our assets.

On October 8, 2010, we entered into a convertible promissory note (the “$3.5 million Convertible Note”) whereby we borrowed principal advances in the amount of $3.5 million from MBTH. The $3.5 million Convertible Note was payable at final maturity, April 7, 2012, on earlier demand of MBTH or, in the event of an equity fund raising prior to maturity or demand, convertible, at MBTH's option, into new shares at a price per share equivalent to the price paid by investors in such a capital raise, subject to a minimum of $0.25 per share and a maximum of $0.34 per share. Until maturity of the promissory note, MBTH had the right, at its option, to invest up to $10,000,000 in the Company (in addition to this and any other loans to us) at the then prevailing market price, with such investment subject to a minimum conversion price of $0.25 per new share and a maximum price of $0.34 per new share, in order to complete our then contemplated capital raise. If MBTH exercised this funding entitlement, we granted to MBTH options to subscribe new shares exercisable within the five year period after the grant date as follows: options to subscribe 10,000,000 shares at the exercise price of $0.50 per share and options to subscribe for an additional 10,000,000 shares at the exercise price of $1.00 per share. Interest was payable at maturity at the rate of 8% per annum. Additionally, a facility fee of 2% was payable by us at maturity. The loan facility was secured against substantially all of our assets.

On February 8, 2011, the outstanding principal balance of $5.0 million under the $1.5 million Convertible Note and $3.5 million Convertible Note and all accrued interest and fees of $500,000 were refinanced through the February 2011 Convertible Note issued to MBTH and the $1.5 million Convertible Note and the $3.5 million Convertible Note ceased to be outstanding. Under the February 2011 Convertible Note, we borrowed principal advances in the amount of up to $10 million with a maturity date of August 7,

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2012, or earlier upon demand. Interest under the February 2011 Convertible Note was payable at maturity at the rate of 8% per annum, compounded monthly. Additionally, a facility fee of 2% was payable by us at maturity. The loan facility was secured against substantially all of our assets. The February 2011 Convertible Note was payable at maturity or earlier demand of MBTH and was convertible, at MBTH’s option, into shares at a price of: $0.25 per share provided that shareholders not affiliated or acting in concert with MBTH who hold the requisite majority of voting rights consented to the waiver of the mandatory take-over provisions of the Company’s Amended and Restated Certificate of Incorporation or, failing which, $0.10 per share subject to MBTH making a take-over offer of $0.10 per share to the holders of our shares not held by MBTH. On March 10, 2011, the waiver specified in the financing arrangement was received and the conversion price was fixed at $0.25. On June 23, 2011, MBTH exercised its conversion rights under the February 2011 Convertible Note to convert the principal balance of $10 million into new shares at $0.25 per each new share. Accordingly, we issued 40,000,000 new shares to MBTH.

In connection with the February 2011 Convertible Note, we issued MBTH options to subscribe for 10 million new shares at an exercise price of $0.50 per share and an additional 10 million new shares at an exercise price of $1.00 per share subject to the grant not triggering the Company’s mandatory take-over provisions. The exercise prices were modified on January 16, 2013, see Modification of existing agreements and issuance of bridge financing below . The options are exercisable for a period of five years following the grant. We recorded a debt discount of approximately $1.9 million for the value ascribed to the options issued in connection with the February 2011 Convertible Note using the following Black-Scholes inputs:

   
  February 8, 2011
Number of shares underlying the Options     10,000,000       10,000,000  
Exercise price   $ 0.50     $ 1.00  
Volatility     151 %       151 %  
Risk-free interest rate     2.39 %       2.39 %  
Expected dividend yield     0 %       0 %  
Expected term (years)     5       5  

The accretive interest recorded for the year ended December 31, 2011 is approximately $0.5 million. Upon conversion of the February 2011 Convertible Note, we recorded the remaining debt discount of approximately $1.5 million against additional paid in capital in accordance with GAAP.

On May 19, 2011, we entered into a convertible promissory note (the “May 2011 Convertible Note”) whereby MBTH agreed to make available to us at its sole and absolute discretion principal advances in the amount of up to $15 million (subject to increase by mutual agreement). The loan is payable on final maturity, May 19, 2016, or earlier demand, and is convertible, at MBTH’s option, into our shares at a price of $0.75 per share. Interest is payable semi-annually in cash or shares, at our option, at the rate of 8% per year. Additionally, a facility fee of 2% is payable by us at maturity. The loan facility is secured against substantially all of our assets. MBTH has provided us a notice to convert the $15 million May 2011 Shareholder Loan into shares of our common stock.

Convertible shareholder loan conversion

On June 23, 2011, MBTH exercised its conversion rights under its February 2011 Convertible Note to convert the principal balance of $10 million into new shares at $0.25 per each new share. Accordingly, we issued 40,000,000 new shares to MBTH.

Shareholder loan interest conversion

On August 15, 2011, it was agreed between us and MBTH that $1,561,163 of interest and fees due as of July 31, 2011 under the February 2011 Convertible Note and the May 2011 Convertible Note would be paid in our shares at a conversion price of $0.40 per share. Accordingly, we issued to MBTH 3,902,908 of our shares.

Assumption of liabilities by MBTH

Effective July 1, 2011, we entered into an informal agreement with MBTH whereby MBTH assumed certain of our liabilities totaling $3.0 million, including certain payroll, management fees and other operating

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costs in the amount of $250,000 per month for a period of twelve months ended June 30, 2012. In consideration for this agreement, we issued 12,000,000 new shares to MBTH on June 23, 2011 at a price of $0.25 per share. As of December 31, 2011, $0.96 million of liabilities assumed and $0.54 million of costs paid to vendors during 2011 by MBTH were recorded together with the remaining balance of $1.5 million for assumption of future liabilities as due from a related party under current assets. During 2012, MBTH assumed $1.5 million in liabilities and the balance due from a related party as of December 31, 2012 was zero. On July 1, 2012 the agreement with MBTH to assume liabilities expired. Subsequent to the assumption of liability agreement and through February 28, 2013, MBTH paid additional liabilities on behalf of the Company amounting to $1.6 million.

Modification of existing agreements and issuance of bridge financing

Under a subscription agreement and convertible promissory note between the Company and MBTH dated January 16, 2013, MBTH committed to advance to the Company $5 million as part of a new convertible bridge loan for up to an aggregate of $10 million. The Bridge Loan is to refinance principal advances by MBTH under the May 2011 Convertible Loan in excess of $15 million, all accrued interest and fees under the May 2011 Convertible Loan and for general corporate purposes including; additional working capital and product development. The Bridge Loan is for a term of one year and is convertible, at each loan note holder’s option, into common shares at any time prior to final maturity at 95% of the price of any future equity financing completed by us (including this public offering). Interest is payable at 20% per annum, semi-annually in cash or shares, at the option of each loan note holder. The Bridge Loan may be prepaid in whole (or in part), subject to payment of a minimum of six months’ interest if prepaid within the first six months. We may redeem 50% of the Bridge Loan without prepayment penalty by forcing a conversion into shares, provided that the shares are marginable and freely tradable on a liquid exchange, and provided further that, if such forced conversion is effected within six months from the date of the Bridge Loan, then we shall pay six month’s interest on the unpaid and unconverted principal balance of the Bridge Loan immediately before such forced conversion (such interest being payable in cash or shares, at the option of each loan note holder). For every $10 of principal amount of Bridge Loan advanced by MBTH, the loan note holder will be issued one warrant to subscribe one share at a subscription price of $0.01 per share. The warrants are exercisable for a period of five years from issuance. We agreed to pay an origination fee of 5% to note holders. As of February 28, 2013, $5.3 million of principal balance was outstanding under the Bridge Loan. The origination fee of 5% is due five business days after closing as defined in the Bridge Loan which has not been paid as of February 28, 2013.

Wishing to strengthen our balance sheet by inducing MBTH to convert the May 2011 Convertible Loan early into equity and remove the collateral currently held by MBTH over our assets, a committee of the independent (i.e., non-MBTH affiliated) directors decided by agreement between the Company and MBTH on January 16, 2013 that, subject to the Company having sufficient authorized capital, the conversion price of the principal advanced under the May 2011 Convertible Loan will be decreased from $0.75 to $0.38 per common share (or any other such price as may be approved by our board before conversion having regard to the issue price per share of any future equity financing of us by a third party) (the “Modified Strike Price”) and, in addition, the Company will issue to MBTH an additional five million common shares upon the exercise in full of its conversion rights, termination of the May 2011 Convertible Loan and the discharge of all MBTH’s collateral over the Company’s assets.

In consideration of the terms above, MBTH gave the Company notice to its intention to exercise its conversion rights on January 16, 2013. Once the Company has published the 2012 annual results (subject to the Company not being in a “close period”, as defined in the AIM Rules for Companies) 39,473,684 shares of common stock will be issued to MBTH in payment of the $15.0 million principal balance under the note. Additionally, 5,000,000 shares will be issued to discharge the collateral under the May 2011 Convertible Loan.

We have also agreed to compensate MBTH for certain funding and other costs assumed by MBTH by the issue of common shares at the Modified Strike Price, for the difference between the interest rate of 8% that we currently pay to MBTH under the May 2011 Convertible Loan and the interest rate of 9.5% that MBTH pays to its investors for monies raised by MBTH to fund advances by MBTH to us under the May 2011 Convertible Loan. Once the Company has published the 2012 annual results (subject to the Company not

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being in a “close period”, as defined in the AIM Rules for Companies) 576,613 shares of common stock will be issued to MBTH in payment of the differential of the interest rates.

Subject to the Company having published the 2012 annual results and the Company not being in a close period, we have agreed to grant MBTH a warrant to subscribe for up to 1,500,000 common shares (the “1,500,000 Warrant”) at a subscription price of $0.01 per share. The 1,500,000 warrant is contingent upon shareholders of MBTH electing to exercise a warrant issued to them by MBTH (the “MBTH Warrant”) in xG Technology, Inc. common shares. If the MBTH shareholders elect not to exercise the MBTH Warrant or they elect to exercise a portion or all of the MBTH Warrant into shares of MBTH, a proportionate number of common shares under the 1,500,000 Warrant will be issued to MBTH. The MBTH Warrants were granted by MBTH, on the basis of one warrant per every $10 invested in MBTH, to investors in MBTH of funds for MBTH to lend on to the Company under the May 2011 Convertible Loan.

On January 16, 2013, as part of the negotiations to induce MBTH to convert the May 2011 Convertible Loan, the exercise price of the options for 20 million common shares granted to MBTH under the February 2011 Convertible Loan with MBTH was reduced from $0.50 in respect of an option for 10 million common shares and from $1.00 in respect of an option for 10 million common shares, to the Modified Strike Price.

In addition on January 16, 2013, we agreed to award MBTH a 3%. cash success fee if MBTH arranges additional financing for us by a third party (other than the Bridge Loan) or arranges a merger, consolidation or sale by us of substantially all of our assets to a third party. In consideration for ongoing strategic and commercial advisory services provided by MBTH to us, subject to us having published our 2012 annual results and otherwise not being in a close period, we have agreed to award MBTH an option for 5 million common shares with an exercise price equal to $0.25 per share.

Mooers Branton & Co., Incorporated

On March 2, 2006, we entered into a management agreement with Mooers Branton & Co. Incorporated (MBC), a Florida corporation, pursuant to which MBC agreed to provide certain management and financial services to us for a monthly fee of $80,000. The management agreement was effective January 1, 2006 and the liability to pay the fee was assumed for twelve months by MBTH on July 1, 2011. MBC is beneficially controlled and operated by Rick Mooers and Roger Branton.

Pursuant to the management agreement, MBC will provide services to us, which will include, but are not limited to, financial advice, strategic and financial planning, capital structure analysis and planning, and business development. In addition, MBC will provide certain office facilities, telephone and back-office administration as well as the services of a full-time office manager and administrator with other part-time assistance from time to time.

We incurred fees related to the management agreement of $960,000 in the year ended December 31, 2012, and $960,000 for the year ended December 31, 2011, of which $0 was outstanding at December 31, 2012. These fees to MBC were separate to the compensation received by Rick Mooers and Roger Branton as officers of the Company (See “Business-Executive Compensation”).

Treco International S.A.

On April 5, 2011, we entered into a settlement agreement with Treco, whereby the original infrastructure agreement between us and Treco was terminated and we regained the right to retain all of the benefits of future sales of network infrastructure equipment in the United States. Under the settlement agreement, all receivables payable by Treco were forgiven and became no longer due and payable. Furthermore, we agreed to issue to Treco 2,250,000 shares of our common stock.

On October 6, 2011, we entered into a convertible promissory note (the “$2 million Convertible Note”) in favor of Treco, a related party, as part of the settlement compensation to Treco for terminating the infrastructure agreement. The loan is payable on final maturity, October 6, 2018 and is convertible, at Treco’s option, into our shares at a price of $1.00 per share. Interest at the rate of 9% per year is payable semi-annually in cash or shares, at our option. As of December 31, 2012, $2 million of principal balance was outstanding under the $2 million Convertible Note. By way of payment of interest that accrued and was due,

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on May 2, 2012, we issued to Treco 156,522 common shares by way of payment of interest that accrued and was due and, on October 8, 2012, we issued to Treco 200,000 common shares.

As of December 31, 2012, Treco had an 11.06% shareholding in xG.

Subsidiaries of Townes Tele-Communications, Inc. (“Townes Tele-Communications”)

On September 4, 2012, we entered into an Equipment Purchase Agreement and an Engineering Services Agreement with Northeast Florida Telephone Company, Inc. (“NEFCOM”), a MacClenny, Florida-based provider of local phone, long distance, Internet services and telephone equipment that is a wholly-owned subsidiary of Townes Tele-Communications. The purchase consisted of $2.4 million for xMax® cognitive radio networking equipment, including xMax® wireless access points, an xMSC mobile switching center, and xMod personal hotspots, and an estimated $0.9 million for engineering services. Under the terms of the order, we will be paid upon the delivery of xMax® equipment to NEFCOM, following FCC authorization of the RF devices. The purchase agreement is conditioned upon NEFCOM having obtained favorable financing, such favorable financing to be determined at NEFCOM’s sole discretion.

Similarly, on November, 15, 2012, we entered into Equipment Purchase Agreements and Engineering Services Agreements under substantially the same terms with the following other wholly-owned subsidiaries of Townes Tele-Communications: Electra Telephone Company and Tatum Telephone Company (both based in Texas); Choctaw Telephone Company and MoKanDial Telephone Company (both based in Kansas); Haxtun Telephone Company (based in Colorado); and Walnut Hill Telephone Company (based in Arkansas) The purchases consisted in aggregate of $2.0 million for the purchase of xMax® cognitive radio networking equipment and an estimated $2.1 million for engineering services and other hardware.

Given that Larry Townes is a director and shareholder of MBTH and will be appointed to our board effective upon this registration statement becoming effective, and he is also a substantial shareholder of Townes Tele-Communications, the entering into the equipment purchase agreements and engineering services agreements described above by us are considered to be related party transactions.

Wennberg Industries AB

The Company had a consulting agreement with Wennberg Industries AB (“WIAB”), a company wholly owned by Mats Wennberg, one of our current directors. During each of the years ended December 31, 2012 and 2011, the Company incurred consulting fees of $0 and $40,000, respectively, of which $5,000 was outstanding at December 31, 2011. The consulting agreement was terminated effective January 31, 2012.

Other than as described above under this section “Related Person Transactions,” since January 1, 2012, we have not entered into any transactions, nor are there any currently proposed transactions, between us and a related party where the amount involved exceeds, or would exceed the lesser of 1% of our total assets or $120,000, and in which any related person had or will have a direct or indirect material interest. We believe the terms of the transactions described above were comparable to terms we could have obtained in arm’s length dealings with unrelated third parties.

We have not adopted a policy or set of procedures relating to the approval of transactions with related persons. Following the closing of this initial public offering, our Audit Committee will consider and approve or disapprove any related person transaction as required by NASDAQ regulations.

Policy on Future Related Party Transactions

All future transactions between us and our officers, directors, principal stockholders and their affiliates will be approved by the audit committee, or a similar committee consisting of entirely independent directors, according to the terms of our Code of Business Conduct and our Related Party Transaction Policies and Procedures.

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PRINCIPAL STOCKHOLDERS

The following table sets forth, as of February 28, 2013, information regarding beneficial ownership of our capital stock by:

each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;
each of our named executive officers;
each of our directors; and
all of our current executive officers and directors as a group.

Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including options that are currently exercisable or exercisable within 60 days of February 28, 2013. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown that they beneficially own, subject to community property laws where applicable.

Our calculation of the percentage of beneficial ownership prior to this offering is based on 211,427,890 shares of our common stock issued and outstanding as of February 28, 2013.

Common stock subject to stock options currently exercisable or exercisable within 60 days of February 28, 2013, are deemed to be outstanding for computing the percentage ownership of the person holding these options and the percentage ownership of any group of which the holder is a member but are not deemed outstanding for computing the percentage of any other person.

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o xG Technology, Inc., 240 S. Pineapple Avenue, Suite 701, Sarasota, Florida 34236.

     
  Shares Beneficially Owned
Prior to this Offering (1)
  Percentage of Shares Beneficially Owned  
Name of Beneficial Owner:   Shares   %
5% Stockholders:
                          
MBTH     141,301,280       59.77       59.77  
Treco     23,378.108       11.06       11.06  
ELL 232 ehf     15,000,000       7.09       7.09  
Named Executive Officers and Directors:
                          
Richard L. Mooers (2) (8)     145,686,280       60.64       62.73  
John C. Coleman     1,050,000       0.49       0.49  
Roger G. Branton (3) (8)     145,626,280       60.61       62.71  
James Woodyatt     1,126,333       0.53       0.53  
Joe Bobier (4)     6,291,666       2.96       0.00  
Mats Wennberg (5)     5,253,116       2.46       2.46  
George F. Schmitt (6)     141,586,280       59.87       59.87  
Palmi Sigmarsson (7)     17,761,756       8.34       8.34  
All executive officers and directors as a group
(8 persons):
    181,779,151       72.49       72.49  

(1) Of shares issued and outstanding and including in relation to each person, options that are currently exercisable or exercisable within 60 days of February 28, 2013 by that person
(2) Richard Mooers holds no direct or indirect legal interest in common shares in the Company but family entities or trusts for the benefit of his and his wife’s children hold 80% of the issued share capital of MB Merchant Group, LLC (“MBMG”) and Mooers Branton & Company (“MBC”). As of February, 28, 2013, MBMG has a 74.46 percentage ownership interest in MBTH, which is the beneficial owner of

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116,301,280 shares. MBMG also controls the voting rights attached to 5,025,000 common shares held by Joseph Bobier, having acquired those rights from him. In addition, 60,000 shares are owned directly by the children of Richard Mooers and MBC owns 500,000 shares and family entities or trusts for the benefit of the children of Richard Mooers and his wife hold 3,825,000 share options.
(3) Roger Branton holds no common shares directly but has indirect interests in the Company through trusts and entities for the benefit of himself, his wife and minor children which hold 20% of the issued share capital of MBMG and MBC. As of December 31, 2012, MBMG has a 74.46 percentage ownership interest in MBTH, which is the beneficial owner of 116,301,280 shares. MBMG also controls the voting rights attached to 5,025,000 common shares held by Joseph Bobier, having acquired those rights from him. In addition, MBC owns 500,000 shares and trusts and entities for the benefit of Roger Branton, his wife and minor children hold 3,825,000 share options.
(4) Joseph Bobier has transferred to MBMG the voting rights attached to the 5,025,000 shares held by him.
(5) Mats Wennberg has a direct beneficial interest in 306,058 shares in the Company. He also has a beneficial interest in 3,197,058 shares in the Company through his wholly owned company, Wennberg Industries AB.
(6) In addition to the 235,000 shares held directly by him, as of February, 28, 2013 George Schmitt has a direct 6.11% ownership interest in MBTH, which is the beneficial owner of 116,301,280 shares. In addition, George Schmitt, through his employment agreement as CEO of MBTH, has been granted an option to purchase MBTH shares sufficient to give George Schmitt five percent (5%) of the equity ownership of MBTH shares and its subsidiaries, based on MBTH’s total capitalization as of the date of execution of his employment agreement with MBTH and fully diluted to incorporate all shares issued and amounts paid in the exercise of such options.
(7) The Company has been notified that Palmi Sigmarsson is beneficially interested in a total of 16,178,423 Shares, comprising 15,000,000 Shares held by ELL 232 ehf (a company the shares in which the Company has been notified that Palmi Sigmarsson has a 35.7 percentage beneficial interest and a 74.3 percentage interest in the voting rights, by virtue of shareholders’ agreements) and 1,178,423 Shares held in his own name.
(8) Prior to the Company becoming a public entity, MBMG incurred a debt to a private individual of $837,000. This individual holds the option to convert such debt at any time into 837,000 shares in the Company, such conversion to be satisfied by MBMG transferring existing xG shares to the individual. Likewise, MBMG has the option to extinguish the debt in its entirety with 837,000 shares in the Company. Both of these options remain in full force and effect until such time as either party exercises their option.

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DESCRIPTION OF SECURITIES

General

The following description of our capital stock and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws are summaries and are qualified by reference to the amended and restated certificate of incorporation and the amended and restated bylaws that will be in effect upon the closing of this offering. Copies of these documents will be filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus forms a part. The descriptions of the common stock reflect changes to our capital structure that will be in effect upon the closing of this offering.

Upon the closing of this offering, our amended and restated certificate of incorporation will provide for one class of common stock.

Upon the closing of this offering, our authorized capital stock will consist of        shares, all with a par value of $0.01 per share and 10,000,000 shares of blank check preferred stock. As of February 28, 2013, we had outstanding 211,427,890 shares of common stock.

Common Stock

Voting Rights

Each Stockholder has one vote for each share of common stock held on all matters submitted to a vote of stockholders. A shareholder may vote in person or by proxy. Elections of directors are determined by a plurality of the votes cast and all other matters are decided by a majority of the votes cast by those Shareholders entitled to vote and present in person or by proxy.

Because our stockholders do not have cumulative voting rights, stockholders holding a majority of the voting power of our shares of common stock will be able to elect all of our directors. Our amended and restated certificate of incorporation and amended and restated bylaws to be effective upon the closing of this offering will provide that stockholder actions may be effected at a duly called meeting of stockholders or pursuant to written consent of the majority of shareholders. A special meeting of stockholders may be called by the majority of our board of directors or by a committee determined by the board of directors with power to call such meetings.

Dividend Rights

The holders of outstanding shares of common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board may determine, provided that required dividends, if any, on preferred stock have been paid or provided for. However, to date we have not paid or declared cash distributions or dividends on our common stock and do not currently intend to pay cash dividends on our common stock in the foreseeable future. We intend to retain all earnings, if and when generated, to finance our operations. The declaration of cash dividends in the future will be determined by the board based upon our earnings, financial condition, capital requirements and other relevant factors.

No Preemptive or Similar Rights

Holders of our common stock do not have preemptive rights, and common stock is not convertible or redeemable.

Right to Receive Liquidation Distributions

Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders and remaining after payment to holders of preferred stock of the amounts, if any, to which they are entitled, are distributable ratably among the holders of our common stock subject to any senior class of securities.

Preferred Stock

The Company has authorized 10,000,000 shares of Preferred Stock which may be issued in classes and or series, and shares of each class or series will have such rights and preferences as are fixed by the Board of

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Directors in the resolutions authorizing the issuance of that particular class or series. In designating the class or series of Preferred Stock, the Board of Directors may fix the number of shares constituting that class or series and fix the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including any sinking fund provisions) and the liquidation preferences of the class or series of Preferred Stock. It is possible, without any action of the stockholders of the Company that the holders of any class or series of Preferred Stock, when and if issued, will have priority claims to dividends and to any distributions upon liquidation of the Company and that they may have other preferences over the holders of the Common Stock. The Board of Directors may issue any class or series of Preferred Stock without approval of the stockholders of the Company.

The issuance of Preferred Stock may be used as an anti-takeover device without further action on the part of the stockholders. Furthermore, the issuance of Preferred Stock may dilute the voting power of holders of the Common Stock (such as by issuing Preferred Stock with super-voting rights) and may render more difficult the removal of current management, even if such removal may be in the stockholders’ best interests. The Company has no current plans to issue any of the Preferred Stock.

Options and Warrants

As of December 31, 2012, we had outstanding options and warrants to purchase 45,331,618 shares of common stock as set forth in the table below:

   
  2012
Number of options
  2011
Number of options
At January 1     44,907,023       19,016,022  
Granted     2,785,000       26,936,000  
Forfeited     (2,337,301 )       (716,667 )  
Exercised     (23,104 )       (328,332 )  
Unexercised as at December 31     45,331,618       44,907,023  

The weighted average exercise prices at December 31, 2012 and December 31, 2011 were $0.93 and $0.93, respectively.

Anti-Takeover Provisions

Since our board of directors has the power to retain and discharge our officers, these provisions could make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control.

These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types of transactions that may involve an actual or threatened acquisition of us.

These provisions are also designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of deterring hostile takeovers or delaying changes in our control or management. As a consequence, these provisions also may inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts.

Section 203 of the Delaware General Corporation Law

We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any “business combination” with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:

before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

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upon closing of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

In general, Section 203 defines business combination to include the following:

any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an “interested stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.

Transfer Agent and Registrar

Upon the closing of this offering, the U.S. transfer agent and registrar for our common stock will be Continental Stock Transfer & Trust Company.

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SHARES ELIGIBLE FOR FUTURE SALE

Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.

There has been no public market for our common stock in the United States prior to this offering. Our common stock has traded on AIM since November 2006. For further information regarding the trading of our common stock on AIM following the offering, see “Our common stock traded in the United Kingdom”.

Based on the number of shares outstanding as of            , 2013, upon the closing of this offering          shares of common stock will be issued and outstanding, assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options or warrants. Of the outstanding shares, all of the shares sold in this offering will be freely tradable, except that any shares held by our affiliates, as that term is defined in Rule 144 under the Securities Act, may only be sold in compliance with the limitations described below.

         shares of our common stock outstanding after this offering are restricted securities as such term is defined in Rule 144 under the Securities Act and/or are subject to lock-up agreements with us as described below. Following the expiration of the lock-up period, restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under the Securities Act, as described in greater detail below.

Rule 144

In general, under Rule 144 as currently in effect, a person who has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (ii) we have been subject to the Securities Exchange Act of 1934, as amended, periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to volume restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:

1% of the number of shares of our common stock then outstanding, which will equal approximately         shares immediately after this offering assuming no exercise of the underwriters’ over-allotment option, based on the number of shares of common stock outstanding as of            , 2013; or
the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Provided, in each case, that we have been subject to and are current with the Exchange Act periodic reporting requirements for at least 90 days before the sale. Sales by affiliates must also comply with the manner of sale and notice provisions of Rule 144.

Rule 701

Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares. However, substantially all Rule 701 shares are subject to lock-up agreements as described below and under “Underwriting” and will become eligible for sale at the expiration of those agreements.

Employees can only sell vested shares. Employees who do not hold vested shares, including shares subject to options, upon expiration of these selling restrictions will not be able to sell shares until they vest.

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Lock-Up Arrangements

We have agreed with the underwriter that for a period of six months following the date of this prospectus, we will not offer, sell, assign, transfer, pledge, contract to sell or otherwise dispose of, or hedge, any shares of our common stock or any securities convertible into or exchangeable for shares of our common stock, subject to specified exceptions. The Underwriter may, in its sole discretion, waive this prohibition. The restriction is not applicable to shares issuable upon conversion or exercise of any existing securities.

The restricted period described in the preceding paragraph will be extended if:

during the last 17 days of the restricted period we issue a release regarding earnings or regarding material news or events relating to us; or
prior to the expiration of the restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

In addition, all officers and directors and their affiliates have agreed not to sell any shares beneficially owned by them for a period of 180 days from the effective date of this Registration Statement. For a more complete discussion of our stock incentive plans, see the section titled “Underwriting — Lock-up Agreements”.

Registration Rights

There are no shareholders who have any right to request registration of their shares.

Stock Incentive Plans

In 90 days from the effectiveness of the registration statement of which this prospectus forms a part, we intend to file a Form S-8 registration statement under the Securities Act to register shares of our common stock issued or reserved for issuance under our stock incentive plans and agreements. This registration statement will become effective immediately upon filing, and shares covered by this registration statement will thereupon be eligible for sale in the public markets, subject to vesting restrictions, and Rule 144 limitations applicable to affiliates. For a more complete discussion of our stock incentive plans, see the section titled “Executive Compensation — Employee Stock Incentive Plans”.

Our common stock traded on AIM in the United Kingdom

All of the shares of our common stock are admitted for trading on AIM and will be listed for trading on The NASDAQ Capital Market. Our shares that trade on AIM are held in certificated form by individual stockholders or by Capita Trustees IRG Limited, which acts as a depositary, pursuant to a trust deed with us or are held in the SIS electronic settlement system. Capita Trustees IRG Limited, in turn, issues Depositary Interests, or DIs, to each of the brokerage firms that are members of CREST, which hold interests in shares on behalf of their clients who are stockholders. DIs are settled through CREST, operated by Euroclear U.K. & Ireland Limited. Our shares that trade on AIM under the ticker “XGT” are held in certificated form, as will all shares held by Cede & Co. for DTC, or in the SIS electronic settlement system. Shares of our common stock that trade under the ticker “XGTU” are unrestricted. Shares of our common stock that trade under the ticker “XGT” are restricted under Regulation S of the Securities Act and are considered “restricted securities” under Rule 144. The legends on “XGT” shares require the seller and seller's broker to provide standard letters in connection with a sale of stock, under which they represent that the sale is in compliance with the offshore resale requirements of Rule 904 of the Securities Act.

The AIM Rules

For so long as any of our common stock is admitted for trading on AIM, we are subject to the AIM Rules. A copy of the AIM Rules may be obtained at the London Stock Exchange's website at www.londonstockexchange.com . The information on, or that can be accessed through, this website is not part of this prospectus.

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The AIM Rules regulate the admission of shares to trading on AIM and impose various continuing obligations on AIM-listed companies. Under the AIM Rules, we are obliged, among other things, to:

disclose to the public details of certain transactions and various corporate and other information relating to our business and our stockholders;
seek the approval of our stockholders for certain corporate transactions, such as reverse takeovers, transactions resulting in fundamental changes in our business or a cancellation of our AIM listing;
publish half-yearly and annual accounts within certain time periods and in accordance with prescribed accounting standards; and
ensure that our directors and certain employees do not deal in our shares during prescribed periods prior to the publication of our financial results or when we are in possession of material non-public information.

The AIM Rules also require us to retain the services of a nominated advisor, or Nomad, and a broker. The Nomad is a full time corporate finance advisor approved by the London Stock Exchange to act in this capacity. The Nomad assesses our overall suitability for AIM and assists us in meeting our continuing obligations under the AIM Rules, maximizing the benefits of our AIM quotation and dealing with market issues as they arise. The Nomad also has responsibilities to the London Stock Exchange itself and must comply with the AIM Rules for Nominated Advisers. A broker is a securities house that is a member of the London Stock Exchange and is responsible for facilitating and promoting trading in a company's shares on the market. Often an AIM company will choose the same firm to act as both Nomad and broker. Allenby Capital Limited is our Nomad and joint broker and First Columbus LLP is our other joint broker.

The AIM Rules also enable the London Stock Exchange to take various steps to fine or censure us or impose other sanctions, including suspending or cancelling the trading of our shares on AIM, should we breach the AIM Rules or in order to preserve the integrity of the market or protect investors.

Disclosure and Transparency Rules

We are required to notify AIM if we are notified that the legal or beneficial interest that a stockholder holds in us (or are deemed to hold through their direct or indirect holding of financial instruments) reaches, exceeds or falls below 3% of our total outstanding shares, or any single percentage point increment above the 3% threshold. Since we are not subject to Chapter 5 of the Disclosure and Transparency Rules of the Financial Services Authority, and under our amended and restated certificate of incorporation and our amended and restated bylaws that will be in effect upon the closing of this offering there will be no provisions requiring disclosure of interests in shares by stockholders, our stockholders are not required to provide us notification upon reaching, exceeding or falling below these thresholds.

Moving Our Shares of Common Stock Between the United States and the United Kingdom

If a holder of our common stock in certificated form, other than shares which are registered in this offering, or as DIs in uncertificated form in the CREST system, wishes to sell its shares on NASDAQ, the holder needs to use an eligible U.S. brokerage firm and, in general, abide by Rule 144. Upon sale of the common stock on NASDAQ through an eligible U.S. brokerage firm, such firm will need to contact our transfer agent, who will either take possession of the share certificate(s) or remove the shares from the CREST system and, in turn, convert such shares to certificated form in the name of Cede & Co, as nominee for DTC. The common stock held by Cede & Co. for DTC will be then be transferred by DTC to the purchaser.

Conversely, if a holder of common stock in the United States wishes to sell its common stock via AIM using the CREST system, the holder will need to contact Capita Registrars and request that the shares be removed from the DTC system and converted to certificated form in the name of Capita Trustees IRG Limited, who will deposit such common stock in the CREST system.

Please note that the arrangements described above may be difficult or unavailable due to:

temporary delays that may arise because the transfer books for the common stock are closed;
obligations to pay fees, taxes and similar charges that would arise; or
restrictions imposed because of laws or regulations applicable to shares of common stock in the United States or the United Kingdom.

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UNDERWRITING

Aegis Capital Corp. is acting as the sole book-running manager of the offering and as representative of the underwriters, or the “Representative.” We have entered into an underwriting agreement, dated, [_____] 2013, with the Representative. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and each underwriter named below has severally and not jointly agreed to purchase from us, at the public offering price per share less the underwriting discounts set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

 
Name of Underwriter   Number of Shares
Aegis Capital Corp            
Total            

The underwriters are committed to purchase all the shares of common stock offered by us other than those covered by the option to purchase additional shares described below, if they purchase any shares. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.

We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments the underwriters may be required to make in respect thereof.

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Over-allotment Option . We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of additional shares (15% of the shares sold in this offering) from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the public offering price per share that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to the public will be $  and the total net proceeds, before expenses, to us will be $  .

Discount . The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their over- allotment option.

     
  Per Share   Total Without Over-Allotment Option   Total With
Over-Allotment Option
Public offering price   $           $           $        
Underwriting discount (7%)   $     $     $  
Proceeds, before expenses, to us   $     $     $  

The underwriters propose to offer the shares offered by us to the public at the public offering price per share set forth on the cover of this prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concession of $  per share. If all of the shares offered by us are not sold at the public offering price per share, the underwriters may change the offering price per share and other selling terms by means of a supplement to this prospectus.

We have paid an expense deposit of $50,000 to the Representative, which will be applied against the non-accountable expenses that will be paid by us to the underwriters in connection with this offering. The underwriting agreement, however, provides that in the event the offering is terminated, the $50,000 expense

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deposit paid to the Representative will be returned to the extent that offering expenses are not actually incurred in accordance with FINRA Rule 5110(f)(2)(C).

We have agreed to pay the Representative’s a non-accountable expense allowance equal to 1% of the public offering price of the shares (excluding shares that we may sell to the underwriters to cover over-allotments). We have also agreed to pay the Representative’s expenses relating to the offering, including (a) all fees, expenses and disbursements relating to background checks of our officers and directors in an amount not to exceed $5,000 per individual or $15,000 in the aggregate; (b) all filing fees incurred in clearing this offering with FINRA up to $15,000; (c) all fees, expenses and disbursements relating to the registration, qualification or exemption of securities offered under the securities laws of foreign jurisdictions designated by the underwriters; (d) upon successfully completing this offering, $21,775 for the underwriters’ use of Ipreo’s book-building, prospectus tracking and compliance software for this offering; and (f) upon successfully completing this offering, up to $20,000 of the Representative’s actual accountable road show expenses for the offering.

We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $_____.

Discretionary Accounts . The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.

Lock-Up Agreements . Pursuant to certain “lock-up” agreements, we, our executive officers and directors, and certain significant holders of our outstanding shares of common stock on a fully diluted basis (including shares underlying options, warrants and convertible securities) have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any common stock or securities convertible into or exchangeable or exercisable for any common stock, whether currently owned or subsequently acquired, without the prior written consent of the underwriter, for a period of six (6) months from the date of effectiveness of the offering.

The lock-up period described in the preceding paragraph will be automatically extended if: (1) during the last 17 days of the restricted period, we issue an earnings release or announce material news or a material event; or (2) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the date of the earnings release, unless the Representative waives this extension in writing; provided, however, that this lock-up period extension shall not apply to the extent that FINRA has amended or repealed NASD Rule 2711(f)(4), or has otherwise provided written interpretive guidance regarding such rule, in each case, so as to eliminate the prohibition of any broker, dealer, or member of a national securities association from publishing or distributing any research report, with respect to the securities of an emerging growth company (as defined in the JOBS Act) prior to or after the expiration of any agreement between the broker, dealer, or member of a national securities association and the emerging growth company or its shareholders that restricts or prohibits the sale of securities held by the emerging growth company or its shareholders after the initial public offering date.

Underwriters’ Warrants. We have agreed to issue to the underwriters’ representative warrants to purchase up to a total of [ ] shares of common stock. The warrants are exercisable at $    per share (125% of the public offering price) commencing on a date which is one year from the effective date of the offering under this prospectus supplement and expiring on a date which is no more than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(H). The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The representative (or permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these options, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from effectiveness. In addition, the warrants provide for registration rights upon request, in certain cases. We will bear all fees and expenses attendant to registering

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the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.

Right of First Refusal . Subject to certain limited exceptions, until twelve (12) months from the effective date of the offering, the Representative has a right of first refusal to purchase for its account or to sell for our account, or any subsidiary or successor, any securities of our company or any such subsidiary or successor which we or any subsidiary or successor may seek to sell in public or private equity and public debt offerings during such twelve (12)-month period. The Representative will not have more than one opportunity to waive or terminate the right of first refusal in consideration of any payment or fee.

Electronic Offer, Sale and Distribution of Shares . A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The Representative may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.

Stabilization . In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.

Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress.
Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the overallotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market.
Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the over- allotment option. If the underwriters sell more shares than could be covered by exercise of the overallotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering.
Penalty bids permit the Representative to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our shares or common stock or preventing or retarding a decline in

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the market price of our shares or common stock. As a result, the price of our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be effected on The NASDAQ Capital Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.

Passive market making . In connection with this offering, underwriters and selling group members may engage in passive market making transactions in our common stock on The NASDAQ Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.

Other Relationships . Certain of the underwriters and their affiliates have provided, and may in the future provide, various investment banking, commercial banking and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fees. However, except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.

Offer restrictions outside the United States

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

Australia

This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer for the offeree under this prospectus.

China

The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”

European Economic Area — Belgium, Germany, Luxembourg and Netherlands

The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.

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An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:

(a) to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements);

(c) to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of the Company or any underwriter for any such offer; or

(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive.

France

This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.

This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.

Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.

Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.

Ireland

The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.

Israel

The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority, or the ISA, nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor

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has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.

Italy

The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societ — $$ — Aga e la Borsa, “CONSOB” pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:

to Italian qualified investors, as defined in Article 100 of Decree no. 58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and
in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.

Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:

made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and
in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.

Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.

Japan

The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.

Portugal

This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissã do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as

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defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.

Sweden

This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.

Switzerland

The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority.

This document is personal to the recipient only and not for general circulation in Switzerland.

United Arab Emirates

Neither this document nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor has the Company received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by the Company.

No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.

United Kingdom

Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA.

This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.

Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to Kips Bay.

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In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

LEGAL MATTERS

Robinson Brog Leinwand Greene Genovese & Gluck P.C. will render a legal opinion as to the validity of the shares of the common stock to be registered hereby. Certain legal matters in connection with this offering will be passed upon for the underwriter by Reed Smith LLP.

EXPERTS

Our financial statements as of and for the years ended December 31, 2011 and 2012 included in this prospectus have been audited by Friedman, LLP, independent certified public accountants, to the extent and for the periods set forth in their report appearing elsewhere herein, and are included in reliance on such report given upon the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

As of the effective date, we will file annual, quarterly and current reports, proxy statements and other information with the SEC. We have also filed with the SEC under the Securities Act a registration statement on Form S-1 with respect to the common stock offered by this prospectus. This prospectus, which constitutes part of the registration statement, does not contain all the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement, portions of which are omitted as permitted by the rules and regulations of the SEC. Statements made in this prospectus regarding the contents of any contract or other document are summaries of the material terms of the contract or document. With respect to each contract or document filed as an exhibit to the registration statement, reference is made to the corresponding exhibit. For further information pertaining to us and the common stock offered by this prospectus, reference is made to the registration statement, including the exhibits and schedules thereto, copies of which may be inspected without charge at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m.. Copies of all or any portion of the registration statement may be obtained from the SEC at prescribed rates. Information on the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The web site can be accessed at http://www.sec.gov. The internet address of xG is http://www.xgtechnology.com . Information contained on our website is not a part of, and is not incorporated into, this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

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xG TECHNOLOGY, INC.
December 31, 2012 and December 31, 2011

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[GRAPHIC MISSING]

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

xG Technology, Inc.

We have audited the accompanying balance sheets of xG Technology, Inc. (the “Company”), as of December 31, 2012 and 2011 and the related statements of operations, changes in stockholders’ equity and cash flows for each of the two 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 audits 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 the Company as of December 31, 2012 and 2011 and the results of its operations and their cash flows for each of the two years ended December 31, 2012 and 2011, in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has recurring losses and has a net capital deficiency. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

/s/ Friedman LLP
East Hanover, New Jersey
March 5, 2013

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xG TECHNOLOGY, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)

   
  December 31,
     2012   2011
ASSETS
                 
Current assets
                 
Cash   $ 271     $ 133  
Prepaid expenses and other current assets     16       44  
Due from related party           1,500  
Total current assets     287       1,677  
Property and equipment, net     1,725       2,140  
Intangible assets, net     17,608       14,537  
Total assets   $ 19,620     $ 18,354  
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 
Current liabilities
                 
Accounts payable   $ 655     $ 686  
Accrued expenses     754       564  
Accrued bonuses     2,633       1,375  
Accrued interest to related parties     1,169       169  
Due to related party     1,098        
Convertible notes payable to related party     17,198       6,883  
Total current liabilities     23,507       9,677  
Convertible notes payable to related party     2,000       2,000  
Total liabilities     25,507       11,677  
Commitments
                 
Stockholders' equity (deficit)
                 
Series A Convertible Preferred Stock – $0.01 par value per share:
                 
25,000,000 shares authorized, none issued or outstanding As of December 31, 2011 and 2010
                 
Common stock, – $0.01 par value, 250,000,000 shares authorized, 211,468,130 and 210,575,954 shares issued at December 31, 2012 and 2011, respectively     2,115       2,106  
Additional paid in capital     116,132       114,906  
Accumulated deficit     (124,112 )       (110,325 )  
Treasury stock, at cost – 80,000 shares and 40,000 shares at December 31, 2012 and 2011, respectively     (22 )       (10 )  
Total stockholder's equity (deficit)     (5,887 )       6,677  
Total liabilities and stockholders' equity (deficit)   $ 19,620     $ 18,354  

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xG TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT NET LOSS PER SHARE DATA)

   
  For the Year Ended December 31,
     2012   2011
Revenue   $     $ 150  
Cost of revenue and operating expenses
                 
Cost of components and personnel           50  
General and administrative expenses     5,543       5,505  
Development     4,806       5,249  
Stock based compensation     554       1,020  
Amortization and depreciation     2,063       1,806  
Total cost of revenue and operating expenses     12,966       13,630  
Loss from operations     (12,966 )       (13,480 )  
Other income (expense)
                 
Interest expense, net     (535 )       (1,847 )  
Impairment     (286 )       (341 )  
Total other income (expense)     (821 )       (2,188 )  
Loss before income tax provision     (13,787 )       (15,668 )  
Income tax provision            
Net loss   $ (13,787 )     $ (15,668 )  
Basic and diluted net loss per share     (0.07 )       (0.09 )  
Weighted average number of shares outstanding basic and diluted     211,098       180,082  

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xG TECHNOLOGY, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

           
  Common Stock   Additional Paid In Capital   Treasury Stock   Accumulated Deficit   Total
     Shares   Amount
Balance, January 1, 2011     152,063,319     $ 1,521     $ 98,851     $     $ (94,657 )     $ 5,715  
Net loss                             (15,668 )       (15,668 )  
Treco settlement     2,250,000       23       337                   360  
Conversion of $10M convertible promissory note     40,000,000       400       9,600                   10,000  
Debt discount recorded for options issued with convertible debt                 1,932                   1,932  
Conversion of debt                 (1,449 )                   (1,449 )  
Issuance of Warrants                 108                   108  
Stock based compensation                 1,020                   1,020  
Issuance of stock in exchange for payment of interest on convertible debt     3,902,908       39       1,522                   1,561  
Assumption of liabilities by affiliate     12,000,000       120       2,880                   3,000  
Exercise of options     359,727       3       105                   108  
Purchase of treasury stock                       (10 )             (10 )  
Balance, December 31, 2011     210,575,954       2,106       114,906       (10 )       (110,325 )       6,677  
Net loss                             (13,787 )       (13,787 )  
Stock based compensation                 410                   410  
Compensation of consultant granted in stock     112,550       1       96                   97  
Issuance of Common Shares     400,000       4       396                   400  
Exercise of options     23,104             5                   5  
Issuance of Warrants                 143                   143  
Purchase of treasury stock                       (12 )             (12 )  
Issuance of stock in exchange for payment of interest on convertible debt     356,522       4       176                   180  
Balance, December 31, 2012     211,468,130     $ 2,115     $ 116,132     $ (22 )     $ (124,112 )     $ (5,887 )  

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xG TECHNOLOGY, INC.
STATEMENTS OF CASHFLOWS
(IN THOUSANDS)

   
  Year Ended December 31,
     2012   2011
Cash flows from operating activities
                 
Net loss   $ (13,787 )     $ (15,668 )  
Adjustments to reconcile net loss to net cash used in operating activities
                 
Stock based compensation     554       1,020  
Share-based consulting and other services     100       191  
Depreciation and amortization     2,063       1,806  
Impairment     286       341  
Accretion of financing instruments           483  
Amounts paid by affiliate on behalf of xG     1,500       517  
Changes in assets and liabilities
                 
Inventory           187  
Prepaid expenses and other current assets     28       24  
Accounts payable     (32 )       200  
Accrued expenses     191       1,861  
Accrued bonuses     1,258       1,375  
Accrued interest to related party     1,180       56  
Due to related party     1,098        
Net cash used in operating activities     (5,561 )       (7,607 )  
Cash flows from investing activities
                 
Capital expenditures for property and equipment     (515 )       (1,175 )  
Capitalization of intangible assets     (4,491 )       (4,848 )  
Net cash used in investing activities     (5,006 )       (6,023 )  
Cash flows from financing activities
                 
Proceeds from convertible notes payable     10,315       13,656  
Proceeds from issuance of common stock     400        
Purchase of treasury stock     (12 )       (10 )  
Proceeds from exercise of options     2        
Proceeds from issuance of Warrants           26  
Net cash provided by financing activities     10,705       13,672  
Net increase in cash     138       42  
Cash, beginning of year     133       91  
Cash, end of year   $ 271     $ 133  
Supplemental cash flow disclosures of investing and financing activities
                 
Conversion of notes payable           10,483  
Stock issued to affiliate for assumption of liabilities           3,000  
Stock issued as payment for interest on convertible notes     180       1,561  
Stock issued in Treco settlement           360  
Convertible debt issued in Treco settlement           2,000  

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1 — NATURE OF OPERATIONS

Description of Business

xG Technology, Inc. (the “Company”) is a Delaware corporation that has developed a broad portfolio of innovative intellectual property that we believe will enhance wireless communications. Our intellectual property is embedded in proprietary software algorithms designed to offer cognitive interference mitigation and spectrum access solutions to organizations in a wide variety of industries, including national defense and rural broadband, which represent the primary vertical markets that the Company is initially targeting.

2 — GOING CONCERN

The financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the company as a going concern. As of December 31, 2012, the company has negative working capital of $23,220,000 and an accumulated deficit of $124,112,000. This and other factors raise substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital and to fulfill its existing backlog. As of February 28, 2013 the Company has a total backlog of $33,000,000. The ability to recognize revenue and ultimately cash receipts, on the existing backlog is contingent upon, but not limited to, receiving FCC equipment authorization and acceptable performance of the delivered equipment and services. The Company currently estimates that it will begin to fulfill orders associated with its back log in mid. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues 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 maturities of three months or less at the time of purchase to be cash equivalents. At times, the Company’s cash balances may exceed the current insured amounts under the Federal Deposit Insurance Corporation.

Concentrations of Credit Risk for Cash

The Company’s cash balances are maintained at various banks. Balances are insured by the Federal Deposit Insurance Corporation subject to certain limitations.

Intangible Assets

Capitalized software costs incurred in the research, design and development of software for sale to others as a separate product or embedded in a product and sold as part of the product as a whole are charged to expense until technological feasibility is established and amortized on a straight-line basis over five years, beginning when the products are offered for sale or the enhancements are integrated into the products. Management is required to use its judgment in determining whether capitalized software costs meet the criteria for immediate expense or capitalization, in accordance with Generally Accepted Accounting Principles (“GAAP”). The unamortized capitalized costs of a computer software product are compared to the net realizable value of that product and any excess is written off.

The Company’s proprietary software solutions operate in a fast changing industry that may generate unknown methods of detecting and monitoring disturbances that could render our technology inferior, resulting in the Company’s results of operations being materially adversely affected. The Company does, however, closely monitor trends and changes in technologies and customer demand that could adversely impact its

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3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

competitiveness and overall success. It is reasonably possible that those estimates of anticipated future gross revenues, the remaining estimated economic life of the product, or both will be reduced significantly in the near term due to competitive pressures. As a result, the carrying amount of the capitalized software costs for our products may be reduced materially in the near term.

Our software is inherently complex and may contain defects and errors that are only detectable when the products are in use. Such defects or errors could have a serious impact on our end customers, which could damage our reputation, harm our customer relationships and expose us to liability. Defects in our software could adversely affect our ability and that of our customers to ship products on a timely basis as well as customer or licensee demand for our products. Any such delays or declines in demand could reduce our revenues and harm our ability to achieve or sustain desired levels of profitability. We and our customers may also experience component or software failures or defects that could require significant product recalls, rework and/or repairs that are not covered by warranty reserves. The Company has entered into certain customer agreements that contain conditions including but not limited to Federal Communications Commission (“FCC”) authorization of our products. The Company is currently pursuing obtaining FCC authorization on our products. Our intellectual property is embedded in proprietary software algorithms that offer cognitive spectrum access and interference mitigation solutions.

Patents and licenses are measured initially at purchase cost and are amortized on a straight line basis over their useful lives which range between 18.5 to 20 years.

Property, Plant and Equipment

Property, plant and equipment are presented at cost at the date of acquisition. Depreciation is computed using the straight-line method over estimated useful asset lives, which range from 3 to 7 years commencing the month following the purchase.

Impairment of Long-Lived Assets

Long lived assets including certain intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by that asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Impairment of intangible assets amounted to $18,000 and $0 for the years ended December 31, 2012 and 2011, respectively. Impairment of property and equipment amounted to $268,000 and $0 for the years ended December 31, 2012 and 2011, respectively.

Revenue Recognition

The Company recognizes revenues when persuasive evidence of an arrangement exists, services have been rendered, the price is fixed and determinable, and collectability is reasonably assured. Revenues from management and consulting, time-and-materials service contracts, maintenance agreements and other services are recognized as the services are provided or at the time the goods are shipped and title as passed.

Development Expenses

Development expenses consist primarily of salaries and related costs for technical and programming personnel, are expensed as incurred and were $4,806,000 and $5,249,000 for the years ended December 31, 2012 and 2011, respectively.

Income Taxes

The Company accounts for income taxes using the assets and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets

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3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized.

The Company files a U.S. federal and state income tax return. The Company recognizes liabilities for uncertain tax positions based on the two-step process prescribed by GAAP. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period. The Company recognizes interest and penalties as incurred in finance income (expense), net in the Statements of Operations. There were no liabilities recorded for uncertain tax positions at December 31, 2012 or 2011.

Stock Based Compensation

The Company accounts for stock-based awards to employees in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options.

The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, the Company recognizes expense over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable accounting principles. Such options are valued using the Black-Scholes option pricing model.

Treasury Stock

Shares of common stock repurchased are recorded at cost as treasury stock. When shares are reissued, the cost method is used for determining cost. In accordance with GAAP, the excess of the acquisition cost over the reissuance price of the treasury stock, if any, is recorded to additional paid-in capital, limited to the amount previously credited to additional paid-in capital, if any. Any excess is charged to accumulated deficit.

Earnings Per Share

Basic earnings per common share amounts are based on weighted average number of common shares outstanding. Diluted earnings per share amounts are based on the weighted average number of common shares outstanding, plus the incremental shares that would have been outstanding upon the assumed exercise of all potentially dilutive stock options, warrants and convertible stock, subject to anti-dilution limitations. All such potentially dilutive instruments were anti-dilutive as of December 31, 2012 and 2011. At December 31, 2012 and 2011 approximately 71.8 million and 56.3 million shares underlying the convertible debentures, options and warrants were anti-dilutive.

Fair Value of Financial Instruments

Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The

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3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value.

GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2012, consistent with the fair value hierarchy provisions:

       
  Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)   Significant Other Observable Inputs
(Level 2)
  Significant Unobservable Inputs
(Level 3)
  Carrying
Amount
Assets:
                                   
Cash   $ 271,000     $     $     $ 271,000  
Liabilities:
                                   
Convertible notes payable   $     $ 10,595,533     $     $ 19,198,000  

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2011, consistent with the fair value hierarchy provisions:

       
  Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)   Significant Other Observable Inputs
(Level 2)
  Significant Unobservable Inputs
(Level 3)
  Carrying
Amount
Assets:
                                   
Cash   $ 133,000     $     $     $ 133,000  
Liabilities:
                                   
Convertible notes payable   $     $ 5,867,753     $     $ 8,883,000  

Recently Issued Accounting Principles

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. We will remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenue exceed $1 billion, (ii) the date that we

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3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period. Pursuant to Section 107 of the JOBS Act, we have elected to utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

4 — PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

     
    December 31,
     Useful Life (years)   2012   2011
Cost:
                 
Furniture and equipment     3 – 7 years     $ 1,970,000     $ 1,970,000  
Hardware     4 – 5 years       2,486,000       2,239,000  
             4,456,000       4,209,000  
Accumulated depreciation:           (2,731,000 )       (2,069,000 )  
Property and equipment, net         $ 1,725,000     $ 2,140,000  

Depreciation of property and equipment amounted to $662,000 and $721,000 for the years ended December 31, 2012 and 2011, respectively. Impairment of property and equipment amounted to $268,000 and $0 for the years ended December 31, 2012 and 2011, respectively.

5 — INTANGIBLE ASSETS

Intangible assets consist of the following:

         
  Software Development Costs   Patents & Licenses
     Cost   A.A.   Cost   A.A.   Total
Balance as of December 31, 2010   $ 3,476,000     $     $ 11,702,000     $ (4,404,000 )     $ 10,774,000  
Additions     4,499,000             349,000             4,848,000  
Amortization           (479,000 )             (606,000 )       (1,085,000 )  
Balance as of December 31, 2011     7,975,000       (479,000 )       12,051,000       (5,010,000 )       14,537,000  
Additions     4,251,000             239,000             4,490,000  
Impairments                 (18,000 )             (18,000 )  
Amortization           (782,000 )             (619,000 )       (1,401,000 )  
Balance as of December 31, 2012   $ 12,226,000     $ (1,261,000 )     $ 12,272,000     $ (5,629,000 )     $ 17,608,000  

Amortization of intangible assets amounted to $1,401,000 and $1,085,000 for 2012 and 2011, respectively. The total cost basis of intangible assets at December 31, 2012 was $24.5 million which consists of $15.9 million of costs that are subject to amortization at December 31, 2012 and $8.6 million of assets that are not subject to amortization at December 31, 2012.

Software Development Costs:

At December 31, 2012 the Company has capitalized a total of $12.2 million of software development costs. Included in the capitalized costs is $3.9 million of development costs related to the BSN 250 base station and the TX70 handset which allowed the Company to offer for sale its voice and spectrum access solutions during 2011 as evidenced by the sales to the U.S. Army. Also included in the capitalized costs is $8.3 million of development costs related to the xAP, xMod and xMSC which will allow the Company to offer data and interference mitigation solutions that are not yet available for sale. Company recognized amortization of software development costs available for sale of $0.8 million and $0.5 million in 2012 and 2011. These costs are being amortized over a five year period.

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5 — INTANGIBLE ASSETS  – (continued)

Patents & Licenses:

At December 31, 2012 the Company has capitalized a total of $12.3 million of patents & licenses. Included in the capitalized costs is $12.0 million of costs associated with patents and licenses that have been filed. Also included in the capitalized costs is $0.3 million of costs associated with provisional patents and pending applications which have not yet been filed.

The Company amortizes patents and licenses that have been filed over their useful lives which range between 18.5 to 20 years. The costs of provisional patents and pending applications is not amortized until the patent is filed and is reviewed each reporting period to determine if it is likely that the patent will be successfully filed. The Company recognized $0.6 million of amortization expense related to patents and licenses in each of the years ended December 31, 2012 and 2011.

Estimated amortization expense for the succeeding five years is as follows:

 
2013   $ 1,400,000  
2014     1,400,000  
2015     1,400,000  
2016     921,000  
2017 and thereafter     3,909,000  
     $ 9,030,000  

6 — CONVERTIBLE NOTES PAYABLE

On July 6, 2010, the Company entered into a convertible promissory note (the “$1.5 million Convertible Note”) whereby the Company borrowed principal advances in the amount of $1.5 million from MB Technology Holdings, LLC (“MBTH”), a related party, with a maturity date of January 7, 2012. The $1.5 million Convertible Note was repayable at maturity or, in the event of an equity fund raising prior to maturity, convertible, at MBTH’s option, into shares in the Company at a price per share equivalent to the price paid by investors in such a capital raise. The note bore interest at a rate of 8% per year and was payable at maturity. Additionally, a facility fee of 2% was payable by the Company at maturity. The loan facility is secured against substantially all of the assets of the Company.

On October 8, 2010, the Company entered into a convertible promissory note (the “$3.5 million Convertible Note”) whereby the Company borrowed principal advances in the amount of $3.5 million from MBTH. The $3.5 million Convertible Note was payable at maturity, April 7, 2012, on demand of MBTH or, in the event of an equity fund raising prior to maturity or demand, convertible, at MBTH's option, into shares at a price per share equivalent to the price paid by investors in such a capital raise, subject to a minimum of $0.25 per share and a maximum of $0.34 per share. The loan facility is secured against substantially all of the assets of the Company.

On February 8, 2011, the outstanding principal balance of $5.0 million under the $1.5 million Convertible Note and $3.5 million Convertible Note and all accrued interest and fees of $500,000 were refinanced through a new $10 million convertible promissory note (the “February 2011 Convertible Note”) with MBTH. Under the February 2011 Convertible Note the Company borrowed principal advances in the amount of up to $10 million with a maturity date of August 7, 2012. Interest under the February 2011 Convertible Note was payable at maturity at the rate of 8% per annum, compounded monthly. Additionally, a facility fee of 2% was payable by the Company at maturity. The loan facility was secured against substantially all of the assets of the Company. The February 2011 Convertible Note was payable at maturity or earlier demand of MBTH and was convertible, at MBTH’s option, into shares at a price of:

a. $0.25 per share provided that shareholders not affiliated or acting in concert with MBTH who hold the requisite majority of voting rights consented to the waiver of the mandatory take-over provisions of the Company’s Amended and Restated Certificate of Incorporation, or failing which;
b. $0.10 per share subject to MBTH making a take-over offer of $0.10 per share to the holders of the Company’s shares not held by MBTH.

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6 — CONVERTIBLE NOTES PAYABLE  – (continued)

On March 10, 2011, the waiver specified in the financing arrangement was received and the conversion price was fixed at $0.25.

In connection with the $10 million Convertible Note, the Company issued MBTH options to subscribe for 10 million new shares of the Company at an exercise price of $0.50 per share and an additional 10 million new shares of the Company at an exercise price of $1.00 per share subject to the grant not triggering the Company’s mandatory take-over provisions. Please see the Subsequent Event footnote for modification of the exercise prices. The options are exercisable for a period of five years following the grant. The Company recorded a debt discount of approximately $1.9 million for the value ascribed to the options issued in connection with the February 2011 Convertible Note using the following Black-Scholes inputs:

   
  February 8, 2011
Number of shares underlying the Options     10,000,000       10,000,000  
Exercise price   $ 0.50     $ 1.00  
Volatility     151 %       151 %  
Risk-free interest rate     2.39 %       2.39 %  
Expected dividend yield     0 %       0 %  
Expected term (years)     5       5  

The accretive interest recorded for the year ended December 31, 2011 is approximately $0.5 million. Upon conversion of the February 2011 Convertible Note, the Company recorded the remaining debt discount of approximately $1.5 million against additional paid in capital in accordance with GAAP.

On June 23, 2011, MBTH exercised its conversion right under its February 2011 Convertible Note and the principal balance of $9.0 million along with the accrued interest and fees of $1.0 million for a total of $10 million were converted into equity at $0.25 per share. Accordingly, the Company issued 40,000,000 shares to MBTH.

On May 19, 2011, the Company entered into a convertible promissory note (the “May 2011 Convertible Note”) whereby the Company borrowed principal advances in the amount of up to $15 million with MBTH (subject to increase by mutual agreement). The loan is payable on final maturity, May 19, 2016, or earlier demand, and is convertible, at MBTH’s option, into shares of the Company at a price of $0.75 per share. Interest is payable semi-annually in cash or shares, at the Company’s option, at the rate of 8% per year. Additionally, a facility fee of 2% is payable by the Company at maturity. The loan facility is secured against substantially all of the assets of the Company. On August 11, 2011 $1.6 million of accrued interest and fees due MBTH was converted into shares and accordingly the Company issued 3,902,908 shares to MBTH. Accordingly, the Company issued 3,902,908 shares to MBTH. As of December 31, 2012, the Company had drawn down $17.2 million of principal balance under the May 2011 Convertible Note. The accrued interest at December 31, 2012 was $1.1 million.

On October 6, 2011, the Company entered into a convertible promissory note (the “$2 million Convertible Note”) in favor of Treco International, S.A. (“Treco”), a related party, as part of the settlement compensation to Treco for terminating the infrastructure agreement. The loan is payable on final maturity, October 6, 2018 and is convertible, at Treco’s option, into common shares of the Company at a price of $1.00 per share. Interest at the rate of 9% per year is payable semi-annually in cash or shares, at the Company’s option. As of December 31, 2012, $2 million of principal balance was outstanding under the $2 million Convertible Note. The accrued interest at December 31, 2012 was $42,000.

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7 — INCOME TAXES

The provision (benefit) for income taxes consists of the following:

   
  December 31,
     2012   2011
Current tax provision                  
Federal   $     $  
State            
              
Deferred tax provision                  
Federal            
State            
              
Income tax provision   $     $  

A reconciliation of the statutory tax rate to the effective tax rate is as follows:

   
  December 31,
     2012   2011
Statutory Federal income tax (benefit) rate     (35 )%       (35 )%  
State and local taxes net of Federal (benefit)     (3.63 )%       (3.63 )%  
Permanent differences     1.62 %       2.59 %  
Valuation allowance     37.01 %       36.04 %  
Effective tax rate     0 %       0 %  

There were no significant uncertain tax positions taken, or expected to be taken, in a tax return that would be determined to be an unrecognized tax benefit taken or expected to be taken in a tax return that should have been recorded on the Company’s financial statements for the years ended December 31, 2012 or 2011.

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax reporting. Significant components of the Company’s deferred tax assets are as follows:

   
  December 31,
     2012   2011
Deferred tax assets
                 
Net operating loss carryforwards   $ 42,848,000     $ 36,666,000  
Research and development tax credit carryforwards     1,186,000       1,186,000  
Accrued expenses     1,017,000       531,000  
Total deferred tax asset     45,051,000       38,383,000  
Valuation allowance     (45,051,000 )       (38,383,000 )  
     $     $  

Net operating losses (“NOL”) of approximately $110.9 million will expire beginning in 2027 for federal and state purposes. The Company also has research and development credits of approximately $1.2 million which will begin to expire in 2027.

Realization of the NOL carryforwards and other deferred tax temporary differences is contingent on future taxable earnings. The Company’s deferred tax asset was reviewed for expected utilization using a “more likely than not” approach by assessing the available positive and negative evidence surrounding its recoverability. Accordingly, a valuation allowance has been recorded against the Company’s deferred tax asset, as it was determined based upon past and present losses that it was “more likely than not” that the Company’s deferred tax assets would not be realized. The valuation allowance was increased to the full carrying amount of the Company’s deferred tax assets. In future years, if the deferred tax assets are

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7 — INCOME TAXES  – (continued)

determined by management to be “more likely than not” to be realized, the recognized tax benefits relating to the reversal of the valuation allowance as of December 31, 2012 will be recorded. The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be utilized, and will reduce the valuation allowance appropriately as such time when it is determined that the “more likely than not” criteria is satisfied The federal and state tax returns for the years ending December 31, 2009, 2010 and 2011 are currently open.

8 — EQUITY

(a) Stock Options — Equity Incentive Plans:

The Company’s stock option plans provide for the grant of options to purchase shares of common stock to officers, directors, other key employees and consultants. The purchase price may be paid in cash or “net settled” in shares of the Company’s common stock. In a net settlement of an option, the Company does not require a payment of the exercise price of the option from the optionee, but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Options generally vest over a three year period from the date of grant and expire ten years from the date of grant.

A summary of the Company’s historical stock option plan activity as of December 31, 2012 is as follows:

         
Plan Name   Options Authorized   Options Granted   Shares Exercised   Shares Forfeited/Expired   Options Outstanding
2004     5,000,000       5,000,000       2,361,111       100,000       2,538,889  
2005     5,000,000       5,000,000       350,000       2,050,000       2,600,000  
2006     11,000,000       10,855,000       220,641       2,296,859       8,337,500  
2007     1,000,000       900,000             150,000       750,000  
2009     10,000,000       11,770,000       351,436       1,113,335       10,305,229  
Total     32,000,000       33,525,000       3,283,188       5,710,194       24,531,618  

Under ASC 718, the weighted average grant date fair value of options granted was $0.45 and $0.24 for options granted in 2012 and 2011, respectively. Each option is estimated on the date of grant, using the Black-Scholes model and the following assumptions (all in weighted averages):

   
  2012   2011
Exercise price   $ 0.47     $ 0.24  
Volatility     145 %       152 %  
Risk-free interest rate     1.42 %       2.11 %  
Expected dividend yield     0 %       0 %  
Expected term (years)     9.2       6.0  

The risk-free rate is based on the rate for the U.S. Treasury note over the expected term of the option. The expected term for employees represents the period of time that options granted are expected to be outstanding using the simplified method, for non-employee options the expected term is the full term of the option. Expected volatility is based on the average of the weekly share price changes over the shorter of the expected term or the period from the placement on AIM to the date of the grant.

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8 — EQUITY  – (continued)

A summary of the status of the Company’s stock option plans for the years ended December 31, 2012 and 2011 is as follows:

   
  Number of Options
(in Shares)
  Weighted Average Exercise Price
Options Outstanding January 1, 2011     17,495,389     $ 1.50  
Granted     6,436,000       0.26  
Exercised     328,332       0.20  
Forfeited or Expired     716,667       2.52  
Options outstanding, December 31, 2011     22,886,390       1.14  
Exercisable, December 31, 2011     15,530,501     $ 1.54  
Options Outstanding, January 1, 2012     22,886,390     $ 1.14  
Granted     2,485,000       0.47  
Exercised     23,104       0.22  
Forfeited or Expired     816,668       0.64  
Options outstanding, December 31, 2012     24,531,618       1.09  
Exercisable, December 31, 2012     17,976,133     $ 1.36  

Summary information regarding the options outstanding and exercisable at December 31, 2012 is as follows:

         
  Outstanding   Exercisable
Range of Exercise Prices   Number Outstanding
(in shares)
  Weighted Average Remaining Contractual Life (in years)   Weighted Average
Exercise Price
  Number Exercisable
(in shares)
  Weighted
Average
Exercise Price
$0.03 – 0.23     5,025,562       8.15     $ 0.21       1,947,410     $ 0.21  
0.23 – 0.68     10,023,556       5.04       0.40       6,629,556       0.39  
1.00 – 2.00     8,545,000       3.22       1.96       8,461,667       1.97  
3.50 – 7.88     937,500       4.02       5.14       937,500       5.14  
       24,531,618                   17,976,133        

Under the provisions of ASC 718, the Company recorded approximately $554,000 and $924,000 of stock based compensation expense for the years ended December 31, 2012 and 2011, respectively. Stock based compensation for employees was approximately $371,000 and $701,000 and stock based compensation expense for non-employees was approximately $183,000 and $223,000 for the years ended December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011, there was approximately $1.6 million and $1.4 million, respectively, of unrecognized compensation cost related to non-vested options under the plans.

In 2012, the Company received proceeds of $2,000 from 8,332 options exercised and did not receive any proceeds during 2011 because all options exercised during 2011 were net settled through cashless exercises. In 2012, 14,772 options were net settled through cashless exercises. The intrinsic value of options exercised in 2012 and 2011 were $5,000 and $180,000, respectively. The intrinsic value of options exercisable at December 31, 2012 and 2011 was $996,000 and $924,000, respectively. The total fair value of shares vested during 2012 and 2011 was $619,000 and $111,000, respectively.

Deferred tax benefits recognized from the timing difference of recognizing stock based compensation expense per the financial statements compared to the income tax return has been fully reserved for as the Company is in a net loss position. No windfall tax benefits have been recognized for the exercise of stock options. The Company will recognize the windfall tax benefits when they reduce income taxes payable in accordance with GAAP.

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8 — EQUITY  – (continued)

(b) Warrants:

The Company has issued warrants, outside of the equity incentive plans, at exercise prices equal to or greater than market value of the Company’s common stock at the date of issuance.

A summary of the warrant and option activity is as follows:

   
  Number of
Options/ Warrants
(in Shares)
  Weighted Average Exercise Price
Warrants Outstanding January 1, 2011     1,520,633     $ 0.34  
Granted     20,500,000       0.74  
Exercised            
Forfeited or Expired            
Warrants Outstanding, December 31, 2011     22,020,633       0.71  
Exercisable, December 31, 2011     20,500,000     $ 0.74  
Warrants Outstanding, January 1, 2012     22,020,633     $ 0.71  
Granted     300,000       1.00  
Exercised            
Forfeited or Expired     1,520,633        
Warrants Outstanding, December 31, 2012     20,800,000       0.74  
Exercisable, December 31, 2012     20,800,000     $ 0.74  

Summary information regarding the warrants and options as of December 31, 2012 is as follows:

   
Exercise Price   Number
Outstanding
(in shares)
  Weighted Average Remaining
Contractual Life
(in years)
$0.23     500,000       2.28  
$0.50     10,000,000       3.10  
$1.00     10,300,000       3.13  

The Company issued a warrant to purchase 300,000 common shares of the Company to a non-employee on March 28, 2012. The warrant was fully vested on the date of issuance and the Company recorded stock based compensation expense for non-employees of $143,000. The Company used the following assumptions in the Black Scholes model to calculate the fair value of the warrant on March 28, 2012:

 
  2012
Exercise price   $ 1.00  
Volatility     149 %  
Risk-free interest rate     1.13 %  
Expected dividend yield     0 %  
Expected term (years)     5.00  

The risk-free rate is based on the rate for the U.S. Treasury note over the expected term of the warrant. The expected term for non-employee warrants is the full term of the warrant. Expected volatility is based on the average of the weekly share price changes over the shorter of the expected term or the period from the placement on AIM to the date of the grant.

The Company cancelled a warrant to purchase 1,520,633 common shares of the Company to the non-employee on March 22, 2012. Pursuant to an agreement, warrants issued to the non-employee upon inception of engagement were to be performance based. Pursuant to a mutual agreement with the Company, these warrants will not be exercised and have been cancelled. The cumulative compensation expense of $194,000 was reversed during 2012 upon cancelation.

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8 — EQUITY  – (continued)

During the years ended December 31, 2011 and 2010, the Company recognized stock based compensation expense attributable to this warrant of $96,000 and $95,000, respectively for a total of $194,000 of cumulative compensation expense.

The Company issued a warrant to purchase 500,000 shares of the Company’s common stock on April 14, 2011 at an exercise price of $0.23 per share. The warrant was fully vested on the date of issuance and the Company recorded consulting fee expense of $108,000. The Company issued options to purchase 10,000,000 shares of the Company’s common stock at an exercise price of $1.00 per share and 10,000,000 shares of the Company’s common stock at an exercise price of $0.50 per share that were fully vested upon issuance. The 20,000,000 shares were issued in connection with the February 2011 Convertible Note and met the criteria to be classified as equity instruments under GAAP. Refer to the discussion of the February 2011 Convertible Note in Note 6 above for the treatment of the 20,000,000 options. Please see the subsequent event footnote below for modification of the exercise prices.

(c) Stock repurchase plan:

On March 23, 2011, the Company’s Board of Directors authorized a share repurchase program to repurchase a total of up to one million in value of common stock up to such number of shares as represents 10% of the Company’s issued and outstanding share capital.

9 — RETIREMENT PLAN

The Company has a 401(k) plan for all full–time employees who have attained the age of 21 and completed 90 days. The Company does not provide any match for the 401(k).

10 — COMMITMENTS

The Company's office rental, deployment sites and warehouse facilities expenses aggregated approximately $287,000 and $303,000 of which approximately $106,000 and $161,000 was capitalized during the years ended December 31, 2012 and 2011, respectively. The leases will expire on different dates from 2013 through 2016. Total minimum future annual rentals, exclusive of real estate taxes and related costs, are approximately as follows:

 
Year Ending December 31,     
2013   $ 308,000  
2014     303,000  
2015     311,000  
2016     121,000  
     $ 1,043,000  

11 — RELATED PARTY TRANSACTIONS

MBTH

As of December 31, 2012 MBTH owned approximately 55% of the Company’s outstanding shares, which represents a controlling interest. The Company has entered into several convertible notes with MBTH during 2011 and 2010 refer to Note 6 — Convertible Notes Payable.

Effective July 1, 2011, by agreement of a committee of non-MBTH Directors, the Company entered into an arrangement with MBTH whereby MBTH assumed certain liabilities of the Company including certain payroll, management fees and other operating costs in the amount of $250,000 per month for a period of twelve months ending June 30, 2012, subject to extension. In consideration for this agreement, the Company issued MBTH 12 million shares on June 23, 2011 at a price of $0.25 per share for proceeds of $3 million.

During 2012, MBTH assumed $1.5 million in liabilities and the due from related party balance as of December 31, 2012 was zero. On July 1, 2012 the agreement with MBTH to assume liabilities of the Company expired. During 2012, MBTH paid additional liabilities on the behalf of the Company which are reflected in the due to related party balance in current liabilities on the balance sheet for $1,098,000 at December 31, 2012.

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11 — RELATED PARTY TRANSACTIONS  – (continued)

Mooers Branton & Co. Incorporated

On March 2, 2006, the Company entered into a management agreement (the “Management Agreement”) with Mooers Branton & Co. Incorporated (“MBC”), a Florida corporation, pursuant to which MBC agreed to provide certain management and financial services to the Company for a monthly fee of $80,000. The Management Agreement was effective January 1, 2006. The Company incurred fees related to the Management Agreement of $960,000 in each of the years ended December 31, 2012 and 2011 of which $960,000 was assumed by MBTH in the year ended December 31, 2012. MBC is beneficially controlled and operated by Rick Mooers and Roger Branton.

Wennberg Industries AB

The Company had a consulting agreement with Wennberg Industries AB (“WIAB”) which is wholly owned by Mats Wennberg, a Director of the Company. During each of the years ended December 31, 2012 and 2011, the Company incurred consulting fees of $0 and $40,000, respectively of which $5,000 was outstanding at December 31, 2011. The agreement was terminated effective January 31, 2012.

Treco International S.A.

The Company and Treco entered into an agreement (the “original agreement”) whereby Treco was to purchase a certain number of base stations and deploy the base stations in territories throughout the United States of America. In consideration for the original agreement, Treco provided a down payment of $6 million ($4.5 million in 2009 and $1.5 million in 2010). In 2009, Ceinwen Lloyd, Chief Executive Officer of Treco International S.A. (“Treco”) was appointed as a Non-Executive Director of the Company. During 2010, the Company entered into agreements with Treco to reacquire the rights to deploy infrastructure in the United States of America.

On April 5, 2011, the Company entered into a Settlement Agreement whereby the original agreement was terminated. Under the settlement agreement, all receivables from Treco were forgiven. Furthermore, the Company issued Treco 2,250,000 shares and a promissory note in the principal amount of $2 million (see Note 6 — Convertible Notes Payable).

12 — CONTINGENCIES

The Company is subject, from time to time, to claims by third parties under various legal theories. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows. For the year’s ended December 31, 2012 and 2011, the Company did not have any legal actions pending.

13 — SUBSEQUENT EVENTS

Convertible notes payable

The Company drew down an additional $450,000 on the May 2011 Convertible Note with MBTH from January 1, 2013 through January 16, 2013 to finance operating activities of the Company. Additionally, the Company accrued additional interest and fees of $266,000 from January 1, 2013 through January 16, 2013.

Under a subscription agreement and convertible promissory note (the “Bridge Loan”) between the Company and MBTH dated January 16, 2013, MBTH committed to advance to the Company $5 million as part of a new convertible bridge loan for up to an aggregate of $10 million. The Bridge Loan was issued to refinance principal advances under the May 2011 Convertible Loan in excess of $15 million, all accrued interest and fees under the May 2011 Convertible Loan and for general corporate purposes including; additional working capital and product development. On January 16, 2013, the Company refinanced principal of $2,648,000 and accrued interest of fees of $1,393,000 under the May 2011 Convertible Note for a beginning principal balance of $4,041,000 under the Bridge Loan.

The Bridge Loan is for a term of one year and is convertible, at each loan note holder’s option, into common shares at any time prior to final maturity at 95% of the price of any future equity financing completed by the Company (including this public offering). Interest is payable at 20% per annum, semi-annually in cash or shares, at the option of each loan note holder. The Bridge Loan may be prepaid by

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13 — SUBSEQUENT EVENTS  – (continued)

the Company in whole (or in part), subject to payment of a minimum of six months’ interest if prepaid within the first six months. The Company may redeem 50% of the Bridge Loan without prepayment penalty by forcing a conversion into shares, provided that the shares are marginable and freely tradable on a liquid exchange, and provided further that, if such forced conversion is effected within six months from the date of the Bridge Loan, then the Company shall pay six month’s interest on the unpaid and unconverted principal balance of the Bridge Loan immediately before such forced conversion (such interest being payable in cash or shares, at the option of each loan note holder). For every $10 of principal amount of Bridge Loan advanced by a loan note holder, the loan note holder will be issued a warrant to subscribe one share at a subscription price of $0.01 per share. The warrants are exercisable for a period of five years from issue. The Company agreed to pay an origination fee of 5% to note holders five days after closing as defined in the Bridge Loan. From January 16, 2013 through February 28, 2013, the Company received additional principal advances of $1,252,000 under the Bridge loan for a total principal balance at February 28, 2013 of $5,293,000.

On January 16, 2013, a committee of the independent (non-MBTH affiliated) directors decided that, subject to the Company having sufficient authorized capital, the conversion price of the principal advanced under the May 2011 Convertible Loan will be decreased from $0.75 to $0.38 per share (or any other such price as may be approved by the board before conversion having regard to the issue price per common share of any future equity financing of the Company by a third party) (the “Modified Strike Price”) and, in addition, the Company will issue to MBTH an additional five million common shares upon the exercise in full of its conversion rights, termination of the May 2011 Convertible Loan and the discharge of all MBTH’s collateral over the Company’s assets.

In consideration of the terms above, MBTH gave the Company notice of its intention to exercise its conversion rights on January 16, 2013. Once The Company has published the 2012 annual results (subject to the Company not being in a “close period”, as defined in the AIM Rules for Companies) 39,473,684 shares of common stock will be issued to MBTH in payment of the $15.0 million principal balance under the May 2011 Convertible Loan. Additionally, 5,000,000 shares will be issued to discharge the collateral under the May 2011 Convertible Loan.

The Company has also agreed to compensate MBTH for certain funding and other costs assumed by MBTH by the issue of common shares at the Modified Strike Price, for the difference between the interest rate of 8% that The Company currently pay to MBTH under the May 2011 Convertible Loan and the interest rate of 9.5% that MBTH pays to its investors for monies raised by MBTH to fund advances by MBTH to the Company under the May 2011 Convertible Loan. Once the Company has published the 2012 annual results (subject to the Company not being in a “close period”, as defined in the AIM Rules for Companies) 576,613 shares of common stock will be issued to MBTH in payment of the differential of the interest rates.

Subject to the Company having published the 2012 annual results and the Company not being in a close period, the company agreed to grant MBTH a warrant to subscribe for up to 1,500,000 common shares (the “1,500,000 Warrant”) at a subscription price of $0.01 per share. The 1,500,000 warrant is contingent upon shareholders of MBTH electing to exercise a warrant issued to them by MBTH (the “MBTH Warrant”) in xG Technology, Inc. common shares. If the MBTH shareholders elect not to exercise the MBTH Warrant or they elect to exercise a portion or all of the MBTH Warrant into shares of MBTH, a proportionate number of common shares under the 1,500,000 Warrant will be issued to MBTH. The MBTH Warrants were granted by MBTH, on the basis of one warrant per every $10 invested in MBTH, to investors in MBTH of funds for MBTH to lend on to the Company under the May 2011 Convertible Loan.

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13 — SUBSEQUENT EVENTS  – (continued)

On January 16, 2013, as part of the negotiations to induce MBTH to convert the May 2011 Convertible Loan, the exercise price of the options for 20 million common shares granted to MBTH under the February 2011 Convertible Loan with MBTH was reduced from $0.50 in respect of an option for 10 million common shares and from $1.00 in respect of an option for 10 million common shares, to the Modified Strike Price.

In addition on January 16, 2013, The Company agreed to award MBTH a 3% cash success fee if MBTH arranges additional financing for the Company by a third party (other than the Bridge Loan) or arranges a merger, consolidation or sale by the Company of substantially all of the assets to a third party. In consideration for ongoing strategic and commercial advisory services provided by MBTH to us, subject to the Company having published the 2012 annual results and otherwise not being in a close period, The Company have agreed to award MBTH an option for five million common shares with an exercise price equal to $0.25 per share.

Purchase Agreements

In addition to the sales backlog of $7.4 million that was outstanding at December 31, 2012, the Company has added $12.1 million of additional sales orders from January 1, 2013 through February 28, 2013. At February 28, 2013 the total backlog of reseller agreements was $13.5 million and the total backlog of purchase orders was $19.5 million for a total of $33.0 million.

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GLOSSARY

As used herein, the terms set forth below shall have the following meaning:

3G (Third Generation Cellular)  — A mobile wireless technology that typically offered a minimum data rate of 2 Megabits/second (Mbits/s, or millions of bits per second) for stationary or walking users, and 384 kilobits/second in a moving vehicle. This system is currently being upgraded to the new 4G LTE technology (see below).

4G (Fourth Generation Cellular)  — A successor to 3G cellular technology. Long Term Evolution (LTE) is the most widely deployed 4G technology and has a theoretical net bit rate capacity of up to 100 Mbits/s in the downlink and 50 Mbits/s in the uplink if a 20 MegaHertz (MHz) channel is used.

Broadband  — A telecommunications signaling method that includes or handles a relatively high rate of data transfer (typically measured in the range of Mbits/s). Also used as a descriptive term for evolving digital technologies that provide consumers a signal-switched facility offering integrated access to voice, high-speed data, video, and interactive delivery services.

Carrier-Class  — Refers to a wireless system that is extremely reliable, well-tested and proven in its capabilities to deliver an exceptional level of service and performance.

Cognitive Radio  — An approach to wireless engineering wherein the radio, radio network, or wireless system is endowed with awareness, reason, and agility to intelligently adapt operational aspects of the radio, radio network, or wireless system. Cognitive radios are intelligent enough to make informed decisions on when, how and where to transmit based on past usage and current conditions without manual intervention. They are designed with a high level of agility that enables them to adapt their modulation, frequency, power and other parameters to the available wireless spectrum. This ability to adjust their characteristics (in real time) depending on interference and other conditions of their environment helps ensure optimized transmissions. Cognitive radio is also referred to as agile radio or smart radio.

Competitive Local Exchange Carrier (CLEC)  — An organization offering local telephone service that competes with the already established local telephone business by providing its own network and switching infrastructure. The term distinguishes new or potential competitors from established local exchange carriers (LECs) and arises from the Telecommunications Act of 1996, which was intended to promote competition among both long-distance and local phone service providers. Many CLECs specialize in one type of service such as fixed wireless or digital subscriber lines (DSL), while others offer a range of services.

CTIA  — The CTIA is an international non-profit membership organization that has represented the wireless communications industry since 1984. Membership in the association is primarily made up of large and incumbent wireless carriers and their suppliers, as well as providers and manufacturers of wireless data services and products. The association advocates on behalf of its members at all levels of government.

DSP (Digital Signal Processor)  — Specialized microprocessors used for the mathematical manipulation of an information signal to modify or improve it in some way. DSPs are used in a wide range of applications including signal processing for communications, control of systems, digital image processing, audio and speech signal processing.

Dynamic Spectrum Access  — A radio software solution that enables a device to dynamically sense and adapt to its radio frequency (RF) environment to maintain reliable communications, even in the presence of potentially harmful interference. Dynamic spectrum access techniques can dramatically improve spectrum efficiency, communications reliability, and system deployment time.

Fading  — In wireless communications, fading is the dynamic attenuation of a signal’s strength. Fading is quite common in mobile systems and can be caused by the movement of either the transmitter or receiver (or both) and/or movement in the environment, such as a tree branch swaying, rain or snow or a passing vehicle.

Interference Mitigation  — The ability to minimize or mitigate interference, a major issue limiting performance of wide area wireless networks. Interference can be caused by transmitting elements within the

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network (self-interference) or from third party devices that are part of another network (external interference). The ability to mitigate interference greatly increases the throughput, reliability and range for wireless communications links.

Internet Protocol (IP)  — The primary component and communications protocol that underpins the global system of interconnected computer networks (i.e., the World Wide Web). Internet Protocol consists of a set of digital message formats and rules for exchanging information between computers across a single network or a series of interconnected networks. The main purpose and task of Internet Protocol is the delivery of blocks of data called data packets from the source host (source computer) to the destination host (receiving computer) based on their addresses.

Licensed Frequencies  — The Federal Communications Commission in the U.S., and similar agencies in other countries, control the use of wireless spectrum (i.e., frequencies). Part of the spectrum in most countries is controlled for military use, public safety and commercial services. Only the entities so entitled may use the frequency bands they have rights to. Licenses to these bands may be allocated at no cost to the network operator as in the case of public safety and military use. However commercial users of licensed frequencies can, and have, paid billions of dollars for regional or national spectrum licenses.

LMR (Land Mobile Radio)  — Also called public land mobile radio or private land mobile radio, LMR is a term that denotes a wireless communications system intended for use by terrestrial users in vehicles (mobiles) or on foot (portables). Such systems are used by emergency first responder organizations, public works organizations, or companies with large vehicle fleets or numerous field staff. Such a system can be independent, but often can be connected to other fixed systems, such as the public switched telephone network (PSTN) or cellular networks. Land mobile radio systems are also used in the United States Department of Defense's communication systems.

MAC (Media Access Control)  — A sub layer within the link control layer (layer 2) in the OSI 7 layer model. This layer manages the interaction of devices with a shared medium. The MAC sub layer provides addressing and channel access control mechanisms that make it possible for several terminals or network nodes to communicate within a multiple access network that incorporates a shared medium (i.e., a wireless channel). The “MAC” is a critical part of the software within the radio system needed to make a wireless network operate.

MANET (Mobile Ad hoc Network)  — A type of network with elements that can change locations and configure themselves on the fly. Because MANETs are mobile, they use wireless connections to connect to various networks and end user devices. MANET systems are used where reliability and redundant communications paths are paramount.

MIMO  — Multiple-input and multiple-output (commonly pronounced my-moh or me-moh), is the use of multiple antennas at both the transmitter and receiver to improve communication performance. It is one of several forms of smart antenna technology.

Mobile Virtual Network Enabler (MVNE)  — A company that provides services to mobile virtual network operators, such as billing, network element provisioning, administration, operations, business support systems and operations support systems, and provision of back-end network elements, to enable provision of mobile network services like cellular phone connectivity. An MVNE does not have a relationship with end-user customers. Instead, an MVNE provides infrastructure and services to enable Mobile Virtual Network Operators (MVNOs) to offer services and have a relationship with end-user customers. MVNEs offer the ability for MVNOs to focus on their core strengths of brand, customer loyalty and marketing and leave the back-end enablement and operations to MVNEs.

MoS (Mean Opinion Score)  — MoS is used as a subjective rating of telephone communications quality in which listeners judge transmissions by qualifiers, such as excellent, good, fair, poor, or unsatisfactory.

OFDM  — Orthogonal frequency-division multiplexing is a method of encoding digital data on multiple carrier frequencies. OFDM has developed into a popular scheme for wideband digital communication.

Part 15 rules  — An oft-quoted part of Federal Communications Commission (FCC) rules and regulations regarding unlicensed transmissions. It is a part of Title 47 of the Code of Federal Regulations (CFR), and

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regulates everything from spurious emissions to unlicensed low-power broadcasting such as that used by Wi-Fi and Bluetooth devices. xMax® is subject to Part 15 rules.

PCAST (President's Council of Advisors on Science and Technology)  — An advisory group of the nation’s leading scientists and engineers who directly advise the President and the Executive Office of the President. PCAST makes policy recommendations in the many areas where understanding of science, technology, and innovation apply. In 2012, PCAST recommended spectrum sharing as the primary means to address the looming spectrum crisis.

QoS (Quality of Service)  — The performance specification of a communications channel or system. QoS may be quantitatively indicated by channel or system performance parameters, such as signal-to-noise ratio (S/N), bit error ratio (BER), message throughput rate, and call blocking probability.

RF (Radio Frequency)  — Is a rate of oscillation in the range of about 3 kHz to 300 GHz, which corresponds to the frequency of radio waves, and the alternating currents which carry radio signals. The terms are also used as a synonym for radio — i.e., to describe the use of wireless communication, as opposed to communication via electric wires.

SDR  — Software-defined radio is a radio communication system where components that have been typically implemented in hardware are instead implemented by means of software on an embedded computing device. While the concept of SDR is not new, the rapidly evolving capabilities of digital electronics render practical many processes which used to be only theoretically possible. A software-defined radio can be flexible enough to avoid the “limited spectrum” assumptions of designers of previous kinds of radios, in one or more ways.

SON (Self Organizing Network)  — A process whereby coordination arises out of the local interactions between network components, typically end user devices and core network elements. It is not directed or controlled by any external agent or pre-planning, but arises out of the RF sensing capabilities and intelligence built into the network elements. As such, it is typically very robust and able to survive and self-repair substantial damage or changes.

Spectrum Agnostic  — A cognitive radio system designed to utilize a wide range of frequency bands. This is in contrast to traditional radios that are programmed to operate in fixed, specific frequencies. Spectrum-agnostic capability is beneficial since the FCC and wireless regulatory bodies around the world are in the process of opening up new spectrum, as well as reclassifying existing spectrum, to be made available for “opportunistic use” (use by cognitive radios).

TV White Spaces  — TV White Spaces (TVWS) are unused TV broadcast channels, made available through the transition from analog to digital TV. In the U.S. they comprise approximately 200MHz of spectrum from the top of the VHF (Very High Frequency, 30 MHz to 300 MHz) band to the bottom of the UHF (Ultra High Frequency, 300 MHz and 3 GHz) band. In 2010, the FCC made TVWS spectrum available for unlicensed public use. TVWS have important benefits that make them highly desirable for wireless communications, including the ability to cover a greater area at a relative lower cost than typical Wi-Fi signals and non-line-of-sight performance offering the ability to penetrate obstacles such as trees, buildings, and rugged terrain. Under FCC regulation, in order to utilize this unlicensed spectrum band, devices must communicate with a database to obtain a list of currently available white space channels and ensure incumbent users are protected. The available channels may vary, depending on device type and location.

Unlicensed Frequencies  — Unlicensed or license-free spectrum as it is sometimes called simply means a spectrum band that does not require operators or users to purchase a frequency use license from a national regulator (e.g., the FCC). Typically, these frequencies have rules that limit maximum transmit power and interference to ensure the band can be shared among many users. Any person or entity that uses approved equipment (which is pre-certified by the manufacturer) can put up a license-free network at any time for either private or public purposes, including commercial high speed Internet service.

USF (Universal Service Fund)  — A US government program that collects money from fees on phone services to fund universal access to communications services across the United States. Among its many goals is the mandate to advance the availability of telecom services to all consumers, including those in low income, rural, insular, and high cost areas at rates that are reasonably comparable to those charged in urban areas.

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Funds are used to subsidize the provisioning of services to high-cost geographies and constituents that would not be economical for private industry alone to provide. On October 27, 2011, the FCC approved a six-year transfer process that would transition money from the Universal Service Fund High-Cost Program to a new $4.5 billion per year Connect America Fund for broadband Internet expansion, effectively putting an end to the USF High-Cost Fund by 2018.

Wireless Internet Service Provider (WISP)  — An Internet service provider that allows users to connect to a server through a wireless connection such as Wi-Fi. WISPs provide additional services such as virtual private networking VoIP and location-based content. In the U.S., wireless networking is mainly chosen by isolated municipal Internet Service Providers and large state-wide initiatives. WISPs are more popular in rural areas, where the users may not be able to access cable and DSL wired connections for Internet access.

Wireless Spectrum  — Refers to the radio portion of the electromagnetic spectrum. The radio spectrum spans a certain, limited frequency range. The range of frequencies is fixed and limited, being determined by physics. The range of frequencies with properties useful for cell phones is smaller still. Therefore, in the U.S., the FCC governs the allocation of these frequencies.

VoIP (Voice over Internet Protocol)  — Refers to the communication protocols, technologies, methodologies, and transmission techniques involved in the delivery of voice communications and multimedia sessions over IP networks, such as the Internet. Using IP networks as a transmission medium is in contrast to traditional circuit transmissions used by the PSTN (Public Switched Telephone Network).

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       Shares
Common Stock

  
  
  
  
  

[GRAPHIC MISSING]

  
  
  
  
  



 

PROSPECTUS



 

  
  
  
  
  

Aegis Capital Corp

  
  
  
  
  

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PART II INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution.

The expenses (other than underwriting discounts and expenses) payable by us in connection with this offering are as follows:

 
  Amount
SEC registration fee   $ 2,046  
FINRA fee     2,846  
NASDAQ listing fee     *  
Printing and mailing expenses     *  
Accounting fees and expenses     *  
Legal fees and expenses     *  
Transfer agent fees and expenses     *  
Miscellaneous     *  
Total expenses     4,892  

All expenses are estimated except for the SEC fee, the FINRA fee and the NASDAQ listing fee.

* To be completed by amendment

ITEM 14. Indemnification of Directors and Officers.

The Delaware General Corporation Law and certain provisions of our certificate of incorporation and bylaws under certain circumstances provide for indemnification of our officers, directors and controlling persons against liabilities which they may incur in such capacities. A summary of the circumstances in which such indemnification is provided for is contained herein, but this description is qualified in its entirety by reference to our certificate of incorporation, bylaws and to the statutory provisions.

In general, any officer, director, employee or agent may be indemnified against expenses, fines, settlements or judgments arising in connection with a legal proceeding to which such person is a party, if that person’s actions were in good faith, were believed to be in our best interest, and with respect to any criminal action or proceeding, such person had no reasonable cause to believe their actions were unlawful. Unless such person is successful upon the merits in such an action, indemnification may be awarded only after a determination by independent decision of the board of directors, by legal counsel, or by a vote of the stockholders, that the applicable standard of conduct was met by the person to be indemnified.

The circumstances under which indemnification is granted in connection with an action brought on our behalf is generally the same as those set forth above; however, with respect to such actions, indemnification is granted only with respect to expenses actually incurred in connection with the defense or settlement of the action. In such actions, unless the court determines otherwise, the person to be indemnified must have acted in good faith and in a manner believed to have been in our best interest, and have not been adjudged liable to the corporation.

Indemnification may also be granted pursuant to the terms of agreements which we are currently party to with each of our directors and executive officers, agreements which we may enter into in the future or pursuant to a vote of stockholders or directors. Delaware law and our certificate of incorporation also grant the power to us to purchase and maintain insurance which protects our officers and directors against any liabilities incurred in connection with their service in such a position, and such a policy may be obtained by us.

A stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. There is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.


 
 

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Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

ITEM 15. Recent Sales of Unregistered Securities.

During the last three completed fiscal years and to date in the current fiscal year, we sold the following unregistered securities:

   
Capital Raise   # Of Shares  
Placement of shares for cash at $0.34 per share to Treco
for $5,000,000
    14,705,882       May 17, 2010  
Issue of new shares to Treco pursuant to Settlement Agreement     2,250,000       April 14, 2011  
Conversion of MBTH Convertible Loan $10 million     40,000,000       June 23, 2011  
Options exercised by a former employee     3,965       August 2, 2011  
Payment of interest to MBTH until 7/31/11 in stock     3,902,908       August 15, 2011  
Assumption of liabilities by MBTH for $3 million at $0.25 per share     12,000,000       August 15, 2011  
Issue of new shares to First Columbus as our Joint Broker     48,425       September 23, 2011  
Quarterly issue of new shares to an employee as part remuneration
for services
    55,300       September 23, 2011  
Options exercised by employees     139,924       September 28, 2011  
Quarterly issue of new shares to an employee as part remuneration
for services
    20,000       October 21, 2011  
Options exercised by employees     92,113       December 23, 2011  
Quarterly issue of new shares to an employee as part remuneration
for services
    27,500       January 16, 2012  
Placement of shares @ $1.00 each to certain individual investors pursuant to Regulation S     400,000       March 20, 2012  
Quarterly issue of new shares to an employee as part remuneration
for services
    27,500       April 23, 2012  
Payment of interest on $2 million promissory note to Treco in
stock @ $0.575
    156,522       May 2, 2012  
Options exercised by employee     14,772       July 30, 2012  
Quarterly issue of new shares to an employee as part remuneration
for services
    26,650       August 13, 2012  
Payment of interest on $2 million promissory note to Treco in
stock @ $0.45
    200,000       October 8, 2012  
Options exercised by a former employee     8,332       October 18, 2012  
Quarterly issue of new shares to an employee as part remuneration
for services
    30,900       November 13, 2012  
Quarterly issue of new shares to an employee as part remuneration
for services
    34,175       January 14, 2013  
Issue of new shares to an employee as remuneration for services     5,585       January 14, 2013  

No underwriters were involved in the foregoing sales of securities. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act or Rule 701 promulgated under Section 3(b) of the Securities Act or Regulation S promulgated under the Securities Act. The recipients of securities in some but not all such transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the stock certificates and option agreements issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.


 
 

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ITEM 16. Exhibits and Financial Statement Schedules.

(a)

 
Exhibit Number   Description of Exhibit
  1.1†   Form of Underwriting Agreement
 3.1   Amended & Restated Certificate of Incorporation-current
  3.2†   Amended & Restated Certificate of Incorporation-new, upon effectiveness
 3.3   Amended & Restated Bylaws-current
  3.4†   Amended & Restated Bylaws-new, upon effectiveness
  4.1†   Form of Common Stock Certificate of the Registrant
  4.2†   Form of Underwriters’ Warrant.
  5.1†   Opinion of Robinson Brog Leinwand Greene Genovese & Gluck P.C.
 10.1   Form of Customer Documents Purchase Agreements, and Distribution Agreement
 10.2   Form of Indemnification Agreement
 10.3   2013 Long Term Incentive Plan
 10.4   Forms of Agreement Under 2013 Long Term Incentive Plan
 10.5   Employment Agreement Between xG Technology, Inc. and John Coleman
 10.6   Loan Documents Between xG Technology and MB Technology Holdings, LLC
 10.7   Form of Securities Subscription Agreement
 10.8   Form of Bridge Loan Documents
 10.9   2004 Option Plan
  10.10   2005 Option Plan
  10.11   2006 Option Plan
  10.12   2007 Option Plan
  10.13   2009 Option Plan
  10.14   Forms of Award Documents under 2004, 2005, 2006, 2007, and 2009 Option Plans
  10.15   Sunrise Office Lease
  10.16   Treco Documents
  10.17   Mats Wennberg Consulting Agreement
  10.18   Mats Wennberg Warrant Agreement
  10.19   MBC Agreement
  10.20   Care21 Agreement
  11.1†   Statement re computation of per share earnings
  12.1†   Statements re computation ratios
 23.1   Consent of Friedman LLP
 23.2   Consent of Robinson Brog Leinwand Greene Genovese & Gluck P.C. (Reference is made to Exhibit 5.1)
 24.1   Power of Attorney (set forth on the signature page of the Registration Statement)

To be filed by amendment.
(b) Financial Statement Schedules

No financial statement schedules have been provided because the information is not required or is shown either in the financial statements or the notes thereto.


 
 

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ITEM 17. Undertakings.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting certificates in such denominations and registered in such names as required by underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§ 230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.


 
 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Sarasota, State of Florida, on March 6, 2013.

xG TECHNOLOGY, INC.
(Registrant)
By:
/s/ John C. Coleman

John C. Coleman
Chief Executive Officer
(Principal Executive Officer)

POWER OF ATTORNEY: KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints John C. Coleman and Roger G. Branton, and each of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.

   
Signature   Title   Date
/s/ John C. Coleman

John C. Coleman
  Chief Executive Officer and Director
(Principal Executive Officer)
  March 6, 2013
/s/ Roger G. Branton

Roger G. Branton
  Chief Financial Officer
(Principal Financial and Accounting Officer)
  March 6, 2013
/s/ Richard L. Mooers

Richard L. Mooers
  Chairman of the Board   March 6, 2013
/s/ R. James Woodyatt

R. James Woodyatt
  President and Director   March 6, 2013
/s/ Matts Wennberg

Matts Wennberg
  Director   March 6, 2013
/s/ George Schmitt

George Schmitt
  Director   March 6, 2013
/s/ Palmi Sigmarsson

Palmi Sigmarsson
  Director   March 6, 2013


 
 

TABLE OF CONTENTS

EXHIBIT INDEX

 
Exhibit Number   Description of Exhibit
  1.1†   Form of Underwriting Agreement
 3.1   Amended & Restated Certificate of Incorporation-current
  3.2†   Amended & Restated Certificate of Incorporation-new, upon effectiveness
 3.3   Amended & Restated Bylaws-current
  3.4†   Amended & Restated Bylaws-new, upon effectiveness
  4.1†   Form of Common Stock Certificate of the Registrant
  4.2†   Form of Underwriters’ Warrant.
  5.1†   Opinion of Robinson Brog Leinwand Greene Genovese & Gluck P.C.
 10.1   Form of Customer Documents Purchase Agreements, and Distribution Agreement
 10.2   Form of Indemnification Agreement
 10.3   2013 Long Term Incentive Plan
 10.4   Forms of Agreement Under 2013 Long Term Incentive Plan
 10.5   Employment Agreement Between xG Technology, Inc. and John Coleman
 10.6   Loan Documents Between xG Technology and MB Technology Holdings, LLC
 10.7   Form of Securities Subscription Agreement
 10.8   Form of Bridge Loan Documents
 10.9   2004 Option Plan
  10.10   2005 Option Plan
  10.11   2006 Option Plan
  10.12   2007 Option Plan
  10.13   2009 Option Plan
  10.14   Forms of Award Documents under 2004, 2005, 2006, 2007, and 2009 Option Plans
  10.15   Sunrise Office Lease
  10.16   Treco Documents
  10.17   Mats Wennberg Consulting Agreement
  10.18   Mats Wennberg Warrant Agreement
  10.19   MBC Agreement
  10.20   Care21 Agreement
  11.1†   Statement re computation of per share earnings
  12.1†   Statements re computation ratios
 23.1   Consent of Friedman LLP
 23.2   Consent of Robinson Brog Leinwand Greene Genovese & Gluck P.C. (Reference is made to Exhibit 5.1)
 24.1   Power of Attorney (set forth on the signature page of the Registration Statement)

To be filed by amendment.


 

Ex 3.1

 

STATE OF DELAWARE

 

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

 

XG TECHNOLOGY, INC.

A STOCK CORPORATION

 

FIRST: The name of this Corporation is: XG TECHNOLOGY, INC.

 

SECOND: Its registered office in the State of Delaware is to be located at: 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle, State of Delaware, Zip Code 19808.

 

The registered agent in charge thereof is: Corporate Agents, Inc.

 

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

 

FOURTH: The names and mailing addresses of the Incorporators are as follows:

 

Richard L. Mooers Roger G. Branton
240 S. Pineapple Avenue 240 S. Pineapple Avenue
Suite 701 Suite 701
Sarasota, FL 34236 Sarasota, FL 34236

 

The names and mailing addresses of the Directors of the Corporation are as follows:

 

Richard L. Mooers Roger G. Branton
240 S. Pineapple Avenue 240 S. Pineapple Avenue
Suite 701 Suite 701
Sarasota, FL 34236 Sarasota, FL 34236
   
Mats Wennberg Palmi Sigmarsson
Emblavagen 4 Kingsmead
182 67 Djursholm Hurtmore Road
Sweden Godalming
  Surrey GU7 2RA
James Woodyatt England
2 ch. Des Rousses  
1294 Genthod Ceinwen Lloyd
Switzerland La Villa
  Trsteno, Dubrovnik
  Croatia
   
Victor Sunö  
C. Principe de Vergara 17,30  
28001 Madrid  
Spain  

 

 
 

 

FIFTH: The amount of the total stock this Corporation is authorized to issue is as follows:

 

(i) 250,000,000 shares (number of authorized shares) of Common Stock with a par value of $.01 per share; and

 

(ii) 25,000,000 shares (number of authorized shares) of Series A Convertible Preferred Stock with a par value of $.01 per share, with the rights, privileges, preferences and restrictions remaining the same as set forth on Exhibit “A” of the Amended and Restated Certificate of Incorporation as filed with the State of Delaware Division of Corporations on May 8 th , 2007.

 

SIXTH: As used in this Amended and Restated Certificate of Incorporation, the following words shall have the following meanings:

 

Admission ” means admission of Shares to trading on AIM.

 

Acting in concert ” means actively cooperating, pursuant to an agreement or understanding (whether formal or informal), through the acquisition of securities of the Corporation, to obtain or consolidate Control.

 

AIM ” means the AIM market operated by LSE.

 

Allot ” means the issue and allotment, or the sale by the Corporation, of New Securities not in issue at the date of adoption of this Amended and Restated Certificate of Incorporation as the case may be in accordance with the Applicable Corporation Statutes (and “ allotment ” shall be construed accordingly).

 

Applicable Corporation Statutes ” means Delaware General Corporation Law.

 

Beneficial ownership ” means, with respect to a security, sole or shared voting power (which includes the power to vote, or to direct the voting of, such security) and/or investment power (which includes the power to dispose, or to direct the disposition of, such security), whether direct or indirect, and whether through any contract, arrangement, understanding, relationship, or otherwise.

 

Board ” means the board of Directors of the Corporation.

 

Common Stock ” means the Common Stock, $.01 par value per share, of the Corporation.

 

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Control ” means a holding or aggregate holdings of securities representing 30 percent (30%) or more of the Voting Rights, irrespective of whether the holding or holdings gives de facto control.

 

“Conversion” means conversion of Series A Convertible Preferred Stock into Common Stock in accordance with the rights, privileges, preferences and restrictions set forth on Exhibit “A” attached hereto.

 

“Director” means any director of the Corporation.

 

Disclosure Notice ” means a notice issued by the Corporation requiring the disclosure of interests in Shares.

 

Employees’ Shares Scheme ” means a scheme or plan for encouraging or facilitating the holding of Shares or options or debentures in the Corporation by or for the benefit of:

 

(a) the bona fide employees or Directors or consultants or former employees or Directors or consultants of the Corporation, the Corporation’s subsidiaries; or

 

(b) the wives, husbands, widows, widowers or children or step-children under the age of 18 of such employees or former employees.

 

Interest ” in a person means beneficial ownership of any securities of such person.

 

LSE ” means London Stock Exchange plc.

 

New Securities ” means any Shares of any kind, class or series of the Corporation, whether now or hereafter authorized other than:

 

(a) Shares which, regarding dividends and capital, carries a right to participate only up to a specified amount in a distribution;

 

(b) Shares which are held by a person who acquired them in pursuance of an Employees’ Shares Scheme or, in the case of Shares which have not been allotted, are to be allotted in pursuance of such a scheme;

 

(c) a right to subscribe for, or convert securities into, such Shares as are referred to in (a) and (b) above (but excluding the allotment of Shares pursuant to any such convertible security, option, warrant or other right) and convertible securities including rights, options, or warrants to purchase such Shares; or

 

(d) Series A Convertible Preferred Stock.
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Notifiable Interest ” means any time when the aggregate nominal value of a class or series of Shares in which a Shareholder is interested is equal to or more than 3 percent (3%) of the aggregate outstanding shares of that class of Shares.

 

Offer ” means a written offer made in accordance with Sections 2 and 4 through 8 of Article Eighth and may, subject to Sections 2, 4 and 5 of Article Eighth, include an offer to consummate a takeover, merger or consolidation transaction, however effected, including a reverse takeover, partial offer, tender offer, Court scheme (including a plan of reorganization under insolvency or bankruptcy laws), or offer by a parent Corporation for shares in its subsidiary.

 

Offeror ” has the meaning given to it in Section 2 of Article Ninth and includes persons wherever organised or resident.

 

Offer Period ” means the period from the time when an announcement is made of a proposed or possible Offer (with or without terms) until the first closing date or, if later, the date when the Offer becomes or is declared unconditional as to acceptances or lapses. An announcement that a holding, or aggregate holdings, of shares carrying 30 percent (30%) or more of the Voting Rights is for sale or that the Board is seeking potential offers to acquire Control will be treated as the announcement of a possible Offer for purposes of determining the applicable Offer Period.

 

Operator ” means any Person who is a Shareholder by virtue of it holding Shares as trustee on behalf of those who have elected to hold Shares in dematerialized form through a depositary interest.

 

Original Issue Price ” means $1.00 per share for the Series A Convertible Preferred Stock.

 

Person ” means any individual, firm, partnership, association, limited liability Corporation or other entity.

 

Pro Rata Share ” means, in relation to a Shareholder, that share which is in the same proportion as the number of Shares held by such Shareholder bears to the total number of Shares in issue, in each case as at the date of the Rights Notice.

 

Restrictions ” means one or more of the restrictions referred to in Section 10 of Article Ninth as determined by the Board.

 

Rights Issue ” means an offer or allotment to or in favor of Shareholders identified from the register of Shareholders (or in the Corporation’s depository agent’s records) on a date fixed by the Board (being an offer capable of acceptance for a period fixed by the Board) where the New Securities respectively attributable to the interests of all such Shareholders are proportionate (as nearly as practicable) to the respective number of Shares held by them on that date, subject to such exclusions or other arrangements (if any) as the Board considers necessary or expedient in its exclusive discretion to deal with fractional entitlements or legal or practical problems under the laws of any country, territory or political subdivision thereof, or the requirements of any relevant regulatory body or shares exchange in any jurisdiction.

 

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Public Disclosure ” means disclosure in a press release reported by the Associated Press, Reuters, Bloomberg or comparable national or international news service or in a document filed by the Corporation with AIM (if the Shares are listed on AIM at such time) or furnished to all Shareholders.

 

Series A Convertible Preferred Stock ” means the Series A Convertible Preferred Stock, $.01 par value per shares, of the Corporation, with the rights, privileges, preferences and restrictions set forth in Exhibit “A” attached hereto.

 

Share ” or “Shares” means any share(s) in the capital of the Corporation.

 

Shareholder ” means any holder of Shares.

 

Specified Shares ” means the Shares specified in a Disclosure Notice.

 

Voting Rights ” means the voting rights attributable to Shares which are exercisable at a meeting of Shareholders at the material time.

 

SEVENTH: Preemptive Rights

 

Section 1 . Subject to Delaware General Corporation Law and the terms of any resolution creating new Shares of stock of the Corporation:

 

(a) the unissued Shares from time to time shall be under the control of the Board of Directors which may allot the same to such persons, for cash or for such consideration other than cash, with such restrictions and conditions, in excess of their nominal value, at their nominal value or at a discount to their nominal value and/or with payment of commission and at such times as the Board of Directors shall deem appropriate; and

 

(b) the Board of Directors shall have the power to cause the Corporation to grant to any person the option to acquire from the Corporation any unissued shares, in each case on such terms as the Board of Directors shall deem appropriate.

 

Section 2 . Unless otherwise determined by Shareholders holding seventy five percent (75%) or more of the Voting Rights, each Shareholder shall have a pre-emption right as set out in Section 3 of this Article Seventh to purchase a Pro Rata Share of any New Securities that the Corporation may, from time to time, propose to allot wholly for cash, subject to such exclusions or other arrangements (if any) as the Board considers necessary or expedient in its exclusive discretion to deal with fractional entitlements or legal or practical problems under the laws of any country, territory or political subdivision thereof, or the requirements of any regulatory authority or shares exchange in any jurisdiction.

 

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Section 3 . Subject to Section 4 of this Article Seventh, if the Corporation proposes to allot New Securities, it shall give each Shareholder written notice (the “Rights Notice”) of its intention, describing the New Securities, the price, the general terms upon which the Corporation proposes to allot them, the number of Shares that the Shareholder has the right to purchase and giving each Shareholder not less than twenty one (21) days from delivery of the Rights Notice to agree to purchase all or any part of its Pro Rata Share of such New Securities for the price and upon the general terms specified in the Rights Notice, by giving written notice to the Corporation prior to the expiration of such period contained in the Rights Notice setting forth the quantity of New Securities to be purchased thereby. If a Shareholder fails to exercise its pre-emption right within the period specified in this Section 3, the Corporation shall have one hundred twenty (120) days after expiration of the period contained in the Rights Notice to allot the unsold New Securities at a price and upon general terms no more favorable to the purchasers than specified in the Rights Notice. If the Corporation has not allotted the New Securities within that period, the Corporation shall not thereafter allot any New Securities without first offering such securities to the Shareholders for subscription in the manner provided above.

 

Section 4 . The Corporation may at any time and from time to time upon approval by the Board allot New Securities as if Section 3 of this Article Seventh did not apply to such allotment, provided that such power shall be limited:

 

(a)     to the allotment for cash of New Securities provided that the nominal amount of such Shares or the Shares into which such New Securities may be converted, during any twelve (12) month period, does not exceed in aggregate ten percent (10%) of the Shares in issue from time to time; or

 

(b)      to the allotment of New Securities in connection with a Rights Issue.

 

EIGHTH: Takeover Provisions

 

Section 1 . From the date of Admission, for so long as the Corporation has Shares listed on the full list of the LSE or admitted to trading on AIM, or any successor to either of them, the provisions of Sections 2 through 18 of this Article Eighth shall be in effect.

 

Section 2 . Subject to the Applicable Corporation Statutes when:

 

(a)      any person acquires, whether by a series of transactions over a period of time or not, securities which (taken together with securities held or acquired by persons acting in concert with such person) represent thirty percent (30%) or more of the Voting Rights; or

 

(b)      any person who, together with persons acting in concert with such person, holds not less than thirty percent (30%) but not more than fifty percent (50%) of the Voting Rights and such person, or any person acting in concert with such person, acquires additional securities which will increase his percentage of the Voting Rights;

 

6
 

 

then such person and any person acting in concert with such person (each such person referred to below as the “Offeror”) shall extend an Offer, on the basis set out in Sections 6 through 10 of this Article Eighth, to the holders of all (but not part) of the Shares. Offers for different classes of Shares must be comparable.

 

Section 3 . The taking of an option to acquire securities will be deemed to constitute the acquisition of securities giving rise to the obligation to make an Offer under Section 2 of this Article Eighth where the relationship and arrangements between the parties concerned is such that effective Control has passed to the taker of the option. The acquisition of Voting Rights, or general control of them, as distinct from the associated securities, itself will be deemed to be an acquisition of the associated securities.

 

Section 4 . The acquisition of securities pursuant to an exercise of options will not be considered to be an acquisition of an interest in securities giving rise to the obligation to make an Offer under Section 2 of this Article Eighth.

 

Section 5 . The acquisition by any person of not more than 1,500,000 Shares in aggregate over any rolling one year period will not in itself give rise to the obligation to make an Offer under Section 2 of this Article Eighth.

 

Section 6 . Each member of a group of persons acting in concert that constitutes an Offeror will have a joint and several obligations to extend an Offer.

 

Section 7 . In respect of any Offer(s) made under Section 2 of this Article Eighth:

 

(a)      such Offer(s) must be conditional only upon the Offeror having received acceptances in respect of securities which, together with securities acquired or agreed to be acquired before or during the Offer, will result in the Offeror and any person acting in concert with it holding securities representing more than fifty percent (50%) of the Voting Rights; and

 

(b)      no acquisition of securities which would give rise to the obligation to make an Offer under Section 2 of this Article Eighth may be made if the making or implementation of such Offer would or might be dependent on the passing of a resolution at any meeting of Shareholders of the Offeror or upon any other condition, consent or arrangement.

 

(c)      the terms of the Offer must comply with the provisions of the United Kingdom’s City Code on Takeovers and Mergers (the “City Code”) (including, without exception, Rule 3 of the City Code) as if the Corporation was subject to the provisions of the City Code.

 

Section 8 . An Offer must be unconditional if the Offeror holds securities representing more than fifty percent (50%) of the Voting Rights before the Offer is made.

 

Section 9 . An Offer must, in respect of each class or series of Shares, be in cash (or be accompanied by a cash alternative) at not less than the highest price paid by the Offeror for Shares of that class or series during the Offer Period and within twelve (12) months prior to its commencement. An Offer must be made in writing and publicly disclosed, and must be open for acceptance for a period of not less than thirty (30) days and, if the Offer is made conditional as to acceptances and becomes or is declared unconditional as to acceptances, the Offer must remain open for not less than fourteen (14) days after the date on which it would otherwise have expired.

 

7
 

 

Section 10 . When Shares have been acquired for consideration other than cash in a transaction giving rise to an obligation to make an Offer under Section 2 of this Article Eighth, the Offer must nevertheless be in cash or be accompanied by a cash alternative of at least equal value, which value must be determined by an independent valuation.

 

Section 11 . In calculating the price paid for Shares, stamp duty and broker’s commission, if any, shall be excluded.

 

Section 12 . If Shares have been acquired in exchange for listed securities in a transaction giving rise to an obligation to make an Offer under Section 2 of this Article Eighth, the price paid for such Shares will be established by reference to the middle market price of such listed securities on the applicable market on the date of such acquisition.

 

Section 13 . If Shares are admitted to trading on AIM or listed on the full list of the LSE and have been acquired by the conversion or exercise (as applicable) of convertible securities, warrants, options or other subscription rights, the price paid for such shares will normally be established by reference to the middle market price of such shares on the LSE at the close of business on the day on which the relevant exercise or conversion notice was submitted. If, however, the convertible securities, warrants, options or subscription rights were acquired during the Offer Period or within twelve (12) months prior to its commencement, they will be treated as if they were purchases of the underlying shares at a price equal to the sum of the purchase price of such convertible securities, warrants, options or other subscription rights plus the relevant conversion or exercise price paid (or if such convertible securities, warrants, options or other subscription rights have not yet been converted or exercised, the maximum conversion or exercise price payable under the relevant conversion or exercise terms).

 

Section 14 . In the event that any Director (or any of his or her affiliates) sells Shares to a purchaser as a result of which the purchaser is required to make an Offer under Section 2 of this Article Eighth, such Director must ensure that as a condition of the sale the purchaser undertakes to fulfill its obligations under Section 2 of this Article Eighth. In addition, subject to Section 18 of this Article Eighth, such Director shall not resign from the Board until the first closing date of the Offer or the date when the Offer becomes or is declared wholly unconditional, whichever is the later.

 

Section 15 . No Offeror or nominee of an Offeror may be appointed to the Board, nor may an Offeror exercise the Voting Rights represented by the securities of the Corporation held by such Offeror, until public disclosure of the Offer has been made.

 

Section 16 . The obligation to make an Offer under Section 2 of this Article Eighth can be waived in the following circumstances and with the relevant consent:

 

8
 

 

(a)      such an obligation may be waived in any circumstances by the consent of the holders of seventy five percent (75%) of the Voting Rights of those persons who are not the proposed purchaser(s) of the relevant New Securities (nor affiliated or acting in concert with such proposed purchaser(s));

 

(b)      if an allotment of New Securities by the Corporation as consideration for an acquisition or a cash subscription would otherwise result in such an obligation, the obligation may be waived by the consent of the holders of the majority of the Voting Rights of those Shareholders who are not affiliated or acting in concert with the allottees of such New Securities; or

 

(c)      if an underwriter incurs such an obligation unexpectedly (for example as a result of an inability to complete a distribution of securities of the Corporation), the obligation may be waived by the consent of the holders of a majority of the Voting Rights of those persons who are neither the underwriter(s) nor Shareholders affiliated or acting in concert with such underwriter(s).

 

Section 17 . If an Offeror shall fail to comply with Sections 2 and 7 through 10 of this Article Eighth, or shall fail to comply with such Offeror’s obligations under the Offer, and shall persist in such failure after written notice from the Corporation to such person or persons, the Board may:

 

(a) require such person or persons to provide such information as the Board considers appropriate;

 

(b) make an award for costs against the Offeror;

 

(c) determine that some or all of such securities acquired in breach of Sections 2 and 7 through 10 of this Article Eighth be sold;

 

(d) direct that the Offeror shall not be entitled to exercise any Voting Rights; and/or

 

(e) direct that no dividends shall be paid in respect of all or any of the Shares held by the Offeror.

The restrictions in subparagraphs (d) and (e) above may be waived at the discretion of the Board of Directors, and shall be waived when (i) the Shares subject to such restrictions are proved to the reasonable satisfaction of the Board of Directors to have been sold to a new beneficial owner that is not affiliated or acting in concert with the Offeror, (ii) such Shares have been sold pursuant to an Offer made to all holders of Shares on terms which do not differentiate between such holders; or (iii) the provisions of this Article Eighth relating to the Offer or, as the case may be, the Offeror’s obligations under the Offer, have been complied with in full.

 

Section 18 . If a Director is affiliated with an Offeror, he or she shall forthwith vacate his or her office if his or her resignation is requested by notice tendered at a meeting of the Board of Directors by all other Directors who are not so affiliated. For purposes hereof, like notices signed by each such Director shall be effective as a single notice signed by all such Directors.

 

9
 

 

NINTH: Disclosure of Interests

 

Section 1 . For the purposes of this Article Ninth:

 

(a)          a person who is interested in a right to subscribe for, or convert into, Shares shall be deemed to be interested in Shares and references to interests in Shares shall include any interest whatsoever in such Shares including, without limitation:

 

(i) a right to control directly or indirectly the exercise of any right conferred by the holding of Shares alone or in conjunction with any person and the interest of any person shall be deemed to include the interest of any other person deemed to be so acting in concert; and

 

(ii) the interest of a beneficiary of a trust of property where such interest in Shares is comprised in the property,

 

and persons having a joint interest are taken each of them to have that interest;

 

(b)          a person is taken to have an interest in Shares if:

 

(i) he enters into a contract for their purchase by him (whether for cash or other consideration);

 

(ii) not being the registered holder, he is entitled to exercise any right conferred by the holding of the Shares or is entitled to control the exercise of any such right;

 

(iii) if otherwise than by virtue of having an interest under a trust he has a right to call for delivery of the Shares to himself or to his order whether the right or obligation is conditional or absolute; or

 

(iv) if otherwise than by virtue of having an interest under a trust he has a right to acquire an interest in Shares or is under an obligation to take an interest in Shares whether the right or obligation is conditional or absolute; and

 

(c)          a person shall be treated as appearing to be interested in Shares if:

 

(i) the person has been named in a Disclosure Notice as being interested;

 

(ii) in response to a Disclosure Notice, the person holding the Specified Shares or another person appearing to be interested in them has failed to establish the identities of those who are interested and (taking into account the response and other relevant information) the Corporation has reasonable cause to believe that the person in question is or may be interested in such Shares; or

 

10
 

 

(iii) the person holding the Specified Shares is an Operator and the person in question has notified the Operator that he is so interested.

 

Section 2 . Without prejudice to, and in addition to any obligation to disclose under the Applicable Corporation Statutes, where a Shareholder either:

 

(a) to his knowledge acquires a Notifiable Interest, or ceases to have a Notifiable Interest; or

 

(b) becomes aware that he has acquired a Notifiable Interest, or that he has ceased to have a Notifiable Interest in which he was previously interested,

 

he shall notify the Corporation of his interest.

 

Section 3 . The obligation to disclose in Section 2 of this Article Ninth also arises where there is an increase or decrease in the percentage level of a Shareholders’ Notifiable Interest, and for these purposes if the percentage level is not a whole number it shall be rounded down to the next whole number.

 

Section 4 . Any notification under Section 2 of this Article Ninth shall identify the Shareholder so interested, the nature and extent of his interest, and the date on which he acquired or ceased to hold a Notifiable Interest or on which there was an increase or decrease in the percentage level of his Notifiable Interest.

 

Section 5 . The Board of Directors may serve a Disclosure Notice in writing on any person whom the Board knows or has reasonable cause to believe to be interested in Shares requiring such person to indicate whether or not it is the case and, where that person holds any interest in any such Shares, to give such further information as may be required by the Board of Directors.

 

Section 6 . Any such notice may require the person to whom it is addressed to give particulars of his own present interest in Shares.

 

Section 7 . A notice under Section 5 of this Article Ninth shall require any information given in response to the Disclosure Notice to be given in writing within such reasonable time as may be specified in the Disclosure Notice (subject as provided in Sections 14 and 16 of this Article Ninth).

 

Section 8 . A notice which has taken effect under Section 5 of this Article Ninth shall remain in effect in accordance with its terms following a transfer of the Shares to which it relates unless and until the Board of Directors determines otherwise and notifies the Shareholder accordingly.

 

Section 9 . Despite anything in this Article Ninth to the contrary, if:

 

11
 

 

(a) a Disclosure Notice has been served on a person appearing to be interested in Specified Shares; and

 

(b) the Corporation has not received the information required in respect of the Specified Shares within a period of fourteen (14) days (subject as provided in Sections 14 and 16 of this Article Ninth) after the service of the Disclosure Notice,

 

then the Board of Directors may determine that the Shareholder holding or who is interested in Specified Shares is subject to the Restrictions in respect of such shares. The Corporation shall, as soon as practicable after the determination, give notice to the relevant person stating that (until such time as the Board of Directors determines otherwise under Section 4 of this Article Ninth) the Specified Shares shall be subject to the Restrictions stated in the notice.

 

Section 10 . Subject to Sections 11, 14 and 16 of this Article Ninth, the Restrictions which the Board determines applicable to Specified Shares shall be one or more (as determined by the Board) of the following:

 

(a) the person holding the Specified Shares shall not be entitled, in respect of the Specified Shares, to be present or to vote (either personally, or by proxy or otherwise) at an annual or special meeting or at a separate meeting of the holders of a class or series of Shares, or to exercise any other right in relation to an annual or special meeting or a separate class meeting;

 

(b) no transfer of the Specified Shares shall be effective or shall be recognised by the Corporation;

 

(c) no dividend or other sums which would otherwise be payable on or in respect of the Specified Shares shall be paid to the person holding the Specified Shares and, in circumstances where an offer of the right to elect to receive shares instead of cash in respect of a dividend is or has been made, an election made in respect of the Specified Shares shall not be effective.

 

Section 11 . The Board of Directors may determine that one or more Restrictions imposed on Specified Shares shall cease to apply at any time. If the Corporation receives the information required in the relevant Disclosure Notice, the Board of Directors shall, within seven (7) days of receipt, determine that all Restrictions imposed on the Specified Shares shall cease to apply. In addition, the Board of Directors shall determine that all Restrictions imposed on the Specified Shares shall cease to apply if the Corporation receives an executed and if necessary duly stamped instrument of transfer in respect of the Specified Shares, which would otherwise be given effect to, by:

 

(a) a sale of the Specified Shares on AIM;

 

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(b) acceptance of an offer to acquire all the Shares or all the Shares of any class or series or classes or series in the Corporation, (other than Shares which at the date of the offer are already held by the offeror), being an offer on terms which are the same in relation to all the Shares to which the offer relates or, where such Shares include Shares of different classes, in relation to all the Shares of each class; or

 

(c) a sale which is shown to the satisfaction of the Board of Directors to be a bona fide sale of the whole of the beneficial interest in the Specified Shares to a person who is unconnected with the person or with another person appearing to be interested in the Shares.

 

Section 12 . Where dividends or other sums payable on Specified Shares are not paid as a result of Restrictions having been imposed, the dividends or other sums shall accrue and be payable (without interest) on the relevant Restrictions ceasing to apply.

 

Section 13 . If the Board of Directors makes a determination under Section 11 of this Article Ninth it shall notify the purported transferee as soon as practicable and any person may make representations in writing to the Board of Directors concerning the determination. Neither the Corporation nor the Board of Directors shall in any event be liable to any person as a result of the Board of Directors having imposed Restrictions, or failed to determine that Restrictions shall cease to apply, where the Board of Directors has acted in good faith.

 

Section 14 . Where the Specified Shares represent less than one-quarter of one percent (0.25%) of the issued Shares or shares of the same class as the Specified Shares in issue at the date of issue of the relevant Disclosure Notice then:

 

(a) the period of fourteen (14) days referred to in Section 9(b) of this Article Ninth is to be treated as a reference to a period of twenty eight (28) days; and

 

(b) any determination made by the Board under Section 11 of this Article Ninth may only impose the Restrictions referred to in Section 10(a) of this Article Ninth.

 

Section 15 . Shares allotted by way of any right attached to the Specified Shares which are at the material time subject to particular Restrictions shall, on allotment, become subject to the same Restrictions as the relevant Specified Shares. For this purpose, Shares which the Corporation procures to be offered to Shareholders pro rata (or pro rata ignoring fractional entitlements and shares not offered to certain members by reason of legal or practical problems associated with offering shares outside the United Kingdom) shall be treated as Shares allotted in right of Specified Shares.

 

Section 16 . The Board of Directors may, at its discretion, suspend, in whole or in part, the imposition of a Restriction, either permanently or for a given period, and may pay a dividend or other sums payable in respect of the Specified Shares to a trustee (subject to the Restriction referred to in Section 10(c) of this Article Ninth). Notice of suspension, specifying the Restrictions suspended and the period of suspension, shall be given by the Corporation to the relevant Shareholder as soon as practicable.

 

13
 

 

Section 17 . Where a Disclosure Notice is served on an Operator, the obligations of the Operator shall be limited to disclosing information recorded by it relating to a person appearing to be interested in the Shares held by it.

 

TENTH: Severability Provisions. If any provision of Articles Seventh through Tenth of this Amended and Restated Certificate of Incorporation (the Inserted Provisions ) or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then:

 

(a) such provision or part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to all applicable laws so as to be valid and enforceable to the fullest possible extent;

 

(b) the invalidity or unenforceability of such provision or part thereof under such circumstances and in such jurisdiction shall not affect the validity or enforceability of such provision or part thereof under any other circumstances or in any other jurisdiction; and

 

(c) the invalidity or unenforceability of such provision or part of any Inserted Provision shall not affect the validity or enforceability of the remainder of such provision or the validity or enforceability of any other provision of any other Inserted Provision. Each provision of each Inserted Provision is separable from every other provision of any other Inserted Provision, and each part of each provision of each Inserted Provision is separable from every other part of such provision.

 

ELEVENTH: Amendments. Except as expressly provided by this Amended and Restated Certificate of Incorporation, this Amended and Restated Certificate of Incorporation may be amended in accordance the Applicable Corporation Statutes.

 

Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, following Admission, the affirmative vote of seventy five percent (75%) or more of the Voting Rights, voting together as a single class, shall be required to alter, amend or repeal Articles Sixth through Eleventh of this Amended and Restated Certificate of Incorporation.

 

This Amended and Restated Certificate of Incorporation was duly adopted pursuant to written consent as permitted by Delaware Code Title 8 Chapter 1 Subchapter IV, Section 141, and Subchapter VII, Section 288, by the holders of a majority of the outstanding stockholders entitle to vote heron, as of October 2, 2008 . The number of votes was sufficient for approval.

 

We, the undersigned, for the purpose of amending and restating the Certificate of Incorporation, do make, file and record this Amended and Restated Certificate of Incorporation, and do certify that the facts herein stated are true, and we have accordingly hereunto set our hands as of the 17st day of September, A.D., 2009.

 

14
 

 

By: /s/ Richard L. Mooers   By: /s/ Roger G. Branton

Richard L. Mooers, Incorporator,

CEO and Director

  Roger G. Branton, Incorporator, CFO and
Director

 

15
 

 

EXHIBIT “A”

 

Series A Convertible Preferred Stock

 

The rights, privileges, preferences and restrictions granted to and imposed upon the Series A Convertible Preferred Stock are as follows:

 

1.       Dividend Rights .       The Series A Convertible Preferred Stock shall carry a 7% dividend right, payment of which shall be at the discretion of the Corporation.

 

2.        Liquidation, Dissolution, Winding Up.

 

(a)       If the Corporation shall adopt a plan of liquidation or of dissolution, or commence a voluntary case under the federal bankruptcy laws or any other applicable state or federal bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in any involuntary case under such law or to the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due and on account of such event the Corporation shall liquidate, dissolve or wind up, or upon any other liquidation, dissolution or winding up of the Corporation, then: first the holders of the Series A Preferred Stock shall share in any liquidation proceeds proportionately with all other holders of Series A Preferred Stock and second the holders of the Common Stock shall then share in any liquidation proceeds proportionately with all other holders of Common Stock.

 

3.        Voting Rights . Prior to conversion, except as provided in the Delaware General Corporation Law, the holders of shares of Series A Preferred Stock shall have no voting rights.

 

4.        Conversion.

 

(a)       Subject to the provisions for adjustment hereinafter set forth and provided that the Series A Preferred Stock has been purchased and paid for on a timely basis, if the Company achieves revenues equal to or greater than US$120,000,000 for the last six (6) months of the two year contract period, which period shall begin twenty-eight (28) days after the installation of the first base station network together with delivery of working handsets (the “Contract Period”), the Series A Preferred Stock shall be convertible into Common Stock based on a $700,000,000 valuation (i.e. the number of shares to be issued on conversion shall be equal to the dollar amount of the Preferred Stock divided by $700,000,000 and then multiplied by the number of shares outstanding at time of conversion) at the option of the holders of the Series A Preferred Stock . The holder of Series A Preferred Stock can elect to convert prior to the end of the Contract period during a window of 30 days following the first year anniversary of the commencement of the Contract Period (“First Conversion Window”). Aside from this Conversion Window and of the Second Conversion Window (as defined below) at the end of the Contract Period, conversion at any other time shall be allowed only upon written request to the Company. The Company shall have sole discretion as to when and if conversion is granted outside of the First Conversion Window or Second Conversion Window. Such approval shall not be effective until set forth in writing signed by the Company. Any early conversions shall only be done at the contract valuation specified in this section 5(a) – i.e. $700,000,000. The term “valuation” as used throughout this paragraph means the contracted valuation for purposes of calculating a conversion of Preferred Stock to Common Stock and is not meant to represent actual market valuation at the time of such conversion.

 

16
 

 

(b) Subject to the provisions for adjustment hereinafter set forth, if the Company achieves revenues less than US$120,000,000 for the last six (6) months of the Contract Period (the “Second Conversion Window”), the Series A Preferred Stock shall be convertible into Common Stock based on a $350,000,000 valuation, at the option of the holders of the Series A Preferred Stock.

 

(c) Subject to the provisions for adjustment hereinafter set forth, if the Company accepts and completes a sale of the Company or a sale of substantially all of the assets of the Company in excess of US$2,000,000,000 then the Series A Preferred Stock shall be convertible into Common Stock based on a $700,000,000 valuation. If the Company accepts and completes a sale of the Company or a sale of substantially all of the assets of the Company for less than US$2,000,000,000 then the Series A Preferred Stock shall be convertible into Common Stock based on a $350,000,000 valuation.

 

(d) The number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be subject to adjustment from time to time as follows:

 

(i)      In case the Corporation shall at any time or from time to time declare a dividend, or make a distribution, on the outstanding shares of Common Stock in shares of Common Stock or subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares or combine or reclassify the outstanding shares of Common stock into a smaller number of shares of Common Stock, and in each case,

 

(A)       the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be adjusted so that the holder of each share thereof shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock which the holder of a share of Series A Preferred Stock would have been entitled to receive after the happening of any of the events described above had such share been converted immediately prior to the happening of such event or the record date therefor, whichever is earlier; and

 

(B)       an adjustment made pursuant to this clause (i) shall become effective (I) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of shares of Common Stock entitled to receive such dividend or distribution, or (II) in the case of any such subdivision, reclassification or combination, at the close of business on the day upon which such corporate action becomes effective.

 

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(ii)      In the case, at any time after the date hereof, of any capital reorganization or any reclassification of the stock of the Corporation (other than as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Corporation with or into another person then, as a condition of the consummation of such transaction, lawful and adequate provision shall be made so that each holder of shares of Series A Preferred Stock shall be entitled, upon conversion, to an amount per share equal to (A) the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or which each share of Common Stock is changed or exchanged multiplied by (B) the number of shares of Common Stock into which a share of Series A Preferred Stock is convertible immediately prior to the consummation of such transaction.

 

(c)       In case the Corporation shall be a party to a transaction described in subparagraph (b)(ii) above resulting in the change or exchange of the Corporation's Common Stock then, from and after the date of announcement of the pendency of such subparagraph (b)(ii) transaction until the effective date thereof, each share of Series A Preferred Stock may be converted, at the option of the holder thereof, into shares of Common Stock on the terms and conditions set forth in this Section 5, and if so converted during such period, such holder shall be entitled to receive such consideration in exchange for such holder's shares of Common Stock as if such holder had been the holder of such shares of Common Stock as of the record date for such change or exchange of the Common Stock.

 

(d)       The holder of any shares of Series A Preferred Stock may exercise its right to convert such shares into shares of Common Stock by surrendering for such purpose to the Corporation, at the offices of the Corporation, at 240 South Pineapple Avenue, Suite 701, Sarasota, Florida 34236 USA, or any successor location, a certificate or certificates representing the shares of Series A Preferred Stock to be converted with the form of election to convert (the " Election to Convert ") on the reverse side of the stock certificate completed and executed as indicated, thereby stating that such holder elects to convert all or a specified whole number of such shares in accordance with the provisions of this Section 5 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case the Election to Convert shall specify a name or names other than that of such holder, it shall be accompanied by payment of all transfer or other taxes payable upon the issuance of shares of Common Stock in such name or names that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series A Preferred Stock pursuant hereto. The Corporation will have no responsibility to pay any taxes with respect to the Series A Preferred Stock. As promptly as practicable, and in any event within three Business Days after the surrender of such certificate or certificates and the receipt of the Election to Convert, and, if applicable, payment of all transfer or other taxes (or the demonstration to the satisfaction of the Corporation that such taxes have been paid), the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable full shares of Common Stock to which the holder of shares of Series A Preferred Stock so converted shall be entitled and (ii) if less than the full number of shares of Series A Preferred Stock evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Such conversion shall be deemed to have been made at the close of business on the date of giving of the Election to Convert and of such surrender of the certificate or certificates representing the shares of Series A Preferred Stock to be converted so that the rights of the holder thereof as to the shares being converted shall cease except for the right to receive shares of Common Stock in accordance herewith, and the person entitled to receive the shares of Common Stock shall be treated for all purposes as having become the record holder of such shares of Common Stock at such time. The Corporation shall not be required to convert, and no surrender of shares of Series A Preferred Stock shall be effective for that purpose, while the transfer books of the Corporation for the Common Stock are closed for any purpose (but not for any period in excess of 15 calendar days); but the surrender of shares of Series A Preferred Stock for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date such shares of Series A Preferred Stock were surrendered, and at the conversion rate in effect at the date of such surrender.

 

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(e)       In connection with the conversion of any shares of Series A Preferred Stock, each holder shall convert the entirety of the shares held, but not part thereof.

 

(f)       In connection with the conversion of any shares of Series A Preferred Stock, no fractions of shares of Common Stock shall be issued, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Conversion Rate.

 

5.         Reports as to Adjustments .

 

Whenever the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible is adjusted as provided in Section 5 hereof, the Corporation shall promptly mail to the holders of record of the outstanding shares of Series A Preferred Stock at their respective addresses as the same shall appear in the Corporation's stock records a notice stating that the number of shares of Common Stock into which the shares of Series A Preferred Stock are convertible has been adjusted and setting forth the new number of shares of Common Stock (or describing the new stock, securities, cash or other property) into which each share of Series A Preferred Stock is convertible, as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof, and when such adjustment became effective.

 

19

 

 

Ex 3.3

 

BYLAWS

 

of

 

XG TECHNOLOGY, INC.

 

(a Delaware corporation)

 

 
 

 

BYLAWS

of

XG TECHNOLOGY, INC.

(a Delaware corporation)

   

ARTICLE I

DEFINITIONS

 

As used in these Bylaws, the following words shall have the following meanings:

 

Admission ” means admission of Shares to trading on AIM.

 

AIM ” means Alternative Investment Market, a market operated by LSE.

 

Applicable Corporation Statutes ” means Delaware General Corporation Law.

 

Board ” means the board of Directors of the Corporation.

 

Certificate of Incorporation ” means the Certificate of Incorporation filed with the Delaware Secretary of State.

 

Chairman ” means the Chairman of the Board of the Corporation.

 

“Director” means any director of the Corporation.

 

LSE ” means London Stock Exchange plc.

 

“Securities Act” means the United States Securities Act of 1933, as amended.

 

Share ” or “Shares” means any share(s) in the capital of the Corporation.

 

Shareholder ” means any holder of Shares.

 

Voting Rights ” means the voting rights attributable to Shares which are exercisable at a meeting of Shareholders at the material time.

 

 

ARTICLE II MEETINGS OF SHAREHOLDERS

 

Section 1. Place of Meetings . Meetings of Shareholders shall be held within or without the State of Delaware at such place or places as the Board of Directors may from time to time determine.

 

Section 2. Annual Meeting . Annual meetings of Shareholders, for the purpose of electing directors and transacting such other business as may properly be brought before the meeting, shall be held on such date and at such time as the Board of Directors shall determine.

 

B/L- 1
 

 

Section 3. Special Meetings . Special meetings of Shareholders, for any purpose or purposes prescribed in the notice of the meeting and for the conduct of such business as may properly be brought before the meeting by or at the discretion of the Board of Directors or the chairman of the meeting, may be called by the Chairman of the Board or by a majority of the Board of Directors (either by written instrument signed by such majority or by a resolution duly adopted by the vote of such majority).

 

Section 4. Notice of Shareholder Meetings . Written notice of every meeting of Shareholders, annual or special, stating the place, date and time thereof and the purpose or purposes in general terms for which the meeting is called shall, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, be given to each Shareholder of record entitled to vote at such meeting, and to any other Shareholder to whom the giving of notice may be required by law. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called, and shall indicate that it is being issued by, or at the direction of, the person or persons calling the meeting. Such notice shall be delivered either personally by email, by facsimile or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to each Shareholder at such Shareholder’s address as it appears upon the stock transfer books of the Corporation or, if such Shareholder shall have filed with the Secretary of the Corporation a written request that notices intended for him or her be mailed to some other address, then to the address designated in such request. Notice shall be deemed to have been given when delivered personally or deposited in the mail or sent by telegram or other means of written communication.

 

Section 5. Quorum .

(a) Except as otherwise provided by law or by the Certificate of Incorporation, at any meeting of Shareholders the presence at the commencement of such meetings in person or by proxy of the holders of a majority of the Shares of the issued and outstanding capital stock of the Corporation entitled to vote thereat shall be necessary and sufficient to constitute a quorum for the transaction of any business. The withdrawal of any Shareholder after the commencement of a meeting shall have no effect on the existence of a quorum, after a quorum has been established at such meeting. If two or more classes of stock are entitled to vote as separate classes upon any question, then, in the case of each such class, a quorum for the consideration of such question shall, except as otherwise provided by law or by the Certificate of Incorporation, consist of a majority in interest of all stock of that class entitled to vote.

 

(b) If a quorum should fail to attend any meeting, then either (i) the chairman of the meeting or (ii) the holders of a majority of the Shares present in person or represented by proxy and entitled to vote thereat shall have the power to adjourn the meeting to another place, date or time in accordance with Section 6 of this Article I. Subject to the requirements of law and the Certificate of Incorporation, on any issue on which two or more classes of stock are entitled to vote separately, no adjournment shall be taken with respect to any class for which a quorum is present unless the chairman of the meeting otherwise directs.

 

Section 6. Adjourned Meeting; Notice . When a meeting is adjourned to another place, date or time, unless this Section 6 otherwise requires, notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each Shareholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting.

 

B/L- 2
 

 

Section 7. Proxies and Voting .

(a) At every meeting of Shareholders, upon any matter properly brought before the meeting, except as otherwise provided in the Certificate of Incorporation, every Shareholder entitled to vote at such meeting shall have one vote for each Share of outstanding capital stock of the Corporation entitled to vote which is registered in such Shareholder’s name on the books of the Corporation. At each such meeting every Shareholder shall be entitled to vote in person or by proxy appointed by an instrument in writing subscribed by such Shareholder and bearing a date not more than three (3) years prior to the meeting at which it is offered, unless such instrument provides for a longer period during which it is to remain in force. Such instrument shall be exhibited to the Secretary at the meeting and shall be filed with the records of the Corporation.

 

(b) All voting, including on the election of directors but excepting where otherwise required by law or by the rules of any stock exchange or quotation system on which securities of the Corporation are listed or quoted, may, at the election of the chairman of the meeting, be by voice vote; provided , however , that upon demand by a Shareholder entitled to vote or by his or her proxy, or if the chairman of the meeting shall so determine, the vote for Directors or upon any other matter before the meeting shall be taken by ballot.

 

(c) All elections shall be determined by a plurality of the votes cast and, except as otherwise required by law, by the Certificate of Incorporation or by these Bylaws, all other matters shall be decided by a majority of the votes cast affirmatively or negatively by the holders of shares of outstanding capital stock of the Corporation entitled to vote and present in person or represented by proxy at the meeting.

 

Section 8. Shareholder List . A complete list of the Shareholders of record entitled to vote at any meeting of Shareholders, arranged in alphabetical order for each class of stock and showing the address of each such Shareholder and the number of Shares registered in his or her name, shall be open to the examination of any such Shareholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list of the Shareholders of record shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any Shareholder present at the meeting.

 

Section 9. Inspectors . The Board of Directors may, and to the extent required by law shall, in advance of any meeting of Shareholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at the meeting of Shareholders, the chairman of the meeting may, and to the extent required by law shall, appoint one or more inspectors at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of their duties.

 

Section 10. Action Without Meeting . Except as required by the Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of Shareholders, or any action which may be taken at any annual or special meeting, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock 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, and such written consent is filed with the minutes of proceedings of the Shareholders. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those Shareholders who have not consented in writing.

 

B/L- 3
 

  

Section 11. Organization . The Chairman of the Board or, in his or her absence, the Chief Executive Officer or, in his or her absence, the Chief Operating Officer or, in his or her absence, the Chief Financial Officer, shall call meetings of the Shareholders to order and shall act as chairman thereof. The Secretary of the Corporation, if present, shall act as secretary of all meetings of Shareholders and, in his or her absence, the chairman of the meeting may appoint a secretary.

 

Section 12. Conduct of Business . The chairman of any meeting of Shareholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and the conduct of business. The date and time of the opening and closing of the polls for each matter upon which the Shareholders will vote at the meeting shall be announced at the meeting.

 

ARTICLE III

BOARD OF DIRECTORS

 

Section 1. Powers . The Board of Directors shall be responsible for the control and management of the affairs, property and interests of the Corporation, and may exercise all powers of the Corporation, except as are in the Certificate of Incorporation, these Bylaws or by law expressly conferred upon or reserved to the Shareholders.

 

Section 2. Number of Directors . The Board of Directors shall consist of at least three (3) or more members. The exact number of directors constituting the Board of Directors shall be fixed, and may be changed from time to time, by the Board of Directors pursuant to a resolution passed by a majority of the Board of Directors then in office, even if less than a quorum, at a duly held meeting of Directors. No reduction in the authorized number of Directors shall have the effect of removing any Director before that Director’s term of office expires. Directors need not be shareholders.

 

Section 3. Term of Office . Except for the initial Directors, who shall be elected by the incorporator of the Corporation, and except as otherwise provided in these Bylaws, Directors shall be elected at each annual meeting of Shareholders. Each Director so elected shall hold office for a period of two (2) years and until his or her successor is duly elected and qualified at the second annual meeting following the annual meeting at which such Director was elected, or until his or her earlier resignation, removal or death.

 

Section 4. Vacancies and Newly Created Directorships . If the office of any Director becomes vacant for any reason or if the number of Directors shall at any time be increased, the Board of Directors may fill such vacancy or newly created directorship pursuant to a resolution duly adopted by a majority of the Directors then in office, even if less than a quorum, and any Director so chosen shall hold office until the next annual meeting of Shareholders and until his or her successor is duly elected and qualified or until his or her earlier resignation, removal or death. The Shareholders may at any duly held meeting of Shareholders elect a Director to fill a vacancy or newly created directorship not filled by the Directors.

 

Section 5. Resignation . Any Director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Unless otherwise specified in such written notice, such resignation is effective when the resignation is delivered to the Corporation, and the acceptance of such resignation shall not be necessary to make it effective.

 

B/L- 4
 

  

Section 6. Removal by Shareholders . Unless otherwise restricted by law or by the Certificate of Incorporation, any Director or the entire Board of Directors may be removed, with or without cause, at a duly held meeting of Shareholders by the holders of a majority of the shares of outstanding capital stock of the Corporation then entitled to vote on the election of Directors.

 

Section 7. Regular Meetings . Regular meetings of the Board of Directors may be held without notice at such place, within or without the State of Delaware, on such dates and at such times as shall be determined from time to time by the Board of Directors. A regular meeting of the Board of Directors may also be held without notice immediately following the annual meeting of Shareholders at the place where such meeting is held.

 

Section 8. Special Meetings . Special meetings of the Board of Directors may be called by the Chairman of the Board, any two of the directors then in office, the Chief Executive Officer or, if no person holds such office, the President. Notice of the place, date and time of each such special meeting shall be given to each Director by whom it is not waived by (i) mailing written notice not fewer than four (4) days before the meeting or (ii) emailing, telegraphing, transmitting a facsimile of or personally delivering written notice or giving telephonic notice not fewer than 48 hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

 

Section 9. Participation by Telephone Conference Call . Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or of any such committee, by means of telephone conference or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

 

Section 10. Quorum and Vote Required for Action . Except as may be otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, a majority of the authorized number of Directors shall constitute a quorum for the transaction of business. At all meetings of the Board, each Director present shall have one vote irrespective of the number of shares of stock, if any, which such Director may hold. The affirmative vote of a majority of the Directors present at a duly held meeting at which there is a quorum present shall be the act of the Board of Directors. 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 by at least a majority of the required quorum for the meeting.

 

Section 11. Adjournment . A majority of the Directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place, and no further notice thereof need be given other than announcement of the adjournment at the meeting so adjourned. At the adjourned meeting, the Board of Directors may transact any business that might have been transacted at the original meeting.

 

Section 12. Action Without Meeting . Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or committee.

 

B/L- 5
 

  

Section 13. Compensation . Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors. This Section shall not be construed to preclude any Director from serving the Corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services.

 

ARTICLE IV

COMMITTEES OF DIRECTORS

 

Section 1 . Committees of the Board of Directors . The Board of Directors, by vote of a majority of the authorized number of Directors, may at any time designate one or more committees, each consisting of two or more Directors of the Corporation. The Board of Directors may designate one or more Directors as alternate members of any such committee who may then replace any absent or disqualified member at any meeting of the committee. In lieu of such action by the Board of Directors, in the absence or disqualification of any member of a committee, the committee members present at any meeting and not disqualified from voting, regardless of whether they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, any such committee, to the extent provided in resolutions duly adopted by the Board of Directors, shall have and may exercise all powers and authority of the Board of Directors in the direction of the management of the business and affairs of the Corporation. Unless otherwise prescribed by the Board of Directors, a majority of the members of the committee shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the members present at a duly held meeting at which there is a quorum present shall be the act of such committee. Each committee shall determine its own rules for calling and holding meetings and its own methods of procedure, subject to any rules prescribed by the Board of Directors, and shall keep a written record of all actions taken by such committee.

 

Section 2. Term of Office . Each member of a committee shall hold office until the first meeting of the Board of Directors following the annual meeting of Shareholders at which such member is not re-elected to the Board of Directors (or until such other time as the Board of Directors may determine, either in the vote establishing the committee or at the election of such member or otherwise) and until his or her successor is duly elected and qualified or until he or she sooner resigns, is removed, dies, is replaced by change of membership or becomes disqualified by ceasing to be a Director, or until the committee is sooner abolished by the Board of Directors.

 

Section 3. Audit Committee . Without limiting the generality of the foregoing, the Board of Directors shall designate annually an Audit Committee consisting of not less than two (2) Directors as it may from time to time determine, none of whom shall be an officer or employee of the Corporation. The Audit Committee shall select independent public accountants to audit the books of account and other appropriate corporate records of the Corporation annually and at such other times as the Board of Directors shall determine by resolution, and shall review with such independent accountants the Corporation’s financial statements, basic accounting and financial policies and practices, adequacy of controls, standard and special tests used in verifying the Corporation’s statements of account and in determining the soundness of the Corporation’s financial condition. The Audit Committee shall report to the Board of Directors the results of such reviews, review the policies and practices pertaining to publication of quarterly and annual statements to assure consistency with audited results and the implementation of policies and practices recommended by the independent accountants, ensure that suitable independent audits are made of the operations and results of subsidiaries and affiliates and monitor compliance with the Corporation’s code of business conduct. The Audit Committee shall have such other duties, functions and powers as the Board of Directors may from time to time prescribe and as may be required from time to time by the rules of any stock exchange or quotation system on which securities of the Corporation are listed or quoted.

 

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Section 4. Compensation Committee . Without limiting the generality of the foregoing, the Board of Directors shall designate annually a Compensation Committee consisting of not less than two (2) Directors as it may from time to time determine, none of whom shall be an officer or employee of the Corporation. The Compensation Committee shall review on an annual basis the compensation paid to employees and officers of the Corporation and shall report to the Board of Directors the result of such reviews, and their recommendations for any adjustments to such employee and officer compensation. The Compensation Committee shall have such other duties, functions and powers as the Board of Directors may from time to time prescribe and as may be required from time to time by the rules of any stock exchange or quotation system on which securities of the Corporation are listed or quoted.

 

ARTICLE V

OFFICERS

 

Section 1. Officers . The officers of the Corporation shall consist of a Chairman of the Board, a Chief Executive Officer or President, or both, a Chief Financial Officer, a Chief Operating Officer, a Secretary and, in the discretion of the Board of Directors, a Chief Operating Officer and one or more Executive Vice Presidents, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and such other officers as the Board of Directors deems necessary or appropriate. Any officer other than the Chairman may be, but is not required to be, a Director of the Corporation, unless otherwise provided by these Bylaws, the Certification of Incorporation or by law. The officers of the Corporation shall be elected by the Board at the regular annual meeting of the Board of Directors following the annual meeting of the Shareholders. Except as may be expressly set forth in a written employment contract between the Corporation and an officer or in a resolution duly adopted by the Board of Directors, each officer shall hold office until his or her successor is duly elected and qualified or until his or her earlier resignation, removal or death. The powers and duties of more than one office may be exercised and performed by the same person.

 

Section 2. Vacancies . Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting.

 

Section 3. Chairman of the Board; Vice Chairman of the Board . The Chairman of the Board of Directors, if there be such an officer, shall be a member of the Board of Directors and shall preside at its meetings. The Chairman of the Board shall advise and counsel with the Chief Executive Officer or, if no person holds such office, the President, and shall perform such duties as from time to time may be assigned to him or her by the Board of Directors or prescribed by these Bylaws. The Board of Directors may also elect a Vice Chairman of the Board who, if there be such an officer, shall be a member of the Board of Directors and may preside at its meetings. Any person occupying the position or having the title of Chairman of the Board or Vice Chairman of the Board shall not, merely in such capacity or because of such title, be either an officer or employee of the Corporation unless the Board duly adopts a resolution with respect to such person subsequent to his or her election to such position specifically designating such position as an officer and/or employee position specifically with respect to such person.

  

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Section 4. Chief Executive Officer . Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, and subject to the control of the Board of Directors, the Chief Executive Officer of the Corporation, if there be such an officer, shall have general supervision, direction and control of the business and officers of the Corporation. Subject to the Board of Directors, the Chief Executive Officer shall be the final arbiter in all differences among the officers of the Corporation and his or her decision as to any matter affecting the Corporation shall be final and binding as among the officers of the Corporation. The Chief Executive Officer shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and perform such other duties as may be assigned to him or her from time to time by the Board of Directors or prescribed by these Bylaws.

 

Section 5. President . Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board and the Chief Executive Officer of the Corporation, if there be such an officer or officers, and subject to the control of the Board of Directors, the President of the Corporation, if there be such an officer, shall have such general powers and duties of management as may be assigned to him or her from time to time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer of the Corporation or prescribed by these Bylaws. If no Chief Executive Officer shall have been elected, the President shall perform all the duties of the Chief Executive Officer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer.

 

Section 6. Executive Vice Presidents, Vice Presidents and Other Officers . Each Executive Vice President, Vice President, Assistant Vice President and such other officer as may be duly elected under these Bylaws shall have and exercise such powers and shall perform such duties as from time to time may be assigned to such officer by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President or prescribed by these Bylaws.

 

Section 7. Secretary . The Secretary shall keep the minutes of all meetings of the Shareholders and of the Board of Directors in books provided for that purpose, see that all notices are duly given in accordance with the provisions of law and these Bylaws, be custodian of the records and of the corporate seal or seals of the Corporation and see that the corporate seal is affixed to all documents the execution of which, on behalf of the Corporation under its seal, is duly authorized and, when the seal is so affixed, the Secretary may attest the same. In general, the Secretary shall perform all duties incident to the office of secretary of a corporation and such other duties as from time to time may be assigned to him or her by the Board of Directors or the Chairman of the Board or prescribed by these Bylaws.

 

Section 8. Assistant Secretaries . The Assistant Secretaries, if there be any such officers, in order of their seniority shall, in the absence of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Directors shall assign to them or as from time to time may be assigned to them by the Chairman of the Board or the Secretary.

  

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Section 9. Chief Financial Officer . The Chief Financial Officer of the Corporation shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the Chief Executive Officer, President and Board of Directors, whenever they request it, an account of all of his or her transactions as Chief Financial Officer and of the financial condition of the Corporation; shall have such other powers and perform such other duties as may be assigned to him or her by the Board of Directors or prescribed by these Bylaws; and shall perform such other duties consistent therewith as may be assigned to him or her by the Chief Executive Officer or, if no person holds such office, the President.

 

Section 10. Chief Operating Officer . Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board and the Chief Executive Officer of the Corporation, if there be such an officer or officers, and subject to the control of the Board of Directors, the Chief Operating Officer, if there be such an officer, shall have such general powers and duties of management of the operations of the Corporation as may be assigned to him or her from time to time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer of the Corporation or prescribed by these Bylaws.

 

Section 11. Subordinate Officers . The Board of Directors may appoint such subordinate officers as the Board may deem desirable. Each such officer shall hold office for such period, have such authority and perform such duties as the Board of Directors may prescribe. The Board of Directors may, from time to time, authorize any officer to appoint and remove subordinate officers and to prescribe the powers and duties thereof.

 

Section 12. Compensation . The Board of Directors shall fix the compensation of all officers of the Corporation. The Board may authorize any officer upon whom the power of appointing subordinate officers may have been conferred to fix the compensation of such subordinate officers.

 

Section 13. Resignation . Any officer may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Unless otherwise specified in such written notice, such resignation is effective when the resignation is delivered to the Corporation, and the acceptance of such resignation shall not be necessary to make it effective.

 

Section 14. Removal . Any officer of the Corporation may be removed, with or without cause, by action of the Board of Directors or the Chief Executive Officer or if no person holds such office, the President.

 

Section 15. Sureties and Bonds . In case the Board of Directors shall so require, any officer, employee or agent of the Corporation shall execute to the Corporation a bond in such sum, and with such surety or sureties as the Board may direct, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting for all property, funds or securities of the Corporation which may come into his hands.

 

Section 16. Loans to Directors or Executive Officers . The Corporation may not, directly or indirectly, including through any subsidiary, extend or maintain credit, arrange for the extension of credit, or renew an extension of credit, in the form of a personal loan, to, or for any director or executive officer (or equivalent thereof) in contravention of applicable law (including, without limitation, Section 402 of the Sarbanes-Oxley Act of 2002 and any regulations promulgated thereunder).

 

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ARTICLE VI

STOCK

 

Section 1. Restrictions, Pre-emptive Rights, Takeover Provisions and Disclosure of Interests . All Shares of stock of the Corporation are subject to restrictions, pre-emptive rights, takeover provisions and disclosure of interest requirements set forth in the Certificate of Incorporation.

 

Section 2. Certificate of Shares of Stock and Uncertificated Shares .

 

(a) The certificates representing shares of the Corporation shall be in such form as shall be adopted by the Board, and shall be numbered and registered in the order issued. They shall bear the holder’s name and the number of shares, and shall be signed by (i) the Chairman of the Board or the President or a Vice President, or a Chief Financial Officer, and (ii) the Secretary or Treasurer, or any Assistant Secretary or Assistant Treasurer, and shall bear the corporate seal.

 

(b) Notwithstanding subparagraph (a) above, the Board of Directors may provide by resolution or resolutions that some or all of the Shares of the Corporation may be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation.

 

(c) No certificate representing shares or uncertificated shares shall be issued until the full amount of consideration therefor has been paid, except as otherwise permitted by law.

 

Section 3. Lost or Destroyed Certificates . The holder of any certificate representing Shares of the Corporation shall immediately notify the Corporation of any loss, theft or destruction of the certificate representing the same. The Corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed. On production of such evidence of loss, theft or destruction as the Board in its discretion may require, the Board may, in its discretion, require the owner of the lost, stolen or destroyed certificate, or his legal representatives, to give the Corporation a bond in such sum as the Board may direct, and with such surety or sureties as may be satisfactory to the Board, to indemnify the Corporation against any claims, loss, liability or damage it may suffer on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

 

Section 4. Transfer of Shares . The Shares of the stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof in person or by his or her attorney lawfully constituted, upon surrender for cancellation of the certificate or certificates representing such Shares of stock, if such Shares of stock are represented by a certificate, and upon presentment of an assignment and power of transfer duly executed, with such proof or guaranty of the authenticity of the signature as the Corporation or its agents may reasonably require.

 

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, save as expressly provided by law or by the Certificate of Incorporation. It shall be the duty of each Shareholder to notify the Corporation of his or her address.

 

Notwithstanding the above, the Company will not register any subsequent transfer of Shares of stock which is issued or sold pursuant to Regulation S under the Securities Act unless such subsequent transfer is made in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act or pursuant to an available exemption from registration under the Securities Act.

 

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Section 5. Record Dates .

 

(a) In order that the Corporation may determine the Shareholders entitled to notice of or to vote at any meeting of Shareholders or any adjournment thereof or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of Shareholders nor more than sixty (60) days prior to the time for any other action (if such other action is permitted by the Certificate of Incorporation). Only such shareholders as shall be Shareholders of record on the date so fixed shall be entitled to notice of, and to vote at, any such meeting or to receive payment of any such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any record date fixed as aforesaid. If no such record date is so fixed by the Board, the record date shall be determined by applicable law.

 

(b) A determination of Shareholders of record entitled to notice of or to vote at a meeting of Shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

 

ARTICLE VII

DEPOSITARY INTERESTS

 

The Board is authorized to make such arrangements as it may determine is necessary in order to enable Shares to be represented by and exchanged for depositary interests which are eligible to be held and transferred in uncertificated form in a computer-based system whether located in the United Kingdom or in any other country. Notice of any such arrangements shall be provided to Shareholders in such manner as the Board may decide.

 

ARTICLE VIII

SEVERABILITY PROVISIONS

 

Section 1. If any provision of Articles VIII of these Bylaws (the Inserted Provisions ) or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then:

 

(a) such provision or part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to all applicable laws so as to be valid and enforceable to the fullest possible extent;

 

(b) the invalidity or unenforceability of such provision or part thereof under such circumstances and in such jurisdiction shall not affect the validity or enforceability of such provision or part thereof under any other circumstances or in any other jurisdiction; and

  

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(c) the invalidity or unenforceability of such provision or part of any Inserted Provision shall not affect the validity or enforceability of the remainder of such provision or the validity or enforceability of any other provision of any other Inserted Provision. Each provision of each Inserted Provision is separable from every other provision of any other Inserted Provision, and each part of each provision of each Inserted Provision is separable from every other part of such provision.

  

ARTICLE IX

EXECUTION OF DOCUMENTS

 

Section 1. Execution of Checks, Notes, etc. All checks and drafts on the Corporation’s bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers, or agent or agents, as shall be thereunto authorized from time to time by the Board of Directors which may in its discretion authorize any such signatures to be facsimile.

 

Section 2. Execution of Contracts, Assignments, etc. Unless the Board of Directors, the Chief Executive Officer or, if no person holds such office, the President, shall have otherwise provided generally or in a specific instance, all contracts, agreements, endorsements, assignments or other instruments shall be signed by the Chief Executive Officer, the President, the Chief Financial Officer or the Chief Operating Officer. The Board of Directors may, however, in its discretion, require any or all such instruments to be signed by any two or more of such officers or may permit any or all of such instruments to be signed by such other officer or officers, agent or agents, as the Board of Directors shall thereunto authorize from time to time.

 

Section 3. Voting of Stock Owned by the Corporation . The Chief Executive Officer, the President, the Secretary or any other officer designated by the Board of Directors may, on behalf of the Corporation, attend, vote and grant proxies to vote with respect to shares of stock of other companies standing in the name of the Corporation.

 

ARTICLE X

DIVIDENDS

 

Subject to applicable law, dividends may be declared and paid out of any funds available therefore, as often, in such amounts, and at such time or times as the Board of Directors may determine.

 

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ARTICLE XI

INDEMNIFICATION

 

Section 1. Right to Indemnification . Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (hereinafter an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Applicable Corporation Statutes, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys’ fees, judgments, fines, excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the indemnitee’s heirs, executors and administrators; provided, however that, except as provided in Section 2 of this Article XI, with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article XI shall be a contract right and, to the extent not prohibited by applicable law (including, without limitation, Section 402 of the Sarbanes-Oxley Act of 2002 and any regulations promulgated thereunder), shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an “advancement of expenses”); provided, however that, if the Applicable Corporation Statutes so requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this Article or otherwise.

 

Section 2 . Right of Indemnitee to Bring Suit . If a claim under Section 1 of this Article XI is not paid in full by the Corporation within thirty (30) days after a written claim has been received by the Corporation, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (a) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (b) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard of conduct set forth in the Applicable Corporation Statutes. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Applicable Corporation Statutes, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its shareholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article XI or otherwise shall be on the Corporation.

 

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Section 3. Non-Exclusivity of Rights . The rights to indemnification and to the advancement of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article XI shall not be exclusive of any other right which any person may have or hereafter acquire under the Certificate of Incorporation of the Corporation or any statute, bylaw, agreement, vote of shareholders or disinterested directors or otherwise. The Board of Directors may adopt bylaws from time to time with respect to indemnification to provide at all times the fullest indemnification authorized by the Applicable Corporation Statutes.

 

Section 4. Indemnification of Employees and Agents . The Corporation may, to the extent authorized from time to time by the Board of Directors, grant to any person serving as an employee or agent of the Corporation and to any person serving at the request of the Corporation as an employee or agent of another corporation or of any partnership, joint venture, trust or other organization or enterprise, including service with respect to employee benefit plans, rights to indemnification and to the advancement of expenses to the fullest extent of the provisions of this Article XI with respect to the indemnification of, and the advancement of expenses to, directors and officers of the Corporation.

 

Section 5. Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Applicable Corporation Statutes.

 

ARTICLE XII

MISCELLANEOUS

 

Section 1. Inspection of Books . The Board of Directors shall determine from time to time whether, and if allowed, to what extent and at what time and places and under what conditions and regulations, the accounts and books of the Corporation (except such as may by law be specifically open to inspection), or any of them, shall be open to the inspection of the Shareholders, and no Shareholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by a duly adopted resolution of the Board of Directors or of the shareholders of the Corporation.

 

Section 2. Fiscal Year . The fiscal year of the Corporation shall be determined from time to time by vote of the Board of Directors. In the absence of such determination, the fiscal year shall be the calendar year.

 

Section 3. Corporate Seal . The corporate seal shall be circular in form and shall contain the name of the Corporation, the year of its creation and words to the effect “CORPORATE SEAL DELAWARE.” Such seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.

 

Section 4. Waiver of Notice . Notice of any meeting of Shareholders or Directors need not be given to any person entitled thereto (a) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (b) who attends the meeting, except when the person attends the meeting for the express purpose of objecting, at the commencement of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. All such waivers, consents and approvals shall be filed with the corporate records or made part of the minutes of the meeting. Neither the business to be transacted at, nor the purpose of, any such meeting need be specified in any written waiver of notice or in any written consent to the holding of the meeting.

 

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Section 5 . Borrowing .

 

(a)    Subject as provided in this Section 5, the Board of Directors has the authority to mortgage or place a lien upon all or any part of its undertaking, property, assets (present and future) and capital and, to issue debentures and other securities, whether outright or as collateral security for any guarantee, debt, liability or obligation of the Corporation or of any third party.

 

(b)    The Board of Directors shall restrict the borrowings of the Corporation and exercise all voting and other rights or powers of control exercisable by the Corporation in relation to its subsidiary undertakings (if any) so as to provide (but with respect to any debt incurred by any subsidiary only to the extent it can provide) that the aggregate principal amount of all borrowings by the Group outstanding at any time (exclusive of any borrowings which are owed by any Group company to another Group company and subject to Sections 5(c)2 and 5(c)5 of this Article XII below) shall not without the affirmative vote of the holders of a majority of the Shares present in person or represented by proxy at the meeting of Shareholders of the Corporation at which such action shall be approved and entitled to vote on the subject matter and which has actually been voted, exceed an amount equal to three times the Adjusted Capital and Reserves.

 

(c) Interpretation of Sections 5(b) to 5(g).

 

1. For the purposes of the provisions of this Section 5:

 

1.1 “ Adjusted Capital and Reserves ” shall mean the aggregate of:

 

(i) the amount paid for Shares and on any Shares that have been unconditionally reserved but not issued; and

 

(ii) the amounts standing to the credit of the reserves of the Group (including any share premium account, capital redemption reserve and revaluation reserve or the equivalent) after adding any credit balance or deducting any debit balance on the profit and loss account,

 

as shown in the Latest Accounts but after:

 

(iii) making such adjustments as may be appropriate to reflect any variations since the date of the Latest Accounts in such share capital or reserves and so that for this purpose if the Corporation proposes to issue or has issued any Shares for cash and the issue has been underwritten or agreed to be subscribed or taken up then these Shares shall be deemed to have been allotted and the amount (including any premium) of the subscription moneys or consideration payable (not being moneys payable later than six months after the date of allotment) shall be deemed to have been paid up on the date when the issue of such Shares was underwritten or agreed to be subscribed or taken (or if such underwriting or subscription or purchase was conditional, on the date when it becomes unconditional);

 

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(iv) making such adjustments as may be appropriate to reflect any variations since the date of the Latest Accounts in the interests of the Corporation in its subsidiary undertakings (including any undertaking which was not a subsidiary undertaking at that date but which is so as at the relevant time) and any undertaking which was a subsidiary undertaking at the date of the Latest Accounts but which is no longer so at the relevant time and any variations as result of the transaction in relation to which the calculation falls to be made;

 

(v) excluding any sums attributable to outside interests in any subsidiary undertaking;

 

(vi) deducting any distributions declared, recommended or made by a Group company (to a person other than another Group company) out of profits earned up to and including the date of the Latest Accounts (to the extent that any such distributions are not provided for in such Accounts);

 

(vii) adding back amounts attributable to goodwill (other than goodwill arising on consolidation) and any other intangible asset and, if not otherwise taken into account, amounts attributable to minority interests in subsidiary undertakings;

 

(viii) deducting amounts set aside for taxation;

 

(ix) making such other adjustments (if any) as the auditors of the Corporation may consider appropriate.

 

1.2 Borrowings ” shall, subject to Sections 5(c)1.2(viii) to 5(c)1.2(xii) of this Article XV below, be deemed to include the following:

 

(i) the principal amount for the time being outstanding and owing by a Group company in respect of any debenture whether issued for cash or otherwise other than a debenture for the time being owned by a Group company;

 

(ii) the principal amount raised by the Group company by acceptances under any acceptance credit opened on its behalf and in its favour by any bank or financial institution (not being acceptances in respect of the purchase or sale of goods or the provision of services in the ordinary course of business which are outstanding for six months or less);

 

(iii) the nominal amount of any Share and the principal amount of any debenture or borrowings of any person to the extent that the payment or redemption or repayment is the subject of a guarantee or indemnity or security given by a Group company or which any Group company may be required to purchase but excluding any such Shares which are for the time being beneficially owned by, and any such borrowings which are for the time being owed to a Group company;

 

(iv) the nominal amount of any share (other than equity share capital) of any subsidiary undertaking owned otherwise than by any Group company;

 

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(v) any fixed or minimum premium payable on final redemption or repay-ment of any debentures, share capital or other borrowing or deemed borrowings failing to be taken into account;

 

(vi) any amount in respect of a financing lease payable by a Group company which would be shown as being so payable in a balance sheet prepared in accordance with the accounting principles used in the preparation of the Latest Accounts; and

 

(vii) any part of the purchase price of any asset acquired by any Group company, the payment of which is deferred beyond the date of completion of the conveyance, assignment or transfer of the legal title to such assets, or no such conveyance, assignment or transfer is to take place within six months after the date on which the contract for such purchase is entered into or (if later) becomes unconditional, beyond that date.

 

but to exclude the following:

 

(viii) borrowings by a Group company to finance any contract in respect of which any part of the amount receivable under the contract by that or any other Group company is guaranteed or insured by any government, governmental agency or body or by a person (not being a Group company) carrying on the business of providing credit insurance, up to an amount equal to that part of the amount receivable under the contract which is so guaranteed or insured;

 

(ix) borrowings by a Group company before, and outstanding after, it becomes a subsidiary undertaking of the Corporation and amounts secured on an asset before, and remaining so secured after, it is acquired by a Group company until six months after the undertaking becomes a subsidiary undertaking or the asset is acquired, as the case may be;

 

(x) any guarantee or indemnity given by any Group company in respect of any amount or obligation deemed not to be moneys borrowed under Section 5 of this Article XV;

 

(xi) any amount payable under any hire purchase agreement, credit sale agreement, operating lease or similar agreement which is not a finance lease for the purposes of Section 5(c)1.2(vi) of this Article XV above; and

 

(xii) borrowings incurred by a Group company for the purposes of repaying within six months of the borrowing all or any part of any borrowing made by it or another Group company, pending their application for that purpose during the period.

  

B/L- 17
 

 

1.3 Excepted Foreign Currency Borrowings ” means borrowings denominated or repayable in a currency other than sterling which have the benefit of a government agency exchange cover scheme, forward currency contract, currency option back-to-back loan, swap or other arrangement taken out or entered into to reduce the risks associated with fluctuations in the exchange rates;

 

1.4 Group ” means the Corporation and its subsidiary undertakings from time to time and Group company means any one of them;

 

1.5 Latest Accounts ” means:

 

(i) the latest audited balance sheet of the Corporation; or

 

(ii) (where the Corporation prepares an audited consolidated balance sheet in respect of the Group), the latest audited consolidated balance sheet of the Group together, in either case, with the latest audited balance sheet of any subsidiary undertaking of the Corporation which is not included above.

 

If the Corporation prepares its main audited consolidated balance sheet in accordance with one accounting convention and a supplementary balance sheet in accordance with another convention the main one shall be taken as the audited consolidated balance sheet;

 

1.6 outside interests ” means the proportion of the nominal amount of the issued equity share capital of a partly owned subsidiary undertaking which is not attributable, directly or indirectly, to the Corporation;

 

1.7 subsidiary undertaking ” means a subsidiary undertaking of the Corporation, as that term is defined in the UK Companies Act.

 

2 For the purposes of any calculation under Section 5 of this Article XV:

 

2.1 borrowings by a partly owned subsidiary undertaking and not owing to another Group company shall (notwithstanding Section 5(c)1.2) of this Article XV be taken into account subject to the exclusion of a proportionate amount of such borrowings corresponding to the outside interests;

 

2.2 borrowings owing to a partly owned subsidiary undertaking by another Group company shall (subject to Section 5(c)1.2 and Section 5(c)2.3 of this Article XV below) be taken into account to the extent of the proportionate amount of such borrowings corresponding to the outside interests;

 

2.3 in the case of borrowings and moneys owing to a partly owned subsidiary undertaking by another partly owned subsidiary undertaking, the proportion which would otherwise be taken into account under Section 5(c)2.2 of this Article XV above shall be reduced by the exclusion of a proportionate amount of such borrowings corresponding to the outside interests in the borrowing subsidiary undertaking;

  

B/L- 18
 

  

2.4 no amount shall be taken into account more than once in any calculation of moneys borrowed; and

 

2.5 any borrowing denominated or repayable, or any cash deposited, in a currency other than sterling shall:

 

(i) with the exception of Excepted Foreign Currency Borrowings, be translated into sterling at the rate of exchange in London at the close of business on the last business day before the date on which the calculation is made or, if it would result in a lower figure, at the rate of exchange in London at the close of business on the date of the Latest Accounts and so that, for these purposes, the rate of exchange in London shall be taken as the spot rate quoted by a London clearing bank selected by the Board of Directors for the purchase by the Corporation of the currency and amount in question for sterling; and

 

(ii) in the case of any Excepted Foreign Currency Borrowings, at the rate of exchange applicable to such borrowings on their repayment to the extent that such rate is fixed under the scheme or other arrangement in connection with which the borrowing arises, provided that, where it is not possible to determine such rate, the borrowing shall be translated into sterling on such basis as may be agreed with, or determined by, the auditors or otherwise in accordance with the provisions of Section 5(c)2.5(i) of this Article XV.

 

3. In determining the amount of any borrowings or debentures or of any share capital for the purpose of Section 5 of this Article XV there shall be taken into account the nominal or principal amount thereof (or, in the case of partly-paid debentures or shares, the amount for the time being paid up thereon) together with any fixed or minimum premium payable on final repayment or redemption.

 

4. If moneys are borrowed or debentures or Shares are issued on terms that they may be repayable or redeemable (or that any Group company may be required to purchase them) earlier than their final maturity date (whether by exercise of an option on the part of the issuer or the creditor (or a trustee for the creditor) or the Shareholder, by reason of a default or for any other reason) at a premium or discount to their nominal or principal amount then there shall be taken into account the amount (or the greater or greatest of two or more alternative amounts) which would, if those circumstances occurred, be payable on such repayment, redemption or purchase at the date as at which the calculation is being made.

 

 

B/L- 19
 

 

 

5. There shall be offset against the amount of the borrowings any amounts beneficially owned by a Group company which represent the value of cash deposited and which would be shown as a current asset in a balance sheet prepared in accordance with the accounting principles used in the preparation of the Latest Accounts, subject, in the case of any such items which are beneficially owned by a partly owned subsidiary undertaking, to the exclusion of a proportionate amount of those items corresponding to outside interests in that subsidiary undertaking. For these purposes, cash deposited means an amount equal to the aggregate for the time being of all cash deposits with any bank or other person (not being a Group company), the realizable value of any certificates issued by governments and companies and other readily realizable deposits.

 

(d)          Fluctuating rates of exchange. The Corporation shall not be in breach of the borrowing limit under Section 5 of this Article XV by reason of the limit being exceeded as a result only of any fluctuation in rates of exchange provided that within six months of the Board of Directors becoming aware of any such fluctuation or change which would but for this provision have caused such a breach, the aggregate principal amount of all borrowings by the Group in accordance with Section 5 of this Article XV is reduced to an amount not exceeding the said limit.

 

(e)          Changes in legislation. If as a result of any change in legislation relating to or affecting taxation matters, any amount payable by a Group company in respect of any financing lease shall increase and if in consequence the borrowing limit under Section 5 of this Article XV is exceeded, an amount of moneys borrowed equal to the excess may be disregarded until the expiration of six months after the date on which the Board of Directors becomes aware that such a situation has arisen.

 

(f)          Validity of borrowing arrangements. No person dealing with the Corporation or any of its subsidiary undertakings shall be concerned to see or inquire whether the limit imposed under Section 5(b) of this Article XV is observed, and no debt incurred or security given in excess of such limit shall be void or voidable at the instance of the Corporation or any other Group company unless the lender or the recipient of the security had, at the time when the debt was incurred or security given, express notice that the limit had been or would thereby be exceeded.

 

(g)          Certification of auditors.

 

(i) A certificate or report by the auditors as to the amount of Adjusted Capital and Reserves or the amount of borrowings or to the effect that the limit imposed by Section 5 of this Article XV has or has not been or will or will not be exceeded at any particular time or times shall be conclusive evidence of the amount or of that fact. Nevertheless, for the purposes of Section 5 of this Article XV, the Directors may act in reliance on a bona fide estimate of the amount of the Adjusted Capital and Reserves at any time and if in consequence, the limit hereinbefore contained is inadvertently exceeded, an amount of borrowed moneys equal to the excess may be disregarded until the expiration of three months after the date on which by reason of a determination of the auditors or otherwise the Directors become aware that such a situation has or may have arisen.

 

B/L- 20
 

  

(ii) Save as otherwise provided in Section 5 of this Article XV, the latest audited balance sheet adopted as the main or principal balance sheet of the Corporation or any of its subsidiaries whether prepared on an historic cost basis or a current cost accounting basis or on any other generally accepted accounting principles shall be definitive for the purposes of establishing the Adjusted Capital and Reserves.

  

ARTICLE XIII

AMENDMENTS

 

Except as expressly provided by these Bylaws, these Bylaws may be altered, amended, changed or repealed and new Bylaws adopted by the affirmative vote of a majority of the outstanding shares of capital stock of the Corporation entitled to vote or by the Board of Directors, in either case at any meeting called for that purpose at which a quorum shall be present. Any bylaw, whether made, altered, amended, changed or repealed by the Shareholders or the Board of Directors may be repealed, amended, changed, further amended, changed, repealed or reinstated, as the case may be, either by the Shareholders or by the Board of Directors as herein provided; except that this Article XIII may be altered, amended, changed or repealed only by the affirmative vote of a majority of the outstanding shares of capital stock of the Corporation entitled to vote. Notwithstanding any other provisions of these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, following Admission, the affirmative vote of seventy five percent (75%) or more of the Voting Rights, voting together as a single class, shall be required to alter, amend or repeal Articles VII, VIII and XIII of these Bylaws.

* * *

 

B/L- 21
 

 

THIS IS TO CERTIFY:

That I am the duly elected, qualified and acting Secretary of XG TECHNOLOGY, INC., and that the foregoing bylaws were adopted as the bylaws of such corporation as of the 8th day of November, 2006, by the Board of Directors of such corporation.

 

Dated as of November 8, 2006

  

/s/ Roger G. Branton
Secretary

  

B/L- 22

  

 

 

Ex 10.1

 

 

xMax Equipment Purchase Agreement

 

NAME OF COMPANY

 

xG Technology, Inc. 240 South Pineapple Avenue, Suite 701, Sarasota FL 34236

 TEL: 941-953-9035 FAX: 941-954-8595 www.xgtechnology.com

 

1
 

 

xMax Equipment Purchase Agreement

 

PARTIES

 

THIS AGREEMENT, effective the         day of        ,      , by and between xG Technology, Inc., (“XGT”) doing business at 240 South Pineapple Avenue, Suite 701, Sarasota, Florida 34236 , and NAME OF COMPANY (hereinafter “NAME” or “Customer”) doing business at ADDRESS . XGT and Customer are collectively referred to as the “Parties” or each “Party” throughout this Agreement.

 

This Agreement is subject to that AGREEMENT FOR ENGINEERING SERVICES, effective on ______________date between the Parties.

 

BACKGROUND

 

Whereas NAME (BACKGROUND ON BUSINESS OF CUSTOMER);

 

And, whereas NAME (ADDITIONAL INFORMATION ON CUSTOMER);

 

And, whereas NAME (PURPOSE OF EQUIPMENT PURCHASE) (see Schedule A) that it serves;

 

And, whereas XGT is a technology company that has developed innovative, patented communications technologies (xMax) which include, but are not limited to, cognitive radio solutions with the potential to offer carrier-class mobile broadband services operating in license-free spectrum using an end-to-end Internet Protocol (IP) system;

 

And, whereas NAME wishes to purchase specific quantities of xMax equipment for the servicing of their existing customers, as well as any additional customers that offering xMax services may bring (see Schedule A);

 

And, whereas NAME wishes to purchase and XGT wishes to supply xMax equipment to NAME, for use with its existing and future customer base, on an exclusive basis within the defined service areas (see Schedule A);

 

And, whereas certain of the xMax equipment is subject to regulation and prior approval by the Federal Communications Commission (FCC), which approval has not been granted as of the date of this Agreement;

 

2
 

 

NOW THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, the parties hereto agree as follows:

 

AGREED TERMS

 

1. PURCHASE AND SUPPLY OF xMAX EQUIPMENT

 

1.1          In accordance with, and subject to, the terms and conditions of this Agreement (including, without limitation, the Terms and Conditions of Supply set out in Schedule B), the Customer shall purchase and XGT shall supply such quantities of xMax equipment at such prices as are specified in Schedule A, conditioned upon the Customer having obtained favorable financing, such favorable financing to be determined at Customer’s sole discretion. XGT will execute this order upon notice from the Customer of acceptable finance.

 

1.2          The quantities of xMax equipment specified in Schedule A have been determined and agreed between the parties based upon minimum annual purchase quantities in order to maintain territory exclusivity. If the Customer wishes to purchase xMax equipment additional to the quantities specified in Schedule A and serves (an) additional order(s) on XGT then XGT agrees to supply such additional equipment at the prices specified in Schedule A, subject to XGT having served on the Customer a price change notice prior to service of any such additional order, in which case the prices specified in such price change notice shall apply. Save as provided as to price in the preceding sentence, each additional order shall be deemed to be a separate offer by the Customer to purchase xMax equipment on the terms of this Agreement, which XGT shall be free to accept or decline at its absolute discretion.

 

2. FORCE MAJEURE

 

2.1          XGT shall not be liable for any damage, delays or failures to perform any obligation hereunder caused by factors beyond its reasonable ability to control, including (without limitation) changes in government regulations, acts of God, labor shortages, strikes, slowdowns, or other combined action of workmen, fires, floods, earthquakes, severe weather, serious accidents, epidemics, quarantines, wars, insurrections or riots, acts of civil or military authorities, transportation embargoes, destruction of production facilities, delays, shortages or interruptions to delivery of components and materials, to the extent that (i) the delay extends more than thirty (30) days, (ii) was not caused by or the result of any conduct of XGT and (iii) was not reasonably foreseeable by XGT. In the event of a concurrence under Article 2, XGT may in its sole discretion allocate available goods among customers as it may determine or cancel orders without liability for any part thereof not shipped to the Customer upon refunding any allocable advance payments received for the canceled portion.

 

3. INTEREST AND ATTORNEY'S FEES

 

3.1          Interest of __% per year may be charged by XGT on accounts past due for more than thirty (30) days.

 

3.2 The prevailing Party to any dispute related to this Agreement or the enforcement of this Agreement shall be entitled to reasonable and necessary attorney’s fees and costs from the non-prevailing Party.

 

4. PENALTY CLAUSES

 

4.1          XGT assumes no liability arising from penalty or liquidated damage clauses of any kind, written or implied, unless approved in writing by XGT's duly authorized representative.

 

3
 

 

5. INDEMNITY

 

5.1          Each party agrees to indemnify and hold the other harmless from and against any liability, direct loss, damages (including but not limited to consequential damages, lost profits, damage to good will, costs, and or expenses) and attorney’s fees incurred as a direct result of the other party’s breach conduct of this Agreement, whether the claims are based in tort or contract. XGT further indemnifies and holds NAME harmless from and against any liability, loss, damages (including but not limited to consequential damages, lost profits, damage to goodwill, costs, and or expenses) and attorney’s fees incurred as a result of any conduct of XGT’s Personnel.

 

6. LIMITED WARRANTY

 

6.1          XGT warrants that its product will be free from defects in materials and workmanship and that the product will be manufactured in accordance with the applicable specifications using XGT specifications as a standard for a period of one year from date of shipment. XGT will replace or, at its option, issue credit for xMax Product found by XGT to be defective or not in conformity with such material specifications.

 

6.2          XGT extends this LIMITED WARRANTY to original Customers of xMax Products. This LIMITED WARRANTY is extended only to such original Customers; it may not be passed along to any subsequent purchaser or assignee. THIS LIMITED WARRANTY IS EXCLUSIVELY AND EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES (EXCEPT TITLE), WHETHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE. XGT SHALL UNDER NO CIRCUMSTTANCES BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES.

 

6.3          The Customer must carefully inspect each container of xMax Products and inspect the product to ensure that it performs satisfactorily for its intended use. Every claim under this Limited Warranty shall be deemed waived unless written notice of defect of nonconformity of the product is made in writing and received by XGT within thirty (30) days of discovery of the defect, and within one year of receipt of goods. Within two weeks of the date written notice of the defect or nonconformity is received by XGT and within one year of the date the product is shipped, Customer must return at Customer’s sole cost and expense and XGT must receive the defective or nonconforming product. Within a reasonable time after XGT receives the returned product, XGT shall determine if such defect or nonconformity actually exists and shall notify the Customer of its determination. Within a reasonable time thereafter, XGT shall replace the defective or nonconforming product with non-defective product of like quantity, or at its option, issue credit for such defective or nonconforming product.

 

4
 

 

6.4          This Limited Warranty Policy shall be the sole and exclusive remedy of the Customer with respect to xMax Products. XGT's sole liability on any claim arising out of the sale of the product or XGT's replacement of defective product, whether in contract, warranty, tort, or otherwise shall be limited to the purchase price of the goods that prove defective or nonconforming. In no event shall XGT be liable for, and Customer shall hold XGT harmless from, any damages, direct, indirect, or consequential, whether resulting from XGT's negligence or otherwise, arising out of, in connection with, or resulting from the goods sold to the Customer, and any and all claims, actions, suits, and proceedings which may be instituted in respect to the foregoing, including those made by subsequent owners and users of the goods. In no event shall XGT be liable for any alleged negligence, breach of warranty, strict liability, incidental, consequential, special, speculative or indirect damages, or any other theory, other than the Limited Warranty set forth herein.

 

8. PROPRIETARY RIGHTS

 

8.1            Each Party shall continue to own all Background Technology (defined as all intellectual property rights and know-how, technical design, engineering and test data, manufacturing methodology, software, algorithms and other information and technology already owned or possessed by, known to, developed by or for one of the parties independent of the contract work performed hereunder, or with respect to which a Party may grant licenses to the other Party hereunder prior to or outside of the performance of this Agreement) it has provided to the other Party hereunder.

 

8.2          Technology developed by XGT and which does not to any extent contain any of Customer’s Background Technology shall be the property of XGT.

 

9. WAIVER

 

9.1          Failure by any party hereto to enforce any of the provisions of this Agreement, or any rights with respect hereto, or failure to exercise any election provided for herein, shall in no way be considered a waiver of such provisions, rights, or elections or in any way affect the validity of this Agreement. The failure by any party to enforce any of said provisions, rights or elections shall not prejudice such party from later enforcing or exercising the same or any other provisions, rights, or elections it may have under this Agreement.

 

10. FCC APPROVAL

 

10.1          Customer is hereby advised that certain of the equipment specified in Schedule A is subject to the FCC’s Rules (47 CFR §§ 2 and 15) and that such equipment will comply with the appropriate rules prior to delivery of such equipment; and, notwithstanding anything to the contrary in this Agreement, delivery of the equipment specified in Schedule A is contingent upon XGT’s compliance with the applicable equipment authorization and technical requirements of the FCC’s Rules (47 CFR §§ 2 and 15).

 

11. NOTICES

 

11.1          All notices provided for in this Agreement shall be given in writing either by personal delivery of such notice, or by depositing the same, postage prepaid, in United States certified mail, return receipt requested mail addressed to the parties respectively at the following addresses:

 

5
 

 

XGT: xG Technology, Inc.
  240 South Pineapple Avenue, Suite 701,
  Sarasota, Florida 34236,
   
Customer: NAME OF COMPANY
  COMPANY ADDRESS
  CITY, STATE, ZIP CODE

 

12. MODIFICATIONS MUST BE IN WRITING

 

12.1          The terms and conditions of this Agreement shall not be modified or rescinded by agreement, conduct or waiver unless specifically agreed to in writing and executed by each of the Parties’ duly authorized representative.

 

13. SEVERABILITY

 

13.1          The invalidity or unenforceability by law of all, or part of this Agreement, including any of the terms and conditions set forth in Schedule C, shall not invalidate the remainder of the Agreement or such terms and conditions and will not affect the other provisions hereof, and this Agreement and the terms and conditions will be construed in all respects as if such invalid or unenforceable provision were omitted.

 

14. HEADINGS AND TITLES

 

14.1          All headings and titles in this Agreement have been inserted only to facilitate reference and shall not be taken into account in the interpretation of this Agreement.

 

15. ASSIGNMENT

 

15.1          Neither party shall have the right to assign or transfer any duties, rights or obligations due hereunder without the express written consent of the other party.

 

16. ENTIRE AGREEMENT

 

16.1          This Agreement constitutes and expresses the entire agreement of the parties as to the equipment supplies to be provided hereunder. Except for the Non-Disclosure Agreement signed by the parties on _____________ 2012 which remains in full force and effect, All other previous matters, agreements, understandings and representations of whatever nature relating to this Agreement, either oral or written, are hereby superseded or canceled. No subsequent modification shall be valid unless and until reduced to writing and signed by the parties hereto.

 

6
 

 

17. CHOICE OF LAW AND CONSENT TO JURISDICTION

 

17.1          This Agreement, including the terms and conditions set out in Schedule B, shall be construed and governed by the laws of the State of Florida. Customer agrees that any action to collect payment of an invoice or enforce any of provision of this Agreement or the terms and conditions may be brought in a court of competent jurisdiction in Sarasota County, Florida.

 

18. MARKETING

 

18.1          Both parties agree that this contract can be publicly announced and jointly marketed for the mutual benefit of each.

 

19. CERTIFICATIONS

 

19.1          There is an exception in the FCC’s regulations to the general prohibition rule, governing the marketing and sale of RF equipment prior to receiving FCC equipment certification, in FCC Rule Section 2.803(d), for the offer for sale to business and commercial users (but not an offer for sale to other parties or to end users located in a residential environment) of an RF device that is in the conceptual, developmental or pre-production stage provided   that the prospective buyer is advised in writing at the time of the offer for sale that the equipment is subject to the FCC rules and that the equipment will comply with the appropriate rules prior to delivery of the equipment. This contract is hereby made subject to such advisory and FCC regulations.

 

IN WITNESS WHEREOF , the Parties hereto have caused this Agreement to be executed in duplicate and their signatures affixed thereto as of the day and year first above written.

  

NAME OF COMPANY   xG Technology, Inc.  
           
By:     By:    
           
Title:     Title:    
           
Date:     Date:    

 

7
 

 

SCHEDULE A - EQUIPMENT ORDER

 

Year 1 – TERRITORY OR TERMS

 

Total   Quantity   Price ea   Item
Equipment            
             
             
             

 

Year 2 - TERRITORY OR TERMS

 

Total   Quantity   Price ea   Item
Equipment            
             
             
             

 

Year 3 - TERRITORY OR TERMS

 

Total   Quantity   Price ea   Item
Equipment            
             
             
             

 

This Equipment Order forecasts a specific mix of products per service territory. NAME recognizes that market demand by its customers may create more or less demand for certain items and reserves the right to modify the allocations under the Equipment Order by providing written notice to xGT so long as such rebalancing of the product mix does not diminish the overall contract value.

 

8
 

 

SCHEDULE B – TERMS AND CONDITIONS OF SUPPLY

 

All prices are given and all orders are accepted and all sales are expressly made conditional on Customer's assent to these terms and conditions notwithstanding any offers to purchase by Customer containing different or additional provisions. Customer's acceptance of the goods shall, in any event, constitute acceptance of these terms and conditions, and Customer's agreement that they control over any terms, correspondence or forms supplied by Customer at any stage of the transaction.

 

PRICES

 

Customer's modifications shall not be effective unless accepted in writing by XGT’s duly authorized representative (which acceptance may or may not be given at XGT’s entire discretion). Acceptance may be conditioned upon Customer's acceptance of intervening price changes and price changes related to such modifications or any other conditions proposed by XGT.

 

TAXES

 

The amount of any present or future sales, use, excise, or similar taxes, applicable to the ordered goods shall be added to the price and paid by the Customer, unless the Customer timely provides XGT with a valid tax exemption certificate.

 

PRODUCT MODIFICATIONS AND SUBSTITUTIONS

 

XGT reserves the right to change or modify at any time any product or any materials used in the fabrication of products, or to discontinue the manufacture of any product, without any obligation or other liability with respect thereto.

 

PAYMENT

 

Payment for xMax products shall be made by Customer, within 30 days of equipment receipt.

 

SHIPMENT AND DELIVERY

 

All xMax Products shall be delivered FCA (Incoterms 2000), XGT’s facility. XGT reserves the right to make partial shipments. Pro rata payments become due as partial shipments are made. Delivery information and schedules are approximate. Delivery is contingent upon satisfaction of the condition in Paragraph 10 of this Agreement.

 

DAMAGED OR LOST SHIPMENTS

 

When goods have been delivered to a carrier for shipment, the risk of loss passes to the Customer and XGT's responsibility for delivery ends, but XGT agrees to furnish duplicate bills of lading and otherwise render reasonable assistance in making claims for damages against the carrier. Shipment should be examined carefully before being accepted from the carrier. XGT assumes no responsibility for damages after having received "in good order" receipts from a carrier at shipping point and all loss, damage and delay in transit are at NAME’s risk.

 

9
 

 

If goods are damaged with their container intact, Customer must file a fully completed "Concealed Damage Report" with the carrier and, in any event, send a copy thereof to XGT within 24 hours after receipt of shipment by Customer. Claims for shortages or non-conforming shipments must be made in writing and sent to XGT within 5 days of Customer's receipt of shipment. Failure to give such notice shall be deemed unqualified acceptance and a waiver by the Customer with any claim with respect to the shipment.

 

CANCELLATION

 

After acceptance of an order by XGT, orders cannot be canceled by Customer without XGT's written consent (which consent may or may not be given at XGT’s entire discretion) and then only upon terms that will compensate XGT for all costs and expenses (including any engineering and/or fabrication charges) applicable to the canceled order.

 

RETURNS

 

XGT will not accept goods for return or credit, other than for claimed warranty, unless XGT’s written permission has been first obtained (which permission may not be reasonably withheld) and Customer receives a returned material authorization form issued by XGT's duly authorized representative. Risk of loss for returned goods will remain with Customer and Customer shall reimburse XGT for any costs it incurs in connection with the shipment and return of goods including, but not limited to a 15% handling, examination, and re-packing charge. Goods fabricated to order are not returnable under any circumstances except for approved warranty claim.

 

CONDITIONS OF RESALE

 

All the terms and conditions set out herein shall be binding upon Customer and all subsequent owners and users of these goods. Without limitation of the foregoing, however, the goods identified herein are subject to the condition that they shall not, nor any portion of them, by way of trade or otherwise, be lent, resold, or otherwise conveyed without similar conditions, including this condition, being imposed on subsequent borrower, purchaser, or transferee.

 

CUSTOMER'S MODIFYING OR CONFLICTING TERMS

 

All orders are accepted and all sales are made subject only to the terms and conditions of this Agreement, including the terms and conditions set out in this Schedule B., This statement is intended as a final, complete, and exclusive statement of the parties' agreement. All statements, representations, agreements, changes of any kind and agreements not incorporated herein are excluded and are superseded hereby. No course of prior dealings between XGT and Customer and no usage of trade shall be used to supplement any term used in this Agreement. Acceptance or acquiescence in a course of performance rendered under this Agreement shall not be relevant to determine the meaning of this Agreement.

 

10
 

 

xG Technology Engineering Services Agreement

  

 

 

xG Technology, Inc. 240 South Pineapple Avenue, Suite 701, Sarasota FL 34236 

TEL: 941-954-8701    FAX: 941-954-8595 www.xgtechnology.com

 

11
 

 

AGREEMENT FOR ENGINEERING SERVICES

 

PARTIES

 

THIS AGREEMENT, effective the       th day of _______, 2012 , by and between xG Technology, Inc., (“XGT”) doing business at 240 South Pineapple Avenue, Suite 701, Sarasota, Florida 34236 , and NAME OF COMPANY , (hereinafter “NAME” or “Customer”) doing business at COMPANY ADDRESS.

 

BACKGROUND

 

WHEREAS, XGT has conducted a Preliminary Engineering Survey & Network Estimate of the cost to design, build a wireless broadband network for Customer. And whereas simultaneously to this Agreement, Customer enters into a separate Equipment Purchase Agreement for specific quantities of xMax wireless broadband equipment.

 

WHEREAS, upon successful Performance Test Acceptance of said equipment, Customer desires XGT to perform certain work as described in this Agreement and the Addenda attached to this Agreement, and XGT desires to perform such work and deliver such services as described in this Agreement and the Addenda attached hereto.

 

NOW THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, the parties hereto agree as follows:

 

AGREED TERMS

 

ARTICLE I. SERVICES

Customer hereby retains XGT to render the services (the “Engineering Services”) described and defined in the Addenda from time to time and for the time being agreed between Customer and XGT and attached to and made a part of this Agreement. XGT hereby agrees to render the services as so described. It is understood that XGT may render such services through its own employees (“Employees”) or through independent subcontractors under subcontract with XGT (“Subcontractors”). Such Employees and Subcontractors are herein referred to as “XGT’s Personnel”. If the Customer desires XGT to perform certain additional work beyond the work already described in this Agreement and the Addenda for the time being attached to this Agreement, then Customer shall give notice to XGT and, if the provision and terms of provision of such services are mutually agreed with XGT, such agreement shall be reflected in a new Addendum that shall be attached to and made a part of this Agreement.

 

ARTICLE II. COMPENSATION

As compensation for all Engineering Services performed in accordance with the terms and conditions of this Agreement and the Addenda hereto, Customer agrees to pay to XGT the sums set forth in such Addenda, at the times and places, and upon the milestones (if any) set forth in the relevant Addenda. Compensation shall be due and payable for work actually performed by XGT in accordance with this Agreement, and the sums set forth in the relevant Addenda are the sole and entire compensation due to XGT from Customer for such Engineering Services.

 

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All compensation to XGT’s Personnel, income, FICA, VAT, sales or any other duties or taxes levied on XGT or XGT’s Personnel by reason of payments made or consideration delivered by Customer to XGT, shall be responsibility of and borne by XGT.

 

ARTICLE III. REPORTING RESPONSIBILITIES

Customer may designate at the commencement of this Agreement, and from time to time thereafter, one or more of its officers or technical managers to whom XGT shall report and be responsible. Such Customer officer or technical manager shall designate the services to be performed by XGT as provided by a mutually agreed Addendum, and arrange, at Customer discretion, any meetings or conferences with any other officers or technical managers of Customer or any subsidiary or affiliate of Customer , or with third parties. All instructions from Customer to XGT shall be made in written form and acknowledged by XGT. XGT’s Personnel shall perform work, and arrange delivery to Customer, all services as set forth in Addenda for the time being attached to this Agreement.

 

ARTICLE IV. TERM AND TERMINATION OF AGREEMENT

This Agreement is effective as of the date first set forth above, and shall, without prejudice to any obligation or commitment incurred up until such point in time, continue until terminated as set forth herein.

 

XGT shall commence and render services for such term and duration hereunder as set forth in the Addenda for the time being attached to this Agreement.

 

In the event of any termination hereof, any and all compensation due and payable to XGT shall be prorated to reflect services actually rendered and expenses incurred by XGT to date of termination in accordance with the terms of this Agreement, and Customer’s obligation to XGT shall be limited to compensation up to the effective date of termination.

 

Either party may elect to terminate this Agreement immediately upon delivery of written notice upon any material failure, inability or refusal by the other party to perform its obligations under this Agreement, and such party may thereafter pursue any remedies it may have at law or otherwise.

 

ARTICLE V. REPORTS/SOFTWARE

XGT agrees that XGT and XGT’s Personnel will make all reports and present all deliverables specified in the Addenda upon completion of the tasks thereunder. XGT and XGT’s Personnel will prepare and submit written progress reports as may be requested by Customer from time to time.

 

All reports and documents and software prepared pursuant to this Agreement by XGT or XGT’s Personnel relating to tasks or projects hereunder shall be delivered to Customer in accordance with the applicable Addenda. XGT agrees to maintain adequate records and files of all work and activities of XGT and XGT’s Personnel under this Agreement.

 

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ARTICLE VI. INDEPENDENT CONTRACTOR

 

XGT, XGT’s Personnel, and Customer are independent entities. Nothing in this Agreement is intended to create the relationship of employer and employee between Customer and XGT, or between Customer and any of XGT’s Personnel. Customer shall not make any deductions related to employer-employee relationships. Neither XGT nor any of XGT’s Personnel shall be entitled to or qualified under any employee benefit plans, including (but not limited to) pension, health, and insurance, provided by Customer for its employees.

 

Neither party has any authority to act as the agent of the other , or to bind the other Party to any Agreement or undertaking whatsoever.

 

ARTICLE VII. INDEMNITY

Each party agrees to indemnify and hold the other harmless from and against any direct damages, costs or expenses incurred as a direct result of the other party’s breach of this Agreement.

 

ARTICLE VIII. FORCE MAJEURE

XGT shall not be liable for any damage, delays or failures to perform any obligation hereunder caused by factors beyond its reasonable ability to control, including (without limitation) changes in government regulations, acts of God, Customer's acts or omissions, labor shortages, strikes, slowdowns, or other combined action of workmen, fires, floods, earthquakes, severe weather, serious accidents, epidemics, quarantines, wars, insurrections or riots, acts of civil or military authorities, transportation embargoes, destruction of production facilities, delays, shortages or interruptions to delivery of components and materials, and delays by XGT suppliers, and if XGT shall have used commercially reasonable efforts to mitigate its effects, the performance shall be extended for the period of delay or inability to perform due to such occurrences. XGT may in its sole discretion allocate available goods among customers as it may determine or cancel orders without liability for any part thereof not shipped to the Customer upon refunding any allocable advance payments received for the canceled portion.

 

ARTICLE IX. CONFIDENTIAL AND PROPRIETARY INFORMATION

The Parties shall keep confidential and not disclose to any third party any technical, commercial, business related, financial or company information received in relation to this Agreement.

 

It is explicitly understood and agreed that under no circumstances, and notwithstanding anything to the contrary contained herein, shall this Agreement including any addenda, amendment or other instrument hereto, be interpreted to assign or otherwise transfer any industrial or intellectual property of a Party hereto to the other.

 

Confidential Information shall mean any information and data of a confidential nature, including but not limited to proprietary, developmental, technical, marketing, sales, operating, performance, cost, trade secrets, know-how, policy, business, and process information, computer programming techniques, and all record bearing media containing or disclosing such information or techniques. Confidential Information shall not be deemed to be in the public domain merely because any part of said information is embodied in general disclosures or because individual features, components, or combinations thereof are now or become known to the public.

 

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Each party agrees not to use the other Party’s Confidential Information for any other purpose than as specified by the other Party in writing.

 

Copies and embodiments of, and media containing, any and all Confidential Information of a Party, its parent, subsidiaries or affiliates, including but not limited to documents, records, notebooks, shall remain the property of such Party, its parent, subsidiaries, or affiliates, respectively, and shall be returned to the respective owner thereof upon request, and in any event no later than any expiration or termination date of this Agreement. Copies of, and media containing, any and all Confidential Information which is the property of third parties contracting or engaged in research, development, or business arrangements with a Party , its parent, subsidiaries or affiliates, shall be delivered to such Party in accordance with the instructions of such Party and in any event no later than any expiration or termination date of this Agreement.

 

The Parties’ respective obligations under this Article IX shall survive any termination or expiration of this Agreement. Any liabilities, damages, or remedies incurred or limited do to material breach of this Article IX will not be limited in any manner by any other provision of this Agreement.

 

The parties shall advise all of their respective employees, officers, agents, and representatives, including any Subcontractors where applicable, of the terms and conditions of this Agreement regarding Confidential Information, and require them to observe such conditions with respect to Confidential Information and will, where appropriate, secure from each such person a contractual agreement which enforces the confidentiality of all Confidential and Proprietary Information provided to XGT.

 

ARTICLE X. PROPRIETARY RIGHTS

 

Each Party shall continue to own all Background Technology (meaning all intellectual property rights and know-how, technical design, engineering and test data, manufacturing methodology, software, algorithms and other information and technology already owned or possessed by, known to, developed by or for one of the parties independent of the contract work performed hereunder, or with respect to which a Party may grant licenses to the other Party hereunder prior to or outside of the performance of this Agreement) it has provided to the other Party hereunder.

 

Technology developed by XGT and which does not to any extent contain any of Customer’s Background Technology shall be the property of XGT.

 

ARTICLE XI. WAIVER

Failure by any party hereto to enforce any of the provisions of this Agreement, or any rights with respect hereto, or failure to exercise any election provided for herein, shall in no way be considered a waiver of such provisions, rights, or elections or in any way affect the validity of this Agreement. The failure by any party to enforce any of said provisions, rights or elections shall not prejudice such party from later enforcing or exercising the same or any other provisions, rights, or elections it may have under this Agreement.

 

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ARTICLE XII. NOTICES

All notices provided for in this Agreement shall be given in writing either by personal delivery of such notice, or by depositing the same, postage prepaid, in United States mail addressed to the parties respectively at the following addresses:

 

XGT:   xG Technology, Inc.
    240 South Pineapple Avenue, Suite 701,
    Sarasota, Florida 34236,
     
Customer:   NAME
    ADDRESS
    CITY, STATE, ZIP CODE

 

ARTICLE XIII. MODIFICATIONS MUST BE IN WRITING

These terms and conditions shall not be modified or rescinded by agreement, conduct or waiver unless specifically agreed to in writing by XGT's duly authorized representative.

 

ARTICLE XIV. SEVERABILITY

The invalidity or unenforceability by law of all, or part of this Agreement shall not invalidate the remainder of the Agreement and will not affect the other provisions hereof, and this Agreement will be construed in all respects as if such invalid or unenforceable provision were omitted.

 

ARTICLE XV. HEADINGS AND TITLES

All headings and titles in this Agreement have been inserted only to facilitate reference and shall not be taken into account in the interpretation of this Agreement.

 

ARTICLE XVI. ASSIGNMENT

It is agreed that neither party shall have the right to assign or transfer any duties, rights or obligations due hereunder without the express written consent of the other party, except in the case that either party may assign the Agreement to its successor or any entity acquiring all or substantially all of its assets.

 

ARTICLE XVII. ENTIRE AGREEMENT

This Agreement constitutes and expresses the entire agreement of the parties as to the services and deliveries to be provided hereunder. Except for the Non-Disclosure Agreement signed by the parties on _____________ 2012 which remains in full force and effect, all other previous matters, agreements, understandings and representations of whatever nature relating to this Agreement, either oral or written, are hereby superseded or canceled. No subsequent modification shall be valid unless and until reduced to writing and signed by the parties hereto.

 

ARTICLE XVIII WARRANTY AND LIABILITY FOR DEFECTS

XGT warrants that the Services will be conducted in accordance with industry standards and materially conform to agreed specifications, and XGT will undertake to rectify any shortcoming in relation to said agreed specifications.

 

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In no event however shall either Party’s liability for performance under this Agreement for any and all damages, claims or penalties in the aggregate exceed ______ percent (___%) of the contract value. In addition to the forgoing, neither Party shall in any event be liable for indirect losses, such as lost profits, diminished production, costs of retaining a consultant, costs of equipment and similar costs or losses. This limitation of liability does not, in any manner, limit either party’s liability for breach of the confidentiality provisions.

 

ARTICLE XIX. BILLING

XGT’s invoices are to be submitted monthly in accordance with the applicable Addendum for services provided as at the date of invoice. All payments shall be made in U. S. dollars. Terms shall net 30 days. Statements shall be addressed to:

 

     
  Attn:    
     
     

 

ARTICLE XX. CHOICE OF LAW AND CONSENT TO JURISDICTION

This Agreement shall be construed and governed by the laws of the State of Florida. Customer agrees that any action to collect payment of an invoice or enforce any of provision of this Agreement may be brought in a court of competent jurisdiction in Sarasota County, Florida.

 

ARTICLE XXI. MARKETING

Both parties agree that this contract can be publicly announced and jointly marketed for the mutual benefit of each.

 

IN WITNESS WHEREOF , the Parties hereto have caused this Agreement to be executed in duplicate and their signatures affixed thereto as of the day and year first above written.

 

xG Technology, Inc.   NAME
240 South Pineapple Avenue, Suite 701   ADDRESS
Sarasota, FL 34236, U.S.A.   CITY, STATE, ZIP CODE
     
By:     By:  
         
Title:     Title:  

 

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ADDENDUM AUTHORIZATION   Addendum No: 01
  Date:    
       

 The rates, terms and conditions set forth in this addendum and the Agreement dated ________________________between xG Technology, Inc. and NAME OF COMPANY (“NAME”), shall apply for the tasks defined in this addendum.

 

I. Job Classification :       Engineering Services Contract

 

II. Engagement Description and General Obligations of the Parties :

 

In General: XGT will provide engineering services to design and build an xMax wireless broadband network for the NAME OF COMPANY operating ( LOCATION) . This network will provide a wireless voice and data network for businesses and private residences ( LOCATION) .

 

More Specifically:

 

III. Delivery of Tasks : The list of deliveries to be performed by the parties is below:

 

IV. Terms: Start:     Duration:    

 

V. Cost:

 

XGT will charge Engineering & Installations Services at an hourly rate of

 

Actual time and materials to be paid by Customer following receipt from XGT from a monthly invoice for services provided up to the date of invoice and not previously billed to, and paid by, Customer. The chart below is a preliminary estimate for the entire project.

 

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ACCEPTANCE AUTHORIZATION

 

 

xG Technology, Inc.   NAME OF COMPANY
         
By     By  
Title     Title  
Date     Date  

 

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RESELLER AGREEMENT

 

240 South Pineapple Ave., Suite 701

Sarasota, FL 34236

(941) 953-9035

www.xgtechnology.com

xG TECHNOLOGY

 

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RESELLER AGREEMENT

 

THIS AGREEMENT made effective as of the __ th day of _________, ______.

 

BETWEEN :

 

xG Technology, Inc.

A Delaware Corporation, carrying on business in Florida

(The “Manufacturer”)

 

- And -

 

 

  

A ____ Corporation, carrying on business in ___________

(The “Reseller”)

 

WHEREAS:

 

A. Manufacturer manufactures and wholesales ‘xMAX’ cognitive radio network equipment. xMax is a fixed and mobile wireless broadband system that includes a LIST OF EQUIPMENT;

 

B. Reseller has it’s own line of products and is able to sell Manufacturer’s Products as part of, or along with, Reseller’s products:

 

C. Manufacturer wishes to appoint Reseller as a non-exclusive and/or exclusive Reseller of Manufacturer’s Products in the Territory and Field Of Use described on Exhibit “B”;

 

D. Reseller agrees to accept such appointment.

 

NOW THEREFORE, in consideration of the mutual covenants herein and other good and valuable consideration given by each party to the other, the receipt and sufficiency of all of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

1. DEFINITIONS

 

In this Agreement the following terms shall have the following meanings:

 

(a) “Products” - means all Products sold or manufactured by the Manufacturer;

 

(b) “Current Product List” - the document attached hereto and incorporated herein, as Exhibit “A”;

 

(c) “Territory and Field Of Use” - as described in the document attached hereto and incorporated herein, as Exhibit “B”;

 

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(d) “Person” - any natural person, corporation, partnership, or other entity or association.

 

2. GRANT OF RESALE

 

On the terms provided herein, Manufacturer hereby appoints Reseller as a non-exclusive and/or exclusive Reseller within the Territory and Field Of Use, for resale of the Products. Reseller accepts such appointment upon the terms and conditions set out herein.

 

3. TERM

 

(a) Unless sooner terminated in accordance with the provisions hereof, this Agreement commencing on the date hereof shall expire on ______________.

 

(b) At or before the expiration of this Agreement the parties shall negotiate in good faith for the renewal or extension of this Agreement, provided that Reseller has, upon the expiration of the term hereof, fully complied with its obligations hereunder.

 

4. RESELLER’S GENERAL OBLIGATIONS

 

Reseller shall:

 

(a) Devote its best efforts to promoting, selling, and servicing the Products to customers within the Territory and Field Of Use;

 

(b) Refrain from selling or shipping any Products to any Person outside the Territory and Field Of Use or for use outside the Territory and Field Of Use;

 

(c) Use their best efforts to enact and carry out a merchandising policy designed to preserve the good will that is associated with the name and reputation of Manufacturer and the Products;

 

(d) Conduct any and all sales activities in connection with the Products in a lawful manner, consistent with the highest standards of fair trade, fair competition and business ethics and shall keep the interior and exterior of its business premises in a good state of repair and in a clean and orderly manner and all Products shall be neatly and properly displayed to the retail public; and

 

(e) Use its best efforts to diligently and faithfully develop demand for the Products and to solicit purchases thereof so as to maintain a substantial and increasing volume of sales of the Products, Reseller further agrees that, at all times hereunder, it will maintain adequate working capital, inventory, facilities and personnel to accomplish this purpose.

 

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5. MANUFACTURER’S GENERAL OBLIGATIONS

 

Manufacturer shall:

 

(a) so long as Reseller is not in breach of any term of this Agreement, refrain from selling any Product to any person, other than Reseller, who is engaged in the business of reselling, leasing or renting products similar to the Products within the Territory and Field Of Use identified as exclusive; or to any person for direct use if delivery thereof will be made to a location within the Territory and Field Of Use identified as exclusive;

 

(b) promptly refer to Reseller all leads, prospects, and related information which are directed to it or which it receives regarding potential purchasers of any Product within the Territory and Field Of Use identified as exclusive;

 

(c) in the event Manufacturer discontinues the manufacture of any of the Products, continue, for a reasonable time after such discontinuance, to make available to Reseller replacement parts for such discontinued Products, to the extent necessary to service such discontinued Products previously sold to Reseller;

 

(d) provide Reseller with suggested retail list prices for each of the Products sold to Reseller, but such prices shall in all cases be suggestions only and shall not be binding upon Reseller;

 

(e) In addition to the provisions of paragraph 6 hereof, supply Reseller with all Products reasonably required by Reseller.

 

6. PURCHASE AND SALE OF PRODUCTS

 

(a) Initial Purchase. Reseller hereby agrees to purchase the following items (hereinafter referred to as the “Initial Purchase Items”) from Manufacturer: Initial Purchase Commitment of _____________

 

(b) Minimum Purchase Obligations. In addition to the Initial Purchase Items set out in Section 6(a) above, Reseller shall, during the term of this Agreement, place minimum purchase orders with Manufacturer as follows: Minimum Purchase Obligations of $________for 12 month period after product starts shipping

 

7. PRICES AND TERMS OF PAYMENT

 

(a) For all Products listed on the Current Product List, Manufacturer shall charge Reseller the prices indicated less _____% discount thereon, unless and until such prices are changed in accordance with the provisions hereof.

 

(b) Manufacturer may change the prices for its Products but only if it first gives Reseller written notice of any increase at least thirty (30) days before the change takes effect. In the event of any increase, Manufacture shall charge the unincreased price for any Products for which orders from Reseller are postmarked prior to the expiration of such thirty (30) day notice period.

 

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(c) Payment of the purchase price for Products delivered to Reseller by Manufacturer shall be payable within thirty (30) days of the date of invoice so long as the maximum amount owing by Reseller to Manufacturer at any point in time, inclusive of interest charges, is equal to or less than $ TBD. If the sum owing to Manufacturer by Reseller at any point and time exceeds $TBD, Manufacturer may or may not choose to ship Products to Reseller, to be decided by Manufacturer at its sole discretion, and any such shipment if made, shall be payable upon delivery or in accordance with the terms of Manufacturer’s invoice as established by Manufacturer from time to time. Interest shall accrue on all outstanding and overdue accounts at the rate of _________ (_____%) per cent per annum, calculated monthly.

 

8. DELIVERY

 

Manufacturer shall deliver purchased Products to Reseller at its main location, being, as of the date of this Agreement, _________________________________________________. Reseller shall give Manufacturer two (2) weeks’ written notice before each shipment is required. Manufacturer shall not be liable for any failure to deliver hereunder, where such failure has been occasioned by fire, embargo, strike, failure to secure materials from the usual source of supply, or any other circumstance beyond Manufacturer’s control which prevents Manufacturer from making deliveries in the normal course of its business. Manufacturer shall, however, promptly make delivery, at the agreed price, when any such cause interfering with delivery shall have been removed. Notwithstanding anything in this Agreement, however, Manufacturer shall only be obligated to make delivery of Products to Reseller to the extent the purchase price of such Products are prepaid by Reseller.

 

9. CONFIDENTIAL INFORMATION

 

Reseller shall neither use nor disclose to any third parties any confidential information concerning the business, affairs or the Products of Manufacturer which Reseller may acquire during the course of its activities under this Agreement (or any prior agreements between the Manufacturer and Reseller). In addition, Reseller shall take any and all necessary precautions to prevent any such disclosure by any and all of its employees, officers, directors, representatives, agents or sub-Resellers. Reseller further acknowledges and understands that any right, title and interest in and to the aforesaid confidential information is vested in Manufacturer and that such information is the sole property of Manufacturer. For purposes of this Agreement, it is understood by the parties hereto that the term “confidential information” shall include, but is not limited to, trade secrets and unpatentable intellectual property.

 

10. TRADEMARKS, PATENTS AND COPYRIGHTS

 

10.1          Ownership of Trademarks, Patents and Copyrights. Reseller hereby acknowledges the Manufacturer's exclusive right, title and interest in and to any and all trademarks and trade names (hereinafter such trademarks and trade names shall be collectively referred to as the “Trademarks”), patents (“Patents”) and copyrights (“Copyrights”) which the Manufacturer may have at any time adopted, used, registered or been issued in the United States or in any other location, and Reseller agrees that it shall not do, or cause to be done, any acts or things contesting or in any way impairing or tending to impair any portion of Manufacturer’s right, title and interest in and to the Trademarks, Patents and Copyrights. Reseller further acknowledges that, in connection with any reference to the Trademarks, Patents and Copyrights, Reseller shall not in any manner represent that it possesses any ownership interest in the Trademarks, Patents and Copyrights or the registration thereof, nor shall any action taken by Reseller or on Reseller’s behalf create in Reseller’s favor any right, title or interest in and to the Trademarks, Patents and Copyrights.

 

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10.2          Copyright Protection. Reseller acknowledges the validity of the Copyrights in any and all written material and/or packaging to which the Manufacturer has filed a claim for copyright protection. Additionally, Reseller recognizes the Manufacturer’s exclusive right to seek copyright protection for and/or the registration of copyright of any translation of any and all sales literature, promotional or descriptive material furnished to Reseller by Manufacturer.

 

10.3          Patent Protection. Reseller acknowledges the validity of the Patents in the Products and in any and all other products or items which have been patented by the Manufacturer. Additionally, Reseller recognizes Manufacturer’s exclusive right to apply for a patent for any new products which may subsequently automatically be covered by this Agreement.

 

10.4          Prominence of Trademarks, Patents and Copyrights. Reseller agrees to give due prominence to the fact that the Trademarks, Patents and Copyrights are the property of Manufacturer and in the event that Reseller refers to the Trademarks, Patents and Copyrights in advertising, promoting or in any other manner so as to identify the Products, Reseller shall clearly indicate Manufacturer’s ownership of the Trademarks, Patents and Copyrights. Reseller further agrees that before distributing or publishing any sales literature, promotional or descriptive materials, Manufacturer has the right to inspect and approve of such materials and the Reseller shall provide Manufacturer with an opportunity to inspect and approve such materials.

 

10.5          Compliance with Laws. Reseller agrees that, when referring to the Trademarks, Patents and Copyrights, it will comply with any and all applicable federal and provincial laws and regulations pertaining to the Trademarks, Patents and Copyrights or trademarks, trade names, patents or copyrights in general. Reseller further agrees to comply with any and all marketing requirements pertaining to the Trademarks, Patents or Copyrights or trademarks, trade names, patents and copyrights in general.

 

10.6          Notification of Violations . Reseller shall promptly notify the Company, in writing, of any and all infringements, imitations, illegal use or misuse of the Trademarks, Patents and/or Copyrights which shall come to Reseller’s attention. Reseller further agrees that it shall not at any time take any action in and before any courts, administrative agencies, or other such tribunals, or otherwise attempt to prevent the infringement, imitation, illegal use or misuse of the Trademarks, Patents and/or Copyrights. Reseller understands that such action falls wholly within the authority of Manufacturer as the sole owner of the Trademarks, Patents and Copyrights.

 

10.7          Assistance in the Protection of the Trademarks, Patents and Copyrights. Reseller agrees to render to Manufacturer any and all assistance requested of it by Manufacturer in connection with the protection of the Trademarks, Patents and/or Copyrights, whether such protection is sought in and before any courts, administrative agencies or other such tribunals, and to make promptly available to Manufacturer the Reseller’s representatives, employees, officers, directors, attorneys, agents and sub-Resellers, any files, records, and any other information it possesses or to which it has access which may be of use or valid to Manufacturer in such connection.

 

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11. WARRANTIES

 

(a) For each Product sold by Manufacturer to Reseller, Manufacturer shall provide Reseller with the same limited warranty for the Product which Manufacturer provides its own customers;

 

(b) Reseller shall provide such manufacturer’s warranty to all persons who purchase any Product from it, without varying any of its terms or provisions; and

 

(c) Manufacturer shall in Manufacturer’s sole and unfettered discretion promptly either repair or replace any Product which malfunctions, fails to operate, or is otherwise defective, and which is covered under the warranty, whether such Product is owned at the time of the malfunction by Reseller or a customer of Reseller.

 

12. INDEMNITY

 

Reseller shall indemnify Manufacturer and hold Manufacturer harmless from and against, and shall defend against, any and all claims and damages of every kind for injury to or death of any person or persons and for damage to or loss of property, arising out of or attributed, directly or indirectly, to the conduct, operations or performance of Reseller. In addition, Reseller shall at all times during the term hereof maintain product liability insurance covering all Products sold by Reseller to its customers in aggregate limits of at least $1,000,000.00 per occurrence, which policies shall name Manufacturer as an additional insured. Reseller shall provide Manufacturer with a true copy of the insurance policy in respect of the insurance as aforesaid.

 

13. CONSEQUENTIAL DAMAGES EXCLUDED

 

Manufacturer agrees to use its best efforts to satisfy and fill orders placed by Reseller. However, it is understood that lead time will vary according to manufacturing and other conditions and, subsequently, any and all delivery dates communicated by Manufacturer are mere estimates and under no circumstances shall Manufacturer on account of late delivery or non-delivery be liable to Reseller, its agents, sub-Resellers, customers or any other persons for any special or consequential damages, whether based upon lost goodwill, lost resale profits, work stoppage, impairment of other goods, breach of contract, negligence or such other actions as may be deemed or alleged to be the cause of loss or damage to such a person.

 

14. ASSIGNMENT

 

Neither Party may assign, transfer or delegate any of the rights or obligations hereunder without the prior written consent of the other Party. Either Party may assign its rights and obligations hereunder to any affiliate or successor in interest to all or substantially all of the assets or business of such Party, without the consent of the other Party. It shall specifically not be unreasonable for Manufacturer to refuse consent to Reseller’s request to assign this Agreement to a third party if:

 

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(a) Reseller is in default as to any of its obligations hereunder at the time it requests such consent;

 

(b) The proposed assignee is not financially capable of performing the remaining obligations of Reseller hereunder;

 

(c) The proposed assignee does not agree to assume all remaining obligations of Reseller hereunder; or

 

(d) The proposed assignee does not otherwise meet all of Manufacturer’s standards for new dealers and Resellers in effect at the time of the request.

 

15. INDEPENDENT CONTRACTOR RELATIONSHIP

 

Reseller agrees that, with respect to all matters relating to this Agreement, Reseller shall be deemed to be an independent contractor and shall bear all of its own expenses in connection with this Agreement. Reseller shall have no authority, whether express or implied, to assume or create any obligation on behalf of Manufacturer nor shall Reseller issue or cause to be issued any quotations or draft any letters or documents over the name of Manufacturer, but rather shall use its own name for such purposes.

 

16. TERMINATION OF AGREEMENT

 

(a) By Manufacturer. This Agreement may be terminated by Manufacturer at its option and without prejudice to any other remedy to which it may be entitled at law, in equity, or otherwise under this Agreement, in the following circumstances and in the manners indicated:

 

(i) Immediately upon notice from Manufacturer, if Reseller is adjudicated a voluntary or involuntary bankrupt;

 

(ii) Immediately upon notice from Manufacturer, if Reseller allows any money judgment against it to remain unsatisfied for a period of thirty (30) days or longer;

 

(iii) Immediately upon notice from Manufacturer, if Reseller becomes insolvent or has a receiver of its assets or property appointed;

 

(iv) Immediately upon notice from Manufacturer, if Reseller makes an assignment for the benefit of creditors;

 

(v) Immediately upon notice from Manufacturer, if Reseller institutes or suffers to be instituted any proceeding for a reorganization or a rearrangement of its affairs;

 

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(vi) Immediately upon notice from Manufacturer if Reseller sells, leases, rents or ships any Products outside the Territory and Field Of Use or to any party that Reseller knows or ought to know will use the Products outside the Territory and Field Of Use;

 

(vii) Upon seven (7) days’ written notice and demand to cure from Manufacturer, if Reseller is in default in the performance of any material or financial obligations (excluding the minimum purchase obligations set forth in Section 6(b) hereinabove) under this Agreement; if Reseller cures any such default within the seven (7) day notice period, then such notice shall be of no force or effect.

 

(b) By Reseller. This Agreement may be terminated by Reseller at its option and without prejudice to any other remedy to which it may be entitled at law, in equity, or otherwise under this Agreement, in the following circumstances and in the manners indicated:

 

(i) Immediately upon notice from Reseller, if Manufacturer is adjudicated a voluntary or involuntary bankrupt;

 

(ii) Immediately upon notice from Reseller, if Manufacturer becomes insolvent or has a receiver of its assets or property appointed; or

 

(iii) Immediately upon notice from Reseller, if Manufacturer makes an assignment for the benefit of creditors.

 

(c) Non-Liability of Manufacturer. Manufacturer shall not be liable for consequential damages of any kind, whether as a result of a loss by Reseller of present or prospective profits, anticipated sales, expenditures, investments, commitments made in connection with this Agreement, or on account of any other reason or cause whatsoever.

 

(d) Upon the termination of this Agreement by either party for any reason, Manufacturer may, at its option, repurchase from Reseller at the net price paid by Reseller to Manufacturer, any or all of the Products in the possession or control of Reseller, and upon demand and the tender by Manufacturer of the repurchase price, Reseller shall deliver such goods to Manufacturer forthwith. Manufacturer, however, reserves the right to reject any products not in condition fit for resale.

 

17. CHOICE OF LAW

 

All disputes concerning the validity, interpretation, or performance of this Agreement and any of its terms or provisions, or of any rights or obligations of the parties hereto, shall be governed by and resolved in accordance with the laws of the State of Florida.

 

18. NOTICES

 

All notices, demands, requests or other communications that may be or are required or permitted to be served or given under this Agreement shall be in writing. Notices may be served:

 

28
 

 

(a) Personally by leaving them with the party to whom they are addressed at that party's address as set out below. Such notices shall be deemed received by the addressee when actually delivered provided such delivery shall be during normal business hours; or

 

(b) By facsimile transmission (or by any other like method by which a written and/or recorded message may be sent) directed to the party to whom it is addressed at that party's address as set out below. Such notices shall be deemed received by the addressee on the next ensuing normal business day; or

 

(c) By mailing them by registered mail, postage prepaid, in a properly addressed envelope. Such notices shall be deemed to be received by the addressee on the fifth (5th) day after the date on which any such notice is sent.

 

Until and unless a notice of change of address is given pursuant hereto, for purposes hereof the addresses of the parties shall be:

 

 

TO MANUFACTURER:  
xG Technology, Inc.  
Attention:    
Email:    
   
TO RESELLER:  
   
Attention:    
Fax No.:    

 

19. WAIVER AND DELAY

 

No waiver by any party of any breach or series of breaches or defaults in performance by the other party, and no failure, refusal or neglect of either party to exercise any right, power or option given to it hereunder to insist upon strict compliance with or performance of either party’s obligations under this Agreement, shall constitute a waiver of the provisions of this Agreement with respect to any subsequent breach thereof or a waiver by either party of its right at any time thereafter to require exact and strict compliance with the provisions thereof.

 

20. SUCCESSORS AND ASSIGNS

 

This Agreement shall be binding upon and enure to the benefit of the successors and assigns of the parties hereto, subject to the restrictions on assignment contained herein. Either Party may assign its rights and obligations hereunder to any affiliate or successor in interest to all or substantially all of the assets or business of such Party, without the consent of the other Party.

 

29
 

 

21. ENTIRE AGREEMENT

 

This Agreement contains all of the terms and conditions agreed upon by the parties hereto with reference to the subject matter hereof. No other agreements, oral or otherwise, shall be deemed to exist or to bind any of the parties hereto, and all prior agreements and understanding are superseded hereby. This Agreement cannot be modified or changed except by written instrument signed by each of the parties hereto.

 

22. HEADINGS FOR CONVENIENCE

 

Titles used in this Agreement are for convenience only and shall not be deemed to affect the meaning or construction of any of the terms, provision, covenants, or conditions of this Agreement.

 

23. SEVERABILITY

 

Nothing contained in this Agreement shall be construed as requiring the commission of any act contrary to law. Whenever there is any conflict between any provision of this Agreement and any present or future statute, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but in such event the provision of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. In the event that any part, article, section, paragraph, sentence or clause of this Agreement shall be held to be indefinite, invalid or otherwise unenforceable, the indefinite, invalid or unenforceable provision shall be deemed deleted, and the remaining part of the Agreement shall continue in full force and effect. If any tribunal or court of competent jurisdiction deems any provision hereof unenforceable, such provision shall be modified only to the extent necessary to render it enforceable and this Agreement shall be valid and enforceable and the parties hereto agree to be bound by and perform same as thus modified.

 

IN WITNESS WHEREOF AND INTENDING TO BE LEGALLY BOUND the parties have executed this Agreement by their respective proper signing officers authorized in that behalf, effective the date first written above.

 

xG Technology, Inc:    

 

BY:     BY:  
  Signature     Signature

 

Name & Title Print Name & Title (if any)  

 

30
 

 

EXHIBIT A

 

Current Product List

 

31
 

 

EXHIBIT B

 

Territory and Field Of Use

 

Non-exclusive:

 

Exclusive: Predetermined accounts TBD

 

32
 

  

 

Teaming Agreement

 

NAME OF COMPANY

 

xG Technology, Inc. 240 South Pineapple Avenue, Suite 701, Sarasota FL 34236 

TEL: 941-954-8701      FAX: 941-954-8595 www.xgtechnology.com

 

 

_____________-_____________ Teaming Agreement 33
 

 

TEAMING AGREEMENT

 

THIS TEAMING AGREEMENT (the "Agreement") is made and entered into as of this __ day of ________, 2012 (the "Effective Date") by and between xG Technology, Inc. (‘xGT’) , a Delaware corporation, having its principal place of business at 240 S. Pineapple Ave. Ste. 701, Sarasota, Florida and ___________________ a __________ corporation with principal offices located at ____________________________________. xGT and _______ are each sometimes referred to individually herein as a "Party," and collectively as the "Parties."

 

WHEREAS , xGT and _____________ have agreed upon a teaming agreement to participate in solicited and unsolicited proposals for a third party clients (“Client”) in LOCATION/COUNTRY, for the performance of certain services in connection with such Client's wireless network development project (the "Services"); and

 

WHEREAS , xGT and _____________ acknowledge the benefit to each party of developing a proposal with the goal of obtaining a contract for the Services (the "Contract"); and, and

 

WHEREAS , the Parties understand and agree that nothing herein obligates either Party to pursue any opportunity jointly with the other Party;

 

NOW , THEREFORE , in consideration of the foregoing, the Parties agree as follows:

 

1. Definitions

 

As used herein, the following terms shall have the following respective meanings:

 

1.1 Prime Contract. The term “Prime Contract” shall mean any contract obtained between Team Leader and a Client. Once a Prime Contract is in place, the parties will create a Subcontract to govern the relationship between the parties while completing Services under the Prime Contract.

 

1.2 Proposal. The term "Proposal" shall mean each project proposal delivered to a potential or existing Client, by the Parties.

 

_____________-_____________ Teaming Agreement 34
 

 

1.3 Schedule. The term “Schedule” shall mean the project-specific document(s) attached hereto, delineating a client and project where the Parties plan to work together under the terms of this Teaming Agreement.

 

1.3 Scope of Work. The term “Scope of Work” shall mean each scope of work delivered to Client by the Team Leader , on behalf of the Parties as part of the Proposal.

 

1.5 Services. The term "Services" shall mean the engineering and other consulting services which shall, from time to time, be rendered by xGT and/or _____________ to a Client.

 

1.6 Team Leader. The term “Team Leader” shall be the party designated in SCHEDULE A as the proposed Prime Contractor for a specific opportunity.

 

1.7 Team Member. The term “Team Member” shall be the party designated in SCHEDULE A as the proposed Subcontractor for a specific opportunity.

 

2. Relationship

 

2.1 During the term of this Agreement the Parties' relationship to each other shall be that of independent contractors, and each Party shall exercise supervision and control over its own employees. Each Party shall use its own equipment, tools and office space to perform its obligations hereunder, unless otherwise agreed upon in a Schedule.

 

2.2 Unless specifically agreed in writing, neither Party is authorized to make commitments, representations, warranties, or agreements, or act as an agent on behalf of the other and each Party agrees that it will not hold itself out as having such authority.

 

2.3 Nothing in this Agreement shall be deemed to constitute, create, give effect to, or otherwise recognize a joint venture, partnership, or formal business entity of any kind between the Parties. Nothing herein shall be construed as providing for the sharing of profits or losses arising out of the efforts of either or both of the Parties, except as may be provided for in any resultant agreement entered into by the Parties for the provision of Services to a Client or Clients.

 

2.4 Where there is a written agreement to jointly pursue either a solicited or unsolicited opportunity, neither party will attempt to solicit such opportunity without the other party, unless otherwise agreed upon in writing.

 

_____________-_____________ Teaming Agreement 35
 

 

2.5 Nothing in this Agreement shall preclude either Party from soliciting or accepting any contract from any third party under any other existing or new project.

 

2.6 The scope of this Teaming Agreement is confined to jointly pursuing opportunities with Client(s) in LOCATION/COUNTRY. From time to time the Parties may elect to engage each other to perform sub-contract services for existing or new clients, outside of this Agreement. These services will be documented and governed by a separate agreement(s).

 

2.7 Each Party agrees that, during the term of this Agreement and for twelve (12) months after the expiration or termination hereof, neither Party shall solicit nor accept for employment any employees or contractors of the other Party who have worked on or performed Services in connection with the teaming arrangement described herein, without first obtaining the express written consent of the other Party. Exclusions apply to individuals who have been previously engaged with the other party prior to the parties entering this agreement.

 

3. Proposal Preparation

 

3.1 Upon agreement to prepare a solicited or unsolicited proposal for a third party client, the Parties shall draft a Schedule setting forth the pertinent Client and project information and delineating each Party’s responsibilities with regard to the joint effort. Each Schedule shall be mutually agreed upon by the Parties, executed and, once executed, shall be made a part of this Agreement. Parties’ roles for specific projects shall be clearly stated on SCHEDULE A.

 

3.2 The Parties agree to make best efforts to meet agreed upon schedules and provide timely and accurate information during the proposal preparation and subsequent review process.

 

3.3 The Parties shall prepare and submit to the Client a proposal for the Services, including the information and data provided by both Parties and identifying therein the contributions of each Party within the proposal. The Parties agree to consult on decision affecting the content of the proposal regarding services or equipment to be provided. The Team Leader shall be responsible for submitting the final approved version of the Proposal to the Client(s). The Team Member shall have the right to review the proposal, to approve or disapprove sections of the proposal pertaining to their Services and its obligations and responsibilities under the Proposal. All contacts by the Team Member with the Client will be made through, or with the prior consent of the Team Leader. Neither Party shall submit a proposal, bid for the services separately or with others, take any action or make any agreement or representation inconsistent with the Proposal and Schedule.

 

_____________-_____________ Teaming Agreement 36
 

 

3.4 The Parties shall provide appropriate highly qualified personnel for, and use its best efforts to support, the timely preparation of the proposal to be submitted to Client by preparing and submitting proposal material to the Team Leader relating to the portion of the Services to be performed by each Party.

 

3.5 Each Party shall bear all of its own expenses incurred in connection with the preparation of the proposal under this Section 2.

 

4. Proposal Review and Contract Negotiations

 

4.1 The Team Member agrees to assist the Team Leader with any additional information and data reasonably required to assist the Client in its evaluation of the proposal and shall participate with The Team Leader as reasonably required, in any negotiations, presentations, additional submittals, or the like deemed to secure the award of the Contract for the Services. Each Party shall be solely responsible for the accuracy and completeness of any and all cost or pricing data, materials and certifications or representations prepared by it and submitted to Client in connection with the proposal. The Parties agree to release, defend, indemnify and hold the other harmless against any and all liability or loss which may arise in connection with such data, materials, certifications or representations.

 

4.2 In the event the Parties are successful in obtaining a Client Contract for Services, the Parties shall, unless otherwise specifically required by Client, and subject to approval of Client and the requirements of the Contract, fulfill the Services agreed upon in the Schedule. Any such agreement shall, where applicable, be subject to applicable laws, regulations, and mandatory flow-down terms and conditions from the Prime Contract with the Client.

 

4.4 Except as expressly identified in the Schedules, each Party shall bear all of its own costs, expenses, risks and liabilities in performance of its obligations under this Section 3.

 

_____________-_____________ Teaming Agreement 37
 

 

5. Confidential and Proprietary Information

 

 

5.1 The Parties, to the extent of their respective rights and abilities to do so, shall exchange such technical information and data as are reasonably required of each to perform its part of the joint effort described herein.

 

5.2 Each Party hereto agrees to keep in confidence and to use the same degree of care as it uses with respect to its own proprietary data to prevent the disclosure to third parties of all technical information and confidential business information (hereinafter called "Data") received from the other Party under this Agreement, if such Data is disclosed in writing and designated by an appropriate stamp or legend by the disclosing Party to be of a proprietary nature.

 

5.3 Such restriction shall not apply, however, to the extent such Data: (i) was in the public domain at the time of disclosure or later comes into the public domain; (ii) was known to the receiving Party at the time of disclosure; (iii) is authorized for disclosure by the written approval of the transmitting Party, (iv) is not unlawfully derived by the receiving Party from a source other than the disclosing Party without restriction as to the use or disclosure of the Data; or (v) is independently developed by the receiving Party without recourse to any proprietary data provided under this Agreement.

 

5.4 The foregoing restrictions shall cease to apply upon the expiration of two (2) years from the Effective Date. The provisions of this Section shall not limit either Party's right to use in accordance with the terms under which it is received, any information disclosed by a third party who the receiving Party does not know or have reason to know received that information directly or indirectly from the other Party under an obligation prohibiting such disclosure.

 

5.5 Data qualifying as proprietary in accordance with Section 4 (a) above may be disclosed in confidence to appropriate representatives of Client for proposal evaluation purposes only and may be used only in connection with the submission of proposals resulting from this Agreement. Upon execution of a contract with the Teaming Partner as a result of any such proposal, the terms of that contract shall govern with respect to subsequent use or disclosure of Data.

 

5.6 Upon termination of this Agreement, Data shall be promptly returned to the owner thereof upon request of the owner of said Data. All Data furnished hereunder may be destroyed by the custodian of such Data thirty (30) days following termination of this Agreement. The recipient of any Data under this Agreement may retain, in its law or patent department files, one copy of Data transmitted pursuant to this Agreement solely for purposes of determining compliance with this Section 4. It is agreed that no license or sublicense to any patents or copyrights owned, licensed or otherwise held by either Party is granted by this Agreement or by any discussions or confidential business data and/or proprietary data or information supplied hereunder.

 

_____________-_____________ Teaming Agreement 38
 

 

5.7 Each Party shall designate in writing individuals within its organization as the only person(s) authorized to receive Data exchanged between the Parties. Any proposal submitted hereunder and the pages relating thereto which contain Data shall bear a restrictive legend acceptable to both Parties and Client.

 

5.8 Inventions made by employees of either Party shall be owned by the Party employing the inventor(s). Inventions made jointly by employees of the two Parties during the term of this Agreement shall be assigned to the Party with respect to whose product line or services the invention most closely relates, and the filing and prosecution of any patent applications on such inventions shall be at such Party's expense. The other shall have an irrevocable royalty-free license with the right to sublicense the invention to its clients, and to practice such jointly made inventions throughout the world.

 

6. Intellectual Property

 

6.1 For purposes of this Agreement "Invention" means any ideas, designs, concepts, techniques, inventions, discoveries or improvements, whether or not patentable, conceived or reduced to practice by the personnel of either Party in performance of this Agreement and the term “Materials” means literary works or other works of authorship (such as programs, program listings, programming tools, documentation, reports, drawings and similar works) created by the personnel of either Party in performance of this Agreement.

 

6.2 For purposes of this Agreement the term Inventions and Materials will be treated as follows:

 

6.2.1 If made solely by xGT personnel, Inventions and Materials are xGT property. xGT grants _____________ a non-exclusive, irrevocable, worldwide, and paid-up license under such Inventions, patent applications, and all patents issued thereon, and under such Materials and copyrights therein.

 

6.2.2 If made solely by _____________ personnel, Inventions and Materials are _____________’s property. _____________ grants xGT a nonexclusive, irrevocable, worldwide, and paid-up license under such Inventions, patent applications, and all patents issued thereon, and under such Materials and copyrights therein.

 

6.2.3 If made by the personnel of both Parties, Inventions and all patent applications filed thereon and all patents issuing thereon, and under such Materials and copyrights therein, are jointly owned by the Parties without accounting to the other. Each party shall have the right to grant licenses to third parties or assign its rights therein without the consent of the other. If any such consent is required by law, it is hereby granted.

 

_____________-_____________ Teaming Agreement 39
 

 

6.3 All licenses granted in this section include, in the case of Inventions, the right to make, have made, use, have used, lease, sell and/or otherwise transfer any apparatus, and/or practice and have practiced any method and includes the right to grant, directly or indirectly, revocable or irrevocable sublicenses to its affiliates and, in the case of Materials, the right to prepare and have prepared derivative works of such Materials and to execute, reproduce, transmit, display, perform, transfer, and distribute such Materials or their derivative works, and to grant others the rights granted herein with respect to such Materials.

 

Nothing contained in this Agreement grants any license under any other materials or patent or patent applications arising out of any other inventions of either party.

 

7. Indemnification

 

7.1 Each Party will defend and hold harmless the other Party, or at the other Party’s option cooperate in the defense of the Indemnified Party, and hold the Indemnified Party and its personnel harmless from any resultant losses, liabilities, damages, costs, and expenses (including legal fees) resulting from any claims that arise or are alleged to have arisen as a result of:

 

(i) Negligent or intentional acts or omissions of the Indemnifying Party or its personnel or breach by the Indemnifying Party of any term of this Agreement; or

 

(ii) The Indemnifying Party’s products or services infringing or misappropriating the intellectual property rights of a third party.

 

7.2 The Indemnifying Party’s obligations under this section shall not apply to any infringement or misappropriation arising from a modification by the Indemnified Party of any information, data or drawings provided by the Indemnified Party pursuant to this Agreement, if such infringement or misappropriation arises solely from such modification.

 

8. Limitation of Liability

 

In no event shall either Party be liable to the other Party for any indirect, incidental, special or consequential damages (including, but not limited to loss of profits, loss of interest or other financing charges or loss of use), whether arising from a termination of this Agreement or otherwise.

 

9. Term and Termination

 

9.1 The Term of this Agreement shall be twelve (12) months, commencing on the date of signature. Upon expiration, this Agreement may be renewed by mutual, written agreement of the Parties.

 

9.2 Unless extended by mutual written agreement of the Parties, the provisions of this Agreement as they relate to any particular Proposal shall automatically expire and terminate upon the happening of any of the following events, whichever shall first occur. Upon such event, each Party shall be free to pursue a direct and independent contractual relationship with such Client for the Services requested in such Solicitation Documents, and the terms of this Agreement shall not apply to the Parties with respect to such Services as requested by Client.

 

_____________-_____________ Teaming Agreement 40
 

 

a. The failure of the Parties to reach mutual agreement on the terms of a contemplated proposal;

 

b. Disapproval by Client of either Party’s proposed services; provided, however, if Client requests changes in proposal submitted by the Parties, this Agreement shall not be deemed terminated unless the Parties fail to reach a timely agreement to effect such changes;

 

c. By mutual agreement of the Parties; or

 

d. Elapse of fifteen (15) months from the date of this Agreement without award to either Party of a Contract for the Services; provided , however, that if a proposal has been submitted and is under consideration by a Client upon the expiration of such period, this Agreement shall continue in force until terminated pursuant to one of the foregoing conditions.

 

9.3 The Parties agree that the indemnity provisions of Sections 2.7, 5, 6, 7 shall survive any termination of this Agreement in accordance with the terms set forth therein.

 

10. Order of Precedence

 

In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any Statement of Work issued pursuant to this Agreement, the order of precedence will be: (1) Amendments to this Agreement, (2) this Agreement (3) Statement of Work.

 

11. Governing Law

 

This Agreement and the Statements of Work shall be governed by the laws of Florida.

 

12. Arbitration

 

If any dispute or question (a “dispute”) shall arise between the Parties concerning the interpretation of this Agreement or any part thereof, the Parties shall attempt in good faith to resolve such disputes. If the Parties have not agreed to a settlement of the dispute within 30 days from the date of which the dispute first arose, then the Parties agree that the dispute shall be submitted to arbitration. Such disputes shall not be made the subject matter of an action in any court by any Party unless the dispute has been first submitted to arbitration and finally determined by the arbitrator(s). Any such action commenced thereafter shall only be for the purpose of enforcing the decision of the arbitrator(s) and the cost incidental to the action. In any such action the decision of arbitrators shall be conclusively deemed to determine the rights and liabilities as between the Parties to the arbitration in respect of the matter in dispute.

 

_____________-_____________ Teaming Agreement 41
 

 

13. Assignment

 

Neither Party may assign, transfer or delegate any of the rights or obligations hereunder without the prior written consent of the other Party. Either Party may assign its rights and obligations hereunder to any affiliate or successor in interest to all or substantially all of the assets or business of such Party, without the consent of the other Party.

 

14. General

 

14.1 This Agreement contains the entire agreement between the Parties and supersedes any prior or contemporaneous oral or written agreements, commitments, understandings or communications with respect to the subject matter hereof.

 

14.2 No subsequent modification of this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each of the Parties.

 

14.3 The failure of either Party to enforce at any time any of the provisions of this Agreement, or to require at any time performance by the other Party of any of the provisions hereof, shall in no way be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any Party thereof, or the right of either Party thereafter to enforce each and every provision.

 

14.4 Except for changes otherwise specifically permitted herein, this Agreement, or any Schedules, may not be changed or amended except by a written agreement between the parties.

 

14.5 Neither party shall be liable for any delays resulting from circumstances or causes beyond its reasonable control, including, without limitation, fire or other casualty, act of God, strike or labor dispute, war or other violence, or any law, order or requirement of any governmental agency or authority, power outages, and interruption of normal day to day life as a result of unexpected or unscheduled events.

 

_____________-_____________ Teaming Agreement 42
 

 

IN WITNESS WHEREOF , the Parties have caused this Agreement to be duly executed by their authorized representatives as of the Effective Date.

 

xG Technology, Inc.      
       
By:     By:  
Name:     Name:  
Title:     Title:  
Date:     Date:  

 

_____________-_____________ Teaming Agreement 43
 

 

Schedule A

 

xG Technology, Inc.      
       
By:     By:  
Name:     Name:  
Title:     Title:  
Date:     Date:  

 

_____________-_____________ Teaming Agreement 44

 

Ex 10.2

 

INDEMNITY AGREEMENT

 

This INDEMNITY AGREEMENT (the “Agreement”) is dated as of [__] [____] 2013, and is made by and between xG Technology, Inc. a Delaware corporation (the “Company”), and [_____], an officer or director of the Company (the “Indemnitee”).

 

RECITALS

 

A.           The Company is aware that competent and experienced persons are increasingly reluctant to serve as directors or officers of corporations unless they are protected by comprehensive liability insurance and/or indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors and officers;

 

B.           The Board of Directors of the Company (the “Board”) has concluded that, to retain and attract talented and experienced individuals to serve as officers and directors of the Company and to encourage such individuals to make the business decisions necessary or appropriate for the success of the Company and its Subsidiaries (as defined in Section 1 below), it is necessary for the Company contractually to indemnify its directors and certain of its officers, and certain of the directors and officers of its Subsidiaries, and to assume for itself maximum permissible liability for Expenses, losses, liabilities and damages in connection with claims against such officers and directors relating to their service in such capacities, and has further concluded that the failure to provide such contractual indemnification could result in significant harm to the Company and its Subsidiaries and the Company’s stockholders;

 

C.           The statutes and judicial decisions regarding the duties of directors and officers are often difficult to apply, ambiguous, or conflicting, and therefore fail to provide such directors and officers with adequate, reliable knowledge of legal risks to which they are exposed or information regarding the proper course of action to take;

 

D.           Plaintiffs often seek damages in such large amounts and the costs of litigation may be so great (whether or not the case is meritorious), that the defense and/or settlement of such litigation may be beyond the personal resources of directors and officers;

 

E.           Section 145 of the General Corporation Law of Delaware, under which the Company is organized (the “Law”), empowers the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by the Law is not exclusive; further the provisions of the Amended Certificate of Incorporation of the Company (the “Certificate of Incorporation”) specifically state that the rights to indemnification and payment of expenses described therein are not exclusive, and thereby contemplate that contracts with respect to indemnification and payment of Expenses by the Company and similar obligations of the Company may be entered into by and between the Company and persons entitled to such rights described in the Certificate of Incorporation; and

 

 
 

 

F.           The Company desires and has requested the Indemnitee to serve or continue to serve as a director or officer of the Company. As an inducement to serve and in consideration for such service, the Company has agreed to indemnify the Indemnitee for claims for damages arising out of or related to the performance of such services to the Company in accordance with the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

 

1.            Definitions .

 

1.1.          Agent. For the purposes of this Agreement, “Agent” of the Company means any person who is or at any time was a director or officer of the Company or a subsidiary of the Company; or is or at any time was serving at the request of, for the convenience of, or to represent the interest of the Company or a subsidiary of the Company as a director or officer of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or an affiliate of the Company; or was a director or officer of another enterprise or affiliate of the Company at the request of, for the convenience of, or to represent the interests of such predecessor corporation. The term “enterprise” includes any employee benefit plan of the Company, its subsidiaries, affiliates and predecessor corporations.

 

1.2.          Change in Control. “Change in Control” means a change in control of the Company occurring after December 1, 2008, of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the “Act”), whether or not the Company is then subject to such reporting requirement; provided , however , that, without limitation, such a Change in Control shall be deemed to have occurred if after December 1, 2008, (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Act) other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company’s then outstanding securities without the prior approval of at least two-thirds of the members of the board of directors of the Company in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the board of directors of the Company then in office, as a consequence of which members of the board of directors in office immediately prior to such transaction or event constitute less than a majority of the board of directors thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (ii) of this subsection (c), individuals who at the beginning of such period constituted the board of directors of the Company (including for this purpose any new director whose election 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 were directors at the beginning of such period) cease for any reason to constitute at least a majority of the board of directors.

 

2
 

 

1.3.          Company. As used herein the term “Company” includes all successors and assigns to the Company, including, without limitation, any corporation or other entity that is a successor to the Company by virtue of a Change in Control.

 

1.4.          Controlled. “Controlled” means subject to the power to exercise a controlling influence over the management or policies of a corporation, partnership, joint venture, trust or other entity.

 

1.5.          Expenses. For purposes of this Agreement, “Expenses” includes all direct and indirect costs of any type or nature whatsoever (including, without limitation, attorneys’ fees and related disbursements and retainers, costs of travel, other out-of-pocket costs such as fees and disbursements of expert witnesses, private investigators and professional advisors, court costs, transcript costs, fees of experts, duplicating, printing, and binding costs, telephone and fax transmission charges, postage, delivery services, secretarial services and other disbursements and expenses and reasonable compensation for time spent by the Indemnitee for which he is not otherwise compensated by the Company or any third party) actually and reasonably incurred by the Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification or advancement of expenses under this Agreement, Section 145 of the Law or otherwise.

 

1.6.          Proceeding. For the purposes of this Agreement, a “Proceeding” means any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution process, investigation, administrative hearing, appeal, inquiry or other proceeding, whether civil, criminal, administrative, investigative or any other type whatsoever, whether formal or informal, including a proceeding initiated by Indemnitee pursuant to Section 9 of this Agreement to enforce Indemnitee’s rights hereunder.

 

1.7.          Subsidiary. For purposes of this Agreement, “Subsidiary” means any corporation, partnership, limited liability company, trust, joint venture, or other entity of which more than fifty percent (50%) of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more of its subsidiaries or by one or more of the Company’s subsidiaries.

 

2.            Agreement to Serve . The Indemnitee agrees to serve and/or continue to serve as an agent of the Company, at the will of the Company (or under separate agreement, if such agreement exists), in the capacity the Indemnitee currently serves as an agent of the Company, faithfully and to the best of his ability, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the charter documents of the Company or any Subsidiary of the Company; provided, however, that the Indemnitee may at any time and for any reason resign from such position (subject to any contractual obligation that the Indemnitee may have assumed apart from this Agreement), and the Company or any Subsidiary shall have no obligation under this Agreement to continue the Indemnitee in any such position. For the avoidance of doubt, the Company and Indemnitee each acknowledge and agree that the resignation or other termination of Indemnitee as an agent of the Company under this paragraph 2 shall not impair any right that Indemnitee may otherwise have to be indemnified under the terms of this Agreement.

 

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3.            Directors’ and Officers’ Insurance . The Company shall, to the extent that the Board determines it to be economically reasonable, maintain a policy of directors’ and officers’ liability insurance (“D&O Insurance”), on such terms and conditions as may be approved by the Board.

 

4.            Mandatory Indemnification . Subject to Section 9 below, the Company shall indemnify and hold the Indemnitee harmless to the fullest extent permitted by the Law. Without limiting the generality of the foregoing, the Company shall indemnify and hold harmless the Indemnitee as follows:

 

4.1.          Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company) by reason of the fact that he is or at any time was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any and all claims, expenses and liabilities of any type whatsoever (including, but not limited to, attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and/or

 

4.2.          Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or at any time was an agent of the Company, or by reason of anything done or not done by him in any such capacity, against any and all claims, expenses and liabilities, including without limitation attorneys’ fees, amounts paid in settlement of any such proceeding and all expenses actually and reasonably incurred by him in connection with the investigation, defense, settlement, or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification under this subsection shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged, in a judgment not subject to appeal, to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of his duty to the Company, unless and only to the extent that the Court of Chancery in Delaware or the court in which such proceeding 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 amounts which the Court of Chancery or such other court shall deem proper; and/or

 

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4.3.          Exception for Amounts Covered by Insurance. Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to the Indemnitee by D&O Insurance.

 

5.            Partial Indemnification and Contribution .

 

5.1.          Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) incurred by him in the investigation, defense, settlement, or appeal of a proceeding but is not entitled, however, to indemnification for all of the total amount thereof, then the Company shall nevertheless indemnify the Indemnitee for such total amount except as to the portion thereof to which the Indemnitee is not entitled to indemnification.

 

5.2.          Contribution. If the Indemnitee is not entitled to the indemnification provided in Section 4 for any reason other than the statutory limitations set forth in the Law, then in respect of any threatened, pending or completed proceeding in which the Company is jointly liable with the Indemnitee (or would be if joined in such proceeding), the Company shall contribute to the amount of Expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative fault of the Company on the one hand and of the Indemnitee on the other hand in connection with the events which resulted in such Expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such Expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or any other method of allocation, which does not take account of the foregoing equitable considerations.

 

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6.            Mandatory Advancement of Expenses .

 

6.1.          Advancement. Subject to Section 9 below, the Company shall advance all expenses incurred by the Indemnitee in connection with the investigation, participation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or at any time was an agent of the Company or by reason of anything done or not done by him in any such capacity. The Indemnitee hereby undertakes promptly to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Certificate of Incorporation, or Bylaws of the Company, the Law or otherwise. The advances to be made hereunder shall be paid by the Company to the Indemnitee within thirty (30) days following delivery of a written request therefor by the Indemnitee to the Company.

 

6.2.          Exception. Notwithstanding the foregoing provisions of this Section 6, the Company shall not be obligated to advance any expenses to the Indemnitee arising from a lawsuit filed directly by the Company against the Indemnitee if an absolute majority of the members of the Board reasonably determines in good faith, within thirty (30) days of the Indemnitee’s request to be advanced expenses, that the facts known to them at the time such determination is made demonstrate clearly and convincingly that the Indemnitee acted in bad faith. If such a determination is made, the Indemnitee may have such decision reviewed by another forum, in the manner set forth in Sections 8.3, 8.4 and 8.5 hereof, with all references therein to “indemnification” being deemed to refer to “advancement of expenses,” and the burden of proof shall be on the Company to demonstrate clearly and convincingly that, based on the facts known at the time, the Indemnitee acted in bad faith. The Company may not avail itself of this Section 6.2 as to a given lawsuit if, at any time after the occurrence of the activities or omissions that are the primary focus of the lawsuit, the Company has undergone a change in control. For this purpose, a change in control shall mean a given person or group of affiliated persons or groups increasing their beneficial ownership interest in the Company by at least fifteen (15) percentage points without advance Board approval.

 

7.            Notice and Other Indemnification Procedures .

 

7.1.          Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof.

 

7.2.          If, at the time of the receipt of a notice of the commencement of a proceeding pursuant to Section 7.1 hereof, the Company has D&O 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 D&O Insurance policies.

 

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7.3.          In the event the Company shall be obligated to advance the expenses for any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee (which approval shall not be unreasonably withheld), upon the delivery to the Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided that: (a) the Indemnitee shall have the right to employ his own counsel in any such proceeding at the Indemnitee’s expense; (b) the Indemnitee shall have the right to employ his own counsel in connection with any such proceeding, at the expense of the Company, if such counsel serves in a review, observer, advice, and counseling capacity and does not otherwise materially control or participate in the defense of such proceeding; or (c) if (i) the employment of counsel by the Indemnitee has been previously authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of the Indemnitee’s counsel shall be at the expense of the Company.

 

8.            Determination of Right to Indemnification .

 

8.1.          To the extent the Indemnitee has been successful on the merits or otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this Agreement or in the defense of any claim, issue or matter described therein, the Company shall indemnify the Indemnitee against expenses actually and reasonably incurred by him in connection with the investigation, defense or appeal of such proceeding, or such claim, issue or matter, as the case may be, including without limitation Indemnitee’s attorneys’ fees.

 

8.2.          In the event that Section 8.1 is inapplicable, or does not apply to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee unless the Company shall prove by clear and convincing evidence to a forum listed in Section 8.3 below that the Indemnitee has not met the applicable standard of conduct required to entitle the Indemnitee to such indemnification.

 

8.3.          The Indemnitee shall be entitled to select the forum in which the validity of the Company’s claim under Section 8.2 hereof that the Indemnitee is not entitled to indemnification will be heard from among the following:

 

(a)          a quorum of the Board consisting of directors who are not parties to the proceeding for which indemnification is being sought;

 

(b)          the stockholders of the Company, provided however that the Indemnitee can select a forum consisting of the stockholders of the Company only with the approval of the Company;

 

(c)          legal counsel mutually agreed upon by the Indemnitee and the Board, which counsel shall make such determination in a written opinion;

 

(d)          a panel of three arbitrators, one of whom is selected by the Company, another of whom is selected by the Indemnitee and the last of whom is selected by the first two arbitrators so selected; or

 

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(e)          the Court of Chancery of Delaware or other court having jurisdiction of subject matter and the parties.

 

8.4.          As soon as practicable, and in no event later than thirty (30) days after the forum has been selected pursuant to Section 8.3 above, the Company shall, at its own expense, submit to the selected forum its claim that the Indemnitee is not entitled to indemnification, and the Company shall act in the utmost good faith to assure the Indemnitee a complete opportunity to defend against such claim.

 

8.5.          If the forum selected in accordance with Section 8.3 hereof is not a court, then after the final decision of such forum is rendered, the Company or the Indemnitee shall have the right to apply to the Court of Chancery of Delaware, the court in which the proceeding giving rise to the Indemnitee’s claim for indemnification is or was pending or any other court having jurisdiction of subject matter and the parties, for the purpose of appealing the decision of such forum, provided that such right is executed within sixty (60) days after the final decision of such forum is rendered. If the forum selected in accordance with Section 8.3 hereof is a court, then the rights of the Company or the Indemnitee to appeal any decision of such court shall be governed by the applicable laws and rules governing appeals of the decision of such court.

 

8.6.          Notwithstanding any other provision in this Agreement to the contrary, the Company shall indemnify the Indemnitee against all Expenses incurred by the Indemnitee in connection with any hearing or proceeding under this Section 8 involving the Indemnitee and against all Expenses incurred by the Indemnitee in connection with any other proceeding between the Company and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims and/or defenses of the Indemnitee in any such proceeding was frivolous or not made in good faith.

 

9.            Exceptions . Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

 

9.1.          Claims Initiated by Indemnitee. To indemnify or advance expenses to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to proceedings specifically authorized by the Board or brought to establish or enforce a right to indemnification and/or advancement of Expenses arising under this Agreement, the charter documents of the Company or any Subsidiary or any statute or law or otherwise, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board finds it to be appropriate; or

 

9.2.          Unauthorized Settlements. To indemnify the Indemnitee hereunder for any amounts paid in settlement of a proceeding unless the Company consents in advance in writing to such settlement, which consent shall not be unreasonably withheld; or

 

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9.3.          Securities Law Actions. To indemnify the Indemnitee on account of any suit in which judgment is rendered against the Indemnitee for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section l6(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or

 

9.4.          Unlawful Indemnification. To indemnify the Indemnitee if a final decision by a court having jurisdiction in the matter, in a judgment not subject to appeal, shall determine that such indemnification is not lawful. In this respect, the Company and the Indemnitee have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication.

 

10.          Non-Exclusivity .

 

THE PROVISIONS FOR INDEMNIFICATION AND ADVANCEMENT OF EXPENSES SET FORTH IN THIS AGREEMENT SHALL NOT BE DEEMED EXCLUSIVE OF ANY OTHER RIGHTS WHICH THE INDEMNITEE MAY HAVE UNDER ANY PROVISION OF LAW, THE COMPANY’S CERTIFICATE OF INCORPORATION OR BYLAWS, THE VOTE OF THE COMPANY’S STOCKHOLDERS OR DISINTERESTED DIRECTORS, OTHER AGREEMENTS OR OTHERWISE, BOTH AS TO ACTION IN THE INDEMNITEE’S OFFICIAL CAPACITY AND TO ACTION IN ANOTHER CAPACITY WHILE OCCUPYING HIS POSITION AS AN AGENT OF THE COMPANY, AND THE INDEMNITEE’S RIGHTS HEREUNDER SHALL CONTINUE AFTER THE INDEMNITEE HAS CEASED ACTING AS AN AGENT OF THE COMPANY AND SHALL INURE TO THE BENEFIT OF THE HEIRS, EXECUTORS AND ADMINISTRATORS OF THE INDEMNITEE.

 

11.          Burden of Proof . 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, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.

 

12.          Duration of Agreement .

 

This Agreement shall continue until and terminate upon the later of: (a) 10 years after the date that the Indemnitee shall have ceased to serve as a director and/or officer of the Company or director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which the Indemnitee served at the request of the Company; or (b) one year after the final, nonappealable termination of any Proceeding then pending in respect of which the Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to Section 10 of this Agreement relating thereto.

 

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13.          General Provisions .

 

13.1.          Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and advancement of expenses to the Indemnitee to the fullest extent now or hereafter permitted by law, except as expressly limited herein.

 

13.2.          Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal, or unenforceable for any reason whatsoever, then:

 

(a)          the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal, or unenforceable that are not themselves invalid, illegal, or unenforceable) shall not in any way be affected or impaired thereby; and

 

(b)          to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 13.1 hereof.

 

13.3.          Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.

 

13.4.          Subrogation. In the event of full payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary or desirable to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

 

13.5.          Counterparts. This Agreement may be executed in one or more counterparts and via facsimile, each of which shall constitute an original, but all of which when taken together shall constitute a single agreement.

 

13.6.          Successors and Assigns. The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto.

 

13.7.          Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given: (a) if delivered by hand and signed for by the party addressee; or (b) if mailed by certified or registered mail, with postage prepaid, on the third business day after the mailing date. Addresses for notices to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice.

 

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13.8.          Gender. The masculine, feminine or neuter pronouns used herein shall be interpreted without regard to gender, and the use of the singular or plural shall be deemed to include the other whenever the context so requires.

 

13.9.          Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware.

 

If the General Corporation Law of the State of Delaware (the “Delaware Law”) or any other applicable law is amended after the date hereof to permit the Company to indemnify Indemnitee for Expenses or liabilities, or to indemnify Indemnitee with respect to any action or Proceeding, not contemplated by this Agreement, then this Agreement (without any further action be either party hereto) shall automatically be deemed to be amended to require that the Company indemnify Indemnitee to the fullest extent permitted by the Delaware Law.

 

13.10.         Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding, which arises out of or relates to this Agreement.

 

13.11.         Attorneys’ Fees. In the event Indemnitee is required to bring any action to enforce rights under this Agreement (including, without limitation, the payment or reimbursement of expenses of any proceeding described in Section 4), the Indemnitee shall be entitled to all reasonable fees and expenses in bringing and pursuing such action, unless a court of competent jurisdiction finds each of the material claims of the Indemnitee in any such action was frivolous and not made in good faith.

 

[Balance of the Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have entered into this Agreement effective as of the date first written above.

 

xG TECHNOLOGY, INC.   INDEMNITEE
         
By:     By:  
Name:     Name:  
Title:     Title:  
         
Date: [____] [__________] 2013   Date: [____] [__________] 2013
     
Address:   Address:

 

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Ex 10.3

xG TECHNOLOGY INC.

 

2013 LONG-TERM STOCK INCENTIVE PLAN

 

1. Purpose

 

The xG Technology, Inc. 2013 Long-Term Stock Incentive Plan is intended to promote the best interests of xG Technology, Inc. and its stockholders by (i) assisting the Corporation and its Affiliates in the recruitment and retention of persons with ability and initiative, (ii) providing an incentive to such persons to contribute to the growth and success of the Corporation’s businesses by affording such persons equity participation in the Corporation and (iii) associating the interests of such persons with those of the Corporation and its Affiliates and stockholders.

 

2. Definitions

 

As used in this Plan the following definitions shall apply:

 

A. “ Affiliate ” means (i) any Subsidiary, (ii) any Parent, (iii) any corporation, or trade or business (including, without limitation, a partnership, limited liability company or other entity) which is directly or indirectly controlled fifty percent (50%) or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Corporation or one of its Affiliates, and (iv) any other entity in which the Corporation or any of its Affiliates has a material equity interest and which is designated as an “Affiliate” by resolution of the Committee.

 

B. “ Award ” means any Option or Stock Award granted hereunder.

 

C. “ Board ” means the Board of Directors of the Corporation.

 

D. “ Cause ” means: (i) conduct involving a felony criminal offense under U. S. federal or state law or an equivalent violation of the laws of any other country; (ii) dishonesty, fraud, self dealing or material violations of civil law in the course of fulfilling the Participant’s employment or other assigned duties on behalf of the Corporation; (iii) breach of any confidentiality, employment, or other written agreement with the Corporation; or (iv) willful misconduct injurious to the Corporation or any of its Subsidiaries or Affiliates as shall be determined by the Committee.

 

E. “Change of Control” means: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of (A) the outstanding shares of common stock of the Company or (B) the combined voting power of the Company’s then-outstanding securities; (ii) the Company is party to a merger or consolidation, or series of related transactions, which results in the voting securities of the Company outstanding immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving or another entity) at least fifty (50%) percent of the combined voting power of the voting securities of the Company or such surviving or other entity outstanding immediately after such merger or consolidation; (iii) the sale or disposition of all or substantially all of the Company’s assets (or consummation of any transaction, or series of related transactions, having similar effect); (iv) there occurs a change in the composition of the Board of Directors of the Company within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors; (v) the dissolution or liquidation of the Company; or (vi) any transaction or series of related transactions that has the substantial effect of any one or more of the foregoing. For purposes of this paragraph, the Board may exclude any transaction involving MB Technology Holdings.

 

 
 

 

F. “ Code ” means the Internal Revenue Code of 1986, and any amendments thereto.

 

G. “ Committee ” means the Board or any Committee of the Board to which the Board has delegated any responsibility for the implementation, interpretation or administration of this Plan. As of the date of the Plan, the Board has initially delegated responsibility for the administration of the Plan to the Corporation’s Compensation Committee.

 

H. “ Common Stock ” means the common stock, $0.01 par value, of the Corporation.

 

I. “ Consultant ” means (i) any person performing consulting or advisory services for the Corporation or any Affiliate, or (ii) a director of an Affiliate.

 

J. “ Corporation ” means xG Technology, Inc., a Delaware corporation.

 

K. “ Corporation Law ” means the Delaware General Corporation Law.

 

L. “ Deferral Period ” means the period of time during which Deferred Shares are subject to deferral limitations under Section 7.D of this Plan.

 

M. “ Deferred Shares ” means an award pursuant to Section 7.D of this Plan of the right to receive shares of Common Stock at the end of a specified Deferral Period.

 

N. “ Director ” means a member of the Board.

 

O. “ Eligible Person ” means an employee of the Corporation or an Affiliate (including a corporation that becomes an Affiliate after the adoption of this Plan), a Director or a Consultant to the Corporation or an Affiliate (including a corporation that becomes an Affiliate after the adoption of this Plan).

 

P. “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

Q. “ Fair Market Value ” means, on any given date, the current fair market value of the shares of Common Stock as determined as follows:

 

(i) If the Common Stock is traded on a national securities exchange, the closing price for the day of determination as quoted on such market or exchange, including the NASDAQ Global Market or NASDAQ Capital Market, or the OTC Bulletin Board, whichever is the primary market or exchange for trading of the Common Stock or if no trading occurs on such date, the last day on which trading occurred, or such other appropriate date as determined by the Committee in its discretion, as reported in The Wall Street Journal or such other source as the Committee deems reliable;

 

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high and the low asked prices for the Common Stock for the day of determination; or

 

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(iii) In the absence of an established market for the Common Stock, Fair Market Value shall be determined by the Committee in good faith.

 

R. “ Incentive Stock Option ” means an Option (or portion thereof) which meets the criteria of Section 422(b) of the Code.

 

S. “ Listing Date ” means the date upon share of Common Stock commence trading on a national securities exchange (exclusive of trading markets such as the OTC Bulletin Board).

 

T. “ Nonqualified Stock Option ” means an Option (or portion thereof) which is not intended or does not for any reason qualify as an Incentive Stock Option.

 

U. “ Option ” means any option to purchase shares of Common Stock granted under this Plan.

 

V. “ Parent ” means any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation if each of the corporations (other than the Corporation) owns stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

W. “ Participant ” means an Eligible Person who (i) is selected by the Committee or an authorized officer of the Corporation to receive an Award and (ii) is party to an agreement setting forth the terms of the Award, as appropriate.

 

X. “ Performance Agreement ” means an agreement described in Section 8 of this Plan.

 

Y. “ Performance Objectives ” means the performance objectives established pursuant to this Plan for Participants who have received grants of Performance Shares or, when so determined by the Committee, Stock Awards. Performance Objectives may be described in terms of Corporation-wide objectives or objectives that are related to the performance of the individual Participant or the Affiliate, subsidiary, division, department or function within the Corporation or Affiliate in which the Participant is employed or has responsibility. Any Performance Objectives applicable to Awards to the extent that such an Award is intended to qualify as “performance-based compensation” under Section 162(m) of the Code shall be limited to specified levels of or increases in the Corporation’s or a business unit’s return on equity, earnings per share, total earnings, earnings growth, return on capital, return on assets, economic value added, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, sales growth, gross margin return on investment, increase in the Fair Market Value of the shares, share price (including but not limited to growth measures and total stockholder return), net operating profit, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on investments (which equals net cash flow divided by total capital), internal rate of return, increase in net present value or expense targets. The Awards intended to qualify as “Performance Based Compensation” under Section 162(m) of the Code shall be pre-established in accordance with applicable regulations under Section 162(m) of the Code and the determination of attainment of such goals shall be made by the Committee. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Corporation (including an event described in Section 9), or the manner in which it conducts is business, or other events or circumstances render the Performance Objectives unsuitable, the Committee may modify such Performance Objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable; provided, however, that no such modification shall be made to an Award intended to qualify as performance-based compensation under Section 162(m) of the Code unless the Committee determines that such modification will not result in loss of such qualification or the Committee determines that loss of such qualification is in the best interests of the Corporation.

 

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Z. “ Performance Period ” means a period of time established under Section 8 of this Plan within which the Performance Objectives relating to a Performance Share or Stock Award are to be achieved.

 

AA. “ Performance Share ” means a bookkeeping entry that records the equivalent of one share of Common Stock awarded pursuant to Section 8 of this Plan.

 

BB. “ Plan ” means this xG Technology, Inc. 2013 Long-term Stock Incentive Plan.

 

CC. “ Repricing ” means, other than in connection with an event described in Section 9 of this Plan, (i) lowering the exercise price of an Option or Stock Appreciation Right after it has been granted or (ii) canceling an Option or Stock Appreciation Right at a time when the exercise price exceeds the then Fair Market Value of the Common Stock in exchange for another Option or Stock Award.

 

DD. “Restricted Stock Award” means an award of Common Stock under Section 7.B.

 

EE. “Restricted Stock Units” means a unit s imilar to restricted stock , however, the unit represents a promise that employees will receive stock in the future. The units do not pay dividends until the stock is vested.

 

FF. “Securities Act” means the Securities Act of 1933, as amended.

 

GG. “ Stock Award ” means a Stock Bonus Award, Restricted Stock Award, Stock Appreciation Right, Deferred Shares, or Performance Shares.

 

HH. “ Stock Bonus Award ” means an award of Common Stock under Section 7.A.

 

II. “ Stock Appreciation Right ” means an award of a right of the Participant under Section 7.C to receive a payment in cash or shares of Common Stock (or a combination thereof) based on the increase in Fair Market Value of the shares of Common Stock covered by the award between the date of grant of such award and the Fair Market Value of the Common Stock on the date of exercise of such Stock Appreciation Right.

 

JJ. “ Stock Award Agreement ” means an agreement (written or electronic) between the Corporation and a Participant setting forth the specific terms and conditions of a Stock Award granted to the Participant under Section 7. Each Stock Award Agreement shall be subject to the terms and conditions of this Plan and shall include such terms and conditions as the Committee shall authorize.

 

KK. “ Stock Option Agreement ” means an agreement (written or electronic) between the Corporation and a Participant setting forth the specific terms and conditions of an Option granted to the Participant. Each Stock Option Agreement shall be subject to the terms and conditions of this Plan and shall include such terms and conditions as the Committee shall authorize.

 

LL. “ Subsidiary ” means any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

MM. “ Ten Percent Owner ” means any Eligible Person owning at the time an Option is granted more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or of a Parent or Subsidiary. An individual shall, in accordance with Section 424(d) of the Code, be considered to own any voting stock owned (directly or indirectly) by or for such Eligible Person’s brothers, sisters, spouse, ancestors and lineal descendants and any voting stock owned (directly or indirectly) by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its stockholders, partners, or beneficiaries.

 

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NN. “Termination of Employment” means the end of employment and includes the following:(i) An employee quits, retires, or is dismissed; or (ii) employment is terminated by an operation of law; or (iii) the board of directors considers a condition of employment to be substantially altered.

 

3. Administration

 

A. Delegation to Board Committee. The Board shall be the sole Committee of this Plan unless the Board delegates all or any portion of its authority to administer this Plan to a Committee. To the extent not prohibited by the charter or bylaws of the Corporation, the Board may delegate all or a portion of its authority to administer this Plan to a Committee of the Board appointed by the Board and constituted in compliance with the applicable Corporation Law. The Committee shall consist solely of two (2) or more Directors who are (i) Non-Employee Directors (within the meaning of Rule 16b-3 under the Exchange Act) for purposes of exercising administrative authority with respect to Awards granted to Eligible Persons who are subject to Section 16 of the Exchange Act; (ii) to the extent required by the rules of the market on which the Corporation’s shares are traded or the exchange on which the Corporation’s shares are listed, “independent” within the meaning of such rules; and (iii) at such times as an Award under this Plan by the Corporation is subject to Section 162(m) of the Code (to the extent relief from the limitation of Section 162(m) of the Code is sought with respect to Awards and administration of the Awards by a committee of “outside directors” is required to receive such relief) “outside directors” within the meaning of Section 162(m) of the Code.

 

B. Delegation to Officers . The Committee may delegate to one or more officers of the Corporation the authority to grant and administer Awards to Eligible Persons who are not Directors or executive officers of the Corporation; provided that the Committee shall have fixed the total number of shares of Common Stock that may be subject to such Awards. No officer holding such a delegation is authorized to grant Awards to himself or herself. In addition to the Committee, the officer or officers to whom the Committee has delegated the authority to grant and administer Awards shall have all powers delegated to the Committee with respect to such Awards. Such delegation shall be subject to the limitations of Section 157(c) (or any successor provision) of the Corporation Law.

 

C. Powers of the Committee . Subject to the provisions of this Plan, and in the case of a Committee appointed by the Board, the specific duties delegated to such Committee, the Committee (and the officers to whom the Committee has delegated such authority) shall have the authority:

 

(i) To construe and interpret all provisions of this Plan and all Stock Option Agreements, Stock Award Agreements and Performance Agreements under this Plan.

 

(ii) To determine the Fair Market Value of Common Stock.

 

(iii) To select the Eligible Persons to whom Awards are granted from time to time hereunder.

 

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(iv) To determine the number of shares of Common Stock covered by an Award; to determine whether an Option shall be an Incentive Stock Option or Nonqualified Stock Option; and to determine such other terms and conditions, not inconsistent with the terms of this Plan, of each such Award. Such terms and conditions include, but are not limited to, the exercise price of an Option, purchase price of Common Stock subject to a Stock Award, the time or times when Options or Stock Awards may be exercised or Common Stock issued thereunder, the right of the Corporation to repurchase Common Stock issued pursuant to the exercise of an Option or a Stock Award and other restrictions or limitations (in addition to those contained in this Plan) on the forfeitability or transferability of Options, Stock Awards or Common Stock issued upon exercise of an Option or pursuant to an Award. Such terms may include conditions which shall be determined by the Committee and need not be uniform with respect to Participants.

 

(v) To accelerate the time at which any Option or Stock Award may be exercised, or the time at which a Stock Award or Common Stock issued under this Plan may become transferable or non-forfeitable.

 

(vi) To determine whether and under what circumstances an Option or RSU may be settled in cash, shares of Common Stock or other property under Section 6.H instead of Common Stock.

 

(vii) To waive, amend, cancel, extend, renew, accept the surrender of, modify or accelerate the vesting of or lapse of restrictions on all or any portion of an outstanding Award. Except as otherwise provided by this Plan, the Stock Option Agreement, Stock Award Agreement or Performance Agreement or as required to comply with applicable law, regulation or rule, no amendment, cancellation or modification shall, without a Participant’s consent, adversely affect any rights of the Participant; provided, however, that (x) an amendment or modification that may cause an Incentive Stock Option to become a Nonqualified Stock Option shall not be treated as adversely affecting the rights of the Participant and (y) any other amendment or modification of any Stock Option Agreement, Stock Award Agreement or Performance Agreement that does not, in the opinion of the Committee, adversely affect any rights of any Participant, shall not require such Participant’s consent. Notwithstanding the foregoing, the restrictions on the Repricing of Options and Stock Appreciation Rights, as set forth in this Plan, may not be waived.

 

(viii) To prescribe the form of Stock Option Agreements, and Stock Award Agreements and Performance Agreements; to adopt policies and procedures for the exercise of Options or Stock Awards, including the satisfaction of withholding obligations; to adopt, amend, and rescind policies and procedures pertaining to the administration of this Plan; and to make all other determinations necessary or advisable for the administration of this Plan. The Award’s effectiveness will not be dependent on any signature unless specifically so provided in the Award Agreement. Awards shall generally be subject to a three year vesting period and no more than 60% of Awards to executives and directors may have a vesting period of less than three years; provided, however, that vesting may accelerate in the event of change in control and certain other events as set forth in Section 9 herein, and in the events of death, disability or retirement, as will be specified in the Award Agreement.

 

(ix) To allow for deferral of shares vesting under the stock awards.

 

The express grant in this Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee; provided that the Committee or any committee of the Board may not exercise any right or power reserved to the Board. Any decision made, or action taken, by the Committee or in connection with the administration of this Plan shall be final, conclusive and binding on all persons having an interest in this Plan.

 

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4. Eligibility

 

A. Eligibility for Awards . Awards, other than Incentive Stock Options, may be granted to any Eligible Person selected by the Committee. Incentive Stock Options may be granted only to employees of the Corporation or a Parent or Subsidiary.

 

B. Eligibility of Consultants . A Consultant shall be an Eligible Person only if the offer or sale of the Corporation’s securities would be eligible for registration on Form S-8 Registration Statement because of the identity and nature of the service provided by such person, unless the Corporation determines that an offer or sale of the Corporation’s securities to such person will satisfy another exemption from the registration under the Securities Act and complies with the securities laws of all other jurisdictions applicable to such offer or sale.

 

C. Substitution Awards . The Committee may make Awards and may grant Options under this Plan by assumption, in substitution or replacement of performance shares, phantom shares, stock awards, stock options, stock appreciation rights or similar awards granted by another entity (including an Affiliate) in connection with a merger, consolidation, acquisition of property or stock or similar transaction. Notwithstanding any provision of this Plan (other than the maximum number of shares of Common Stock that may be issued under this Plan), the terms of such assumed, substituted, or replaced Awards shall be as the Committee, in its discretion, determines is appropriate.

 

5. Common Stock Subject to Plan

 

A. Share Reserve and Limitations on Grants . Subject to adjustment as provided in Section 9, the maximum aggregate number of shares of Common Stock that may be (i) issued under this Plan pursuant to the exercise of Options, (ii) issued pursuant to Stock Awards, (iii) covered by Stock Appreciation Rights (without regard to whether payment on exercise of the Stock Appreciation Right is made in cash or shares of Common Stock) and (iv) covered by Performance Shares shall be limited to 15% of the shares of Common Stock outstanding, which calculation shall be made on the first trading day of a new fiscal year; provided that, in any year no more than 8% of the Common Stock of the company or derivative securitization with Common Stock underlying 8% of the Common Stock may be issued in any fiscal year. The number shares of Common Stock subject to the Plan shall be subject to adjustment as provided in Section 9. Subject to adjustment as provided in Section 9, and notwithstanding any provision hereto to the contrary, shares subject to the Plan shall include shares forfeited in a prior year as provided herein. For purposes of determining the number of shares of Common Stock available under this Plan, shares of Common Stock withheld by the Corporation to satisfy applicable tax withholding obligations pursuant to Section 10 of this Plan shall be deemed issued under this Plan. No single participant may receive more than 25% of the total shares awarded in any single year.

 

B. Reversion of Shares . If an Option or Stock Award is terminated, expires or becomes unexercisable, in whole or in part, for any reason, the unissued or unpurchased shares of Common Stock (or shares subject to an unexercised Stock Appreciation Right) which were subject thereto shall become available for future grant under this Plan. Shares of Common Stock that have been actually issued under this Plan shall not be returned to the share reserve for future grants under this Plan; except that shares of Common Stock issued pursuant to a Stock Award which are forfeited to the Corporation or repurchased by the Corporation at the original purchase price of such shares, shall be returned to the share reserve for future grant under this Plan.

 

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C. Source of Shares . Common Stock issued under this Plan may be shares of authorized and unissued Common Stock or shares of previously issued Common Stock that have been reacquired by the Corporation.

 

6. Options

 

A. Award . In accordance with the provisions of Section 4, the Committee will designate each Eligible Person to whom an Option is to be granted and will specify the number of shares of Common Stock covered by such Option. The Stock Option Agreement shall specify whether the Option is an Incentive Stock Option or Nonqualified Stock Option, the vesting schedule applicable to such Option and any other terms of such Option. No Option that is intended to be an Incentive Stock Option shall be invalid for failure to qualify as an Incentive Stock Option.

 

B. Option Price . The exercise price per share for Common Stock subject to an Option shall be determined by the Committee, but shall comply with the following:

 

(i) The exercise price per share for Common Stock subject to an Incentive Stock Option shall not be less than one hundred percent (100%) of the Fair Market Value on the date of grant .

 

(ii) The exercise price per share for Common Stock subject to an Incentive Stock Option granted to a Participant who is deemed to be a Ten Percent Owner on the date such option is granted, shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date of grant.

 

C. Maximum Option Period . The maximum period during which an Option may be exercised shall be ten (10) years from the date such Option was granted. In the case of an Incentive Stock Option that is granted to a Participant who is or is deemed to be a Ten Percent Owner on the date of grant, such Option shall not be exercisable after the expiration of five (5) years from the date of grant.

 

D. Maximum Value of Options which are Incentive Stock Options . To the extent that the aggregate Fair Market Value of the Common Stock with respect to which Incentive Stock Options granted to any person are exercisable for the first time during any calendar year (under all stock option plans of the Corporation or any Parent or Subsidiary) exceeds $100,000 (or such other amount provided in Section 422(d) of the Code), the Options are not Incentive Stock Options. For purposes of this section, the Fair Market Value of the Common Stock will be determined as of the time the Incentive Stock Option with respect to the Common Stock is granted. This section will be applied by taking Incentive Stock Options into account in the order in which they are granted.

 

E. Nontransferability . Options granted under this Plan which are intended to be Incentive Stock Options shall be nontransferable except by will or by the laws of descent and distribution and during the lifetime of the Participant shall be exercisable by only the Participant to whom the Incentive Stock Option is granted. Except to the extent transferability of a Nonqualified Stock Option is provided for in the Stock Option Agreement or is approved by the Committee, during the lifetime of the Participant to whom the Nonqualified Stock Option is granted, such Option may be exercised only by the Participant. If the Stock Option Agreement so provides or the Committee so approves, a Nonqualified Stock Option may be transferred by a Participant through a gift or domestic relations order to the Participant’s family members to the extent in compliance with applicable securities laws and regulations and provided that such transfer is not a transfer for value (within the meaning of applicable securities laws and regulations). The holder of a Nonqualified Stock Option transferred pursuant to this section shall be bound by the same terms and conditions that governed the Option during the period that it was held by the Participant. No right or interest of a Participant in any Option shall be liable for, or subject to, any lien, obligation, or liability of such Participant.

 

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F. Vesting . Options will vest as provided in the Stock Option Agreement.

 

G. Termination . Options will terminate as provided in the Stock Option Agreement. The Stock Option Agreement shall provide for specific events of termination. In this regard, if for any reason other than death or permanent and total disability, an Optionee ceases to be employed by the Corporation or any of its Affiliates (such event being called a “Termination”), Options or Stock Awards held at the date of Termination (to the extent then exercisable) may be exercised in whole or in part at any time within three months of the date of such Termination, or such other period of not less than 30 days after the date of such Termination as is specified in the Option Agreement or Stock Award Agreement or by amendment thereof (but in no event after the Expiration Date); provided, however, that if such exercise of the Option would result in liability for the Optionee under Section 16(b) of the Exchange Act, then such three-month period automatically shall be extended until the tenth day following the last date upon which Optionee has any liability under Section 16(b) (but in no event after the Expiration Date); and further provided that if such Optionee is a “specified employee” as that term is defined by Section 409A(a)(2)(B)(i) of the Code, no distribution shall occur until six months after the Optionee’s separation from service. If an Optionee dies or becomes permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code) while employed by the Company or an Affiliate or within the period that the Option remains exercisable after Termination, Options then held (to the extent then exercisable) may be exercised, in whole or in part, by the Optionee, by the Optionee's personal representative or by the person to whom the Option is transferred by devise or the laws of descent and distribution, at any time within twelve months after the death or twelve months after the permanent and total disability of the Optionee or any longer period specified in the Option Agreement or Stock Award Agreement or by amendment thereof (but in no event after the Expiration Date). For purposes of this Section, “employment” includes service as a Director or as a Consultant. For purposes of this Section, an Optionee's employment shall not be deemed to terminate by reason of sick leave, military leave or other leave of absence approved by the Administrator, if the period of any such leave does not exceed 90 days or, if longer, if the Optionee's right to reemployment by the Company or any Affiliate is guaranteed either contractually or by statute.

 

H. Exercise . Subject to the provisions of this Plan and the applicable Stock Option Agreement, an Option may be exercised to the extent vested in whole at any time or in part from time to time at such times and in compliance with such requirements as the Committee shall determine. A partial exercise of an Option shall not affect the right to exercise the Option from time to time in accordance with this Plan and the applicable Stock Option Agreement with respect to the remaining shares subject to the Option. An Option may not be exercised with respect to fractional shares of Common Stock.

 

I. Payment . Unless otherwise provided by the Stock Option Agreement, payment of the exercise price for an Option shall be made in cash or a cash equivalent acceptable to the Committee or if the Common Stock is traded on an established securities market, by payment of the exercise price by a broker-dealer or by the Option holder with cash advanced by the broker-dealer if the exercise notice is accompanied by the Option holder’s written irrevocable instructions to deliver the Common Stock acquired upon exercise of the Option to the broker-dealer or by delivery of the Common Stock to the broker-dealer with an irrevocable commitment by the broker-dealer to forward the exercise price to the Corporation. With the consent of the Committee, payment of all or a part of the exercise price of an Option may also be made (i) by surrender to the Corporation (or delivery to the Corporation of a properly executed form of attestation of ownership) of shares of Common Stock that have been held for such period prior to the date of exercise as is necessary to avoid adverse accounting treatment to the Corporation, or (ii) any other method acceptable to the Committee, including without limitation, the withholding of shares receivable upon settlement of the option in payment of the exercise price. If Common Stock is used to pay all or part of the exercise price, the sum of the cash or cash equivalent and the Fair Market Value (determined as of the date of exercise) of the shares surrendered must not be less than the Option price of the shares for which the Option is being exercised.

 

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J. Stockholder Rights . No Participant shall have any rights as a stockholder with respect to shares subject to an Option until the date of exercise of such Option and the certificate for shares of Common Stock to be received on exercise of such Option has been issued by the Corporation.

 

K. Disposition and Stock Certificate Legends for Incentive Stock Option Shares . A Participant shall notify the Corporation of any sale or other disposition of Common Stock acquired pursuant to an Incentive Stock Option if such sale or disposition occurs (i) within two years of the grant of an Option or (ii) within one year of the issuance of the Common Stock to the Participant. Such notice shall be in writing and directed to the Chief Financial Officer of the Corporation or is his/her absence, the Chief Executive Officer. The Corporation may require that certificates evidencing shares of Common Stock purchased upon the exercise of Incentive Stock Option issued under this Plan be endorsed with a legend in substantially the following form:

 

THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED PRIOR TO ___, 20___, IN THE ABSENCE OF A WRITTEN STATEMENT FROM THE CORPORATION TO THE EFFECT THAT THE CORPORATION IS AWARE OF THE FACTS OF SUCH SALE OR TRANSFER.

 

The blank contained in this legend shall be filled in with the date that is the later of (i) one year and one day after the date of the exercise of such Incentive Stock Option or (ii) two years and one day after the grant of such Incentive Stock Option.

 

K. No Repricing . In no event shall the Committee permit a Repricing of any Option without the approval of the stockholders of the Corporation.

 

L. Right of Repurchase. The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares exercised pursuant to the Option; provided, however, that (i) such repurchase right shall be exercisable only within (A) the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant (or in the case of a post-termination exercise of the Option, the ninety (90) period following such exercise), or (B) such longer period as may be agreed to by the Company and the Optionee, (ii) such repurchase right shall be exercisable for less than all of the vested shares only with the Optionee’s consent, and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares at a repurchase price equal to the stock’s Fair Market Value at the time of such termination. Notwithstanding the foregoing, shares received on exercise of an Option by an officer, director or Consultant may be subject to additional or greater restrictions specified in the Option Agreement.

 

M. Right of First Refusal. The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionee of the intent to transfer all or any part of the shares exercised pursuant to the Option. Such right of first refusal shall be exercised by the Company no more than thirty (30) days following receipt of notice of the Optionee’s intent to transfer shares and must be exercised as to all the shares the Optionee intends to transfer unless the Optionee consents to exercise for less than all the shares offered. The purchase of the shares following exercise shall be completed within thirty (30) days of the Company’s receipt of notice of the Optionee’s intent to transfer shares, or such longer period of time as has been offered by the person to whom the Optionee intends to transfer the shares, or as may be agreed to by the Company and the Optionee. Except as expressly provided in this Subsection (j), such right of first refusal shall otherwise comply with the provisions of the Bylaws of the Company.

 

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7. Stock Awards

 

A. Stock Bonus Awards . Each Stock Award Agreement for a Stock Bonus Award shall be in such form and shall contain such terms and conditions (including provisions relating to consideration, vesting, reacquisition of shares following termination, and transferability of shares) as the Committee shall deem appropriate. The terms and conditions of Stock Award Agreements for Stock Bonus Awards may change from time to time, and the terms and conditions of separate Stock Bonus Awards need not be identical.

 

B. Restricted Stock Awards . Each Stock Award Agreement for a Restricted Stock Award shall be in such form and shall contain such terms and conditions (including provisions relating to purchase price, consideration, vesting, reacquisition of shares following termination, and transferability of shares) as the Committee shall deem appropriate. The terms and conditions of the Stock Award Agreements for Restricted Stock Awards may change from time to time, and the terms and conditions of separate Restricted Stock Awards need not be identical. Vesting of any grant of Restricted Stock Awards may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 8 of this Plan regarding Performance Shares.

 

C. Stock Appreciation Rights . Each Stock Award Agreement for Stock Appreciation Rights shall be in such form and shall contain such terms and conditions (including provisions relating to vesting, reacquisition of shares following termination, and transferability of shares) as the Committee shall deem appropriate. The terms and conditions of Stock Appreciation Rights may change from time to time, and the terms and conditions of separate Stock Appreciation Rights need not be identical. No Stock Appreciation Right shall be exercisable after the expiration of seven (7) years from the date such Stock Appreciation Right is granted. The base price per share for each share of Common Stock covered by an Award of Stock Appreciation Rights shall not be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the date of grant. In no event shall the Committee permit a Repricing of any Stock Appreciation Right without the approval of the stockholders of the Corporation.

 

D. Deferred Shares. The Committee may authorize grants of Deferred Shares to Participants upon such terms and conditions as the Committee may determine in accordance with the following provisions:

 

(i) Each grant shall constitute the agreement by the Corporation to issue or transfer shares of Common Stock to the Participant in the future in consideration of the performance of services, subject to the fulfillment during the Deferral Period of such conditions as the Committee may specify.

 

(ii) Each grant may be made without additional consideration from the Participant or in consideration of a payment by the Participant that is less than the Fair Market Value on the date of grant.

 

(iii) Each grant shall provide that the Deferred Shares covered thereby shall be subject to a Deferral Period, which shall be fixed by the Committee on the date of grant, and any grant or sale may provide for the earlier termination of such period in the event of a change in control of the Corporation or other similar transaction or event.

 

(iv) During the Deferral Period, the Participant shall not have any right to transfer any rights under the subject Award, shall not have any rights of ownership in the Deferred Shares and shall not have any right to vote such shares, but the Committee may on or after the date of grant, authorize the payment of dividend or other distribution equivalents on such shares in cash or additional shares on a current, deferred or contingent basis.

 

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(v) Any grant of the vesting thereof may be further conditioned upon the attainment of Performance Objectives established by the Committee in accordance with the applicable provisions of Section 8 of this Plan regarding Performance Shares.

 

(vi) Each grant shall be evidenced by an agreement delivered to and accepted by the Participant and containing such terms and provisions as the Committee may determine consistent with this Plan.

 

8. Performance Shares

 

A. The Committee may authorize grants of Performance Shares, which shall become payable to the Participant upon the achievement of specified Performance Objectives, upon such terms and conditions as the Committee may determine in accordance with the following provisions:

 

(i) Each grant shall specify the number of Performance Shares to which it pertains, which may be subject to adjustment to reflect changes in compensation or other factors.

 

(ii) The Performance Period with respect to each Performance Share shall commence on the date established by the Committee and may be subject to earlier termination in the event of a change in control of the Corporation or similar transaction or event.

 

(iii) Each grant shall specify the Performance Objectives that are to be achieved by the Participant.

 

(iv) Each grant may specify in respect of the specified Performance Objectives a minimum acceptable level of achievement below which no payment will be made and may set forth a formula for determining the amount of any payment to be made if performance is at or above such minimum acceptable level but falls short of the maximum achievement of the specified Performance Objectives.

 

(v) Each grant shall specify the time and manner of payment of Performance Shares that shall have been earned, and any grant may specify that any such amount may be paid by the Corporation in cash, shares of Common Stock or any combination thereof and may either grant to the Participant or reserve to the Committee the right to elect among those alternatives.

 

(vi) Any grant of Performance Shares may specify that the amount payable with respect thereto may not exceed a maximum specified by the Committee on the date of grant.

 

(vii) Any grant of Performance Shares may provide for the payment to the Participant of dividend or other distribution equivalents thereon in cash or additional shares of Common Stock on a current, deferred or contingent basis.

 

(viii) If provided in the terms of the grant and subject to the requirements of Section 162(m) of the Code (in the case of Awards intended to qualify for exception therefrom), the Committee may adjust Performance Objectives and the related minimum acceptable level of achievement if, in the sole judgment of the Committee, events or transactions have occurred after the date of grant that are unrelated to the performance of the Participant and result in distortion of the Performance Objectives or the related minimum acceptable level of achievement.

 

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(ix) Each grant shall be evidenced by an agreement that shall be delivered to and accepted by the Participant, which shall state that the Performance Shares are subject to all of the terms and conditions of this Plan and such other terms and provisions as the Committee may determine consistent with this Plan.

 

9. Changes in Capital Structure

 

A. No Limitations of Rights . The existence of outstanding Awards shall not affect in any way the right or power of the Corporation or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation’s capital structure or its business, or any merger or consolidation of the Corporation, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

 

B. Changes in Capitalization . If the Corporation shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the Common Stock outstanding, without receiving consideration therefore in money, services or property, then (i) the number, class, and per share price of shares of Common Stock subject to outstanding Options and other Awards hereunder and (ii) the number and class of shares then reserved for issuance under this Plan and the maximum number of shares for which Awards may be granted to a Participant during a specified time period shall be appropriately and proportionately adjusted. The conversion of convertible securities of the Corporation shall not be treated as effected “without receiving consideration.” The Committee shall make such adjustments, and its determinations shall be final, binding and conclusive.

 

C. Merger, Consolidation or Asset Sale . If the Corporation is merged or consolidated with another entity or sells or otherwise disposes of substantially all of its assets to another company while Options or Stock Awards remain outstanding under this Plan, unless provisions are made in connection with such transaction for the continuance of this Plan and/or the assumption or substitution of such Options or Stock Awards with new options or stock awards covering the stock of the successor company, or parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, then all outstanding Options and Stock Awards which have not been continued, assumed or for which a substituted award has not been granted shall, whether or not vested or then exercisable, unless otherwise specified in the Stock Option Agreement or Stock Award Agreement, vest immediately pursuant to the provisions of Section 409A of the Code and the related Treasury Regulations.

 

D. Limitation on Adjustment . Except as previously expressly provided, neither the issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Corporation convertible into such shares or other securities, nor the increase or decrease of the number of authorized shares of stock, nor the addition or deletion of classes of stock, shall affect, and no adjustment by reason thereof shall be made with respect to, the number, class or price of shares of Common Stock then subject to outstanding Options or Stock Awards.

 

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E. Change of Control. In connection with any actual or potential Change in Control, the Board will take all such actions hereunder as it may determine to be necessary or appropriate to treat Participants equitably hereunder, including without limitation the modification or waiver of applicable Performance Measures, Award Periods or Long-term Incentive Compensation Awards, notwithstanding the terms of any initial Long-term Incentive Compensation Award, and whether to establish or fund a trust or other arrangement intended to secure the payment of such Awards.

 

F. Immediate Vesting of Stock Options upon Change of Control. Notwithstanding anything to the contrary contained in the Long Term Incentive Plan of xG Technology, Inc., as of the Effective Date, Participants shall be entitled to exercise his/her stock options, upon a change in control, as follows; any and all unvested Stock Options held by the Participant shall become 100% vested and exercisable, so long as Participant is i) currently employed at the time of exercise, ii) not employed and termination of employment did not occur within one year of Change of Control, or, iii) not employed, and Participant was not offered a job position after Change of Control with responsibilities and duties similar to the job position Participant held prior to Change of Control.

  

10. Withholding of Taxes

 

The Corporation or an Affiliate shall have the right, before any certificate for any Common Stock is delivered, to deduct or withhold from any payment owed to a Participant any amount that is necessary in order to satisfy any withholding requirement that the Corporation or Affiliate in good faith believes is imposed upon it in connection with U.S. federal, state, or local taxes, including transfer taxes, as a result of the issuance of, or lapse of restrictions on, such Common Stock, or otherwise require such Participant to make provision for payment of any such withholding amount. Subject to such conditions as may be established by the Committee, the Committee may permit a Participant to (i) have Common Stock otherwise issuable under an Option or Stock Award withheld to the extent necessary to comply with minimum statutory withholding rate requirements, (ii) tender back to the Corporation shares of Common Stock received pursuant to an Option or Stock Award to the extent necessary to comply with minimum statutory withholding rate requirements for supplemental income, (iii) deliver to the Corporation previously acquired Common Stock, (iv) have funds withheld from payments of wages, salary or other cash compensation due the Participant, (v) pay the Corporation or its Affiliate in cash, in order to satisfy part or all of the obligations for any taxes required to be withheld or otherwise deducted and paid by the Corporation or its Affiliate with respect to the Option or Stock Award; or (vi) establish a 10b5-1 trading plan for withheld stock designed to facilitate the sale of stock in connection with the vesting of such shares, the proceeds of which shall be utilized to make all applicable withholding payments in a manner to be coordinated by the Corporation’s Chief Financial Officer.

 

11. Compliance with Law and Approval of Regulatory Bodies

 

A. General Requirements . No Option or Stock Award shall be exercisable, no Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements), any listing agreement to which the Corporation is a party, and the rules of all domestic stock exchanges or quotation systems on which the Corporation’s shares may be listed. The Corporation shall have the right to rely on an opinion of its counsel as to such compliance. Any share certificate issued to evidence Common Stock when a Stock Award is granted or for which an Option or Stock Award is exercised may bear such legends and statements as the Committee may deem advisable to assure compliance with federal and state laws and regulations. No Option or Stock Award shall be exercisable, no Stock Award shall be granted, no Common Stock shall be issued, no certificate for shares shall be delivered, and no payment shall be made under this Plan until the Corporation has obtained such consent or approval as the Committee may deem advisable from regulatory bodies having jurisdiction over such matters.

 

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B. Participant Representations . The Committee may require that a Participant, as a condition to receipt or exercise of a particular award, execute and deliver to the Corporation a written statement, in form satisfactory to the Committee, in which the Participant represents and warrants that the shares are being acquired for such person’s own account, for investment only and not with a view to the resale or distribution thereof. The Participant shall, at the request of the Committee, be required to represent and warrant in writing that any subsequent resale or distribution of shares of Common Stock by the Participant shall be made only pursuant to either (i) a registration statement on an appropriate form under the Securities Act of 1933, which registration statement has become effective and is current with regard to the shares being sold, or (ii) a specific exemption from the registration requirements of the Securities Act of 1933, but in claiming such exemption the Participant shall, prior to any offer of sale or sale of such shares, obtain a prior favorable written opinion of counsel, in form and substance satisfactory to counsel for the Corporation, as to the application of such exemption thereto.

 

12. General Provisions

 

A. Effect on Employment and Service . Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall (i) confer upon any individual any right to continue in the employ or service of the Corporation or an Affiliate, (ii) in any way affect any right and power of the Corporation or an Affiliate to change an individual’s duties or terminate the employment or service of any individual at any time with or without assigning a reason therefor or (iii) except to the extent the Committee grants an Option or Stock Award to such individual, confer on any individual the right to participate in the benefits of this Plan.

 

B. Use of Proceeds. The proceeds received by the Corporation from the sale of Common Stock pursuant to this Plan shall be used for general corporate purposes.

 

C. Unfunded Plan . This Plan, insofar as it provides for grants, shall be unfunded, and the Corporation shall not be required to segregate any assets that may at any time be represented by grants under this Plan. Any liability of the Corporation to any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Corporation shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Corporation.

 

D. Rules of Construction . Headings are given to the Sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law.

 

E. Choice of Law . This Plan and all Stock Option Agreements and Stock Award Agreements entered into under this Plan shall be interpreted under the Corporation Law excluding (to the greatest extent permissible by law) any rule of law that would cause the application of the laws of any jurisdiction other than the Corporation Law.

 

F. Fractional Shares . The Corporation shall not be required to issue fractional shares pursuant to this Plan. The Committee may provide for elimination of fractional shares or the settlement of such fraction shares in cash.

 

G. Foreign Employees . In order to facilitate the making of any grant or combination of grants under this Plan, the Committee may provide for such special terms for Awards to Participants who are foreign nationals, or who are employed by the Corporation or any Affiliate outside of the United States, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan, as then in effect, unless this Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Corporation.

 

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13. Amendment and Termination

 

The Board may amend or terminate this Plan from time to time; provided, however, stockholder approval shall be required for any amendment that (i) increases the aggregate number of shares of Common Stock that may be issued under this Plan, except as contemplated by Section 5.A or Section 9.B; (ii) changes the class of employees eligible to receive Incentive Stock Options; (iii) modifies the restrictions on Repricings set forth in this Plan; or (iv) is required by the terms of any applicable law, regulation or rule, including the rules of any market on which the Corporation shares are traded or exchange on which the Corporation shares are listed. Except as specifically permitted by this Plan, Stock Option Agreement or Stock Award Agreement or as required to comply with applicable law, regulation or rule, no amendment shall, without a Participant’s consent, adversely affect any rights of such Participant under any Option or Stock Award outstanding at the time such amendment is made; provided, however, that an amendment that may cause an Incentive Stock Option to become a Nonqualified Stock Option shall not be treated as adversely affecting the rights of the Participant. Any amendment requiring stockholder approval shall be approved by the stockholders of the Corporation within twelve (12) months of the date such amendment is adopted by the Board.

 

14. Effective Date of Plan; Duration of Plan

 

A. This Plan shall be effective upon adoption by the Board, subject to approval within twelve (12) months by the stockholders of the Corporation. In the event that the stockholders of the Corporation shall not approve this Plan within such twelve (12) month period, this Plan shall terminate. Unless and until the Plan has been approved by the stockholders of the Corporation, no Option or Stock Award may be exercised, and no shares of Common Stock may be issued under the Plan. In the event that the stockholders of the Corporation shall not approve the Plan within such twelve (12) month period, the Plan and any previously granted Options or Stock Awards shall terminate.

 

B. Unless previously terminated, this Plan will terminate ten (10) years after the earlier of (i) the date this Plan is adopted by the Board, or (ii) the date this Plan is approved by the stockholders, except that Awards that are granted under this Plan prior to its termination will continue to be administered under the terms of this Plan until the Awards terminate or are exercised.

 

IN WITNESS WHEREOF , the Corporation has caused this Plan to be executed by a duly authorized officer as of the date of adoption of this Plan by the Board of Directors.

 

xG TECHNOLOGY, INC.

 

By:    

 

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Ex 10.4

xG TECHNOLOGY, INC.

 

STOCK OPTION AGREEMENT

 

Unless the context clearly indicates otherwise, capitalized terms used in this Agreement shall have the meanings assigned to such terms in the Company’s Long-term Incentive Plan of 2013.

 

Whereas , the Board of Directors of the Company has adopted the Plan for the purpose of attracting and retaining the services of selected key employees (including officers and directors), non-employee members of the Board and consultants and other independent contractors who contribute to the financial success of the Company; and

 

Whereas , Participant is an individual who is to render valuable services to the Company, and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Company’s grant of a stock option to Participant;

 

Now, Therefore, it is agreed as follows:

 

1.           Provisions of Plan Binding . This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the express terms and provisions of the Plan, which are incorporated herein by reference.

 

2.           Grant of Option . Subject to and upon the terms and conditions set forth in this Agreement and the Plan, the Company hereby grants to Participant, as of the Grant Date, a stock option to purchase up to that number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term and at the Option Price per share specified in the Grant Notice.

 

3.           Option Term . This Option shall expire at the close of business on the Expiration Date specified in the Grant Notice, unless sooner terminated in accordance with Section 6 or 18 hereof or any applicable provision of the Plan; provided , in no event shall this option have a maximum term in excess of ten (10) years measured from the Grant Date.

 

4.           Nontransferability . This Option shall be neither transferable nor assignable by Participant other than by will or by the laws of descent and distribution following the Participant’s death and may be exercised, during Participant’s lifetime, only by Participant.

 

5.           Dates of Exercise . This Option may not be exercised in whole or in part at any time prior to the time the Plan or any increases in shares reserved under the Plan is approved by the Company’s shareholders. Provided such shareholder approval is obtained, this Option shall thereupon become exercisable for the Option Shares as specified in the Grant Notice. If the Option becomes exercisable in installments, such installments shall accumulate and the Option shall remain exercisable for such installments until the Expiration Date or the sooner termination of the Option term under Section 6 of this Agreement or any applicable provision of the Plan.

 

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6.             Accelerated Termination of Option Term . The Option term specified in Section 3 above shall terminate (and this Option shall cease to be exercisable) prior to the Expiration Date should any of the following provisions become applicable:

 

(a)          Except as otherwise provided in subsection (b) or (c) below, should Participant cease to remain in Service while this Option is outstanding, then the period for exercising this Option shall be reduced to a [three (3)-month] period commencing with the date of such cessation of Service, but in no event shall this Option be exercisable at any time after the Expiration Date. Upon the expiration of such [three (3)-month] period or (if earlier) upon the Expiration Date, this Option shall terminate and cease to be outstanding.

 

(b)          Should Participant die while this Option is outstanding, then the personal representative of the Participant’s estate or the person or persons to whom the option is transferred pursuant to the Participant’s will or in accordance with the law of descent and distribution shall have the right to exercise this Option. Such right shall lapse, and this Option shall cease to be exercisable, upon the earlier of (i) the expiration of the twelve (12) month period measured from the date of Participant’s death or (ii) the Expiration Date. Upon the expiration of such twelve (12) month period or (if earlier) upon the Expiration Date, this Option shall terminate and cease to be outstanding.

 

(c)          Should Participant become Permanently Disabled and cease by reason thereof to remain in Service while this Option is outstanding, then the Participant shall have a period of twelve (12) months (commencing with the date of such cessation of Service) during which to exercise this Option, but in no event shall this Option be exercisable at any time after the Expiration Date. Upon the expiration of such limited period of exercisability or (if earlier) upon the Expiration Date, this Option shall terminate and cease to be outstanding.

 

(d)          During the limited period of exercisability applicable under subsections (a), (b) or (c) above, this option may be exercised for any or all of the Option Shares in which the Participant, at the time of cessation of Service, is vested in accordance with the exercise/vesting provisions specified in the Grant Notice or the special acceleration provisions of the Plan.

 

(e)          Notwithstanding any provision of this Section 6 or any other provision of this Agreement or the Plan to the contrary, any Options granted under the Plan shall terminate as of the date Participant ceases to be in the Service of the Company if Participant was terminated for “cause” or could have been terminated for “cause.” If Participant has an employment or consulting agreement with the Company, the term “cause” shall have the meaning given that term in the employment or consulting agreement. If Participant does not have such an agreement with the Company, or if such agreement does not define the term “cause,” the term “cause” shall have the meaning set forth in Section 6(a) of the Plan.

 

7.             Adjustment in Option Shares .

 

(a)          In the event any change is made to the Company’s outstanding Common Stock by reason of any stock split, stock dividend, combination of shares, exchange of shares, or other change affecting the outstanding Common Stock as a class without receipt of consideration, then appropriate adjustments shall be made to the total number of Option Shares subject to this option and the Option Price payable per share in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

 

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(b)          If pursuant to the terms of the Plan, this option is to be assumed or is otherwise to remain outstanding after a Corporate Transaction, then this option shall be appropriately adjusted to apply and pertain to the number and class of securities that would have been issuable to the Participant in the consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the Option Price payable per share, provided the aggregate Option Price payable hereunder shall remain the same.

 

8.             Privilege of Stock Ownership . The holder of this option shall not have any of the rights of a shareholder with respect to the Option Shares until such individual shall have exercised the option and paid the Option Price.

 

9.             Manner of Exercising Option .

 

(a)          The Options will be exercisable by notice (an “Exercise Notice”) and payment to the Company in accordance with the procedure prescribed herein; provided, that the aggregate Exercise Price with respect to any one such exercise will not be less than $[5,000], unless the exercise represents an exercise of all Options that are vested and exercisable as of the date of the exercise. If the Employee fails to accept delivery of and pay for all or any part of the number of shares specified in the Exercise Notice upon tender or delivery thereof, the Employee’s right to exercise the Options with respect to the undelivered shares may be terminated in the sole discretion of the Company’s Compensation Committee.

 

(b) Each Exercise Notice will (1) state the number of shares in respect of which Options are being exercised, (2) be accompanied by payment as provided in paragraph (c) below and (3) be signed by the person or persons entitled to exercise the Options. If Options are being exercised by any person or persons other than the Employee, the Exercise Notice will be accompanied by proof, satisfactory to the Company and its counsel, of the right of the person or persons to exercise the Options.

 

(c) Payment of the Exercise Price will be made by delivering to the Company any one or a combination of (1) a certified or bank cashier’s check payable to the Company or its order or a wire transfer directly to an account specified by the Company, (2) one or more certificates evidencing shares of Common Stock owned by the Employee immediately prior to the exercise, together with a duly executed stock power, having an aggregate Fair Market Value (defined below) on the date on which the Exercise Notice is given equal to the aggregate Exercise Price or (3) a copy of irrevocable instructions to a registered broker/dealer to deliver promptly to the Company an amount of proceeds from the sale of shares of Common Stock to be issued pursuant to the Options being exercised or of a loan being made by such broker-dealer with respect to shares of Common Stock to be issued pursuant to the Options being exercised sufficient, in either case, to pay the Exercise Price.

 

(d) The certificate or certificates representing shares of Common Stock to be issued upon exercise of the Options will be registered in the name of the person or persons exercising the Options, or, if the Options are exercised by the Employee and the Employee so requests in the applicable Exercise Notice, in the name of the Employee and the Employee’s spouse, jointly, with right of survivorship. The certificate or certificates will be delivered within 10 days after receipt of payment and compliance by the Employee; provided, that in the case of clause (3) of the first sentence of Section 9(c), the Company will not make delivery of the certificate or certificates until payment is actually received from the broker/dealer.

 

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(e)          The Company will have no obligation to issue or deliver fractional shares of Common Stock upon exercise of the Options but may, in its sole discretion, elect to do so. In lieu of issuing any fractional share, the Company will pay to the person exercising the Options, promptly following exercise, an amount in cash equal to the Fair Market Value of the fraction of a share as of the date of exercise. “Fair Market Value” as of any date means (1) the closing sales price per share of Common Stock on the national securities exchange on which the stock is principally traded, on the next preceding date on which there was a sale of the stock on the exchange, (2) if the shares of Common Stock are not listed or admitted to trading on any exchange, the closing price as reported by the Nasdaq Stock Market for the last preceding date on which there was a sale of the stock on that market, (3) if the shares of Common Stock are not then listed on a national securities exchange or on the Nasdaq Stock Market, the average of the highest reported bid and lowest reported asked prices for the shares of Common Stock as reported by the National Association of Securities Dealers, Inc. Automated Quotations (“NASDAQ”) system for the last preceding date on which the bid and asked prices were reported or (4) if the shares of Common Stock are not then listed on any securities exchange or prices therefor are not then quoted in the NASDAQ system, the value determined in good faith by the Company’s Compensation Committee.

 

(f)          Should the Company’s outstanding common stock be registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), at the time the option is exercised, then the Option Price may also be paid as specified in Section 9(c)(3) of this Agreement.

 

 

10.           REPURCHASE RIGHTS . THE GRANT NOTICE MAY GRANT THE COMPANY THE RIGHT TO REPURCHASE ANY SHARES ACQUIRED UNDER THIS OPTION, WHICH RIGHT SHALL LAPSE OVER TIME BASED UPON THE PARTICIPANT’S LENGTH OF SERVICE TO THE COMPANY.

 

11.           Compliance with Laws and Regulations .

 

(a)          The exercise of this option and the issuance of Option Shares upon such exercise shall be subject to compliance by the Company and the Participant with all applicable requirements of federal and state law relating thereto (and with all applicable regulations of any stock exchange or market on which shares of the Company’s Common Stock may be listed at the time of such exercise and issuance).

 

(b)          In connection with the exercise of this option, Participant shall execute and deliver to the Company such representations in writing as may be requested by the Company in order for it to comply with the applicable requirements of federal and state securities laws.

 

12.           Successors and Assigns . Except to the extent otherwise provided in Section 4 above, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Participant and the successors and assigns of the Company.

 

13.           Liability of Company .

 

(a)          If the Option Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock that may be issued under the Plan without shareholder approval, then this option shall be void with respect to such excess shares, unless shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the applicable provisions of the Plan.

 

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(b)          The inability of the Company to obtain approval from any regulatory body having authority the Company deems necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Company of any liability with respect to the nonissuance or sale of the Common Stock as to which such approval shall not have been obtained. The Company shall use its best efforts to obtain all such approvals.

 

14.           Notices . Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company in care of the corporate secretary at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated below Participant’s signature line on the Grant Notice, or at such other address as the Participant shall have furnished the Company in writing at least ten (10) days in advance of its effective date. All notices shall be deemed to have been given or delivered upon personal delivery or forty-eight hours after deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

 

15.           Reserved .

 

16.           Authority of Plan Administrator . All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option.

 

17.           Governing Law . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware without resort to its choice of law rules.

 

18.           Additional Terms Applicable to an Incentive Stock Option . In the event this option is designated an incentive stock option in the Grant Notice, the following terms and conditions shall also apply to the grant:

 

(a)          This option shall cease to qualify for favorable tax treatment as an incentive stock option under the federal tax laws if (and to the extent) this option is exercised for one or more Option Shares: (i) more than three (3) months after the date the Participant ceases to be an Employee for any reason other than death or Permanent Disability or (ii) more than one (1) year after the date the Participant ceases to be an Employee by reason of Permanent Disability.

 

(b)          In the event this option is designated as immediately exercisable in the Grant Notice, then except in the event of a Corporate Transaction, this option shall not become exercisable in the calendar year in which granted if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this option would otherwise first become exercisable in such calendar year, when added to the aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which one or more other post-1986 incentive stock options granted to the Participant prior to the Grant Date (whether under the Plan or any other option plan of the Company or any Parent or Subsidiary corporations) first become exercisable during the same calendar year, would exceed one hundred thousand dollars ($100,000). To the extent the exercisability of this option is deferred by reason of the foregoing limitation, the deferred portion first will become exercisable in the first calendar year or years thereafter in which the one hundred thousand dollar ($100,000) limitation of this Section 18(b) would not be contravened.

 

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(c)          In the event this option is designated as an installment option in the Grant Notice, no installment under this option shall qualify for favorable tax treatment as an incentive stock option under the federal tax laws if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which such installment first becomes exercisable hereunder, when added to the aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which this option or one or more other post-1986 incentive stock options granted to the Participant prior to the Grant Date (whether under the Plan or any other option plan of the Company or any Parent or Subsidiary corporations) first become exercisable during the same calendar year, would exceed one hundred thousand dollars ($100,000).

 

(d)          Should the exercisability of this option be accelerated upon a Corporate Transaction, then this option shall qualify for favorable tax treatment as an incentive stock option under the federal tax laws only to the extent the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this option first becomes exercisable in the calendar year in which the Corporate Transaction occurs does not, when added to the aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which this option or one or more other post-1986 incentive stock options granted to the Participant prior to the Grant Date (whether under the Plan or any other option plan of the Company or any Parent or Subsidiary corporations) first become exercisable during the same calendar year, exceed one hundred thousand dollars ($100,000).

 

(e)          To the extent this option should fail to qualify as an incentive stock option under the federal tax laws, the Participant will recognize compensation income in connection with the acquisition of one or more Option Shares hereunder, and the Participant must make appropriate arrangements for the satisfaction of all federal, state or local income tax withholding requirements and federal Social Security employee tax requirements applicable to such compensation income.

 

19.           Additional Terms Applicable to a Non-Statutory Stock Option . In the event this option is designated a non-statutory stock option in the Grant Notice, and whether or not the Participant exercises the option through the Company, Participant hereby agrees to make appropriate arrangements with the Company for the satisfaction of all federal, state or local income tax withholding requirements and federal Social Security employee tax requirements applicable to the exercise of this option.

 

20.           Definitions . The following definitions shall apply to the respective capitalized terms used herein:

 

Board means the Board of Directors of xG Technology, Inc.

 

Code means the Internal Revenue Code of 1986, as amended.

 

Common Stock means the Common Stock of xG Technology, Inc.

 

Company means xG Technology, Inc., a Delaware corporation.

 

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Corporate Transaction means one or more of the following transactions: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state of the Company’s incorporation, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company, (iii) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company’s outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger, or (iv) the acquisition of fifty percent (50%) or more of the Company’s outstanding voting stock by a person or group of related persons other than the Company, a person that directly or indirectly controls, is controlled by or is under common control with the Company, or any existing shareholder of the Company as of the date of the adoption of the Plan by such shareholders.

 

Employee means an individual who is in the employ of the Company or any Parent or Subsidiary corporation. An Participant shall be considered to be an Employee for so long as such individual remains in the employ of the Company or any Parent or Subsidiary corporation, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance or rendering consulting services.

 

Exercise Date shall be date on which the executed Purchase Agreement for one or more Option Shares is delivered to the Company in accordance with Section 9 of this Agreement.

 

Expiration Date means the date specified in the Grant Notice as the date on which the option shall terminate (unless sooner terminated under the Plan or pursuant hereto).

 

Fair Market Value of a share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

 

(a)          If the Common Stock is at the time neither listed nor admitted to trading on any stock exchange nor traded in the over-the-counter market, or if the Plan Administrator otherwise determines that the valuation provisions of subsections (b) and (c) below will not result in a true and accurate valuation of the Common Stock, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate under the circumstances.

 

(b)          If the Common Stock is not at the time listed or admitted to trading on any stock exchange but is traded in the over-the-counter market, the Fair Market Value shall be the mean between the highest bid and the lowest asked prices (or if such information is available the closing selling price) per share of Common Stock on the date in question in the over-the-counter market, as such prices are reported by the National Association of Securities Dealers through its NASDAQ National Market System or any successor system. If there are no reported bid and asked prices (or closing selling price) for the Common Stock on the date in question, then the mean between the highest bid and lowest asked prices (or closing selling price) on the last preceding date for which such quotations exist shall be determinative of Fair Market Value.

 

(c)           If the Common Stock is at the time listed or admitted to trading on any stock exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock. If there is no reported sale of Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.

 

Grant Date means the date specified in the Grant Notice as the date on which the option was granted to the Participant under the Plan.

 

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Grant Notice means the Notice of Grant of Stock Option which accompanies this Agreement.

 

Incentive Stock Option means an incentive stock option which satisfies the requirements of Section 422 of the Code.

 

Non-Statutory Stock Option means an option not intended to meet the statutory requirements prescribed for an Incentive Stock Option.

 

Option Shares means the total number of shares of Common Stock indicated in the Grant Notice as purchasable under this option.

 

Participant means the individual identified in the Grant Notice as the person to whom this option has been granted under the Plan.

 

Option Price means the price indicated in the Grant Notice as the exercise price per share to be paid by the Participant for the exercise of this option.

 

Parent corporation means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

Permanently Disabled or Permanent Disability means the inability of an individual to engage in any substantial gainful activity by reason of any medically-determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months.

 

Plan means the 2013 Long-term Incentive Plan.

 

Plan Administrator means either the Board or a committee of one or more Board members, to the extent such committee may at the time be responsible for plan administration.

 

Purchase Agreement means the stock purchase agreement, in substantially the form of the exhibit to the Grant Notice, which is to be executed in connection with the exercise of this option for one or more Option Shares.

 

Service means the performance of services for the Company or any Parent or Subsidiary corporation by an individual in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant or advisor. Accordingly, the Participant shall be deemed to remain in Service for so long as such individual renders services to the Company or any Parent or Subsidiary corporation on a periodic basis in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant or advisor.

 

Subsidiary corporation means each corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing more than fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

8
 

 

Date       
       
      xG Technology, Inc.
       
      By:  
      Its:  
       
       
      Participant
       
  Address:  
       
       
       
      Participant’s Spouse
       
  Address:   
       

 

 

9
 

 

xG Technology, Inc.

 

2013 Long Term Incentive Plan

 

RESTRICTED STOCK AWARD AGREEMENT

 

THIS AGREEMENT is made as of this __ day of ______, by and between xG Technology, Inc., a Delaware corporation (the “Company”), and [______________] (“Participant”).

 

The Company, pursuant to its 2013 Long Term Incentive Plan (the “Plan”), hereby grants the following stock award to Participant, which award shall have the terms and conditions set forth in this Agreement:

 

1.      Award

 

The Company, effective as of the date of this Agreement, hereby grants to Participant a restricted stock award of [_____] shares (the “Shares”) of common stock, par value $0.01 per share, of the Company (the “Common Stock”), subject to the terms and conditions set forth herein.

 

2.      Vesting

 

Subject to the terms and conditions of this Agreement, the Shares shall vest in Participant as follows: the Shares shall vest ratably over a three-year period, with one-third of the Shares (------) vesting on December 31, 200X; one-third of the Shares (-----) vesting on December 31, 200Y, and the balance or (-----) of the Shares vesting on December 31, 200Z, if, and only if, Participant remains continuously employed by the Company from the date hereof until each respective vesting date, and subject to the forfeiture provisions below.  Vesting of the Shares shall be accelerated to an earlier date only under the following conditions:

 

(a) in the event of a Change in Control of Company (as defined in the attached Exhibit A), and provided that Participant remains continuously in the service of or employed the Company until the effective date of such Change in Control, all unvested Shares granted under this Agreement shall become immediately vested on the effective date of the Change in Control;

 

(b) in the event that Participant’s employment by or service provision for the Company is terminated because Participant becomes in the service of a new owner of any business of the Company pursuant to a Change in Control event, and provided that Participant remains continuously employed by or in the service of the Company until the date of closing of the Change in Control event, all unvested Shares granted under this Agreement shall become immediately vested as of the last date of Participant’s service to or employment by the Company; or

 

(c) in the event that Participant’s service to the Company is involuntarily terminated by the Company without cause within one year following a Change in Control Event, and provided that Participant remains continuously in the service of the Company until the date of such involuntary termination, all unvested Shares granted under this Agreement shall become immediately vested as of the last date of Participant’s employment with or service for the Company.

 

10
 

 

(d) in the event that the Participant’s employment with or service to the Company terminates because of death or Disability or at the request of the Chief Executive Officer of the Company (other than for Cause) or of a U.S. government agency, all the Shares issuable under this award will vest on such termination. Except to the extent provided in the preceding sentence or unless specifically provided in this Agreement or in a side letter thereto, this award will not vest upon the Participant’s retirement. On the Vesting Date (or promptly thereafter), the Company will deliver to the Participant a certificate representing the Shares which have vested on such date. For purposes of this Agreement, the term “Disability” shall be defined as any condition which shall render the Participant incapable of fulfilling his or her obligations hereunder because of injury or physical or mental illness, and such incapacity shall exist or reasonably may be expected, upon the competent medical opinion of a doctor chosen by the Company, for a period exceeding 60 consecutive days or 120 nonconsecutive days within a six-month period.

 

3.      Restriction on Transfer

 

Until the Shares vest pursuant to Section 2 hereof, none of the Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of or encumbered, and no attempt to transfer the Shares, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest or right in or with respect to the Shares.

 

4.      Forfeiture

 

If Participant ceases to be an employee of or otherwise providing services to the Company or any majority-owned affiliate of the Company for any reason prior to the vesting of the Shares pursuant to Section 2 hereof, Participant’s rights to the unvested portion of the Shares shall be immediately and irrevocably forfeited.

 

5.      Issuance and Custody of Certificate

 

(a) The Company shall cause to be issued one or more stock certificates, registered in the name of Participant, evidencing the Shares.  Each such certificate (except for certificates in respect of shares to be sold for taxes) shall bear the following legend:

 

“The shares of common stock represented by this certificate are subject to forfeiture, and the transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including restrictions against transfer) contained in the 2013 Long Term Incentive Plan (the “Plan”) and a Restricted Stock Award Agreement (the “Agreement”) entered into between xG Technology, Inc. and the registered owner of such shares.  Copies of the Plan and the Agreement are on file in the office of the Secretary of xG Technology, Inc., [_______________].”

 

(b) Participant shall execute stock powers relating to the Shares and deliver the same to the Company.  Company shall use such stock powers only for the purpose of canceling any unvested Shares that are forfeited.

 

(c) Each certificate issued pursuant to Section 5(a) hereof, together with the stock powers relating to the Shares, shall be deposited by the Company with the Secretary of the Company or a custodian designated by the Secretary.  The Secretary or such custodian shall issue a receipt to Participant evidencing the certificate or certificates held which are registered in the name of Participant.

 

(d) After any Shares vest pursuant to Section 2 hereof, the Company shall promptly cause to be issued a certificate or certificates evidencing such vested Shares, free of the legend provided in section 5(a) hereof, and shall cause such certificate or certificates to be delivered to Participant or Participant’s legal representatives, beneficiaries or heirs.

 

11
 

 

6.      Distributions and Adjustments

 

(a) If all or any portion of the Shares vest in Participant subsequent to any change in the number or character of Shares of Common Stock (through stock dividend, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Shares of Common Stock or other securities of the Company or other similar corporate transaction or event affecting the Shares such that an adjustment is determined by the Compensation Committee of the Board of Directors (the “Committee”) to be appropriate in order to prevent dilution or enlargement of the interest represented by the Shares), Participant shall then receive upon such vesting the number and type of securities or other consideration which he would have received if the Shares had vested prior to the event changing the number or character of outstanding Shares of Common Stock.

 

(b) Any additional Shares of Common Stock, any other securities of the Company and any other property (except for cash dividends) distributed with respect to the Shares prior to the date the Shares vest shall be subject to the same restrictions, terms and conditions as the Shares.  Any cash dividends payable with respect to the Shares shall be distributed to Participant at the same time cash dividends are distributed to shareholders of the Company generally.

 

(c) Any additional Shares of Common Stock, any securities and any other property (except for cash dividends) distributed with respect to the Shares prior to the date such Shares vest shall be promptly deposited with the Secretary or the custodian designated by the Secretary to be held in custody in accordance with Section 5(c) hereof.

 

7.      Taxes

 

(a) In order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it in connection with this restricted stock award, and in order to comply with all applicable federal or state tax laws or regulations, the Company may take such action as it deems appropriate to assure that, if necessary, all applicable federal or state income and social security taxes are withheld or collected from Participant, including through means of grossing up the grant to so provide for the collection of such taxes.

 

(b) Participant may elect to satisfy his federal and state income tax withholding obligations in connection with this restricted stock award by (i) having the Company withhold a portion of the shares of Common Stock otherwise to be delivered upon vesting of this restricted stock award having a fair market value equal to the amount of federal and state income taxes required to be withheld in connection with this restricted stock award, in accordance with the rules of the Committee, or (ii) delivering to the Company shares of Common Stock other than the shares to be delivered upon vesting of this restricted stock award having a fair market value equal to such taxes, in accordance with the rules of the Committee.

 

(c) Notwithstanding clause 7(b) above, if Participant elects, in accordance with Section 83(b) of the Internal Revenue Code of 1986, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company may require at the time of such election an additional payment for withholding tax purposes based on the fair market value of such Shares as of the date of the acquisition of such Shares by Participant.

 

12
 

 

8.      Confidentiality, Non-Competition And Non-Solicitation

 

In consideration of Participant’s receipt of this award, Participant agrees as follows:

 

(a) Participant will hold in a fiduciary capacity for the benefit of the Company all information, knowledge or data relating to the Company or any Subsidiaries and their respective businesses which the Company or any Subsidiaries consider to be proprietary, trade secret or confidential that Participant obtains or have previously obtained during its service and that is not public knowledge (other than as a result of Participant’s violation of this provision) (“Confidential Information”). Participant will not directly or indirectly use any Confidential Information for any purpose not associated with the activities of the Company or any Subsidiaries, or communicate, divulge or disseminate Confidential Information to any person or entity not authorized by the Company or any Subsidiaries to receive it at any time during or after Participant’s service, except with the prior written consent of the Company or as otherwise required by law or legal process.

 

(b) For a period of two years after the termination of Participant’s service, for any reason, voluntary or involuntary, Participant will not, without the written consent of the Company, directly or indirectly, engage or hold an interest in any company listed in Exhibit B, or any subsidiary or affiliate of such company (the “Competing Businesses”), or directly or indirectly have any interest in, own, manage, operate, control, be connected with as a stockholder (other than as a holder of less than five percent (5%) of any class of publicly traded securities of any such Competing Business).

 

(c) For a period of one year after the termination of Participant’s service, for any reason, Participant will not, without the written consent of the Company, directly or indirectly solicit, entice, persuade or induce any person to leave the employment of the Company or any Subsidiaries (other than persons employed in a clerical, non-professional or non-management position).

 

(d) Participant understands and agrees that the restrictions set forth above, including, without limitation, the duration, and the business scope of such restrictions, are reasonable and necessary to protect the legal interests of the Company. Participant further agrees that the Company will be entitled to seek injunctive relief in the event of any actual or threatened breach of such restrictions. In addition, Participant also agrees that in the event it is found by a court of law to have violated the confidentiality provisions of this Agreement, that an adequate remedy will including, among other things, the immediate forfeit of all shares (whether or not vested) and disgorgement of any profit associated with this grant. If any provision of this Agreement is determined to be unenforceable by any court, then such provision will be modified or omitted only to the extent necessary to make the remaining provisions of this Agreement enforceable.

 

9.      Miscellaneous

 

(a) This Agreement is issued pursuant to the Plan and is subject to its terms.  Participant hereby acknowledges receipt of a copy of the Plan.  The Plan is also available for inspection during business hours at the principal office of the Company.

 

13
 

 

(b) This Agreement shall not confer on Participant any right with respect to continuance of service of or employment by the Company or any of its subsidiaries.

 

(c) This award is governed by and subject to the terms and conditions of the Plan, which contain important provisions of this award and form a part of this Agreement. Copies of the Plan are being provided to or have been provided to Participant, along with a summary of the Plan. If there is any conflict between any provision of this Agreement and the Plan, this Agreement will control, unless the provision is not permitted by the Plan, in which case the provision of the Plan will apply. Participant’s rights and obligations under this Agreement are also governed by and are subject to applicable U.S. laws and foreign laws.

 

(d) This Agreement may be executed via facsimile and in counterparts, each of which shall be considered an original, but all of which together shall constitute one and the same Agreement.

 

(e) This Agreement shall be governed by and construed under the internal laws of the State of Colorado, without regard for conflicts of laws principles thereof.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written.

 

  xG Technology, Inc.
     
  By:    
     
  Its: Chairman  
     
     
  PARTICIPANT
     
       

 

Grantee:   No. of Shares:   Grant Date:   Vesting Date:
             
             

 

14
 

 

Exhibit A

 

Change In Control .

 

(i) For purposes of this Agreement and this Exhibit A, a Change in Control” of the Company shall mean:

 

(a) a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement;

 

(b) the public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) that such person has become the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities, determined in accordance with Rule 13d-3, excluding, however, any securities acquired directly from the Company (other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company); however, that for purposes of this clause the term “person” shall not include the Company, any subsidiary of the Company or any employee benefit plan of the Company or of any subsidiary of the Company or any entity holding shares of Common Stock organized, appointed or established for, or pursuant to the terms of, any such plan;

 

(c) the Continuing Directors cease to constitute a majority of the Company’s Board of Directors;

 

(d) consummation of a reorganization, merger or consolidation of, or a sale or other disposition of all or substantially all of the assets of, the Company (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the persons who were the beneficial owners of the Company’s outstanding voting securities immediately prior to such Business Combination beneficially own voting securities of the corporation resulting from such Business Combination having more than 50% of the combined voting power of the outstanding voting securities of such resulting Corporation and (B) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were Continuing Directors at the time of the action of the Board of Directors of the Company approving such Business Combination;

 

(e) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; or

 

(f) the majority of the Continuing Directors determine in their sole and absolute discretion that there has been a change in control of the Company.

 

15
 

 

(ii) “Continuing Director” shall mean any person who is a member of the Board of Directors of the Company, while such person is a member of the Board of Directors, who is not an Acquiring Person (as defined below) or an Affiliate or Associate (as defined below) of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (x) was a member of the Board of Directors on the date of this Agreement as first written above or (y) subsequently becomes a member of the Board of Directors, if such  person’s initial nomination for election or initial election to the Board of Directors is recommended or approved by a majority of the Continuing Directors.  For purposes of this subparagraph (ii), “Acquiring Person” shall mean any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which, together with all Affiliates and Associates of such person, is the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities, but shall not include the Company, any subsidiary of the Company or any employee benefit plan of the Company or of any subsidiary of the Company or any entity holding shares of Common Stock organized, appointed or established for, or pursuant to the terms of, any such plan; and “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

 

16
 

 

Exhibit B

 

Prohibited Activities

 

17

 

 

 

Ex 10.5

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”) is made on this 31st day of August, 2011, between xG Technology, Inc. (“Company”), having a principal place of business at Sarasota, Florida, and John C. Coleman (“Executive”), who currently maintains a residence in Florida at 2011 N. Ocean Blvd, Ft. Lauderdale, Fl. 33305.

 

RECITALS

 

WHEREAS, Company is a validly existing corporation duly organized under the laws of Delaware;

 

WHEREAS, Executive currently serves as Company’s Chief Executive Officer, and has served in that position since December 1, 2010 (“Effective Date”);

 

WHEREAS, Company desires to obtain the benefit of continued services of Executive and Executive desires to continue to render services to Company; and

 

WHEREAS, Company and Executive each have determined that it would be to the advantage and best interest of Company and Executive to enter into this Agreement to memorialize the terms under which Executive would continue to render services to Company;

 

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, Company and Executive agree that the following terms and conditions shall apply to Executive’s employment:

 

1. Term . Company hereby agrees to employ Executive and Executive hereby accepts employment with Company for the period commencing with the Effective Date and terminating on the three (3) year anniversary of the Effective Date unless earlier terminated in accordance with the provisions hereof; provided, however, that Executive’s employment term shall be automatically extended for an additional three (3) year period following the three (3) year anniversary of the Effective Date unless Company gives Executive written notice that Executive’s employment term will not be extended not less than ninety (90) days before the three (3) year anniversary of the Effective Date (the “Term”).

 

2. Duties . Executive shall continue to be employed as the Chief Executive Officer of Company, and shall perform the usual and customary duties of such office. Executive shall report directly to the Board of the Company, with George Schmitt as the primary point of contact, and shall have general supervision, direction, and control of the business, officers, and employees of Company. All officers and employees of Company shall report directly or indirectly to Executive. Executive shall have full latitude to hire, discharge, discipline, and promote, and compensate Company employees, and shall have full managerial authority over Company, subject to such directions and control as Company’s Chairman and/or Board of Directors (“Board”) may specify from time to time. The duties of Executive may be changed from time to time by the mutual consent of Executive and Company without resulting in a rescission of this Agreement. Notwithstanding any such change from the duties originally assigned and specified above, or hereafter assigned, the employment of Executive shall be construed as continuing under this Agreement as modified; provided, however, that any adverse change or diminution of Executive’s title, position, or reporting responsibilities imposed by Company without Executive’s consent shall entitle Executive to terminate this Agreement with Good Reason as set forth in Section 7(d) herein.

 

3. Business Activities . Executive shall devote substantially all of his business time to the business of Company during the Term of this Agreement, which time shall include time spent in Company’s Florida office, Executive’s home office in Virginia and on business travel. Notwithstanding the foregoing, however, Executive may continue to affiliate with the companies listed in the schedule attached as Exhibit A to this Agreement for the sole purpose of maintaining his National Security Clearance (JPAS/Top Secret). Executive shall notify the Company as soon as practicable after his National Security clearance is terminated, whereupon Company may withdraw its permission by written notice to Executive.

 

 
 

 

4. Compensation and Benefits

 

(a) Base Salary . In consideration for Executive’s services hereunder, during the Term Company shall pay or cause to be paid as base salary to Executive an amount of not less than two hundred and fifty thousand dollars ($250,000.00) per year, prorated for any partial years of service. Said base salary shall be payable in conformity with Company’s normal payroll periods and practices. The Board in its discretion may increase Executive’s base salary annually based on the performance of Executive and Company in the previous year. Increases in base salary shall be effective not later than the beginning of the Fiscal Year for which the increase is granted. For purposes of this Agreement, the term “Fiscal Year” shall mean the period beginning on January 1 and ending on December 31 during the Term of this Agreement.

 

(b) Incentive Compensation . In addition, Company shall pay to Executive for each of the Fiscal Years during the Term of this Agreement an annual incentive compensation award not to exceed two (2) times Executive’s base salary. Company shall award Executive annual incentive compensation in an amount commensurate with the performance of Executive and Company in the previous Fiscal Year as set forth in the schedule attached as Exhibit B to this Agreement. Company shall pay Executive his annual incentive compensation no later than ninety days from the end of the Fiscal Year for which the incentive compensation is awarded. Company at its discretion may pay Executive his annual incentive compensation in cash or in Company shares. If paid in shares, the conversion formula will utilize a price for Company shares equal to the lower of the average price in the Fiscal Year for which the award is determined and the price prevailing at the time the Company decides to pay Executive his annual incentive compensation in Company shares. In the event of a sale, merger, consolidation, reorganization or transfer of assets in which Company is not the surviving entity (a “Transaction”), the equity incentive compensation to be granted pursuant to this Section 4(b) after the date of the Transaction may be granted in accordance herewith in the form of securities of the surviving entity or parent thereof, as applicable. Subject to the restrictions set forth in Section 7(i) of this Agreement or otherwise imposed by law, Executive may defer receipt of all or a portion of any incentive based compensation awarded under this Section 4(b) in order to avoid negative tax consequences or for any other reason allowed by law.

 

(c) Options . On June 16, 2010, Company granted Executive 500,000 options to purchase Company shares (Schedule D), and on March 8, 2010, Company granted Executive 50,000 options to purchase Company shares (Schedule E). In the event of a termination under Section 7 of this agreement, all such options granted on June 16, 2010 and March 8, 210 shall become immediately vested and exercisable. Executive shall be eligible to receive an additional grant of option shares in an amount of 1,000,000 shares. Executive shall be bound by the terms of the Option Agreement dated April 14, 2011, evidencing such grant (attached as Schedule C), except as follows:

 

In the event of a termination under Section 7 of this agreement, the options granted under the Option Agreement dated April 14, 2011 shall remain fully and freely exercisable during the lesser of (x) ten years from the date such options are granted to Executive if Executive is still then employed by Company, or (y) the longer of one year from the date of termination of Executive in accordance with the provisions hereof or, if termination is under Section 7(d) below, three years from the date of termination. With respect to any option shares whose term for exercise is extended pursuant to this paragraph, the exercise price shall be $.25 per share.

 

(d) Additional Benefits . Executive shall be entitled to participate in all programs, rights, and benefits for which Executive is otherwise entitled under any bonus plan, incentive plan, participation plan, extra compensation plan, pension plan, profit sharing plan, savings plan, life, medical, dental, other health care, disability, or other insurance plan or policy or other plan or benefit Company may provide for senior executives or for employees of Company generally, from time to time, in effect during the Term. For the avoidance of doubt, the rights granted or afforded to Executive under any such plans or policies shall not be less than the most favorable rights and highest amounts granted to employees of similar or lower position with Company and on terms at least as favorable, and, for the purposes of such plan or policy, Executive shall receive credit for the entire period of his employment with Company (including his employment with Company prior to the execution of this Agreement). To the extent that anything contained in any such plans or policies is in conflict or inconsistent with anything stated in this Agreement, the terms of this Agreement shall control and supersede any contrary language.

 

 
 

 

(e) Excise Tax Adjustments . Executive and Company acknowledge that certain business transactions, including a change of control, may become subject to the application of section 280G of the Internal Revenue Code and the possible imposition on the Executive of the excise tax under section 4999. Executive and Company agree to use reasonable methods to mitigate or eliminate the impact of section 280G, so long as such methods do not reduce the value of the compensation and benefits Executive would otherwise be entitled to receive under this agreement by more than 10% .

 

5. Business Expense Reimbursement . Executive shall be entitled to reimbursement by Company for any ordinary and necessary business expenses incurred by Executive in the performance of Executive’s duties and in acting for Company during the Term; provided, however, that for reimbursements:

 

(a) Each such expenditure is of a nature qualifying it as a proper deduction on the federal and state income tax returns of Company as a business expense and not as deductible compensation to Executive; and

 

(b) Executive furnishes to Company adequate records, including receipts for any expenditures greater than twenty-five dollars ($25.00), and other documentary evidence required by Company policy and federal and state statutes and regulations issued by the appropriate taxing authority for the substantiation of such expenditures as deductible business expenses of Company and not as deductible compensation to Executive.

 

In addition, Executive shall receive a living allowance of three thousand dollars ($ 3,000) per month. Executive may submit all or portion of the living allowance as a reimbursement if it qualifies under 3(a) and 3(b) above.

 

6. Office Space and Administrative Support . During the Term of this Agreement, Company shall provide Executive with office space and administrative support in Company’s Florida offices.

 

7. Termination . This Agreement shall be terminated only as provided in this Section 7:

 

(a) Disability . In the event that during the Term of this Agreement Executive qualifies for permanent disability benefits under Company’s long term disability plan (the “LTD Plan”), or if Executive does not participate in the LTD Plan, would have qualified for permanent disability benefits under Company’s LTD Plan had Executive been a participant of the LTD Plan (a “Disability”), Executive’s full time employment hereunder may be terminated, by written Notice of Termination (as that term is defined in Section 7(f) herein) from Company to Executive. Upon termination by Company due to Executive’s Disability under this Section 7(a), Executive shall be entitled to: (i) his base salary for the entire period up to and including the Termination Date (as that term is defined in Section 7(f) herein); (ii) any unpaid incentive based compensation as described in Section 4(b) of this Agreement for the year prior to the Fiscal Year in which the Termination Date occurs; (iii) a prorated share of the incentive based compensation described in Section 4(b) for the Fiscal Year in which the Termination Date occurs; and (iv) reimbursement of any unreimbursed expenses incurred by Executive pursuant to Section 5 of this Agreement. In addition, one-third (1/3) of Executive’s total options granted under Section 4(c) of this Agreement shall immediately and fully vest upon the Termination Date; provided, however, that if more than two-thirds (2/3) of Executive’s options have already vested pursuant to the terms of Section 4(c) prior to the date Executive’s employment is terminated under this Section 7(a), then all remaining options granted to Executive under Section 4(c) shall immediately and fully vest upon the Termination Date. The determination of Disability shall be made only after sixty (60) days’ notice to Executive and only if Executive has not returned to performance of his duties prior to the expiration of the sixty (60) day notice period.

 

 
 

 

(b) Death . In the event that Executive shall die during the Term of this Agreement, this Agreement shall automatically terminate; provided, however, that the termination of the Agreement shall not affect Executive’s entitlement to all benefits in which he has become vested or which are otherwise payable in respect of periods ending prior to his termination. Upon termination due to Executive’s death, Executive or his estate shall be entitled to: (i) his base salary for the entire period up to and including the date of Executive’s death; (ii) any unpaid incentive based compensation as described in Section 4(b) of this Agreement for the year prior to the Fiscal Year in which Executive’s death occurs; (iii) a prorated share of the incentive based compensation described in Section 4(b) for the Fiscal Year in which Executive’s death occurs; and (iv) reimbursement of any unreimbursed expenses incurred by Executive pursuant to Section 5 of this Agreement. In addition, one-third (1/3) of Executive’s total options under Section 4(c) of this Agreement shall immediately and fully vest upon Executive’s death; provided, however, that if more than two-thirds (2/3) of Executive’s options have already vested pursuant to the terms of Section 4(c) prior to Executive’s death, then all remaining options granted to Executive under Section 4(c) shall immediately and fully vest upon Executive’s death.

 

(c) Termination for Cause . Company may terminate Executive’s employment under this Agreement for “Cause” by written Notice of Termination. A termination for Cause is a termination by reason of:

(i) Executive’s conviction by a court of competent jurisdiction for a felony involving dishonesty or moral turpitude; provided, however, that any convictions solely on the basis of vicarious liability shall not give Company the right to terminate Executive for Cause; (ii) proven acts of fraud or dishonesty committed by Executive which result in material injury to Company; (iii) a material breach of this Agreement (other than as a result of incapacity due to death or Disability) which is committed by Executive in bad faith and, if capable of cure, which is not remedied within thirty (30) days of Executive’s receipt of a notice to cure such breach; or (iv) a failure by Executive to comply with written directives issued by the Board which is not remedied within thirty (30) days of Executive’s receipt of a notice to cure such failure. In the event of a termination for Cause pursuant to this Section 7(c), Executive shall be entitled to receive (a) his base salary for the entire period up to and including the Termination Date; (b) reimbursement of any unreimbursed expenses incurred by Executive pursuant to Section 5 of this Agreement; and (c) any unpaid incentive based compensation as described in Section 4(b) of this Agreement for the year prior to the Fiscal Year in which the Termination Date occurs. If Executive is convicted of a felony involving dishonesty or moral turpitude, Company’s obligations under Sections 4(a), 4(b) and 4(c) of this Agreement (other than the obligation to pay any unpaid incentive based compensation as described in Section 4(b) of this Agreement for the year prior to the Fiscal Year in which the Termination Date occurs) shall be automatically suspended; provided, however, that if the conviction is overturned on appeal, then Executive shall be reinstated to his employment under this Agreement. When the felony conviction has become final and non-appealable, all of Company’s obligations hereunder may be terminated by Company as provided in this Section 7(c); provided, however, that the termination of Executive’s employment pursuant to this Section 7(c) shall not affect Executive’s ownership of Company shares, and shall not affect Executive’s entitlement to all benefits he has accrued and all rights in which he has become vested (including the right to exercise all vested options granted under Section 4(c) of this Agreement) or which are otherwise payable in respect of periods ending prior to termination of his employment.

 

 
 

 

(d) Termination Without Cause or by Executive with Good Reason . If during the Term of this Agreement Executive’s employment shall be terminated by Company without Cause (as that term is defined in Section 7(c) of this Agreement) or terminated by Executive with Good Reason (as that term is defined in this Section 7(d)), then Executive shall be entitled to: (i) his base salary for the entire period up to and including the Termination Date; (ii) any unpaid incentive based compensation as described in Section 4(b) of this Agreement for the year prior to the Fiscal Year in which the Termination Date occurs; (iii) incentive based compensation for the Fiscal Year in which the Termination Date occurs in an amount equal to or greater than Executive’s total annual base salary under Section 4(a) of this Agreement as of the Fiscal Year in which the Termination Date occurs; and (iv) reimbursement of any unreimbursed expenses incurred by Executive pursuant to Section 5 of this Agreement. In addition, Executive shall receive severance payments equal to Executive’s total annual base salary under Section 4(a) of this Agreement as of the Fiscal Year in which the Termination Date occurs, to be paid over the course of one year in conformity with Company’s normal payroll periods and practices. If Executive’s employment is terminated pursuant to this Section 7(d) (either by Company without Cause or by Executive for Good Reason), all unvested options granted under Section 4(c) of this Agreement and any other equity grants held by Executive shall become immediately and fully vested. For purposes of this Agreement, Executive will have “Good Reason” to terminate this Agreement if Company (or any resulting or surviving entity in the event of a Change of Control as defined in Section 4(c) of this Agreement) (a) materially breaches this Agreement and, if subject to cure, fails to remedy any such breaches within thirty (30) days of receipt of a notice to cure; (b) removes Executive from his seat on Company’s Board; (c) takes any action which results in a diminution or adverse change in Executive’s title, position, or reporting responsibilities as of the Effective Date without Executive’s consent; or (c) in the event of a Change of Control as defined in Section 4(c) of this Agreement, fails to assume Company’s duties and obligations under this Agreement.

 

(e) Voluntary Resignation . Except for a termination for Good Reason as provided in Section 7(d), in the event that Executive resigns voluntarily during the Term of this Agreement, Executive shall be entitled to receive (a) his base salary for the entire period up to and including the date of Executive’s voluntary resignation; (b) reimbursement of any unreimbursed expenses incurred by Executive pursuant to Section 5 of this Agreement; and (c) any unpaid incentive based compensation as described in Section 4(b) of this Agreement for the year prior to the Fiscal Year in which Executive voluntarily resigns.

 

(f) Notice of Termination . Any purported termination by Company or by Executive shall be communicated by a written notice of termination (the “Notice of Termination”) to the other party hereto which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances, if any, claimed to provide a basis for termination of Executive’s employment under the provision so indicated. For purposes of this Agreement, and except as expressly provided otherwise herein, no termination shall be effective without such Notice of Termination. The “Termination Date” shall mean the date specified in the Notice of Termination, which shall be not less than thirty (30) and not more than sixty (60) days from the date of the Notice of Termination.

 

(g) Disputes . In the event of a dispute concerning the validity of a purported termination which is maintained in good faith, the Termination Date shall mean the date the dispute is finally resolved, and Company will continue to provide Executive with the compensation and benefits provided for under this Agreement until the dispute is finally resolved, without any obligation by Executive to repay any of such amounts to Company notwithstanding the final outcome of the dispute. Payments required to be made under this Section 7(g) shall not be offset against or reduce any other amounts due under this Agreement. Executive shall be required to render services to Company during the period in which the dispute concerning the termination is being resolved, unless Company fails to provide Executive with a reasonable opportunity to perform his duties under this Agreement during such period.

 

(h) Restriction on Timing of Distributions . The intent of the Parties is that payments and benefits under this Agreement comply with Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. If Executive notifies Company that Executive believes that any provision of this Agreement (or any award of compensation, including equity compensation or benefits) would cause him to incur any additional tax or interest under Code Section 409A and Company concurs, or Company independently makes such determination, Company shall use reasonable efforts to reform such provision to the extent possible to comply with Code Section 409A; provided that such modification shall, to the maximum extent practicable, maintain the original intent and economic benefit to the Parties of the applicable provision without violating the provisions of Code Section 409A.

 

 
 

 

(i) Retention of Accrued Benefits and Vested Rights . The termination or resignation of Executive’s employment for any reason under this Section 7 shall not affect Executive’s ownership of Company shares, and shall not affect Executive’s entitlement to all benefits he has accrued and all rights in which he has become vested (including the right to exercise all vested options granted under Section 4(c) of this Agreement) or which are otherwise payable in respect of periods ending prior to his termination of employment.

 

8. Non-Compete and Non-Solicitation . Except as provided in Section 3 of this Agreement, during the Term of this Agreement, and during any period in which Executive receives severance payments pursuant to Section 7(d) of this Agreement, Executive shall not engage in, or encourage other employees or former employees of Company to engage in, any business or activity that directly competes with the business of Company, and shall not solicit, hire as an employee or consultant or become a partner with any employee or former employee of Company.

 

9. Indemnity, Advancement and Insurance . To the fullest extent permitted by applicable law, Company (or in the event of a Transaction as defined in Section 4(b), the surviving or resulting entity or transferee) shall indemnify Executive and hold him harmless for any acts or decisions made by him in good faith while performing services for Company, and shall advance to Executive all fees and costs associated with the defense of any action or proceeding for which he has tendered an appropriate indemnification demand. Company further agrees that it will provide Executive with a minimum of ten million dollars ($10,000,000.00) of directors’ and officers’ insurance coverage in connection with the performance of his duties under this Agreement, but Executive’s right to indemnity and advancement shall not be dependent or contingent upon the availability of insurance coverage.

 

10. No Obligation to Mitigate . Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and, except as otherwise expressly provided under this Agreement, no payment hereunder shall be offset or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment or business venture.

 

11. Miscellaneous .

 

(a) Succession; Assignment . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective executors, administrators, successors and assigns. The parties agree that the obligations and duties of Executive are personal and are not assignable.

 

(b) Notice . Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing or by facsimile, when deposited in the United States mail, postage prepaid, or when communicated to a public telegraph company for transmittal, addressed to the party at the address appearing at the beginning of this Agreement. Either party may change its address by written notice in accordance with this Section 11(b).

 

(c) Entire Agreement; Modification . Except as otherwise provided herein, this Agreement contains the entire agreement of the parties and supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive by Company. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing entered into between Company and Executive.

 

(d) Waiver . Any waiver of a breach of any provision hereof shall not operate as or be construed as a waiver of any subsequent breach of the same provision or any other provision of this Agreement.

 

(e) Severability . Should any provisions of this Agreement for any reason be declared invalid, void, or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portion shall not be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed without the inclusion of said provision.

 

 
 

 

(f) Interpretation . If any claim is made by any party hereto relating to any conflict, omission or ambiguity of this Agreement, no presumption or burden of proof or persuasion shall be implied by reason of the fact that this Agreement was prepared by or at the request of any particular party hereto or such party’s counsel.

 

(g) Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

 

IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the day and year first above written.

 

EMPLOYER:

By: /s/ George F. Schmitt  
Name:  George F. Schmitt  
Title:    

 

EXECUTIVE:   /s/ John C. Coleman  
     
  John C. Coleman  
 
 

 

Exhibit A

1. Paul Cibuzar Consulting Company LLC

 

 

 

 

STRICTLY PRIVATE & CONFIDENTIAL

 

Ex 10.6

LOAN FACILITY

 

LOAN FACILITY dated and effective as of February 7, 2011, among xG Technology, Inc., a Delaware corporation (the “Borrower”) and MB Technology Holdings, LLC (the “Lender”).

 

BACKGROUND

 

Lender has established for Borrower a certain credit facility, in the nature of a ten million US dollar ($10,000,000) line of credit (“Loan”), as evidenced by Borrower’s Promissory Note – Line of Credit, dated and effective as of February 7, 2011 in the available principal amount of ten million US dollars ($10,000,000) (said Promissory Note – Line of Credit, together with any and all renewals, replacements, amendments or substitutions thereof or therefor, being hereinafter referred to as the “Note”).

 

Lender and Borrower have previously entered into various loan agreements, loan facilities, promissory notes and security agreements (the Original Shareholder Loans, as defined below) and it is the intention of the parties that part of the Loan shall be used by Borrower in repaying in full its indebtedness to Lender under such Original Shareholder Loans.

 

NOW, THEREFORE, in consideration of the Loan and for other good and valuable consideration and intending to be legally bound, Borrower hereby agrees with Lender as follows:

 

SECTION 1. Granting of Loans . Lender hereby agrees to make available on an uncommitted basis at the discretion of Lender from time to time, until the Maturity Date, the Advances requested by the Borrower hereunder, or pursuant to the Note; provided however, that (a) in no event shall the Advances exceed the Borrowing Limit and (b) Lender has no obligation to lend Borrower any amounts hereunder and the decision to lend such money lies in the sole and absolute discretion of Lender. In consideration for the making of such Loan, the Borrower hereby agrees to grant Lender a security interest in the Assets pursuant to the terms and conditions set forth in that certain Security Agreement, dated as of February 7, 2011 and effective as of February 7, 2011 between the Borrower and the Lender. All payments of the Loan and Advances made hereunder shall be made in accordance with the provisions of the Note and shall mature on the Maturity Date.

 

SECTION 2. Representations and Warranties. Borrower represents and warrants to Lender as follows:

 

(a) Power and Authority. Borrower has the right and power and is duly authorized and empowered to enter into, execute, deliver and perform this Loan Facility and each of the Related Agreements to which it is a party. The execution, delivery and performance of this Loan Facility and all Related Agreements has been duly authorized by all necessary corporate action and does not (i) require any consent or approval of the shareholders of Borrower; (ii) contravene the charter, articles of incorporation, memorandum and articles of association, limited liability agreement or by-laws of Borrower; (iii) violate, or cause Borrower to be in default under any provision of any Law, rule, regulations, order, writ, judgment, injunction, decree, determination or award in effect having applicability to Borrower; or (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower is a party or by which it or its properties may be bound or affected.

 

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(b) Legally Enforceable Agreements. This Loan Facility and each Related Agreement is a legal, valid and binding obligation of Borrower, as applicable, and is enforceable against Borrower, as applicable, in accordance with its terms, except as may be affected by (i) the effect of bankruptcy, insolvency, reorganization, moratorium, arrangement, fraudulent conveyance, receivership and other laws now or hereafter in effect affecting the enforcement of creditors’ rights or (ii) the enforceability of equitable remedies or the application of equitable principles (whether considered in an action at law or equity).

 

(c) Assets. All of Borrower’s Assets are free and clear of any and all liens, security interest, mortgages and other encumbrances, restrictions and charges, except as listed on Exhibit “B” attached hereto.

 

(d) Consents. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the execution, delivery or performance by Borrower of this Loan Facility or any Related Agreement.

 

(e) Outstanding Litigation. Except as set forth in Exhibit "C" attached hereto, there are no suits in law or equity or proceedings before any governmental instrumentality or agency against Borrower now pending, nor is there to the knowledge of Borrower threatened or likely any litigation nor any proceedings against or affecting Borrower, the outcome of which might materially and adversely affect the Assets or operations of Borrower, or its financial condition or business.

 

(f) Adverse Change. Except as set forth in Exhibit "D" attached hereto, there has been no material adverse change in the financial condition, business, operation or Assets of the Borrower from the date hereof.

 

(g) Compliance With Applicable Laws. Borrower and its respective business and operations are in compliance with all applicable Laws.

 

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SECTION 3. Covenants. Borrower agrees with and covenants to Lender as follows:

 

(a) From and after the date of this Agreement, Borrower will not incur any Indebtedness of any nature whatsoever, other than (i) the indebtedness to Lender as evidence by this Loan Facility in favor of Lender, (ii) current trade indebtedness incurred in the ordinary course of business and (iii) purchase money indebtedness for equipment in favor of the vendor or financier thereof limited to the cost of such equipment.

 

(b) Within ninety (90) days after the close of each fiscal year and each fiscal quarter, Borrower shall provide Lender with Borrower's financial statements prepared in accordance with IFRS, said annual financial statements to be audited without a disclaimer of an, or an adverse or qualified, opinion, by the independent certified public accounting firm regularly retained by Borrower, and said quarterly financial statements to be certified by Borrower’s chief financial officer.

 

(c) Borrower, at its own expense, shall maintain adequate property, liability and other insurance during the term of the Loan in such amounts against such risks as shall be adequate for the nature of Borrower's business as now or hereafter conducted.

 

(d) Borrower shall operate its businesses in accordance with current practices and shall not sell, assign or otherwise dispose of or transfer any of its Assets, other than sales of inventory in the ordinary course of business and other than as set forth in Exhibit "D" hereto.

 

(e) Borrower will not permit, create or suffer to exist any lien, security interest or other encumbrance on any of its Assets, other than (i) existing liens as set forth on Exhibit "B" hereto; (ii) purchase money lines on equipment securing purchase money indebtedness permitted by Section 3(a) hereof; (iii) liens relating to judgments to the extent permitted by Section 4(h) hereof; (iv) liens for taxes or assessments either (x) not delinquent or (y) contested in good faith by appropriate proceedings for which an adequate reserve has been made in accordance with IFRS; (v) liens incurred or pledges and deposits in connection with workmen's compensation, unemployment compensation and other social security benefits, or securing the performance bids, tenders, leases, contracts, progress payments, surety, appeal and performance bonds and other obligations of like nature, incurred in the ordinary course of business; (vi) liens imposed by law incurred in good faith in the ordinary course of business; (vii) pledges of or liens on raw materials or on manufactured products as security for drafts or bills of exchange in connection with the importation of such raw materials or manufactured products in the ordinary course of business; (viii) liens encumbering property under construction arising from progress or partial payments by a customer of Borrower relating to such property or assets; (x) liens incurred by Borrower in the ordinary course of business in favor of suppliers who retain title to goods supplied by them until such goods are paid for; and (xi) liens of leases existing on the date of this Agreement.

 

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SECTION 4. Events of Default. The occurrence of each of the following events shall constitute an “Event of Default”:

 

(a) Borrower fails to pay to Lender within thirty (30) business days when due any payment payable hereunder or under any Related Agreement. However, Lender may extend, at its sole discretion, Borrower’s due date so long as interest continues to accrue and such event will not be considered an Event of Default.

 

(b) Borrower fails to observe or perform any other Obligation, agreement or covenant to be observed or performed by them hereunder or under any Related Agreement, and such failure is not cured within thirty (30) business days after written notice given by Lender to Borrower specifying such failure.

 

(c) Any financial statement, representation, warranty, statement or certificate made or furnished by Borrower to Lender in connection with this Loan Agreement, or an inducement to Lender to enter into this Loan Agreement, or in any other instrument or document to be delivered hereunder to Lender, is materially false, incorrect, or incomplete when made.

 

(d) Borrower becomes insolvent or generally fails to pay, or admits its inability to pay, debts as they become due or makes a general assignment for the benefit of any of its creditors.

 

(e) Borrower applies for, consents to, or acquiesces in the appointment of, a trustee, receiver, administrator, administrative receiver or other custodian for Borrower or any of the property of Borrower, or, in the absence of such application, consent or acquiescence, a trustee, receiver, administrator, administrative receiver or other custodian is appointed for Borrower or for a substantial part of the property of Borrower and is not discharged within sixty (60) days.

 

(f) Any bankruptcy, reorganization, liquidation, dissolution or other case and proceeding under any bankruptcy or insolvency law is commenced in respect of Borrower, and if such case or proceeding is not commenced by Borrower, it is consented to or acquiesced in by Borrower or remains for sixty (60) days un-dismissed.

 

(g) Borrower discontinues its business operations or materially changes the nature of its business.

 

(h) Borrower shall suffer final judgment(s) for the payment of money aggregating in excess of $50,000 for Borrower collectively and shall not discharge, satisfy or stay the same within thirty (30) business days.

 

(i) The occurrence of an Event of Default under any Related Agreement, including without limitation under the Promissory Note.

 

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STRICTLY PRIVATE & CONFIDENTIAL

 

(j) The occurrence of any event of default under any present or future indebtedness or obligations between Borrower and third parties, which indebtedness or obligations exceed in the aggregate $50,000.

 

SECTION 5. Remedies. Upon the occurrence of an Event of Default, then in addition to all rights and remedies of Lender set forth in this Agreement, any Related Agreement or pursuant to applicable law, the Lender may (i) immediately suspend or terminate all or any portion of Lender’s obligation to make additional Advances under the Note, (ii) exercise its rights to foreclose on any of the Assets as set forth in the Security Agreement, and/or (iii) declare the entire principal balance of the obligations due hereunder, plus accrued unpaid interest thereon, as well as any and all other charges provided for in this Loan Facility or any other monies due under any other instrument document or agreement between Lender and Borrower, immediately due and payable, without further notice or demand by Lender.

 

SECTION 6. Miscellaneous.

 

(a) Upon repayment in full of all indebtedness of the Borrower to Lender under the Original Shareholder Loans, such Original Shareholder Loans shall immediately terminate and become null and void as if never entered into between the parties.

 

(b) Borrower shall upon demand pay to Lender any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which Lender may incur in connection with the exercise or enforcement of any of the rights of Lender hereunder and/or under any Related Agreement.

 

(c) This Loan Facility shall be governed by and construed in accordance with the substantive laws of the State of Florida. Borrower irrevocably agrees to service of process by certified mail, return receipt requested to the addresses of Borrower as set forth herein.

 

(d) Lender shall have the right, through no more than two representatives or agents at any one time and, prior to the declaration of an Event of Default, no more than one time in any three month period (with no limitation, however, after the declaration of an Event of Default), during reasonable business hours, upon thirty (30) business days prior notice, to audit and conduct examinations of Borrower's books and records and accounts receivable, and Borrower shall be liable to pay Lender all reasonable costs and expenses incurred by Lender in connection therewith, but not to exceed $2,500 per audit.

 

(e) No amendment or waiver of any provision of this Loan Facility or any Related Agreement or consent to any departure by Borrower herefrom shall in any event be effective unless the same shall be in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

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(f) All notices required or permitted hereby shall be in writing and shall be effective when sent either by telecopy, fax or e-mail, recognized overnight courier, registered return receipt mail or hand delivered, in each case addressed as follows:

 

    If to Lender:
     
    MB Technology Holdings, LLC
    240 S. Pineapple Ave.
    Suite 701
    Sarasota, FL 34236
     
    If to Borrower:
     
    xG Technology, Inc.
    7771 W. Oakland Park Boulevard
    Suite 231
    Sunrise, FL 33351

 

For purposes of this Agreement and any of the Related Agreements, notices shall be deemed to be given (i) if delivered in person, when delivered, (ii) if delivered by telecopy, fax or e-mail on the date of transmission, (iii) if delivered by overnight courier, one business day after delivery to the courier or (iv) if delivered by U.S. mail, three (3) business days after deposit, with postage prepaid.

 

(g) This Agreement shall be binding upon the parties and their respective successors and assigns. Lender may assign the Loan and all of its rights thereunder and under this Agreement and all Related Agreements, provided that no such assignment will, without Borrower's prior written consent, be to a person or entity who Lender has actual knowledge is actively engaged in a business which is in competition with that of the Borrower. Borrower may not assign any of its rights or obligations under this agreement or any Related Agreement without the prior written consent of Lender, which may be withheld in its sole discretion.

 

(h) No failure or delay on the part of the Lender to exercise, nor any partial exercise of, any power, right or privilege hereunder or under any Related Agreement shall impair such power, right or privilege or be construed to be a waiver of any Event of Default. All rights and remedies existing hereunder or any other Related Agreement are cumulative to and not exclusive of any rights or remedies otherwise available.

 

(i) The invalidity, illegality, or unenforceability in any jurisdiction of any provision under this Agreement or any Related Agreement shall not affect or impair the remaining provisions in this Agreement or any Related Agreement.

 

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(j) This Agreement may be executed via manual telecopy, in multiple counterparts and all such counterparts shall collectively constitute an original agreement. No party hereto will raise the use of a facsimile machine or pdf attachment to e-mail to deliver a signature to this Agreement or the fact that any signature was transmitted or communicated through the use of facsimile machine or pdf attachment to e-mail as a defense to the formation or enforceability of this Agreement and each party forever waives any such defense.

 

(k) All references to dollars or “$” in this Agreement or any Related Agreement shall refer to U.S. Dollars.

 

(l) From time to time, as and when requested by any party hereto any other party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further actions as the requesting party may reasonably deem necessary or desirable to evidence and effectuate the transactions contemplated by this Agreement. Furthermore, Borrower hereby authorizes Lender to take all such actions that may be necessary to perfect Lender’s security interest in the Assets, including, but not limited to, the filing of any UCC financing statements against the Assets.

 

(m) Any legal action, suit or proceeding arising out of or relating to this Agreement, any Related Agreement or the transactions contemplated hereby shall be instituted exclusively in the courts of the State of Florida, located in Broward County or, provided subject matter jurisdiction exists, in the United States Federal Court for the Southern District of Florida, and each party hereto agrees not to assert as a defense in any such action, suit or proceeding, any claim that it is not subject personally to the jurisdiction of such courts, that its property is exempt or immune from attachment or execution, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of the action, suit or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each party further irrevocably submits to the exclusive jurisdiction of such courts in any such action, suit or proceeding, and waives a trial by jury.

 

SECTION 7. Definitions. For purposes hereof, the following terms shall have the following meanings:

 

(a) “Advances” shall have the meaning ascribed to such term in the Note.

 

(b) “Assets” shall mean any and all of the assets and properties of the Borrower, real or personal, tangible or intangible, and whether now owned or hereafter acquired.

 

(c) “Borrowing Limit” shall have the meaning ascribed to such term in the Note.

 

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(d) “Event of Default” shall mean any of the events specified in Section 4 hereof.

 

(e) “IFRS” shall mean International Financial Reporting Standards, consistently applied.

 

(f) “Indebtedness” shall mean all items of indebtedness, obligations or liabilities, due or to become due, liquidated or unliquidated, direct or contingent, joint or several, of any nature whatsoever and out of whatever transaction arising, including, without limitation:

 

(i)          all indebtedness guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection deposit in the ordinary course of business) or discounted with recourse;

 

(ii)         all indebtedness in effect guaranteed, directly or indirectly, through agreements, contingent or otherwise to (1) purchase such indebtedness, (2) purchase, sell or lease (as lessee or lessor) property, products, materials or supplies, or to purchase or sell services, primarily for the purpose of enabling any debtor to make payment of such indebtedness against loss, or (3) supply funds to or in any manner invest in any debtor;

 

(iii)        all indebtedness secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance upon property owned or acquired subject to such mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance, whether or not the liabilities secured thereby have been assumed; and

 

(iv)        all indebtedness incurred as the lessee of goods or services under leases that, in accordance with IFRS, as applicable, should be reflected on the lessee’s balance sheet.

 

(g) “Laws” shall mean all ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees of any government or political subdivision or agency thereof or any court or similar entity established by any thereof.

 

(h) “Maturity Date” shall have the meaning ascribed to such term in the Note.

 

(i) “Original Shareholder Loans” shall mean the Loan Agreement dated and effective as of July 6, 2010 (as amended), the Loan Facility dated and effective as of October 8, 2010 (as amended), the Amended and Restated Promissory Note - Line of Credit effective as of July 6, 2010, the Amended and Restated Promissory Note - Line of Credit effective as of October 8, 2010, the Security Agreement dated as of December 22, 2010 and effective as of July 6, 2010 and the Security Agreement dated as of December 22, 2010 and effective as of October 8, 2010, all between the Lender and Borrower.

 

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(j) “Related Agreements” shall mean each of the agreements and documents specified in Exhibit “A” attached hereto, the terms of each of which are incorporated herein by reference.

 

IN WITNESS WHEREOF, the parties have caused this Loan Facility to be duly executed and delivered by its officers thereunto duly authorized as of the date first written above.

 

BORROWER     LENDER  
         
By: /s/ James Woodyatt   By: /s/ George F. Schmitt
Name: James Woodyatt   Name: George F. Schmitt
Title Director   Title CEO
         
Attest: Roger G. Branton   Attest: Roger G. Branton

 

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EXHIBIT "A"

 

Related Agreements

 

Promissory Note – Line of Credit, dated as of February 7, 2011 and effective as of February 7, 2011, between the Borrower and Lender.

 

Security Agreement, dated as of February 7, 2011 and effective as of February 7, 2011, between the Borrower and Lender.

 

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PROMISSORY NOTE - LINE OF CREDIT

 

$10,000,000 U.S. Dollars Effective as February 7, 2011

 

FOR VALUE RECEIVED, intending to be legally bound, xG Technology, Inc., a Delaware corporation (“ Borrower ”), with offices at 240 S. Pineapple Avenue, Suite 701, Sarasota, Florida, promises to pay to the order of MB Technology Holdings, LLC (the “ Lender ”) and its successors and assigns, at 240 S. Pineapple Avenue, Suite 701, Sarasota, Florida or such other place or places as the holder of this Note (this “ Note ”) from time to time may designate in writing, the principal amount of all Advances (as defined below) in the manner set forth in Section 2 below, together with the interest in like lawful money at the interest rate set forth in Section 3 below and any fees due hereunder.

 

1.           Advances . From time to time, Borrower shall be entitled to borrow (each an “ Advance ” and collectively the “ Advances ”) from Lender a principal amount or amounts to the extent that the sum of all principal amounts advanced to Borrower hereunder does not, at any time, exceed Ten Million Dollars ($10,000,000) (subject to increase by prior written agreement of the Lender at its entire discretion) less any amount that Lender is required to pay for shares in the Common Stock of the Borrower (“Shares”) pursuant to any mandatory take-over offer that Lender may be required to make under Borrower’s Amended and Restated Certificate of Incorporation in connection with its Conversion Right set out under Section 4 below to the holders of all of the Shares not held by Lender (the “ Borrowing Limit ”). Lender shall make such requested Advance, so long as (i) the Borrowing Limit would not be so exceeded and (ii) there has not occurred an Event of Default (as such term is defined in that certain Loan Facility, dated as of February 7, 2011 (the “ Loan Agreement ”)) or an event which, with notice or lapse of time or both, would constitute an Event of Default; provided further that Lender has no obligation to lend Borrower any amounts hereunder and the decision to lend such money lies in the sole and absolute discretion of Lender. The Advances shall be reflected on the “Schedule of Advances” attached to this Note, as such schedule may be amended from time to time, provided however that in the event that any Advance is not reflected on the “Schedule of Advances” attached hereto, the books and records of the Lender shall constitute evidence of any Advances made hereunder.

 

2.           Payments . Unless accelerated pursuant to the terms hereof, no payments shall be required under this Note until the earlier of (a) the eighteen (18) month anniversary of the date first set forth on the top of this Note, (b) on demand, two (2) days following Lender’s written notice to Borrower, or (c) the occurrence of an Event of Default (the “ Maturity Date ”), at which time the entire principal balance of this Note, together with any and all accrued unpaid interest thereon, shall be due and payable in full. Except as otherwise required by law or by other provisions of this Note, payments received by Lender hereunder shall be applied first against expenses and indemnities, next against interest accrued under this Note, and next in reduction of the outstanding principal balance of this Note. Borrower shall pay all amounts owing under this Note in full when due without set-off, counterclaim, deduction or withholding for any reason whatsoever.

 

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3.           Interest Rate . The unpaid principal amount for the time being outstanding under this Note shall bear interest at a rate equal to eight percent (8%) per annum compounded monthly (the “ Base Rate ”). Interest shall be computed on the basis of the actual number of days elapsed and a year of 360 days. The interest shall accrue monthly and shall be added to the principal. Upon the occurrence and during the continuance of an Event of Default the principal amount of this Note shall bear interest at a rate equal to the Base Rate plus two percent (2%).

 

4.           Conversion Right . This Note shall be convertible, at Lender’s sole option at any time prior to the Maturity Date, into new Shares -

 

(a)          at $0.25 per new Share, provided that shareholders not affiliated or acting in concert with Lender who together hold Shares carrying the requisite majority of voting rights consent to the waiver of the mandatory take-over provisions in the Company’s Amended and Restated Certificate of Incorporation within the next fifteen working days after the date upon which this Note is effective or, failing which

 

(b)          at $0.10 per new Share, subject to Lender making a take-over offer at $0.10 per Share to the holders of all of the xG Shares not held by it and to the extent that for the time being pre-emption rights are disapplied in respect of the allotment of such new Shares.

 

5.            Options. Borrower will grant to Lender options to subscribe for ten million new Shares at an exercise price of $0.50 per Share and an additional ten million new Shares at an exercise price of $1.00 per Share, subject to such grant not triggering the mandatory take-over provisions in the Company’s Amended and Restated Certificate of Incorporation and to the extent that for the time being pre-emption rights are disapplied in respect of such grant. The options shall be exercisable for a five year period following grant.

 

6.           Acceleration Upon Event of Default . The entire unpaid principal balance of and all interest accrued under this Note shall become due and payable immediately upon the occurrence of any of an Event of Default without notice or demand.

 

7.           Maximum Interest Rate . Notwithstanding anything in this Note to the contrary, if the interest rate set forth in Section 3 of this Note exceeds the maximum rate of interest permitted by law during any period of this Note, the interest rate shall be an amount equal to the maximum interest rate permitted by law during such period of this Note. For purposes of this Note, the maximum rate permitted by law shall mean the maximum rate of interest that may be contracted for, charged, taken, reserved or received under the laws of the State of Florida or applicable federal law (whichever permits the higher rate) after taking into account, to the extent required by applicable law, any and all relevant payments or charges.

 

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8.           Governing Law . This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Florida without regard to its conflict of laws provisions.

 

9.           Collection Expense . Borrower agrees to pay, in addition to all the sums payable hereunder, the Lender’s reasonable expenses of collection, including without limitation, court fees and reasonable attorneys’ fees and disbursements, whether or not suit is brought and through all appeals.

 

10.          Prepayment; Facility Fee . Borrower may at any time upon two (2) days' prior written notice to Lender, prepay the entire unpaid principal amount of this Note, or any part thereof, provided that interest accrued on the principal being prepaid shall be payable together with the principal so prepaid. In the event that Borrower prepays this note in full prior to the Maturity Date, Borrower shall be required to pay Lender (a) a minimum of one year’s worth of interest. Furthermore, at the time of repayment, whether or not such repayment occurs prior to the Maturity Date, Borrower is required to pay a facility fee equal to two percent (2%) of the Borrowing Limit.

 

11.          Security . This Note is executed in conjunction with the Loan Agreement and that certain Security Agreement, dated as of the date hereof by and between the Borrower and the Lender (the “ Security Agreement ”) and is secured by the liens and security interests created thereunder with respect to the collateral set forth therein.

 

12.          Waiver of Defenses . The Borrower, expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of intent to accelerate the maturity hereof, notice of the acceleration of the maturity hereof, bringing of suit and diligence in taking any action to collect amounts called for hereunder and in the handling of securities at any time existing in connection herewith; Borrower is directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder or in connection with any right, lien, interest or property at any and all times had or existing as security for any amount called for hereunder.

 

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13.          Miscellaneous . Time shall be of the essence with respect to the terms of this Note. Any notice required to be given to Borrower shall be delivered to the last address provided to the Lender by the Borrower (or, if none, to Borrower’s address as it appears on the signature page of this Note). Any notice shall be deemed to have been duly given when delivered in accordance with the Loan Agreement. All of the terms of this Note shall inure to the benefit of Lender and its successors and assigns and shall be binding upon Borrower and its successors and assigns. Lender may assign this Note and any of its rights hereunder, under the Loan Agreement or under the Security Agreement, provided that no such assignment will, without Borrower’s prior written consent, be to a person or entity who Lender has actual knowledge is actively engaged in a business that is in competition with that of Borrower. Borrower may not assign this Note, or any of its rights or obligations hereunder without the prior written consent of Lender, which may be withheld in its sole discretion. This Note may be executed via manual telecopy, in multiple counterparts and all such counterparts shall collectively constitute an original Note. No party hereto will raise the use of a facsimile machine or pdf attachment to email to deliver a signature to this Note or the fact that any signature was transmitted or communicated through the use of facsimile machine or pdf attachment to email as a defense to the formation or enforceability of this Note and each party forever waives any such defense. The provisions of this Note are severable and the invalidity or unenforceability of any provision hereof shall not alter or impair the remaining provisions of this Note. Any failure of Lender to exercise any right under this Note shall not be construed as a waiver to exercise the same or any other right hereunder. All references to dollar amounts in this Note shall be deemed references to U.S. Dollars. In the event of any conflict between this Note and the Loan Agreement or the Security Agreement, the Loan Agreement shall control.

 

IN WITNESS WHEREOF, the undersigned hereby executes this Promissory Note - Line of Credit as of the date first above written.

 

xG Technology, Inc.

 

  By: /s/ James Woodyatt
  Name: James Woodyatt
  Title Director
  Address: 7771 W. Oakland Park Boulevard
    Suite 231
    Sunrise, FL  33351

 

Accepted by:

 

MB Technology Holdings, LLC

 

By: /s/ George F. Schmitt
Name: George F. Schmitt
Title CEO

 

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Schedule of Advances

 

Date of Advance   Principal Amount of
Advance
  Unpaid Principal Amount of
All Advances
         
         
         
         
         
         
         
         
         
         

 

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SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT is dated and effective as of February 7, 2011 by xG Technology, Inc., a Delaware corporation (the “ Debtor ”), in favor of MB Technology Holdings, LLC, a Delaware limited liability company (the “ Secured Party ”).

 

RECITALS:

 

A.           Pursuant to that certain Loan Facility, dated as of February 7, 2011, between the Debtor and the Secured Party (the “ Loan Agreement ”) and that Promissory Note - Line of Credit, effective as of February 7, 2011, made by the Debtor in favor of the Secured Party (the “ Note ”), Debtor has agreed to borrow from the Secured Party the principal amount of up to Ten Million Dollars ($10,000,000) and the Secured Party has agreed to loan to Debtor the principal amount of up to Ten Million Dollars ($10,000,000).

 

B.           In order to induce the Secured Party to loan funds to the Debtor, and as security for the repayment of the Debtor’s indebtedness, liabilities and obligations from time to time owed under the Note, the Debtor has agreed to hereby grant the Secured Party a continuing security interest in all of the assets of the Debtor, wherever located and now owned or hereafter acquired.

 

ARTICLE 1
GRANT OF SECURITY INTEREST

 

1.1            Grant of Security Interest . To secure the payment of (i) the Debtor’s obligations under the terms of the Note and the Loan Agreement, and (ii) all costs and expenses paid or incurred by the Secured Party in the exercise, preservation or enforcement of any of the rights, powers or remedies of the Secured Party, or in the enforcement of the obligations of Debtor, under the terms of this Agreement or the Note or the Loan Agreement (collectively, the “ Indebtedness ”), the Debtor grants the Secured Party a security interest in the following personal property of the Debtor, wherever located and whether now owned or hereafter acquired (collectively, the “ Collateral ”):

 

(a) accounts, including health care insurance receivables;
(b) chattel paper;
(c) inventory;
(d) equipment;
(e) instruments, including promissory notes;
(f) investment property;
(g) documents;
(h) deposit accounts;
(i) letter of credit rights;

  

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(j) general intangibles, including payment intangibles;
(k) supporting obligations;

(l) Intellectual Property Collateral; and
(m) to the extent not listed above as original Collateral, proceeds and products of the foregoing.

  

For purposes of the foregoing, the term “ Intellectual Property Collateral ” shall mean all right, title and interest of the Debtor in and to any intellectual property rights and any tangible embodiments thereof, including, without limitation, any of the following anywhere in the world: (i) all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished, whether registered or unregistered, and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held, (ii) all patents, patent applications, invention rights, industrial design rights and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, (iii) any trademark, service mark, domain name, trade dress, product design, packaging design or configuration or other source indicia rights, whether registered or not, applications to register and registrations of the same and like protections, all common law rights and the entire goodwill of the business of the Debtor connected with and symbolized by such trademarks, (iv) all amendments, renewals and extensions of any of the foregoing property described in clauses (i), (ii) and (iii), (v) any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held, (vi) any and all design rights which may be available to the Debtor now or hereafter existing, created, acquired or held, (vii) any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above, (viii) all license or other rights to use any of the copyright, patents or trademarks or service mark, and all license fees and royalties arising from such use to the extent permitted by such license or rights, (ix) any indemnity or warranty payable in respect of any of the foregoing property or interests, and (x) all agreements, permits, waivers or consents relating to the licensing, development, use or disclosure of any of the foregoing to which the Debtor is now or hereafter a party or beneficiary, including, without limitation, the agreements identified on Exhibit C attached hereto (collectively, the “IP Agreements”).

 

ARTICLE 2
REPRESENTATIONS AND WARRANTIES

 

The Debtor represents and warrants to the Secured Party as follows:

 

2.1            Authority . The Debtor has the right and power and is duly authorized and empowered to enter into, execute, deliver and perform its obligations under this Agreement.

 

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2.2            Ownership; No Other Liens . The Debtor’s rights in or the power to transfer the Collateral and its title to the Collateral are free and clear of all liens, security interests or encumbrances other than those disclosed in Exhibit A attached hereto.

 

2.3            Location of Business; Identification Number . Exhibit B attached hereto sets forth (i) the address of the Debtor’s chief executive office (the “ Chief Executive Office State ”); (ii) the state of incorporation of the Debtor (the “ Incorporation State ”); (iii) the Federal Employer Identification Number of the Debtor and (iv) the Organizational ID Number of the Debtor in the Incorporation State (the “ Organizational ID ”). The exact legal name of the Debtor is as set forth above the signature of its representative at the end of this Agreement.

 

2.4            Intellectual Property . Exhibit C attached hereto sets forth a list of all Intellectual Property Collateral owned by Debtor as well as the jurisdiction of registration of any such Intellectual Property Collateral. With respect to itself and its Intellectual Property Collateral, the Debtor further represents and warrants that:

 

(i)          Except as described on Exhibit C , the operation of the Debtor’s business and the Debtor’s use of the Intellectual Property Collateral in connection therewith does not infringe, misappropriate, or dilute the intellectual property rights of any third party.

 

(ii)         Except as described on Exhibit C , (A) the Debtor is the exclusive owner of all right, title and interest in and to the Intellectual Property Collateral purported to be owned by the Debtor, and (B) the Debtor has the right to use all Intellectual Property Collateral subject only to the terms of the IP Agreements identified on Exhibit C , and applicable law or regulation.

 

(iii)        The Intellectual Property Collateral set forth on Exhibit C hereto includes all of the patents, patent applications, domain names, trademark registrations and applications, copyright registrations and applications and IP Agreements owned by the Debtor and necessary for the conduct of the Debtor’s business as it is currently conducted and as it is currently contemplated to be conducted in the future.

 

(iv)        The patents, copyrights registrations and trademark registrations forming part of the Intellectual Property Collateral are subsisting and have not been adjudged invalid or unenforceable in whole or part. The Debtor is not aware of any uses of any item of owned and registered Intellectual Property Collateral that could reasonably be expected to lead to such item becoming invalid or unenforceable.

 

(v)         The Debtor has made or performed all filings, recordings and other acts and has paid all required fees and taxes necessary to maintain and protect its interest in each registration owned by the Debtor for each item of owned and registered Intellectual Property Collateral in full force and effect and has made all filings necessary to date maintain the pendency of and to diligently prosecute the pending applications for Intellectual Property Collateral. The Debtor has used proper statutory notice in connection with its use of each such patent, registered trademark and copyright forming part of the Intellectual Property Collateral.

 

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(vi)        No claim, action, suit, investigation, litigation or proceeding is pending or has been asserted or threatened against the Debtor (A) based upon or challenging or seeking to deny or restrict the Debtor’s rights in or use of any of the Intellectual Property Collateral, (B) alleging that the Debtor’s rights in or use of the Intellectual Property Collateral or that any services provided by, processes used by, or products manufactured or sold by, the Debtor infringe, misappropriate, dilute, misuse or otherwise violate any patent, trademark, copyright or any other proprietary right of any third party, or (C) alleging that the Intellectual Property Collateral is being licensed or sublicensed in material violation or contravention of the terms of any license or other agreement to which the Debtor is a party. No Person is engaging in any activity that infringes, misappropriates, dilutes, misuses or otherwise violates the Intellectual Property Collateral or the Debtor’s rights in or use thereof. The Debtor has not granted any license, release, covenant not to sue, non-assertion assurance, or other right to any third party with respect to any part of the Intellectual Property Collateral. The consummation of the transactions contemplated by the Loan Agreement and the Note will not result in the termination or impairment of any of the Intellectual Property Collateral.

 

(vii)       With respect to each IP Agreement (and assuming the due authorization of and execution by any third parties thereto): (A) such IP Agreement is valid and binding and in full force and effect; (B) such IP Agreement will not cease to be valid and binding and in full force and effect on terms identical to those currently in effect as a result of the rights and interest granted herein, nor will the grant of such rights and interest constitute a breach or default under such IP Agreement or otherwise give any party thereto a right to terminate such IP Agreement; (C) the Debtor has not received any notice of termination or cancellation under such IP Agreement; (D) the Debtor has not received any notice of a breach or default under such IP Agreement, which breach or default has not been cured and (E) neither the Debtor nor any other party to such IP Agreement is in breach or default thereof in any material respect, and no event has occurred that, with notice or lapse of time or both, would constitute such a breach or default by the Debtor or any other party thereto or permit termination, modification or acceleration under such IP Agreement by any other party thereto or by the Debtor.

 

(viii)      (A) none of the trade secrets of the Debtor has been used, divulged or disclosed without authorization or legal compulsion or has been misappropriated to the detriment of the Debtor for the benefit of any third party other than the Debtor; (B) no employee, independent contractor or agent of the Debtor has misappropriated any trade secrets of any third party in the course of the performance of his or her duties as an employee, independent contractor or agent of the Debtor; and (C) no employee, independent contractor or agent of the Debtor is in material default or breach of any term of any employment agreement, non-disclosure agreement, assignment of inventions agreement or similar agreement or contract with the Debtor relating in any way to the protection, ownership, development, use or transfer of the Debtor’s Intellectual Property Collateral.

 

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(ix)         No Intellectual Property Collateral is subject to any outstanding consent, settlement, decree, order, injunction, judgment or ruling restricting the use of any such Intellectual Property Collateral.

 

2.5            Continuing Security Interest . The Debtor represents that it intends and understands that the security interest in the Collateral granted hereby shall be a continuing security interest to secure payment of all Indebtedness. Notice of the continuing nature of this security interest shall not be required to be stated on the face of any document representing any such Indebtedness, nor need such Indebtedness otherwise be identified as being secured hereby.

 

ARTICLE 3
COVENANTS, AGREEMENTS, AND RIGHTS OF PARTIES

 

3.1            Secured Party’s Right to Perform . The Secured Party may, but shall have no obligation to: discharge taxes, liens, security interests or other encumbrances at any time levied or placed upon the Collateral; pay for the maintenance and preservation of the Collateral; obtain and/or pay for insurance on the Collateral; and cause to be performed for and on behalf of the Debtor any obligations of the Debtor hereunder which the Debtor has failed or refused to perform. The Debtor shall reimburse the Secured Party upon demand for all payments made and all expenses incurred by the Secured Party pursuant to this Paragraph 3.1, with interest, from the date paid or incurred by the Secured Party, at the highest rate permitted by law. Any amount realized by the Secured Party with respect to the Collateral shall be applied on a pro rata basis towards the Debtor’s obligations to the Secured Party under the respective Note.

 

3.2            Possession of Third Party . Where any Collateral is in the possession of a third party, the Debtor will join with the Secured Party in notifying the third party of the Secured Party’s security interest and obtaining an acknowledgment from the third party that is holding such Collateral for the benefit of the Secured Party.

 

3.3            Control Agreement . At the request of the Secured Party, the Debtor will cooperate with the Secured Party in obtaining a control agreement in form and substance satisfactory to the Secured Party with respect to Collateral consisting of (i) deposit accounts; (ii) investment property; (iii) letter of credit rights; and (iv) electronic chattel paper.

 

3.4            Chattel Paper . The Debtor will not create any chattel paper without placing a legend on the chattel paper acceptable to the Secured Party indicating that the Secured Party has a security interest therein.

 

3.5            Corporate Changes . Until the Indebtedness is paid in full, the Debtor agrees that it will not change its Incorporation State or corporate name without providing the Secured Party with 30-days’ prior written notice.

 

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3.6            Adverse Claims . The Debtor will promptly notify the Secured Party in writing, upon the Debtor’s learning thereof, of the taking of any action by any party to levy upon, repossess or attach any Collateral.

 

3.7            Disposition; Release . The Debtor may sell or transfer the Collateral to the extent such transfers consist of (a) sales of inventory in the ordinary course of business, or (b) isolated sales or other dispositions of obsolete equipment, to the extent such equipment is replaced by equipment of comparable value (each a “ Permitted Disposition ”). The Secured Party hereby covenants that, at Debtors’ request, it will release its lien on any and all Collateral that is the subject of a Permitted Disposition.

 

3.8            Maintenance of Intellectual Property Collateral . (i) With respect to each item of Intellectual Property Collateral, the Debtor agrees to take, at its expense, all commercially reasonable steps, including, without limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other U.S. or foreign governmental authority, to (A) maintain its registrations for such Intellectual Property Collateral that is or becomes registered in full force and effect, and (B) pursue the prosecution and maintenance of each such material patent, trademark, or copyright registration or application now pending in the United States and in each other appropriate jurisdiction relating to such material Intellectual Property Collateral now or hereafter included in such Intellectual Property Collateral of the Debtor, including, without limitation, the payment of required fees and taxes, the filing of responses to office actions issued by the U.S. Patent and Trademark Office, the U.S. Copyright Office or other applicable U.S. or foreign governmental authorities, the filing of applications for renewal or extension, the filing of affidavits under Sections 8, 9 and 15 of the U.S. Trademark Act, the filing of divisional, continuation, continuation-in-part, reissue and renewal applications or extensions, the payment of maintenance fees and the participation in interference, reexamination, opposition, cancellation, infringement and misappropriation proceedings. The Debtor shall not, without the written consent of the Secured Party, discontinue use of or otherwise abandon any Intellectual Property Collateral, or abandon any right to file an application for patent, trademark, or copyright.

 

(ii)         The Debtor agrees promptly to notify the Secured Party if the Debtor becomes aware (A) that any item of Intellectual Property Collateral may have become abandoned, placed in the public domain, invalid or unenforceable, or of any adverse determination or development regarding the Debtor’s ownership of any Intellectual Property Collateral or its right to register the same or to keep and maintain and enforce the same, or (B) of any adverse determination or the institution of any proceeding (including, without limitation, the institution of any proceeding in the U.S. Patent and Trademark Office or any other U.S. or foreign office or any court) regarding any item of Intellectual Property Collateral.

 

(iii)        In the event that the Debtor becomes aware that any item of Intellectual Property Collateral is being infringed or misappropriated by a third party, the Debtor shall promptly notify the Secured Party and shall take such actions, at its expense, as is necessary to protect or enforce such Intellectual Property Collateral, including, without limitation, suing for infringement or misappropriation and seeking an injunction against continued infringement or misappropriation.

 

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(iv)        The Debtor shall use proper statutory notice in connection with its use of each item of its registered Intellectual Property Collateral. The Debtor shall not do or permit any act or knowingly omit to do any act whereby any of its owned and registered Intellectual Property Collateral may lapse or become invalid or unenforceable or placed in the public domain.

 

(v)         The Debtor shall take all steps to preserve and protect each item of its Intellectual Property Collateral, including, without limitation, maintaining the quality of any and all products or services used or provided in connection with any of the Trademarks.

 

(vi)        The Debtor agrees that this Agreement shall be recorded with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities as desired by the Secured Party and/or as necessary to give notice of and/or perfect the security interest hereunder in such Intellectual Property Collateral.

 

(vii)       The Debtor agrees that should it obtain an ownership interest in any item of the type forming part of the Intellectual Property Collateral that is not on the date hereof a part of the Intellectual Property Collateral (“ After-Acquired Intellectual Property”) (i) the provisions of this Agreement shall automatically apply thereto, and (ii) any such After-Acquired Intellectual Property and, in the case of trademarks, the goodwill symbolized thereby, shall automatically become part of the Intellectual Property Collateral subject to the terms and conditions of this Agreement with respect thereto. At the end of each fiscal quarter of the Debtor, the Debtor shall give prompt written notice to the Secured Party identifying the registered or applied for registration of After-Acquired Intellectual Property, and the Debtor shall execute and deliver to the Secured Party with such written notice, or otherwise authenticate, a supplement to this Agreement covering such registered or applied for After-Acquired Intellectual Property, which supplement the Secured Party may record with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities desired by the Secured Party and/or as necessary to perfect the security interest hereunder in such registered or applied for After-Acquired Intellectual Property.

 

ARTICLE 4
EVENTS OF DEFAULT; REMEDIES UPON DEFAULT

 

4.1            Default and Remedies . Upon the occurrence of an “Event of Default” as defined in the Loan Agreement, Secured Party shall have the remedies provided in this Agreement.

 

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Remedies Generally . Upon the occurrence of an Event of Default, the Secured Party shall have all the rights and remedies of a secured party under the Florida Uniform Commercial Code (“ UCC ”) and any other applicable laws, together with all rights and remedies provided for in this Security Agreement. In addition thereto, upon the occurrence of an Event of Default, the Secured Party may require the Debtor to assemble the Collateral and any proceeds thereof and deliver same to the Secured Party at a place to be designated by the Secured Party which is reasonably convenient to both parties. The Debtor agrees that the Secured Party shall have the right to peacefully retake any of the Collateral without judicial hearing prior to such retaking, including the right to enter upon the Debtor’s premises for such purpose. The Secured Party has no obligation to clean up or otherwise prepare the Collateral for sale. All rights and remedies of the Secured Party shall be cumulative and may be exercised from time to time. The Secured Party shall not be required to make any demand upon, or pursue or exhaust any of its rights or remedies against the Debtor or any other obligor, guarantor, pledgor or any other person with respect to the payment of the Indebtedness or to pursue or exhaust any of its rights or remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof. The Secured Party shall not be required to marshal the Collateral or any guarantee of the Indebtedness or to resort to the Collateral or any such guarantee in any particular order, and all of its rights hereunder or under the Loan Agreement or the Note shall be cumulative. To the extent it may lawfully do so, the Debtor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the Secured Party, any valuation, stay, appraisement, extension, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Collateral made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Agreement, or otherwise.

 

4.2            Disposition of Collateral; Deficiency . The Secured Party may dispose of the Collateral and proceeds in any commercially reasonable manner and the Debtor shall be liable for any deficiency. If the Secured Party sells any of the Collateral upon credit, the Debtor will be credited only with payments actually made by the purchaser, received by the Secured Party and applied to the Indebtedness as provided below. In the event the purchaser fails to pay for the Collateral, the Secured Party may resell the Collateral and the Debtor shall be credited with the proceeds of the sale.

 

4.3            Payment of Expenses . The Debtor shall pay the Secured Party on demand all expenses, including reasonable attorneys’ fees and legal expenses paid or incurred by the Secured Party in protecting and enforcing the rights of and obligations to the Secured Party under any provision of this Agreement, including its right to take possession of the Collateral and proceeds thereof from the custody of the Debtor or any trustee or receiver in bankruptcy or any other person. All such expenses shall become part of the Indebtedness and shall bear interest from the date paid or incurred by the Secured Party at the highest rate permitted by law.

 

4.4            Notice of Sale . Any notice required to be given by the Secured Party to the Debtor with respect to the sale or other disposition of the Collateral shall be deemed reasonable if mailed, in the manner set forth in the Loan Agreement, at least seven (7) days before the time of such sale or other disposition.

 

4.5            Additional Undertakings Relating To Disposition of Intellectual Property Collateral . In the event of any sale, use or other disposition of any of the Intellectual Property Collateral of the Debtor, the goodwill symbolized by any trademarks subject to such sale or other disposition shall be included therein, and the Debtor shall supply to the Secured Party or its designee the Debtor’s know-how and expertise relating to such Intellectual Property Collateral, and documents and things relating to any Intellectual Property Collateral subject to such sale or other disposition, and the Debtor’s customer lists and other records and documents relating to such Intellectual Property Collateral and to the manufacture, distribution, advertising and sale of products and services of the Debtor that relate to such Intellectual Property Collateral.

 

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4.6            Power of Attorney . The Debtor hereby appoints Secured Party, its nominee, or any other person whom the Secured Party may designate the Debtor’s attorney-in-fact, with full power and authority effective upon the occurrence of any Event of Default to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all sums or properties which may be or become due, payable or distributable in respect of the Collateral or any part thereof, with full power to settle, adjust or compromise any claim in respect of the Collateral as fully as the Debtor could itself do, to endorse or sign the Debtor’s name on any assignments, stock powers or other instruments of transfer and on any checks, notes, acceptances, money orders, drafts, and any other forms of payment or security in respect of the Collateral that may come into the Secured Party’s possession and on all documents of satisfaction, discharge or receipt required or requested in connection therewith, and, in its reasonable discretion, to file any claim or take any other action or proceeding, either in its own name or in the name of the Debtor, or otherwise, which the Secured Party deems necessary to collect or otherwise realize upon all or any part of the Collateral, or effect a transfer thereof, or which may be necessary to protect and preserve the right, title, and interest of the Secured Party in and to such Collateral and the security intended to be afforded hereby. The Debtor hereby ratifies and approves all acts of any such attorney-in-fact and agrees that neither Secured Party nor any such attorney-in-fact will be liable for any such acts or omissions nor for any error of judgment or mistake of fact or law other than such person’s gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction. The Secured Party may file one or more financing statements disclosing its security interest in all or any part of the Collateral, and any amendments or supplements thereto, on behalf of the Debtor without notice thereof to the Debtor. The foregoing powers of attorney, being coupled with an interest, are irrevocable until the Maturity Date (as such term is defined in the Amended and Restated Promissory Note- Line of Credit, dated as of the date hereof).

 

4.7            Use of Collateral; License to Intellectual Property Collateral . Until the Secured Party is able to effect a sale, lease, or other disposition of the Collateral, and so long as an Event of Default shall have occurred and be continuing, the Secured Party shall have the right to hold or use the Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving the Collateral or its value or for any other purpose deemed appropriate by the Secured Party. The Secured Party shall have no obligation to the Debtor to maintain or preserve the rights of the Debtor as against third parties with respect to the Collateral while the Collateral is in the possession of the Secured Party. So long as an Event of Default shall have occurred and be continuing, the Secured Party may, if it so elects, seek the appointment of a receiver or keeper to take possession of the Collateral and to enforce any of the Secured Party’s remedies, with respect to such appointment. the Secured Party shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Indebtedness (i) first, to cover its costs and expenses, (ii) second, to pay any and all interest that is due and owing to the Secured Party under the Loan Agreement and the Note, (iii) third, to pay any and all principal that is due and owing to the Secured Party under the Loan Agreement and the Note, and (iv) finally, the Secured Party shall account for the surplus, if any, to the Debtor. To the maximum extent permitted by applicable law, the Debtor waives all claims, damages, and demands against the Secured Party arising out of the repossession, retention or sale of the Collateral except such as arise out of the gross negligence or willful misconduct of the Secured Party, as finally determined by a court of competent jurisdiction.

 

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For the sole purpose of enabling the Secured Party to exercise rights and remedies hereunder (including, without limitation, in order to take possession of, hold, preserve, process, assemble, use, operate, or cause to be used or operated, prepare for sale, market for sale, sell or otherwise dispose of the Collateral) at such time as the Secured Party shall be lawfully entitled to exercise such rights and remedies, and so long as an Event of Default has occurred and is continuing, the Debtor hereby grants to the Secured Party, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Debtor) to use, license or sublicense to third parties any and all of the Intellectual Property Collateral now owned or hereafter acquired by the Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software used for the compilation or printout thereof.

 

4.8            Limitation on the Secured Party’s Duty In Respect of the Collateral . The Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control. The Secured Party shall not have any other duty as to any of the Collateral in its possession or control or in the possession or control of any agent or nominee of the Secured Party, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto.

 

4.9           Reinstatement . This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against the Debtor for liquidation or reorganization, should the Debtor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of the Debtor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment of the Indebtedness, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Indebtedness, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Indebtedness shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

 

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ARTICLE 5
MISCELLANEOUS

 

5.1            Financing Statements . The Debtor authorizes the Secured Party to file one or more financing statements and continuation statements, in form satisfactory to the Secured Party, in all public offices, wherever filing is deemed by the Secured Party to be necessary or desirable. Such financing statements may describe the Collateral as consisting of all assets of the Debtor. The Debtor shall pay the cost of all such filings.

 

5.2            Manner of Notice . All notices to the Debtor and the Secured Party shall be deemed to be effectively given when delivered in accordance with the Loan Agreement.

 

5.3            No Waiver . No delay on the part of the Secured Party in the exercise of any right or remedy shall operate as a waiver thereof and no single or partial exercise by the Secured Party of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy.

 

5.4            Definitions; Applicable Law . All terms used herein, unless otherwise defined or the context otherwise requires, shall have the meanings given to them by the Loan Agreement, or, if not defined in the Loan Agreement, shall have the meanings given to them by the UCC, which, together with other applicable laws of the state of Florida, shall govern this Agreement and the interpretation thereof.

 

5.5            Captions . The captions to the various Paragraphs hereof have been inserted for convenience only and shall not be deemed a part of this Agreement.

 

5.6            Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Secured Party and the Debtor and their respective successors and assigns, including all persons who become bound as a Debtor under this Agreement.

 

5.7            Entire Agreement; Amendment . This Agreement, together with the Loan Agreement and the Note, sets forth the entire agreement of the parties as to the subject matter hereof and may not be amended except in writing and executed by the parties hereto. In the event of any conflict between this Agreement and the Loan Agreement, this Agreement shall prevail.

 

5.8            Severability . In the event any provision hereof is in conflict with any statute or rule of law in the state of Florida or is otherwise unenforceable for any reason whatsoever, then such provision shall be deemed severable from or enforceable to the maximum extent permitted by law, as the case may be, and the same shall not invalidate any other provisions hereof.

 

5.9            Counterparts. This Agreement may be executed via manual telecopy, in multiple counterparts and all such counterparts shall collectively constitute an original agreement. No party hereto will raise the use of a facsimile machine or pdf attachment to email to deliver a signature to this Agreement or the fact that any signature was transmitted or communicated through the use of facsimile machine or pdf attachment to email as a defense to the formation or enforceability of this Note and each party forever waives any such defense.

 

* * * * *

 

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IN WITNESS WHEREOF , the Debtor has executed this Security Agreement as of the day and year first above written.

 

  xG Technology, Inc.
  By: /s/ James Woodyatt
  Name: James Woodyatt
  Title Director

 

Agreed and Accepted By:

 

MB Technology Holdings, LLC

 

By: /s/ George F. Schmitt
Name: George F. Schmitt
Title CEO

 

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EXHIBIT A
Existing Liens and Financing Statements

 

Security Agreement dated as of December 22, 2010 and effective as of July 6, 2010 between the Debtor and Secured Party

 

Security Agreement dated as of December 22, 2010 and effective as of October 8, 2010 between the Debtor and Secured Party

 

UCC Financing Statement filed by the Debtor with the Delaware Secretary of State on December 23, 2010

 

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EXHIBIT B

 

Chief Executive Office, State of Organization, FEIN, Organizational ID

 

Chief Executive Office: 7771 W. Oakland Park Boulevard, Suite 231, Sunrise, FL 33351
   
State of Organization: Delaware

 

Federal Employer Identification Number: 20-585-6795

 

Organizational ID: 3562449

 

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EXHIBIT C

 

Intellectual Property Collateral

 

[To be completed]

 

EXHIBIT "B"

 

Security Agreement dated as of December 22, 2010 and effective as of July 6, 2010 between the Borrower and Lender

 

Security Agreement dated as of December 22, 2010 and effective as of October 8, 2010 between the Borrower and Lender

 

UCC Financing Statement filed by the Debtor with the Delaware Secretary of State on December 23, 2010

 

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EXHIBIT "C"

 

Schedule of Litigation

 

1.          xG Technology, Inc. v. Spartan Mullen ET CIE, S.A. et al

 

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EXHIBIT "D"

 

NONE

 

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To:

xG Technology, Inc.

240 S. Pineapple Avenue, Suite 701

Sarasota, FL 34236

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert all of the Advances, amounting in aggregate to $10,000,000 in principal amount, made under the Promissory Note – Line Of Credit issued by xG TECHNOLOGY, INC.          (the “Issuer”) in favor of MB TECHNOLOGY HOLDINGS, LCC and effective as of February 7, 2011 into shares of $0.01 each in the Common Stock of the Issuer (each a “Share”) according to the conditions set forth in such Note, as of the date written below.

 

Effective Date of Conversion: June 22, 2011

 

Conversion Price: $0.25 per Share

 

Shares To Be Delivered: Forty Million (40,000,000)

 

Address for Registration Of Shares: 240 S. Pineapple Avenue, Suite 701, Sarasota, FL 34236

 

Signature: /s/ Roger G. Branton
   
Print Name: Roger G. Branton

 

For and on behalf of MB TECHNOLOGY HOLDINGS, LLC.

 

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LOAN FACILITY

 

LOAN FACILITY dated and effective as of May 19 , 2011, among xG Technology, Inc., a Delaware corporation (the “Borrower”) and MB Technology Holdings, LLC (the “Lender”).

 

BACKGROUND

 

Lender has established for Borrower a certain credit facility, in the nature of a fifteen million US dollar ($15,000,000) line of credit (“Loan”), as evidenced by Borrower’s Promissory Note – Line of Credit, dated and effective as of May 19 , 2011 in the available principal amount of fifteen million US dollars ($15,000,000) (said Promissory Note – Line of Credit, together with any and all renewals, replacements, amendments or substitutions thereof or therefor, being hereinafter referred to as the “Note”).

 

NOW, THEREFORE, in consideration of the Loan and for other good and valuable consideration and intending to be legally bound, Borrower hereby agrees with Lender as follows:

 

SECTION 1. Granting of Loans . Lender hereby agrees to make available on an uncommitted basis at the discretion of Lender from time to time, until the Maturity Date, the Advances requested by the Borrower hereunder, or pursuant to the Note; provided however, that (a) in no event shall the Advances exceed the Borrowing Limit and (b) Lender has no obligation to lend Borrower any amounts hereunder and the decision to lend such money lies in the sole and absolute discretion of Lender. In consideration for the making of such Loan, the Borrower hereby agrees to grant Lender a security interest in the Assets pursuant to the terms and conditions set forth in that certain Security Agreement, dated as of May 19 , 2011 and effective as of May 19 , 2011 between the Borrower and the Lender. All payments of the Loan and Advances made hereunder shall be made in accordance with the provisions of the Note and shall mature on the Maturity Date.

 

SECTION 2. Representations and Warranties. Borrower represents and warrants to Lender as follows:

 

(a) Power and Authority. Borrower has the right and power and is duly authorized and empowered to enter into, execute, deliver and perform this Loan Facility and each of the Related Agreements to which it is a party. The execution, delivery and performance of this Loan Facility and all Related Agreements has been duly authorized by all necessary corporate action and does not (i) require any consent or approval of the shareholders of Borrower; (ii) contravene the charter, articles of incorporation, memorandum and articles of association, limited liability agreement or by-laws of Borrower; (iii) violate, or cause Borrower to be in default under any provision of any Law, rule, regulations, order, writ, judgment, injunction, decree, determination or award in effect having applicability to Borrower; or (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower is a party or by which it or its properties may be bound or affected.

 

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(b) Legally Enforceable Agreements. This Loan Facility and each Related Agreement is a legal, valid and binding obligation of Borrower, as applicable, and is enforceable against Borrower, as applicable, in accordance with its terms, except as may be affected by (i) the effect of bankruptcy, insolvency, reorganization, moratorium, arrangement, fraudulent conveyance, receivership and other laws now or hereafter in effect affecting the enforcement of creditors’ rights or (ii) the enforceability of equitable remedies or the application of equitable principles (whether considered in an action at law or equity).

 

(c) Assets. All of Borrower’s Assets are free and clear of any and all liens, security interest, mortgages and other encumbrances, restrictions and charges, except as listed on Exhibit “B” attached hereto.

 

(d) Consents. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the execution, delivery or performance by Borrower of this Loan Facility or any Related Agreement.

 

(e) Outstanding Litigation. Except as set forth in Exhibit "C" attached hereto, there are no suits in law or equity or proceedings before any governmental instrumentality or agency against Borrower now pending, nor is there to the knowledge of Borrower threatened or likely any litigation nor any proceedings against or affecting Borrower, the outcome of which might materially and adversely affect the Assets or operations of Borrower, or its financial condition or business.

 

(f) Adverse Change. Except as set forth in Exhibit "D" attached hereto, there has been no material adverse change in the financial condition, business, operation or Assets of the Borrower from the date hereof.

 

(g) Compliance With Applicable Laws. Borrower and its respective business and operations are in compliance with all applicable Laws.

 

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SECTION 3. Covenants. Borrower agrees with and covenants to Lender as follows:

 

(a) From and after the date of this Agreement, Borrower will not incur any Indebtedness of any nature whatsoever, other than (i) the indebtedness to Lender

 

as evidenced by this Loan Facility in favor of Lender, (ii) current trade indebtedness incurred in the ordinary course of business and (iii) purchase money indebtedness for equipment in favor of the vendor or financier thereof limited to the cost of such equipment.

 

(b) Within ninety (90) days after the close of each fiscal year and each fiscal quarter, Borrower shall provide Lender with Borrower's financial statements prepared in accordance with IFRS, said annual financial statements to be audited without a disclaimer of an, or an adverse or qualified, opinion, by the independent certified public accounting firm regularly retained by Borrower, and said quarterly financial statements to be certified by Borrower’s chief financial officer.

 

(c) Borrower, at its own expense, shall maintain adequate property, liability and other insurance during the term of the Loan in such amounts against such risks as shall be adequate for the nature of Borrower's business as now or hereafter conducted.

 

(d) Borrower shall operate its businesses in accordance with current practices and shall not sell, assign or otherwise dispose of or transfer any of its Assets, other than sales of inventory in the ordinary course of business and other than as set forth in Exhibit "D" hereto.

 

(e) Borrower will not permit, create or suffer to exist any lien, security interest or other encumbrance on any of its Assets, other than (i) existing liens as set forth on Exhibit "B" hereto; (ii) purchase money lines on equipment securing purchase money indebtedness permitted by Section 3(a) hereof; (iii) liens relating to judgments to the extent permitted by Section 4(h) hereof; (iv) liens for taxes or assessments either (x) not delinquent or (y) contested in good faith by appropriate proceedings for which an adequate reserve has been made in accordance with IFRS; (v) liens incurred or pledges and deposits in connection with workmen's compensation, unemployment compensation and other social security benefits, or securing the performance bids, tenders, leases, contracts, progress payments, surety, appeal and performance bonds and other obligations of like nature, incurred in the ordinary course of business; (vi) liens imposed by law incurred in good faith in the ordinary course of business; (vii) pledges of or liens on raw materials or on manufactured products as security for drafts or bills of exchange in connection with the importation of such raw materials or manufactured products in the ordinary course of business; (viii) liens encumbering property under construction arising from progress or partial payments by a customer of Borrower relating to such property or assets; (x) liens incurred by Borrower in the ordinary course of business in favor of suppliers who retain title to goods supplied by them until such goods are paid for; and (xi) liens of leases existing on the date of this Agreement.

 

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SECTION 4. Events of Default. The occurrence of each of the following events shall constitute an “Event of Default”:

 

(a) Borrower fails to pay to Lender within thirty (30) business days when due any payment payable hereunder or under any Related Agreement. However, Lender may extend, at its sole discretion, Borrower’s due date so long as interest continues to accrue and such event will not be considered an Event of Default.

 

(b) Borrower fails to observe or perform any other obligation, agreement or covenant to be observed or performed by them hereunder or under any Related Agreement, and such failure is not cured within thirty (30) business days after written notice given by Lender to Borrower specifying such failure.

 

(c) Any financial statement, representation, warranty, statement or certificate made or furnished by Borrower to Lender in connection with this Loan Agreement, or an inducement to Lender to enter into this Loan Agreement, or in any other instrument or document to be delivered hereunder to Lender, is materially false, incorrect, or incomplete when made.

 

(d) Borrower becomes insolvent or generally fails to pay, or admits its inability to pay, debts as they become due or makes a general assignment for the benefit of any of its creditors.

 

(e) Borrower applies for, consents to, or acquiesces in the appointment of, a trustee, receiver, administrator, administrative receiver or other custodian for Borrower or any of the property of Borrower, or, in the absence of such application, consent or acquiescence, a trustee, receiver, administrator, administrative receiver or other custodian is appointed for Borrower or for a substantial part of the property of Borrower and is not discharged within sixty (60) days.

 

(f) Any bankruptcy, reorganization, liquidation, dissolution or other case and proceeding under any bankruptcy or insolvency law is commenced in respect of Borrower, and if such case or proceeding is not commenced by Borrower, it is consented to or acquiesced in by Borrower or remains for sixty (60) days un-dismissed.

 

(g) Borrower discontinues its business operations or materially changes the nature of its business.

 

(h) Borrower shall suffer final judgment(s) for the payment of money aggregating in excess of $50,000 for Borrower collectively and shall not discharge, satisfy or stay the same within thirty (30) business days.

 

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(i) The occurrence of an Event of Default under any Related Agreement, including without limitation under the Promissory Note.

 

(j) The occurrence of any event of default under any present or future indebtedness or obligations between Borrower and third parties, which indebtedness or obligations exceed in the aggregate $50,000.

 

SECTION 5. Remedies. Upon the occurrence of an Event of Default, then in addition to all rights and remedies of Lender set forth in this Agreement, any Related Agreement or pursuant to applicable law, the Lender may (i) immediately suspend or terminate all or any portion of Lender’s obligation to make additional Advances under the Note, (ii) exercise its rights to foreclose on any of the Assets as set forth in the Security Agreement, and/or (iii) declare the entire principal balance of the obligations due hereunder, plus accrued unpaid interest thereon, as well as any and all other charges provided for in this Loan Facility or any other monies due under any other instrument document or agreement between Lender and Borrower, immediately due and payable, without further notice or demand by Lender.

 

SECTION 6. Miscellaneous.

 

(c) Borrower shall upon demand pay to Lender any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which Lender may incur in connection with the exercise or enforcement of any of the rights of Lender hereunder and/or under any Related Agreement.

 

(b) This Loan Facility shall be governed by and construed in accordance with the substantive laws of the State of Florida. Borrower irrevocably agrees to service of process by certified mail, return receipt requested to the address of Borrower as set forth herein.

 

(c) Lender shall have the right, through no more than two representatives or agents at any one time and, prior to the declaration of an Event of Default, no more than one time in any three month period (with no limitation, however, after the declaration of an Event of Default), during reasonable business hours, upon thirty (30) business days prior notice, to audit and conduct examinations of Borrower's books and records and accounts receivable, and Borrower shall be liable to pay Lender all reasonable costs and expenses incurred by Lender in connection therewith, but not to exceed $2,500 per audit.

 

(d) No amendment or waiver of any provision of this Loan Facility or any Related Agreement or consent to any departure by Borrower herefrom shall in any event be effective unless the same shall be in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

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(e) All notices required or permitted hereby shall be in writing and shall be effective when sent either by telecopy, fax or e-mail, recognized overnight courier, registered return receipt mail or hand delivered, in each case addressed as follows:

 

    If to Lender:
     
    MB Technology Holdings, LLC
    240 S. Pineapple Ave.
    Suite 701
    Sarasota, FL 34236
     
    If to Borrower:
     
    xG Technology, Inc.
    7771 W. Oakland Park Boulevard
    Suite 231
    Sunrise, FL 33351

 

For purposes of this Agreement and any of the Related Agreements, notices shall be deemed to be given (i) if delivered in person, when delivered, (ii) if delivered by telecopy, fax or e-mail on the date of transmission, (iii) if delivered by overnight courier, one business day after delivery to the courier or (iv) if delivered by U.S. mail, three (3) business days after deposit, with postage prepaid.

 

(f) This Agreement shall be binding upon the parties and their respective successors and assigns. Lender may assign the Loan and all of its rights thereunder and under this Agreement and all Related Agreements, provided that no such assignment will, without Borrower's prior written consent, be to a person or entity who Lender has actual knowledge is actively engaged in a business which is in competition with that of the Borrower. Borrower may not assign any of its rights or obligations under this agreement or any Related Agreement without the prior written consent of Lender, which may be withheld in its sole discretion.

 

(g) No failure or delay on the part of the Lender to exercise, nor any partial exercise of, any power, right or privilege hereunder or under any Related Agreement shall impair such power, right or privilege or be construed to be a waiver of any Event of Default. All rights and remedies existing hereunder or any other Related Agreement are cumulative to and not exclusive of any rights or remedies otherwise available.

 

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(h) The invalidity, illegality, or unenforceability in any jurisdiction of any provision under this Agreement or any Related Agreement shall not affect or impair the remaining provisions in this Agreement or any Related Agreement.

 

(i) This Agreement may be executed via manual telecopy, in multiple counterparts and all such counterparts shall collectively constitute an original agreement. No party hereto will raise the use of a facsimile machine or pdf attachment to e-mail to deliver a signature to this Agreement or the fact that any signature was transmitted or communicated through the use of facsimile machine or pdf attachment to e-mail as a defense to the formation or enforceability of this Agreement and each party forever waives any such defense.

 

(j) All references to dollars or “$” in this Agreement or any Related Agreement shall refer to U.S. Dollars.

 

(k) From time to time, as and when requested by any party hereto any other party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further actions as the requesting party may reasonably deem necessary or desirable to evidence and effectuate the transactions contemplated by this Agreement. Furthermore, Borrower hereby authorizes Lender to take all such actions that may be necessary to perfect Lender’s security interest in the Assets, including, but not limited to, the filing of any UCC financing statements against the Assets.

 

(l) Any legal action, suit or proceeding arising out of or relating to this Agreement, any Related Agreement or the transactions contemplated hereby shall be instituted exclusively in the courts of the State of Florida, located in Broward County or, provided subject matter jurisdiction exists, in the United States Federal Court for the Southern District of Florida, and each party hereto agrees not to assert as a defense in any such action, suit or proceeding, any claim that it is not subject personally to the jurisdiction of such courts, that its property is exempt or immune from attachment or execution, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of the action, suit or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each party further irrevocably submits to the exclusive jurisdiction of such courts in any such action, suit or proceeding, and waives a trial by jury.

 

SECTION 7. Definitions. For purposes hereof, the following terms shall have the following meanings:

 

(e) “Advances” shall have the meaning ascribed to such term in the Note.

 

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(f) “Assets” shall mean any and all of the assets and properties of the Borrower, real or personal, tangible or intangible, and whether now owned or hereafter acquired.

 

(g) “Borrowing Limit” shall have the meaning ascribed to such term in the Note.

 

(h) “Event of Default” shall mean any of the events specified in Section 4 hereof.

 

(e) “IFRS” shall mean International Financial Reporting Standards, consistently applied.

 

(f) “Indebtedness” shall mean all items of indebtedness, obligations or liabilities, due or to become due, liquidated or unliquidated, direct or contingent, joint or several, of any nature whatsoever and out of whatever transaction arising, including, without limitation:

 

(i)          all indebtedness guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection deposit in the ordinary course of business) or discounted with recourse;

 

(ii)         all indebtedness in effect guaranteed, directly or indirectly, through agreements, contingent or otherwise to (1) purchase such indebtedness, (2) purchase, sell or lease (as lessee or lessor) property, products, materials or supplies, or to purchase or sell services, primarily for the purpose of enabling any debtor to make payment of such indebtedness against loss, or (3) supply funds to or in any manner invest in any debtor;

 

(iii)        all indebtedness secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance upon property owned or acquired subject to such mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance, whether or not the liabilities secured thereby have been assumed; and

 

(iv)        all indebtedness incurred as the lessee of goods or services under leases that, in accordance with IFRS, as applicable, should be reflected on the lessee’s balance sheet.

 

(g) “Laws” shall mean all ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees of any government or political subdivision or agency thereof or any court or similar entity established by any thereof.

 

(h) “Maturity Date” shall have the meaning ascribed to such term in the Note.

 

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(i) “Related Agreements” shall mean each of the agreements and documents specified in Exhibit “A” attached hereto, the terms of each of which are incorporated herein by reference.

 

IN WITNESS WHEREOF, the parties have caused this Loan Facility to be duly executed and delivered by its officers thereunto duly authorized as of the date first written above.

 

BORROWER     LENDER  
         
By: /s/: John C. Coleman   By: /s/: George F. Schmitt
         
Name: John C. Coleman   Name: George F. Schmitt
         
Title: CEO   Title: CEO
         
Attest: /s/: Roger G. Branton   Attest: /s/: Roger G. Branton

  

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EXHIBIT "A"

 

Related Agreements

 

Promissory Note – Line of Credit, dated as of May 19 , 2011 and effective as of May 19 , 2011, between the Borrower and Lender.

 

Security Agreement, dated as of May 19 , 2011 and effective as of May 19 , 2011, between the Borrower and Lender.

 

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PROMISSORY NOTE - LINE OF CREDIT

 

$15,000,000 U.S. Dollars Effective as of May 19, 2011

 

FOR VALUE RECEIVED, intending to be legally bound, xG Technology, Inc., a Delaware corporation (“Borrower”), with offices at 7771 W. Oakland Park Boulevard, Suite 231, Sunrise, FL  33351, promises to pay to the order of MB Technology Holdings, LLC (the “Lender”) and its successors and assigns, at 240 S. Pineapple Avenue, Suite 701, Sarasota, Florida or such other place or places as the holder of this Note (this “ Note ”) from time to time may designate in writing, the principal amount of all Advances (as defined below) in the manner set forth in Section 2 below, together with the interest in like lawful money at the interest rate set forth in Section 3 below and any fees due hereunder.

 

14.          Advances . From time to time, Borrower shall be entitled to borrow (each an “ Advance ” and collectively the “ Advances ”) from Lender a principal amount or amounts to the extent that the sum of all principal amounts advanced to Borrower hereunder does not, at any time, exceed Fifteen Million Dollars ($15,000,000) (subject to increase by prior written agreement of the Lender at its entire discretion) (the “ Borrowing Limit ”). Lender shall make such requested Advance, so long as (i) the Borrowing Limit would not be so exceeded and (ii) there has not occurred an Event of Default (as such term is defined in that certain Loan Facility, dated as of May 19, 2011 (the “ Loan Agreement ”)) or an event which, with notice or lapse of time or both, would constitute an Event of Default; provided further that Lender has no obligation to lend Borrower any amounts hereunder and the decision to lend such money lies in the sole and absolute discretion of Lender. The Advances shall be reflected on the “Schedule of Advances” attached to this Note, as such schedule may be amended from time to time, provided however that in the event that any Advance is not reflected on the “Schedule of Advances” attached hereto, the books and records of the Lender shall constitute evidence of any Advances made hereunder.

 

15.          Payments . Unless accelerated pursuant to the terms hereof, no payments of any principal amount shall be required under this Note until the earlier of (a) the fifth (5th) year anniversary of the date first set forth on the top of this Note (subject to extension by agreement in writing between the Borrower and Lender), (b) on demand, two (2) days following Lender’s written notice to Borrower, or (c) the occurrence of an Event of Default (the “ Maturity Date ”), at which time the entire principal balance of this Note, together with any and all accrued unpaid interest thereon, shall be due and payable in full. Except as otherwise required by law or by other provisions of this Note, payments received by Lender hereunder shall be applied first against expenses and indemnities, next against interest accrued under this Note, and next in reduction of the outstanding principal balance of this Note. Borrower shall pay all amounts owing under this Note in full when due without set-off, counterclaim, deduction or withholding for any reason whatsoever.

 

 

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16.          Interest Rate. The unpaid principal amount for the time being outstanding under this Note shall bear interest at a rate equal to eight percent (8%) per annum (the “ Base Rate ”). Interest on the unpaid principal balance of this Note shall be due and payable commencing on the six month anniversary of the issue date of this Note and shall be payable each six month anniversary thereafter until the Maturity Date. Interest shall be computed on the basis of the actual number of days elapsed and a year of 365 days. The interest charged shall be non-compounding interest, and accrued interest shall not be added to principal. Upon the occurrence and during the continuance of an Event of Default the principal amount of this Note shall bear interest at a rate equal to the Base Rate plus two percent (2%). Interest may be payable by the Borrower at its option either in cash or in shares of $0.01 each in the Common Stock of the Borrower (“Shares”). In the event that the interest is paid in Shares, the price per Share for purposes of such payment shall be equal to the average of the closing price per Share for the five trading days prior to the date on which such interest is payable.

 

17.          Conversion Right. This Note shall be convertible (in whole or in part), at Lender’s sole option, at any time prior to the Maturity Date, into new Shares at $0.75 per new Share, subject to, conditional upon and only with effect from, the publication of the Company’s 2010 annual results and the Company otherwise not being in a close period for the purposes of the AIM Rules for Companies and subject further to such grant and exercise of such conversion right not triggering the mandatory take-over provisions in the Company’s Amended and Restated Certificate of Incorporation.

 

18.          Acceleration Upon Event of Default. The entire unpaid principal balance of and all interest accrued under this Note shall become due and payable immediately upon the occurrence of any Event of Default, without notice or demand.

 

19.          Maximum Interest Rate. Notwithstanding anything in this Note to the contrary, if the interest rate set forth in Section 3 of this Note exceeds the maximum rate of interest permitted by law during any period of this Note, the interest rate shall be an amount equal to the maximum interest rate permitted by law during such period of this Note. For purposes of this Note, the maximum rate permitted by law shall mean the maximum rate of interest that may be contracted for, charged, taken, reserved or received under the laws of the State of Florida or applicable federal law (whichever permits the higher rate) after taking into account, to the extent required by applicable law, any and all relevant payments or charges.

 

20.          Governing Law. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Florida without regard to its conflict of laws provisions.

  

21.          Collection Expense. Borrower agrees to pay, in addition to all the sums payable hereunder, the Lender’s reasonable expenses of collection, including without limitation, court fees and reasonable attorneys’ fees and disbursements, whether or not suit is brought and through all appeals.

  

22.          Prepayment; Facility Fee. Borrower may at any time upon two (2) days' prior written notice to Lender, prepay the entire unpaid principal amount of this Note, or any part thereof, provided that interest accrued on the principal being prepaid shall be payable together with the principal so prepaid. Furthermore, at the time of repayment, whether or not such repayment occurs prior to the Maturity Date, Borrower is required to pay a facility fee equal to two percent (2%) of the Borrowing Limit.

 

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23.          Security. This Note is executed in conjunction with the Loan Agreement and that certain Security Agreement, dated as of the date hereof by and between the Borrower and the Lender (the “ Security Agreement ”) and is secured by the liens and security interests created thereunder with respect to the collateral set forth therein.

  

24.          Waiver of Defenses. The Borrower, expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of intent to accelerate the maturity hereof, notice of the acceleration of the maturity hereof, bringing of suit and diligence in taking any action to collect amounts called for hereunder and in the handling of securities at any time existing in connection herewith; Borrower is directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder or in connection with any right, lien, interest or property at any and all times had or existing as security for any amount called for hereunder.

  

25.          Miscellaneous. Time shall be of the essence with respect to the terms of this Note. Any notice required to be given to Borrower shall be delivered to the last address provided to the Lender by the Borrower (or, if none, to Borrower’s address as it appears on the signature page of this Note). Any notice shall be deemed to have been duly given when delivered in accordance with the Loan Agreement. All of the terms of this Note shall inure to the benefit of Lender and its successors and assigns and shall be binding upon Borrower and its successors and assigns. Lender may assign this Note and any of its rights hereunder, under the Loan Agreement or under the Security Agreement, provided that no such assignment will, without Borrower’s prior written consent, be to a person or entity who Lender has actual knowledge is actively engaged in a business that is in competition with that of Borrower. Borrower may not assign this Note, or any of its rights or obligations hereunder without the prior written consent of Lender, which may be withheld in its sole discretion. This Note may be executed via manual telecopy, in multiple counterparts and all such counterparts shall collectively constitute an original Note. No party hereto will raise the use of a facsimile machine or pdf attachment to email to deliver a signature to this Note or the fact that any signature was transmitted or communicated through the use of facsimile machine or pdf attachment to email as a defense to the formation or enforceability of this Note and each party forever waives any such defense. The provisions of this Note are severable and the invalidity or unenforceability of any provision hereof shall not alter or impair the remaining provisions of this Note. Any failure of Lender to exercise any right under this Note shall not be construed as a waiver to exercise the same or any other right hereunder. All references to dollar amounts in this Note shall be deemed references to U.S. Dollars. In the event of any conflict between this Note and the Loan Agreement or the Security Agreement, the Loan Agreement shall control.

  

IN WITNESS WHEREOF, the undersigned hereby executes this Promissory Note - Line of Credit as of the date first above written.

 

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  xG Technology, Inc.
     
  By: /s/ John C. Coleman
  Name: John C. Coleman
  Title CEO
  Address:   

7771 W. Oakland Park Boulevard

Suite 231

Sunrise, FL  33351

 

Accepted by:

 

MB Technology Holdings, LLC

 

By: /s/ George F. Schmitt
Name: George F. Schmitt
Title CEO

  

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Schedule of Advances

 

Date of Advance  

Principal Amount of

Advance

 

Unpaid Principal Amount of

All Advances

         
         
         
         
         
         
         
         
         
         

 

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SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT is dated and effective as of May 19, 2011 by xG Technology, Inc., a Delaware corporation (the “ Debtor ”), in favor of MB Technology Holdings, LLC, a Delaware limited liability company (the “ Secured Party ”).

 

RECITALS:

 

A.            Pursuant to that certain Loan Facility, dated as of May 19, 2011, between the Debtor and the Secured Party (the “ Loan Agreement ”) and that Promissory Note - Line of Credit, effective as of May 19, 2011, made by the Debtor in favor of the Secured Party (the “ Note ”), Debtor has agreed to borrow from the Secured Party the principal amount of up to Fifteen Million Dollars ($15,000,000) and the Secured Party has agreed to loan to Debtor the principal amount of up to Fifteen Million Dollars ($15,000,000).

 

B.            In order to induce the Secured Party to loan funds to the Debtor, and as security for the repayment of the Debtor’s indebtedness, liabilities and obligations from time to time owed under the Note, the Debtor has agreed to hereby grant the Secured Party a continuing security interest in all of the assets of the Debtor, wherever located and now owned or hereafter acquired.

 

ARTICLE 6
GRANT OF SECURITY INTEREST

 

6.1            Grant of Security Interest . To secure the payment of (i) the Debtor’s obligations under the terms of the Note and the Loan Agreement, and (ii) all costs and expenses paid or incurred by the Secured Party in the exercise, preservation or enforcement of any of the rights, powers or remedies of the Secured Party, or in the enforcement of the obligations of Debtor, under the terms of this Agreement or the Note or the Loan Agreement (collectively, the “ Indebtedness ”), the Debtor grants the Secured Party a security interest in the following personal property of the Debtor, wherever located and whether now owned or hereafter acquired (collectively, the “ Collateral ”):

 

(n) accounts, including health care insurance receivables;
(o) chattel paper;
(p) inventory;
(q) equipment;
(r) instruments, including promissory notes;
(s) investment property;
(t) documents;
(u) deposit accounts;
(v) letter of credit rights;
(w) general intangibles, including payment intangibles;

 

 

 

 

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(x) supporting obligations;
(y) Intellectual Property Collateral; and
(z) to the extent not listed above as original Collateral, proceeds and products of the foregoing.

   

For purposes of the foregoing, the term “ Intellectual Property Collateral ” shall mean all right, title and interest of the Debtor in and to any intellectual property rights and any tangible embodiments thereof, including, without limitation, any of the following anywhere in the world: (i) all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished, whether registered or unregistered, and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held, (ii) all patents, patent applications, invention rights, industrial design rights and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, (iii) any trademark, service mark, domain name, trade dress, product design, packaging design or configuration or other source indicia rights, whether registered or not, applications to register and registrations of the same and like protections, all common law rights and the entire goodwill of the business of the Debtor connected with and symbolized by such trademarks, (iv) all amendments, renewals and extensions of any of the foregoing property described in clauses (i), (ii) and (iii), (v) any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held, (vi) any and all design rights which may be available to the Debtor now or hereafter existing, created, acquired or held, (vii) any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above, (viii) all license or other rights to use any of the copyright, patents or trademarks or service marks, and all license fees and royalties arising from such use to the extent permitted by such license or rights, (ix) any indemnity or warranty payable in respect of any of the foregoing property or interests, and (x) all agreements, permits, waivers or consents relating to the licensing, development, use or disclosure of any of the foregoing to which the Debtor is now or hereafter a party or beneficiary, including, without limitation, the agreements identified on Exhibit C attached hereto (collectively, the “IP Agreements”).

 

ARTICLE 7
REPRESENTATIONS AND WARRANTIES

 

The Debtor represents and warrants to the Secured Party as follows:

 

7.1            Authority . The Debtor has the right and power and is duly authorized and empowered to enter into, execute, deliver and perform its obligations under this Agreement.

 

7.2            Ownership; No Other Liens . The Debtor’s rights in or the power to transfer the Collateral and its title to the Collateral are free and clear of all liens, security interests or encumbrances other than those disclosed in Exhibit A attached hereto.

 

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7.3            Location of Business; Identification Number . Exhibit B attached hereto sets forth (i) the address of the Debtor’s chief executive office (the “ Chief Executive Office State ”); (ii) the state of incorporation of the Debtor (the “ Incorporation State ”); (iii) the Federal Employer Identification Number of the Debtor and (iv) the Organizational ID Number of the Debtor in the Incorporation State (the “ Organizational ID ”). The exact legal name of the Debtor is as set forth above the signature of its representative at the end of this Agreement.

 

7.4            Intellectual Property . Exhibit C attached hereto sets forth a list of all Intellectual Property Collateral owned by Debtor as well as the jurisdiction of registration of any such Intellectual Property Collateral. With respect to itself and its Intellectual Property Collateral, the Debtor further represents and warrants that:

 

(i)          Except as described on Exhibit C , the operation of the Debtor’s business and the Debtor’s use of the Intellectual Property Collateral in connection therewith does not infringe, misappropriate, or dilute the intellectual property rights of any third party.

 

(ii)         Except as described on Exhibit C , (A) the Debtor is the exclusive owner of all right, title and interest in and to the Intellectual Property Collateral purported to be owned by the Debtor, and (B) the Debtor has the right to use all Intellectual Property Collateral subject only to the terms of the IP Agreements identified on Exhibit C , and applicable law or regulation.

 

(iii)        The Intellectual Property Collateral set forth on Exhibit C hereto includes all of the patents, patent applications, domain names, trademark registrations and applications, copyright registrations and applications and IP Agreements owned by the Debtor and necessary for the conduct of the Debtor’s business as it is currently conducted and as it is currently contemplated to be conducted in the future.

 

(iv)        The patents, copyrights registrations and trademark registrations forming part of the Intellectual Property Collateral are subsisting and have not been adjudged invalid or unenforceable in whole or part. The Debtor is not aware of any uses of any item of owned and registered Intellectual Property Collateral that could reasonably be expected to lead to such item becoming invalid or unenforceable.

 

(v)         The Debtor has made or performed all filings, recordings and other acts and has paid all required fees and taxes necessary to maintain and protect its interest in each registration owned by the Debtor for each item of owned and registered Intellectual Property Collateral in full force and effect and has made all filings necessary to date maintain the pendency of and to diligently prosecute the pending applications for Intellectual Property Collateral. The Debtor has used proper statutory notice in connection with its use of each such patent, registered trademark and copyright forming part of the Intellectual Property Collateral.

 

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(vi)        No claim, action, suit, investigation, litigation or proceeding is pending or has been asserted or threatened against the Debtor (A) based upon or challenging or seeking to deny or restrict the Debtor’s rights in or use of any of the Intellectual Property Collateral, (B) alleging that the Debtor’s rights in or use of the Intellectual Property Collateral or that any services provided by, processes used by, or products manufactured or sold by, the Debtor infringe, misappropriate, dilute, misuse or otherwise violate any patent, trademark, copyright or any other proprietary right of any third party, or (C) alleging that the Intellectual Property Collateral is being licensed or sublicensed in material violation or contravention of the terms of any license or other agreement to which the Debtor is a party. No Person is engaging in any activity that infringes, misappropriates, dilutes, misuses or otherwise violates the Intellectual Property Collateral or the Debtor’s rights in or use thereof. The Debtor has not granted any license, release, covenant not to sue, non-assertion assurance, or other right to any third party with respect to any part of the Intellectual Property Collateral. The consummation of the transactions contemplated by the Loan Agreement and the Note will not result in the termination or impairment of any of the Intellectual Property Collateral.

 

(vii)       With respect to each IP Agreement (and assuming the due authorization of and execution by any third parties thereto): (A) such IP Agreement is valid and binding and in full force and effect; (B) such IP Agreement will not cease to be valid and binding and in full force and effect on terms identical to those currently in effect as a result of the rights and interest granted herein, nor will the grant of such rights and interest constitute a breach or default under such IP Agreement or otherwise give any party thereto a right to terminate such IP Agreement; (C) the Debtor has not received any notice of termination or cancellation under such IP Agreement; (D) the Debtor has not received any notice of a breach or default under such IP Agreement, which breach or default has not been cured and (E) neither the Debtor nor any other party to such IP Agreement is in breach or default thereof in any material respect, and no event has occurred that, with notice or lapse of time or both, would constitute such a breach or default by the Debtor or any other party thereto or permit termination, modification or acceleration under such IP Agreement by any other party thereto or by the Debtor.

 

(viii)      (A) none of the trade secrets of the Debtor has been used, divulged or disclosed without authorization or legal compulsion or has been misappropriated to the detriment of the Debtor for the benefit of any third party other than the Debtor; (B) no employee, independent contractor or agent of the Debtor has misappropriated any trade secrets of any third party in the course of the performance of his or her duties as an employee, independent contractor or agent of the Debtor; and (C) no employee, independent contractor or agent of the Debtor is in material default or breach of any term of any employment agreement, non-disclosure agreement, assignment of inventions agreement or similar agreement or contract with the Debtor relating in any way to the protection, ownership, development, use or transfer of the Debtor’s Intellectual Property Collateral.

  

(ix)         No Intellectual Property Collateral is subject to any outstanding consent, settlement, decree, order, injunction, judgment or ruling restricting the use of any such Intellectual Property Collateral.

 

7.5            Continuing Security Interest . The Debtor represents that it intends and understands that the security interest in the Collateral granted hereby shall be a continuing security interest to secure payment of all Indebtedness. Notice of the continuing nature of this security interest shall not be required to be stated on the face of any document representing any such Indebtedness, nor need such Indebtedness otherwise be identified as being secured hereby.

 

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ARTICLE 8
COVENANTS, AGREEMENTS, AND RIGHTS OF PARTIES

         

8.1            Secured Party’s Right to Perform . The Secured Party may, but shall have no obligation to: discharge taxes, liens, security interests or other encumbrances at any time levied or placed upon the Collateral; pay for the maintenance and preservation of the Collateral; obtain and/or pay for insurance on the Collateral; and cause to be performed for and on behalf of the Debtor any obligations of the Debtor hereunder which the Debtor has failed or refused to perform. The Debtor shall reimburse the Secured Party upon demand for all payments made and all expenses incurred by the Secured Party pursuant to this Paragraph 3.1, with interest, from the date paid or incurred by the Secured Party, at the highest rate permitted by law. Any amount realized by the Secured Party with respect to the Collateral shall be applied on a pro rata basis towards the Debtor’s obligations to the Secured Party under the Note.

 

8.2            Possession of Third Party . Where any Collateral is in the possession of a third party, the Debtor will join with the Secured Party in notifying the third party of the Secured Party’s security interest and obtaining an acknowledgment from the third party that is holding such Collateral for the benefit of the Secured Party.

 

8.3            Control Agreement . At the request of the Secured Party, the Debtor will cooperate with the Secured Party in obtaining a control agreement in form and substance satisfactory to the Secured Party with respect to Collateral consisting of (i) deposit accounts; (ii) investment property; (iii) letter of credit rights; and (iv) electronic chattel paper.

 

8.4            Chattel Paper . The Debtor will not create any chattel paper without placing a legend on the chattel paper acceptable to the Secured Party indicating that the Secured Party has a security interest therein.

 

8.5            Corporate Changes . Until the Indebtedness is paid in full, the Debtor agrees that it will not change its Incorporation State or corporate name without providing the Secured Party with 30 days’ prior written notice.

 

8.6            Adverse Claims . The Debtor will promptly notify the Secured Party in writing, upon the Debtor’s learning thereof, of the taking of any action by any party to levy upon, repossess or attach any Collateral.

 

8.7            Disposition; Release . The Debtor may sell or transfer the Collateral to the extent such transfers consist of (a) sales of inventory in the ordinary course of business, or (b) isolated sales or other dispositions of obsolete equipment, to the extent such equipment is replaced by equipment of comparable value (each a “ Permitted Disposition ”). The Secured Party hereby covenants that, at Debtors’ request, it will release its lien on any and all Collateral that is the subject of a Permitted Disposition.

 

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8.8            Maintenance of Intellectual Property Collateral . (i) With respect to each item of Intellectual Property Collateral, the Debtor agrees to take, at its expense, all commercially reasonable steps, including, without limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other U.S. or foreign governmental authority, to (A) maintain its registrations for such Intellectual Property Collateral that is or becomes registered in full force and effect, and (B) pursue the prosecution and maintenance of each such material patent, trademark, or copyright registration or application now pending in the United States and in each other appropriate jurisdiction relating to such material Intellectual Property Collateral now or hereafter included in such Intellectual Property Collateral of the Debtor, including, without limitation, the payment of required fees and taxes, the filing of responses to office actions issued by the U.S. Patent and Trademark Office, the U.S. Copyright Office or other applicable U.S. or foreign governmental authorities, the filing of applications for renewal or extension, the filing of affidavits under Sections 8, 9 and 15 of the U.S. Trademark Act, the filing of divisional, continuation, continuation-in-part, reissue and renewal applications or extensions, the payment of maintenance fees and the participation in interference, reexamination, opposition, cancellation, infringement and misappropriation proceedings. The Debtor shall not, without the written consent of the Secured Party, discontinue use of or otherwise abandon any Intellectual Property Collateral, or abandon any right to file an application for patent, trademark, or copyright.

 

(ii)         The Debtor agrees promptly to notify the Secured Party if the Debtor becomes aware (A) that any item of Intellectual Property Collateral may have become abandoned, placed in the public domain, invalid or unenforceable, or of any adverse determination or development regarding the Debtor’s ownership of any Intellectual Property Collateral or its right to register the same or to keep and maintain and enforce the same, or (B) of any adverse determination or the institution of any proceeding (including, without limitation, the institution of any proceeding in the U.S. Patent and Trademark Office or any other U.S. or foreign office or any court) regarding any item of Intellectual Property Collateral.

 

(iii)        In the event that the Debtor becomes aware that any item of Intellectual Property Collateral is being infringed or misappropriated by a third party, the Debtor shall promptly notify the Secured Party and shall take such actions, at its expense, as is necessary to protect or enforce such Intellectual Property Collateral, including, without limitation, suing for infringement or misappropriation and seeking an injunction against continued infringement or misappropriation.

 

(iv)        The Debtor shall use proper statutory notice in connection with its use of each item of its registered Intellectual Property Collateral. The Debtor shall not do or permit any act or knowingly omit to do any act whereby any of its owned and registered Intellectual Property Collateral may lapse or become invalid or unenforceable or placed in the public domain.

 

(v)         The Debtor shall take all steps to preserve and protect each item of its Intellectual Property Collateral, including, without limitation, maintaining the quality of any and all products or services used or provided in connection with any of the Trademarks.

 

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(vi)        The Debtor agrees that this Agreement shall be recorded with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities as desired by the Secured Party and/or as necessary to give notice of and/or perfect the security interest hereunder in such Intellectual Property Collateral.

 

(vii)       The Debtor agrees that should it obtain an ownership interest in any item of the type forming part of the Intellectual Property Collateral that is not on the date hereof a part of the Intellectual Property Collateral (“ After-Acquired Intellectual Property”) (i) the provisions of this Agreement shall automatically apply thereto, and (ii) any such After-Acquired Intellectual Property and, in the case of trademarks, the goodwill symbolized thereby, shall automatically become part of the Intellectual Property Collateral subject to the terms and conditions of this Agreement with respect thereto. At the end of each fiscal quarter of the Debtor, the Debtor shall give prompt written notice to the Secured Party identifying the registered or applied for registration of After-Acquired Intellectual Property, and the Debtor shall execute and deliver to the Secured Party with such written notice, or otherwise authenticate, a supplement to this Agreement covering such registered or applied for After-Acquired Intellectual Property, which supplement the Secured Party may record with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities desired by the Secured Party and/or as necessary to perfect the security interest hereunder in such registered or applied for After-Acquired Intellectual Property.

 

ARTICLE 9
EVENTS OF DEFAULT; REMEDIES UPON DEFAULT

 

9.1            Default and Remedies . Upon the occurrence of an “Event of Default” as defined in the Loan Agreement, Secured Party shall have the remedies provided in this Agreement.

Remedies Generally . Upon the occurrence of an Event of Default, the Secured Party shall have all the rights and remedies of a secured party under the Florida Uniform Commercial Code (“ UCC ”) and any other applicable laws, together with all rights and remedies provided for in this Security Agreement. In addition thereto, upon the occurrence of an Event of Default, the Secured Party may require the Debtor to assemble the Collateral and any proceeds thereof and deliver same to the Secured Party at a place to be designated by the Secured Party which is reasonably convenient to both parties. The Debtor agrees that the Secured Party shall have the right to peacefully retake any of the Collateral without judicial hearing prior to such retaking, including the right to enter upon the Debtor’s premises for such purpose. The Secured Party has no obligation to clean up or otherwise prepare the Collateral for sale. All rights and remedies of the Secured Party shall be cumulative and may be exercised from time to time. The Secured Party shall not be required to make any demand upon, or pursue or exhaust any of its rights or remedies against the Debtor or any other obligor, guarantor, pledgor or any other person with respect to the payment of the Indebtedness or to pursue or exhaust any of its rights or remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof. The Secured Party shall not be required to marshal the Collateral or any guarantee of the Indebtedness or to resort to the Collateral or any such guarantee in any particular order, and all of its rights hereunder or under the Loan Agreement or the Note shall be cumulative. To the extent it may lawfully do so, the Debtor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the Secured Party, any valuation, stay, appraisement, extension, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Collateral made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Agreement, or otherwise.

 

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9.2            Disposition of Collateral; Deficiency . The Secured Party may dispose of the Collateral and proceeds in any commercially reasonable manner and the Debtor shall be liable for any deficiency. If the Secured Party sells any of the Collateral upon credit, the Debtor will be credited only with payments actually made by the purchaser, received by the Secured Party and applied to the Indebtedness as provided below. In the event the purchaser fails to pay for the Collateral, the Secured Party may resell the Collateral and the Debtor shall be credited with the proceeds of the sale.

 

9.3            Payment of Expenses . The Debtor shall pay the Secured Party on demand all expenses, including reasonable attorneys’ fees and legal expenses paid or incurred by the Secured Party in protecting and enforcing the rights of and obligations to the Secured Party under any provision of this Agreement, including its right to take possession of the Collateral and proceeds thereof from the custody of the Debtor or any trustee or receiver in bankruptcy or any other person. All such expenses shall become part of the Indebtedness and shall bear interest from the date paid or incurred by the Secured Party at the highest rate permitted by law.

 

9.4            Notice of Sale . Any notice required to be given by the Secured Party to the Debtor with respect to the sale or other disposition of the Collateral shall be deemed reasonable if mailed, in the manner set forth in the Loan Agreement, at least seven (7) days before the time of such sale or other disposition.

 

9.5            Additional Undertakings Relating To Disposition of Intellectual Property Collateral . In the event of any sale, use or other disposition of any of the Intellectual Property Collateral of the Debtor, the goodwill symbolized by any trademarks subject to such sale or other disposition shall be included therein, and the Debtor shall supply to the Secured Party or its designee the Debtor’s know-how and expertise relating to such Intellectual Property Collateral, and documents and things relating to any Intellectual Property Collateral subject to such sale or other disposition, and the Debtor’s customer lists and other records and documents relating to such Intellectual Property Collateral and to the manufacture, distribution, advertising and sale of products and services of the Debtor that relate to such Intellectual Property Collateral.

 

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9.6            Power of Attorney . The Debtor hereby appoints Secured Party, its nominee, or any other person whom the Secured Party may designate the Debtor’s attorney-in-fact, with full power and authority effective upon the occurrence of any Event of Default to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all sums or properties which may be or become due, payable or distributable in respect of the Collateral or any part thereof, with full power to settle, adjust or compromise any claim in respect of the Collateral as fully as the Debtor could itself do, to endorse or sign the Debtor’s name on any assignments, stock powers or other instruments of transfer and on any checks, notes, acceptances, money orders, drafts, and any other forms of payment or security in respect of the Collateral that may come into the Secured Party’s possession and on all documents of satisfaction, discharge or receipt required or requested in connection therewith, and, in its reasonable discretion, to file any claim or take any other action or proceeding, either in its own name or in the name of the Debtor, or otherwise, which the Secured Party deems necessary to collect or otherwise realize upon all or any part of the Collateral, or effect a transfer thereof, or which may be necessary to protect and preserve the right, title, and interest of the Secured Party in and to such Collateral and the security intended to be afforded hereby. The Debtor hereby ratifies and approves all acts of any such attorney-in-fact and agrees that neither Secured Party nor any such attorney-in-fact will be liable for any such acts or omissions nor for any error of judgment or mistake of fact or law other than such person’s gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction. The Secured Party may file one or more financing statements disclosing its security interest in all or any part of the Collateral, and any amendments or supplements thereto, on behalf of the Debtor without notice thereof to the Debtor. The foregoing powers of attorney, being coupled with an interest, are irrevocable until the Maturity Date (as such term is defined in the Promissory Note- Line of Credit, dated as of the date hereof).

 

9.7            Use of Collateral; License to Intellectual Property Collateral . Until the Secured Party is able to effect a sale, lease, or other disposition of the Collateral, and so long as an Event of Default shall have occurred and be continuing, the Secured Party shall have the right to hold or use the Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving the Collateral or its value or for any other purpose deemed appropriate by the Secured Party. The Secured Party shall have no obligation to the Debtor to maintain or preserve the rights of the Debtor as against third parties with respect to the Collateral while the Collateral is in the possession of the Secured Party. So long as an Event of Default shall have occurred and be continuing, the Secured Party may, if it so elects, seek the appointment of a receiver or keeper to take possession of the Collateral and to enforce any of the Secured Party’s remedies, with respect to such appointment. the Secured Party shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Indebtedness (i) first, to cover its costs and expenses, (ii) second, to pay any and all interest that is due and owing to the Secured Party under the Loan Agreement and the Note, (iii) third, to pay any and all principal that is due and owing to the Secured Party under the Loan Agreement and the Note, and (iv) finally, the Secured Party shall account for the surplus, if any, to the Debtor. To the maximum extent permitted by applicable law, the Debtor waives all claims, damages, and demands against the Secured Party arising out of the repossession, retention or sale of the Collateral except such as arise out of the gross negligence or willful misconduct of the Secured Party, as finally determined by a court of competent jurisdiction.

 

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For the sole purpose of enabling the Secured Party to exercise rights and remedies hereunder (including, without limitation, in order to take possession of, hold, preserve, process, assemble, use, operate, or cause to be used or operated, prepare for sale, market for sale, sell or otherwise dispose of the Collateral) at such time as the Secured Party shall be lawfully entitled to exercise such rights and remedies, and so long as an Event of Default has occurred and is continuing, the Debtor hereby grants to the Secured Party, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Debtor) to use, license or sublicense to third parties any and all of the Intellectual Property Collateral now owned or hereafter acquired by the Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software used for the compilation or printout thereof.

 

4.8            Limitation on the Secured Party’s Duty In Respect of the Collateral . The Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control. The Secured Party shall not have any other duty as to any of the Collateral in its possession or control or in the possession or control of any agent or nominee of the Secured Party, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto.

 

4.9            Reinstatement . This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against the Debtor for liquidation or reorganization, should the Debtor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of the Debtor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment of the Indebtedness, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Indebtedness, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Indebtedness shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

 

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ARTICLE 10
MISCELLANEOUS

 

10.1          Financing Statements . The Debtor authorizes the Secured Party to file one or more financing statements and continuation statements, in form satisfactory to the Secured Party, in all public offices, wherever filing is deemed by the Secured Party to be necessary or desirable. Such financing statements may describe the Collateral as consisting of all assets of the Debtor. The Debtor shall pay the cost of all such filings.

 

10.2          Manner of Notice . All notices to the Debtor and the Secured Party shall be deemed to be effectively given when delivered in accordance with the Loan Agreement.

 

10.3          No Waiver . No delay on the part of the Secured Party in the exercise of any right or remedy shall operate as a waiver thereof and no single or partial exercise by the Secured Party of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy.

 

10.4          Definitions; Applicable Law . All terms used herein, unless otherwise defined or the context otherwise requires, shall have the meanings given to them by the Loan Agreement, or, if not defined in the Loan Agreement, shall have the meanings given to them by the UCC, which, together with other applicable laws of the state of Florida, shall govern this Agreement and the interpretation thereof.

 

10.5          Captions . The captions to the various paragraphs hereof have been inserted for convenience only and shall not be deemed a part of this Agreement.

 

10.6          Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Secured Party and the Debtor and their respective successors and assigns, including all persons who become bound as a Debtor under this Agreement.

 

10.7          Entire Agreement; Amendment . This Agreement, together with the Loan Agreement and the Note, sets forth the entire agreement of the parties as to the subject matter hereof and may not be amended except in writing and executed by the parties hereto. In the event of any conflict between this Agreement and the Loan Agreement, this Agreement shall prevail.

 

10.8          Severability . In the event any provision hereof is in conflict with any statute or rule of law in the state of Florida or is otherwise unenforceable for any reason whatsoever, then such provision shall be deemed severable from or enforceable to the maximum extent permitted by law, as the case may be, and the same shall not invalidate any other provisions hereof.

 

10.9          Counterparts. This Agreement may be executed via manual telecopy, in multiple counterparts and all such counterparts shall collectively constitute an original agreement. No party hereto will raise the use of a facsimile machine or pdf attachment to email to deliver a signature to this Agreement or the fact that any signature was transmitted or communicated through the use of facsimile machine or pdf attachment to email as a defense to the formation or enforceability of this Agreement and each party forever waives any such defense.

 

* * * * *

 

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IN WITNESS WHEREOF , the Debtor has executed this Security Agreement as of the day and year first above written.

 

 

  xG Technology, Inc.
     
  By: /s/ John C. Coleman
  Name: John C. Coleman
  Title CEO

 

Agreed and Accepted By:

 

MB Technology Holdings, LLC

 

By: /s/ George F. Schmitt  
Name: George F. Schmitt  
Title CEO  

 

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EXHIBIT A
Existing Liens and Financing Statements

 

Security Agreement dated as of February 7, 2011 and effective as of February 7, 2011 between the Debtor and Secured Party

  

Security Agreement dated as of February 7, 2011 and effective as of February 7, 2011 between the Debtor and Secured Party

 

UCC Financing Statement filed by the Debtor with the Delaware Secretary of State on February 7, 2011

 

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EXHIBIT B

 

Chief Executive Office, State of Organization, FEIN, Organizational ID

 

Chief Executive Office: 7771 W. Oakland Park Boulevard, Suite 231, Sunrise, FL  33351
   
State of Organization: Delaware

 

Federal Employer Identification Number: 20-585-6795

 

Organizational ID: 3562449

 

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EXHIBIT C

 

Intellectual Property Collateral

 

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EXHIBIT "B"

 

 

Security Agreement dated as of February 7, 2011 and effective as of February 7, 2011 between the Borrower and Lender

 

Security Agreement dated as of February 7, 2011 and effective as of February 7, 2011 between the Borrower and Lender

 

UCC Financing Statement filed by the Debtor with the Delaware Secretary of State on February 7, 2011

 

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EXHIBIT "C"

 

Schedule of Litigation

 

NONE

  

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EXHIBIT "D"

  

NONE

 

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To:

 

xG Technology, Inc.

240 S. Pineapple Avenue, Suite 701

Sarasota, FL 34236

 

  NOTICE OF CONVERSION

 

The undersigned hereby irrevocably elects to convert all of the Advances, amounting in aggregate to $15,000,000 in principal amount, made under the Promissory Note - Line Of Credit issued by xG TECHNOLOGY, INC. (the “Issuer”) in favor of MB TECHNOLOGY HOLDINGS, LLC and effective as of May 19, 2011 into shares of $0.01 each in the Common Stock of the Issuer (each a “Share”), according to the conditions set forth in such Note, as of the date written below subject to the extent that the Company for the time being has sufficient authorized capital.

 

Effective Date of Conversion: Immediately upon, and with effect from, the Issuer having published its 2012 annual results and otherwise not being in a close period for the purposes of the AIM Rules for Companies

 

Conversion Price: $0.38 per Share

 

Shares To Be Delivered:         Forty-four Million, Four Hundred and Seventy-three Thousand, Six Hundred and Eighty Four (44,473,684)

 

Address For Registration Of Shares:  240 S. Pineapple Avenue, Suite 70, Sarasota, FL 34236

 

Delivery Address For Share Certificate:       240 S. Pineapple Avenue, Suite 70, Sarasota, FL 34236

 

Signature: /s/ Roger G. Branton
 
Print Name: Roger G. Branton

 

Effective as of January 16, 2013

 

For and on behalf of MB TECHNOLOGY HOLDINGS, LLC

 

Address: 240 S. Pineapple Avenue, Suite 70, Sarasota, FL 34236

 

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Ex 10.7

CONFIDENTIAL

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN, AND ARE NOT INTENDED TO BE, REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE “ACT”) OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND ARE BEING OFFERED AND SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND EXEMPTIONS FROM REGISTRATION PROVIDED BY SUCH OTHER SECURITIES LAWS AND MAY NOT BE TRANSFERRED, ASSIGNED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND SUCH OTHER SECURITIES LAWS. THE SECURITIES ARE BEING OFFERED FOR INVESTMENT PURPOSES ONLY, WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS SUBSCRIPTION AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE SIGNIFICANT RISKS AND SHOULD NOT BE SUBSCRIBED BY ANYONE WHO CANNOT AFFORD THE LOSS OF THE ENTIRE INVESTMENT.

 

SUBSCRIPTION AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), is made and entered into as of ______________, 2012, by and between xG Technology, Inc., a Delaware corporation (the “Company”), and _______________ (the “Subscriber”).

 

RECITALS:

 

WHEREAS, the Subscriber desires to subscribe and the Company desires to sell _____________ (________________) new shares (“New Issue Shares”) of Common Stock of the Company with a par value of $0.01 per share (“Shares”), on the terms and conditions set forth herein.

 

NOW, THEREFORE, for and in consideration of the premises hereof and the mutual representations, warranties, covenants, and agreements set forth herein below, and for other good and valuable consideration, the receipt and sufficiency of which the parties hereto hereby acknowledge, the parties hereto, intending to be legally bound hereby, agree as follows:

 

 
 

 

1. Subscription of New Issue Shares; Subscription Closing .

 

(a)           Subscription of New Issue Shares . Subject to the terms and conditions hereof, at the Subscription Closing (as defined below), the Company shall allot and issue to the Subscriber, and the Subscriber shall subscribe, the New Issue Shares at a subscription price of US$1.00 per New Issue Share (in aggregate, the “Subscription Price”).

 

(b)           Subscription Closing . The closing of the subscription of the New Issue Shares (the “Share Subscription Closing”) shall take place at the offices of Capita Registrars (Jersey) Limited on the date of this Agreement. At the Closing: (i) subject to fulfillment of sub-paragraph (ii) herein, the Company shall deliver to the Subscriber (or as it may direct) certificate(s) evidencing the New Issue Shares; (ii) the Subscriber shall pay in full the aggregate Subscription Price to the Company via a wire transfer of immediately available funds to an account specified by the Company; and (iii) the Company and the Subscriber shall execute and deliver any and all additional documents, certificates, consents and agreements necessary to effectuate the issue of the New Issue Shares or to complete the transactions contemplated hereby.

 

2. Description of Securities .

 

(a)           Rights and Obligations. The Shares shall have such rights and obligations as set forth in the Amended and Restated Certificate of Incorporation of the Company as filed with the Delaware Secretary of State in September 2009;

 

(b)           Restricted Securities . The Subscriber understands that the New Issue Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act” or “Act”), or any applicable state securities, or “blue sky,” laws (collectively with any federal securities laws, the “Securities Laws”), that the subscription of the New Issue Shares is taking place in a transaction not involving a public offering, that the Company does not intend to register the New Issue Shares and that the New Issue Shares are “restricted securities” as that term is defined under Rule 144 of the Securities Act, and may not be offered for sale or sold or otherwise transferred in a transaction which would constitute a sale thereof within the meaning of the Securities Act unless such New Issue Shares (i) have been registered for sale under the Securities Act and have been registered or qualified under applicable state securities laws relating to the offer and sale of securities; or (ii) are exempt from the registration requirements of the Securities Act and are exempt from the registration or qualification requirements of such state securities laws. The Subscriber agrees that prior to any resale of the New Issue Shares by the Subscriber in any case where an exemption is relied upon by the Subscriber from the registration requirements of the Securities Act and the registration or qualification requirements of such state securities laws, the Subscriber shall furnish the Company with an opinion of counsel acceptable to the Company in its sole discretion in a form acceptable to the Company in its sole discretion stating that the proposed sale or other disposition of such securities may be effected without registration under the Securities Act and will not result in any violation of any applicable state securities laws; and

 

2
 

 

(c)           No Registration Rights . The Subscriber understands and agrees that the Subscriber has no right to request, and the Company is under no obligation, to register the New Issue Shares under the Securities Laws.

 

3.              Representations and Warranties of the Subscriber . The offering by the Company is intended to be exempt from registration under the Securities Act, pursuant to Section 4(2) of the Securities Act and/or the provisions of Regulation D promulgated thereunder (“ Regulation D ”) or Regulation S promulgated thereunder (“ Regulation S ”). In furtherance thereof and as a material inducement for the Company to enter into this Agreement and to accept the Subscriber’s subscription for the New Issue Shares, the Subscriber hereby represents and warrants to the Company as follows:

 

(a)           Corporate Power and Authority; Binding Agreement . The execution and delivery of this Agreement by the Subscriber, the consummation of the transactions contemplated hereby and the performance of the Subscriber’s obligations hereunder are within the power and authority of the Subscriber and have been duly authorized by all necessary corporate or other organizational action of the Subscriber. No other corporation, or other organizational act or proceeding on the part of the Subscriber is necessary to authorize this Agreement or the consummation of the transactions contemplated hereby or the performance of the Subscriber’s obligations hereunder. The Subscriber’s signatory hereto has full power and authority to execute and deliver this Agreement in the name of and on behalf of the Subscriber, and the signature is genuine. When duly executed and delivered by the parties hereto, this Agreement will constitute a valid and legally binding obligation of the Subscriber enforceable against it in accordance with its terms;

 

(b)           Non-US Person . The Purchaser is not a “U.S. Person” (as defined in Regulation S promulgated under the Securities Act) and is not acting for the account or benefit of a “U.S. Person”. At the time of the execution of this Agreement and the time of the Closing the Purchaser is not and will not be located in the United States;

 

(c)           No Resale . The Subscriber understands that the New Issue Shares have not been registered under the Securities Act and may not be offered, resold, pledged or otherwise transferred by the Subscriber except (a) (i) in an offshore transaction meeting the requirements of Rule 903 or Rule 904 of Regulation S promulgated under the Securities Act, (ii) pursuant to an effective registration statement under the Securities Act, or (iii) pursuant to an available exemption from the registration requirements of the Securities Act and (b) in accordance with all applicable securities laws of the United States of America, its territories and possessions, any State of the United States, and the District of Columbia (“United States”);

 

3
 

 

(d)           No Resale in United States of America for 1 Year .           The Subscriber understands and agrees that, if in the future it decides to resell, pledge or otherwise transfer any New Issue Shares or any beneficial interests in any New Issue Shares prior to one year after the date this Agreement it will do so only outside the United States in an “offshore transaction” (as defined in Regulation S promulgated under the Securities Act) in compliance with Rule 903 or Rule 904 under the Securities Act, pursuant to an effective registration statement under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act and in each of such cases in accordance with any applicable securities law of the United States;

 

(e)           No Hedging Transactions Unless in Compliance with the Securities Act . The Subscriber understands and agrees that hedging transactions involving those securities may not be conducted unless in compliance with the Securities Act;

 

(f)           Notify Future Subscribers of Restriction . The Subscriber agrees to, and each subsequent holder is required to, notify any Subscriber of the New Issue Shares from it of the resale restrictions referred to in paragraphs (b), (c), (d) and (e) above, if then applicable;

 

(g)           Investment Intent . The Subscriber is acquiring the New Issue Shares for its own account for investment only and not with a view to sale or resale, distribution or fractionalization of the New Issue Shares in violation of Securities Laws, nor with any present intention of distributing or selling the same; and the Subscriber has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for the disposition thereof. The Subscriber will not resell or offer to resell the New Issue Shares, or any portion thereof, except in accordance with the terms of this Agreement and in compliance with all applicable Securities Laws;

 

(h)           No Conflict . The execution, delivery and performance by the Subscriber of the Agreement and the transactions contemplated hereby are within the powers of the Subscriber and will not constitute or result in a breach or default under, or conflict with (nor has any event occurred which with notice, lapse of time, or both would result in any breach of, or constitute a default under, or conflict with) (i) its articles of incorporation or bylaws or similar constituent documents; (ii) any law, rule or regulation, or order or ruling of any court or other tribunal or of any governmental commission or agency; or (iii) any agreement or other undertaking, to which the Subscriber is a party or by which the Subscriber is bound;

 

(i)           Other Securities Laws . The Subscriber understands that no securities administrator of any state or other jurisdiction has made any finding or determination relating to the fairness of this investment and that no securities administrator of any state has recommended or endorsed, or will recommend or endorse, the offering of the New Issue Shares; including but not limited to the London Stock Exchange, AIM Regulation or the Securities and Exchange Commission;

 

(j)           Advice of Tax and Legal Advisors . The Subscriber has relied solely upon the advice of its own tax and legal advisors with respect to the tax and other legal aspects of this investment;

 

4
 

 

(k)           Knowledge and Experience . The Subscriber believes an investment in the New Issue Shares is suitable and appropriate for the Subscriber and the Subscriber (i) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the Subscriber’s prospective investment in the New Issue Shares; (ii) has the ability to bear the economic risks of the Subscriber’s prospective investment in the Company and lack of liquidity in the Company, including the loss of the Subscriber’s entire investment in the Company; (iii) has no need for liquidity of an investment in the Company and (iv) has not been offered, and the Subscriber is not subscribing for, the New Issue Shares as a result of, or subsequent to, any form of advertisement, article, notice, or other publicity, solicitation or communication published or provided in any newspaper, magazine, newsletter or similar medium; or broadcast over television, radio or the Internet; or presented at any conference, seminar or meeting whose attendees have been invited by any such medium or to which the public was invited;

 

(l)           Acknowledgement of Risk . The Subscriber acknowledges that an investment in the New Issue Shares offered hereby involves a high degree of risk. The Subscriber has reviewed and considered the risks and uncertainties described in the Appendix and elsewhere in this Agreement before making an investment decision with respect to the New Issue Shares. The risk factors described in the Appendix are not the only ones that the Company faces or that may relate to an investment in the New Issue Shares. Any of these risks, alone or in combination with other risks, could result in a material and adverse impact upon the business, financial condition, results of operations, or prospects of the Company. In such case, the value of the New Issue Shares could decline, and the Subscriber could lose part or all of its investment in the Company. The Subscriber is aware that returns on investments made by the Company are uncertain and that the Directors of the Company may receive compensation in connection with the management of the Company;

 

(m)           Access to Information . The Subscriber has fully read this Agreement, including the Appendix, which describes certain material information concerning the Company. The Subscriber has had an opportunity to perform its own investigation of the Company and the Subscriber has had access to all material and relevant public information concerning the Company, its current and proposed business and operations, including the development of the business, and its management, financial condition, capitalization, market information, assets and prospects, necessary to enable the Subscriber to make an informed investment decision with respect to its investment in the New Issue Shares, including but not limited to, the Company’s Admission document prepared with respect to the Company’s listing on the AIM market and subsequent notifications by the Company to the AIM market. The Subscriber acknowledges that it has been given reasonable opportunity to ask questions of and receive answers from, and to obtain additional information from, representatives of the Company, and the Subscriber has had the opportunity to speak and meet with representatives of the Company for the purpose of asking questions of, and receiving answers from, such representatives concerning the aforesaid, the terms and conditions of the Agreement, and an investment in the Company, and has had all such questions and inquiries answered to its satisfaction and has been supplied with all information requested. Notwithstanding the foregoing, the Subscriber is not aware of any non-public fact or circumstance, which, if made public or otherwise generally available, would be likely to have a significant effect on the price or value of the Shares or have a material effect upon the upon the business, operations, financial condition, sphere of activity, performance, expectation of performance or prospects of the Company. The Subscriber is aware of the highly speculative nature of an investment in the Company, and the significant risks involved therein. No statements, printed material or other information that is contrary to the information contained in this Agreement or the Appendix has been given or made by or on behalf of the Company to the Subscriber;

 

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(n)           Accuracy of Disclosures . All of the information supplied by the Subscriber to the Company in connection with the subscription of the New Issue Shares (including, without limitation, the information set forth in the Subscriber Questionnaire), and the representations and warranties of the Subscriber contained in this Agreement, are true and complete, and do not contain any statement which, at the time and in light of the circumstances under which they were made, were false or misleading with respect to any material fact, and do not omit to state any material fact required to be stated in order to make the statements made not false or misleading;

 

(o)           Subscriber Questionnaire . The Company may only accept subscriptions from persons who meet certain suitability standards. In furnishing the information set forth in the Subscriber Questionnaire, the Subscriber hereby acknowledges that the Company will be relying thereon in determining, among other things, whether there are reasonable grounds to believe that the Subscriber qualifies as an acquirer of securities under Section 4(2) of the Securities Act, Regulation D or Regulation S, among other qualifications. The statements and information set forth in the Subscriber Questionnaire are true, correct and complete in all respects;

 

(p)           Anti-Money Laundering Matters . The Subscriber acknowledges that the Company seeks to comply with all applicable anti-money laundering laws and regulations. In furtherance of these efforts, the Subscriber represents, warrants and agrees that: (i) no part of the funds used by the Subscriber to acquire the New Issue Shares or to satisfy its capital commitment obligations with respect thereto has been, or shall be, directly or indirectly derived from, or related to, any activity that may contravene United States federal or state or non-United States laws or regulations, including anti-money laundering laws and regulations and (ii) no subscription, contribution or payment to the Company by the Subscriber and no distribution to the Subscriber shall cause the Company to be in violation of any applicable anti-money laundering laws or regulations including, without limitation, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 and the United States Department of the Treasury Office of Foreign Assets Control regulations. The Subscriber acknowledges and agrees that, to the extent required by any anti-money laundering law or regulation, the Company may prohibit additional investment, restrict distribution or take any other reasonably necessary or advisable action with respect to the New Issue Shares, and the Subscriber shall have no claim, and shall not pursue any claim against the Company or any other person in connection therewith;

 

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(q)           Reliance by Company . The Subscriber acknowledges that, prior to any proposed transfer of the New Issue Shares other than pursuant to an effective registration statement, the transferee of the New Issue Shares may be required to provide certifications and other documentation relating to the non-“U.S. Person” status of such transferee and the Company and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and warranties and agrees that if any such acknowledgements, representations or warranties deemed to have been made by virtue of its subscription of the New Issue Shares are no longer accurate, it shall promptly notify the Company; and

 

(i)           Legend on Certificates . The Subscriber understands and acknowledges that certificates evidencing the New Issue Shares and any certificates issued in replacement therefor shall bear the following legend, in addition to any other legend required by the Securities Laws or otherwise:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (3) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS. HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

 

BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A U.S. PERSON AND IS ACQUIRING THESE SECURITIES IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THESE SECURITIES UNLESS THE HOLDER FURNISHES TO THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS, CONFIRMATION OR NOTICE, OR OTHER INFORMATION, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO REGULATION S (§§ 230.901 THROUGH 230.905 AND PRELIMINARY NOTES), PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND THAT A HEDGING TRANSACTION INVOLVING THE SECURITIES IS NOT BEING CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSONS” HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S OF THE SECURITIES ACT.”

 

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4.             Representations and Warranties of the Company . The Company hereby represents and warrants to the Subscriber as follows:

 

(a)           Organization and Standing of the Company . The Company is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware with adequate power and authority to conduct the business in which it is now engaged and has the corporate power and authority to enter into this Agreement;

 

(b)           Corporate Power and Authority . The execution and delivery of this Agreement and the transactions contemplated hereby have been duly authorized by the Board of Directors of the Company. No other corporate act or proceeding on the part of the Company is necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. When duly executed and delivered by the parties hereto, this Agreement will constitute a valid and legally binding obligation of the Company enforceable against it in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium, reorganization or other similar laws and legal and equitable principles limiting or affecting the rights of creditors generally; and/or (ii) general principles of equity, regardless of whether considered in a proceeding in equity or at law;

 

(c)           No Conflict . The execution, delivery and performance by the Company of the Agreement and the transactions contemplated hereby are within the powers of the Company and will not constitute or result in a breach or default under, or conflict with, any order, ruling or regulation of any court or other tribunal or of any governmental commission or agency, or any agreement or other undertaking, to which the Company is a party or by which the Company is bound, except where such breach or default under, or conflict with, such would not have a material adverse effect on its business or operations; and

 

(d)           Reservation of Shares . The requisite number of Shares of Common Stock have been duly authorized and reserved for issuance upon the Company’s receipt and acceptance of payment therefor and no further corporate action is required for the valid issuance of such New Issue Shares.

 

5.              Notices . All notices, requests, consents or other communications required or permitted hereunder shall be in writing and shall be hand delivered or mailed, first class postage prepaid, by registered or certified mail to the following addresses:

 

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If to the Company :

 

xG Technology, Inc.

240 South Pineapple Ave, Suite 701

Sarasota Florida 34236

USA

Attention: Chief Executive Officer

 

In the case of the Subscriber :

 

To that address indicated on the signature page hereof.

 

Unless specified otherwise, such notices and other communications shall for all purposes of this Agreement be treated as being effective upon being delivered personally or, if sent by mail, five days after the same has been deposited in a regularly maintained receptacle for the deposit of mail, addressed as set forth above, and postage prepaid.

 

6.              Repetition and Survival of Representations and Warranties, Indemnification . Representations and warranties are deemed to be repeated on each day up to and including the date of Share Subscription Closing and any reference made to the date of this Agreement (whether express or implied) in relation to any representation or warranty shall be construed, in relation to any such repetition, as a reference to each such day. All representations and warranties contained herein shall survive indefinitely the execution and delivery of this Agreement, the closing of the transactions contemplated hereby and the issuance and delivery of the New Issue Shares. The Subscriber shall, and hereby agrees to, indemnify, hold harmless and defend the Company and each of its officers, managers, directors, controlling persons, employees, advisors, consultants, shareholders and affiliates, and any person acting on behalf of the Company (each an “Indemnified Person”), who is or may be a party or is or may be threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of or arising from, (a) the Subscriber’s breach or violation of this Agreement or any undertaking or covenant on the part of the Subscriber herein, or (b) actual or alleged misrepresentation or misstatement of facts or other matters made or alleged to have been made by or on behalf of the Subscriber to the Company concerning the Subscriber or the Subscriber’s authority or suitability to invest in the Company, against any and all losses, liabilities, damages, claims, actions and expenses incurred by an Indemnified Person in connection with such action, suit or proceeding for which the Company or such Indemnified Person has not otherwise been reimbursed, including, but not limited to, attorneys’ fees, judgments, fines and amounts paid in settlement and the Subscriber agrees that in the event of any such breach or untruth, the Company may, at its option, forthwith rescind the sale of New Issue Shares to the Subscriber.

 

7.              Parties in Interest . This Agreement and all the terms and provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the respective successors and permitted assigns of the parties hereto and are not intended to be, and shall not be, construed so as to confer any rights or benefits upon any other person or party, provided that this Agreement and the interests herein may not be assigned by either party without the express written consent of the other party.

 

8.              Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to conflicts of law principles contrary.

 

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9.               Sections and Other Headings . The section and other headings contained in this Agreement are for the convenience of reference only and do not constitute part of this Agreement or otherwise affect any of the provisions hereof or the construction, meaning or interpretation of this Agreement (or of any provision hereof).

  

10.             Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms.

 

11.             Counterpart Signatures . This Agreement may be executed in counterpart and delivered via facsimile or e-mail, both of which shall be deemed to be an original, and both of which together shall be deemed to be one and the same instrument.

 

12.            Entire Agreement . This Agreement constitutes the entire agreement between the parties and supersedes any previous arrangement, understanding or agreement between them with respect to the subject matter hereto. Each party acknowledges that, in entering into this Agreement, it does not rely on, and neither party shall be liable or bound to the other party in any manner by, any statement, representation, inducement, promise, agreement, guarantee, covenant, assurance or warranty of any person (whether a party to this agreement or not) other than as expressly set out in writing in this Agreement (an “Express Representation”). Each party agrees that the only rights and remedies available to it arising out of or in connection with an Express Representation shall be for breach of contract as provided in this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Nothing in this clause shall limit or exclude any liability for fraud.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused this Agreement to be signed by their duly authorized officers as of the date first written above.

 

     
     
     
  By:  
    Name:
    Title:
    Address:  
     
     
     
  xG TECHNOLOGY, INC.
     
  By:  
    Name:
    Title:

 

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APPENDIX

 

(a)           Because much of the Company’s potential success and value lies in its use of internally developed proprietary technology, if the Company fails to protect this technology, it could negatively affect the Company. The Company’s success and ability to compete effectively are in large part dependent upon proprietary technology that the Company has developed internally . Given the rapid pace of innovation and technological change within the wireless and broadband industries, the technological and creative skill of the Company’s personnel, consultants and contractors and their ability to develop, enhance and market new products and upgrades to existing products are critical to the continued success of the Company. The Company relies primarily on patent laws to protect its proprietary rights. In the US, the Company has 27 patents granted, 25 patent applications pending, and 9 provisional applications pending and, internationally, the Company has 40 patents granted, 93 patent applications pending, and 5 provisional applications pending. There can be no assurance that patents pending or future patent applications will be issued, or that if issued, the Company would have the resources to protect any such issued patent from infringement. However, the Company cannot patent much of the technology that is important to its business. To date, the Company has relied on copyright, trademark and trade secret laws, as well as confidentiality procedures, non-compete and/or work for hire invention assignment agreements and licensing arrangements with its employees, consultants, contractors, customers and vendors, to establish and protect its rights to this technology and, to the best extent possible, control the access to and distribution of its technology, software, documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use this technology without authorization. Policing unauthorized use of this technology is difficult. There can be no assurance that the steps the Company takes will prevent misappropriation of, or prevent an unauthorized third party from obtaining or using, the technology the Company relies on. In addition, effective protection may be unavailable or limited in some jurisdictions. Litigation may be necessary in the future to enforce or protect the Company’s rights.

 

(b)           Litigation could cause the Company to incur substantial costs, divert resources away from its daily business, subject the Company to significant liability for damages and invalidate its proprietary rights and which in turn could materially adversely affect the Company’s business and its ability to compete. Any potential intellectual property litigation also could force the Company to lose the opportunity to license its technology to others or to collect royalty payments based upon successful protection and assertion of its intellectual property against others and incur significant legal expenses.

 

(c)           The Company may in the future be subject to damaging and disruptive intellectual property litigation that could materially and adversely affect its business, results of operations and financial condition, as well as the continued viability of the Company . Although the Company believes that its technology does not currently infringe upon patents held by others, no assurance can be given that such infringements do not exist or will not exist in the future, particularly as the wireless technology industry has increasingly become characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies. Particularly as a public company, the Company expects that in the future it may receive, communications from various industry participants alleging the Company’s infringement of their patents, trade secrets or other intellectual property rights.

 

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(d)           Given the rapid technological change in the Company’s industry and the Company’s continual development of new products, the Company may be subject to infringement claims in the future. The Company may be unaware of filed patent applications and issued patents that could include claims covering the Company’s products. Parties making claims of infringement may be able to obtain injunctive or other equitable relief that could effectively block the Company’s ability to sell or supply its products or license its technology and could cause the Company to pay substantial royalties, licensing fees or damages. The defense of any lawsuit could divert management’s efforts and attention from ordinary business operations and result in time-consuming and expensive litigation, regardless of the merits of such claims. These outcomes may (i) stop the Company selling products or using technology that contains the allegedly infringing intellectual property; (ii) redesign those products that contain the allegedly infringing intellectual property; (iii) pay substantial damages to the party whose intellectual property rights the Company may be found to be infringing; (iv) result in the loss of existing customers or prohibit the acquisition of new customers; (v) cause the Company to attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all; (vi) materially and adversely affect the Company’s brand in the market place and cause a substantial loss of goodwill; (vii) cause the Company’s stock price to decline significantly, which could distract management; (viii) materially and adversely affect the Company’s liquidity, including its ability to pay debts and other obligations as they become due; or (ix) lead to the Company’s bankruptcy or liquidation.

 

(e)           The Company’s customers could also become the target of litigation relating to the patent and other intellectual property rights of others. This could trigger technical support and indemnification obligations in licenses or customer agreements that the Company may enter into. These obligations could result in substantial expenses, including the payment by the Company of costs and damages relating to claims of intellectual property infringement. In addition to the time and expense required for the Company to provide support or indemnification to its customers, any such litigation could disrupt the businesses of its customers, which in turn could hurt the Company’s relationships with its customers and cause the sale of its products to decrease. No assurance can be given that claims for indemnification will not be made or that if made, such claims would not have a material adverse effect on the Company’s business, operating results or financial conditions.

 

(f)           The Company is dependent on a small number of individuals, and if the Company loses key personnel upon whom the Company is dependent, the Company’s business will be adversely affected . Many of the key responsibilities of the Company’s business have been assigned to a relatively small number of individuals. The Company’s future success depends to a considerable degree on the vision, skills, experience and effort of the Company’s senior management. The loss of the services of these officers and senior executives could have a material adverse effect on the Company’s business.

 

13
 

(g)           In addition, the Company’s continued growth depends on its ability to attract, retain and motivate experienced key employees. Finding and hiring any additional personnel and replacements could be costly and might require the Company to grant significant equity awards or other incentive compensation, which could adversely impact its financial results. Should any of the employees of the Company leave, it may also be difficult or impractical to adequately enforce any restrictive covenants entered into by such person. Additionally, effective product development and innovation, upon which the Company’s success is dependent is in turn dependent upon attracting and retaining talented technical, engineering and marketing personnel, who represent a significant asset and serve as the source of the Company’s technological and product innovations. In addition, to expand the Company’s customer base and increase sales, the Company will need to hire additional qualified sales personnel. The market for qualified technical, engineering, marketing and sales personnel is extremely competitive and there can be no assurance that the Company will have the financial or other resources to attract and retain such individuals. If the Company is unable to hire, train and retain such personnel in a timely manner, the Company’s ability to grow its business will be impaired.

 

(h)           If the Company’s technology does not work as well as planned or the Company is unsuccessful in developing and selling new products or in penetrating new markets its business and operating results would suffer . The Company’s success and ability to compete are dependent on technology which the Company has developed or may develop in the future. There is a risk that the technology that the Company has developed or may develop in the future may not work as well as planned, or that the marketing of the technology may not be as successful as the Company hopes. Further, the markets in which the Company and its customers compete or plan to compete are characterized by constantly and rapidly changing technologies and technological obsolescence. The Company’s ability to compete successfully depends on its ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost effective basis to keep pace with market needs and satisfy the demands of customers. A fundamental shift in technologies in any of the Company’s target markets could harm its competitive position within these markets. The Company’s failure to anticipate these shifts, to develop new technologies or to react to changes in existing technologies could materially delay its development of new products, which could result in product obsolescence, decreased revenue and a loss of customer wins to its competitors. The development of new technologies and products generally require substantial investment and can require long development and testing periods before they are commercially viable. The Company intends to continue to make substantial investments in developing new technologies and products and it is possible that that the Company may not successfully be able to develop or acquire new products or product enhancements that compete effectively within its target markets or differentiate its products based on functionality, performance or cost and that its new technologies and products will not result in meaningful revenue. Any delays in developing and releasing new or enhanced products could cause the Company to lose revenue opportunities and customers. Any technical flaws in products the Company releases could diminish the innovative impact of the products and have a negative effect on customer adoption and its reputation. If the Company fails to introduce new products that meet the demands of its customers or target markets or do not achieve market acceptance, or if the Company fails to penetrate new markets, the Company’s revenue will not increase over time and its operating results and competitive position would suffer.

 

14
 

(i)           The Company has a limited operating history and is dependent on winning partners and customers; if it experiences difficulty in managing its budget and expenses, it will be difficult for it to achieve or maintain profitability, which in turn could affect the Company’s stock price . The Company has limited operating experience. The Company’s ability to become and remain profitable depends on a number of factors, including, in particular, being able to find and contract with appropriate partners and customers. The rapidly evolving market in which the Company sells its products, its limited experience and progress in winning partners and customers, as well as other factors make it difficult for the Company to forecast semi-annual and annual revenue accurately. As a result, the Company could experience budgeting and cash flow management problems, unexpected fluctuations in its results of operations and other difficulties, any of which would make it difficult for the Company to gain and maintain profitability and could increase the volatility of the market price of the Company’s common stock.

 

(j)           The Company may experience a decrease in market demand due to uncertain economic conditions in the United States and in international markets, which has been further exacerbated by the concerns of terrorism, war and social and political instability . Economic growth in the United States and international markets has slowed significantly and the United States economy has been in a recession and experienced considerable volatility. The timing of a full economic recovery is uncertain and the future economic environment may continue to be unfavorable. In addition, the terrorist attacks in the United States and turmoil in North Africa and the Middle East have increased the uncertainty in the United States economy and may contribute to a decline in economic conditions, both domestically and internationally. Terrorist acts and similar events, or war in general, could contribute further to a slowdown of the market demand for goods and services, including demand for our products. If the economy declines as a result of the recent economic, political and social turmoil, or if there are further terrorist attacks in the United States or elsewhere, the growth of the Company’s business and results of operations may be severely adversely affected.

 

(k)           Regulation of Voice over Internet Protocol (“VoIP”) services is developing and therefore uncertain, and future legislative, regulatory or judicial actions could adversely affect the Company’s business . The Company’s business has developed in an environment largely free from government regulation. However, the United States and other countries have begun to assert regulatory authority over VoIP and are continuing to evaluate how VoIP will be regulated in the future. Both the application of existing rules to the Company and its prospective customers and the Company’s and their competitors and the effects of future regulatory developments are uncertain. Future legislative, judicial or other regulatory actions could have a negative effect on the Company’s business. In addition, future regulatory developments could increase the Company’s cost of doing business and limit its growth.

 

(l)           Changes in current laws or regulations or the imposition of new laws or regulations could impede the sale of the Company’s products or otherwise harm the Company’s business . Although the Company’s products are frequency agnostic (i.e., they are capable of operating at any frequency) the Company’s initial products are being designed to be optimized for operation in the 902-928MHz band, which is presently a spectrum that is not licensed in the United States. Changes in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding the usage of unlicensed spectrum may materially and adversely impact the sale of the Company’s products and its business, financial condition and results of operations.

 

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(m)           If wireless devices pose safety risks, the Company may be subject to new regulations, and demand for the Company’s products and those of its licensees and customers may decrease . Concerns over the effects of radio frequency emissions, even if unfounded, may have the effect of discouraging the use of wireless devices, which may decrease demand for the Company’s products and those of the Company’s licensees and customers. In recent years, the FCC and foreign regulatory agencies have updated the guidelines and methods they use for evaluating radio frequency emissions from radio equipment, including wireless phones and other wireless devices. In addition, interest groups have requested that the FCC investigate claims that wireless communications technologies pose health concerns and cause interference with airbags, hearing aids and medical devices. Concerns have also been expressed over the possibility of safety risks due to a lack of attention associated with the use of wireless devices while driving. Any legislation that may be adopted in response to these expressions of concern could reduce demand for the Company’s products and those of its licensees and customers in the United States as well as foreign countries.

 

(n)           Reputational risk . As a publicly traded company, the Company’s business is closely monitored by investors and potential investors. Negative publicity with respect to the Company or any of the Company’s products or services, whether legally justified or not, could adversely affect the Company’s reputation, business and stock price.

 

(o)           If the Company requires additional capital, the Company may not be able to obtain additional financing on favorable terms or at all . The Company may need to pursue additional financing in the future to finance the development of new products or enhancements or respond to new competitive pressures or pay extraordinary expenses such as litigation settlements or judgments. Because of the Company’s past significant losses and its limited tangible assets, the Company does not fit traditional credit lending criteria, which, in particular, could make it difficult for the Company to obtain loans or to access the capital markets. In addition, the credit documentation for the financing from MB Technology Holdings, LLC, the Company’s parent company, contains affirmative and negative covenants that affect, and may significantly limit or prohibit, among other things, the Company’s ability to incur indebtedness and create liens or other encumbrances and operate its business. If the Company does raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may also include negative covenants or other restrictions on the Company’s business that could impair the Company’s operational flexibility, and would also require the Company to incur interest expense. If additional financing is not available, or available only on terms that are not acceptable to the Company, it may be unable to fund the development and expansion of its business, attract qualified personnel, promote its brand name, take advantage of business opportunities, respond to competitive pressures or pay extraordinary expenses and may have to scale back operations or limit business activities. Any of these events may harm the Company’s business. Also, if the Company raises funds by issuing additional common stock or securities convertible into common stock, the Subscriber and the Company’s other shareholders may experience dilution, which may be significant, to their ownership interest in the Company. If the Company raises funds by issuing shares of a different class or by issuing debt, the holders of such different classes of shares or debt securities may have rights senior to the rights of the Subscriber and other current shareholders.

 

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(p)           The market price of the Company’s common stock has been and may continue to be volatile, and the Subscriber, as a shareholder of the Company, could incur substantial losses. The Company’s common stock is not listed on the Main Market of the London Stock Exchange and, although the common stock is traded on AIM, no assurance can be given that there will be or remain a liquid market in the common stock. Securities markets experience significant price and volume fluctuations. This market volatility, as well as general economic conditions, could cause the market price of the Company’s common stock to fluctuate substantially. The trading price of the Company’s common stock and the price which shareholders may realize for their common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond the Company’s control. These factors include: (i) the performance of the Company’s operations; (ii) any shortfall in revenue or increase in losses from levels expected; (iii) changes in the Company’s earnings or variations in operating results or those of comparable companies; (iv) announcements by the Company or the Company’s competitors of acquisitions, new products, significant contracts or orders, commercial relationships or capital commitments; (v) the Company’s ability to develop and market new and enhanced products on a timely basis; (vi) fluctuations in the economic performance or market valuations of companies perceived by investors to be comparable to the Company; (vii) large purchases or sales of common stock of the Company and liquidity (or absence thereof) in the shares of common stock of the Company; (viii) any major change in the Company’s board of directors or management; (ix) commencement of or the Company’s involvement in litigation; (x) disruption to the Company’s operations; (xi) changes in legislation or regulations; (xii) economic developments in the cognitive radio and mobile VoIP and broadband industries as a whole; and (xiii) general economic conditions and other external factors.

 

(q)           If any of these factors causes the price of the Company’s common stock to fall, the Subscriber may not be able to sell its common stock of the Company for a profit . In addition, the stock market in general, and the market for wireless telecommunications and other technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may cause the market price of the Company’s common stock to decrease, regardless of the Company’s actual operating performance. These trading price fluctuations may also make it more difficult for the Company to use its common stock as a means to make acquisitions or to use options to purchase its common stock to attract and retain employees. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against the Company, could result in substantial costs and a diversion of the Company’s management’s attention and resources.

 

(r)           Management of the Company will have broad discretion over the use of proceeds from the allotment and issue of New Issue Shares to the Subscriber . The net proceeds from this Offering will be used for investment in, or otherwise in support of the operations of, the Company. The Subscriber will not have the right to control how the Company will use the proceeds of investments, loans or other support provided by the Subscriber and the Company has not reserved or allocated certain amounts for specific purposes. Accordingly, the Company’s management will have full discretion in the application of the proceeds of investment by the Subscriber in the Company, and the Subscriber will not have the opportunity, as part of its investment decision, to assess whether the proceeds are being used appropriately. The proceeds may be used for corporate purposes that do not increase the Company’s operating results or market value. Furthermore, the proceeds may be placed in investments that do not produce income or that lose value.

 

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(s)           Restrictions on the transfer of common stock to US Persons . Currently, the common stock of the Company is comprised of both “restricted securities” for the purpose of US securities laws trading under the stock symbol LSE-AIM: XGT and unrestricted securities trading under the stock symbol LSE-AIM: XGTU. The reselling of restricted common stock (LSE-AIM: XGT) of the Company in the United States or to a U.S. Person is severely restricted whereas the resale of unrestricted common stock (LSE-AIM: XGTU) of the Company is not so restricted.  The New Issue Shares will be “restricted securities” for the purpose of US securities laws. The New Issue Shares will remain restricted securities until 12 months after issue by the Company and for as long as the restrictive legend applicable to them has not been removed from the certificate evidencing such common stock. In the event that the market for common stock of the Company outside the United States is or becomes illiquid, purchasers of such stock may be unable to access the market within the United States due to the restrictions on transfer of such common stock.  Any of the restrictions described above may make it difficult for the Subscriber to sell its stock in the Company, which could force the Subscriber to hold its stock in the Company or sell such stock at a lower price than it could if the stock was freely tradable.

 

(t)           Application of US law . The Company is incorporated under the laws of the state of Delaware and the rights of shareholders are governed by the Delaware General Corporation Law and by the Company’s Amended and Restated Certificate of Incorporation and Bylaws. Those shareholder rights may differ from the typical rights of shareholders in the United Kingdom and other jurisdictions. In addition, the common stock of the Company is not listed on any United States Stock Exchange and, for this reason, certain investor protection rules afforded by the Securities Act will not apply with respect to the Company. As its principal place of business is in Florida and certain contracts of the Company are governed by Florida law, provisions of Florida law may affect the Company.

 

Section 1.2.           Forward Looking Statements . Statements, disclosures, or information in this Agreement or provided by or on behalf of the Company to the Subscriber relating to the Company, including its business, properties, plans, financial condition, results of operations and/or prospects, or the Offering, may contain Forward Looking Statements, assessments, estimates, or projections (collectively, “ Forward Looking Statements ”). Forward Looking Statements may be identified by the use of words such as “plans,” “anticipates,” “expects,” “intends,” “estimates,” “believes,” “may,” “should,” and/or similar expressions, or may be identified by context or perspective. Forward Looking Statements are subject to numerous assumptions, and involve numerous risks and uncertainties, many of which are beyond the Company’s ability to control, that could cause actual results, performance, or achievements to differ materially from those expected or anticipated. Factors that could contribute to these differences or variations include those discussed in this Appendix and elsewhere in this Agreement. Although all Forward Looking Statements in this Agreement regarding the Company or the Offering are based on current beliefs and expectations, have been made in good faith by the Company, and are believed to be reasonable under the circumstances and at the time made, the Company makes no representation or warranty, and gives no promise or assurance, regarding any Forward Looking Statement. The inclusion of any item in a risk factor shall not be deemed an admission of liability.

 

18

 

Ex 10.8

 

The securities offered hereby have not been and are not intended to be registered under the Securities Act of 1933, as amended (the “ Act ”) or under the securities laws of any state or other jurisdiction and are being offered and sold in reliance upon an exemption from registration under the Securities Act and exemptions from registration provided by such other securities laws and may not be transferred, assigned or resold except as permitted under the securities act and such other securities laws. The securities offered hereby are highly speculative and involve significant risks and should not be purchased by anyone who cannot afford the loss of the entire investment.

 

SUBSCRIPTION AGREEMENT

 

xG TECHNOLOGY, INC.

 

This SUBSCRIPTION AGREEMENT (the “ Agreement ”) is made and entered into as of the date set forth on the signature page hereto, by and between x G Technology, INC. , a Delaware corporation (the “ Company ”) and the undersigned subscriber (the “ Subscriber ”).

 

WHEREAS , the Company’s purpose is to engage in the business described and referred to in Exhibit A – Summary Business Description attached hereto;

 

WHEREAS , the Company is engaging in a private placement of securities to one or more “accredited investors,” as such term is defined and used under the Federal securities laws (the “ Investors ”) and offering (the “ Offering ”) for sale and issuance notes and warrants as described herein;

 

WHEREAS , the Company has submitted to the Securities and Exchange Commission a first draft registration statement for confidential non-public review pursuant to the Jumpstart Our Business Startups Act enacted on April 5, 2012 in connection with a proposed public offering of xG Shares (as defined below) and listing on the NASDAQ Capital Market (“ NASDAQ IPO ”) and it is intended that, to the extent not converted, the principal amount and any accrued interest outstanding under the Note will be repaid out of the net proceeds of the NASDAQ IPO and a contemplated subsequent follow-on public offering;

 

WHEREAS , the Subscriber is willing to lend the Company the amounts set forth on the signature page hereto pursuant to the terms of this Agreement and a promissory note (a “ Note ”) convertible into shares of $0.01 each in the common stock of the Company (the “ xG Shares ”), all as more particularly described in the form of Note attached hereto as Exhibit B and to subscribe for warrants, in substantially the form attached hereto as Exhibit C (the “ Warrants ” and together with the Note, the “ Interests ”);

 

WHEREAS , the Company intends to use the net proceeds from the Offering for the purposes described and set forth in Exhibit D – Expected Use of Proceeds attached hereto; and

 

A 1
 

 

WHEREAS , in order for the Subscriber to understand and appreciate the Company’s business and the risks associated therewith and with an investment in the Company, the Company has provided, and the Subscriber has read carefully, the information, disclosures and risk factors set forth in Article II – Subscriber’s Acknowledgement of Risk Factors herein.

 

NOW, THEREFORE , for and in consideration of the premises above, and the mutual representations, warranties, covenants, and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:

 

Article I.


SUBSCRIPTION, PURCHASE AND PAYMENT; CLOSING

 

Section 1.1.           Subscription for Interests. Subject to the right of acceptance of the Company set forth in Section 1.2 of this Agreement, the Subscriber hereby irrevocably tenders to the Company this subscription (this “ Subscription ”) to purchase (a) a Note at an aggregate subscription amount set forth on the signature page hereto and (b) a Warrant to acquire the number of shares set forth on the signature page hereto, by check or wire transfer of immediately available funds, to the account of the Company set forth on Schedule I hereto. The Subscriber understands that it will be required as a condition to acceptance of this Subscription to execute the Note and the Subscriber Questionnaire attached hereto as Exhibit E .

 

Section 1.2.           Acceptance of Subscription . The Company shall have the unilateral right to accept or reject all or any portion of the Subscriber’s proposed Subscription within thirty (30) days following the Subscriber’s execution and delivery of this Agreement and the other documents to be delivered in connection herewith. The Company may accept the Subscription and close on the sale of the Note and Warrant to the Subscriber without regard to whether the Company sells any other Notes in the Offering. In the event that the Company accepts such Subscription, (a) the Company shall countersign this Agreement indicating the portion of the Subscription which it has accepted, and (b) in the event the Company does not accept all or any portion of the Subscription, the Company shall return by check or wire transfer of immediately available funds to the Subscriber the funds received from such Subscriber (or such portion thereof not accepted by the Company). In the event that the Company rejects the Subscription, the Company shall have no further obligation to or liabilities with respect to the Subscriber.

 

Section 1.3.           Origination Fees . In consideration for the Subscription, the Company shall pay the Subscriber, or as it directs, an origination fee equal to 5% of the amount of the Subscription accepted by the Company (the “Origination Fee”). The Origination Fee shall be paid by the Company by check or wire transfer of immediately available funds to the Subscriber, or as it directs, on the date of Closing (as defined in Section 1.4 below).

 

Section 1.4.           Closing . In the event that the Company accepts all or any portion of the Subscriber’s proposed Subscription, the closing of the subscription and purchase of the Note and Warrants (the “Closing”) shall take place on the fifth business day immediately following the day upon which the Company accepts such Subscription. At the Closing: (i) the Company shall deliver completed and signed to the Purchaser the Note and the Warrants; (ii) the Company shall pay the origination fee as provided in Section 1.3 above; and (iii) the Company and the Subscriber shall execute and deliver any and all additional documents, certificates, consents and agreements necessary to effectuate the issue of the Note and the Warrants or to complete the transactions contemplated hereby.

  

2
 

  

Article II.

 

SUBSCRIBER’S ACKNOWLEDGEMENT OF RISK FACTORS

 

An investment in the Interests offered hereby involves a high degree of risk. The Subscriber has reviewed and considered the risks and uncertainties described below and elsewhere in this Agreement before making an investment decision with respect to the Interests. The risk factors described below are not the only ones that the Company faces or that may relate to an investment in the Interests. Any of these risks, alone or in combination with other risks, could result in a material and adverse impact upon the business, financial condition, results of operations, or prospects of the Company. In such case, the value of the Interests could decline, and the Subscriber could lose part or all of his, her, or its investment in the Company.

 

References to “our” or “we” in this Article II (and the exhibits and schedules hereto) shall be read to refer to the Company.

 

Section 2.1.           Risks Related to the Note .

 

(a)           This Agreement and the Note do not contain any financial or negative covenants for the Company and only limited events of default. In comparison to the negative covenants that are imposed on us by our existing loan facility agreement with our parent company, MB Technology Holdings, LLC (“MBTH”), the Note is being issued without any financial covenants or negative covenants. As a result, there are no restrictions on our activities and the Company could perform poorly and that would not result in a breach of this Agreement or the Note. In addition, this Agreement and the Note contain only limited events of default other than our failure to pay principal and interest timely on the Note. Because there are no restrictions and limited events of default under this Agreement and the Note, we will not be restricted from issuing additional debt senior to, or pari passu with, your Note, including future debt secured by the assets of the Company, or be required to maintain any ratio of assets to debt or debt service ratio in order to increase the likelihood of timely payments to you under the Note. In the event that the Company issues additional debt that is senior to, or pari passu with, the Note, the Company may not have sufficient capital to repay the indebtedness represented by the Note.

 

(b)           Because we may prepay the Note at any time prior to its maturity, you may be subject to reinvestment risk. We have the right to prepay the Note at any time prior to its stated maturity upon 10 business days’ written notice to you. The Note would be redeemed at 100% of the unpaid and unconverted principal amount plus accrued but unpaid and unconverted interest up to but not including the prepayment date. Although we will be required to pay you six months’ interest on the unpaid and unconverted principal balance of this Note immediately prior to such prepayment if we prepay the Note in full before the six month anniversary of the issue date of the Note, any such prepayment may have the effect of reducing the income or return on investment that any Investor may receive on an investment in the Notes by reducing the term of the investment. If this occurs, you may not be able to reinvest the proceeds at an interest rate comparable to the rate paid on the Note.

 

(c)           The Company may not have sufficient cash flow to meet its debt service requirements. The Company is not currently revenue earning. In the event that the Company does not receive revenues, the Company may not be able to pay interest to the Subscriber and on its other indebtedness. The Company’s ability to make scheduled payments on the Note, or to refinance its debt, depends on its future operating and financial performance, which will be affected by its ability to implement successfully the Company’s business strategy as well as general economic, financial, competitive, regulatory, technical and other factors beyond its control. If in the future the Company cannot generate sufficient cash to meet its debt service requirements, the Company may, among other things, need to refinance all or a portion of its debt including the Note, obtain additional financing, delay planned capital expenditures or sell material assets. If the Company is not able to refinance its debt as necessary, obtain additional financing or sell assets on commercially reasonable terms or at all, the Company may not be able to satisfy its obligations with respect to its debt, including the Note. In that event, borrowings under other debt agreements or instruments that contain cross default or cross acceleration provisions may become payable on demand, and the Company may not have sufficient funds to repay all of the Company’s debts, including the Note.

 

3
 

 

 

(d)           Repayment of the Note may depend on the Company completing a successful public offering in connection with the NASDAQ IPO and a subsequent follow-on public offering . It is intended that, to the extent not converted, the principal amount and any accrued interest outstanding on the Note will be repaid out of the net proceeds of the NASDAQ IPO and a contemplated subsequent follow-on public offering. There can be no assurances that our shares will be listed on the NASDAQ Capital Market and that any such public offering will take place. Therefore, if you subscribe for the Note, you may have to rely only on our cash flow from operations and other sources of funds for repayment of principal at maturity or redemption and for payment of interest when due. Our cash flow from operations could be impaired under the circumstances described under “—Risks Related to the Company”. If our cash flow from operations and other sources of funds are not sufficient to pay any amounts owed under the Note, then you may lose all or part of your investment.

 

(e)           Because the Note will have no collateral security or guarantee and because substantially all of our existing debt is secured, you may lose all or a part of your investment in the Note if we do not have enough cash to pay the Note. There is no collateral security or guarantee of our obligation to make payments on the Note. The Note is not secured by a security interest over any of our assets. However, substantially all of our existing indebtedness, which ranks pari passu with the Note, is secured by a security agreement in favour of MBTH. The total principal balance of indebtedness outstanding to MBTH as at December 19, 2012 was $16,238,504, with total accrued but unpaid interest of $1,104,944, for a total liability of $17,343,448. In the event of our bankruptcy, liquidation or dissolution, our assets would be available to make payments to you under the Note only after all payments had been made on all of our secured indebtedness and any unsecured indebtedness and other obligations that for the time being are senior to the Note. Sufficient assets may not remain after all such payments have been made to make any payments to you under the Note, including payments of interest when due or principal upon maturity. Therefore, if you subscribe for the Note, you may have to rely only on our cash flow from operations and other sources of funds for repayment of principal at maturity or redemption and for payment of interest when due. As noted, our cash flow from operations could be impaired under the circumstances described under “—Risks Related to the Company”. If our assets remaining after paying senior or secured indebtedness and our cash flow from operations and other sources of funds are not sufficient to pay any amounts owed under the Note, then you may lose all or part of your investment.

 

(f)           There is no market or liquidity for the Interests. The Subscriber should be aware that he, she, or it could be required to bear the financial risk of an investment in the Company for an indefinite period of time. There is no existing market for trading or selling the Interests, and there can be no assurance that such a market will ever develop, or that the Subscriber will have the ability, at any point in the future, to sell or trade the Interests. The Company has not agreed to and currently does not intend to create a market for the Interests. The Interests are subject to significant restrictions regarding sale or transfer both under their terms as well as under federal and state securities laws.

 

4
 

 

 

Section 2.2.           Risks Related to the Company and our Business .

 

(a)           Because much of the Company’s potential success and value lies in its use of internally developed proprietary technology, if we fail to protect this technology, it could negatively affect the Company. Our success and ability to compete effectively are in large part dependent upon proprietary technology that we have developed internally . Given the rapid pace of innovation and technological change within the wireless and broadband industries, the technological and creative skill of our personnel, consultants and contractors and their ability to develop, enhance and market new products and upgrades to existing products are critical to the continued success of the Company. We rely primarily on patent laws to protect our proprietary rights. As of December 31, 2012, in the US, we have 41 patents granted, 20 patent applications pending, and 5 provisional applications pending and, internationally, we have 50 patents granted, 83 patent applications pending, and 10 provisional applications pending. There can be no assurance that patents pending or future patent applications will be issued or that, if issued, we would have the resources to protect any such issued patent from infringement. However, we cannot patent much of the technology that is important to our business. To date, we have relied on copyright, trademark and trade secret laws, as well as confidentiality procedures, non-compete and/or work for hire invention assignment agreements and licensing arrangements with our employees, consultants, contractors, customers and vendors, to establish and protect our rights to this technology and, to the best extent possible, control the access to and distribution of our technology, software, documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use this technology without authorization. Policing unauthorized use of this technology is difficult. There can be no assurance that the steps we take will prevent misappropriation of, or prevent an unauthorized third party from obtaining or using, the technology we rely on. In addition, effective protection may be unavailable or limited in some jurisdictions. Litigation may be necessary in the future to enforce or protect our rights.

 

(b)           Litigation could cause us to incur substantial costs, divert resources away from our daily business, subject us to significant liability for damages and invalidate its proprietary rights and which in turn could materially adversely affect our business and its ability to compete. Any potential intellectual property litigation also could force us to lose the opportunity to license its technology to others or to collect royalty payments based upon successful protection and assertion of its intellectual property against others and incur significant legal expenses.

 

(c)           We may be subject to claims of intellectual property infringement or invalidity. Expenses incurred with respect to monitoring, protecting, and defending our intellectual property rights could adversely affect our business. Competitors and others may infringe on our intellectual property rights, or may allege that we have infringed on theirs. Monitoring infringement and misappropriation of intellectual property can be difficult and expensive, and we may not be able to detect infringement or misappropriation of our proprietary rights. We may also incur significant litigation expenses in protecting our intellectual property or defending our use of intellectual property, reducing our ability to fund product initiatives. These expenses could have an adverse effect on our future cash flows and results of operations. If we are found to infringe on the rights of others we could be required to discontinue offering certain products or systems, to pay damages, or purchase a license to use the intellectual property in question from its owner. Litigation can also distract management from the day-to-day operations of the business.

 

(d)           We may in the future be subject to damaging and disruptive intellectual property litigation that could materially and adversely affect its business, results of operations and financial condition, as well as the continued viability of the Company . Although we believe that our technology does not currently infringe upon patents held by others, no assurance can be given that such infringements do not exist or will not exist in the future, particularly as the wireless technology industry has increasingly become characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies. Particularly as a public company, we expect that in the future we may receive communications from various industry participants alleging our infringement of their patents, trade secrets or other intellectual property rights.

 

5
 

 

 

(e)           The intellectual property rights of others may prevent us from developing new products or entering new markets. The telecommunications industry is characterized by the rapid development of new technologies, which requires us to continuously introduce new products and expand into new markets that may be created. Therefore, our success depends in part on our ability to continually adapt our products and systems to incorporate new technologies and to expand into markets that may be created by new technologies. If technologies are protected by the intellectual property rights of others, including our competitors, we may be prevented from introducing new products or expanding into new markets created by these technologies. If the intellectual property rights of others prevent us from taking advantage of innovative technologies, our financial condition, operating results or prospects may be harmed.

 

(f)           Given the rapid technological change in our industry and our continual development of new products, we may be subject to infringement claims in the future. We may be unaware of filed patent applications and issued patents that could include claims covering our products. Parties making claims of infringement may be able to obtain injunctive or other equitable relief that could effectively block our ability to sell or supply our products or license our technology and could cause us to pay substantial royalties, licensing fees or damages. The defense of any lawsuit could divert management’s efforts and attention from ordinary business operations and result in time-consuming and expensive litigation, regardless of the merits of such claims. These outcomes may (i) stop us selling products or using technology that contains the allegedly infringing intellectual property; (ii) redesign those products that contain the allegedly infringing intellectual property; (iii) pay substantial damages to the party whose intellectual property rights we may be found to be infringing; (iv) result in the loss of existing customers or prohibit the acquisition of new customers; (v) cause us to attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all; (vi) materially and adversely affect our brand in the market place and cause a substantial loss of goodwill; (vii) cause our stock price to decline significantly, which could distract management; (viii) materially and adversely affect our liquidity, including its ability to pay debts and other obligations as they become due; or (ix) lead to our bankruptcy or liquidation.

 

(g)           Our customers could also become the target of litigation relating to the patent and other intellectual property rights of others. Any litigation relating to the intellectual property rights of others could trigger technical support and indemnification obligations in licenses or customer agreements that we may enter into. These obligations could result in substantial expenses, including the payment by us of costs and damages relating to claims of intellectual property infringement. In addition to the time and expense required for us to provide support or indemnification to our customers, any such litigation could disrupt the businesses of our customers, which in turn could hurt our relationships with such customers and cause the sale of our products to decrease. No assurance can be given that claims for indemnification will not be made, or that if made, such claims would not have a material adverse effect on our business, operating results or financial conditions.

 

(h)           We rely on key executive officers, and their knowledge of our business and technical expertise would be difficult to replace. We are highly dependent on our executive officers because of their expertise and experience in the telecommunications industry. We have three year employment agreements with our executive officers containing customary non-disclosure, non-compete, confidentiality and assignment of inventions provisions. We do not have “key person” life insurance policies for any of our officers. The loss of the technical knowledge and management and industry expertise of any of our key personnel could result in delays in product development, loss of customers and sales and diversion of management resources, which could adversely affect our operating results

 

6
 

 

 

(i)           We may fail to recruit and retain qualified personnel. We expect to rapidly expand our operations and grow our sales, research and development and administrative operations. This expansion is expected to place a significant strain on our management and will require hiring a significant number of qualified personnel.  Accordingly, recruiting and retaining such personnel in the future will be critical to our success.  There is intense competition from other companies for qualified personnel in the areas of our activities. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our marketing and development activities, and this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

 

(j)           If our technology does not work as well as planned or we are unsuccessful in developing and selling new products or in penetrating new markets its business and operating results would suffer . Our success and ability to compete are dependent on technology which we have developed or may develop in the future. There is a risk that the technology that we have developed or may develop in the future may not work as well as planned, or that the marketing of the technology may not be as successful as our hopes. Further, the markets in which we and our customers compete or plan to compete are characterized by constantly and rapidly changing technologies and technological obsolescence. Our ability to compete successfully depends on its ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost effective basis to keep pace with market needs and satisfy the demands of customers. A fundamental shift in technologies in any of our target markets could harm its competitive position within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing technologies could materially delay its development of new products, which could result in product obsolescence, decreased revenue and a loss of customer wins to its competitors. The development of new technologies and products generally require substantial investment and can require long development and testing periods before they are commercially viable. we intend to continue to make substantial investments in developing new technologies and products and it is possible that that we may not successfully be able to develop or acquire new products or product enhancements that compete effectively within its target markets or differentiate its products based on functionality, performance or cost and that its new technologies and products will not result in meaningful revenue. Any delays in developing and releasing new or enhanced products could cause us to lose revenue opportunities and customers. Any technical flaws in products we release could diminish the innovative impact of the products and have a negative effect on customer adoption and its reputation. If we fail to introduce new products that meet the demands of its customers or target markets or do not achieve market acceptance, or if we fail to penetrate new markets, our revenue will not increase over time and its operating results and competitive position would suffer.

 

(k)           Defects or errors in our products and services or in products made by our suppliers could harm our brand and relations with our customers and expose us to liability. If we experience product recalls, we may incur significant expenses and experience decreased demand for our products. Our products are inherently complex and may contain defects and errors that are only detectable when the products are in use. Because our products are to be used for both personal and business purposes, such defects or errors could have a serious impact on our end customers, which could damage our reputation, harm our customer relationships and expose us to liability. Defects in our equipment, components or software, equipment failures or other difficulties could adversely affect our ability, and that of our customers, to ship products on a timely basis as well as customer or licensee demand for our products. Any such shipment delays or declines in demand could reduce our revenues and harm our ability to achieve or sustain desired levels of profitability. We and our customers may also experience component or software failures or defects that could require significant product recalls, rework and/or repairs that are not covered by warranty reserves.

 

(l)           Computer malware, viruses, hacking and phishing attacks could harm our business and results of operations. Computer malware, viruses, and computer hacking and phishing attacks have become more prevalent in our industry, and may occur on our systems in the future. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, and availability of our products and technical infrastructure to the satisfaction of our users may harm our reputation and our ability to attract and retain customers.

 

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(m)           If we do not effectively manage changes in our business, these changes could place a significant strain on our management and operations. Our ability to grow successfully requires an effective planning and management process. The expansion and growth of our business could place a significant strain on our management systems, infrastructure and other resources. To manage our growth successfully, we must continue to improve and expand our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources may not be adequate to support a changing and growing company. If our management fails to respond effectively to changes and growth in our business, including acquisitions, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

 

(n)           We have a history of operating losses and we expect to continue to realize net losses for at least the next 12 months. We have only recently begun to implement the commercialization phase of our business strategy and have recently introduced our first product, xMax®. We have recorded a net loss in each reporting period since our inception. Our net loss in the year ended December 31, 2011 was approximately $15,668,000. Our accumulated deficit at September 30, 2012 was approximately $118,614,000. The Company began its research and development activities in 2002, and has had significant net losses and will likely continue to incur net losses until we can successfully commercialize our products and technology. The Company expects to continue to have development costs as it develops the next generation of products. We intend to invest significantly in our business before we expect cash flow from operations will be adequate to cover our anticipated expenses. In addition, at this stage of our development we are subject to the following risks:

 

our results of operations may fluctuate significantly, which may adversely affect the value of an investment in our common stock;

 

we may be unable to develop and commercialize our products; and

 

it may be difficult to forecast accurately our key operating and performance metrics because of our limited operating history.

 

(o)           We may require additional capital in the future to develop new products. If we do not obtain any such additional financing, if required, our business prospects, financial condition and results of operations will be adversely affected. We may require additional capital in the future to develop new products. We believe that the proceeds of this Offering and revenues from operations will be sufficient to satisfy our needs for at least the next 12 months. We may need to obtain significant additional financing, both in the near and long term, to make planned capital expenditures, cover operating expenses and fund our ongoing development. We may not be able to secure adequate additional financing when needed on acceptable terms, or at all. To execute our business strategy, we may issue additional equity securities in public or private offerings, potentially at a price lower than the market price of our common stock at the time of such issuance. If we cannot secure sufficient additional funding we may be forced to forego strategic opportunities or delay, scale back and eliminate future product development.

 

8
 

  

(p)           Our Directors, Officers And Other Creditors Have Interests That May Conflict With Yours. Our officers, directors and certain of our creditors collectively have beneficial ownership of significant amounts of our common stock. Through that ownership and as officers and directors, such persons are able to influence or determine the management and policies of the Company. The interests of such persons, in their capacities as creditors, shareholders, or both, may differ significantly from the interest of other investors. In particular, the interests of secured creditors may conflict with the interests of holders of the Notes, as secured creditors may be entitled to receive repayment of our indebtedness to them regardless of whether we generate sufficient cash to repay the Notes. Conversely, the interests of our shareholders may conflict with the interests of holders of the Notes, as shareholders’ entitlement to distributions is subordinate to the rights of holders of the Notes. These conflicts are mitigated, though not eliminated, by the fact that any creditor that also owns shares of our common stock stands on both sides with respect to the holders of the Notes: such a creditor holds both interests that are secured, and interests that are subordinate to the interests of holders of the Notes. Also, as officers and directors, such persons are subject to the fiduciary duties imposed by generally applicable corporation law.

 

Section 2.3.           Risks Related to our industry .

 

(a)           Our industry is subject to rapid technological change, and we must make substantial investments in new products, services and technologies to compete successfully. New technological innovations generally require a substantial investment before they are commercially viable. We intend to continue to make substantial investments in developing new products and technologies, and it is possible that our development efforts will not be successful and that our new technologies will not result in meaningful revenues. Our future success will depend on our ability to continue to develop and introduce new products, technologies and enhancements on a timely basis. Our future success will also depend on our ability to keep pace with technological developments, protect our intellectual property, satisfy customer requirements, meet customer expectations, price our products and services competitively and achieve market acceptance. The introduction of products embodying new technologies and the emergence of new industry standards could render our existing products and technologies, and products and technologies currently under development, obsolete and unmarketable. If we fail to anticipate or respond adequately to technological developments or customer requirements, or experience any significant delays in development, introduction or shipment of our products and technologies in commercial quantities, demand for our products and our customers’ and licensees’ products that use our technologies could decrease, and our competitive position could be damaged.

 

(b)           Our industry is highly competitive and we may not be able to compete effectively. The communications industry is highly competitive, rapidly evolving, and subject to constant technological change. We expect that new competitors are likely to join existing competitors. Many of our competitors may be larger and have greater financial, technical, operational, marketing and other resources and experience than we do. In the event that a competitor expends significant resources we may not be able to successfully compete. In addition, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide products. If our competitors were to provide better and more cost effective products than our products we may not be able to capture any significant market share.

 

(c)           Regulation of Voice over Internet Protocol (“VoIP”) services is developing and therefore uncertain, and future legislative, regulatory or judicial actions could adversely affect our business. VoIP services have developed in an environment largely free from government regulation. However, the United States and other countries have begun to assert regulatory authority over VoIP and are continuing to evaluate how VoIP will be regulated in the future. Both the application of existing rules to the Company and its prospective customers and the effects of future regulatory developments are uncertain. Future legislative, judicial or other regulatory actions could have a negative effect on the Company’s business. In addition, future regulatory developments could increase the Company’s cost of doing business and limit its growth.

 

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(d)           Changes in current laws or regulations or the imposition of new laws or regulations could impede the sale of our products or otherwise harm our business. Although our products are frequency agnostic (i.e., they are capable of operating at any frequency) our products have been designed to be optimized for operation in the 902-928MHz band, which is presently a spectrum that is not licensed in the United States. Changes in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding the usage of unlicensed spectrum may materially and adversely impact the sale of our products and its business, financial condition and results of operations.

 

(e)           Compliance with environmental, import and export, health and safety laws and regulations, including new regulations requiring higher standards, may increase our costs, limit our ability to utilize supply chains, and force design changes to our products. These changes could reduce the net realizable value of our products, which would result in an immediate charge to our consolidated income statements. Non-compliance could negatively impact our operations and financial position as a result of fines, penalties, and the cost of mandated remediation or delays to our manufacturing.

 

(f)           If wireless devices pose safety risks, the Company may be subject to new regulations, and demand the Company’s products and those of its licensees and customers may decrease. Concerns over the effects of radio frequency emissions, even if unfounded, may have the effect of discouraging the use of wireless devices, which may decrease demand the Company’s products and those of the Company’s licensees and customers. In recent years, the FCC and foreign regulatory agencies have updated the guidelines and methods they use for evaluating radio frequency emissions from radio equipment, including wireless phones and other wireless devices. In addition, interest groups have requested that the FCC investigate claims that wireless communications technologies pose health concerns and cause interference with airbags, hearing aids and medical devices. Concerns have also been expressed over the possibility of safety risks due to a lack of attention associated with the use of wireless devices while driving. Any legislation that may be adopted in response to these expressions of concern could reduce demand for the Company’s products and those of its licensees and customers in the United States as well as foreign countries.

 

Section 2.4.           Risks Related to our market .

 

(a)           We may experience a decrease in market demand due to uncertain economic conditions in the United States and in international markets, which has been further exacerbated by the concerns of terrorism, war and social and political instability. Economic growth in the United States and international markets has slowed significantly and the United States economy has recently been in a recession and experienced considerable volatility. The timing of a full economic recovery is uncertain and the future economic environment may continue to be unfavorable. In addition, the terrorist attacks in the United States and turmoil in the Middle East have increased the uncertainty in the United States economy and may contribute to a decline in economic conditions, both domestically and internationally. Terrorist acts and similar events, or war in general, could contribute further to a slowdown of the market demand for goods and services, including demand for our products. If the economy declines as a result of the recent economic, political and social turmoil, or if there are further terrorist attacks in the United States or elsewhere, the growth of our business and results of operations may be severely adversely affected.

 

(b)           Recent global economic trends could adversely affect our business, liquidity and financial results. Recent global economic conditions, including a disruption of financial markets, could adversely affect us, primarily through limiting our access to capital. In addition, the continuation or worsening of general market conditions in economies important to our businesses may adversely affect our clients’ level of spending and ability to obtain financing, leading to us being unable to generate the levels of sales that we require. Current and continued disruption of financial markets could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

 

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(c)           Demand for our defense-related products depends on government spending. The U.S. military market is largely dependent upon government budgets, particularly the defense budget. The funding of government programs is subject to Congressional appropriation. Although multi-year contracts may be authorized in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may be expected to continue for several years. Consequently, programs are often only partially funded and additional funds are committed only as Congress makes further appropriations. No assurance can be given that an increase in defense spending will be allocated to programs that would benefit our business. A decrease in levels of defense spending or the government's termination of, or failure to fully fund, one or more of the contracts for which our products may be utilized could have a material adverse effect on our financial position and results of operations.

 

(d)           Our failure to obtain and maintain required certifications could impair our ability to bid on defense contracts. In order for us to participate in certain government programs we could be required to maintain quality certification and to meet production standards in order to be eligible to bid on government contracts. If we fail to maintain these certifications or any additional certification which may be required, we will be ineligible to bid for contracts which may impair our financial operations and consequently, our ability to continue in business.

 

(e)           To the extent that we subcontract work under our contracts, any failures by our subcontractors could impair our relations with the contracting agencies. We may use subcontractors to perform work or provide materials for contracts that we may secure and we may become dependent upon the subcontractors to meet the quality and delivery requirements of the contracting agency. To the extent that the products or services provided by the subcontractors do not meet the required specifications or are delivered late, the contract may be terminated by the U.S. government for default. Such a default could result in our disqualification from bidding on contracts, which could adversely affect our financial operations.

 

Section 2.5.           Risks Related to the xG Shares. In the event that the Subscriber converts the Note to xG Shares or the Subscriber exercises its subscription rights under the Warrants, the Subscriber would be subject to the following risks.

 

(a)           Our insiders and affiliated parties beneficially own a significant portion of our stock. As of November 30, 2012, our executive officers, directors and affiliated parties beneficially own approximately 77.9% of our outstanding common stock. As a result, our executive officers, directors and affiliated parties will have significant influence to:

 

· elect or defeat the election of our directors;

 

· amend or prevent amendment of our articles of incorporation or bylaws; and

 

· effect or prevent a merger, sale of assets or other corporate transaction.

 

In addition, sales of significant amounts of shares held by our directors and executive officers, or the prospect of these sales, could adversely affect the valuation of our Company.

 

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(b)           Exercise of options and warrants or conversion of convertible securities may have a dilutive effect on your percentage ownership. Exercise or conversion of any other warrants, options or any other convertible securities would result in dilution in the percentage of ownership of Investors if they elected to convert their Notes into xG Shares or exercise their subscription rights under the Warrants.  Further, any additional financing that we secure may require the granting of rights, preferences or privileges senior to, or pari passu with, those of our common stock and would result in additional dilution of the existing ownership interests of our common stockholders.

 

(c)           If we require additional capital, we may not be able to obtain additional financing on favorable terms or at all . The Company may need to pursue additional financing in the future to finance the development of new products or enhancements or respond to new competitive pressures or pay extraordinary expenses such as litigation settlements or judgments. Because of our past significant losses and limited tangible assets, we do not fit traditional credit lending criteria, which, in particular, could make it difficult for us to obtain loans or to access the capital markets. In addition, the credit documentation for the earlier financing from MBTH contains affirmative and negative covenants that affect, and may significantly limit or prohibit, among other things, our ability to incur indebtedness and create liens or other encumbrances and operate our business. If we do raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may also include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to incur interest expense. If additional financing is not available, or available only on terms that are not acceptable to us, we may be unable to fund the development and expansion of our business, attract qualified personnel, promote our brand name, take advantage of business opportunities, respond to competitive pressures or pay extraordinary expenses and may have to scale back operations or limit business activities. Any of these events may harm our business. Also, if we raise funds by issuing additional common stock or securities convertible into common stock, our shareholders may experience dilution, which may be significant, to their ownership interest in the Company. If we raise funds by issuing shares of a different class or by issuing debt, the holders of such different classes of shares or debt securities may have rights senior to the rights of the Subscriber and other current shareholders.

 

(d)           We currently have a limited trading volume, which results in higher price volatility for, and reduced liquidity of, our common stock. If and when a larger trading market for our common stock develops, the market price of our common stock is still likely to be highly volatile and subject to wide fluctuations, and you may be unable to resell your shares at or above the price at which you acquired them and, as a shareholder of the Company, you could incur substantial losses. Our shares of common stock are currently listed on the AIM market. There has been limited trading in our common stock and there can be no assurance that an active trading market will develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. The absence of an active trading market increases price volatility and reduces the liquidity of our common stock. As long as this condition continues, the sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered. In the event that an active trading market does not develop, the price of our common stock may not be a reliable indicator of the Company’s fair value. Securities markets experience significant price and volume fluctuations. This market volatility, as well as general economic conditions, could cause the market price of our common stock to fluctuate substantially. The trading price of our common stock and the price which shareholders may realize for their common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include (but are not limited to): (i) the performance of our operations; (ii) any shortfall in revenue or increase in losses from levels expected; (iii) changes in our earnings or variations in operating results or those of comparable companies; (iv) announcements by us or our competitors of acquisitions, new products or services, significant contracts or orders, commercial relationships or capital commitments; (v) our ability to develop and market new and enhanced products on a timely basis; (vi) fluctuations in the economic performance or market valuations of companies perceived by investors to be comparable to us; (vii) large purchases or sales of common stock of the Company and liquidity (or absence thereof) in the shares of common stock of the Company; (viii) any major change in our board of directors or management; (ix) commencement of or our involvement in litigation; (x) disruption to our operations; (xi) changes in legislation or regulations; (xii) developments in the cognitive radio and mobile VoIP and broadband industries as a whole; and (xiii) developments in the financial markets and general worldwide or regional economic conditions and other external factors. These trading price fluctuations may also make it more difficult for us to use our common stock as a means to make acquisitions or to use options to purchase our common stock to attract and retain employees. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

 

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(e)           There can be no assurances that our shares will be listed on the NASDAQ Capital Market and, if they are, our shares will be subject to potential delisting if we do not meet or continue to maintain the listing requirements of the NASDAQ Capital Market. We are in the process of applying to list the shares of our common stock on the NASDAQ Capital Market (hereafter, “NASDAQ”).  An approval of our listing application by NASDAQ will be subject to, among other things, our fulfilling all of the listing requirements of NASDAQ. In addition, NASDAQ has rules for continued listing, including, without limitation, minimum market capitalization and other requirements. Failure to maintain our listing or de-listing from NASDAQ or AIM could make it more difficult for shareholders to dispose of our common stock and more difficult to obtain accurate quotations on our common stock. This could have an adverse effect on the price of our common stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our common stock is not traded on a national securities exchange.  

 

(f)           In the event that our common stock is delisted from NASDAQ U.S. broker-dealers may be discouraged from effecting transactions in shares of our common stock because they may be considered penny stocks and thus be subject to the penny stock rules. The SEC has adopted a number of rules to regulate “penny stock” that restrict transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our securities have in the past constituted, and may again in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common stock, which could severely limit the market liquidity of such shares and impede their sale in the secondary market.

  

A U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt.  In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt.  A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities.  Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks”.

 

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Stockholders should be aware that, according to SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

 

(g)           Our management will have broad discretion over the use of proceeds from Offering and may not use them effectively. Our management will have broad discretion in the application of the net proceeds of the Offering, including for any of the purposes described in Exhibit D hereto entitled “Expected Use of Proceeds.” The proceeds may be used for corporate purposes that do not increase our operating results or market value. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders.

 

(h)           We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our common stock. We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition, investors must rely on sales of their common stock after price appreciation as the only way to realize their investment, and if the price of our stock does not appreciate, then there will be no return on investment. Investors seeking cash dividends should not purchase our common stock.

 

(i)           Application of US law . The Company is incorporated under the laws of the state of Delaware and the rights of shareholders are governed by the Delaware General Corporation Law and by our Amended and Restated Certificate of Incorporation and Bylaws. Those shareholder rights may differ from the typical rights of shareholders in the United Kingdom and other jurisdictions. In addition, the common stock of the Company is not currently listed on any United States Stock Exchange and, for this reason, certain investor protection rules afforded by the Securities Act will not apply with respect to us. As our principal place of business is in Florida and certain contracts of the Company are governed by Florida law, provisions of Florida law may affect us.

 

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(j)           The requirements of being a U.S. public company may strain our resources and divert management’s attention. If we complete the NASDAQ IPO, as a U.S. public company, we will be or become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of NASDAQ, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results.

 

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert resources of our management and harm our business and operating results.

 

Section 2.6.           Forward Looking Statements . Statements, disclosures, or information in this Agreement or provided by or on behalf of the Company to the Subscriber relating to the Company, including our business, strategies, products, competitive environment, properties, regulation, plans, financial condition, results of operations and/or prospects, or the Offering, may contain Forward Looking Statements, assessments, estimates, or projections (collectively, “ Forward Looking Statements ”). Forward Looking Statements may be identified by the use of words such as “plans”, “anticipates”, “expects”, “intends”, “estimates”, “believes”, “may”, “will”, “should”, “could”, “potential”, “future”, “believes” and “estimates,” and/or similar expressions, as well as statements in future tense, or may be identified by context or perspective. Forward Looking Statements are subject to numerous assumptions, and involve numerous risks and uncertainties, many of which are beyond the Company’s ability to control, that could cause actual results, performance, or achievements to differ materially from those expected or anticipated. Factors that could contribute to these differences or variations include those discussed in this Article II and elsewhere in this Agreement, including the exhibits and schedules hereto. Although all Forward Looking Statements in this Agreement regarding the Company or the Offering are based on current beliefs and expectations, have been made in good faith by the Company, and are believed to be reasonable under the circumstances and at the time made, the Company makes no representation or warranty, and gives no promise or assurance, regarding any Forward Looking Statement. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. The inclusion of any item in a risk factor shall not be deemed an admission of liability. You should not put undue reliance on any forward-looking statements.

 

Article III.

 

Representations of Subscriber.

 

The Offering by the Company is intended to be exempt from registration under the Securities Act of 1933, as amended (the “ Securities Act ”), pursuant to Section 4(2) of the Securities Act and/or the provisions of Regulation D promulgated thereunder (“ Regulation D ”) or Regulation S promulgated thereunder (“ Regulation S ”). In furtherance thereof and as a material inducement for the Company to enter into this Agreement and to accept the Subscriber’s subscription for the Interests, the Subscriber hereby represents and warrants to the Company as follows:

 

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Section 3.1.           Accredited Investor . The Subscriber is an “accredited investor” as defined in Rule 501 of Regulation D and is a sophisticated investor by virtue of Subscriber’s education, training and numerous prior investments made on Subscriber’s own behalf or through entities which Subscriber controls. The Subscriber is knowledgeable and experienced in financial and business matters and is capable of evaluating the merits and risks of an investment in the Interests and has the capacity to protect Subscriber’s own interests in connection with the purchase of the Interests, either alone or in conjunction with Subscriber’s professional advisors, who are unaffiliated with and who are not compensated, directly or indirectly, by the Company or any affiliate of the Company. All information which the Subscriber has provided to the Company concerning Subscriber and Subscriber’s financial position including, without limitation, the information set forth on the Subscriber Questionnaire attached hereto as Exhibit E and executed by the Subscriber in connection herewith (the “ Subscriber Questionnaire ”), is correct and complete. The Subscriber agrees to notify the Company promptly following any change that may cause any answer, statement or information set forth herein or in the attachments hereto to be untrue or misleading in any material respect. The Subscriber can bear the economic risk of Subscriber’s investment in the Company including the loss of the Subscriber’s entire investment in the Company.

 

Section 3.2.           Access to Information . The Subscriber has fully read this Agreement, including Article II, and all of the exhibits to this Agreement which describe certain material information concerning the Company. The Subscriber has had an opportunity to perform its own investigation of the Company and the Company has made available to the Subscriber all information about the Company necessary to enable the Subscriber to evaluate the risks and merits of an investment in the Company. The Subscriber has received all information which Subscriber has requested regarding the Company and its current and proposed business and operations, including the development of the business, and the Subscriber has been given reasonable opportunity to speak and meet with representatives of the Company for the purpose of asking questions of, and receiving answers from, such representatives concerning the foregoing and an investment in the Company, and the Company has responded to all such questions and inquiries to the satisfaction of the Subscriber. The Subscriber is aware of the highly speculative nature of an investment in the Company, and the significant risks involved therein. No statements, printed material or other information that is contrary to the information contained in this Agreement or the other agreements included herein has been given or made by or on behalf of the Company to the Subscriber. The Subscriber is not subscribing for the Interests as a result of or subsequent to any advertisement, article, notice or other publicity, solicitation or communication published or provided in any newspaper, magazine, newsletter or similar media or broadcast over television, radio or the Internet, or presented at any conference, seminar or meeting to which the public was invited.

 

Section 3.3.           Purchase for Own Account . The Interests the Subscriber is acquiring are being acquired for the Subscriber’s own account for investment only and not with a view to sale or resale, distribution or fractionalization of the Interests in violation of federal or state securities laws (collectively the “ Securities Laws ”). The Subscriber believes an investment in the Interests is suitable and appropriate for the Subscriber and Subscriber (a) is able to bear the economic risk and lack of liquidity in the Company, (b) has no need for liquidity of an investment in the Company and (c) is able to bear the risk of loss of the entire investment in the Company. The Subscriber will not resell or offer to resell the Interests, or any portion thereof, except in accordance with the terms of this Agreement, the Note and in compliance with all applicable Securities Laws. Furthermore, prior to any resale of the Interests by the Subscriber, the Subscriber shall provide the Company with an opinion of counsel acceptable to the Company in its sole discretion and in a form acceptable to the Company in its sole discretion, that any such proposed sale is in compliance with the Securities Laws or an exemption therefrom.

 

Section 3.4.           Restricted Securities . The Subscriber understands that the Interests have not been registered pursuant to the provisions of the Securities Laws and that the purchase of the Interests is taking place in a transaction not involving a public offering and that the Company does not intend to register the Interests. The Subscriber understands that Subscriber has no right to request, and the Company is under no obligation, to register the Interests under any of the Securities Laws.

 

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Section 3.5.           Legends . The Subscriber understands that certificates evidencing the Interests, if any, will bear any legend required by the Securities Laws or any other applicable laws.

 

Section 3.6.           Accuracy of Disclosures . All of the information supplied by the Subscriber to the Company in connection with the acquisition of the Interests (including, without limitation, the information set forth in the Subscriber Questionnaire), and the representations of the Subscriber contained in this Agreement, are true and complete, and do not contain any statement which, at the time and in light of the circumstances under which they were made, were false or misleading with respect to any material fact, and do not omit to state any material fact required to be stated in order to make the statements made not false or misleading.

 

Section 3.7.           Subscriber Questionnaire . The Company may only accept subscriptions from persons who meet certain suitability standards. In furnishing the information set forth in the Subscriber Questionnaire, the Subscriber hereby acknowledges that the Company will be relying thereon in determining, among other things, whether there are reasonable grounds to believe that the Subscriber qualifies as an acquirer of securities under Section 4(2) of the Securities Act, Regulation D or Regulation S, among other qualifications. The statements and information set forth in the Subscriber Questionnaire are true, correct and complete in all respects.

 

Section 3.8.           Validity; Binding Effect . The Subscriber has the full power and authority to execute and deliver this Agreement and the other agreements being executed and delivered by the Subscriber in connection herewith and to perform Subscriber’s obligations hereunder and thereunder. The Subscriber has taken all actions required by law to authorize Subscriber’s execution and delivery of this Agreement and the other agreements being executed and delivered by the Subscriber in connection herewith and all transactions contemplated hereunder and thereunder. If Subscriber is an entity, the person or persons executing this Agreement and the other agreements being executed and delivered by the Subscriber in connection herewith on Subscriber’s behalf and all agreements and instruments authorized hereby or thereby are duly authorized to do so. This Agreement and the other agreements being executed and delivered by the Subscriber in connection herewith are valid and binding agreements of the Subscriber and are enforceable against the Subscriber in accordance with their terms. Neither the execution or delivery of this Agreement or the other agreements being executed and delivered by the Subscriber in connection herewith nor the performance of any transactions contemplated hereunder or thereunder conflict with or constitute a default under any instruments governing the Subscriber, any law, rule, regulation or order, or any agreement to which the Subscriber is a party or by which the Subscriber is bound.

 

Section 3.9.           Anti-Money Laundering Matters. Subscriber acknowledges that the Company seeks to comply with all applicable anti-money laundering laws and regulations. In furtherance of these efforts, the Subscriber represents, warrants and agrees that: (i) no part of the funds used by the Subscriber to acquire the Interests or to satisfy its capital commitment obligations with respect thereto has been, or shall be, directly or indirectly derived from, or related to, any activity that may contravene United States federal or state or non-United States laws or regulations, including anti-money laundering laws and regulations and (ii) no subscription, contribution or payment to the Company by the Subscriber and no distribution to the Subscriber shall cause the Company to be in violation of any applicable anti-money laundering laws or regulations including, without limitation, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 and the United States Department of the Treasury Office of Foreign Assets Control regulations. The Subscriber acknowledges and agrees that, notwithstanding anything to the contrary, to the extent required by any anti-money laundering law or regulation, the Company may prohibit additional investment, restrict distribution or take any other reasonably necessary or advisable action with respect to the Interests, and Subscriber shall have no claim, and shall not pursue any claim against the Company or any other person in connection therewith.

 

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Section 3.10.          Acknowledgements of Risks . Subscriber recognizes that an investment in the Company involves certain risks, including, without limitation, the risks set forth in Article II hereof. The Subscriber is aware that returns on investments made by the Company are uncertain and that the Directors of the Company may receive compensation in connection with the management of the Company.

 

Section 3.11.          Opportunity to Consult with Counsel . The Subscriber acknowledges that he, she or it has had the opportunity to review this Agreement and the other agreements being executed and delivered by the Subscriber in connection herewith and the terms, conditions, actions, restrictions and transactions contemplated hereby and thereby with the Subscriber’s own legal counsel and that the attorneys, accountants and other experts who perform services for the Company may also perform services for the Company and its affiliates.

 

Section 3.12.          Indemnification . The Subscriber shall, and hereby agrees to, indemnify and hold harmless the Company and each of its officers, managers, directors, controlling persons, employees, advisors, consultants, Shareholders and affiliates, and any person acting on behalf of the Company, who is or may be a party or is or may be threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of or arising from (a) the Subscriber’s breach or violation of this Agreement or any of the other agreements being executed and delivered by the Subscriber in connection herewith, or (b) actual or alleged misrepresentation or misstatement of facts or other matters made or alleged to have been made by or on behalf of the Subscriber to the Company concerning the Subscriber or the Subscriber’s authority or suitability to invest or purchase securities in connection with the Offering, against any and all losses, liabilities and expenses actually and reasonably incurred by the Company, or any of its officers, managers, directors, controlling persons, employees, advisors, consultants, Shareholders and affiliates, and any person acting on behalf of the Company in connection with such action, suit or proceeding for which the Company, or any such officer, manager, director, controlling person, employee, advisor, consultant, Shareholder and affiliate, and any person acting on behalf of the Company has not otherwise been reimbursed, including, but not limited to, attorneys’ fees, judgments, fines and amounts paid in settlement. All representations, warranties and covenants in this Section shall survive the execution of the Agreement and the closing of the purchase and sale of the Interests hereunder indefinitely.

 

Section 3.13.          Notice to Florida Residents . Florida residents are advised as follows.

 

These securities have not been registered under the Florida Securities Act in reliance upon exemption provisions contained therein. Any sale made pursuant to such exemption provisions is voidable by the Subscriber within three (3) days after the first tender of consideration is made by the Subscriber to the Company, an agent of the Company or an escrow agent. A withdrawal within such three (3) day period will be without any further liability to any person. To accomplish this withdrawal, a purchaser need only send a letter or telegram to the Company at the Company’s present address, indicating his intention to withdraw.

 

Such letter or telegram should be sent and postmarked prior to the end of the aforementioned third business day. It is advisable to send such letter by certified mail, return receipt requested, to ensure that it is received and also to evidence the time it was mailed. If the request is made orally, in person or by telephone, to an officer of the Company, a written confirmation that the request has been received should be requested.

 

18
 

 

 

Article IV.

 

MISCELLANEOUS AGREEMENTS AND PROVISIONS

 

Section 4.1.           Survival of Representations . All representations and warranties made herein or in any agreement, questionnaire, certificate or instrument delivered pursuant to or in connection with this Agreement shall survive indefinitely the execution and delivery of this Agreement and the issuance, sale and delivery of the Interests.

 

Section 4.2.           Assignment . Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned or delegated by either party hereto except with the prior written consent of the other party.

 

Section 4.3.           Expenses . Any legal or other fees, costs or expenses incurred in connection with the consideration, preparation, negotiation, drafting and/or consummation of this Agreement and the transactions contemplated hereby shall be borne and paid solely by the party incurring such fees, costs and expenses.

 

Section 4.4.           Headings . The article, section, subsection, paragraph and subparagraph captions, headings and other titles preceding the text of each section, subsection, paragraph or subparagraph hereof are for convenience of reference only and shall not affect the construction, meaning or interpretation of this Agreement (or of any provision hereof).

 

Section 4.5.           Construction . The parties acknowledge and agree that each party has reviewed and negotiated this Agreement, that this Agreement and each and every provision hereof should be construed and interpreted to give meaning as written and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the construction, meaning or interpretation of this Agreement.

 

Section 4.6.           Waiver of Compliance; Consents . Any failure of the Subscriber party hereto to comply with any obligation, covenant, agreement or condition herein may be waived by the Company solely by a written instrument executed by an officer of the Company; any failure of the Company to comply with any obligation, covenant, agreement or condition herein may be waived by the Subscriber solely by a written instrument executed by the Subscriber; any such written and signed waiver, and any failure by any party to insist upon strict compliance with any obligation, covenant, agreement or condition herein, shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent shall be given in writing. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision(s) hereof (whether or not similar), nor shall any such waiver constitute a continuing waiver unless otherwise expressly so provided.

 

Section 4.7.           Amendment and Modification . Except as set forth elsewhere in this Agreement, neither this Agreement nor any provision hereof shall be amended, waived, modified, supplemented, changed, discharged, terminated, revoked or canceled, except by a written instrument mutually agreed upon and executed and delivered by both parties hereto.

 

Section 4.8.           Notices . All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if and when delivered by hand or by facsimile or electronic transmission (with receipt confirmed), if delivered to the address set forth (or indicated) below, or to such other address(es) as the parties hereto may from time to time designate in writing in accordance with this Section. If sent to the address set forth (or indicated) below, or to such other address(es) as the parties hereto may from time to time designate in writing in accordance with this Section, such notices, requests, demands and other communications shall be deemed delivered (i) if sent by established and reputable overnight delivery service (with receipt confirmed), the next business day after being so sent, or (ii) if sent by registered or certified U.S. Mail (with receipt confirmed), the third business day after being so mailed:

 

19
 

 

If to the Company, to:

 

xG Technology, Inc.

240 South Pineapple Avenue, Suite 701

Sarasota, FL 34236

Attention: Roger G. Branton

Fax: (941) 954-8595

E-mail: rbranton@mooersco.com

 

If to the Subscriber, to:

 

See signature page

 

Section 4.9.           Binding Effect . This Agreement and all the terms and provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, estate, legal representatives, successors and permitted assigns, and are not intended and shall not be construed so as to confer any rights or benefits upon any other person or party.

 

Section 4.10.          Dealings in Good Faith; Best Efforts . Each party hereto agrees to act in good faith with respect to the other party hereto in exercising its rights and discharging its obligations under this Agreement. Each party further agrees to use its reasonable best efforts to ensure that the purposes of this Agreement (and any related documents and agreements referred to herein) are realized and to take such further actions or steps, and execute and deliver (and, as appropriate, file) such further documents, certificates, instruments and agreements, as are reasonably necessary to implement the provisions of this Agreement and to consummate the Closing, upon the terms and as contemplated by this Agreement.

 

Section 4.11.          Governing Law; Arbitration . This Agreement shall be governed by, and interpreted and enforced in accordance with, the substantive laws of the State of Delaware (including, without limitation, provisions concerning limitations of actions), without reference to the conflicts of laws rules of that or any other jurisdiction, except that federal law shall also apply to the extent relevant. Any controversy or claim (including, without limitation, whether any controversy or claim is subject to arbitration) arising out of or relating to this Agreement (including, without limitation, any controversy or claim arising out of or related to (i) any agreements or other documents required to be executed and delivered in connection with this Agreement and (ii) any agreements or other documents executed and delivered at the closing of the transactions contemplated by this Agreement or by such other agreements or documents), or the breach thereof (whether, in any case, involving (x) a party hereto, (y) their transferees or (z) such party’s or transferee’s affiliates, shareholders, directors, officers, partners, members, managers, employees, representatives or agents), shall be settled by binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association and shall be held in Wilmington, Delaware.

 

Section 4.12.          Severability . It is the desire and intention of the parties hereto that, whenever possible, each provision of this Agreement be interpreted in such a manner as to be effective and valid under applicable law as written; if, however, any provision of this Agreement is found or held to be invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed to be modified to conform with such statute or rule of law. Any provision hereof that may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

 

20
 

 

 

Section 4.13.          Entire Agreement . This Agreement and each of the other the documents, agreements, exhibits and certificates referred to herein, constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior discussions, prior draft agreements, understandings, negotiations, agreements, representations, warranties, promises, assurances, covenants, arrangements and communications, written (including electronic) or oral, express or implied, of any and every nature between the Subscriber and the Company (or any director, officer, employee, shareholder, agent or advisor of the Company).

 

Section 4.14.          Attorneys’ Fees . If any party to this Agreement seeks to enforce the terms and provisions of this Agreement, then the prevailing party or parties in such action shall be entitled to recover from the non-prevailing party or parties all costs in connection with such action, including without limitation reasonable attorneys’ fees, expenses and costs incurred at the trial court and all appellate levels.

 

Section 4.15.          Counterparts . This Agreement may be executed through the use of one or more counterparts, including by means of pdf attachment to e-mail or facsimile, all of which together shall be considered one and the same agreement, binding on all parties hereto, notwithstanding that all parties are not signatories to the same page or counterpart. Upon delivery of a signed counterpart by the Subscriber to the Company, this Agreement shall be binding and enforceable as to such Subscriber. No party shall raise the use of facsimile machine or pdf attachment to e-mail to deliver signature pages hereto, or to any notice, document or agreement referred to herein, or delivered in connection herewith as a defense to the formation of a contract and each party shall forever waive any such defense.

 

[SIGNATURES ON THE FOLLOWING PAGE]

 

21
 

 

SUBSCRIPTION AGREEMENT  

SIGNATURE PAGE

 

IN WITNESS WHEREOF, the undersigned parties, intending to be legally bound, have executed this Subscription Agreement as of the date first written hereinabove.

 

  xG Technology, Inc.
   
  By:  
  Name:   
  Title:  
  Date:  

 

22
 

 

THE SUBSCRIBER:  
   
Signature Block for Individuals:  
   
Signature:    
Printed Name:    
   
Second Signature for Joint Tenant/ Tenant in
Common, if applicable
:
 
   
Signature:    
Printed Name:    
   
Signature Block for Entities:  
   
Subscriber’s Name:  
   
Signature:    
Printed Name:     
Title:    
   
Second Signature, if required by Subscriber’s
Organizational Documents:
 
   
Signature:    
Printed Name:    
Title:    
   
Subscription Amount: $_______________  
Warrant to Purchase ____________ Shares  

(Calculated based one (1) Share for each Ten Dollars ($10) of Subscription Amount)

 

ADDRESS FOR NOTICES TO SUBSCRIBER  
   
   
   
   
   
   
   
Facsimile:     

 

23
 

 

SCHEDULE I

 

Company Wire Instructions

 

Bank Name:
Bank Address:
 
ABA/Routing #:
Swift Code:
Account #:
Account Holder:
 
 

 

I- 1
 

 

EXHIBIT A

 

Summary Business Description

 

The Company is developing a broad portfolio of innovative intellectual property that enhances wireless communications. The Company’s intellectual property is embedded in proprietary software algorithms that offer cognitive spectrum access and interference mitigation solutions.

 

On November 20, 2006, the Company was first admitted and commenced trading in its shares on the Alternative Investment Market of the London Stock Exchange (“AIM”) and trades under the symbols “XGT:LN” and “XGTU:LN”.

 

Attached hereto as Exhibit F is a copy of the Company’s most recent annual report. Additional information on the Company can be found on its website, http://www.xgtechnology.com , or in the filings made by the Company with AIM, which are available to Subscribers upon request. Investors are encouraged to carefully review all information that is publicly available with respect to the Company.

 

A- 1
 

 

EXHIBIT B

 

Form of Convertible Promissory Note

 

This Note has not been and is not intended to be registered under the Securities Act of 1933, as amended (the “ Act ”) or under the securities laws of any state or other jurisdiction and are being offered and sold in reliance upon an exemption from registration under the Act and exemptions from registration provided by such other securities laws and may not be transferred, assigned or resold except as permitted under the act and such other securities laws. The notes are highly speculative and involve significant risks and should not be purchased by anyone who cannot afford the loss of the entire investment.

 

Principal Amount $_________________
Issue Date: ____________________

 

UNSECURED CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, xG TECHNOLOGY, INC. , a Delaware corporation (hereinafter called “ Issuer ”), hereby promises to pay to _______________________ (the “ Holder ”) or order, without demand, the sum of $_____________ Dollars (together with accrued but unpaid interest in like lawful money at the interest rate set forth in Section 1.1 below) on _______________ [One year from date of issuance] (the “ Maturity Date ”), if not retired sooner.

 

This Note has been entered into pursuant to the terms of a subscription agreement between the Issuer and the Holder, dated of even date herewith (the “ Subscription Agreement ”), and shall be governed by the terms of such Subscription Agreement. Unless otherwise separately defined herein, all capitalized terms used in this Note shall have the same meaning as is set forth in the Subscription Agreement. The following terms shall apply to this Note:

 

Article I

 

GENERAL PROVISIONS

 

1.1            Interest . The unpaid principal balance of this Note shall bear interest at a rate equal to twenty percent (20.0%) per annum. Interest on the unpaid principal balance of this Note shall be due and payable commencing on the six month anniversary of the Issue Date of this Note and shall be payable each six month anniversary thereafter until the Maturity Date. Interest shall be computed on the basis of the actual number of days elapsed and a year of 365 days. The interest charged shall be non-compounding interest, and accrued interest shall not be added to principal. Except as otherwise required by law or by other provisions of this Note, payments received by Holder hereunder shall be applied first against expenses and indemnities, next against interest accrued under this Note, and next in reduction of the outstanding principal balance of this Note. Interest may be payable by the Issuer at the option of the Holder either in cash or in xG Shares. In the event that the interest is paid in xG Shares, the price per xG Share for purposes of such payment shall be equal to the average of the closing mid-price per share of restricted xG Common Stock (LSE-AIM: XGT) for the five trading days prior to the date on which such interest is payable for as long as such shares of restricted xG Common Stock exist and are quoted on the London Stock Exchange’s AIM Market, failing which the price per xG Share for purposes of such payment shall be equal to the average of the closing mid-price per xG Share on the NASDAQ Market for the five trading days prior to the date on which such interest is payable. 

 

B- 1
 

  

1.2            Prepayment . This Note may be prepaid in whole (or in part) at any time by the Issuer, upon ten (10) business days prior written notice to the Holder, during which time the Holder shall be entitled to convert the Note in accordance with the terms hereof. In the event that the Issuer prepays this Note in full before the six month anniversary of the Issue Date of this Note, the Issuer shall nonetheless be required to pay the Holder six months’ interest on the unpaid and unconverted principal balance of this Note immediately prior to such prepayment at the interest rate set forth in Section 1.1 above.

  

1.3            No Additional Senior Debt; Issuance of Other Notes . So long as any portion of this Note is outstanding, the Company will not directly or indirectly enter into, create, incur, assume or suffer to exist any additional indebtedness or liens of any kind (other than indebtedness and liens in favor of the Holder), on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior to, in any respect, the Issuer's obligations under the Notes, except for one or more other promissory notes issued to one or more other Investors (as defined in the Subscription Agreement) in connection with the Offering (as defined in the Subscription Agreement).

 

Article II

 

CONVERSION RIGHTS

 

The Holder shall have the right to convert the Principal Amount of this Note into xG Shares as set forth below.

 

2.1           Conversion into xG Shares .

 

(a)           Optional Conversion into xG Shares . At the option of the Holder, the Holder may convert all or part of the Principal Amount into xG Shares by providing a Notice of Conversion in accordance with Section 2.1(c). The number of xG Shares into which the Principal Amount (or portion thereof) shall be converted into shall equal the sum of a fraction, the numerator of which shall be the Principal Amount to be converted and the denominator of which shall be the Applicable xG Conversion Price. As used in this Note the “ Applicable xG Conversion Price ” shall equal 95% of the public offering price per xG Share pursuant to any NASDAQ IPO completed by the Issuer.

  

B- 2
 

 

 

(b)          The Issuer may force a conversion into xG Shares of 50% of the Principal Amount of this Note without prepayment penalty by providing a Notice of Conversion in accordance with Section 2.1(c) , but provided that at the time of any such forced conversion the Issuer shall have completed a NASDAQ IPO, and provided further that , if such forced conversion is effected within six months from the Issue Date of this Note, then the Issuer shall pay the Holder six month’s interest on the unpaid and unconverted principal balance of this Note immediately prior to such forced conversion at the interest rate set forth in Section 1.1 above (such interest being payable in cash or xG Shares, at the option of the Holder). The number of xG Shares into which the 50% of Principal Amount (and any interest thereon, at the Holder’s option) shall be converted shall equal the sum of a fraction, the numerator of which shall be the Principal Amount to be converted and the denominator of which shall be the Applicable xG Conversion Price.

 

(c)           Mechanics of Conversion . As a condition to effecting the conversion set forth in Sections 2.1(a), and 2.1(b) above, the Holder shall properly complete and deliver to the Issuer or, as the case may be, the Issuer shall properly complete and deliver to the Holder a Notice of Conversion, the form of which is annexed hereto as Exhibit A (the “ Notice of Conversion ”), which notice must be received or delivered by the Issuer at least one (1) business day prior to the Maturity Date. Upon timely delivery to the Issuer or, as the case may be, Holder of the Notice of Conversion, the Issuer shall issue and deliver to the Holder within three (3) business days after the Maturity Date (such third day being the “ Delivery Date ”) that number of xG Shares for the portion of the Note converted in accordance herewith.

 

(d)           Adjustment . The number and kind of shares or other securities to be issued upon conversion determined pursuant to Sections 2.1(a), and 2.1(b), shall be subject to adjustment from time to time upon the happening of certain events while this conversion right remains outstanding, as follows:

 

A.            Merger, Sale of Assets, etc . If the Issuer at any time shall consolidate with or merge into or sell or convey all or substantially all its assets to any other corporation, this Note, as to the unpaid principal portion thereof and accrued and unpaid interest thereon, shall thereafter be deemed to evidence the right to purchase such number and kind of shares or other securities and property as would have been issuable or distributable on account of such consolidation, merger, sale or conveyance, upon or with respect to the securities subject to the conversion or purchase right immediately prior to such consolidation, merger, sale or conveyance. The foregoing provision shall similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of the foregoing, the anti-dilution provisions of this Section shall apply to such securities of such successor or purchaser after any such consolidation, merger, sale or conveyance.

 

B.            Reclassification, etc . If the Issuer at any time shall, by reclassification or otherwise, change the stock into the same or a different number of securities of any class or classes that may be issued or outstanding, this Note, as to the unpaid principal portion thereof and accrued and unpaid interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the stock immediately prior to such reclassification or other change.

 

B- 3
 

 

(e)           Notice of Adjustment . Upon the occurrence of an event specified in Section 2.1(d), the Issuer shall promptly mail to the Holder a notice setting forth the adjustment and setting forth a statement of the facts requiring such adjustment.

 

(f)           Reservation of xG Shares . As of and from the date when the Issuer completes a NASDAQ IPO and the conversion right under this Section shall first become exercisable, the Issuer will reserve from its authorized and unissued xG Shares a sufficient amount of xG Shares to permit the full conversion of this Note. Issuer represents that upon issuance, such xGShares will be duly and validly issued, fully paid and non-assessable. Issuer agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for xG Shares upon the conversion of this Note.

 

2.2           Method of Conversion . This Note may be converted by the Holder in whole or in part as described in Section 2.1 hereof. Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Issuer to the Holder for the principal balance of this Note and interest which shall not have been converted or paid.

  

Article III

 

 EVENT OF DEFAULT

 

The occurrence of any of the following events of default (“ Event of Default ”) shall, at the option of the Holder hereof, make all sums of principal then remaining unpaid and unconverted hereon and all other amounts payable hereunder immediately due and payable, upon demand, without presentment, or grace period, all of which hereby are expressly waived, except as set forth below:

 

3.1           Failure to Pay . The Issuer fails to pay the Principal Amount or other sum due under this Note when due, and such failure continues for five (5) business days after written notice of such default shall have been received by the Issuer from the Holder in writing.

 

3.2           Breach . The Issuer defaults under or breaches this Note (other than a default of payment of principal or interest or other sum due under this Note), and such failure continues for twenty (20) business days after written notice of such default shall have been received by the Issuer from the Holder in writing.

 

3.3           Involuntary Bankruptcy . An involuntary case or other proceeding is commenced against Issuer (the “ Bankruptcy Party ”) which seeks liquidation, reorganization or other relief with respect to it or its debts or other liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeks the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any of its property, and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of 45 days; or an order for relief against the Bankruptcy Party shall be entered in any such case under the Federal Bankruptcy Code.

 

B- 4
 

 

3.4           Voluntary Bankruptcy . The Bankruptcy Party commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts or other liabilities under any bankruptcy, insolvency or other similar law or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for it or any of its property, or consent by the Bankruptcy Party to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or the making by the Bankruptcy Party of a general assignment for the benefit of creditors, or the failure by the Bankruptcy Party, or the admission by the Bankruptcy Party in writing of its inability, to pay its debts generally as they become due, or any action by the Bankruptcy Party to authorize or effect any of the foregoing.

 

Article IV

MISCELLANEOUS

 

4.1           Failure or Indulgence Not Waiver . No failure or delay on the part of Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2           Notices . All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall be in writing and shall be either faxed, mailed or delivered to each party at the respective addresses of the Issuer and the Holder as set forth in the Subscription Agreement, or at such other address or facsimile number as a party shall have furnished to the other party in writing. All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing, on the business day following the deposit with such service; (b) when mailed, by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d) when faxed, upon confirmation of receipt.

 

4.3           Amendment Provision . The term “ Note ” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented. This Note may not be amended without the written consent of the Issuer and the Holder.

 

B- 5
 

 

4.4           Assignability . This Note shall not be assignable by any Holder without the prior written consent of the Issuer.

 

4.5           Cost of Collection . If default is made in the payment of this Note, Issuer shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.

 

4.6           Governing Law . This Note shall be governed by, and interpreted and enforced in accordance with, the substantive laws of the State of Delaware (including, without limitation, provisions concerning limitations of actions), without reference to the conflicts of laws rules of that or any other jurisdiction, except that federal law shall also apply to the extent relevant.

 

4.7           Dispute Resolution

 

(a)          Any controversy or claim (including, without limitation, whether any controversy or claim is subject to arbitration) arising out of or relating to this Note (including, without limitation, any controversy or claim arising out of or related to (i) any other agreements or other documents required to be executed and delivered in connection with this Note and (ii) any agreements or other documents executed and delivered at the closing of the transactions contemplated by this Note or by such other agreements or documents), or the breach thereof (whether, in any case, involving (x) a party hereto, (y) their transferees or (z) such party’s or transferee’s affiliates, shareholders, directors, officers, partners, members, managers, employees, representatives or agents), shall be settled by binding arbitration under the Commercial Arbitration Rules (“ Rules ”) of the American Arbitration Association (the “ AAA ”), and shall be held in Wilmington, Delaware.

 

(b)          In any arbitration proceeding, the following limitations on the form and volume of written discovery and oral depositions that each side may conduct in preparation for the arbitration proceeding shall apply: (i) each side shall be permitted no more than 20 hours in oral depositions to examine and cross-examine (A) parties to the arbitration on the opposing side, (B) experts designated by those parties to the arbitration and (C) persons who are subject to those parties’ control, and (ii) each party to the arbitration shall be limited to 25 written interrogatories, excluding interrogatories asking a party to the arbitration only to identify or authenticate specific documents); provided, however, that the arbitration panel (as determined below) shall specify all other matters regarding the conduct of such written discovery and oral depositions.

 

(c)          Any dispute submitted for arbitration shall be administered by the AAA, according to the following procedures. The party or parties submitting (“ Submitting Party ”) the intention to arbitrate (the “ Submission ”) shall submit the Submission to the other party or parties (the “ Answering Party ”) and to a panel of three arbitrators shall be chosen according to the following procedures. The Submitting Party shall nominate one arbitrator within ten (10) days. Within ten (10) days of receipt of the Submitting Party’s nomination, the Answering Party shall nominate one arbitrator. If the Answering Party fails to timely nominate an arbitrator, then the second arbitrator shall be appointed by the AAA in accordance with the Rules. If the arbitrator chosen by the Submitting Party and the arbitrator chosen by or selected for the Answering Party can agree upon a neutral arbitrator within 30 days of the choice or selection of the Answering Party’s arbitrator, then such individual shall serve as the third arbitrator. If no such agreement is reached, a third neutral arbitrator shall be appointed by the AAA in accordance with the Rules. The Issuer and, by acceptance hereof, the Holder agree that they shall consent to an expedited proceeding under the Rules, to the full extent the AAA can accommodate such a request.

 

B- 6
 

 

(d)          The ruling of the arbitration panel, as the case may be, shall be binding and conclusive upon all parties hereto and any other person or entity with an interest in the matter.

 

(e)          The arbitration provision set forth herein shall be a complete defense to any suit, action or other proceeding instituted in any court regarding any controversy or claim (including, without limitation, whether any controversy or claim is subject to arbitration) arising out of or relating to this Note, or the breach hereof (whether, in any case, involving (i) the Holder or the Issuer, (ii) their transferees or (iii) such party’s or transferee’s affiliates, shareholders, directors, officers, partners, members, managers, employees, representatives or agents); provided, however , that (A) any of the parties to the arbitration may request a court in Wilmington, Delaware to provide interim injunctive relief in aid of arbitration hereunder or to prevent a violation of this Note pending arbitration hereunder (and any such request shall not be deemed a waiver of the obligations to arbitrate set forth herein), (B) any ruling on the award rendered by the arbitration panel, as the case may be, may be entered as a final judgment in (and only in) a court in Wilmington, Delaware (and each of the Issuer and, by acceptance hereof, the Holder irrevocably submits to the jurisdiction of such court for such purposes) and (C) application may be made by a party to any court of competent jurisdiction wherever situated for enforcement of any such final judgment and the entry of whatever orders are necessary for such enforcement. In any proceeding with respect hereto, all direct, reasonable and out-of-pocket costs and expenses (including, without limitation, AAA administration fees, arbitrator fees, expert witness fees, and attorneys’ fees) incurred by the parties to the proceeding shall, at the conclusion of the proceeding, be paid by the party incurring same.

 

4.8           Maximum Payments . Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Issuer to the Holder and thus refunded to the Issuer.

 

4.9           Construction .  Each party acknowledges that its legal counsel participated in the preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Note to favor any party against the other.

 

4.10         Shareholder Status . The Holder shall not have rights as a shareholder of the Issuer with respect to unconverted portions of this Note. However, the Holder will have the rights of a shareholder after delivery by the Holder of a Conversion Notice to the Issuer.

 

4.11         Non-Business Days .  Whenever any payment or any action to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of Delaware, such payment may be due or action shall be required on the next succeeding business day and, for such payment, such next succeeding day shall be included in the calculation of the amount of accrued interest payable on such date.

 

B- 7
 

 

4.12         Waiver of Defenses . The Issuer expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of intent to accelerate the maturity hereof, notice of the acceleration of the maturity hereof, bringing of suit and diligence in taking any action to collect amounts called for hereunder and in the handling of securities at any time existing in connection herewith.

 

[SIGNATURES ON THE FOLLOWING PAGE]

 

B- 8
 

 

IN WITNESS WHEREOF , Issuer has caused this Note to be signed in its name by an authorized officer effective as of the __________ of ___________, 2013.

 

  xG TECHNOLOGY, INC.
     
  By:  
    Name:
    Title:

   

B- 9
 

 

NOTICE OF CONVERSION

 

(To be executed by the Registered Holder in order to convert the Note)

 

xG TECHNOLOGY, INC. (the “Issuer”) having completed a NASDAQ IPO, the undersigned hereby elects to convert $_________ of the principal and $_________ of the interest due on the Unsecured Convertible Promissory Note issued by the Issuer on ________, 2013 (the “Note”) into xG Shares according to the conditions set forth in such Note, as of the date written below. Unless otherwise separately defined herein, all capitalized terms used herein shall have the same meaning as is set forth in the Note or, as the case may be, the Subscription Agreement referred to in the Note.

 

Date of Conversion:______________________________________________________________________________________

 

Conversion Price: $_________

 

Shares To Be Delivered:___________________________________________________________________________________

 

Signature:_____________________________________________________________________________________

 

Print Name:_________________________________________________________________________________________

 

Address:____________________________________________________________________________________________

 

             _____________________________________________________________________________________________

 

B- 10
 

 

  EXHIBIT C

 

Form of Warrant

 

This WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS NOTE has not been and is not intended to be registered under the Securities Act of 1933, as amended (the “ Act ”) or under the securities laws of any state or other jurisdiction and are being offered and sold in reliance upon an exemption from registration under the Securities Act and exemptions from registration provided by such other securities laws and may not be transferred, assigned or resold except as permitted under the securities act and such other securities laws. ThIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS NOTE are highly speculative and involve significant risks and should not be purchased by anyone who cannot afford the loss of the entire investment.

 

_______________, 2013

 

xG TECHNOLOGY, INC.

 

Warrant for the Purchase of Shares

 

No. W-________

 

For value received, this Warrant is hereby issued by xG TECHNOLOGY, INC. , a Delaware corporation (the “ Company ”), to ________________ (the “ Holder ”). Subject to the provisions of this Warrant, the Company hereby grants to Holder the right to purchase from the Company ________ [one Warrant for every $10 of principal amount of bridge loan originally subscribed by Investor] fully paid and non-assessable Shares, at a price of $0.01 per share (the “ Exercise Price ”).

 

This Warrant is exercisable into shares (the “ xG Shares ”) of $0.01 each in the Common Stock of the Company. The term “ Shares ” means the xG Shares, in each case as constituted on the date of issuance of this Warrant (the “ Base Date ”). The number of Shares to be received upon the exercise of this Warrant may be adjusted from time to time as hereinafter set forth. The Shares deliverable upon such exercise, and as adjusted from time to time, are hereinafter referred to as “ Warrant Stock ”. The term “ Other Securities ” means any other equity or debt securities that may be issued by the Company in addition thereto or in substitution for the Warrant Stock.

 

This Note has been entered into pursuant to the terms of a subscription agreement between the Company and the Holder, dated of even date herewith (the “ Subscription Agreement ”), and shall be governed by the terms of such Subscription Agreement. Unless otherwise separately defined herein, all capitalized terms used in this Warrant shall have the same meaning as is set forth in the Subscription Agreement.

 

C- 1
 

 

The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder shall be held, subject to all of the conditions, limitations and provisions set forth herein.

 

1.           Exercise of Warrant .  Subject to the terms and conditions set forth herein, this Warrant may be exercised in whole or in part, pursuant to the procedures provided below, at any time on or before 5:00 p.m., Eastern time, on _______________, 2018 (the “ Expiration Date ”) or, if such day is a day on which banking institutions in New York are authorized by law to close, then on the next succeeding day that shall not be such a day. To exercise this Warrant the Holder shall present and surrender this Warrant to the Company at its principal office, with the Warrant Exercise Form attached hereto duly executed by the Holder and accompanied by payment in cash or immediately available funds, payable to the order of the Company, of the aggregate Exercise Price for the total aggregate number of shares for which this Warrant is exercised. Upon receipt by the Company of this Warrant, together with the executed Warrant Exercise Form and payment of the Exercise Price for the shares to be acquired, in proper form for exercise, and subject to the Holder’s compliance with all requirements of this Warrant for the exercise hereof, the Holder shall be deemed to be the holder of record of the Shares (or Other Securities) issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Shares shall not then be actually delivered to the Holder; provided, however, that no exercise of this Warrant shall be effective, and the Company shall have no obligation to issue any Shares or Other Securities to the Holder upon any attempted exercise of this Warrant, unless the Holder shall have first delivered to the Company, in form and substance reasonably satisfactory to the Company, appropriate representations so as to provide the Company reasonable assurances that the securities issuable upon exercise may be issued without violation of the registration requirements of the Securities Act and applicable state securities laws, including without limitation representations that the exercising Holder is an “accredited investor” as defined in Regulation D under the Securities Act and that the Holder is familiar with the Company and its business and financial condition and has had an opportunity to ask questions and receive documents relating thereto to his reasonable satisfaction.

 

2.           Net Issue Exercise . If the fair market value of one Share is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may request that the Company issue shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise and notice of such election. In the event that the Company consents to such issuance (at the Company’s sole discretion), the Company shall issue to the Holder a number of Shares computed using the following formula:

 

X = Y * (A-B)

 A

 

Where X = the number of Shares to be issued to the Holder
     
  Y = the number of Shares purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation)
     
  A = the fair market value of one Share (at the date of such calculation)
     
  B = Exercise Price (as adjusted to the date of such calculation)

 

C- 2
 

 

3.           Reservation of Shares . The Company will at all times reserve for issuance and delivery upon exercise of this Warrant all Shares or other shares of capital stock of the Company (and Other Securities) from time to time receivable upon exercise of this Warrant. All such shares (and Other Securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable and free of all preemptive rights.

 

4.           Fractional Shares . At the Company’s option, the Company may issue fractional shares or scrip representing fractional shares upon the exercise of this Warrant or the Company may pay the Holder an amount equal to the Fair Market Value (as defined below) of such fractional share of Shares in lieu of each fraction of a Share otherwise called for upon any exercise of this Warrant.

 

5.           Fair Market Value . For purposes of this Warrant, the “ Fair Market Value ” of a Share (or Other Security) shall be determined as of any date (the “ Value Date ”) by the Company’s Board of Directors in good faith; provided, however, that where there exists a public market for the Shares on the Value Date, the Fair Market Value per share shall be the product of the number of Shares is then convertible and either:

 

(a)           Listed Shares . If the Shares are listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ system, the Fair Market Value shall be the last reported sale price of the security on such exchange or system on the last business day prior to the Value Date or if no such sale is made on such day, the average of the closing bid and asked prices for such day on such exchange or system; or

 

(b)           Unlisted Shares . If the Shares are not so listed or so admitted to unlisted trading privileges, the Fair Market Value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the Value Date.

 

Notwithstanding the foregoing, in the event the Warrant is exercised in connection with the NASDAQ IPO, the Fair Market Value per share shall be the product of (i) the per share offering price to the public of the NASDAQ IPO, and (ii) the number of Shares is convertible at the time of such exercise.

 

6.           Assignment or Loss of Warrant . This Warrant shall not be assignable by any party hereto without the prior written consent of the other party. Subject to the transfer restrictions herein (including Section 9), 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. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and of reasonably satisfactory indemnification by the Holder, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a replacement Warrant of like tenor and date.

C- 3
 

 

7.           Rights of the Holder . The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.

 

8.           Adjustments.

 

(a)           Adjustment for Recapitalization . If the Company shall at any time after the Base Date subdivide its outstanding Shares (or Other Securities at the time receivable upon the exercise of the Warrant) by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute Shares to its shareholders, the number of Shares (or Other Securities) subject to this Warrant immediately prior to such subdivision shall be proportionately increased, and if the Company shall at any time after the Base Date combine the outstanding Shares by recapitalization, reclassification or combination thereof, the number of Shares subject to this Warrant immediately prior to such combination shall be proportionately decreased. Any such adjustment and adjustment to the Exercise Price pursuant to this Section 8(a) shall be effective at the close of business on the effective date of such subdivision or combination or if any adjustment is the result of a stock dividend or distribution then the effective date for such adjustment based thereon shall be the record date therefor.

 

Whenever the number of Shares purchasable upon the exercise of this Warrant is adjusted, as provided in this Section 8(a), the Exercise Price shall be adjusted to the nearest cent by multiplying such Exercise Price immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of Shares purchasable upon the exercise immediately prior to such adjustment, and (y) the denominator of which shall be the number of Shares so purchasable immediately thereafter.

 

(b)           Adjustment for Reorganization, Consolidation, Merger, Etc . In case of any reorganization of the Company (or any other corporation, the securities of which are at the time receivable on the exercise of this Warrant) after the Base Date or in case after such date the Company (or any such other corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation, then, and in each such case, the Holder of this Warrant upon the exercise thereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the securities and property receivable upon the exercise of this Warrant prior to such consummation, the securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto; in each such case, the terms of this Warrant shall be applicable to the securities or property receivable upon the exercise of this Warrant after such consummation.

 

(c)           Certificate as to Adjustments . The adjustments provided in this Section 8 shall be interpreted and applied by the Company in such a fashion so as to reasonably preserve the applicability and benefits of this Warrant (but not to increase or diminish the benefits hereunder). In each case of an adjustment in the number of Shares receivable on the exercise of the Warrant, the Company at its expense will promptly compute such adjustment in accordance with the terms of the Warrant and prepare a certificate executed by two executive officers of the Company setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company will forthwith mail a copy of each such certificate to each Holder.

 

C- 4
 

 

(d)           Notices of Record Date, Etc . In the event that:

 

(i)          the Company shall declare any dividend or other distribution to the holders of Shares, or authorizes the granting to holders of Shares any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities; or

 

(ii)         the Company authorizes any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation or entity; or

 

(iii)        the Company authorizes any voluntary or involuntary dissolution, liquidation or winding up of the Company,

 

then, and in each such case, the Company shall mail or cause to be mailed to the holder of this Warrant at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place, and the time, if any is to be fixed, as to which the holders of record of Shares (or such other securities at the time receivable upon the exercise of the Warrant) shall be entitled to exchange their Shares (or such Other Securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up. Such notice shall be mailed at least 20 days prior to the date therein specified.

 

(e)           No Impairment . The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 8 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment.

 

9.           Transfer to Comply with the Securities Act . This Warrant and any Warrant Stock or Other Securities may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (a) to a person who, in the opinion of counsel to the Company, is a person to whom this Warrant or the Warrant Stock or Other Securities may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 9 with respect to any resale or other disposition of such securities; or (b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees.

 

10.          Legend . Unless the shares of Warrant Stock or Other Securities have been registered under the Securities Act, upon exercise of any of the Warrants and the issuance of any of the shares of Warrant Stock, all certificates representing shares shall bear on the face thereof a legend substantially in the form of the legend on this Warrant or such other legend as the Company and its counsel may require.

  

C- 5
 

 

11.          Notices. All notices required hereunder shall be in writing and shall be deemed given when telegraphed, delivered personally or within two days after mailing when mailed by certified or registered mail, return receipt requested, to the Company or the Holder, as the case may be, for whom such notice is intended, if to the Holder, at the address of such party shown on the books of the Company, or if to the Company, at the address set forth on the signature page hereof, Attn: President, or at such other address of which the Company or the Holder has been advised by notice hereunder.

 

12.          Applicable Law . The Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions of such State.

 

[SIGNATURES ON THE FOLLOWING PAGE]

 

C- 6
 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written.

 

  xG TECHNOLOGY, INC.
   
   
  By:  
  Name:  
  Title:  
   
  Address: 240 S Pineapple Ave, Suite 701
    Sarasota, FL 34236
       

C- 7
 

 

WARRANT EXERCISE FORM

 

The undersigned hereby irrevocably elects to (i) exercise the within Warrant to purchase __________ Shares of the Company pursuant to the provisions of Section 1 of the attached Warrant, and hereby makes payment of $__________ in payment therefor, or (ii) exercise this Warrant for the purchase of _______ Shares, pursuant to the provisions of Section 2 of the attached Warrant. The undersigned’s execution of this form constitutes the undersigned’s agreement to all the terms of the Warrant and to comply therewith.

 

   
  Signature
  Print Name:
   
   
  Signature, if jointly held
  Print Name:
   
   
  Date

 

C- 8
 

 

ASSIGNMENT FORM

 

FOR VALUE RECEIVED_____________________________ (“Assignor”) hereby sells, assigns and transfers unto _______________________________ (“Assignee”) all of Assignor’s right, title and interest in, to and under Warrant No. W-____ issued by xG TECHNOLOGY, INC., dated ______________. This Assignment complies with all terms of the Warrant.

 

DATED:     ASSIGNOR:
     
   
  Signature
  Print Name:
   
  Signature, if jointly held
  Print Name:
 
  Assignee :

 

The undersigned agrees to all of the terms of the Warrant and to comply therewith.

 

   
  Signature
  Print Name:
   
  Signature, if jointly held
  Print Name:

 

C- 9
 

 

EXHIBIT D

 

Expected Use of Proceeds

 

The net proceeds of this Offering are expected to be used primarily for general corporate purposes, including working capital, product development, marketing activities, building an internal sales organization and developing sales channels, funding the set-up of contract manufacturing production lines and other capital expenditures.

 

D- 1
 

EXHIBIT E

 

Subscriber Questionnaire

 

Subscriber Questionnaire

for

Subscription in xG Technology, Inc. (the “ Company ”)

 

Please Print or Type and Complete Fully

 

PARTI GENERAL INFORMATION

 

1. Name of Subscriber:  

 

2. Social Security No.:  

 

3. Type of Ownership (check appropriate box):

 

  ¨ Individual ¨ Trust ¨ Limited Liability Company
             
  ¨

Tenant in Common 1

¨ Corporation ¨ Other:_________________
       
  ¨ Joint Tenant with ¨ Partnership  

Rights of Survivorship 2

 

 

4. Address for Notice:  

 

  Tel.:   Fax:   Email:  

 

5. Address of Primary Residence or Primary Place of Business (POST OFFICE BOXES AND OTHER ADDRESSES CANNOT BE ACCEPTED):                                                                                                   

 

6. State of Incorporation/ Formation (if applicable):  

 

7 Social Security Number/ Tax Identification Number:  

 

8. Subscriber (check one) ¨ is// ¨ is not a “U.S. Person” as such term is defined in Regulation S promulgated under the Securities Act.

 

 

1 Each Tenant in Common must sign and complete the entire Subscriber Questionnaire and each other Subscription Document

2 Each Joint Tenant must sign and complete the entire Subscriber Questionnaire and each other Subscription Document

 

E- 1
 

 

PART II INVESTOR KNOWLEDGE AND EXPERIENCE

 

1. Do you have sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks associated with investing in the Company?

 

Yes _____ No _____

 

2. If the answer to question 1 is NO, please name the investment advisor, if any, with whom you have reviewed the merits and risks of this offering. The investment adviser named below must act as your Purchaser Representative (as defined in Regulation D) and must complete a Purchaser Representative Questionnaire which may be obtained upon request from the Company. No representative of the Company may be your Purchaser Representative.

 

  Name:  

 

  Firm:  

 

  Address:  

 

  Telephone Number: ( )  

 

3. Do you understand the nature of an investment in the Company and the risks associated with such an investment?

 

Yes _____ No _____

 

4. Do you understand that there is no guarantee of any financial return on this investment and that you run the risk of losing your entire investment ?

 

Yes _____ No _____

 

5. Are you purchasing these securities for investment and not with the intent to resell them?

 

Yes _____ No _____

 

6. You have the right, will be afforded an opportunity, and are encouraged to investigate the Company and review relevant records and documents pertaining to the Company and its proposed business and operations and to ask questions of a qualified representative of the Company regarding this investment and the operations and method of doing business of the Company.
   
  Have you or your Purchaser Representative, if any, received an adequate response to such questions or requests, if any?

 

Yes _____ No _____

 

SUBSCRIBERS WHO ARE INDIVIDUALS, JOINT TENANTS, TENANTS IN COMMON OR REVOCABLE GRANTOR TRUSTS SHOULD COMPLETE PARTS III-IV. ALL OTHER SUBSCRIBERS SHOULD COMPLETE PARTS V-VIII.

 

E- 2
 

 

PART III ACCREDITED INVESTOR STATUS: INDIVIDUALS

 

The undersigned hereby acknowledges that the representations contained in this Part III are made for the purpose of qualifying the Subscriber as an “accredited investor” as that term is defined in Regulation D. The Subscriber hereby represents that the statement or statements initialed or checked below are true and correct in all respects. The Subscriber understands that a false representation may constitute a violation of law and that any person, including the Company or its officers or directors, who suffers damages as a result of a false representation may have a claim against me for damages.

 

Subscriber hereby represents and warrants that it is an Accredited Investor because:

 

7. ______ Subscriber is a natural person or revocable grantor trust whose net worth, or joint net worth with my spouse, exceeds $1,000,000. For purposes of this Investor Questionnaire, “net worth” means the excess of total assets at fair market value, excluding your primary residence, over total liabilities;
   
8. ______ Subscriber is a natural person, or revocable grantor trust, who had an individual income in excess of $200,000 in each of the two most recent years and who reasonably expects to have an individual income in excess of $200,000 in the current year, or who had a joint income in excess of $300,000 in each of the two most recent years and who reasonably expects to have a joint income in excess of $300,000 in the current year; or
   
9. _______ Subscriber is a director, executive officer, or general partner of the Company.

 

PART IV INVESTMENT ADVISERS ACT MATTERS: Individuals

 

The Subscriber acknowledges that the representations contained in this Part IV are made for the purpose of qualifying the Subscriber as a “qualified client” under the Investment Advisers Act.

 

10. ______ Subscriber has a net worth in excess of $1,500,000 (including assets held jointly with such person’s spouse); or
   
11. ______ Subscriber is making a commitment to the Company of at least $750,000.

 

PART V ACCREDITED INVESTOR STATUS: ENTITIES

 

The Subscriber hereby acknowledges that the representations contained in this Part V are made for the purpose of qualifying the Subscriber as an “accredited investor” as that term is defined in Regulation D. The Subscriber hereby represents that the statement or statements initialed or checked below are true and correct in all respects. The Subscriber understands that a false representation may constitute a violation of law and that any person, including the Company or its officers or directors, who suffers damages as a result of a false representation may have a claim against me for damages.

 

Subscriber hereby represents and warrants that it is an Accredited Investor because Subscriber is one of the following:

 

12. ______ a private business development company as defined in section 202(a)(22) of the Investment Advisers Act;
   
13. ______ a corporation, limited liability company or partnership, an organization described in section 501(c)(3) of the Internal Revenue Code, a Massachusetts or similar business trust, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

 

E- 3
 

 

14. ______ a bank, as defined in Section 3(a)(2) of the Securities Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act;
   
15. ______ a broker or dealer registered pursuant to Section 15 of the United States Securities Exchange Act of 1934, as amended;
   
16. ______ an insurance company, as defined in Section 2(a)(13) of the Securities Act;
   
17. ______ an investment company registered under the United States Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder;
   
18. ______ a business development company, as defined in Section 2(a)(48) of the Investment Company Act;
   
19. ______ a Small Business Investment Company licensed by the United States Small Business Administration under Section 301(c) or (d) of the United States Small Business Investment Act of 1958, as amended;
   
20. ______ a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, with total assets in excess of $5,000,000;
   
21. ______ an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 (“ ERISA ”) whose investment decisions are made by a plan fiduciary, as such term is defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or registered investment advisor, or has total assets in excess of $5,000,000 or , is a self-directed plan, with investment decisions made solely by persons that are accredited investors;
   
22. ______ a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring Shares of the Company, whose purchase of the Shares offered is directed by a person with such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in such Shares; or
   
23.

______ an entity in which all of the equity owners are accredited investors. 3

 

 

3 If Subscriber is an accredited investor solely for the reason described in this subsection (12), please have a Subscription Questionnaire completed for each equity holder of Subscriber.

 

 

E- 4
 

 

 

PART VI INVESTMENT COMPANY ACT MATTERS: ENTITIES

 

24. Subscriber is one of the following:

 

  (a) ______ an “investment company,” as defined in Section 3 of the Investment Company Act of 1940, registered or required to be registered under the Investment Company Act; or
     
  (b) ______ a “business development company,” as defined in Section 2(a)(48) of the Investment Company Act; or

 

25. _____ Subscriber would be an “investment company” as defined in Section 3(a) of the Investment Company Act if it were not exempt from such definition due to Section 3(a)(1) or Section 3(c)(7) of the Investment Company Act;
   
26. _____ Subscriber is not an “investment company” and would not be an “investment company” if it were not exempt from such definition due to Section 3(a)(1) or Section 3(c)(7) of the Investment Company Act.
   
27. If Subscriber checked (1) or (2) above, then the number of direct or indirect beneficial owners of Subscriber’s securities as interpreted under the Investment Company Act (other than short-term paper, as such term is interpreted under the Investment Company Act) is ___________________.
   
28. Please check each of the following that are true:

 

  (a) _____ Subscriber was not formed or reformed (as interpreted under the Investment Company Act) for the purpose of acquiring Shares in the Company.
     
  (b) _____ Subscriber’s commitment to the Company is less than 40% of Subscriber’s assets (including committed capital).
     
  (c) _____ The Subscriber has made investments prior to the date hereof or intends to make investments in the near future and each beneficial owner of interests in the Subscriber has shared and will share in the same proportion in each such investment
     
  (d) _____ The governing documents of the Subscriber require that each beneficial owner of the Subscriber, including, but not limited to, shareholders, partners and beneficiaries, participate through his, her or its interest in Subscriber in all of Subscriber’s investments and that the profits and losses from each such investment are shared among such beneficial owners in the same proportions as all other investments of the Subscriber. No such beneficial owner may vary his, her or its share of the profits and losses or the amount of his, her or its contribution for any investment made by the Subscribers.
     
  (e) _____ The Subscriber is not managed as a device for facilitating individual investment decisions of its beneficial owners, but rather is managed as a collective investment vehicle (e.g. no beneficial owner of the Subscriber has the right to “opt out” of an investment or has individual discretion over the amount of his, her or its investment).

 

E- 5
 

 

PART VII INVESTMENT ADVISERS ACT MATTERS: ENTITIES

 

The Subscriber acknowledges that the representations contained in this Part VII are made for the purpose of qualifying the Subscriber as a “qualified client” under the Investment Advisers Act.

 

29.

_____ Subscriber is an entity which is registered as an “investment company” under the Investment Company Act, or which would be an “investment company” as defined in Section 3(a) of the Investment Company Act if it were not exempt from such definition due to Section 3(a)(1) of the Investment Company Act; 4

   
30.

_____ Subscriber is a “business development company” as defined in Section 202(a)(22) of the Investment Advisers Act; 5

   
31. _____ Subscriber has a net worth in excess of $1,500,000;
   
32. _____ Subscriber is a “qualified purchaser” as defined in Section 2(a)(51)(A) of the Investment Company Act; or
   
33. _____ Subscriber is making a commitment to the Company of at least $750,000.

 

PART VIII MISCELLANEOUS MATTERS: ENTITIES

 

34. Benefit Plan Matters : Subscriber hereby notifies the Company that the following statements are true:

 

  (a) _____ Subscriber is not a benefit plan investor;
     
  (b) _____ Subscriber is an employee benefit plan, individual retirement account that is subject to the provisions of Title I of ERISA
     
  (c) ______ Subscriber is an individual retirement account or annuity or other plan that is subject to Section 4975 of the Internal Revenue Code of 1986, as amended (an “ IRA ”)
     
  (d) ______Subscriber is an insurance company general account, _________% of whose underlying assets are deemed under ERISA and applicable regulations to include “plan assets” of one or more “employee benefit plans” subject to ERISA;
     
  (e) ______ Subscriber is an entity, account or other pooled investment fund, such as a fund of funds or group trust, _________% of whose underlying assets are deemed under the United States Department of Labor regulations at §2510.3-101 et seq., as amended by Section 3(42) of ERISA (the “ Plan Asset Regulation ”), to include “plan assets” of any “employee benefit plan” subject to ERISA or IRA;
     
  (f)

______ Subscriber is an entity, account or other pooled investment fund, such as a fund of funds or group trust, that may now or in the future have equity investors, partners, members, beneficiaries, or other beneficial owners that are “employee benefit plans” subject to ERISA or IRA’s and whose underlying assets are not currently deemed under the Plan Asset Regulation to include “plan assets” of any “employee benefit plan” subject to ERISA or IRA because investment by “employee benefit plans” is not “significant” (currently defined as 25% or more of any class of the vehicles equity interests disregarding interests held by fund managers or their affiliates) or the Subscriber complies with another applicable exception under the Plan Asset Regulation; 6

 

 

4  If Subscriber is a qualified client solely for the reason set forth in subsection (1) additional information may be required.

5  If Subscriber is a qualified client solely for the reason set forth in subsection (2) additional information may be required.

6 If Subscriber checked this subsection (f), additional information may be required.

 

E- 6
 

 

  (g) ______ Subscriber is a governmental plan as defined in Section 3(32) of ERISA; or
     
  (h) ______ Subscriber is a non-U.S. employee benefit plan or other retirement account.

 

35. Notifications.  Subscriber hereby notifies the Company that it is one of the following:

 

  (a) _____ Exempt from U.S. income taxes;
     
  (b) _____ Not a United States person under §7701(a)(30) of the United States Internal Revenue Code of 1986, as amended; or
     
  (c) _____ None of the above.

 

[SIGNATURES ON THE FOLLOWING PAGE]

 

E- 7
 

 

IN WITNESS WHEREOF, the Subscriber has executed this Subscriber Questionnaire on the date set forth below.

 

Dated:      

 

    Signature Block for Individuals:
     

    Signature:  

    Printed Name:  

 

    Second Signature for Joint Tenant/ Tenant in Common, if applicable :

 

    Signature:  

    Printed Name:  

 

    Signature Block for Entities:
     

    Subscriber’s Name:  

 

    Signature:  

    Printed Name:  

    Title:  

 

    Second Signature, if required by Subscriber’s Organizational Documents:

 

    Signature:  

    Printed Name:  

    Title:  

 

E- 8
 

 

EXHIBIT F

 

xG Technology, Inc. 2011 Annual Report

 

F- 1

 

Ex 10.9

 

xG Technology, LLC

2004 STOCK INCENTIVE PLAN

 

Section 1.              Purpose of Plan.

 

The name of this plan is the xG Technology, LLC 2004 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to provide additional incentive to those officers, employees, Consultants and non-employee directors of the Company and its Parents, Subsidiaries and Affiliates (as hereinafter defined) whose contributions are essential to the growth and success of the Company’s business, in order to strengthen the commitment of such persons to the Company and its Parents, Subsidiaries and Affiliates, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company and its Parents, Subsidiaries and Affiliates. To accomplish such purposes, the Plan provides that the Company may grant Options, Restricted Stock, Restricted Stock Units, and Other Awards. The Plan is intended to satisfy the requirements of section 162(m) of the Code and shall be interpreted in a manner consistent with the requirements thereof.

 

Section 2.              Definitions.

 

For purposes of the Plan, the following terms shall be defined as set forth below:

 

(a)          “ Administrator ” means the Board, or if and to the extent the Board does not administer the Plan, the Committee, in accordance with Section 3 hereof.

 

(b)         “ Affiliate ” means any corporation 50% or more of the voting power of the outstanding voting securities of which is owned by the Company, its Parents or its Subsidiaries, or by any other Affiliate.

 

(c)          “ Award ” means an award of Options, Restricted Stock, Restricted Stock Units, or Other Awards under the Plan.

 

(d)         “ Award Agreement ” means, with respect to any Award, the written agreement between the Company and the Participant setting forth the terms and conditions of the Award.

 

(e)          “ Board ” means the Board of Directors of the Company.

 

(f)          “ Change in Capitalization ” means any increase, reduction, or change or exchange of Shares for a different number or kind of shares or other securities or property by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, stock dividend, stock split or reverse stock split, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise; or any other corporate action, such as declaration of a special dividend, that affects the capitalization of the Company.

 

(g)         “ Change in Control ” means the first to occur of any one of the events set forth in the following paragraphs:

 

 
 

 

(i)   any Person is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company) representing 50.1% or more of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii);

 

(ii)   the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date of the Plan, constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date of the Plan or whose appointment, election or nomination for election was previously so approved or recommended;

 

(iii)   there is consummated a merger or consolidation of the Company with any other corporation other than a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50.1% or more of the combined voting power of the Company’s then outstanding securities; or

 

(iv)   the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

 

(h)         “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

 

(i)           “ Committee ” means any committee or subcommittee the Board may appoint to administer the Plan. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee.

 

(j)           “ Common Stock ” means the common stock, of the Company.

 

(k)          “ Company ” means xG Technology, LLC (or any successor corporation).

 

(l)           “ Consultant ” means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term “Consultant” shall not include Directors who are paid, only a director’s fee by the Company or who are not compensated by the Company for their services as Directors.

 

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(m)         “ Disability ” means (1) any physical or mental condition that would qualify a Participant for a disability benefit under any long-term disability plan maintained by the Company (or by the Parent, Subsidiary or Affiliate by which he is employed); (2) such other condition as may be determined in the sole discretion of the Administrator to constitute Disability.

 

(n)         “ Eligible Recipient ” means an employee, officer, Consultant or director (including a non-employee director) of the Company or of any Parent, Subsidiary or Affiliate.

 

(o)         “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

(p)         “ Exercise Price ” means the per share price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.

 

(q)         “ Fair Market Value ” of a share of Common Stock as of a particular date shall mean (1) the closing sale price reported for such share on the national securities exchange or national market system on which such stock is principally traded on the last day preceding such date on which a sale was reported, or (2) if the shares of Common Stock are not then listed on a national securities exchange or national market system, or the value of such shares is not otherwise determinable, such value as determined by the Administrator in good faith in its sole discretion.

 

(r)          “ Membership Units ” shall mean ownership rights in the Limited Liability Company, indicated by the right to receive cash or unit distributions, declared by the Administrator, and having voting rights in the governance of the Company. For convenience, Membership Units are otherwise referred to as Shares or Stock.

 

(s)          “ Option ” means a right to acquire a specified number of Shares of the Company’s Stock at a fixed price, subject to conditions set forth in the Award Agreement.

 

(t)          “ Other Award ” means an Award granted pursuant to Section 11 hereof.

 

(u)         “ Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations in the chain (other than the Company) owns stock possessing 50.1% or more of the combined voting power of all classes of stock in one of the other corporations in the chain.

 

(v)         “ Participant ” means any Eligible Recipient selected by the Administrator, pursuant to the Administrator’s authority in Section 3 hereof, to receive grants of Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards. A Participant who receives the grant of an Option is sometimes referred to herein as “Optionee.”

 

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(w)         “ Performance Goal ” shall mean one or more of the following business criteria applied to a Participant and/or a business unit or the Company and/or a Subsidiary: (1) return on total stockholder equity; (2) earnings per share of Common Stock; (3) net income (before or after taxes); (4) earnings before all or any interest, taxes, depreciation and/or amortization (“EBIT”, “EBITA”, or “EBITDA”); (5) gross revenue; (6) return on assets; (7) market share; (8) cost reduction goals; (9) earnings from continuing operations, levels of expense, cost or liability; (10) membership goals, and (11) any combination of, or a specified increase or decrease of one or more of the foregoing over a specified period, in each case, as applicable, as determined in accordance with generally accepted accounting principles.

 

(x)          “ Person ” shall have the meaning given in section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

(y)         “ Restricted Stock Unit ” means the right to receive a Share or the Fair Market Value of a Share in cash granted pursuant to Section 9 hereof.

 

(z)          “ Restricted Stock ” means Shares subject to certain restrictions granted pursuant to Section 8 hereof.

 

(aa)        “ Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations (other than the last corporation) in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

 

Section 3.              Administration.

 

(a)   The Plan shall be administered by the Board or, at the Board’s sole discretion, by the Committee, which shall serve at the pleasure of the Board. Pursuant to the terms of the Plan, the Administrator shall have the power and authority, without limitation:

 

(i)     to select those Eligible Recipients who shall be Participants;

 

(ii)    to determine whether and to what extent Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards are to be granted hereunder to Participants;

 

(iii)   to determine the number of Shares to be covered by each Award granted hereunder;

 

(iv)   to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder;

 

4
 

 

(v)    to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards granted hereunder;

 

(vi)   to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and

 

(vii)  to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan.

 

(b)   The Administrator may, in its absolute discretion, without amendment to the Plan, (i) accelerate the date on which any Option granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such Option, and (ii) accelerate the lapse of restrictions, or waive any condition imposed hereunder, with respect to any Restricted Stock, Restricted Stock Units, or Other Awards or otherwise adjust any of the terms applicable to any such Award; provided that no action under this Section 3(b) shall adversely affect any outstanding Award without the consent of the holder thereof.

 

(c)   All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.

 

(d)   Subject to section 162(m) of the Code and except as required by Rule 16b-3 under the Exchange Act with respect to grants of Awards to individuals who are subject to section 16 of the Exchange Act, or as otherwise required for compliance with Rule 16b-3 under the Exchange Act or other applicable law, the Committee may delegate all or any part of its authority under the Plan to an employee, employees or committee of employees of the Company or any Subsidiary.

 

Section 4.              Shares Reserved for Issuance Under the Plan.

 

(a)   The total number of Shares reserved and available for issuance under the Plan shall be 5,000,000 Shares. Such Shares may consist, in whole or in part, of authorized and unissued Shares or treasury shares. The grant of any Restricted Stock Units that may be settled only in cash shall not reduce the number of shares of Common Stock with respect to which Awards may be granted pursuant to the Plan.   

 

5
 

 

(b)   To the extent that (i) an Option expires or is otherwise cancelled or terminated without being exercised as to the underlying Shares, (ii) any Shares subject to any award of Restricted Stock, Restricted Stock Unit, or Other Awards are forfeited, (iii) payment for an Option upon exercise is made with Shares or (iv) Shares are withheld from payment of an Award in satisfaction of any federal, state or local tax withholding requirements, such Shares shall again be available for issuance in connection with future Awards granted under the Plan.

 

(c)   The aggregate number of Shares with respect to which Awards (including Awards payable in cash but denominated in Common Stock, i.e. , cash-settled Restricted Stock Units) may be granted to any individual Participant during any calendar year shall not exceed 1,500,000.

 

Section 5.              Equitable Adjustments.

 

In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment shall be made in (i) the aggregate number and/or kind of shares of common stock reserved for issuance under the Plan, (ii) the kind, number and/or option price of shares of stock or other property subject to outstanding Options granted under the Plan, and (iii) the kind, number and/or purchase price of shares of stock or other property subject to outstanding awards of Restricted Stock, Restricted Stock Units and Other Awards granted under the Plan, in each case as may be determined by the Administrator, in its sole discretion. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Administrator may provide, in its sole discretion, for the cancellation of any outstanding Awards in exchange for payment in cash or other property of the Fair Market Value of the Shares covered by such Awards reduced, in the case of Options, by the Exercise Price thereof, or by any other applicable purchase price.

 

Section 6.              Eligibility.

 

The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients. The Administrator shall have the authority to grant to any Eligible Recipient Options, Restricted Stock, Restricted Stock Units, or Other Awards.

 

Section 7.              Options.

 

(a)    General . Options may be granted alone or in addition to other Awards granted under the Plan. Any Option granted under the Plan shall be evidenced by an Award Agreement in such form as the Administrator may from time to time approve. The provisions of each Option need not be the same with respect to each Participant. Participants who are granted Options shall enter into an Award Agreement with the Company, in such form as the Administrator shall determine, which Award Agreement shall set forth, among other things, the Exercise Price of the Option, the term of the Option and provisions regarding exercisability of the Option granted thereunder. More than one Option may be granted to the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in paragraphs (b)-(k) of this Section 7 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable.

 

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(b)    Exercise Price . The per share Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant but shall not be less than 100% of the Fair Market Value per Share on such date .

 

(c)    Option Term . The term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten years after the date such Option is granted.

 

(d)    Exercisability . Options shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of pre-established corporate performance goals, as shall be determined by the Administrator in the Award Agreement or after the time of grant, provided that no action under this Section 7(d) following the time of grant shall adversely affect any outstanding Option without the consent of the holder thereof. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion.

 

(e)    Method of Exercise . Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, payment in whole or in part may also be made (i) by means of any cashless exercise procedure approved by the Administrator, (ii) in the form of unrestricted Shares already owned by the Optionee for at least six months on the date of surrender or by the withholding of Shares that would otherwise be issued pursuant to the option exercise, in each case to the extent the Shares have a Fair Market Value on the date of surrender equal to the aggregate option price of the Shares as to which such Option shall be exercised, (iii) any combination of the foregoing.

 

(f)    Rights as Stockholder . An Optionee shall have no rights to dividends or any other rights of a stockholder with respect to the Shares subject to the Option until the Optionee has given written notice of exercise, has paid in full for such Shares, and has satisfied the requirements of Section 13 hereof.

 

(g)    Non-transferability of Options . An Option shall not be transferable other than by will or the laws of descent and distribution and shall be exercisable during the Participant’s lifetime only by the Participant.

 

(h)    Termination of Employment or Service . Except as otherwise provided in an Award Agreement, if a Participant’s employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate terminates for any reason other than death or Disability, (i) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable for a period of not less than 90 days after such termination (one year in the case of termination by reason of death or Disability), on which date they shall expire, and (ii) Options granted to such Optionee, to the extent that they were not exercisable at the time of such termination, shall expire on the date of such termination.

 

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(i)    Right of Repurchase . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares exercised pursuant to the Option; provided, however, that (i) such repurchase right shall be exercisable only within (A) the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant (or in the case of a post-termination exercise of the Option, the ninety (90) period following such exercise), or (B) such longer period as may be agreed to by the Company and the Optionee, (ii) such repurchase right shall be exercisable for less than all of the vested shares only with the Optionee’s consent, and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares at a repurchase price equal to the stock’s Fair Market Value at the time of such termination. Notwithstanding the foregoing, shares received on exercise of an Option by an officer, director or Consultant may be subject to additional or greater restrictions specified in the Option Agreement.

 

(j)    Right of First Refusal . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionee of the intent to transfer all or any part of the shares exercised pursuant to the Option. Such right of first refusal shall be exercised by the Company no more than thirty (30) days following receipt of notice of the Optionee’s intent to transfer shares and must be exercised as to all the shares the Optionee intends to transfer unless the Optionee consents to exercise for less than all the shares offered. The purchase of the shares following exercise shall be completed within thirty (30) days of the Company’s receipt of notice of the Optionee’s intent to transfer shares, or such longer period of time as has been offered by the person to whom the Optionee intends to transfer the shares, or as may be agreed to by the Company and the Optionee. Except as expressly provided in this Subsection (j), such right of first refusal shall otherwise comply with the provisions of the Bylaws of the Company.

 

(k)    Non-employee Director Stock Options . The provisions of this Section 7(k) shall apply only to grants of Options to a member of the Board who is not an employee of the Company (a “Non-employee Director”).

 

(i)    General . Non-employee Directors shall receive Options under the Plan only subject to the special rules set forth in this Section 7(k). The exercise price per share of Common Stock purchasable pursuant to an Option granted to a Non-employee Director shall be the Fair Market Value of a Share of Common Stock on the date of grant.

 

(ii)    Timing of Grant . Immediately following his or her first election or appointment to the Board, each Non-employee Director shall be granted an Option to purchase such number of Shares of Common Stock (including no Shares) as may be determined by the Administrator in its sole discretion, and immediately following each annual meeting of stockholders, each Non-employee Director (other than a Non-employee Director who is first appointed or elected to the Board at that meeting) shall be granted an Option to purchase such number of Shares of Common Stock (including no Shares) as may be determined by the Administrator in its sole discretion.

 

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(iii)    Method and Time of Payment . Each Option granted under this Section 7(k) shall be exercised in the manner described in Section 7(e).

 

(iv)    Term and Exercisability . Each Option granted under this Section 7(k) shall (1) become exercisable as the Administrator in its sole discretion may provide in an applicable Award Agreement and (2) expire ten years from the date of grant.

 

(v)    Termination . Except as the Administrator in its sole discretion may otherwise provide in an applicable Award Agreement, and subject to the Administrator’s amendment authority pursuant to Section 12, in the event of the termination of a Non-employee Director’s service with the Company other than for Cause, any outstanding Option held by such Non-employee Director under this Section 7(k), to the extent that it is exercisable on the date of such termination, may be exercised by such Non-employee Director (or, if applicable, by his or her executors, administrator, legatees or distributees) during such period as may be provided in the Award Agreement (or as may be otherwise determined by the Administrator) but in no event following the expiration of such Option, and the remainder of the Option which is not exercisable on the date of such termination shall expire upon such termination. For purposes of the Plan, any termination of a Non-employee Director’s service with the Company shall be deemed not to occur if the Non-employee Director continues to serve as Consultant, employee or in any other capacity.

 

Section 8.              Restricted Stock.

 

(a)    General . Awards of Restricted Stock may be issued either alone or in addition to other Awards granted under the Plan and shall be evidenced by an Award Agreement. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, Awards of Restricted Stock shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Stock; and the Restricted Period (as defined in Section 8(d)) applicable to awards of Restricted Stock. The provisions of the awards of Restricted Stock need not be the same with respect to each Participant.

 

(b)    Purchase Price . The price per Share, if any, that a Recipient must pay for Shares purchasable under an award of Restricted Stock shall be determined by the Administrator in its sole discretion at the time of grant.

 

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(c)    Awards and Certificates . Each Participant who is granted an award of Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, which certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such Award, provided that the Company may require that the stock certificates evidencing Restricted Stock granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed.

 

(d)    Non-transferability . Any Award of Restricted Stock granted pursuant to this Section 8 shall be subject to the restrictions on transferability set forth in this paragraph (d). During such period as may be set by the Administrator in the Award Agreement (the “Restricted Period”), the Participant shall not be permitted to sell, transfer, pledge, hypothecate or assign Shares of Restricted Stock awarded under the Plan except by will or the laws of descent and distribution, provided that the Administrator may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine in its sole discretion. The Administrator may also impose such other restrictions and conditions, including the achievement of Performance Goals, on Restricted Stock as it deems appropriate. In no event shall the Restricted Period end with respect to a Restricted Stock Award prior to the satisfaction by the Participant of any liability arising under Section 13 hereof. Any attempt to dispose of any Restricted Stock in contravention of any such restrictions shall be null and void and without effect.

 

(e)    Rights as a Stockholder . Except as provided in Section 8(c) and (d), the Participant shall possess all incidents of ownership with respect to Shares of Restricted Stock during the Restricted Period, including the right to receive or reinvest dividends with respect to such Shares (except that the Administrator may provide in its discretion that any dividends paid in property other than cash shall be subject to the same restrictions as those that apply to the underlying Restricted Stock) and to vote such Shares. Certificates for unrestricted Shares shall be delivered to the Participant promptly after, and only after, the Restricted Period shall expire without forfeiture in respect of such awards of Restricted Stock except as the Administrator, in its sole discretion, shall otherwise determine.

 

(f)    Termination of Employment . The rights of Participants granted an Award of Restricted Stock upon termination of employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate for any reason during the Restricted Period shall be set forth in the Award Agreement governing such Award.

 

Section 9.              Restricted Stock Units

 

(a)    Vesting .   At the time of the grant of Restricted Stock Units, the Committee may impose such restrictions or conditions to the vesting of such Restricted Stock Units as it, in its sole discretion, deems appropriate, to be contained in the Award Agreement. The Committee may divide such Restricted Stock Units into classes and assign different vesting conditions for each class. Provided that all conditions to the vesting of a Restricted Stock Unit are satisfied, and except as provided in Section 9(c), upon the satisfaction of all vesting conditions with respect to a Restricted Stock Unit, such Restricted Stock Unit shall vest. The provisions of the awards of Restricted Stock Units need not be the same with respect to each Participant.

 

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(b)    Benefit Upon Vesting . Upon the vesting of a Restricted Stock Unit, the Participant shall be entitled to receive, within 30 days of the date on which such Restricted Stock Unit vests, an amount in cash or Common Stock with a Fair Market Value equal to the sum of (1) the Fair Market Value of a Share of Common Stock on the date on which such Restricted Stock Unit vests and (2) the aggregate amount of cash dividends paid with respect to a Share of Common Stock during the period commencing on the date on which the Restricted Stock Unit was granted and terminating on the date on which such Share vests.

 

(c)    Termination of Employment . The rights of Participants granted a Restricted Stock Unit upon termination of employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate for any reason before the Restricted Stock Unit vests shall be set forth in the Award Agreement governing such Award.

 

Section 10.            Effect of Change in Control.

 

Except as otherwise provided in an Award Agreement, all outstanding Shares of Restricted Stock and Restricted Stock Units granted to a Participant which have not theretofore vested shall immediately vest and all restrictions on such Shares and Units shall immediately lapse, and each Option granted to a Participant and outstanding at such time shall become fully and immediately exercisable, if there is a Change in Control.

 

Section 11.            Other Awards.

 

Other forms of Awards (“Other Awards”) valued in whole or in part by reference to, or otherwise based on, Common Stock may be granted either alone or in addition to other Awards under the Plan. Subject to the provisions of the Plan, the Administrator shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Awards shall be granted, the number of Shares to be granted pursuant to such Other Awards and all other conditions of such Other Awards.

 

Section 12.            Amendment and Termination.

 

The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant’s consent. Unless the Board determines otherwise, the Board shall obtain approval of the Company’s stockholders for any amendment that would require such approval in order to satisfy the requirements of section 162(m) of the Code, stock exchange rules or other applicable law. The Administrator may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Section 4 of Plan, no such amendment shall impair the rights of any Participant without his or her consent. Notwithstanding the foregoing provisions of this Section 12, neither the Plan nor any outstanding Option shall be amended to decrease the Exercise Price of any outstanding Option unless first approved by the requisite vote of stockholders.

 

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Section 13.            Withholding Taxes.

 

Whenever cash is to be paid pursuant to an Award, the Company shall have the right to deduct there from an amount sufficient to satisfy any federal, state and local tax withholding requirements related thereto. Whenever Shares are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local tax withholding requirements related thereto. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery Shares or by delivering Shares already owned by the Participant for at least six months, in each case, having a value equal to the minimum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined . Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the shares to be delivered pursuant to an Award.

 

Section 14.            General Provisions.

 

(a)   Shares shall not be issued pursuant to the exercise of any Award granted hereunder unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Company shall be under no obligation to affect the registration pursuant to the Securities Act of 1933, as amended, of any interests in the Plan or any shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws.

 

(b)   All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock may then be listed, and any applicable federal or state securities law, and the Administrator may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. The Administrator may require, as a condition of the issuance and delivery of certificates evidencing Shares pursuant to the terms hereof, that the recipient of such Shares make such agreements and representations as the Administrator, in its sole discretion, deems necessary or desirable.

 

(c)   Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval, if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment or service with the Company or any Parent, Subsidiary or Affiliate, as the case may be, nor shall it interfere in any way with the right of the Company or any Parent, Subsidiary or Affiliate to terminate the employment or service of any of its Eligible Recipients at any time.

 

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(d)   No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan. The Administrator shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

 

(e)   If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

 

(f)    The Plan and all Awards shall be governed by the laws of the State of Florida without regard to its principles of conflict of laws.

 

Section 15.            Stockholder Approval; Effective Date of Plan.

 

Subject to the approval of the Plan by the stockholders of the Company, the Plan shall be effective as of March 1, 2004, the date of its approval by the Board (the "Effective Date"). No award that is intended to qualify as performance-based compensation within the meaning of section 162(m) of the Code shall be effective unless and until the Plan is approved by the stockholders of the Company.

 

Section 16.            Term of Plan.

 

No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date of the Plan, but Awards theretofore granted may extend beyond that date.

 

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Ex 10.10

 

xG Technology, LLC

2005 STOCK INCENTIVE PLAN

 

Section 1. Purpose of Plan.

 

The name of this plan is the xG Technology, LLC 2005 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to provide additional incentive to those officers, employees, Consultants and non-employee directors of the Company and its Parents, Subsidiaries and Affiliates (as hereinafter defined) whose contributions are essential to the growth and success of the Company’s business, in order to strengthen the commitment of such persons to the Company and its Parents, Subsidiaries and Affiliates, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company and its Parents, Subsidiaries and Affiliates. To accomplish such purposes, the Plan provides that the Company may grant Options, Restricted Stock, Restricted Stock Units, and Other Awards. The Plan is intended to satisfy the requirements of section 162(m) of the Code and shall be interpreted in a manner consistent with the requirements thereof.

 

Section 2. Definitions.

 

For purposes of the Plan, the following terms shall be defined as set forth below:

 

(a)         “ Administrator ” means the Board, or if and to the extent the Board does not administer the Plan, the Committee, in accordance with Section 3 hereof.

 

(b)         “ Affiliate ” means any corporation 50% or more of the voting power of the outstanding voting securities of which is owned by the Company, its Parents or its Subsidiaries, or by any other Affiliate.

 

(c)         “ Award ” means an award of Options, Restricted Stock, Restricted Stock Units, or Other Awards under the Plan.

 

(d)         “ Award Agreement ” means, with respect to any Award, the written agreement between the Company and the Participant setting forth the terms and conditions of the Award.

 

(e)         “ Board ” means the Board of Directors of the Company.

 

(f)         “ Change in Capitalization ” means any increase, reduction, or change or exchange of Shares for a different number or kind of shares or other securities or property by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, stock dividend, stock split or reverse stock split, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise; or any other corporate action, such as declaration of a special dividend, that affects the capitalization of the Company.

 

(g)         “ Change in Control ” means the first to occur on or after the effective date of this Plan any one of the events set forth in the following paragraphs:

 

 
 

  

(i)     any Person is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company) representing 50.1% or more of the Company’s then outstanding securities ;

 

(ii) there is consummated a merger or consolidation of the Company with any other corporation other than a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50.1% or more of the combined voting power of the Company’s then outstanding securities; or

 

(iii) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

 

(h)         “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

 

(i)          “ Committee ” means any committee or subcommittee the Board may appoint to administer the Plan. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee.

 

(j)          “ Common Stock ” means the common stock, of the Company.

 

(k)         “ Company ” means xG Technology, LLC (or any successor corporation).

 

(l)          “ Consultant ” means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term “Consultant” shall not include Directors who are paid, only a director’s fee by the Company or who are not compensated by the Company for their services as Directors.

 

(m)        “ Disability ” means (1) any physical or mental condition that would qualify a Participant for a disability benefit under any long-term disability plan maintained by the Company (or by the Parent, Subsidiary or Affiliate by which he is employed); (2) such other condition as may be determined in the sole discretion of the Administrator to constitute Disability.

 

(n)         “ Eligible Recipient ” means an employee, officer, Consultant or director (including a non-employee director) of the Company or of any Parent, Subsidiary or Affiliate.

 

(o)         “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

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(p)         “ Exercise Price ” means the per share price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.

 

(q)         “ Fair Market Value ” of a share of Common Stock as of a particular date shall mean (1) the closing sale price reported for such share on the national securities exchange or national market system on which such stock is principally traded on the last day preceding such date on which a sale was reported, or (2) if the shares of Common Stock are not then listed on a national securities exchange or national market system, or the value of such shares is not otherwise determinable, such value as determined by the Administrator in good faith in its sole discretion.

 

(r)         “ Membership Units ” shall mean ownership rights in the Limited Liability Company, indicated by the right to receive cash or unit distributions, declared by the Administrator, and having voting rights in the governance of the Company. For convenience, Membership Units are otherwise referred to as Shares or Stock.

 

(s)         “ Option ” means a right to acquire a specified number of Shares of the Company’s Stock at a fixed price, subject to conditions set forth in the Award Agreement.

 

(t)         “ Other Award ” means an Award granted pursuant to Section 11 hereof.

 

(u)         “ Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations in the chain (other than the Company) owns stock possessing 50.1% or more of the combined voting power of all classes of stock in one of the other corporations in the chain.

 

(v)         “ Participant ” means any Eligible Recipient selected by the Administrator, pursuant to the Administrator’s authority in Section 3 hereof, to receive grants of Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards. A Participant who receives the grant of an Option is sometimes referred to herein as “Optionee.”

 

(w)         “ Performance Goal ” shall mean one or more of the following business criteria applied to a Participant and/or a business unit or the Company and/or a Subsidiary: (1) return on total stockholder equity; (2) earnings per share of Common Stock; (3) net income (before or after taxes); (4) earnings before all or any interest, taxes, depreciation and/or amortization (“EBIT”, “EBITA”, or “EBITDA”); (5) gross revenue; (6) return on assets; (7) market share; (8) cost reduction goals; (9) earnings from continuing operations, levels of expense, cost or liability; (10) membership goals, and (11) any combination of, or a specified increase or decrease of one or more of the foregoing over a specified period, in each case, as applicable, as determined in accordance with generally accepted accounting principles.

 

(x)         “ Person ” shall have the meaning given in section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

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(y)          “ Restricted Stock Unit ” means the right to receive a Share or the Fair Market Value of a Share in cash granted pursuant to Section 9 hereof.

 

(z)          “ Restricted Stock ” means Shares subject to certain restrictions granted pursuant to Section 8 hereof.

 

(aa)        “ Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations (other than the last corporation) in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

 

Section 3. Administration.

 

(a)          The Plan shall be administered by the Board or, at the Board’s sole discretion, by the Committee, which shall serve at the pleasure of the Board. Pursuant to the terms of the Plan, the Administrator shall have the power and authority, without limitation:

 

(i)          to select those Eligible Recipients who shall be Participants;

 

(ii)        to determine whether and to what extent Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards are to be granted hereunder to Participants;

 

(iii)        to determine the number of Shares to be covered by each Award granted hereunder;

 

(iv)       to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder;

 

(v)        to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards granted hereunder;

 

(vi)        to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and

 

(vii)       to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan.

 

(b)          The Administrator may, in its absolute discretion, without amendment to the Plan, (i) accelerate the date on which any Option granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such Option, and (ii) accelerate the lapse of restrictions, or waive any condition imposed hereunder, with respect to any Restricted Stock, Restricted Stock Units, or Other Awards or otherwise adjust any of the terms applicable to any such Award; provided that no action under this Section 3(b) shall adversely affect any outstanding Award without the consent of the holder thereof.

 

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(c)          All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.

 

(d)          Subject to section 162(m) of the Code and except as required by Rule 16b-3 under the Exchange Act with respect to grants of Awards to individuals who are subject to section 16 of the Exchange Act, or as otherwise required for compliance with Rule 16b-3 under the Exchange Act or other applicable law, the Committee may delegate all or any part of its authority under the Plan to an employee, employees or committee of employees of the Company or any Subsidiary.

 

Section 4. Shares Reserved for Issuance Under the Plan.

 

(a)          The total number of Shares reserved and available for issuance under the Plan shall be 5,000,000 Shares. Such Shares may consist, in whole or in part, of authorized and unissued Shares or treasury shares. The grant of any Restricted Stock Units that may be settled only in cash shall not reduce the number of shares of Common Stock with respect to which Awards may be granted pursuant to the Plan.

 

(b)          To the extent that (i) an Option expires or is otherwise cancelled or terminated without being exercised as to the underlying Shares, (ii) any Shares subject to any award of Restricted Stock, Restricted Stock Unit, or Other Awards are forfeited, (iii) payment for an Option upon exercise is made with Shares or (iv) Shares are withheld from payment of an Award in satisfaction of any federal, state or local tax withholding requirements, such Shares shall again be available for issuance in connection with future Awards granted under the Plan.

 

(c)          The aggregate number of Shares with respect to which Awards (including Awards payable in cash but denominated in Common Stock, i.e. , cash-settled Restricted Stock Units) may be granted to any individual Participant during any calendar year shall not exceed 1,500,000.

 

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Section 5. Equitable Adjustments.

 

In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment shall be made in (i) the aggregate number and/or kind of shares of common stock reserved for issuance under the Plan, (ii) the kind, number and/or option price of shares of stock or other property subject to outstanding Options granted under the Plan, and (iii) the kind, number and/or purchase price of shares of stock or other property subject to outstanding awards of Restricted Stock, Restricted Stock Units and Other Awards granted under the Plan, in each case as may be determined by the Administrator, in its sole discretion. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Administrator may provide, in its sole discretion, for the cancellation of any outstanding Awards in exchange for payment in cash or other property of the Fair Market Value of the Shares covered by such Awards reduced, in the case of Options, by the Exercise Price thereof, or by any other applicable purchase price.

 

Section 6. Eligibility.

 

The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients. The Administrator shall have the authority to grant to any Eligible Recipient Options, Restricted Stock, Restricted Stock Units, or Other Awards.

 

Section 7. Options.

 

(a)          General . Options may be granted alone or in addition to other Awards granted under the Plan. Any Option granted under the Plan shall be evidenced by an Award Agreement in such form as the Administrator may from time to time approve. The provisions of each Option need not be the same with respect to each Participant. Participants who are granted Options shall enter into an Award Agreement with the Company, in such form as the Administrator shall determine, which Award Agreement shall set forth, among other things, the Exercise Price of the Option, the term of the Option and provisions regarding exercisability of the Option granted thereunder. More than one Option may be granted to the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in paragraphs (b)-(k) of this Section 7 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable.

 

(b)          Exercise Price . The per share Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant.

 

(c)          Option Term . The term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten years after the date such Option is granted.

 

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(d)           Exercisability . Options shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of pre-established corporate performance goals, as shall be determined by the Administrator in the Award Agreement or after the time of grant, provided that no action under this Section 7(d) following the time of grant shall adversely affect any outstanding Option without the consent of the holder thereof. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion.

 

(e)          Method of Exercise . Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, payment in whole or in part may also be made (i) by means of any cashless exercise procedure approved by the Administrator, (ii) in the form of unrestricted Shares already owned by the Optionee for at least six months on the date of surrender or by the withholding of Shares that would otherwise be issued pursuant to the option exercise, in each case to the extent the Shares have a Fair Market Value on the date of surrender equal to the aggregate option price of the Shares as to which such Option shall be exercised, (iii) any combination of the foregoing.

 

(f)          Rights as Stockholder . An Optionee shall have no rights to dividends or any other rights of a stockholder with respect to the Shares subject to the Option until the Optionee has given written notice of exercise, has paid in full for such Shares, and has satisfied the requirements of Section 13 hereof.

 

(g)           Non-transferability of Options . An Option shall not be transferable other than by will or the laws of descent and distribution and shall be exercisable during the Participant’s lifetime only by the Participant.

 

(h)           Termination of Employment or Service . Except as otherwise provided in an Award Agreement, if a Participant’s employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate terminates for any reason other than death or Disability, (i) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable for a period of not less than 90 days after such termination (one year in the case of termination by reason of death or Disability), on which date they shall expire, and (ii) Options granted to such Optionee, to the extent that they were not exercisable at the time of such termination, shall expire on the date of such termination.

 

(i)           Right of Repurchase . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares exercised pursuant to the Option; provided, however, that (i) such repurchase right shall be exercisable only within (A) the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant (or in the case of a post-termination exercise of the Option, the ninety (90) period following such exercise), or (B) such longer period as may be agreed to by the Company and the Optionee, (ii) such repurchase right shall be exercisable for less than all of the vested shares only with the Optionee’s consent, and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares at a repurchase price equal to the stock’s Fair Market Value at the time of such termination. Notwithstanding the foregoing, shares received on exercise of an Option by an officer, director or Consultant may be subject to additional or greater restrictions specified in the Option Agreement.

 

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(j)          Right of First Refusal . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionee of the intent to transfer all or any part of the shares exercised pursuant to the Option. Such right of first refusal shall be exercised by the Company no more than thirty (30) days following receipt of notice of the Optionee’s intent to transfer shares and must be exercised as to all the shares the Optionee intends to transfer unless the Optionee consents to exercise for less than all the shares offered. The purchase of the shares following exercise shall be completed within thirty (30) days of the Company’s receipt of notice of the Optionee’s intent to transfer shares, or such longer period of time as has been offered by the person to whom the Optionee intends to transfer the shares, or as may be agreed to by the Company and the Optionee. Except as expressly provided in this Subsection (j), such right of first refusal shall otherwise comply with the provisions of the Bylaws of the Company.

 

(k)          Non-employee Director Stock Options . The provisions of this Section 7(k) shall apply only to grants of Options to a member of the Board who is not an employee of the Company (a “Non-employee Director”).

 

(i)            General . Non-employee Directors shall receive Options under the Plan only subject to the special rules set forth in this Section 7(k). The exercise price per share of Common Stock purchasable pursuant to an Option granted to a Non-employee Director shall be the Fair Market Value of a Share of Common Stock on the date of grant.

 

(ii)          Timing of Grant . Immediately following his or her first election or appointment to the Board, each Non-employee Director shall be granted an Option to purchase such number of Shares of Common Stock (including no Shares) as may be determined by the Administrator in its sole discretion, and immediately following each annual meeting of stockholders, each Non-employee Director (other than a Non-employee Director who is first appointed or elected to the Board at that meeting) shall be granted an Option to purchase such number of Shares of Common Stock (including no Shares) as may be determined by the Administrator in its sole discretion.

 

(iii)          Method and Time of Payment . Each Option granted under this Section 7(k) shall be exercised in the manner described in Section 7(e).

 

(iv)          Term and Exercisability . Each Option granted under this Section 7(k) shall (1) become exercisable as the Administrator in its sole discretion may provide in an applicable Award Agreement and (2) expire ten years from the date of grant.

 

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(v)          Termination . Except as the Administrator in its sole discretion may otherwise provide in an applicable Award Agreement, and subject to the Administrator’s amendment authority pursuant to Section 12, in the event of the termination of a Non-employee Director’s service with the Company other than for Cause, any outstanding Option held by such Non-employee Director under this Section 7(k), to the extent that it is exercisable on the date of such termination, may be exercised by such Non-employee Director (or, if applicable, by his or her executors, administrator, legatees or distributees) during such period as may be provided in the Award Agreement (or as may be otherwise determined by the Administrator) but in no event following the expiration of such Option, and the remainder of the Option which is not exercisable on the date of such termination shall expire upon such termination. For purposes of the Plan, any termination of a Non-employee Director’s service with the Company shall be deemed not to occur if the Non-employee Director continues to serve as Consultant, employee or in any other capacity.

 

Section 8. Restricted Stock.

 

(a)         General . Awards of Restricted Stock may be issued either alone or in addition to other Awards granted under the Plan and shall be evidenced by an Award Agreement. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, Awards of Restricted Stock shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Stock; and the Restricted Period (as defined in Section 8(d)) applicable to awards of Restricted Stock. The provisions of the awards of Restricted Stock need not be the same with respect to each Participant.

 

(b)         Purchase Price . The price per Share, if any, that a Recipient must pay for Shares purchasable under an award of Restricted Stock shall be determined by the Administrator in its sole discretion at the time of grant.

 

(c)         Awards and Certificates . Each Participant who is granted an award of Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, which certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such Award, provided that the Company may require that the stock certificates evidencing Restricted Stock granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed.

 

(d)         Non-transferability . Any Award of Restricted Stock granted pursuant to this Section 8 shall be subject to the restrictions on transferability set forth in this paragraph (d). During such period as may be set by the Administrator in the Award Agreement (the “Restricted Period”), the Participant shall not be permitted to sell, transfer, pledge, hypothecate or assign Shares of Restricted Stock awarded under the Plan except by will or the laws of descent and distribution, provided that the Administrator may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine in its sole discretion. The Administrator may also impose such other restrictions and conditions, including the achievement of Performance Goals, on Restricted Stock as it deems appropriate. In no event shall the Restricted Period end with respect to a Restricted Stock Award prior to the satisfaction by the Participant of any liability arising under Section 13 hereof. Any attempt to dispose of any Restricted Stock in contravention of any such restrictions shall be null and void and without effect.

 

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(e)         Rights as a Stockholder . Except as provided in Section 8(c) and (d), the Participant shall possess all incidents of ownership with respect to Shares of Restricted Stock during the Restricted Period, including the right to receive or reinvest dividends with respect to such Shares (except that the Administrator may provide in its discretion that any dividends paid in property other than cash shall be subject to the same restrictions as those that apply to the underlying Restricted Stock) and to vote such Shares. Certificates for unrestricted Shares shall be delivered to the Participant promptly after, and only after, the Restricted Period shall expire without forfeiture in respect of such awards of Restricted Stock except as the Administrator, in its sole discretion, shall otherwise determine.

 

(f)         Termination of Employment . The rights of Participants granted an Award of Restricted Stock upon termination of employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate for any reason during the Restricted Period shall be set forth in the Award Agreement governing such Award.

 

Section 9. Restricted Stock Units

 

(a)         Vesting . At the time of the grant of Restricted Stock Units, the Committee may impose such restrictions or conditions to the vesting of such Restricted Stock Units as it, in its sole discretion, deems appropriate, to be contained in the Award Agreement. The Committee may divide such Restricted Stock Units into classes and assign different vesting conditions for each class. Provided that all conditions to the vesting of a Restricted Stock Unit are satisfied, and except as provided in Section 9(c), upon the satisfaction of all vesting conditions with respect to a Restricted Stock Unit, such Restricted Stock Unit shall vest. The provisions of the awards of Restricted Stock Units need not be the same with respect to each Participant.

 

(b)         Benefit Upon Vesting . Upon the vesting of a Restricted Stock Unit, the Participant shall be entitled to receive, within 30 days of the date on which such Restricted Stock Unit vests, an amount in cash or Common Stock with a Fair Market Value equal to the sum of (1) the Fair Market Value of a Share of Common Stock on the date on which such Restricted Stock Unit vests and (2) the aggregate amount of cash dividends paid with respect to a Share of Common Stock during the period commencing on the date on which the Restricted Stock Unit was granted and terminating on the date on which such Share vests.

 

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(c)         Termination of Employment . The rights of Participants granted a Restricted Stock Unit upon termination of employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate for any reason before the Restricted Stock Unit vests shall be set forth in the Award Agreement governing such Award.

 

Section 10. Effect of Change in Control.

 

Except as otherwise provided in an Award Agreement, all outstanding Shares of Restricted Stock and Restricted Stock Units granted to a Participant which have not theretofore vested shall immediately vest and all restrictions on such Shares and Units shall immediately lapse, and each Option granted to a Participant and outstanding at such time shall become fully and immediately exercisable, if there is a Change in Control.

 

Section 11. Other Awards.

 

Other forms of Awards (“Other Awards”) valued in whole or in part by reference to, or otherwise based on, Common Stock may be granted either alone or in addition to other Awards under the Plan. Subject to the provisions of the Plan, the Administrator shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Awards shall be granted, the number of Shares to be granted pursuant to such Other Awards and all other conditions of such Other Awards.

 

Section 12. Amendment and Termination.

 

The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant’s consent. Unless the Board determines otherwise, the Board shall obtain approval of the Company’s stockholders for any amendment that would require such approval in order to satisfy the requirements of section 162(m) of the Code, stock exchange rules or other applicable law. The Administrator may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Section 4 of Plan, no such amendment shall impair the rights of any Participant without his or her consent. Notwithstanding the foregoing provisions of this Section 12, neither the Plan nor any outstanding Option shall be amended to decrease the Exercise Price of any outstanding Option unless first approved by the requisite vote of stockholders.

 

Section 13. Withholding Taxes.

 

Whenever cash is to be paid pursuant to an Award, the Company shall have the right to deduct there from an amount sufficient to satisfy any federal, state and local tax withholding requirements related thereto. Whenever Shares are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local tax withholding requirements related thereto. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery Shares or by delivering Shares already owned by the Participant for at least six months, in each case, having a value equal to the minimum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined . Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the shares to be delivered pursuant to an Award.

 

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Section 14. General Provisions.

 

(a)         Shares shall not be issued pursuant to the exercise of any Award granted hereunder unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Company shall be under no obligation to affect the registration pursuant to the Securities Act of 1933, as amended, of any interests in the Plan or any shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws.

 

(b)         All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock may then be listed, and any applicable federal or state securities law, and the Administrator may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. The Administrator may require, as a condition of the issuance and delivery of certificates evidencing Shares pursuant to the terms hereof, that the recipient of such Shares make such agreements and representations as the Administrator, in its sole discretion, deems necessary or desirable.

 

(c)         Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval, if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment or service with the Company or any Parent, Subsidiary or Affiliate, as the case may be, nor shall it interfere in any way with the right of the Company or any Parent, Subsidiary or Affiliate to terminate the employment or service of any of its Eligible Recipients at any time.

 

(d)         No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan. The Administrator shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

 

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(e)         If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

 

(f)          The Plan and all Awards shall be governed by the laws of the State of Florida without regard to its principles of conflict of laws.

 

Section 15. Stockholder Approval; Effective Date of Plan.

 

Subject to the approval of the Plan by the stockholders of the Company, the Plan shall be effective as of March 1, 2004, the date of its approval by the Board (the "Effective Date"). No award that is intended to qualify as performance-based compensation within the meaning of section 162(m) of the Code shall be effective unless and until the Plan is approved by the stockholders of the Company.

 

Section 16. Term of Plan.

 

No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date of the Plan, but Awards theretofore granted may extend beyond that date.

 

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Ex 10.11

 

xG Technology, LLC

2006 STOCK INCENTIVE PLAN

 

Section 1.              Purpose of Plan.

 

The name of this plan is the xG Technology, LLC 2006 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to provide additional incentive to those officers, employees, Consultants and non-employee directors of the Company and its Parents, Subsidiaries and Affiliates (as hereinafter defined) whose contributions are essential to the growth and success of the Company’s business, in order to strengthen the commitment of such persons to the Company and its Parents, Subsidiaries and Affiliates, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company and its Parents, Subsidiaries and Affiliates. To accomplish such purposes, the Plan provides that the Company may grant Options, Restricted Stock, Restricted Stock Units, and Other Awards. The Plan is intended to satisfy the requirements of section 162(m) of the Code and shall be interpreted in a manner consistent with the requirements thereof.

 

Section 2.              Definitions.

 

For purposes of the Plan, the following terms shall be defined as set forth below:

 

(a)          “ Administrator ” means the Board, or if and to the extent the Board does not administer the Plan, the Committee, in accordance with Section 3 hereof.

 

(b)          “ Affiliate ” means any corporation 50% or more of the voting power of the outstanding voting securities of which is owned by the Company, its Parents or its Subsidiaries, or by any other Affiliate.

 

(c)          “ Award ” means an award of Options, Restricted Stock, Restricted Stock Units, or Other Awards under the Plan.

 

(d)          “ Award Agreement ” means, with respect to any Award, the written agreement between the Company and the Participant setting forth the terms and conditions of the Award.

 

(e)          “ Board ” means the Board of Directors of the Company.

 

(f)          “ Change in Capitalization ” means any increase, reduction, or change or exchange of Shares for a different number or kind of shares or other securities or property by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, stock dividend, stock split or reverse stock split, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise; or any other corporate action, such as declaration of a special dividend, that affects the capitalization of the Company.

 

(g)          “ Change in Control ” means the first to occur on or after the effective date of this Plan any one of the events set forth in the following paragraphs:

 

 
 

 

(i)          any Person is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company) representing 50.1% or more of the Company’s then outstanding securities ;

 

(ii)         there is consummated a merger or consolidation of the Company with any other corporation other than a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50.1% or more of the combined voting power of the Company’s then outstanding securities; or

 

(iii)        the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

 

(h)          “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

 

(i)          “ Committee ” means any committee or subcommittee the Board may appoint to administer the Plan. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee.

 

(j)          “ Common Stock ” means the common stock, of the Company.

 

(k)          “ Company ” means xG Technology, LLC (or any successor corporation).

 

(l)          “ Consultant ” means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term “Consultant” shall not include Directors who are paid, only a director’s fee by the Company or who are not compensated by the Company for their services as Directors.

 

(m)          “ Disability ” means (1) any physical or mental condition that would qualify a Participant for a disability benefit under any long-term disability plan maintained by the Company (or by the Parent, Subsidiary or Affiliate by which he is employed); (2) such other condition as may be determined in the sole discretion of the Administrator to constitute Disability.

 

(n)          “ Eligible Recipient ” means an employee, officer, Consultant or director (including a non-employee director) of the Company or of any Parent, Subsidiary or Affiliate.

 

(o)          “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

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(p)          “ Exercise Price ” means the per share price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.

 

(q)          “ Fair Market Value ” of a share of Common Stock as of a particular date shall mean (1) the closing sale price reported for such share on the national securities exchange or national market system on which such stock is principally traded on the last day preceding such date on which a sale was reported, or (2) if the shares of Common Stock are not then listed on a national securities exchange or national market system, or the value of such shares is not otherwise determinable, such value as determined by the Administrator in good faith in its sole discretion.

 

(r)          “ Membership Units ” shall mean ownership rights in the Limited Liability Company, indicated by the right to receive cash or unit distributions, declared by the Administrator, and having voting rights in the governance of the Company. For convenience, Membership Units are otherwise referred to as Shares or Stock.

 

(s)          “ Option ” means a right to acquire a specified number of Shares of the Company’s Stock at a fixed price, subject to conditions set forth in the Award Agreement.

 

(t)          “ Other Award ” means an Award granted pursuant to Section 11 hereof.

 

(u)          “ Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations in the chain (other than the Company) owns stock possessing 50.1% or more of the combined voting power of all classes of stock in one of the other corporations in the chain.

 

(v)         “ Participant ” means any Eligible Recipient selected by the Administrator, pursuant to the Administrator’s authority in Section 3 hereof, to receive grants of Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards. A Participant who receives the grant of an Option is sometimes referred to herein as “Optionee.”

 

(w)          “ Performance Goal ” shall mean one or more of the following business criteria applied to a Participant and/or a business unit or the Company and/or a Subsidiary: (1) return on total stockholder equity; (2) earnings per share of Common Stock; (3) net income (before or after taxes); (4) earnings before all or any interest, taxes, depreciation and/or amortization (“EBIT”, “EBITA”, or “EBITDA”); (5) gross revenue; (6) return on assets; (7) market share; (8) cost reduction goals; (9) earnings from continuing operations, levels of expense, cost or liability; (10) membership goals, and (11) any combination of, or a specified increase or decrease of one or more of the foregoing over a specified period, in each case, as applicable, as determined in accordance with generally accepted accounting principles.

 

(x)          “ Person ” shall have the meaning given in section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

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(y)          “ Restricted Stock Unit ” means the right to receive a Share or the Fair Market Value of a Share in cash granted pursuant to Section 9 hereof.

 

(z)          “ Restricted Stock ” means Shares subject to certain restrictions granted pursuant to Section 8 hereof.

 

(aa)         “ Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations (other than the last corporation) in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

 

Section 3.              Administration.

 

(a)          The Plan shall be administered by the Board or, at the Board’s sole discretion, by the Committee, which shall serve at the pleasure of the Board. Pursuant to the terms of the Plan, the Administrator shall have the power and authority, without limitation:

 

(i)          to select those Eligible Recipients who shall be Participants;

 

(ii)         to determine whether and to what extent Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards are to be granted hereunder to Participants;

 

(iii)        to determine the number of Shares to be covered by each Award granted hereunder;

 

(iv)        to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder;

 

(v)         to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards granted hereunder;

 

(vi)        to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and

 

(vii)       to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan.

 

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(b)          The Administrator may, in its absolute discretion, without amendment to the Plan, (i) accelerate the date on which any Option granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such Option, and (ii) accelerate the lapse of restrictions, or waive any condition imposed hereunder, with respect to any Restricted Stock, Restricted Stock Units, or Other Awards or otherwise adjust any of the terms applicable to any such Award; provided that no action under this Section 3(b) shall adversely affect any outstanding Award without the consent of the holder thereof.

 

(c)          All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.

 

(d)          Subject to section 162(m) of the Code and except as required by Rule 16b-3 under the Exchange Act with respect to grants of Awards to individuals who are subject to section 16 of the Exchange Act, or as otherwise required for compliance with Rule 16b-3 under the Exchange Act or other applicable law, the Committee may delegate all or any part of its authority under the Plan to an employee, employees or committee of employees of the Company or any Subsidiary.

 

Section 4.              Shares Reserved for Issuance Under the Plan.

 

(a)          The total number of Shares reserved and available for issuance under the Plan shall be 5,000,000 Shares. Such Shares may consist, in whole or in part, of authorized and unissued Shares or treasury shares. The grant of any Restricted Stock Units that may be settled only in cash shall not reduce the number of shares of Common Stock with respect to which Awards may be granted pursuant to the Plan.

 

(b)          To the extent that (i) an Option expires or is otherwise cancelled or terminated without being exercised as to the underlying Shares, (ii) any Shares subject to any award of Restricted Stock, Restricted Stock Unit, or Other Awards are forfeited, (iii) payment for an Option upon exercise is made with Shares or (iv) Shares are withheld from payment of an Award in satisfaction of any federal, state or local tax withholding requirements, such Shares shall again be available for issuance in connection with future Awards granted under the Plan.

 

(c)          The aggregate number of Shares with respect to which Awards (including Awards payable in cash but denominated in Common Stock, i.e. , cash-settled Restricted Stock Units) may be granted to any individual Participant during any calendar year shall not exceed 1,500,000.

 

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Section 5.              Equitable Adjustments.

 

In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment shall be made in (i) the aggregate number and/or kind of shares of common stock reserved for issuance under the Plan, (ii) the kind, number and/or option price of shares of stock or other property subject to outstanding Options granted under the Plan, and (iii) the kind, number and/or purchase price of shares of stock or other property subject to outstanding awards of Restricted Stock, Restricted Stock Units and Other Awards granted under the Plan, in each case as may be determined by the Administrator, in its sole discretion. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Administrator may provide, in its sole discretion, for the cancellation of any outstanding Awards in exchange for payment in cash or other property of the Fair Market Value of the Shares covered by such Awards reduced, in the case of Options, by the Exercise Price thereof, or by any other applicable purchase price.

 

Section 6.               Eligibility.

 

The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients. The Administrator shall have the authority to grant to any Eligible Recipient Options, Restricted Stock, Restricted Stock Units, or Other Awards.

 

Section 7.              Options.

 

(a)           General . Options may be granted alone or in addition to other Awards granted under the Plan. Any Option granted under the Plan shall be evidenced by an Award Agreement in such form as the Administrator may from time to time approve. The provisions of each Option need not be the same with respect to each Participant. Participants who are granted Options shall enter into an Award Agreement with the Company, in such form as the Administrator shall determine, which Award Agreement shall set forth, among other things, the Exercise Price of the Option, the term of the Option and provisions regarding exercisability of the Option granted thereunder. More than one Option may be granted to the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in paragraphs (b)-(k) of this Section 7 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable.

 

(b)           Exercise Price . The per share Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant.

 

(c)           Option Term . The term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten years after the date such Option is granted.

 

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(d)           Exercisability . Options shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of pre-established corporate performance goals, as shall be determined by the Administrator in the Award Agreement or after the time of grant, provided that no action under this Section 7(d) following the time of grant shall adversely affect any outstanding Option without the consent of the holder thereof. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion.

 

(e)           Method of Exercise . Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, payment in whole or in part may also be made (i) by means of any cashless exercise procedure approved by the Administrator, (ii) in the form of unrestricted Shares already owned by the Optionee for at least six months on the date of surrender or by the withholding of Shares that would otherwise be issued pursuant to the option exercise, in each case to the extent the Shares have a Fair Market Value on the date of surrender equal to the aggregate option price of the Shares as to which such Option shall be exercised, (iii) any combination of the foregoing.

 

(f)           Rights as Stockholder . An Optionee shall have no rights to dividends or any other rights of a stockholder with respect to the Shares subject to the Option until the Optionee has given written notice of exercise, has paid in full for such Shares, and has satisfied the requirements of Section 13 hereof.

 

(g)           Non-transferability of Options . An Option shall not be transferable other than by will or the laws of descent and distribution and shall be exercisable during the Participant’s lifetime only by the Participant.

 

(h)           Termination of Employment or Service . Except as otherwise provided in an Award Agreement, if a Participant’s employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate terminates for any reason other than death or Disability, (i) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable for a period of not less than 90 days after such termination (one year in the case of termination by reason of death or Disability), on which date they shall expire, and (ii) Options granted to such Optionee, to the extent that they were not exercisable at the time of such termination, shall expire on the date of such termination.

 

(i)           Right of Repurchase . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares exercised pursuant to the Option; provided, however, that (i) such repurchase right shall be exercisable only within (A) the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant (or in the case of a post-termination exercise of the Option, the ninety (90) period following such exercise), or (B) such longer period as may be agreed to by the Company and the Optionee, (ii) such repurchase right shall be exercisable for less than all of the vested shares only with the Optionee’s consent, and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares at a repurchase price equal to the stock’s Fair Market Value at the time of such termination. Notwithstanding the foregoing, shares received on exercise of an Option by an officer, director or Consultant may be subject to additional or greater restrictions specified in the Option Agreement.

 

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(j)           Right of First Refusal . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionee of the intent to transfer all or any part of the shares exercised pursuant to the Option. Such right of first refusal shall be exercised by the Company no more than thirty (30) days following receipt of notice of the Optionee’s intent to transfer shares and must be exercised as to all the shares the Optionee intends to transfer unless the Optionee consents to exercise for less than all the shares offered. The purchase of the shares following exercise shall be completed within thirty (30) days of the Company’s receipt of notice of the Optionee’s intent to transfer shares, or such longer period of time as has been offered by the person to whom the Optionee intends to transfer the shares, or as may be agreed to by the Company and the Optionee. Except as expressly provided in this Subsection (j), such right of first refusal shall otherwise comply with the provisions of the Bylaws of the Company.

 

(k)           Non-employee Director Stock Options . The provisions of this Section 7(k) shall apply only to grants of Options to a member of the Board who is not an employee of the Company (a “Non-employee Director”).

 

(i)           General . Non-employee Directors shall receive Options under the Plan only subject to the special rules set forth in this Section 7(k). The exercise price per share of Common Stock purchasable pursuant to an Option granted to a Non-employee Director shall be the Fair Market Value of a Share of Common Stock on the date of grant.

 

(ii)          Timing of Grant . Immediately following his or her first election or appointment to the Board, each Non-employee Director shall be granted an Option to purchase such number of Shares of Common Stock (including no Shares) as may be determined by the Administrator in its sole discretion, and immediately following each annual meeting of stockholders, each Non-employee Director (other than a Non-employee Director who is first appointed or elected to the Board at that meeting) shall be granted an Option to purchase such number of Shares of Common Stock (including no Shares) as may be determined by the Administrator in its sole discretion.

 

(iii)         Method and Time of Payment . Each Option granted under this Section 7(k) shall be exercised in the manner described in Section 7(e).

 

(iv)         Term and Exercisability . Each Option granted under this Section 7(k) shall (1) become exercisable as the Administrator in its sole discretion may provide in an applicable Award Agreement and (2) expire ten years from the date of grant.

 

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(v)          Termination . Except as the Administrator in its sole discretion may otherwise provide in an applicable Award Agreement, and subject to the Administrator’s amendment authority pursuant to Section 12, in the event of the termination of a Non-employee Director’s service with the Company other than for Cause, any outstanding Option held by such Non-employee Director under this Section 7(k), to the extent that it is exercisable on the date of such termination, may be exercised by such Non-employee Director (or, if applicable, by his or her executors, administrator, legatees or distributees) during such period as may be provided in the Award Agreement (or as may be otherwise determined by the Administrator) but in no event following the expiration of such Option, and the remainder of the Option which is not exercisable on the date of such termination shall expire upon such termination. For purposes of the Plan, any termination of a Non-employee Director’s service with the Company shall be deemed not to occur if the Non-employee Director continues to serve as Consultant, employee or in any other capacity.

 

Section 8.              Restricted Stock.

 

(a)           General . Awards of Restricted Stock may be issued either alone or in addition to other Awards granted under the Plan and shall be evidenced by an Award Agreement. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, Awards of Restricted Stock shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Stock; and the Restricted Period (as defined in Section 8(d)) applicable to awards of Restricted Stock. The provisions of the awards of Restricted Stock need not be the same with respect to each Participant.

 

(b)           Purchase Price . The price per Share, if any, that a Recipient must pay for Shares purchasable under an award of Restricted Stock shall be determined by the Administrator in its sole discretion at the time of grant.

 

(c)           Awards and Certificates . Each Participant who is granted an award of Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, which certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such Award, provided that the Company may require that the stock certificates evidencing Restricted Stock granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed.

 

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(d)           Non-transferability . Any Award of Restricted Stock granted pursuant to this Section 8 shall be subject to the restrictions on transferability set forth in this paragraph (d). During such period as may be set by the Administrator in the Award Agreement (the “Restricted Period”), the Participant shall not be permitted to sell, transfer, pledge, hypothecate or assign Shares of Restricted Stock awarded under the Plan except by will or the laws of descent and distribution, provided that the Administrator may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine in its sole discretion. The Administrator may also impose such other restrictions and conditions, including the achievement of Performance Goals, on Restricted Stock as it deems appropriate. In no event shall the Restricted Period end with respect to a Restricted Stock Award prior to the satisfaction by the Participant of any liability arising under Section 13 hereof. Any attempt to dispose of any Restricted Stock in contravention of any such restrictions shall be null and void and without effect.

 

(e)           Rights as a Stockholder . Except as provided in Section 8(c) and (d), the Participant shall possess all incidents of ownership with respect to Shares of Restricted Stock during the Restricted Period, including the right to receive or reinvest dividends with respect to such Shares (except that the Administrator may provide in its discretion that any dividends paid in property other than cash shall be subject to the same restrictions as those that apply to the underlying Restricted Stock) and to vote such Shares. Certificates for unrestricted Shares shall be delivered to the Participant promptly after, and only after, the Restricted Period shall expire without forfeiture in respect of such awards of Restricted Stock except as the Administrator, in its sole discretion, shall otherwise determine.

 

(f)           Termination of Employment . The rights of Participants granted an Award of Restricted Stock upon termination of employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate for any reason during the Restricted Period shall be set forth in the Award Agreement governing such Award.

 

Section 9.              Restricted Stock Units

 

(a)           Vesting . At the time of the grant of Restricted Stock Units, the Committee may impose such restrictions or conditions to the vesting of such Restricted Stock Units as it, in its sole discretion, deems appropriate, to be contained in the Award Agreement. The Committee may divide such Restricted Stock Units into classes and assign different vesting conditions for each class. Provided that all conditions to the vesting of a Restricted Stock Unit are satisfied, and except as provided in Section 9(c), upon the satisfaction of all vesting conditions with respect to a Restricted Stock Unit, such Restricted Stock Unit shall vest. The provisions of the awards of Restricted Stock Units need not be the same with respect to each Participant.

 

(b)           Benefit Upon Vesting . Upon the vesting of a Restricted Stock Unit, the Participant shall be entitled to receive, within 30 days of the date on which such Restricted Stock Unit vests, an amount in cash or Common Stock with a Fair Market Value equal to the sum of (1) the Fair Market Value of a Share of Common Stock on the date on which such Restricted Stock Unit vests and (2) the aggregate amount of cash dividends paid with respect to a Share of Common Stock during the period commencing on the date on which the Restricted Stock Unit was granted and terminating on the date on which such Share vests.

 

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(c)           Termination of Employment . The rights of Participants granted a Restricted Stock Unit upon termination of employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate for any reason before the Restricted Stock Unit vests shall be set forth in the Award Agreement governing such Award.

 

Section 10.            Effect of Change in Control.

 

Except as otherwise provided in an Award Agreement, all outstanding Shares of Restricted Stock and Restricted Stock Units granted to a Participant which have not theretofore vested shall immediately vest and all restrictions on such Shares and Units shall immediately lapse, and each Option granted to a Participant and outstanding at such time shall become fully and immediately exercisable, if there is a Change in Control.

 

Section 11.           Other Awards.

 

Other forms of Awards (“Other Awards”) valued in whole or in part by reference to, or otherwise based on, Common Stock may be granted either alone or in addition to other Awards under the Plan. Subject to the provisions of the Plan, the Administrator shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Awards shall be granted, the number of Shares to be granted pursuant to such Other Awards and all other conditions of such Other Awards.

 

Section 12.           Amendment and Termination.

 

The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant’s consent. Unless the Board determines otherwise, the Board shall obtain approval of the Company’s stockholders for any amendment that would require such approval in order to satisfy the requirements of section 162(m) of the Code, stock exchange rules or other applicable law. The Administrator may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Section 4 of Plan, no such amendment shall impair the rights of any Participant without his or her consent. Notwithstanding the foregoing provisions of this Section 12, neither the Plan nor any outstanding Option shall be amended to decrease the Exercise Price of any outstanding Option unless first approved by the requisite vote of stockholders.

 

Section 13.           Withholding Taxes.

 

Whenever cash is to be paid pursuant to an Award, the Company shall have the right to deduct there from an amount sufficient to satisfy any federal, state and local tax withholding requirements related thereto. Whenever Shares are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local tax withholding requirements related thereto. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery Shares or by delivering Shares already owned by the Participant for at least six months, in each case, having a value equal to the minimum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined . Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the shares to be delivered pursuant to an Award.

 

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Section 14.           General Provisions.

 

(a)          Shares shall not be issued pursuant to the exercise of any Award granted hereunder unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Company shall be under no obligation to affect the registration pursuant to the Securities Act of 1933, as amended, of any interests in the Plan or any shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws.

 

(b)          All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock may then be listed, and any applicable federal or state securities law, and the Administrator may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. The Administrator may require, as a condition of the issuance and delivery of certificates evidencing Shares pursuant to the terms hereof, that the recipient of such Shares make such agreements and representations as the Administrator, in its sole discretion, deems necessary or desirable.

 

(c)          Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval, if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment or service with the Company or any Parent, Subsidiary or Affiliate, as the case may be, nor shall it interfere in any way with the right of the Company or any Parent, Subsidiary or Affiliate to terminate the employment or service of any of its Eligible Recipients at any time.

 

(d)          No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan. The Administrator shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

 

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(e)          If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

 

(f)          The Plan and all Awards shall be governed by the laws of the State of Florida without regard to its principles of conflict of laws.

 

Section 15.           Stockholder Approval; Effective Date of Plan.

 

Subject to the approval of the Plan by the stockholders of the Company, the Plan shall be effective as of March 1, 2004, the date of its approval by the Board (the "Effective Date"). No award that is intended to qualify as performance-based compensation within the meaning of section 162(m) of the Code shall be effective unless and until the Plan is approved by the stockholders of the Company.

 

Section 16.           Term of Plan.

 

No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date of the Plan, but Awards theretofore granted may extend beyond that date.

 

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Ex 10.12

 

xG Technology, Inc.

2007 STOCK INCENTIVE PLAN

 

Section 1. Purpose of Plan.

 

The name of this plan is the xG Technology, Inc. 2007 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to provide additional incentive to those officers, employees, Consultants and non-employee directors of the Company and its Parents, Subsidiaries and Affiliates (as hereinafter defined) whose contributions are essential to the growth and success of the Company’s business, in order to strengthen the commitment of such persons to the Company and its Parents, Subsidiaries and Affiliates, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company and its Parents, Subsidiaries and Affiliates. To accomplish such purposes, the Plan provides that the Company may grant Options, Restricted Stock, Restricted Stock Units, and Other Awards. The Plan is intended to satisfy the requirements of section 162(m) of the Code and shall be interpreted in a manner consistent with the requirements thereof.

 

Section 2. Definitions.

 

For purposes of the Plan, the following terms shall be defined as set forth below:

 

(a)          “ Administrator ” means the Board, or if and to the extent the Board does not administer the Plan, the Committee, in accordance with Section 3 hereof.

 

(b)          “ Affiliate ” means any corporation 50% or more of the voting power of the outstanding voting securities of which is owned by the Company, its Parents or its Subsidiaries, or by any other Affiliate.

 

(c)          “ Award ” means an award of Options, Restricted Stock, Restricted Stock Units, or Other Awards under the Plan.

 

(d)          “ Award Agreement ” means, with respect to any Award, the written agreement between the Company and the Participant setting forth the terms and conditions of the Award.

 

(e)          “ Board ” means the Board of Directors of the Company.

 

(f)          “ Change in Capitalization ” means any increase, reduction, or change or exchange of Shares for a different number or kind of shares or other securities or property by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, stock dividend, stock split or reverse stock split, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise; or any other corporate action, such as declaration of a special dividend, that affects the capitalization of the Company.

 

(g)          “ Change in Control ” means the first to occur on or after the effective date of this Plan any one of the events set forth in the following paragraphs:

 

 
 

 

(i)          any Person is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company) representing 50.1% or more of the Company’s then outstanding securities ; or

 

(ii)         there is consummated a merger or consolidation of the Company with any other corporation other than a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50.1% or more of the combined voting power of the Company’s then outstanding securities; or

 

(iii)        the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

 

(h)          “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

 

(i)          “ Committee ” means any committee or subcommittee the Board may appoint to administer the Plan. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee.

 

(j)          “ Common Stock ” means the common stock of the Company.

 

(k)          “ Company ” means xG Technology, Inc. (or any successor corporation).

 

(l)          “ Consultant ” means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term “Consultant” shall not include Directors who are paid only a director’s fee by the Company or who are not compensated by the Company for their services as Directors.

 

(m)          “ Disability ” means (1) any physical or mental condition that would qualify a Participant for a disability benefit under any long-term disability plan maintained by the Company (or by the Parent, Subsidiary or Affiliate by which he is employed); (2) such other condition as may be determined in the sole discretion of the Administrator to constitute Disability.

 

(n)          “ Eligible Recipient ” means an employee, officer, Consultant or director (including a non-employee director) of the Company or of any Parent, Subsidiary or Affiliate.

 

(o)          “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

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(p)          “ Exercise Price ” means the per share price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.

 

(q)          “ Fair Market Value ” of a share of Common Stock as of a particular date shall mean (1) the closing sale price reported for such share on the national securities exchange or national market system on which such stock is principally traded on the last day preceding such date on which a sale was reported, or (2) if the shares of Common Stock are not then listed on a national securities exchange or national market system, or the value of such shares is not otherwise determinable, such value as determined by the Administrator in good faith in its sole discretion.

 

(r)          “ Option ” means a right to acquire a specified number of Shares of the Company’s Stock at a fixed price, subject to conditions set forth in the Award Agreement.

 

(s)          “ Other Award ” means an Award granted pursuant to Section 11 hereof.

 

(t)          “ Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations in the chain (other than the Company) owns stock possessing 50.1% or more of the combined voting power of all classes of stock in one of the other corporations in the chain.

 

(u)          “ Participant ” means any Eligible Recipient selected by the Administrator, pursuant to the Administrator’s authority in Section 3 hereof, to receive grants of Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards. A Participant who receives the grant of an Option is sometimes referred to herein as “Optionee.”

 

(v)         “ Performance Goal ” shall mean one or more of the following business criteria applied to a Participant and/or a business unit or the Company and/or a Subsidiary: (1) return on total stockholder equity; (2) earnings per share of Common Stock; (3) net income (before or after taxes); (4) earnings before all or any interest, taxes, depreciation and/or amortization (“EBIT”, “EBITA”, or “EBITDA”); (5) gross revenue; (6) return on assets; (7) market share; (8) cost reduction goals; (9) earnings from continuing operations, levels of expense, cost or liability; (10) membership goals, and (11) any combination of, or a specified increase or decrease of one or more of the foregoing over a specified period, in each case, as applicable, as determined in accordance with generally accepted accounting principles.

 

(w)          “ Person ” shall have the meaning given in section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

(x)          “ Restricted Stock Unit ” means the right to receive a Share or the Fair Market Value of a Share in cash granted pursuant to Section 9 hereof.

 

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(y)          “ Restricted Stock ” means Shares subject to certain restrictions granted pursuant to Section 8 hereof.

 

(z)          “ Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations (other than the last corporation) in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

 

Section 3. Administration.

 

(a)          The Plan shall be administered by the Board or, at the Board’s sole discretion, by the Committee, which shall serve at the pleasure of the Board. Pursuant to the terms of the Plan, the Administrator shall have the power and authority, without limitation:

 

(i)          to select those Eligible Recipients who shall be Participants;

 

(ii)         to determine whether and to what extent Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards are to be granted hereunder to Participants;

 

(iii)        to determine the number of Shares to be covered by each Award granted hereunder;

 

(iv)        to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder;

 

(v)         to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Options or awards of Restricted Stock, Restricted Stock Units, or Other Awards granted hereunder;

 

(vi)        to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and

 

(vii)       to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan.

 

(b)          The Administrator may, in its absolute discretion, without amendment to the Plan, (i) accelerate the date on which any Option granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such Option, and (ii) accelerate the lapse of restrictions, or waive any condition imposed hereunder, with respect to any Restricted Stock, Restricted Stock Units, or Other Awards or otherwise adjust any of the terms applicable to any such Award; provided that no action under this Section 3(b) shall adversely affect any outstanding Award without the consent of the holder thereof.

 

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(c)          All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.

 

(d)          Subject to section 162(m) of the Code and except as required by Rule 16b-3 under the Exchange Act with respect to grants of Awards to individuals who are subject to section 16 of the Exchange Act, or as otherwise required for compliance with Rule 16b-3 under the Exchange Act or other applicable law, the Committee may delegate all or any part of its authority under the Plan to an employee, employees or committee of employees of the Company or any Subsidiary.

 

Section 4. Shares Reserved for Issuance Under the Plan.

 

(a)          The total number of Shares reserved and available for issuance under the Plan shall be 1,000,000 Shares. Such Shares may consist, in whole or in part, of authorized and unissued Shares or treasury shares. The grant of any Restricted Stock Units that may be settled only in cash shall not reduce the number of shares of Common Stock with respect to which Awards may be granted pursuant to the Plan.

 

(b)          To the extent that (i) an Option expires or is otherwise cancelled or terminated without being exercised as to the underlying Shares, (ii) any Shares subject to any award of Restricted Stock, Restricted Stock Unit, or Other Awards are forfeited, (iii) payment for an Option upon exercise is made with Shares or (iv) Shares are withheld from payment of an Award in satisfaction of any federal, state or local tax withholding requirements, such Shares shall again be available for issuance in connection with future Awards granted under the Plan.

 

(c)          The aggregate number of Shares with respect to which Awards (including Awards payable in cash but denominated in Common Stock, i.e. , cash-settled Restricted Stock Units) may be granted to any individual Participant during any calendar year shall not exceed 1,000,000.

 

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Section 5. Equitable Adjustments.

 

In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment shall be made in (i) the aggregate number and/or kind of shares of common stock reserved for issuance under the Plan, (ii) the kind, number and/or option price of shares of stock or other property subject to outstanding Options granted under the Plan, and (iii) the kind, number and/or purchase price of shares of stock or other property subject to outstanding awards of Restricted Stock, Restricted Stock Units and Other Awards granted under the Plan, in each case as may be determined by the Administrator, in its sole discretion. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Administrator may provide, in its sole discretion, for the cancellation of any outstanding Awards in exchange for payment in cash or other property of the Fair Market Value of the Shares covered by such Awards reduced, in the case of Options, by the Exercise Price thereof, or by any other applicable purchase price.

 

Section 6. Eligibility.

 

The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients. The Administrator shall have the authority to grant to any Eligible Recipient Options, Restricted Stock, Restricted Stock Units, or Other Awards.

 

Section 7. Options.

 

(a)           General . Options may be granted alone or in addition to other Awards granted under the Plan. Any Option granted under the Plan shall be evidenced by an Award Agreement in such form as the Administrator may from time to time approve. The provisions of each Option need not be the same with respect to each Participant. Participants who are granted Options shall enter into an Award Agreement with the Company, in such form as the Administrator shall determine, which Award Agreement shall set forth, among other things, the Exercise Price of the Option, the term of the Option and provisions regarding exercisability of the Option granted thereunder. More than one Option may be granted to the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in paragraphs (b)-(k) of this Section 7 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable.

 

(b)           Exercise Price . The per share Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant.

 

(c)           Option Term . The term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten years after the date such Option is granted.

 

(d)           Exercisability . Options shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of pre-established corporate performance goals, as shall be determined by the Administrator in the Award Agreement or after the time of grant, provided that no action under this Section 7(d) following the time of grant shall adversely affect any outstanding Option without the consent of the holder thereof. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion.

 

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(e)           Method of Exercise . Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, payment in whole or in part may also be made (i) by means of any cashless exercise procedure approved by the Administrator, (ii) in the form of unrestricted Shares already owned by the Optionee for at least six months on the date of surrender or by the withholding of Shares that would otherwise be issued pursuant to the option exercise, in each case to the extent the Shares have a Fair Market Value on the date of surrender equal to the aggregate option price of the Shares as to which such Option shall be exercised, (iii) any combination of the foregoing.

 

(f)           Rights as Stockholder . An Optionee shall have no rights to dividends or any other rights of a stockholder with respect to the Shares subject to the Option until the Optionee has given written notice of exercise, has paid in full for such Shares, and has satisfied the requirements of Section 13 hereof.

 

(g)           Non-transferability of Options . An Option shall not be transferable other than by will or the laws of descent and distribution and shall be exercisable during the Participant’s lifetime only by the Participant.

 

(h)           Termination of Employment or Service . Except as otherwise provided in an Award Agreement, if a Participant’s employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate terminates for any reason other than death or Disability, (i) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable for a period of not less than 90 days after such termination (one year in the case of termination by reason of death or Disability), on which date they shall expire, and (ii) Options granted to such Optionee, to the extent that they were not exercisable at the time of such termination, shall expire on the date of such termination.

 

(i)           Right of Repurchase . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares exercised pursuant to the Option; provided, however, that (i) such repurchase right shall be exercisable only within (A) the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant (or in the case of a post-termination exercise of the Option, the ninety (90) period following such exercise), or (B) such longer period as may be agreed to by the Company and the Optionee, (ii) such repurchase right shall be exercisable for less than all of the vested shares only with the Optionee’s consent, and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares at a repurchase price equal to the stock’s Fair Market Value at the time of such termination. Notwithstanding the foregoing, shares received on exercise of an Option by an officer, director or Consultant may be subject to additional or greater restrictions specified in the Option Agreement.

 

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(j)           Right of First Refusal . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionee of the intent to transfer all or any part of the shares exercised pursuant to the Option. Such right of first refusal shall be exercised by the Company no more than thirty (30) days following receipt of notice of the Optionee’s intent to transfer shares and must be exercised as to all the shares the Optionee intends to transfer unless the Optionee consents to exercise for less than all the shares offered. The purchase of the shares following exercise shall be completed within thirty (30) days of the Company’s receipt of notice of the Optionee’s intent to transfer shares, or such longer period of time as has been offered by the person to whom the Optionee intends to transfer the shares, or as may be agreed to by the Company and the Optionee. Except as expressly provided in this Subsection (j), such right of first refusal shall otherwise comply with the provisions of the Bylaws of the Company.

 

(k)           Non-employee Director Stock Options . The provisions of this Section 7(k) shall apply only to grants of Options to a member of the Board who is not an employee of the Company (a “Non-employee Director”).

 

(i)           General . Non-employee Directors shall receive Options under the Plan only subject to the special rules set forth in this Section 7(k). The exercise price per share of Common Stock purchasable pursuant to an Option granted to a Non-employee Director shall be the Fair Market Value of a Share of Common Stock on the date of grant.

 

(ii)          Timing of Grant . Immediately following his or her first election or appointment to the Board, each Non-employee Director shall be granted an Option to purchase such number of Shares of Common Stock (including no Shares) as may be determined by the Administrator in its sole discretion, and immediately following each annual meeting of stockholders, each Non-employee Director (other than a Non-employee Director who is first appointed or elected to the Board at that meeting) shall be granted an Option to purchase such number of Shares of Common Stock (including no Shares) as may be determined by the Administrator in its sole discretion.

 

(iii)         Method and Time of Payment . Each Option granted under this Section 7(k) shall be exercised in the manner described in Section 7(e).

 

(iv)         Term and Exercisability . Each Option granted under this Section 7(k) shall (1) become exercisable as the Administrator in its sole discretion may provide in an applicable Award Agreement and (2) expire ten years from the date of grant.

 

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(v)          Termination . Except as the Administrator in its sole discretion may otherwise provide in an applicable Award Agreement, and subject to the Administrator’s amendment authority pursuant to Section 12, in the event of the termination of a Non-employee Director’s service with the Company other than for Cause, any outstanding Option held by such Non-employee Director under this Section 7(k), to the extent that it is exercisable on the date of such termination, may be exercised by such Non-employee Director (or, if applicable, by his or her executors, administrator, legatees or distributees) during such period as may be provided in the Award Agreement (or as may be otherwise determined by the Administrator) but in no event following the expiration of such Option, and the remainder of the Option which is not exercisable on the date of such termination shall expire upon such termination. For purposes of the Plan, any termination of a Non-employee Director’s service with the Company shall be deemed not to occur if the Non-employee Director continues to serve as Consultant, employee or in any other capacity.

 

Section 8. Restricted Stock.

 

(a)           General . Awards of Restricted Stock may be issued either alone or in addition to other Awards granted under the Plan and shall be evidenced by an Award Agreement. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, Awards of Restricted Stock shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Stock; and the Restricted Period (as defined in Section 8(d)) applicable to awards of Restricted Stock. The provisions of the awards of Restricted Stock need not be the same with respect to each Participant.

 

(b)           Purchase Price . The price per Share, if any, that a Recipient must pay for Shares purchasable under an award of Restricted Stock shall be determined by the Administrator in its sole discretion at the time of grant.

 

(c)           Awards and Certificates . Each Participant who is granted an award of Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, which certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such Award, provided that the Company may require that the stock certificates evidencing Restricted Stock granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed.

 

(d)           Non-transferability . Any Award of Restricted Stock granted pursuant to this Section 8 shall be subject to the restrictions on transferability set forth in this paragraph (d). During such period as may be set by the Administrator in the Award Agreement (the “Restricted Period”), the Participant shall not be permitted to sell, transfer, pledge, hypothecate or assign Shares of Restricted Stock awarded under the Plan except by will or the laws of descent and distribution, provided that the Administrator may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine in its sole discretion. The Administrator may also impose such other restrictions and conditions, including the achievement of Performance Goals, on Restricted Stock as it deems appropriate. In no event shall the Restricted Period end with respect to a Restricted Stock Award prior to the satisfaction by the Participant of any liability arising under Section 13 hereof. Any attempt to dispose of any Restricted Stock in contravention of any such restrictions shall be null and void and without effect.

 

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(e)           Rights as a Stockholder . Except as provided in Section 8(c) and (d), the Participant shall possess all incidents of ownership with respect to Shares of Restricted Stock during the Restricted Period, including the right to receive or reinvest dividends with respect to such Shares (except that the Administrator may provide in its discretion that any dividends paid in property other than cash shall be subject to the same restrictions as those that apply to the underlying Restricted Stock) and to vote such Shares. Certificates for unrestricted Shares shall be delivered to the Participant promptly after, and only after, the Restricted Period shall expire without forfeiture in respect of such awards of Restricted Stock except as the Administrator, in its sole discretion, shall otherwise determine.

 

(f)           Termination of Employment . The rights of Participants granted an Award of Restricted Stock upon termination of employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate for any reason during the Restricted Period shall be set forth in the Award Agreement governing such Award.

 

Section 9. Restricted Stock Units

 

(a)           Vesting . At the time of the grant of Restricted Stock Units, the Committee may impose such restrictions or conditions to the vesting of such Restricted Stock Units as it, in its sole discretion, deems appropriate, to be contained in the Award Agreement. The Committee may divide such Restricted Stock Units into classes and assign different vesting conditions for each class. Provided that all conditions to the vesting of a Restricted Stock Unit are satisfied, and except as provided in Section 9(c), upon the satisfaction of all vesting conditions with respect to a Restricted Stock Unit, such Restricted Stock Unit shall vest. The provisions of the awards of Restricted Stock Units need not be the same with respect to each Participant.

 

(b)           Benefit Upon Vesting . Upon the vesting of a Restricted Stock Unit, the Participant shall be entitled to receive, within 30 days of the date on which such Restricted Stock Unit vests, an amount in cash or Common Stock with a Fair Market Value equal to the sum of (1) the Fair Market Value of a Share of Common Stock on the date on which such Restricted Stock Unit vests and (2) the aggregate amount of cash dividends paid with respect to a Share of Common Stock during the period commencing on the date on which the Restricted Stock Unit was granted and terminating on the date on which such Share vests.

 

(c)           Termination of Employment . The rights of Participants granted a Restricted Stock Unit upon termination of employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate for any reason before the Restricted Stock Unit vests shall be set forth in the Award Agreement governing such Award.

 

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Section 10. Effect of Change in Control.

 

Except as otherwise provided in an Award Agreement, all outstanding Shares of Restricted Stock and Restricted Stock Units granted to a Participant which have not theretofore vested shall immediately vest and all restrictions on such Shares and Units shall immediately lapse, and each Option granted to a Participant and outstanding at such time shall become fully and immediately exercisable, if there is a Change in Control.

 

Section 11. Other Awards.

 

Other forms of Awards (“Other Awards”) valued in whole or in part by reference to, or otherwise based on, Common Stock may be granted either alone or in addition to other Awards under the Plan. Subject to the provisions of the Plan, the Administrator shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Awards shall be granted, the number of Shares to be granted pursuant to such Other Awards and all other conditions of such Other Awards.

 

Section 12. Amendment and Termination.

 

The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant’s consent. Unless the Board determines otherwise, the Board shall obtain approval of the Company’s stockholders for any amendment that would require such approval in order to satisfy the requirements of section 162(m) of the Code, stock exchange rules or other applicable law. The Administrator may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Section 4 of Plan, no such amendment shall impair the rights of any Participant without his or her consent. Notwithstanding the foregoing provisions of this Section 12, neither the Plan nor any outstanding Option shall be amended to decrease the Exercise Price of any outstanding Option unless first approved by the requisite vote of stockholders.

 

Section 13. Withholding Taxes.

 

Whenever cash is to be paid pursuant to an Award, the Company shall have the right to deduct there from an amount sufficient to satisfy any federal, state and local tax withholding requirements related thereto. Whenever Shares are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local tax withholding requirements related thereto. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery Shares or by delivering Shares already owned by the Participant for at least six months, in each case, having a value equal to the minimum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined . Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the shares to be delivered pursuant to an Award.

 

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Section 14. General Provisions.

 

(a)          Shares shall not be issued pursuant to the exercise of any Award granted hereunder unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Company shall be under no obligation to affect the registration pursuant to the Securities Act of 1933, as amended, of any interests in the Plan or any shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws.

 

(b)          All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock may then be listed, and any applicable federal or state securities law, and the Administrator may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. The Administrator may require, as a condition of the issuance and delivery of certificates evidencing Shares pursuant to the terms hereof, that the recipient of such Shares make such agreements and representations as the Administrator, in its sole discretion, deems necessary or desirable.

 

(c)          Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval, if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment or service with the Company or any Parent, Subsidiary or Affiliate, as the case may be, nor shall it interfere in any way with the right of the Company or any Parent, Subsidiary or Affiliate to terminate the employment or service of any of its Eligible Recipients at any time.

 

(d)          No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan. The Administrator shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

 

(e)          If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

 

(f)          The Plan and all Awards shall be governed by the laws of the State of Florida without regard to its principles of conflict of laws.

 

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Section 15. Stockholder Approval; Effective Date of Plan.

 

Subject to the approval of the Plan by the stockholders of the Company, the Plan shall be effective as of January 1, 2007, the date of its approval by the Board (the "Effective Date"). No award that is intended to qualify as performance-based compensation within the meaning of section 162(m) of the Code shall be effective unless and until the Plan is approved by the stockholders of the Company.

 

Section 16. Term of Plan.

 

No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date of the Plan, but Awards theretofore granted may extend beyond that date.

 

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Ex 10.13

 

xG Technology, Inc.

2009 STOCK INCENTIVE PLAN

 

Section 1.              Purpose of Plan.

 

The name of this plan is the xG Technology, Inc. 2009 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to provide additional incentive to those officers, employees, Consultants and non-employee directors of the Company and its Parents, Subsidiaries and Affiliates (as hereinafter defined) whose contributions are essential to the growth and success of the Company’s business, in order to strengthen the commitment of such persons to the Company and its Parents, Subsidiaries and Affiliates, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company and its Parents, Subsidiaries and Affiliates. To accomplish such purposes, the Plan provides that the Company may grant Options and Restricted Stock. The Plan is intended to satisfy the requirements of section 162(m) of the Code and shall be interpreted in a manner consistent with the requirements thereof.

 

Section 2.              Definitions.

 

For purposes of the Plan, the following terms shall be defined as set forth below:

 

(a)          “ Administrator ” means the Board, or if and to the extent the Board does not administer the Plan, the Committee, in accordance with Section 3 hereof.

 

(b)          “ Affiliate ” means any corporation 50% or more of the voting power of the outstanding voting securities of which is owned by the Company, its Parents or its Subsidiaries, or by any other Affiliate.

 

(c)          “ Award ” means an award of Options, or Restricted Stock under the Plan.

 

(d)          “ Award Agreement ” means, with respect to any Award, the written agreement between the Company and the Participant setting forth the terms and conditions of the Award.

 

(e)          “ Board ” means the Board of Directors of the Company.

 

(f)          “ Change in Capitalization ” means any increase, reduction, or change or exchange of Shares for a different number or kind of shares or other securities or property by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, stock dividend, stock split or reverse stock split, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise; or any other corporate action, such as declaration of a special dividend, that affects the capitalization of the Company.

 

(g)          “ Change in Control ” means the first to occur on or after the effective date of this Plan any one of the events set forth in the following paragraphs:

 

(i)          any Person is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company) representing 50.1% or more of the Company’s then outstanding securities ; or

 

 
 

 

(ii)         there is consummated a merger or consolidation of the Company with any other corporation other than a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50.1% or more of the combined voting power of the Company’s then outstanding securities; or

 

(iii)        the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

 

(h)          “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

 

(i)          “ Committee ” means any committee or subcommittee the Board may appoint to administer the Plan. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee.

 

(j)          “ Common Stock ” means the common stock of the Company.

 

(k)          “ Company ” means xG Technology, Inc. (or any successor corporation).

 

(l)          “ Consultant ” means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term “Consultant” shall not include Directors who are paid only a director’s fee by the Company or who are not compensated by the Company for their services as Directors.

 

(m)          “ Disability ” means (1) any physical or mental condition that would qualify a Participant for a disability benefit under any long-term disability plan maintained by the Company (or by the Parent, Subsidiary or Affiliate by which he is employed); (2) such other condition as may be determined in the sole discretion of the Administrator to constitute Disability.

 

(n)          “ Eligible Recipient ” means an employee, officer, Consultant or director (including a non-employee director) of the Company or of any Parent, Subsidiary or Affiliate.

 

(o)          “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

(p)          “ Exercise Price ” means the per share price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.

 

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(q)          “ Fair Market Value ” of a share of Common Stock as of a particular date shall mean (1) the closing sale price reported for such share on the national securities exchange or national market system on which such stock is principally traded on the last day preceding such date on which a sale was reported, or (2) if the shares of Common Stock are not then listed on a national securities exchange or national market system, or the value of such shares is not otherwise determinable, such value as determined by the Administrator in good faith in its sole discretion.

 

(r)          “ Option ” means a right to acquire a specified number of Shares of the Company’s Stock at a fixed price, subject to conditions set forth in the Award Agreement.

 

(s)          “ Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations in the chain (other than the Company) owns stock possessing 50.1% or more of the combined voting power of all classes of stock in one of the other corporations in the chain.

 

(t)          “ Participant ” means any Eligible Recipient selected by the Administrator, pursuant to the Administrator’s authority in Section 3 hereof, to receive grants of Options or awards of Restricted Stock. A Participant who receives the grant of an Option is sometimes referred to herein as “Optionee.”

 

(u)          “ Performance Goal ” shall mean one or more of the following business criteria applied to a Participant and/or a business unit or the Company and/or a Subsidiary: (1) return on total stockholder equity; (2) earnings per share of Common Stock; (3) net income (before or after taxes); (4) earnings before all or any interest, taxes, depreciation and/or amortization (“EBIT”, “EBITA”, or “EBITDA”); (5) gross revenue; (6) return on assets; (7) market share; (8) cost reduction goals; (9) earnings from continuing operations, levels of expense, cost or liability; (10) membership goals, and (11) any combination of, or a specified increase or decrease of one or more of the foregoing over a specified period, in each case, as applicable, as determined in accordance with generally accepted accounting principles.

 

(v)         “ Person ” shall have the meaning given in section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

(w)         “ Restricted Stock ” means Shares subject to certain restrictions granted pursuant to Section 8 hereof.

 

(x)          “ Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations (other than the last corporation) in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

 

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Section 3.              Administration.

 

(a)          The Plan shall be administered by the Board or, at the Board’s sole discretion, by the Committee, which shall serve at the pleasure of the Board. Pursuant to the terms of the Plan, the Administrator shall have the power and authority, without limitation:

 

(i)          to select those Eligible Recipients who shall be Participants;

 

(ii)         to determine whether and to what extent Options or awards of Restricted Stock are to be granted hereunder to Participants;

 

(iii)        to determine the number of Shares to be covered by each Award granted hereunder;

 

(iv)        to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder;

 

(v)         to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Options or awards of Restricted Stock granted hereunder;

 

(vi)        to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and

 

(vii)       to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan.

 

(b)          The Administrator may, in its absolute discretion, without amendment to the Plan, (i) accelerate the date on which any Option granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such Option, and (ii) accelerate the lapse of restrictions, or waive any condition imposed hereunder, with respect to any Restricted Stock or otherwise adjust any of the terms applicable to any such Award; provided that no action under this Section 3(b) shall adversely affect any outstanding Award without the consent of the holder thereof.

 

(c)          All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.

 

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(d)          Subject to section 162(m) of the Code and except as required by Rule 16b-3 under the Exchange Act with respect to grants of Awards to individuals who are subject to section 16 of the Exchange Act, or as otherwise required for compliance with Rule 16b-3 under the Exchange Act or other applicable law, the Committee may delegate all or any part of its authority under the Plan to an employee, employees or committee of employees of the Company or any Subsidiary.

 

Section 4.              Shares Reserved for Issuance Under the Plan.

 

(a)          The total number of Shares reserved and available for issuance under the Plan shall be 10,000,000 Shares, all of which may be used for the issuance of incentive stock options under Section 422 of the Code. Such Shares may consist, in whole or in part, of authorized and unissued Shares or treasury shares.

 

(b)          To the extent that (i) an Option expires or is otherwise cancelled or terminated without being exercised as to the underlying Shares, (ii) any Shares subject to any award of Restricted Stock are forfeited, (iii) payment for an Option upon exercise is made with Shares or (iv) Shares are withheld from payment of an Award in satisfaction of any federal, state or local tax withholding requirements, such Shares shall again be available for issuance in connection with future Awards granted under the Plan.

 

(c)          The aggregate number of Shares with respect to which Awards (including Awards payable in cash but denominated in Common Stock) may be granted to any individual Participant during any calendar year shall not exceed 1,500,000.

 

Section 5.              Equitable Adjustments.

 

In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment shall be made in (i) the aggregate number and/or kind of shares of common stock reserved for issuance under the Plan, (ii) the kind, number and/or option price of shares of stock or other property subject to outstanding Options granted under the Plan, and (iii) the kind, number and/or purchase price of shares of stock or other property subject to outstanding awards of Restricted Stock granted under the Plan, in each case as may be determined by the Administrator, in its sole discretion. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Administrator may provide, in its sole discretion, for the cancellation of any outstanding Awards in exchange for payment in cash or other property of the Fair Market Value of the Shares covered by such Awards reduced, in the case of Options, by the Exercise Price thereof, or by any other applicable purchase price.

 

Section 6.              Eligibility.

 

The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients. The Administrator shall have the authority to grant to any Eligible Recipient Options or Restricted Stock.

 

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Section 7.              Options.

 

(a)           General . Options may be granted alone or in addition to other Awards granted under the Plan. Any Option granted under the Plan shall be evidenced by an Award Agreement in such form as the Administrator may from time to time approve. The Award Agreement shall specify whether the Option is intended to qualify as an incentive stock option under Section 422 of the Code. The provisions of each Option need not be the same with respect to each Participant. Participants who are granted Options shall enter into an Award Agreement with the Company, in such form as the Administrator shall determine, which Award Agreement shall set forth, among other things, the Exercise Price of the Option, the term of the Option and provisions regarding exercisability of the Option granted thereunder. More than one Option may be granted to the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in paragraphs (b)-(k) of this Section 7 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. For purposes of this Section the date on which an Option is considered granted shall be declared as part of the grant. The date of grant of an Option shall be the date on which the Administrator completes the corporate action offering the Option to the Participant and specifying in that offer the number of Shares covered by the Option, the Exercise Price and all other relevant terms applicable to the Option. The date on which the Administrator completes this corporate action shall be declared as the official date of grant for the Option provided the Participant receives timely and prompt notice of the grant following completion of these actions.

 

(b)           Exercise Price . The per share Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant. If the Option is intended to be an incentive stock option under Section 422 of the Code, the Exercise Price shall not be less than the Fair Market Value as of the date of grant of the covered Shares. If the Option is intended to be an incentive stock option under Section 422 of the Code granted to a Participant who, at the time of grant, owns more than 10% of the total combined voting power of all classes of stock of the Company, then the Exercise Price shall not be less than 110% of the Fair Market Value as of the date of grant of the covered Shares.

 

(c)           Option Term . The term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten years after the date such Option is granted. If the Option is intended to be an incentive stock option under Section 422 of the Code granted to a Participant who, at the time of grant, owns more than 10% of the total combined voting power of all classes of stock of the Company, then the Option Term shall require that the Option be exercisable no more than five years after the date the Option is granted.

 

(d)           Exercisability . Options shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of pre-established Corporate Performance Goals, as shall be determined by the Administrator in the Award Agreement or after the time of grant, provided that no action under this Section 7(d) following the time of grant shall adversely affect any outstanding Option without the consent of the holder thereof. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion.

 

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(e)           Method of Exercise . Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, payment in whole or in part may also be made (i) by means of any cashless exercise procedure approved by the Administrator, (ii) in the form of unrestricted Shares already owned by the Optionee for at least six months on the date of surrender or by the withholding of Shares that would otherwise be issued pursuant to the option exercise, in each case to the extent the Shares have a Fair Market Value on the date of surrender equal to the aggregate option price of the Shares as to which such Option shall be exercised, (iii) any combination of the foregoing.

 

(f)           Rights as Stockholder . An Optionee shall have no rights to dividends or any other rights of a stockholder with respect to the Shares subject to the Option until the Optionee has given written notice of exercise, has paid in full for such Shares, and has satisfied the requirements of Section 13 hereof.

 

(g)           Non-transferability of Options . An Option shall not be transferable other than by will or the laws of descent and distribution and shall be exercisable during the Participant’s lifetime only by the Participant.

 

(h)           Termination of Employment or Service . Except as otherwise provided in an Award Agreement, if a Participant’s employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate terminates for any reason other than death or Disability, (i) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable for a period of not less than 90 days after such termination (one year in the case of termination by reason of death or Disability), on which date they shall expire, and (ii) Options granted to such Optionee, to the extent that they were not exercisable at the time of such termination, shall expire on the date of such termination.

 

(i)           Right of Repurchase . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares exercised pursuant to the Option; provided, however, that (i) such repurchase right shall be exercisable only within (A) the ninety (90) day period following the termination of employment or the relationship as a Director or Consultant (or in the case of a post-termination exercise of the Option, the ninety (90) period following such exercise), or (B) such longer period as may be agreed to by the Company and the Optionee, (ii) such repurchase right shall be exercisable for less than all of the vested shares only with the Optionee’s consent, and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares at a repurchase price equal to the stock’s Fair Market Value at the time of such termination. Notwithstanding the foregoing, shares received on exercise of an Option by an officer, director or Consultant may be subject to additional or greater restrictions specified in the Option Agreement.

 

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(j)           Right of First Refusal . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionee of the intent to transfer all or any part of the shares exercised pursuant to the Option. Such right of first refusal shall be exercised by the Company no more than thirty (30) days following receipt of notice of the Optionee’s intent to transfer shares and must be exercised as to all the shares the Optionee intends to transfer unless the Optionee consents to exercise for less than all the shares offered. The purchase of the shares following exercise shall be completed within thirty (30) days of the Company’s receipt of notice of the Optionee’s intent to transfer shares, or such longer period of time as has been offered by the person to whom the Optionee intends to transfer the shares, or as may be agreed to by the Company and the Optionee. Except as expressly provided in this Subsection (j), such right of first refusal shall otherwise comply with the provisions of the Bylaws of the Company.

 

(k)           Non-employee Director Stock Options . The provisions of this Section 7(k) shall apply only to grants of Options to a member of the Board who is not an employee of the Company (a “Non-employee Director”).

 

(i)           General . Non-employee Directors shall receive Options under the Plan only subject to the special rules set forth in this Section 7(k). The exercise price per share of Common Stock purchasable pursuant to an Option granted to a Non-employee Director shall be the Fair Market Value of a Share of Common Stock on the date of grant.

 

(ii)          Timing of Grant . Immediately following his or her first election or appointment to the Board, each Non-employee Director shall be granted an Option to purchase such number of Shares of Common Stock (including no Shares) as may be determined by the Administrator in its sole discretion, and immediately following each annual meeting of stockholders, each Non-employee Director (other than a Non-employee Director who is first appointed or elected to the Board at that meeting) shall be granted an Option to purchase such number of Shares of Common Stock (including no Shares) as may be determined by the Administrator in its sole discretion.

 

(iii)         Method and Time of Payment . Each Option granted under this Section 7(k) shall be exercised in the manner described in Section 7(e).

 

(iv)         Term and Exercisability . Each Option granted under this Section 7(k) shall (1) become exercisable as the Administrator in its sole discretion may provide in an applicable Award Agreement and (2) expire ten years from the date of grant.

 

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(v)          Termination . Except as the Administrator in its sole discretion may otherwise provide in an applicable Award Agreement, and subject to the Administrator’s amendment authority pursuant to Section 12, in the event of the termination of a Non-employee Director’s service with the Company other than for Cause, any outstanding Option held by such Non-employee Director under this Section 7(k), to the extent that it is exercisable on the date of such termination, may be exercised by such Non-employee Director (or, if applicable, by his or her executors, administrator, legatees or distributees) during such period as may be provided in the Award Agreement (or as may be otherwise determined by the Administrator) but in no event following the expiration of such Option, and the remainder of the Option which is not exercisable on the date of such termination shall expire upon such termination. For purposes of the Plan, any termination of a Non-employee Director’s service with the Company shall be deemed not to occur if the Non-employee Director continues to serve as Consultant, employee or in any other capacity.

 

Section 8.              Restricted Stock.

 

(a)           General . Awards of Restricted Stock may be issued either alone or in addition to other Awards granted under the Plan and shall be evidenced by an Award Agreement. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, Awards of Restricted Stock shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Stock; and the Restricted Period (as defined in Section 8(d)) applicable to awards of Restricted Stock. The provisions of the awards of Restricted Stock need not be the same with respect to each Participant.

 

(b)           Purchase Price . The price per Share, if any, that a Recipient must pay for Shares purchasable under an award of Restricted Stock shall be determined by the Administrator in its sole discretion at the time of grant.

 

(c)           Awards and Certificates . Each Participant who is granted an award of Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, which certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such Award, provided that the Company may require that the stock certificates evidencing Restricted Stock granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed.

 

(d)           Non-transferability . Any Award of Restricted Stock granted pursuant to this Section 8 shall be subject to the restrictions on transferability set forth in this paragraph (d). During such period as may be set by the Administrator in the Award Agreement (the “Restricted Period”), the Participant shall not be permitted to sell, transfer, pledge, hypothecate or assign Shares of Restricted Stock awarded under the Plan except by will or the laws of descent and distribution, provided that the Administrator may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine in its sole discretion. The Administrator may also impose such other restrictions and conditions, including the achievement of Performance Goals, on Restricted Stock as it deems appropriate. In no event shall the Restricted Period end with respect to a Restricted Stock Award prior to the satisfaction by the Participant of any liability arising under Section 13 hereof. Any attempt to dispose of any Restricted Stock in contravention of any such restrictions shall be null and void and without effect.

 

9
 

 

(e)           Rights as a Stockholder . Except as provided in Section 8(c) and (d), the Participant shall possess all incidents of ownership with respect to Shares of Restricted Stock during the Restricted Period, including the right to receive or reinvest dividends with respect to such Shares (except that the Administrator may provide in its discretion that any dividends paid in property other than cash shall be subject to the same restrictions as those that apply to the underlying Restricted Stock) and to vote such Shares. Certificates for unrestricted Shares shall be delivered to the Participant promptly after, and only after, the Restricted Period shall expire without forfeiture in respect of such awards of Restricted Stock except as the Administrator, in its sole discretion, shall otherwise determine.

 

(f)           Termination of Employment . The rights of Participants granted an Award of Restricted Stock upon termination of employment with or service as a director of the Company or any Parent, Subsidiary or Affiliate for any reason during the Restricted Period shall be set forth in the Award Agreement governing such Award.

 

Section 9.              Effect of Change in Control.

 

Except as otherwise provided in an Award Agreement, all outstanding Shares of Restricted Stock granted to a Participant which have not theretofore vested shall immediately vest and all restrictions on such Shares shall immediately lapse, and each Option granted to a Participant and outstanding at such time shall become fully and immediately exercisable, if there is a Change in Control.

 

Section 10.           Amendment and Termination.

 

The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant’s consent. Unless the Board determines otherwise, the Board shall obtain approval of the Company’s stockholders for any amendment that would require such approval in order to satisfy the requirements of section 162(m) of the Code, stock exchange rules or other applicable law. The Administrator may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Section 4 of Plan, no such amendment shall impair the rights of any Participant without his or her consent. Notwithstanding the foregoing provisions of this Section 12, neither the Plan nor any outstanding Option shall be amended to decrease the Exercise Price of any outstanding Option unless first approved by the requisite vote of stockholders.

 

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Section 11.           Withholding Taxes.

 

Whenever cash is to be paid pursuant to an Award, the Company shall have the right to deduct there from an amount sufficient to satisfy any federal, state and local tax withholding requirements related thereto. Whenever Shares are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local tax withholding requirements related thereto. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery Shares or by delivering Shares already owned by the Participant for at least six months, in each case, having a value equal to the minimum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined . Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the shares to be delivered pursuant to an Award.

 

Section 12.           General Provisions.

 

(a)          Shares shall not be issued pursuant to the exercise of any Award granted hereunder unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Company shall be under no obligation to affect the registration pursuant to the Securities Act of 1933, as amended, of any interests in the Plan or any shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws.

 

(b)          All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock may then be listed, and any applicable federal or state securities law, and the Administrator may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. The Administrator may require, as a condition of the issuance and delivery of certificates evidencing Shares pursuant to the terms hereof, that the recipient of such Shares make such agreements and representations as the Administrator, in its sole discretion, deems necessary or desirable.

 

(c)          Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval, if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment or service with the Company or any Parent, Subsidiary or Affiliate, as the case may be, nor shall it interfere in any way with the right of the Company or any Parent, Subsidiary or Affiliate to terminate the employment or service of any of its Eligible Recipients at any time.

 

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(d)          No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan. The Administrator shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

 

(e)          If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

 

(f)          The Plan and all Awards shall be governed by the laws of the State of Florida without regard to its principles of conflict of laws.

 

Section 13.           Stockholder Approval; Effective Date of Plan.

 

Subject to the approval of the Plan per the Amended and Restated Articles of Incorporation of the Company, the Plan shall be effective as of January 22, 2009, the date of its approval by the Board’s Remuneration Committee (the "Effective Date"). No award that is intended to qualify as performance-based compensation within the meaning of section 162(m) of the Code shall be effective unless and until the Plan is approved by the stockholders of the Company.

 

Section 14.           Term of Plan.

 

No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date of the Plan, but Awards theretofore granted may extend beyond that date.

 

Date Plan Approved by Board of Directors: October 2, 2008

 

Date Plan Approved per the Amended and Restated Articles of Incorporation: January 22, 2009

 

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Ex 10.14

Employee Option Award Letter

 

xG Technology, Inc.

 

2009 STOCK INCENTIVE PLAN

 

OPTION AGREEMENT

 

This Option Agreement is effective and entered into as of DATE (the “Date of Grant”), by and between xG Technology, Inc., (the “Company”), and NAME (the “Optionee”). Capitalized terms not defined herein shall have the meaning ascribed to them in the Company’s 2009 Stock Incentive Plan (the “Plan”). The Company intends that this Option will constitute

 

q An incentive stock option, taxed under Section 422 of the Code. Notwithstanding this intention at grant of the Option, the ultimate taxation of the Option will depend on whether the ultimate exercise of the Option and holding of Shares purchased through the Option exercise satisfy the requirements of Section 422 of the Code.

 

q A non-statutory stock option, not eligible for tax treatment under Section 422 of the Code.

 

1.           Number of Shares . The Company hereby grants to the Optionee an option (this “Option”) to purchase NUMBER Shares (the “Option Shares”) at an Exercise Price per Share of $PRICE, subject to all of the terms and conditions of this Option Agreement and the Plan.

 

2.           Option Term . The term of the Option and of this Option Agreement (the “Option Term”) shall commence on the Date of Grant set forth above and, unless the Option is previously terminated pursuant to Section 5 below, shall terminate on the tenth anniversary thereof (the “Expiration Date”). As of the Expiration Date, all rights of the Optionee hereunder shall terminate.

 

3.           Conditions of Vesting and Exercise .

 

(a)           Subject to Section 5 below, one third of the Option Shares shall vest on the anniversary of the Date of Grant (“First Vesting Date”), one third shall vest on the second anniversary of the Date of Grant (“Second Vesting Date”) and the final third shall vest on the third anniversary of the Date of Grant (“Third Vesting Date”), provided that, in the case of the vesting of the Option Shares on the First Vesting Date, the following conditions have been satisfied, achieved, performed or completed by that date:

 

i       Did not receive any written warnings in the prior year regarding work performance or work product;

 

ii          Did not have any serious or continuing disciplinary issues in the previous year. Referencing the Employee Handbook: Employee Conduct Guidelines, Group 1 – second or third offense, Group 2, 3, & 4 – any offense.

 

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and provided further that, in the case of the respective vesting of the Option Shares on the Second Vesting Date and the Third Vesting Date, such other conditions as the Administrator may set for the Optionee in advance of such dates have been satisfied, achieved, performed or completed by the relevant dates. Notwithstanding the setting of any conditions in respect of any period, the vesting schedule can be accelerated by the Board of Directors, who, in its sole discretion, will make such decisions based on the Company’s performance as related to goals, successes and timelines and/or as related to the Optionee’s individual performance goals, successes and timelines.

 

(b)           This Option may be exercised in respect of Option Shares that have vested in accordance with paragraph (a) above in whole or in part at any time prior to the Expiration Date provided , however , that in the event Optionee terminates employment or service with the Company and all Parents, Subsidiaries and Affiliates, from and after such Termination Date (as defined in Section 5 below), this Option may be exercised only with respect to Option Shares that have vested as of the Termination Date.

 

(c)           This Option may not be exercised for a fraction of a share.

 

4. Method of Exercise of Option.

 

(a)           The Option may be exercised by delivering to the Company an executed Stock Option Notice of Exercise in the form attached hereto as Exhibit A , or in such other form as may be approved by the Administrator from time to time (the “Exercise Agreement”), which shall set forth, inter alia , (i) Optionee’s election to exercise the Option, (ii) the number of shares of Common Stock being purchased, and (iii) payment in full of the aggregate Exercise Price of the shares being purchased. If someone other than the Optionee exercises the Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise the Option.

 

(b)           The Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities law, as they are in effect on the date of exercise.

 

(c)           Payment of the aggregate Exercise Price for Option Shares being purchased and any applicable withholding taxes may be made in cash or by certified/cashier’s check. The Administrator, in its sole discretion, may also allow payment to be made (i) to the extent permitted by applicable law, by means of a cashless exercise procedure specified by the Administrator, (ii) through delivery of unrestricted Shares already owned by the Optionee for more than six months on the date of surrender, to the extent the shares have an aggregate Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which such Option shall be exercised, or (iii) by any other means of exercise authorized from time to time by the Administrator.

 

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5. Effect of Termination of Employment or Service and Change in Control .

 

(a)           Termination of Employment or Service Generally . Upon the termination of Optionee’s employment or service with the Company and all Parents, Subsidiaries and Affiliates under any circumstances other than for Cause, the Option shall immediately terminate as to any Option Shares that have not previously vested as of the date of such termination (the “Termination Date”). Any portion of the Option that has both vested and become exercisable as provided per Section 3 above as of the Termination Date shall be exercisable in whole or in part for a period of 90 days following the Termination Date; provided , however , that in the event of termination by reason of Optionee’s death or Disability, such exercise period shall extend until the date that is one year from the Termination Date; provided , further , that in no event may the Option be exercised after the Expiration Date. Upon expiration of such 90-day or one-year period, as applicable, any unexercised portion of the Option shall terminate in full (whether or not then exercisable).

 

(b)           Termination for Cause . Immediately upon the termination of Optionee’s employment or service with the Company or any Parent, Subsidiary or Affiliate for Cause, the Option shall terminate in full (whether or not then vested and/or exercisable).

 

(c)           Change in Control . Any portion of the Option that has not previously vested shall become fully vested and exercisable upon a Change in Control.

 

6.           Adjustments . In the event of any Change in Capitalization, the Administrator shall take such actions pursuant to Section 5 (Equitable Adjustments) of the Plan as it deems appropriate.

 

7.           Non-transferability of Option . Except under the laws of descent and distribution, the Optionee shall not be permitted to sell, transfer, pledge or assign the Option and this Option Agreement.

 

8.           Tax Consequences . The tax laws and regulations applicable to the grant and the exercise of the Option and to the disposition of the Option Shares are complex and subject to change. Optionee should consult a tax adviser to determine their own specific tax consequences.

 

9.           Securities Laws Requirements . The Option shall not be exercisable to any extent, and the Company shall not be obligated to transfer any Option Shares to the Optionee upon exercise of such Option, if such exercise, in the opinion of counsel for the Company, would violate the Securities Act of 1933 (the “Securities Act”) or any other Federal or state statutes having similar requirements as may be in effect at that time.

 

10.          No Obligation to Register Option Shares . The Company shall be under no obligation to register the Option Shares pursuant to the Securities Act or any other Federal or state securities laws.

 

11.          Investment Representation. The Optionee hereby represents and warrants to the Company that the Optionee, by reason of the Optionee’s business or financial experience (or the business or financial experience of the Optionee’s professional advisors who are unaffiliated with and who are not compensated by the Company or any affiliate or selling agent of the Company, directly or indirectly), has the capacity to protect the Optionee’s own interests in connection with the transactions contemplated under this Option Agreement.

 

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12.          Market Stand-Off . In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act for such period as the Company or its underwriters may request (such period not to exceed 180 days following the date of the applicable offering), the Optionee shall not, directly or indirectly, sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Option Shares acquired under this Option Agreement without the prior written consent of the Company or its underwriters.

 

13.          Protections Against Violations of Agreement . No purported sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any of the Option Shares by any holder thereof in violation of the provisions of this Agreement or the Certificate of Incorporation or the Bylaws of the Company, will be valid, and the Company will not transfer any of said Option Shares on its books nor will any of said Option Shares be entitled to vote, nor will any dividends be paid thereon, unless and until there has been full compliance with said provisions to the satisfaction of the Company. The foregoing restrictions are in addition to and not in lieu of any other remedies, legal or equitable, available to enforce said provisions.

 

14.          Withholding Requirements . The Company’s obligations under this Option Agreement shall be subject to all applicable tax and other withholding requirements, and the Company shall, to the extent permitted by law, have the right to deduct any withholding amounts from any payment or transfer of any kind otherwise due to the Optionee, including the right to withhold delivery of Option Shares due upon exercise of an Option until the Company receives adequate payment from the Optionee to satisfy those requirements.

 

15.          Failure to Enforce Not a Waiver . The failure of the Company to enforce at any time any provision of this Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.

 

16.          Governing Law . This Option Agreement shall be governed by and construed according to the laws of the State of Florida without regard to its principles of conflict of laws.

 

17.          Incorporation of Plan . The Plan is hereby incorporated by reference and made a part hereof, and the Option and this Option Agreement shall be subject to all terms and conditions of the Plan.

 

18.          Amendments . The Administrator may amend the terms of this Option Agreement prospectively or retroactively at any time, but no such amendment shall impair the rights of Optionee hereunder without his or her consent.

 

19.          Rights as a Stockholder . Neither the Optionee nor any of the Optionee’s successors in interest shall have any rights as a stockholder of the Company with respect to any shares of Common Stock subject to the Option until the date of issuance of a stock certificate for such shares of Common Stock.

 

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20.          Agreement Not a Contract for Services . Neither the Plan, the granting of the Option, this Option Agreement nor any other action taken pursuant to the Plan shall constitute or be evidence of any agreement or understanding, express or implied, that the Optionee has a right to continue to provide services as an officer, director, employee, consultant or advisor of the Company or any Parent, Subsidiary or Affiliate for any period of time or at any specific rate of compensation.

 

21.          Survival of Terms . This Option Agreement shall apply to and bind the Optionee and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.

 

22.          Representations . The Optionee has reviewed with his own tax advisors the Federal, state, local and foreign tax consequences of the transactions contemplated by this Option Agreement. The Optionee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Optionee understands that they (and not the Company) shall be responsible for any tax liability that may arise as a result of the transactions contemplated by this Option Agreement.

 

23.          Authority of the Administrator . The Administrator shall have full authority to interpret and construe the terms of the Plan and this Option Agreement. The determination of the Administrator as to any such matter of interpretation or construction shall be final, binding and conclusive.

 

24.          Acceptance . The Optionee hereby acknowledges receipt of a copy of the Plan and this Option Agreement. Optionee has read and understand the terms and provision thereof, and accepts the Option subject to all the terms and conditions of the Plan and this Agreement.

 

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Option Agreement on the day and year first above written.

 

xG Technology, Inc.  
   
By    
CEO  
   
By    
CFO  

 

     
  NAME

 

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EXHIBIT A

 

xG Technology, Inc.

2009 STOCK INCENTIVE PLAN

 

OPTION AGREEMENT

NOTICE OF EXERCISE

 

______________, ____

 

xG Technology, Inc.

240 S. Pineapple Avenue, Suite 701

Sarasota, FL 34236

 

Attn: ___________________

 

On ______________, I was granted an option (an “Option”) by xG Technology, Inc. (the “Company”) under the Company’s 2009 Stock Incentive Plan (the “Plan”) and an Option Agreement, between myself and the Company (the “Agreement”). This letter is to notify you that I wish to purchase Option Shares under the Agreement as set forth below.

 

Exercise of Option

 

1.                   I wish to purchase _______ Option Shares at the exercise price of $PRICE per share for a total cost of $_________.

 

2.                   I am paying for these Option Shares as follows:

 

___ By enclosing cash and/or a certified/cashier’s check payable to the Company in the amount of $_________.
___ If approved by Administrator, by means of a cashless exercise procedure specified by the Administrator.
___ If approved by Administrator, by delivery of unrestricted shares of Company stock already owned by me for more than six months on the date of surrender, and which have an aggregate fair market value on the date of surrender equal to the aggregate exercise price of the Option Shares as to which the Option is being exercised, with any fractional share amounts to be settled by cash and/or a certified/ cashier’s check.

 

3.                  I am paying the local, state and federal withholding taxes and/or all other taxes that the Company has advised me are due as follows:

 

___ By enclosing cash and/or a certified/cashier’s check payable to the Company in the amount of $__________.

 

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___ If approved by Administrator, by authorizing the Company to withhold from the number of Option Shares I would otherwise receive that number of whole Shares having a fair market value equal to the minimum tax withholding due, with any fractional share amounts to be settled by cash and/or a certified/cashier’s check.
___ If approved by Administrator, by delivery of unrestricted shares of Company stock already owned by me for more than six months on the date of surrender, and which have an aggregate fair market value on the date of surrender equal to the amount of taxes being withheld by the Company, with any fractional share amounts to be settled by cash and/or a certified/cashier’s check.

 

4.                   In exercising my Option I hereby warrant and represent to the Company that I acknowledge that the Company has no obligation to issue a certificate evidencing any Option Shares purchasable by me until the purchase price of such Option Shares is fully paid as set forth in the Option Agreement.

 

  Very truly yours,
     
   
     
Name and Address (please print)  
     
   
     
   
     
Telephone Number ( ___ )  
     
Social Security Number  

 

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Board of Director Option Award Letter

 

xG Technology, Inc.

 

2009 STOCK INCENTIVE PLAN

 

OPTION AGREEMENT

 

This Option Agreement is made and entered into as of DATE (the “Date of Grant”), by and between xG Technology, Inc., (the “Company”), and NAME (the “Optionee”). Capitalized terms not defined herein shall have the meaning ascribed to them in the Company’s 2009 Stock Incentive Plan (the “Plan”). The Company intends that this Option will constitute

 

q An incentive stock option, taxed under Section 422 of the Code. Notwithstanding this intention at grant of the Option, the ultimate taxation of the Option will depend on whether the ultimate exercise of the Option and holding of Shares purchased through the Option exercise satisfy the requirements of Section 422 of the Code.

 

q A non-statutory stock option, not eligible for tax treatment under Section 422 of the Code.

 

25.          Number of Shares . The Company hereby grants to the Optionee an option (this “Option”) to purchase NUMBER Shares (the “Option Shares”) at an Exercise Price per Share of $PRICE, subject to all of the terms and conditions of this Option Agreement and the Plan. Subject as provided below, such Option Shares are hereby granted in consideration for the Optionee serving on the Company’s Board of Directors (the “Board Option Shares”).

 

26.          Option Term . The term of the Option and of this Option Agreement (the “Option Term”) shall commence on the Date of Grant set forth above and, unless the Option is previously terminated pursuant to Section 5 below, shall terminate on the tenth anniversary thereof (the “Expiration Date”). As of the Expiration Date, all rights of the Optionee hereunder shall terminate.

 

27.          Conditions of Vesting and Exercise .

 

(a)           Subject to Section 5 below, one third of the Board Option Shares shall vest on the anniversary of the Date of Grant (“First Vesting Date”), one third shall vest on the second anniversary of the Date of Grant (“Second Vesting Date”) and the final third shall vest on the third anniversary of the Date of Grant (“Third Vesting Date”), provided that the goals for service on the Board of Directors to be agreed in advance between the Company and the Optionee for the relevant period have been satisfied, achieved, performed or completed by the relevant Vesting Date.

 

(b)           This Option may be exercised in respect of Option Shares that have vested in accordance with paragraph (a) above in whole or in part at any time prior to the Expiration Date provided , however , that in the event Optionee terminates service on the Company’s Board, from and after such Termination Date (as defined in Section 5 below), this Option may be exercised only with respect to Option Shares that have vested as of the Termination Date.

 

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(c)           This Option may not be exercised for a fraction of a share.

 

28.          Method of Exercise of Option.

 

(a)           The Option may be exercised by delivering to the Company an executed Stock Option Notice of Exercise in the form attached hereto as Exhibit A , or in such other form as may be approved by the Administrator from time to time (the “Exercise Agreement”), which shall set forth, inter alia , (i) Optionee’s election to exercise the Option, (ii) the number of shares of Common Stock being purchased, and (iii) payment in full of the aggregate Exercise Price of the shares being purchased. If someone other than the Optionee exercises the Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise the Option.

 

(b)           The Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities law, as they are in effect on the date of exercise.

 

(c)           Payment of the aggregate Exercise Price for Option Shares being purchased and any applicable withholding taxes may be made in cash or by certified/cashier’s check. The Administrator, in its sole discretion, may also allow payment to be made (i) to the extent permitted by applicable law, by means of a cashless exercise procedure specified by the Administrator, (ii) through delivery of unrestricted Shares already owned by the Optionee for more than six months on the date of surrender, to the extent the shares have an aggregate Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which such Option shall be exercised, or (iii) by any other means of exercise authorized from time to time by the Administrator.

 

29.          Effect of Termination of Service and Change in Control .

 

(a)           Termination of Service Generally . Upon the termination of Optionee’s service on the Company’s Board of Directors under any circumstances other than for Cause, the Option shall immediately terminate as to any Option Shares that have not previously vested as of the date of such termination (the “Termination Date”). Any portion of the Option that has both vested and become exercisable as provided per Section 3 above as of the Termination Date shall be exercisable in whole or in part for a period of 90 days following the Termination Date; provided , however , that in the event of termination by reason of Optionee’s death or Disability, such exercise period shall extend until the date that is one year from the Termination Date; provided , further , that in no event may the Option be exercised after the Expiration Date. Upon expiration of such 90-day or one-year period, as applicable, any unexercised portion of the Option shall terminate in full (whether or not then exercisable).

 

(b)           Termination for Cause . Immediately upon the termination of Optionee’s service on the Company’s Board of Directors for Cause, the Option shall terminate in full (whether or not then vested and/or exercisable).

 

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(c)           Change in Control . Any portion of the Option that has not previously vested shall become fully vested and exercisable upon a Change in Control.

 

30.          Adjustments . In the event of any Change in Capitalization, the Administrator shall take such actions pursuant to Section 5 (Equitable Adjustments) of the Plan as it deems appropriate.

 

31.          Non-transferability of Option . Except under the laws of descent and distribution, the Optionee shall not be permitted to sell, transfer, pledge or assign the Option and this Option Agreement.

 

32.          Tax Consequences . The tax laws and regulations applicable to the grant and the exercise of the Option and to the disposition of the Option Shares are complex and subject to change. Optionee should consult a tax adviser to determine their own specific tax consequences.

 

33.          Securities Laws Requirements . The Option shall not be exercisable to any extent, and the Company shall not be obligated to transfer any Option Shares to the Optionee upon exercise of such Option, if such exercise, in the opinion of counsel for the Company, would violate the Securities Act of 1933 (the “Securities Act”) or any other Federal or state statutes having similar requirements as may be in effect at that time.

 

34.          No Obligation to Register Option Shares . The Company shall be under no obligation to register the Option Shares pursuant to the Securities Act or any other Federal or state securities laws.

 

35.          Investment Representation. The Optionee hereby represents and warrants to the Company that the Optionee, by reason of the Optionee’s business or financial experience (or the business or financial experience of the Optionee’s professional advisors who are unaffiliated with and who are not compensated by the Company or any affiliate or selling agent of the Company, directly or indirectly), has the capacity to protect the Optionee’s own interests in connection with the transactions contemplated under this Option Agreement.

 

36.          Market Stand-Off . In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act for such period as the Company or its underwriters may request (such period not to exceed 180 days following the date of the applicable offering), the Optionee shall not, directly or indirectly, sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Option Shares acquired under this Option Agreement without the prior written consent of the Company or its underwriters.

 

37.          Protections Against Violations of Agreement . No purported sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any of the Option Shares by any holder thereof in violation of the provisions of this Agreement or the Certificate of Incorporation or the Bylaws of the Company, will be valid, and the Company will not transfer any of said Option Shares on its books nor will any of said Option Shares be entitled to vote, nor will any dividends be paid thereon, unless and until there has been full compliance with said provisions to the satisfaction of the Company. The foregoing restrictions are in addition to and not in lieu of any other remedies, legal or equitable, available to enforce said provisions.

 

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38.          Withholding Requirements . The Company’s obligations under this Option Agreement shall be subject to all applicable tax and other withholding requirements, and the Company shall, to the extent permitted by law, have the right to deduct any withholding amounts from any payment or transfer of any kind otherwise due to the Optionee, including the right to withhold delivery of Option Shares due upon exercise of an Option until the Company receives adequate payment from the Optionee to satisfy those requirements.

 

39.          Failure to Enforce Not a Waiver . The failure of the Company to enforce at any time any provision of this Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.

 

40.          Governing Law . This Option Agreement shall be governed by and construed according to the laws of the State of Florida without regard to its principles of conflict of laws.

 

41.          Incorporation of Plan . The Plan is hereby incorporated by reference and made a part hereof, and the Option and this Option Agreement shall be subject to all terms and conditions of the Plan.

 

42.          Amendments . The Administrator may amend the terms of this Option Agreement prospectively or retroactively at any time, but no such amendment shall impair the rights of Optionee hereunder without his or her consent.

 

43.          Rights as a Stockholder . Neither the Optionee nor any of the Optionee’s successors in interest shall have any rights as a stockholder of the Company with respect to any shares of Common Stock subject to the Option until the date of issuance of a stock certificate for such shares of Common Stock.

 

44.          Agreement Not a Contract for Services . Neither the Plan, the granting of the Option, this Option Agreement nor any other action taken pursuant to the Plan shall constitute or be evidence of any agreement or understanding, express or implied, that the Optionee has a right to continue to provide services as an officer, director, employee, consultant or advisor of the Company or any Parent, Subsidiary or Affiliate for any period of time or at any specific rate of compensation.

 

45.          Survival of Terms . This Option Agreement shall apply to and bind the Optionee and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.

 

46.          Representations . The Optionee has reviewed with his own tax advisors the Federal, state, local and foreign tax consequences of the transactions contemplated by this Option Agreement. The Optionee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Optionee understands that they (and not the Company) shall be responsible for any tax liability that may arise as a result of the transactions contemplated by this Option Agreement.

 

11
 

 

47.          Authority of the Administrator . The Administrator shall have full authority to interpret and construe the terms of the Plan and this Option Agreement. The determination of the Administrator as to any such matter of interpretation or construction shall be final, binding and conclusive.

 

48.          Acceptance . The Optionee hereby acknowledges receipt of a copy of the Plan and this Option Agreement. Optionee has read and understand the terms and provision thereof, and accepts the Option subject to all the terms and conditions of the Plan and this Agreement.

 

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Option Agreement on the day and year first above written.

 

xG Technology, Inc.

 

By:    
CEO  
   
By:    
CFO  

 

     
  NAME

 

12
 

 

EXHIBIT A

 

xG Technology, Inc.

2009 STOCK INCENTIVE PLAN

 

OPTION AGREEMENT

NOTICE OF EXERCISE

 

______________, ____

 

xG Technology, Inc.

240 S. Pineapple Avenue, Suite 701

Sarasota, FL 34236

 

Attn: ___________________

 

On ______________, I was granted an option (an “Option”) by xG Technology, Inc. (the “Company”) under the Company’s 2009 Stock Incentive Plan (the “Plan”) and an Option Agreement, between myself and the Company (the “Agreement”). This letter is to notify you that I wish to purchase Option Shares under the Agreement as set forth below.

 

Exercise of Option

 

1.                 I wish to purchase _______ Option Shares at the exercise price of $PRICE per share for a total cost of $_________.

 

2.                 I am paying for these Option Shares as follows:

 

___ By enclosing cash and/or a certified/cashier’s check payable to the Company in the amount of $_________.
___ If approved by Administrator, by means of a cashless exercise procedure specified by the Administrator.
___ If approved by Administrator, by delivery of unrestricted shares of Company stock already owned by me for more than six months on the date of surrender, and which have an aggregate fair market value on the date of surrender equal to the aggregate exercise price of the Option Shares as to which the Option is being exercised, with any fractional share amounts to be settled by cash and/or a certified/ cashier’s check.

 

3.                 I am paying the local, state and federal withholding taxes and/or all other taxes that the Company has advised me are due as follows:

 

___ By enclosing cash and/or a certified/cashier’s check payable to the Company in the amount of $__________.

 

13
 

 

___ If approved by Administrator, by authorizing the Company to withhold from the number of Option Shares I would otherwise receive that number of whole Shares having a fair market value equal to the minimum tax withholding due, with any fractional share amounts to be settled by cash and/or a certified/cashier’s check.
___ If approved by Administrator, by delivery of unrestricted shares of Company stock already owned by me for more than six months on the date of surrender, and which have an aggregate fair market value on the date of surrender equal to the amount of taxes being withheld by the Company, with any fractional share amounts to be settled by cash and/or a certified/cashier’s check.

 

4.                   In exercising my Option I hereby warrant and represent to the Company that I acknowledge that the Company has no obligation to issue a certificate evidencing any Option Shares purchasable by me until the purchase price of such Option Shares is fully paid as set forth in the Option Agreement.

 

  Very truly yours,
     
   
     
Name and Address (please print)  
     
   
     
   
     
Telephone Number ( ___ )  
     
Social Security Number  

 

14

 

Ex 10.15

SEVENTH MODIFICATION TO LEASE AGREEMENT

(xG TECHNOLOGY, INC.)

 

THIS SEVENTH MODIFICATION TO LEASE AGREEMENT (the "Seventh Modification") is made and entered into as of this 19 th day of April, 2012, by and between ATRIUM 93, LLC (the "Potential Landlord" or “Landlord”), who is successor in interest to ATC REALTY ONE, LLC, who is successor in interest to Rodney K. Longman, and xG TECHNOLOGY, INC. (the "Tenant").

 

Recitals

 

WHEREAS, BRI 1808 TBD LLC and Tenant entered into that certain Lease Agreement dated November 29, 2006 ("Lease"), and

 

WHEREAS, Lease was assigned by BRI 1808 TBD LLC to Rodney K. Longman on February 28, 2007, whereby Rodney K. Longman assumed all obligations of BRI 1808 TBD LLC pursuant to the Lease, and

 

WHEREAS, pursuant to the Lease, Tenant occupies Suite 231, comprised of 5,858 square feet of rentable area in the building known as Atrium West, 7771 W. Oakland Park Boulevard, Sunrise, Florida ("Property"), and

 

WHEREAS, Landlord and Tenant entered into that First Modification to Lease Agreement on January 9, 2008 ("First Modification"), whereby Suite 235 was added to the Premises, for a total of 8,175 square feet of rentable area, for a term ending January 31, 2009, and

 

WHEREAS, Landlord and Tenant entered into that Second Modification to Lease Agreement on February 1, 2009 ("Second Modification"), whereby Suites 229 and 223 were added to the Premises, for a total of 11,621 square feet of rentable area, for a term ending February 28, 2011, and

 

WHEREAS, Landlord and Tenant entered into that Third Modification to Lease Agreement on November 30, 2009 ("Third Modification"), for a term ending February 28, 2011, and

 

WHEREAS, Landlord and Tenant entered into that Fourth Modification to Lease Agreement on February 3, 2011 ("Fourth Modification"), for a term ending September 30, 2011, and

 

WHEREAS, Landlord and Tenant entered into that Fifth Modification to Lease Agreement on May 4, 2011, whereby Suite 215 (1,393 square feet of rentable area) was added to the Premises, for a total of 13,014 square feet of rentable area, for a term ending September 30, 2011, and

 

WHEREAS, ATC REALTY ONE, LLC succeeded Rodney K. Longman's interest in the property on June 23, 2011, and

 

1
 

 

WHEREAS, Landlord and Tenant entered into that Sixth Modification to Lease Agreement on December 9, 2011, whereby the Premises were defined as Suite 231, Suite 235, Suite 229, Suite 223, and Suite 215, containing a total of 13,014 square feet of rentable area, and

 

WHEREAS, the term of the Lease will expire on May 7, 2012, and Tenant and Potential Landlord now desire to extend the term of the Lease in accordance with the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties mutually covenant and agree as follows:

 

1. Recitals . The recitals set forth above are true and correct and are incorporated herein by reference.

 

2. Capitalized Terms . Capitalized terms used in this Seventh Modification that are not specifically defined herein shall have the meanings given such terms in the Lease.

 

3. Renewal Term . The renewal term of the Lease shall be forty-eight (48) months, commencing on the date that Potential Landlord acquires the subject property from ATC REALTY ONE, LLC (the “Closing”) and expiring forty-eight (48) months thereafter (the "Renewal Term"). Tenant and Potential Landlord agree to execute a memorandum after Potential Landlord acquires the subject property stipulating to the date of the commencement of the Renewal Term as defined herein.

 

4. Premises . Effective on the date of the Closing, the Premises shall be defined as Suite 231, Suite 229, Suite 223, and two new suites, Suite 233 and Suite 230, containing a total of 12,832 square feet of rentable area. Such measurement shall be stipulated to by the Tenant and Potential Landlord.

 

5. Tenant's Proportionate Share . Effective on the date of the Closing, Tenant's Proportionate Share shall be specified to be 13.84%.

 

6. Base Rent . The Base Rent payable during the first (1 st ) lease year of the Renewal Term set forth above shall be paid monthly on the first day of each month, at the rate of $11.50 per rentable square foot per year ($147,568 per year), in equal monthly installments of $12,297.33 per month, plus sales tax and any other charges as set forth in the Lease. Thereafter, the Base Rent shall be increased annually at the commencement of each successive lease year to an amount equal to the Base Rent paid during the prior lease year multiplied by one hundred four percent (104%), to reflect an annual increase of four percent (4%). Base Rent payable after the first (1 st ) lease year of the Renewal Term shall continue to be paid monthly on the first day of each month. In addition to the Base Rent, Tenant shall continue to be responsible for tenant’s proportionate share of Operating Expenses and Taxes, as stipulated in the Lease.

 

2
 

 

7. Proposed Improvements . Tenant shall tender to Potential Landlord, which Potential Landlord agrees to hold in escrow in a segregated account, an amount of money equal to the first two months and a half (2.5) monthly installments of Base Rent and Operating Expense payments (collectively the “Free Rent Escrow”), at the time that each such rent payment would have been due. The aforementioned monthly installments shall not include any additional taxes or fees. The Free Rent Escrow shall be utilized by Potential Landlord for the benefit of Tenant’s proposed improvements to the Premises (the “Proposed Improvements”). In addition to the Free Rent Escrow, Potential Landlord agrees to contribute funds in the amount of up to $5.00 per rentable square foot (up to $64,160) toward the purchase and/or installation within the Premises of building-standard paint and carpet (the “Paint and Carpet Allowance”). Any funds from the Paint and Carpet Allowance not utilized for the purchase and/or installation of paint and carpet may be utilized for other Proposed Improvements.

 

The Proposed Improvements shall be performed in accordance with final plans that are mutually approved by both Potential Landlord and Tenant and shall be done in a good and workmanlike manner using standard materials. The Proposed Improvements shall be constructed by a general contractor selected and paid by the Potential Landlord. The source of payment for the Proposed Improvements shall be (i) the Paint and Carpet Allowance and (ii) the Free Rent Escrow. Any additional funds needed for the Proposed Improvements, as determined according to a construction budget mutually approved by both Potential Landlord and Tenant shall be paid for by Tenant and reserved in a segregated escrow account (“Additional Work Escrow”).

 

Tenant hereby agrees to directly fund the balance of the construction budget as mutually approved by Potential Landlord and Tenant, in accordance with a disbursement schedule agreed upon by and between the Potential Landlord and Tenant. Furthermore, notwithstanding anything contained herein to the contrary, construction of the Proposed Improvements shall commence immediately upon the commencement of the Renewal Term and upon the deposit by Tenant with Landlord of the Free Rent Escrow and shall be completed (as evidenced by the issuance of a certificate of occupancy) no later than nine (9) months after the commencement of the Renewal Term ("Proposed Improvement Deadline"), provided Tenant has continuously established adequate funds for each phase of construction. The parties hereto agree that time is of the essence in this Agreement, and Potential Landlord's failure to timely complete the required improvements hereunder shall result in damages to the Tenant. Unless otherwise waived in writing by Tenant, or provided that Tenant has not failed to timely fund construction, if Potential Landlord fails to complete the Proposed Improvements within said nine (9) month period, the Potential Landlord agrees to abate rental due and owing under the Lease equal to $100.00 per day as liquidated damages to cover losses, expenses and damages, not to exceed $20,000. It is specifically agreed and understood that given the uncertainty as to the extent of Tenant's damages in the event Potential Landlord fails to timely complete the Proposed Improvements hereunder, such liquidated damages are reasonable and contemplate Tenant’s actual or anticipated harm as a result of such breach, and are not intended to serve as a penalty.

 

3
 

 

Tenant shall cooperate as reasonably necessary so that the general contractor will cause the Proposed Improvements to be completed promptly and with due diligence. Tenant shall make no alterations to the Premises without obtaining the prior written consent of the Potential Landlord. Any funds in the Free Rent Escrow or the Paint and Carpet Allowance not utilized for the aforementioned Proposed Improvements within the first nine (9) months of the Renewal Term shall be retained by Potential Landlord. Any funds in the Additional Work Escrow not utilized for the aforementioned Proposed Improvements shall be retained by Tenant.

 

8. Additional Landlord Concession . Provided that Tenant is not in default of its Lease, Tenant shall not be required to pay Landlord any Base Rent or Operating Expense for the thirteen (13th) month of the Renewal Term.

 

9. Capital Improvements to the Building . Landlord acknowledges that it has agreed to make certain capital improvements to the building which, among other factors, persuaded Tenant to enter into a Renewal Term. Landlord agrees to undertake, in a commercially reasonable and prudent fashion, substantial completion of the improvements referenced in Exhibit “A” within nine (9) months of the commencement of the Renewal Term.

 

10. Reliance . The parties acknowledge that Potential Landlord has relied upon the execution of this Seventh Modification to Lease Agreement in order to proceed with the acquisition of the subject property from ATC REALTY ONE, LLC. The parties further acknowledge that Potential Landlord will become the actual landlord in the event that the Potential Landlord acquires the subject property. Tenant acknowledges that this Seventh Modification will not be binding upon either party or ATC REALTY ONE, LLC in the event that Potential Landlord does not proceed with the Closing, but shall be binding upon both parties if Potential Landlord does acquire the subject property. The parties further acknowledge that the Lease contains no additional option periods or early termination rights for the Tenant.

 

11. Confirmation of Lease . Except as otherwise set forth in this Seventh Modification, the Lease shall remain in full force and effect in accordance with its original terms and be binding on Potential Landlord and Tenant, their respective heirs, executors, administrators, successors and assigns. Tenant represents to Potential Landlord that there are no defaults outstanding under the current lease by either ATC REALTY ONE, LLC or Tenant.

 

12. Notices . Section 34 of the Lease shall be amended to delete the address of the prior landlord and add the following:

 

ATRIUM 93, LLC

200 South Biscayne Boulevard, Suite 2790

Miami, FL 33131

Attention: David Rodriguez

Email: david.rodriguez@roviproperties.com

Telephone: (305) 938-0508

 

4
 

 

With a Copy to:

 

FEINBERG AND MAIDENBAUM

Attention: Jeffrey Feinberg

4000 Hollywood Boulevard, Suite 350

Hollywood, FL 33021

Facsimile (954) 966-6259

 

13. Brokers . Potential Landlord and Tenant each represent and warrant to each other that they have not dealt with any real estate agent or broker in connection with this transaction. Tenant hereby indemnifies and saves Potential Landlord harmless from and against all loss, cost and expense incurred by reason of a breach of such representation or warranty. The foregoing indemnity shall survive the expiration or earlier termination of this Seventh Modification.

 

14. Counterparts . The parties may execute this Seventh Modification in multiple counterparts, each of which constitutes an original, and all of which, collectively, constitute only one agreement. The signatures of all of the parties need not appear on the same counterpart, and delivery of an executed counterpart signature page by facsimile or email is as effective as executing and delivering this Seventh Modification in the presence of the other parties to this Seventh Modification. This Seventh Modification is effective upon delivery of one executed counterpart from each party to the other parties. In proving this Seventh Modification, a party must produce or account only for the executed counterpart of the party to be charged. Any party delivering an executed counterpart of this Seventh Modification by facsimile or email shall also deliver a manually executed counterpart of this Seventh Modification, but the failure to do so does not affect the validity, enforceability, or binding effect of this Seventh Modification.

 

[SIGNATURES ON FOLLOWING PAGE]

 

5
 

 

IN WITNESS WHEREOF, Potential Landlord and Tenant have executed this Seventh Modification as of this19th day of April, 2012.

 

WITNESSES:   POTENTIAL LANDLORD:
    ATRIUM 93, LLC
     
By: /s/ K. Christian Schif   By: /s/ David Rodriguez
Print Name: K. Christian Schif   Print Name:   David Rodriguez
        Title:  Manager
By: /s/Dana Lombard   Date: April 30, 2012
Print Name:  Dana Lombard        
             
WITNESSES:   TENANT:
    XG TECHNOLOGY, INC.
By: /s/ Steve Lebel        
Print Name:  Steve Lebel   By: /s/ John Coleman
        Print Name:   John Coleman
By: /s/ Donna Prescott   Title:  CEO
Print Name: Donna Prescott   Date: April 19, 2012

  

6
 

 

EXHIBIT A

(SCHEDULE OF CAPITAL IMPROVEMENTS)

 

ATRIUM AREA

 

The Atrium Lobby will be renovated by installing new hard surface flooring in the entrances and lobby areas. The design intent is to bring in a natural or synthetic flooring surface (granite, travertine, ceramic tile or similar material) to replace the outdated black tiles and pebble flooring.

 

ENTRANCE LOBBIES

 

The entrance lobbies will be renovated by installing new tile or carpet flooring to compliment the changes in the Atrium. Stair handrails and doors will be refinished to “as new” condition and will compliment the carpet and tile selection for the common area surfaces.

 

RESTROOMS

 

All existing restrooms will be completely renovated, including the ceilings, walls and flooring. In addition, at least two restrooms (one for each sex) or one unisex restroom will be reconfigured to comply with the guidelines set forth by the Americans with Disabilities Act (ADA).

 

For all restrooms, we will perform the following upgrades and installations:

 

1. New Kohler bathroom fixtures (or similar), including toilets and lavatories
2. New tile flooring in travertine, porcelain, granite or similar material
3. Tile “wet wall” in the same finish as the floor
4. Sink/lavatory area, including new, under-mount porcelain sinks on a granite countertop (or similar)
5. Replacement of existing lighting fixtures with parabolic Lithonia PT3L energy efficient lights (or similar)
6. 2’x 2’ ceiling grid, including 2’x 2’ Armstrong 741 ceiling tiles (or similar)

 

COMMON AREA HALLWAYS

 

Where upgrades have not already been implemented, the common area hallways will be renovated with the following upgrades:

 

1. Ceiling tiles will be replaced with 2’x 2’ Armstrong 741 ceiling tiles (or similar)
2. Replacement of existing lighting fixtures with parabolic Lithonia PT3L energy efficient lights (or similar)

 

7
 

 

3. Wall surfaces in the common hallways will be repainted. Individual tenant doors and door frames will be sanded and refinished, unless Landlord determines that complete replacement of doors and door frames is necessary to comply with Florida Building Code and Fire Code.
4. Existing, full projection fire sprinkler heads will be removed and replaced with semi-recessed, fast action heads
5. Existing carpet will be replaced with new Building Standard carpet flooring

 

ENTRY AND LANDSCAPING

 

The main entry landscaping will be reconfigured to include shrubs, plants and trees that are more akin to a South Florida class “A” office environment. Overgrown trees and shrubs will be either pruned back or replaced.

 

8

 

 

Ex 10.16

Agreement

 

This Agreement (the “Agreement”) is dated 3rd October, 2008

 

BETWEEN

 

Treco International S. A. (“Treco”) whose registered office is at Bahnhofstrasse 14, 8022 Zurich, Switzerland; and

 

xG Technology , Inc. whose registered office is at 240 South Pineapple Avenue, Suite 701, Sarasota, FL 34236, United States of America (“xG”)

 

(each a “Party”, together the “Parties”).

 

WHEREAS:

 

Treco wishes:

 

1. To purchase a certain number of turnkey base stations and switching centers from xG along with any other necessary equipment (the “Base Stations”).

 

2. To deploy the Base Stations in certain territories throughout the United States and rent such Base Stations to operators. The Base Stations will utilize xG’s proprietary and patented Flash Signal technology, which has been developed further for delivering mobile VoIP communications.

 

3. To become xG’s exclusive Base Station partner in the United States.

 

xG wishes:

 

1. To secure a viable partner for deploying the Base Stations that utilizes its Technology within the United States.

 

2. To retain ownership and rights to its proprietary and patented technology.

 

3. To enter a long term exclusive relationship with Treco subject to mutually agreeable terms.

 

The Parties recognize the mutual benefit of a long term Infrastructure Agreement and are therefore now entering this Agreement to agree on all substantive terms and conditions for such Infrastructure Agreement.

 

 
 

 

NOW IT IS HEREBY AGREED as follows:

 

Substantive Terms

 

This Agreement contains all of the substantive terms agreed by the Parties to clarify all fundamental principles for long term co-operation and it will be superceded by a more detailed long term Infrastructure Agreement which will be signed by both parties on or before 17 th October 2008 and which will in no way contradict the conditions in this Agreement or the intentions of the Parties.

 

Purchase of Base Stations

 

Treco has submitted a sales order (Schedule A) for 1,000 Base Stations to xG on September 22, 2008. It was agreed that xG will deliver 400 Base Stations by December 31, 2008 with the balance to be delivered in early 2009. It is understood that the timely delivery of such 400 Base Stations may be impacted by some of the other obligations in this Agreement such as the limitations on ordering. Accordingly, this will be subject to mutual agreement regarding ordering lead times and on a best efforts basis by xG to hit the December 31 st timeline. Should it not, the timeline will simply extend into early 2009.

 

Treco was also granted an option to purchase an additional 4,000 Base Stations and agreed to provide a 20% down payment for the first 400 Base Stations (a total of $6,000,000) no later than September 29, 2008 which xG has now received in full. The agreed fixed price for the first 5,000 Base Stations was agreed at $75,000.

 

Option to purchase Base Stations over 5,000 (“Additional Base Stations”)

 

xG agrees to grant a further option to Treco to purchase the number of Additional Base Stations as necessary to enable Treco to provide a full network coverage for the entire United States. The price of Additional Base Stations purchased will be at market price and subject to mutual agreement. This will be subject to further agreement in the more definitive agreement as to appropriate milestones including timelines, quantities etc.

 

Down payments

 

The down payments for the first 400 Base Stations referred to in the sales order dated 22 September 2008 is agreed at $15,000 per Base Station which constitutes 20% of the agreed fixed price of $75,000 for each Base Station.

 

The down payments for any Base Stations delivered after the first 400 are to be based on 110% of xG’s external third party costs for the manufacture and delivery of the Base Stations.

 

For the first 5,000 Base Stations, xG agrees not to use any down payment received from Treco for any purpose other than to pay all external third party costs for the manufacture and delivery of the Base Stations ordered by Treco.

 

 
 

 

Balancing Payments

 

The balance owed after down payments will be equal to 6% of the total purchase price each quarter (90 days) until the balance is paid in full.

 

Additional costs

 

All additional costs, including but not limited to, provisioning lines, rental of Base Station location antenna location and local store fronts and local marketing and distribution shall be borne by the operator. xG will be responsible for the administration/mapping of the operators installation of the base stations and all cost of installation shall be borne by the operator.

 

Conditions of placing an order for Base Stations

 

Prior to placing an order with the manufacturers (and/or suppliers of parts) of the Base Stations, the Base Stations must fulfil all technical specifications and have received the final FCC approval and both parties must agree on the location and concentration of the Base Stations with the initial ambition for the first networks to be deployed in the Fort Lauderdale/Miami area. It is understood by the Parties that it may be necessary to order some parts and manufacturing for the market in the Ft. Lauderdale/Miami (the “Show Place”) area prior to FCC approval in order to achieve mutually desired timelines; but any such decision will be subject to mutual agreement. It is Treco’s intention to sponsor this site as both Parties Show Case, the costs of which must be discussed and agreed.

 

Division of Revenue

 

xG shall pay to Treco 30% of all revenues, market fees or any other remuneration which are received by xG further to the provision of xG’s proprietary and patented technology through the Base Stations within the United States, both in relation to existing and future applications save that Treco agrees that xG will retain $15 from the monthly fee of $21 received from each TX60 customer and will pay the remaining $6 in each case to Treco which accepts that this constitutes less than 30% of the revenue.

 

Positive Cashflow

 

Treco agrees that the intent of the financial outcome of this Agreement will ensure xG financial security going forward in terms of positive cashflow. And the Parties agree to mutually agree on that determination.

 

Rights to the Technology

 

xG acknowledges that Treco is dependent upon the use of xG’s proprietary and patented technology and that Treco would cease to be a viable commercial entity without full access to such technology. Therefore xG agrees to grant Treco a full perpetual exclusive license to use all of xG’s proprietary and patented technology required for Treco to fully utilize the Base Stations and agrees that the license is irrevocable save in the event of a breach of the agreed terms by Treco. Likewise, Treco acknowledges that xG is dependent upon Treco as the owner of the Base Stations and agrees that such protections will be in place for xG.

 

 
 

 

In the event that there is a change of control of xG, or xG transfers any rights to such technology without mutual agreement, or xG breaches any agreed terms and such breaches are not cured within a mutually agreeable time period, the perpetual license shall persist royalty free. Likewise, similar protections will be afforded xG.

 

Operator Default

 

Should operators be in default or breach of their contract with Treco, xG agrees that Treco can hold back any payments due to xG related to that market until a mutually agreeable resolution has been made.

 

Duration

 

Either party is only permitted to terminate this Agreement in the event of a breach of the terms by the other party.

 

Jurisdiction

 

This Agreement shall be exclusively governed and construed in accordance with the laws of the United States, without regard to its conflict of laws principles, and be subject to the exclusive jurisdiction of the courts of Tampa, Florida.

 

AS WITNESS the Parties have entered into this Agreement on the date first above written.

 

SIGNED by:   SIGNED by:
TRECO International S.A   xG TECHNOLOGY INC.
         
(Signature) /s/ Thomas Edlund   (Signature) /s/ Richard L Mooers.
(Print Name)   Thomas Edlund   (Print Name)   Richard L. Mooers
(Date) 29 Sep 2008   (Date) 3 October 2008

 

 
 

 

POWER OF ATTORNEY

 

KNOW ALL MEN by these presents that Treco International SA , with representative office at Banhofstrasse 14, CH-8022 Zurich, Switzerland (hereinafter called “the Company”) hereby grants a Power of Attorney to

 

Mr. Karl Thomas Anders Edlund , Attorney at Law, holder of Swedish passport number 34378429, of Advokatfirman Nordia, Stockholm, Sweden

 

to act for and in the name of and on behalf of the Company to do or execute all or any of the acts or things hereinafter mentioned and that is to say:

 

· To enter into a sale and purchase agreement with xG Technologies, Inc. regarding a maximum of 1,000 base stations.

· Generally to act as agent for the Company and to execute and perform on behalf of the Company all lawful and reasonable acts in connection with the above mentioned acquisitions of assets.

 

For the avoidance of doubt the Company hereby ratifies and confirms and agrees to ratify and confirm whatsoever the Attorney shall do or purport to do by virtue of this Power of Attorney.

 

This Power of Attorney shall be effective from 22 September 2008 and shall expire on the 31 December 2008.

 

SIGNED for and on behalf of )      
TRECO INTERNATIONAL SA )      
By Allied Finance Trust AG – Director ) /s/ Unknown   /s/Unknown
    Authorised Signatory   Authorised Signatory

 

 
 

 

Bill and Hold Instructions

 

Please continue to hold (do not ship) all finished goods previously purchased (as identified in Exhibit A) until June 30, 2010 unless otherwise requested by us. For these goods held by xG Technology, Inc., per this request, it is understood and agreed that title and ownership (along with associated risks and rewards) continue to be with Treco International, S.A. and are not with xG Technology, Inc..

 

Thank you.

 

/s/ Ceinwen Lloyd
Name: Ceinwen Lloyd
Title: CEO
Company: Treco International, S.A.

 

 
 

 

EXHIBIT A

 

 

Product   Description   Quantity
X25CA21R1   BSN250 Digital   6
X25CA11R1   BSN250 RF   145
X25CA41R1   BSN250 SU1   145
X25CA42R1   BSN250 SU2   145
X25CA43R1   BSN250 SU3   145
X25CA31R1   BSN250 PS   145
1711000001   XMSC XMSC   6
1311100002   BSN200 Three Sectors   327

 

 
 

 

Amendment

 

This Amendment (the “Amendment’) is dated March 2, 2010 between xG Technology, Inc. (“xG”) and Treco International S.A (“Treco” and, together with xG, the “Parties”).

 

We refer to the agreement dated 3 rd October, 2008 (the “Infrastructure Agreement”) in which the Parties agreed on all substantive terms and conditions for an Infrastructure Agreement between them. Terms defined in the Infrastructure Agreement shall have the same meaning herein unless the context otherwise requires.

 

There have been changes in circumstances of the Parties since the date of the Infrastructure Agreement and the Parties wish to make certain amendments to the Infrastructure Agreement that take into account such circumstances in order to reflect the current situation and intention of the Parties. We, therefore, write to confirm our mutual agreement to make certain amendments to the Infrastructure Agreement as follows:

 

1. On March 31, 2009, xG received approval from the FCC for the Base Stations and fulfilled all their technical requirements. The FCC identification number is VEYXMAXBSN25.

 

2. Treco and xG agree that Balancing Payments to xG begin when operators for the markets enter into lease agreements with Treco (current balance is approx. $22.5m). In the event operators have not entered into lease agreements with Treco by December 31, 2010, Treco will begin making Balancing Payments to xG 30 days thereafter.

 

3. Switching centers shall have a price of $500,000 each which reflects current competitive market pricing. Turnkey base stations remain priced at $75,000 each. The lease payment to Treco for the switching centers will be $10,000 per month. No payment including cost will be due to xG until payments are received from the lessees.

 

All other terms and conditions of the Infrastructure Agreement remain the same. This Amendment, together with the Infrastructure Agreement, shall constitute the more detailed long term Infrastructure Agreement referenced in the “Substantive Terms” section in the Infrastructure Agreement.

 

This Amendment and the Infrastructure Agreement shall be governed and construed in accordance with the laws of the United States, without regard to its conflict of laws principles, and be subject to the jurisdiction of the courts of Tampa, Florida.

 

Please confirm your agreement to the above provisions by signing and returning the enclosed copy of this letter.

 

We hereby confirm our agreement to the terms set out above.

 

By:   By:

 

/s/ Richard L. Mooers   /s/ Ceinwen Lloyd
Richard L. Mooers   Ceinwen Lloyd
xG Technology, Inc.   Treco International S.A
Chairman and Chief Executive Officer   Chief Executive Officer

 

 
 

 

AGREEMENT

 

Pertaining to the Amendment (the “Amendment”) signed of even date herewith (March 3, 2010) between Treco International S.A. (“Treco”) and xG Technology, Inc. (“xG”) and further relating to the agreement dated 3 rd October, 2008 (the “Infrastructure Agreement”), xG Technology hereby agrees as follows:

 

The intent of both parties in the Amendment is that operators will be secured prior to the date at which Treco would otherwise be obligated to pay the Balancing Payments. Should the operators referred to in said Amendment section #2 not be secured prior to that date, then xG hereby gives Treco the option to request that we discuss why an operator has not been secured and discuss then present plans for the business. Payments do not need to commence until Treco is satisfied in their sole discretion.

 

With the intent to be legally bound:

 

/s/ Richard L. Mooers

 

RICHARD L. MOOERS, Chairman and CEO

xG Technology, Inc.

 

 
 

 

CONFIDENTIAL SETTLEMENT STIPULATION AND RELEASE

 

This Confidential Settlement Stipulation and Release (“ Stipulation ”) is made and entered into as of April 5, 2011 (the “ Settlement Date ”), by and among xG TECHNOLOGY, INC. whose address is at 240 South Pineapple Avenue, Suite 701, Sarasota, FL 34236 (“ xG ”) and TRECO INTERNATIONAL, S.A. whose registered office is at Bahnhofstrasse 14, 8022 Zurich, Switzerland (“ Treco ”) (xG and Treco shall collectively be referred to herein as the “ Parties ”), with reference to the following facts:

 

(Each of the above Parties shall include singular and plural, their past, present and future representatives, legal representatives, attorneys, permitted assigns, permitted transferees, successors, members, managing members, partners, general partners, limited partners, subsidiaries and affiliates, including, without limitation, each of their past, present and future principals, officers, directors, shareholders, employees, and predecessors wherever the context so admits or requires of either Party)

 

WHEREAS, Treco owns 20,771,556 shares of the total outstanding shares in xG;

 

WHEREAS, on or around October 3, 2008, xG and Treco entered into that certain Agreement concerning, among other things, Treco’s purchase and deployment of certain Base Stations as more particularly described in the foregoing Agreement (the “ Agreement ”);

 

WHEREAS, on or around March 2, 2010, xG and Treco entered into that certain Amendment amending certain of the provisions of the Agreement (the “ First Amendment ”);

 

WHEREAS, on or around March 3, 2010, xG and Treco entered into that certain Amendment further amending certain of the provisions of the Agreement and First Amendment (the “ Second Amendment ”); and

 

WHEREAS, the Agreement, First Amendment and Second Amendment shall collectively be referred to herein as the “ Amended Agreement ”).

 

NOW, THEREFORE, in order to amicably resolve certain outstanding disputes, and in consideration of the promises, covenants, warranties, and representations set forth herein, the Parties agree as follows:

 

1.           Recitals . Each of the recitals set forth above are true and correct.

 

2.           Termination of Amended Agreement . Effective as of the Settlement Date, the Amended Agreement shall be terminated, cancelled and of no further force and effect. Upon the foregoing termination of the Amended Agreement, any and all receivables payable by Treco to xG under the terms thereof shall be forgiven and shall no longer be due and payable. This includes, without limitation, the total sum of $23,416,564.14 that was due (whether immediately or at a future date) under the Amended Agreement as of December 31, 2010 and any and all amounts incurred thereafter through the Settlement Date.

 

 
 

 

3.            Issuance of Shares . As soon as reasonably practical but no later than 20 business days from the date hereof, xG will issue to Treco Two Million, Two Hundred and Fifty Thousand (2,250,000) shares of newly issued shares of xG common stock.

 

4.            Issuance of Notes . Upon the earlier to occur of (a) five business days after the MBTH Note Closing (as defined herein) and (b) five business days after 180 days from the date hereof (such 180 day period, the “ End Date ”), xG will issue to Treco a convertible promissory note (the “ Treco Note ”) in the principal amount of two million dollars ($2,000,000). In the event that the MBTH Note Closing occurs prior to the End Date, then (a) xG shall issue the Treco Note to Treco within five business days after the MBTH Note Closing (as defined herein), (b) the payment terms, maturity date and interest rate of the Treco Note shall be the same as that of the MBTH Notes (as defined herein) and (c) the Treco Note shall be convertible into shares of xG common stock at the same price per share as the MBTH Notes (as defined herein) are convertible into shares of xG common stock. In the event that the MBTH Note Closing does not occur by the End Date, then (a) xG shall issue the Treco Note to Treco within five business days of the End Date, (b) the principal amount of the Treco Note shall mature seven years from issuance, (c) the Treco note shall bear 9% simple interest, with payments of interest only semi-annually either in cash or shares of xG (at xG’s option) and (d) the Treco Note shall be convertible into shares of xG common stock at $1.00 per share. As used herein, “ MBTH ” means MB Technology Holdings, LLC, the “ MBTH Note Closing ” shall mean the closing of the forthcoming issuance by MBTH of convertible promissory notes, and the “ MBTH Notes ” shall mean the promissory notes issued by MBTH at the MBTH Note Closing.

 

5.             Confidentiality and Non-Disparagement Covenants .

 

(a)           Confidentiality . The Parties mutually agree to keep in strict confidence this Stipulation and any information whatsoever contained in this Stipulation (the " Confidential Information "). The Parties agree not to disclose or discuss the Confidential Information with any other person or entity.

 

(b)           Press Release .           Notwithstanding the foregoing, xG shall be permitted to issue a press release in form and substance that is agreeable to the Parties, the contents of which may include, among other things, the fact that the Parties have amicably settled their disputes, that the Amended Agreement has been terminated, all amounts due there under have been forgiven, any other information deemed necessary under law to be made publicly available to shareholders of xG, and setting forth the consideration provided to Treco under this Stipulation. Notwithstanding the foregoing, the press release shall include any information required by law.

 

(c)           Non-Disclosure Covenant . In addition to the Press Release set forth in Paragraph 6(b) above, the Confidential Information covered in Paragraph 6(a) above may only be disclosed by either Party (i) as may be necessary to disclose it to each of the Parties’ respective accountants, attorneys, advisors, indemnitors, consultants or any third parties who may now or later consider investing in, purchasing, merging with, loaning or advancing funds to the disclosing Party, or to the Internal Revenue Service; (ii) in response to any other Bank inquiry; (iii) in response to a court order or valid subpoena; or (iv) if necessary to establish a breach of this Stipulation. This Stipulation shall not be filed with a court or other legal authority unless specifically ordered or permitted by the court or other legal authority, or unless it is impossible to obtain an order sealing this Stipulation. In the event that any court or other legal authority requires or permits that this Stipulation be filed with such court or other legal authority, the Parties, shall file only the portions of this Stipulation necessary for the purpose of the proceeding and shall file such portions of the Stipulation under seal to the extent permitted by law.

 

 
 

 

(d)           Unsolicited Investigation or Inquiry . The Parties agree that if either of them receives an unsolicited inquiry from a Federal, State or industry regulatory agency, to reveal all or any part of the Confidential Information then, if permitted by law, the receiving Party shall promptly notify the other Party in writing within five (5) calendar days of its receipt of the unsolicited inquiry. The Parties expressly acknowledge that the purpose of this notice requirement is to provide adequate opportunity to oppose such unsolicited inquiry. The Parties, also agree that the failure to provide the notice specified above shall constitute a material breach of this Stipulation. However, nothing in this Paragraph 6 shall be deemed to prohibit the Parties, from cooperating with any unsolicited investigation or inquiry from a Federal, State or industry regulatory agency.

 

(e)           Subpoenas . The Parties, further agree that if either or any of them receives a subpoena, summons or request to reveal the Confidential Information, or which reasonably calls for the disclosure of all or any part of the Confidential Information then, if permitted by law, they shall promptly notify the other Party, of the subpoena, summons or request, in writing and provide the other Party, with a copy of the subpoena, summons or request within five (5) calendar days of their receipt of the subpoena, summons or request. The Parties, acknowledge that the purpose of this notice requirement is to provide them adequate opportunity to oppose any subpoena, summons or request of the Confidential Information. The Parties, also agree that the failure to provide the notice specified above shall constitute a material breach of this Stipulation.

 

(f)           Non-Disparagement . The Parties, agree not to disparage to any other person or entity each other or any of their business or businesses, business ventures, business transactions, business operations, business strategies, operational strategies, research and development, marketing, management, accounting, financing, or any other business-related activities whatsoever, or anything else about any or all of them, whether learned before, on or after the date of this Stipulation.

 

(g)           Enforcement . The Parties, acknowledge and agree that the provisions of this Stipulation, including this Paragraph 6, are enforceable by, among other things, injunctive relief. Specifically, and without limitation, the Parties, acknowledge and agree that in addition to constituting a material breach of this Stipulation, any breach of any of the provisions of this Paragraph 6 shall cause irreparable harm to the non-breaching Party, which irreparable harm shall be presumed, thereby entitling the non-breaching Party, , as may be applicable, to injunctive relief against the breaching Party.

 

6.            Release of Claims and Covenant Not to Sue .

 

(a)           Release of xG . Upon the full execution of this Stipulation, Treco, shall execute and deliver to xG a Release and Covenant Not to Sue in the form attached hereto as Exhibit “A.”

 

(b)           Release of Treco . Upon the full execution of this Stipulation, xG shall execute and deliver to Treco a Release and Covenant Not to Sue in the form attached hereto as Exhibit “B.”

 

 
 

 

7.           Choice of Law . The laws of the State of Florida shall govern the construction, enforcement and interpretation of this Stipulation, regardless of and without reference to whether any applicable conflicts of laws principles may point to the application of the laws of another jurisdiction.

 

8.           Venue, Jurisdiction . The Parties hereby agree that the exclusive venue and jurisdiction to resolve any and all disputes between them including, without limitation, any disputes arising out of or relating to this Stipulation, and any and all alleged underlying obligations of the Released Claims shall be in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida or the Federal District Court of the United States Southern District of Florida. The Parties consent to personal jurisdiction and venue in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida or the Federal District Court of the United States Southern District of Florida and waive any defense of forum non conveniens , lack of personal jurisdiction, or like defense.

 

9.           Reasonableness . The Parties stipulate and agree that the provisions contained in this Stipulation are reasonable, that no Party had overwhelming bargaining power, and that the terms of this Stipulation are not violative of any state or federal statute or policy.

 

10.          Enforceability . This Stipulation shall be enforced to the maximum extent permitted by law. In the event that any provision of this Stipulation is found to be unenforceable, void, or invalid, that finding shall not affect the enforceability or validity of any other provision hereof.

 

11.          Entire Agreement . This Stipulation embodies the entire agreement and understanding between the Parties, and supersedes any and all prior or concurrent stipulations, understandings, statements, assurances, assumptions, premises, promises, agreements, discussions or representations, oral or written, relating to the subject matter of this Stipulation, and/or the facts underlying the dispute between the Parties,. None of the Parties has made any representations upon which either Party have relied that are not contained in this Stipulation. None of the Parties is relying on an unstated assumption, premise or condition not contained in this Stipulation.

 

12.          Construction . It is understood that this Stipulation was negotiated and prepared by the Parties and their counsel as a combined effort designed to meet their desires and needs. This Stipulation shall be interpreted without regard to any presumption or rule requiring interpretation against the drafter or the Party causing this Stipulation to be prepared.

 

13.          No Modification or Waiver . No modification or waiver of any of the terms of this Stipulation shall be valid unless in writing and executed by all the Parties with the same formality as this Stipulation. No waiver of any breach hereof or default hereunder shall be deemed a waiver of any subsequent breach or default of the same or similar or dissimilar nature. No course of dealing or course of conduct shall be effective to amend, modify or change any provision of this Stipulation. Notwithstanding any applicable law, the terms of this Paragraph may not be waived by any course of dealing or course of conduct.

 

 
 

 

14.          Counterparts . The Parties agree that this Stipulation may be executed in counterparts and will become effective immediately upon execution by all the Parties, subject to exchange of signature pages and subject to the stipulations set forth above. Facsimile signatures shall be binding to the same extent as originals.

 

15.          Attorneys’ Fees . Each Party shall bear their own attorneys’ fees and costs. In any legal action or other proceeding arising out of or relating to this Stipulation, the prevailing Party shall be entitled to recover from the non-prevailing Party, as may be applicable, all of the attorneys’ fees and court costs incurred by the prevailing Party, with no exception, (including costs and fees incurred prior to the filing of any lawsuit, costs and fees incurred at the trial court and appellate court levels, and costs and fees incurred as a result of litigating entitlement to, or the amount of, any fees awarded under this Stipulation).

 

16.          Assignment . Neither Party shall transfer or assign any of its rights, remedies or obligations under this Stipulation without the prior written consent of the non-transferring/non-assigning Party, which consent shall not be unreasonably withheld.

 

17.          Notice . Any and all notices, demands or communications required or permitted to be given hereunder shall be in writing and sent by overnight mail to

 

xG at:   Richard L. Mooers
    xG Technology, Inc.
    240 South Pineapple Avenue
    Suite 701
    Sarasota, FL 34236
     
Copy to:   Bruce March, Esq., Kenneth A. Horky, Esq., Avi Benayoun, Esq.
    401 East Las Olas Boulevard
    Suite 2000
    Fort Lauderdale, FL 33301
     
Treco at:      
       
       
       
       
     
Copy to:      
       
       
       

 

Or to such other addresses as any Party may hereafter provide to the other in writing as a notice of change of address. Each such notice, demand or other communication shall be effective upon receipt by any of the Parties’ recipients.

 

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[SIGNATURES APPEAR ON NEXT PAGE]

 

 
 

 

For xG

   

  xG TECHNOLOGY, INC.
     
  By: /s/ Richard L. Mooers
  Name: Richard L. Mooers
  Title: Chairman

 

For Treco

 

  TRECO INTERNATIONAL, S.A.
     
  By: /s/ Ceinwen Lloyd
  Name: Ceinwen Lloyd
  Title: CEO

  

 
 

 

EXHIBIT “A”

 

GENERAL RELEASE AND COVENANT NOT TO SUE

 

TRECO INTERNATIONAL, S.A. whose registered office is at Bahnhofstrasse 14, 8022 Zurich, Switzerland (“ Treco ”) and in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, hereby give this release and covenant not to sue in favor of xG TECHNOLOGY, INC. whose address is at 240 South Pineapple Avenue, Suite 701, Sarasota, FL 34236 (“ xG ”).

 

1.          Unless otherwise specifically defined herein, all capitalized terms contained herein shall have the same meaning as set forth in that certain Confidential Settlement Stipulation and Release between the Treco and xG dated April 5, 2011 (the “ Stipulation ”).

 

2.           Release . Except for compliance with each of the obligations under the Stipulation, each of the Treco Parties, for themselves, and for their respective past, present and future representatives, legal representatives, heirs, attorneys, successors, assigns, predecessors, insurers, parents, partners, subsidiaries and affiliated organizations, and the officers, directors, shareholders, employees and partners of each of the foregoing, hereby unconditionally and irrevocably forever release, acquit and discharge and covenant not to sue xG, and any of its past, present and future representatives, legal representatives, attorneys, successors, assigns, predecessors, insurers, parents, partners, subsidiaries and affiliated organizations, and the officers, directors, shareholders, employees, and partners of each of the foregoing (all of whom are herein jointly and severally referred to as the “ Released Parties ”) from any and all claims, demands, actions, causes of action, suits, debts, costs, dues, sums of money, accounts, bonds, bills, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, expenses and liabilities whatsoever, known or unknown, matured or unmatured, at law or in equity, irrespective of whether such claims arise out of contract, tort, violation of laws or regulations or otherwise, which any of the Treco Parties ever had or now have or may have in the future against the Released Parties, or any of them for, upon or by reason of any manner, cause or thing whatsoever from the beginning of the world to and including the date hereof including, without limiting the generality of the foregoing, arising out of, in connection with, or related in any manner to any claims, demands, actions or causes of action arising out of or in connection with any contracts, agreements, employment or business relationships of any kind whatsoever between any the Treco Parties, or any of them, and any of the Released Parties, or any of them including, without limitation, the Amended Agreement, Treco’s purchase and/or ownership of any shares in xG, and Ms. Lloyd’s employment, in any capacity whatsoever, by xG (collectively, the “ Claims ”).

 

3.          The Treco Parties hereby represent and warrant to the Released Parties that none of the Treco Parties have heretofore expressly or impliedly assigned, transferred, pledged, hypothecated, sold, conveyed or otherwise disposed of, for the benefit of creditors or otherwise, any of the Claims and that the Treco Parties are the sole owners and holders of the Claims.

 

 
 

 

4.          The Treco Parties represent and warrant that they have had the advice of counsel of their own choosing in negotiating, preparing, reviewing the final provisions of and executing this Release, and that they are fully aware of the contents and legal effects of this Release.

 

5.          This Release is accepted by the Released Parties pursuant to the Stipulation, and this Release shall not be construed as an admission of liability on the part of the Released Parties or any of the other Released Parties of any kind or nature whatsoever as to any matter.

 

6.          This Release shall be binding upon the Treco Parties and Treco Parties’ successors and assigns and shall inure to the benefit of the Released Parties and their successors and assigns.

 

7.          This Release and the Stipulation constitute the entire agreement among the parties with respect to the subject matter hereof. It is expressly understood and agreed that this Release may not be altered, amended, modified or otherwise changed in any respect whatsoever except by a writing duly executed by authorized Released Parties. This Release and the rights, duties, obligations and responsibilities of the parties hereto shall be governed by and construed in accordance with the internal laws and decisions of the State of Florida.

 

8.          This Release may be executed in counterparts, each of which shall be an original and be fully effective as to the party or parties signing the counterpart, but all such counterparts shall together constitute one instrument.

 

9.          In any action to enforce, defend or interpret this Release, the prevailing Party shall be entitled to recover from the non-prevailing Party all of the attorneys’ fees and court costs incurred by the prevailing Party, with no exception, (including costs and fees incurred prior to the filing of any lawsuit, costs and fees incurred at the trial court and appellate court levels, and costs and fees incurred as a result of litigating entitlement to, or the amount of, any fees awarded under this Stipulation).

 

10.         The Treco Parties hereby acknowledge that they have not relied upon any representation of any kind made by any of the Released Parties in making the foregoing release.

 

11.         The Treco Parties agree that if the Treco Parties (or any of them) hereafter commences, joins in, or in any manner seeks, relief through any suit arising out of, based upon, or relating to any of the Claims or in any manner asserts against such Released Parties, or any of them, any of the Claims, then the Treco Parties shall pay to such Released Parties, and each of them, in addition to any other damages caused to such Released Parties thereby, all attorneys’ fees incurred by such Released Parties in defending or otherwise responding to said suit or claim.

 

12.         The Treco Parties hereby irrevocably and unconditionally submit to the jurisdiction of the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, or the United States District Court for the Southern District of Florida, and further irrevocably and unconditionally stipulate and agree that such Court shall have jurisdiction to hear and finally determine any dispute, claim, controversy or action arising out of or connected (directly or indirectly) with this Release.

 

 
 

 

EXECUTED this 5 th day of April, 2011.

  

WITNESS:   TRECO INTERNATIONAL, S.A.
       
Richard L. Mooers   By: /s/ Ceinwen Lloyd
    Name: Ceinwen Lloyd
Roger G. Branton   Title: CEO

 

 
 

 

EXHIBIT “B”

 

GENERAL RELEASE AND COVENANT NOT TO SUE

 

xG TECHNOLOGY, INC. whose address is at 240 South Pineapple Avenue, Suite 701, Sarasota, FL 34236 (“ xG ”) in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, hereby give this release and covenant not to sue in favor of TRECO INTERNATIONAL, S.A. whose registered office is at Bahnhofstrasse 14, 8022 Zurich, Switzerland (“ Treco ”).

 

1.          Unless otherwise specifically defined herein, all capitalized terms contained herein shall have the same meaning as set forth in that certain Confidential Settlement Stipulation and Release between the Treco and xG dated April 5, 2011 (the “ Stipulation ”).

 

2.           Release . Except for compliance with each of the obligations under the Stipulation, each of xG, for itself, and for its respective past, present and future representatives, legal representatives, attorneys, successors, assigns, predecessors, insurers, parents, partners, subsidiaries and affiliated organizations, and the officers, directors, shareholders, employees and partners of each of the foregoing, hereby unconditionally and irrevocably forever releases, acquits and discharges and covenants not to sue the Treco Parties, or any of them, and any of their past, present and future representatives, legal representatives, heirs, attorneys, successors, assigns, predecessors, insurers, parents, partners, subsidiaries and affiliated organizations, and the officers, directors, shareholders, employees, and partners of each of the foregoing (all of whom are herein jointly and severally referred to as the “ Released Parties ”) from any and all claims, demands, actions, causes of action, suits, debts, costs, dues, sums of money, accounts, bonds, bills, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, expenses and liabilities whatsoever, known or unknown, matured or unmatured, at law or in equity, irrespective of whether such claims arise out of contract, tort, violation of laws or regulations or otherwise, which any xG ever had or now has or may have in the future against the Released Parties, or any of them for, upon or by reason of any manner, cause or thing whatsoever from the beginning of the world to and including the date hereof including, without limiting the generality of the foregoing, arising out of, in connection with, or related in any manner to any claims, demands, actions or causes of action arising out of or in connection with any contracts, agreements, employment or business relationships of any kind whatsoever between any xG and any of the Released Parties, or any of them including, without limitation, the Amended Agreement, Treco’s purchase and/or ownership of any shares in xG, and Ms. Lloyd’s employment, in any capacity whatsoever, by xG (collectively, the “ Claims ”).

 

3.          xG hereby represents and warrants to the Released Parties that xG has not heretofore expressly or impliedly assigned, transferred, pledged, hypothecated, sold, conveyed or otherwise disposed of, for the benefit of creditors or otherwise, any of the Claims and that xG is the sole owner and holder of the Claims.

 

4
 

 

4.          xG represents and warrants that it has had the advice of counsel of its own choosing in negotiating, preparing, reviewing the final provisions of and executing this Release, and that it is fully aware of the contents and legal effects of this Release.

 

5.          This Release is accepted by the Released Parties pursuant to the Stipulation, and this Release shall not be construed as an admission of liability on the part of the Released Parties or any of the other Released Parties of any kind or nature whatsoever as to any matter.

 

6.          This Release shall be binding upon xG and xG’s successors and assigns and shall inure to the benefit of the Released Parties and their successors and assigns.

 

7.          This Release and the Stipulation constitute the entire agreement among the parties with respect to the subject matter hereof. It is expressly understood and agreed that this Release may not be altered, amended, modified or otherwise changed in any respect whatsoever except by a writing duly executed by authorized Released Parties. This Release and the rights, duties, obligations and responsibilities of the parties hereto shall be governed by and construed in accordance with the internal laws and decisions of the State of Florida.

 

8.          This Release may be executed in counterparts, each of which shall be an original and be fully effective as to the party or parties signing the counterpart, but all such counterparts shall together constitute one instrument.

 

9.          In any action to enforce, defend or interpret this Release, the prevailing Party shall be entitled to recover from the non-prevailing Party all of the attorneys’ fees and court costs incurred by the prevailing Party, with no exception, (including costs and fees incurred prior to the filing of any lawsuit, costs and fees incurred at the trial court and appellate court levels, and costs and fees incurred as a result of litigating entitlement to, or the amount of, any fees awarded under this Stipulation).

 

10.         xG hereby acknowledges that the it has not relied upon any representation of any kind made by any of the Released Parties in making the foregoing release.

 

11.         xG agrees that if it hereafter commences, joins in, or in any manner seeks, relief through any suit arising out of, based upon, or relating to any of the Claims or in any manner asserts against such Released Parties, or any of them, any of the Claims, then xG shall pay to such Released Parties, and each of them, in addition to any other damages caused to such Released Parties thereby, all attorneys’ fees incurred by such Released Parties in defending or otherwise responding to said suit or claim.

 

12.         xG hereby irrevocably and unconditionally submits to the jurisdiction of the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, or the United States District Court for the Southern District of Florida, and further irrevocably and unconditionally stipulates and agrees that such Court shall have jurisdiction to hear and finally determine any dispute, claim, controversy or action arising out of or connected (directly or indirectly) with this Release.

 

5
 

 

EXECUTED this 5 th day of April, 2011.

 

FOR xG:

 

WITNESS:   xG TECHNOLOGY, INC.
       
Frederick Wahlman   By: /s/ Richard L. Mooers
    Name: Richard L. Mooers
Roger G. Branton   Title: Chairman

 

6
 

 

$2,000,000.00 US Dollars October 10, 2011

 

CONVERTIBLE PROMISSORY NOTE

 

For value received, intending to be legally bound xG Technology, Inc. with offices at 240 South Pineapple Avenue, Suite 701, Sarasota, Florida 34236 ("xG") hereby issues a convertible promissory note to Treco International, S.A. located at Bahnhofstrasse 14 8022 Zurich, Switzerland, ("Treco"), in the principal amount of two million dollars ($2,000,000) (“Treco Note”).

 

1.          The principal amount of the Treco Note shall mature seven years (7) from the date of issuance, without notice or demand, at which point the entire unpaid principal balance of this Treco Note, together with all unpaid interest thereon, shall be due.

 

2.          The Treco Note shall bear nine percent (9%) simple interest, with payments of interest only semi-annually either in cash or shares of xG (at xG’s option).

 

3.          The Treco Note shall be convertible into shares of xG common stock at $1.00 per share.

 

4.          This Treco Note shall be governed by and construed and enforced in accordance with the substantive laws of the State of Florida.

 

5.          The provisions of this Treco Note are severable and the invalidity or unenforceability of any provision shall not alter or impair the remaining provisions of this Note.

 

IN WITNESS WHEREOF , xG has caused this Treco Note to be executed on the date first set forth above.

 

  /s/ Roger G. Branton
     
  By: Roger G. Branton
  Title: CFO

 

7

 

Ex 10.17

 

CONSULTANCY AGREEMENT

 

This Amended Agreement is entered into by and between:

 

xG Technology, Inc. a company organized under the laws of Delaware having its principal place of business at 240 S. Pineapple Ave., Sarasota, FL 34236 as duly represented by Roger G. Branton (hereafter " xG Technology ").

 

and

 

Wennberg Industries Consulting AB , Org nr: 556617-7027 with its registered mailing address at Emblavagen 4, 182 67 Djursholm, Sweden, as duly represented herein by Mr. Mats Wennberg (" Consultant ").

 

WHEREAS , in order to maximize its sales network for xG Technology’s products in USA and international markets (the “Territory”), xG Technology desires to engage the services of a consultant with significant experience in the wireless technology sector in the Territory;

 

Now therefore , the parties hereby agree as follows:

 

1. DUTIES

 

The “Duties” in this Agreement may be performed by Mr. Mats Wennberg or any other employee as the Consultant or an under-consultant with corresponding experience.

 

The duties are as follows: The Consultant will provide advisory services and participate in meetings and or conference calls when needed and deemed appropriate. The nature of the calls will be sales and operational and in this role the Consultant will report to the Chief Executive Officer.

 

xG Technology understands that the Consultant has other client assignments (not competitive) and that the Consultant cannot be full-time. The duties shall normally be performed during 1 – 1,5 days per week during the term of the agreement, although be accessible 24/7.

 

The foregoing duties shall be reviewed from time-to-time by the parties and may be modified by their mutual agreement.

 

2. COMPENSATION
2.1 xG Technology shall pay Consultant , in full and exclusive compensation for the duties performed under this Agreement, the amount of: SEK 50,000 to be paid out monthly on a pro rata basis.

 

Additional compensation may be paid out after prior written mutual agreement.

 

2.2 xG Technology shall, in addition, reimburse Consultant for reasonable expenses of travel, lodging, phone calls and other necessary and reasonable expenses incurred by Consultant in the performance of this Agreement, provided that such expenses are supported by original receipts and other supporting documentation and that Consultant obtains the written authorization of xG Technology prior to incurring such expenses.

 

2.3 All amounts provided to Consultant under this Agreement shall be made payable by bank transfer or by check in Consultant ’s name and sent to Consultant at the address set forth above within thirty (30) days from receipt by xG Technology of an invoice for said services which xG shall review and approve is acceptable.

 

2.4 Consultant acknowledges and agrees that the amounts received under this Agreement are gross of any taxes, fees and levies of any nature whatsoever, imposed by any authority with jurisdiction over any amounts received by Consultant under this Agreement. Consultant will be solely responsible for the payment of any and all such taxes, fees, levies and similar impositions.

  

Consultancy Agreement: xG Technology, LLC Page 1 of 3

 

 
 

 

3. CONFIDENTIALITY
3.1 Any information acquired by Consultant , its employees, agents contractors, representatives and shareholders, at anytime prior to or during the course of this Agreement, from xG Technology concerning existing or contemplated products, services, processes, techniques, know-how or data identified as confidential by xG Technology , and any information, data, and devices developed in the course of performing the activities described in this Agreement (hereafter, " Confidential Information ") are or shall be the property of xG Technology and shall be maintained in confidence by Consultant . Consultant shall not use Confidential Information without xG Technology’s written consent, except as necessary to perform the activities described in this Agreement.

 

3.2 Upon the termination of this Agreement for any reason, Consultant shall, upon xG Technology’s request, return to xG Technology all data, information and materials of any kind which constitute Confidential Information , as such term is defined in this Agreement, as well as all copies, adaptations and independent compilations thereof made by Consultant or otherwise in Consultant 's possession; provided that Consultant may retain copies or originals of such documents as may be required by national, state and local laws and regulations.

 

4. IDEAS/ASSIGNMENT

4.1 All ideas, inventions, improvements or suggestions, whether or not patentable, (hereafter, "Ideas") resulting directly or indirectly from the performance of the activities described in this Agreement, including conversations with xG Technology shall belong to xG Technology . Consultant , its employees, agents contractors, representatives and shareholders, agrees to disclose and assign to xG Technology such Ideas, whether made alone or in conjunction with others. Consultant , its employees, agents contractors, representatives and shareholders, further agrees to render such assistance as xG Technology may require to perfect such assignments and to publish, patent or protect the Ideas in any patent office or in litigation for reasonable compensation based on the then prevailing hourly rate for such services during the term of this Agreement and thereafter.

 

4.2 Ideas not resulting from the performance of the activities described in this Agreement shall remain the property of Consultant and shall not be disclosed to xG Technology in the absence of a separate agreement specifically pertaining to such disclosure. All Ideas disclosed by Consultant to xG Technology in the absence of such agreement may be used by xG Technology for any purpose and without additional compensation.

 

5. COPYRIGHT PROTECTED MATERIALS

Copyright protected materials that are developed by Consultant , its employees, agents contractors, representatives and shareholders, prior to or in the course of performing the activities described in this Agreement (the "Protected Materials") shall be deemed as works made for hire and shall be the property of xG Technology unless applicable law requires otherwise. Consultant hereby assigns the Protected Materials to xG Technology and agrees to sign and deliver to xG Technology any documents required to complete such assignment. Should applicable law preclude xG Technology’s ownership of the Protected Materials, Consultant hereby grants to xG Technology an unlimited, perpetual and royalty free license to use, reproduce and distribute the Protected Materials and agrees to sign and deliver to xG Technology any documents required to complete such license.

 

6. WARRANTIES AND COVENANTS

6.1 Consultant represents and warrants that Consultant has full right and authority to enter into this Agreement.

 

6.2 Consultant represents and warrants that there are no outstanding obligations or agreements which are inconsistent or in conflict with the execution or performance of the activities described in this Agreement.

 

6.3 Consultant further warrants and agrees that Consultant does not at present and will not during the term of this Agreement and for at least twelve months thereafter serve as a researcher, consultant or advisor for others regarding any of the areas involved in this Agreement or with regard to projects upon which xG Technology is working and of which Consultant has knowledge, or enter into any other agreements or contractual obligations, express or implied, inconsistent or in conflict with any of the terms of this Agreement.

 

7. TERM AND TERMINATION

7.1 This Agreement shall become effective as of September 1, 2005 (“Effective Date”), unless terminated sooner as provided herein. Consultant shall not incur any liability for actions undertaken on behalf of xG prior to the Effective Date of this agreement.

 

Consultancy Agreement: xG Technology, LLC Page 2 of 3

 

 
 

 

7.2 This Agreement shall continue in effect for twelve (12) months from its Effective Date and thereafter be renewed for successive periods of twelve (12) months if not terminated according to clause 7.3 below.

 

7.3 Either party may terminate this Agreement with or without cause upon thirty (30) days prior written notice to the other party.

 

7.4 In the event of early cancellation or termination of this Agreement for any reason, xG Technology shall pay Consultant pro-rata for the services rendered until such cancellation or termination, and Consultant shall refund xG Technology pro-rata any amounts it may have received in advance for services still to be rendered after such cancellation or termination, as the case may be.

 

8. MISCELLANEOUS

8.1 Consultant shall be deemed to be an independent contractor for all purposes. Neither Consultant nor any agent, representative or employee of Consultant shall be considered an agent, representative or employee of xG Technology for any purpose.

 

8.2 This Agreement constitutes the only contract or understanding between the parties hereto or between any party hereto and any named or unnamed participant in the activities contemplated by this Agreement, relating to the subject matter of this Agreement. No amendments, changes, extensions or modifications to this Agreement shall be valid and binding except if in writing and signed by the parties hereto. This Agreement may be signed in one or more counterpart copies all of which together shall constitute one Agreement and each of which may equally evidence this Agreement.

 

8.3 This Agreement shall be construed and interpreted under and in accordance with the substantive laws of the State of Florida. All disputes arising in connection with this Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said Rules. The English language shall be used in any and all arbitral proceedings. The place of arbitration shall be Geneva, Switzerland.

 

8.4 Except as explicitly permitted in this Agreement, Consultant may not incur any liability on xG Technology’s behalf nor bind xG Technology to any contractual or payment obligation without the prior written consent of xG Technology .

 

8.5 The official text of this Agreement shall be in the English language. Should the parties sign or execute a version of this Agreement in another language, any interpretation or construction thereof shall be based solely on the English language text.

 

8.6 All notices, demands, requests, submissions, reports or any other communications permitted or required to be given under this Agreement shall be sent to the parties at the addresses indicated on the first page of this Agreement.

 

IN WITNESS WHEREOF , the parties have executed this Agreement.

 

xG Technology, Inc.  
     
By: /s/ Roger G. Branton  
  Roger G. Branton  
     
Date:    

 

Consultant

 

I have read and understood the above and agree to all the terms of this Agreement.

 

Wennberg Industries Consultant AB

 

By: /s/ Mats Wennberg  
     
Date 28/2/2010  

 

Consultancy Agreement: xG Technology, LLC Page 3 of 3

 

 

 

 

Ex 10.18

 

Date: 14 th of April 2011

 

xG TECHNOLOGY, INC.

 

- and -

 

MATS WENNBERG

 

 

 

WARRANT AGREEMENT

 

 

 

 
 

 

Contents

 

No Heading Page
     
  Clauses  
     
1. Definitions 1
     
2. The Warrant 2
     
3. Adjustment of Subscription Rights 3
     
4. Other Provisions 3
     
5. No Obligation to Register Warrant Shares 4
     
6. Assignment 4
     
7. Rights as Shareholders 4
     
8. Modification and Waiver 5
     
9. Notices 5
     
10. Law 5

 

 
 

 

THIS AGREEMENT is made this                               day of             2011

 

BETWEEN:

 

(1) xG TECHNOLOGY, INC. (incorporated and registered in the United States of America) whose principal office is at 240 S. Pineapple Avenue, Suite 701, Sarasota FL 34236 (the “ Company ”); and

 

(2) MATS WENNBERG, (with Swedish social secutity number 19580705-7533) of PO Box 57, SE-182 05 Djursholm, Sweden (the “ Warrant Holder ”).

 

IT IS AGREED:

 

1. Definitions

 

1.1 In this Agreement the following words and expressions have the meanings set out below:

 

  “AIM” means the market of that name operated by London Stock Exchange;
     
  “Auditors” means the auditors for the time being of the Company;
     
  “London Stock Exchange” means London Stock Exchange plc;
     
  “Shares” means the shares of $0.01 each in the common stock of the Company;
     
  “Subscription Price” means $0.225 per Warrant Share;
     
  “UK Listing Authority” means the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000 (as amended);
     
  “Warrant” means the right to subscribe for the Warrant Shares at the Subscription Price;
     
  “Warrant Shares” means up to 500,000 Shares; and
     
  “Warrant Period” means the period commencing on 14 April, 2011 and ending on 13 April, 2014.

  

1
 

 

 

1.2 Headings in this Agreement are for ease of reference only and shall not be taken into account in the construction of this Agreement.

 

2. The Warrant

 

In consideration of the sum of $0.052 payable by way of premium for each Warrant Share for which the Warrant Holder is granted to the right to subscribe hereunder and upon the terms of this Agreement, the Company hereby grants to the Warrant Holder the Warrant which is exercisable at the Subscription Price in whole or in part during the period commencing on 14 April, 2011 and ending on 13 April, 2014.

 

2.1 The Warrant shall be exercised by the Warrant Holder giving notice to the Company in writing of the number of Warrant Shares in respect of which it wishes to exercise the Warrant, accompanied by payment of the aggregate Subscription Price in respect thereof, and shall be effective on the date of its receipt by the Company.

 

2.2 Shares shall be allotted and issued pursuant to a notice of exercise of the Warrant within 14 days of the date of exercise and a definitive share certificate issued to the Warrant Holder in respect thereof or, at the Warrant Holder’s request, the appropriate credit of the Shares made to the Warrant Holder’s stock account in CREST (if the Shares are then eligible to be settled in CREST). Save for any rights determined by reference to a date preceding the date of allotment, such Shares shall rank pari passu with the other Shares of the same class in issue at the date of allotment.

 

2.3 When the Warrant is exercised only in part, the balance of the Warrant not exercised under such partial exercise shall remain exercisable on the same terms mutatis mutandis as originally applied to the whole of the Warrant.

 

2.4 The Company shall make application to London Stock Exchange for Shares allotted and issued on exercise of the Warrant to be admitted to trading on AIM. If Shares are then listed on the Official List of the UK Listing Authority and traded on the London Stock Exchange’s markets for listed securities, the Company shall as soon as practicable after the allotment of any Shares pursuant to the exercise of the Warrant apply for the admission of the Shares allotted to the Official List and to London Stock Exchange’s markets.

 

2.5 The Company warrants that as at the date of this Agreement it has power to grant the Warrants (including under its Certificate of Incorporation and Bylaws) without any further sanction or consent by members of the Company or any other person.

 

2
 

 

3. Adjustment of Subscription Rights

 

3.1 After any allotment of fully paid Shares by way of capitalisation of the Company’s reserves (other than Shares paid up out of distributable reserves and issued in lieu of a cash dividend) to holders of the Shares on the register on a date (or by reference to a record date) before the end of the Warrant Period or upon any sub-division or consolidation of the Shares or reduction of share capital before the end of the Warrant Period, the number and/or nominal value of Shares to be subscribed on any subsequent exercise of the Warrant will be increased or, as the case may be, reduced in due proportion so as to maintain the same relative subscription rights for the Warrant and the Subscription Price will be adjusted accordingly, with effect from the record date for such capitalisation, sub-division or consolidation. On any such capitalisation, sub-division, consolidation or reduction of capital the Auditors shall be requested by the Directors to certify the appropriate adjustments and, within 28 days thereafter, notice thereof will be sent to the Warrant Holder.

 

3.2 If, on a date (or by reference to a record date) before the end of the Warrant Period, the Company makes any offer or invitation (whether by rights or other issue but not being an offer by the Company to purchase its own shares) to the holders of the Shares, or any offer or invitation (not being an offer to which Clause 4.2 below applies) is made to all such holders otherwise than by the Company, then (unless the same offer or invitation is made to the Warrant Holder at the same time as if the Warrant had been exercised on the day immediately preceding the date, or, as the case may be, the record date of such offer or invitation) the Subscription Price shall be adjusted in such manner as the Auditors shall certify to be appropriate so as to maintain the same relative subscription rights for the Warrant. Any such adjustment shall become effective as at the record date for the offer or invitation. The Company shall give notice to the Warrant Holder within 28 days of any adjustment made pursuant to this Clause 3.2.

 

3.3 The determination of the Auditors pursuant to Clauses 3.1 and 3.2 shall, save in the case of manifest error, be binding on the Warrant Holder.

 

4. Other Provisions

 

So long as the Warrant remains capable of exercise:-

 

4.1 The Company shall not make any allotment of fully paid Shares by way of capitalisation of profits or reserves unless at the date of such allotment the Directors have all necessary authority and power to grant the additional subscription rights to subscribe Shares to which the Warrant Holder will by virtue of Clause 3.1 above be entitled in consequence of such capitalisation.

 

4.2 If at any time an offer is made to all holders of Shares (or all such holders other than the offeror and/or any company controlled by the offeror and/or persons acting in concert with the offeror) to acquire the whole or any part of the issued ordinary share capital of the Company and the Company becomes aware that as a result of such offer the right to cast a majority of the votes which may ordinarily be cast on a poll at a general meeting of the Company has or will become vested in the offeror and/or such persons or companies as aforesaid, the Company shall give notice to the Warrant Holder of such vesting or prospective vesting within 14 days of its becoming so aware, and the Warrant Holder shall be entitled, at any time within the period of 30 days immediately following the date of such notice, to exercise the Warrant and to the extent that the Warrant is not exercised within such period it shall cease and determine.

 

3
 

  

4.3 If an order is made or an effective resolution is passed for winding up the Company (except for the purpose of reconstruction, amalgamation or unitisation), the Warrant Holder shall (if, in such winding up and on the basis that all rights to subscribe for shares in the Company then unexercised had been exercised in full and the subscription moneys therefor had been received in full by the Company, there would be a surplus available for distribution amongst the holders of the Shares which, on such basis, would exceed in respect of each ordinary share a sum equal to the Subscription Price) be treated as if immediately before the date of such order or resolution the Warrant had been exercised in full (subject to any adjustment pursuant to Clause 3 above), and shall accordingly be entitled to receive out of the assets available in the liquidation pari passu with the holders of the Shares such sum as it would have received had it exercised the Warrant in full and become the holder of the Shares to which it would have become entitled by virtue of such exercise of the Warrant after deducting a sum per Share equal to the Subscription Price. Subject to the foregoing the Warrant shall lapse on liquidation of the Company.

 

4.4 Any report or confirmation made pursuant to this Agreement by the Auditors shall be made by them as experts and not as arbitrators and any such report or confirmation shall be final and binding on the Company and the Warrant Holder.

 

5. No Obligation to Register Warrant Shares

 

The Company shall be under no obligation to register the Warrant Shares pursuant to the United States Securities Act of 1933 or any other Federal or state securities laws.

 

6. Assignment

 

Save for an assignment to any company which is a holding company, subsidiary or associate of the Warrant Holder, the Warrant is personal to the Warrant Holder and may not be assigned or charged in whole or in part.

 

7. Rights as Shareholders

 

The Warrant Holder shall not be entitled to vote or receive dividends and shall not be deemed a shareholder, nor shall anything contained herein be construed to confirm upon the Warrant Holder any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to the Company’s shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrants shall have been exercised and the Shares purchasable upon the exercise thereof shall be have become deliverable, as provided herein.

 

4
 

  

8. Modification and Waiver

 

This Agreement and any provision hereof may be amended, changed waived, discharged or terminated only by an instrument in writing signed by both parties.

 

9. Notices

 

Any notice given hereunder by one party to the other shall be in writing addressed to the other party at its registered office for the time being or such other addresses as each party shall notify to the other party for the purposes of this Clause and shall be delivered by hand or sent by recorded delivery post. Unless the contrary shall be proved each such notice or communication shall be deemed to have been given or made and delivered, if by post, 48 hours after posting and, if by delivered by hand, when delivered.

 

10. Law

 

This Agreement shall be governed by and construed in accordance with Swedish law. The parties hereto irrevocably submit to the exclusive jurisdiction of the Courts of Sweden with respect to any dispute related to this Agreement.

 

AS WITNESS this Agreement has been duly executed by duly authorised representatives of the parties the day and year first above written.

 

SIGNED by:

 

/s/ Roger G. Branton

 

for and on behalf of

xG TECHNOLOGY, INC.

acting by:-

 

Director    
     
Director    

 

5
 

   

SIGNED by:

 

/s/ Mats Wennberg

 

for and on behalf of

MATS WENNBERG

in the presence of:-

 

 

Witness /s/ Stefan Landin  
Address Bjorkakrau 14  
  18442 Akersberia  
  Sweden  
Occupation IT Manager  

 

6

 

Ex 10.19

 

 

 

 

Tuesday, June 2, 2008

 

CONFIDENTIAL

 

Mr. Mats Wennberg

xG Technology, LLC

240 South Pineapple Ave. Suite 701

Sarasota, FL 34236

 

Dear Mr. Wennberg:

 

Mooers Branton & Company ("MBC") is pleased to submit this amended letter agreement (the "Agreement") covering the terms and conditions by which MBC will act as strategic and financial advisor to xG Technology, LLC (the "Company"). The Company hereby engages MBC as the Company's agent to provide management, strategic and financial advisory services for the term provided in Section III-C, as more fully described below.

 

I. Services provided by MBC:

 

During the term of the Agreement, MBC will perform the following services for the Company:

 

A. Evaluate financing alternatives for and the capital structure of the Company on an ongoing basis.

 

B. Advise the Company with regard to strategic planning, financial structuring and refinancing, and assist in negotiations with regard thereto.

 

C. Act as financial advisor to the Company in connection with (a) possible acquisitions of substantially all the assets of an entity or a controlling interest in the entity's stock; (b) possible acquisitions of less-than-substantially-all the assets of an entity or a non-controlling interest in the entity's stock.

 

D. Provide any business development functions, including but not limited to, securing strategic partners to help commercialize the Company’s technology. The Company will utilize Mooers Branton’s forms bank for the initial drafting of memorandums of understandings, letters of intent or other similar agreements to help secure such relationships.

 

E. Provide a full-time office manager, an administrator and other part time assistance to perform any executive and general and administrative serves to the Company, including but not limited to: coordination of meetings, conference calls, travel arrangements, adherence to policies and procedures established by the Company, human resource management (insurance, payroll, Visa services), maintenance of financial records, coordinate of annual audits, tax returns, corporate files and corporate governance as it relates to distribution of minutes and coordination of Board of Directors meetings.

 

 
 

 

Mr. Mats Wennberg, CEO

xG Technology, LLC

Page 2 of 3

 

II. Terms and Conditions

 

A. Company Information . In performing the services contemplated hereunder, MBC will be relying on the information furnished to MBC by the Company (as well as the Company's authorized agents and representatives) and from information available from generally recognized public sources. MBC will not independently verify and will not undertake or cause to have made an independent appraisal of any of the Company's assets, liabilities and/or business projections. The Company represents and warrants to MBC that all material submitted to MBC by the Company will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading.

 

B. Indemnification . In consideration of MBC's services as the Company's strategic and financial advisor, the Company agrees to indemnify and hold harmless MBC and its officers, directors, and employees against all claims, liabilities or expenses arising out of its performance hereunder unless MBC's conduct has been found to constitute gross negligence or willful misconduct in a final judgment by a court of competent jurisdiction, in which event MBC agrees to indemnify and hold harmless the Company and its officers, directors and employees against all claims, liabilities or expenses arising out of such gross negligence or willful misconduct.

 

C. Confidential. All information provided to MBC pursuant to this agreement will be used for purposes directly related to such engagement and will be kept strictly confidential by MBC.

 

D. Broker/Dealer Registration, etc. It is specifically understood that MBC is not a registered broker/dealer or investment advisor and it is hereby acknowledged by the Company that MBC will not be acting in those capacities.

 

E. Limitation of MBC's Authority . The relationship of MBC to the Company is solely one of independent contractor, and MBC has no power or authority to bind the Company and will not represent to any person that it has any power or authority to bind the Company.

 

III. Compensation, Payment for Services Performed, and Miscellaneous Provisions.

 

In consideration for MBC's services hereunder, the Company agrees to compensate MBC as follows:

 

A. Fees . The Company agrees to pay MBC a retainer fee (the "Retainer Fee") of $80,000 per month.

 

 
 

 

Mr. Mats Wennberg, CEO

xG Technology, LLC

Page 3 of 3

 

B. Expenses . The Company will be responsible for (1) fees and expenses, if any, charged by any lender, or other sources of financing; (2) fees, expenses or commissions, if any, payable to finders or to any legal, accounting, tax, surveyors, engineers and other professionals or advisors used or retained by the Company in connection with this engagement; and (3) reasonable out-of-pocket expenses incurred in direct connection with the services to be rendered by MBC hereunder, including but not limited to transportation, meals and lodging, telephone and courier charges, and for such legal fees as are required to furnish the services contemplated hereunder.

 

C. Term . This agreement shall be effective as of January 1, 2008 and shall be continuing thereafter until sooner terminated by either party on thirty (30) days prior written notice. In the event of termination prior to expiration, the provisions of Sections II and II of the Agreement shall survive, and all fees through June 2011 are immediately payable.

 

D. Applicable Law . The Agreement shall be deemed to be made in, and governed and construed in accordance with the laws of the State of Florida.

 

If the foregoing terms correctly set forth our agreement, please confirm such Agreement by signing and returning to us one original copy of the Agreement. We look forward to receipt of your formal authorization to proceed.

 

  Very truly yours,
   
  MOOERS BRANTON & COMPANY
     
  By: /s/ Roger G. Branton
    Roger G. Branton
     
    Agreed and accepted by:
     
     
    Richard L. Mooers

 

Agreed and Accepted by:  
   
/s/ Mats Wennberg  
Mats Wennberg  
CEO  
xG Technology, LLC  

 

Date:    

 

 

 

Ex 10.20

 

MARKET AGREEMENT

 

between

 

x G TECHNOLOGY, Inc.

 

and

 

CARE21 LIMITED

 

and

 

MB TECHNOLOGY HOLDINGS, LLC

 

Dated             December, 2011

 

Confidential
 

 

TABLE OF CONTENTS

 

    Page
     
TABLE OF CONTENTS i
   
Article 1 DEFINITIONS AND CONSTRUCTION 1
   
1.01 Definitions 1
1.02 References 5
1.03 Headings 6
     
Article 2 TERM 6
     
2.01 Term 6
     
Article 3 GRANT OF MARKET EXCLUSIVITY 7
     
3.01 Conditions to Grant of Market Exclusivity 7
3.02 Grant of Market Exclusivity to the Territory 7
     
Article 4 COMPENSATION TO XG 7
     
4.01 Fees 7
     
ARTICLE 5 PRE-DEPLOYMENT CONDITIONS 8
     
5.01 Pre-Deployment Conditions 8
5.02 No obligation to deploy 8
     
Article 6 ASSIGNMENT OF RIGHT OF MARKET EXCLUSIVITY 8
     
6.01 Right to assign right of Market Exclusivity 8
6.02 Consideration for assignment 8
     
Article 7 RIGHT TO RE-ASSIGN RIGHT OF MARKET EXCLUSIVITY BACK TO XG 9
     
7.01 Right to re-assign right of Market Exclusivity 9
7.02 Consideration for re-assignment 9
7.03 Survival 10
     
Article 8 MAXCOM purchase option in favor of XG 10
   
8.01 MAXCOM purchase option in favor of XG 10

 

  Page i

 

Confidential
 

 

Article 9 CONFIDENTIALITY 11
     
9.01 General Obligations 11
9.02 Unauthorized Acts 11
9.03 Irreparable Harm 1 1
     
Article 10 REPRESENTATIONS AND WARRANTIES 12
     
10.01 By CARE21 12
10.02 By MBTH 13
10.03 By XG 13
10.04 DISCLAIMER 14
     
Article 11 TERMINATION 14
     
11.01 Termination for Cause 14
11.02 Additional Termination Right 15
11.03 Effect of Termination 15
     
Article 12 MISCELLANEOUS PROVISIONS 15
     
12.01 Assignment 15
12.02 Notices 16
12.03 Counterparts; Electronic Signatures 17
12.04 Relationship 17
12.05 Expenses for Preparation of Contract 17
12.06 Consents, Approvals and Requests 17
12.07 Severability 17
12.08 Waivers 17
12.09 Dispute Resolution 18
12.10 Remedies Cumulative; Time is of the Essence 18
12.11 Entire Agreement 18
12.12 Amendments 18
12.13 Survival 18
12.14 Governing Law 18
12.15 Jurisdiction and Venue 19
12.16 Covenant of Further Assurances 19
12.17 Negotiated Terms 19
12.18 Non-Competition 19
12.19 Non-Solicitation 20

 

  Page ii

 

Confidential
 

 

This MARKET AGREEMENT (the “ Agreement ”), is entered into as of          December, 2011 (the “ Effective Date ”) by and between xG Technology, Inc. (“ XG ”) and Care21 Limited (“ CARE21 ”) and MB Technology Holdings, LLC (“ MBTH ”).

 

WHEREAS, XG has developed innovative communications technologies, including (but not limited to) cognitive radio solutions.

 

WHEREAS, CARE21 desires to gain exclusivity to exploit XG’s technology in the Miami and Fort Lauderdale market.

 

NOW, THEREFORE, for and in consideration of the mutual covenants set forth below and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, XG, CARE21 and MBTH agree as follows:

 

Article 1 DEFINITIONS AND CONSTRUCTION.

 

1.01        Definitions . The following defined terms used in this Agreement shall have the meanings specified below:

 

Access Point ” shall mean a wireless communications transceiver access point installed at a fixed location equipped with hardware and software capable of routing mobile communications to and from End User devices within the Field of Use and License-free Spectrum. An Access Point shall consist of the physical xAP (or subsequent models) access point device capable of providing one sector transmission and reception of the Network signals that convey voice and data messages to End User devices. The information conveyed will be Internet Protocol data packets, which may be used to transport data to and from the End User device.

 

Affiliate ” shall mean, (1) as to any entity, any other entity that, directly or indirectly, Controls, is Controlled by or is under common Control with such entity, or (2) any entity in which a Party owns fifty percent (50%) or more of the outstanding common stock (or other ownership interest), or would own fifty percent (50%) of the outstanding common stock (or other ownership interest) if such Party were to convert any convertible securities, or any warrants, options or rights to acquire common stock convertible into or exchangeable for common stock (or other ownership interest) that such entity owns.

 

Annual Plan ” shall have the meaning set forth in Section 5.01(1) .

 

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Confidential
 

 

Base Station ” shall mean a wireless communications transceiver station installed at a fixed location equipped with hardware and software capable of routing mobile communications to and from End User devices within the Field of Use and License-free Spectrum. A Base Station shall consist of the physical BSN-250 (or subsequent models) base station device capable of providing one to three sector transmission and reception of the Network signals that convey voice and data messages to End User devices. The information conveyed will be Internet Protocol data packets, which may be used to transport data to and from the End User device.

 

Bridge Device ” shall mean xMod (xMax Modem), a personal cognitive radio wireless modem that serves as a mobile WiFi hotspot. The xMod provides Internet or network access for mobile VoIP and Broadband Data services to any WiFi enabled peripheral device.

 

Competitor ” shall have the meaning set forth in Section 12.18 .

 

Confidential Information ” shall mean any information of any Party as a disclosing Party that should reasonably have been understood by the receiving Party because of legends or other markings, the circumstances of disclosure or the nature of the information itself, to be proprietary or confidential to the disclosing Party, including, but not limited to, all ideas, designs, methods, discoveries, improvements, trade secrets, programming code, product data and specifications, product developments or customer information; provided, however, that except to the extent otherwise provided by Law, the term “Confidential Information” shall not include information that (1) is independently developed by the receiving Party, as demonstrated by the receiving Party’s written records, without violating the disclosing Party’s proprietary rights, (2) is or becomes publicly known (other than through unauthorized disclosure), (3) is disclosed by the owner of such information to a third party free of any obligation of confidentiality, (4) is already known by the receiving Party at the time of disclosure, as demonstrated by the receiving Party’s written records, and the receiving Party has no obligation of confidentiality other than pursuant to this Agreement or any confidentiality agreements between CARE21 and XG entered into before the Effective Date, or (5) is rightfully received by a Party free of any obligation of confidentiality, provided, that (A) such receiving Party has no knowledge that such information is subject to a confidentiality agreement, and (B) such information is not of a type or character that a reasonable person would have regarded as confidential.

 

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Consents ” shall mean all licenses, consents, authorizations and approvals that must be obtained from third parties in connection with the operation of the Network.

 

Control ” shall mean, with respect to any entity, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities (or other ownership interests), by contract or otherwise.

 

Deliverable ” shall mean those tangible items that are originated and prepared by XG (either independently or in concert with MAXCOM or third parties) and deployed as part of a Network.

 

Dispute ” shall have the meaning set forth in Section 12.09(1) .

 

Effective Date ” shall mean the date set forth in the preamble above.

 

End User ” shall mean a Person who has entered into and is current in payments required on a paid subscription agreement with CARE21 in connection with the Network.

 

Field of Use ” shall mean the transmission of mobile Voice over Internet Protocol as well as mobile and fixed data to End Users through the Network solely for use in markets other than the military market.

 

Governmental Approval ” shall mean any license, consent, permit, approval or authorization of any Person, or any notice by any Person, the granting of which is required by Law, including without limitation regulatory requirements or any relevant authority, for the consummation of the transactions contemplated by this Agreement.

 

Governmental Authority ” shall mean any international, national, federal, state, provincial, municipal, local, territorial, or other governmental department, regulatory authority, agency, tribunal, judicial or administrative body or other Law, rule or regulation-making entity, domestic, international or foreign.

 

Intellectual Property ” shall mean all worldwide industrial and intellectual property and rights related thereto, including, without limitation, patents, patent applications, rights to file for patent applications (including but not limited to continuations, continuations-in-part, divisional and reissues), trademarks, logos, service marks, trade names and service names (in each case whether or not registered) and applications for and the right to file applications for registration thereof, moral rights, mask work rights, mask work registrations and applications thereof, contract and licensing rights, and any other intellectual property rights as may exist now and/or hereafter come into existence, and all renewals and extensions thereof, arising under the laws of any country or province.

 

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CARE21 ” shall have the meaning set forth in the Preamble above.

 

INVESTOR GROUP Personnel ” shall mean individuals, persons or entities engaged by CARE21 in connection with this Agreement.

 

Know-How ” shall mean all proprietary trade secrets, scientific, technical and commercial data and documents, drawings, designs, operating experience and techniques, testing results, regulatory submissions, methods of manufacture, specifications, processes, procedures, inventions and other information of any kind, whether patentable or not.

 

Law ” shall mean any declaration, decree, directive, legislative enactment, order, ordinance, regulation, rule or other binding requirement of any Governmental Authority.

 

License-free Spectrum ” shall mean spectrum in the 902-928MHz band and the 5,725-5,825 MHz band.

 

Market Exclusivity ” shall have the meaning set forth in Section 3.02 .

 

Market Fee ” shall mean the amount payable to XG by CARE21 in connection with the grant of Market Exclusivity as provided herein.

 

MAXCOM ” shall have the meaning set forth in Section 5.01(2) .

 

MBTH ” shall have the meaning set forth in the Preamble above.

 

Network ” shall mean the end-to-end Internet Protocol system infrastructure that includes a line of Base Stations, Access Points, mobile Switching Centers, and Bridge Devices that operate in License-free Spectrum and which is also known as “xMax”.

 

Parties ” shall mean XG, CARE21 and MBTH.

 

Party ” shall mean either XG, CARE21 or MBTH.

 

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Person ” shall mean an individual, corporation, partnership, limited liability company, association, joint stock company, Governmental Authority, business trust, unincorporated organization or other legal entity.

 

Strategic Roadmap ” shall have the meaning set forth in Section 5.01(1) .

 

Switching Center ” shall mean a central communications hub that is responsible for routing packet traffic to and from Base Stations and/or Access Points and the Internet as necessary to carry out the mobile service within the Fields of Use and License-free Spectrum. A Switching Center shall consist of a physical device, generally consisting of servers. Such servers utilize an operating system and various software programs to perform network centric functions for the cellular network in a geographic region or area.

 

Term ” shall have the meaning set forth in Section 2.01 .

 

Territory ” shall mean Broward County and Miami-Dade County in the State of Florida.

 

XG Intellectual Property ” shall mean any Intellectual Property, including, without limitation, the XG Patents and any Know-How related thereto, which is owned, acquired or developed by XG and used in connection with the operation of the Network.

 

XG Patents ” shall mean the patents and patent applications held and made by XG, including any issuance, continuations, continuations-in-part, reissues, reexaminations, divisions, or extensions thereof.

 

XG Technology ” shall mean XG Intellectual Property, or other Intellectual Property licensed or leased by XG from a third party in connection with the Network.

 

1.02        References . In this Agreement:

 

(1)         references to a Section or Article shall be to such Section or Article of this Agreement, unless otherwise provided;

 

(2)         references to any Law shall mean references to such Law in changed, supplemented, amended or replaced form; and

 

(3)         references to, and mentions of, the word “including”, “include” or the phrase “ e.g. ” shall mean “including, without limitation.”

 

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1.03        Headings . The Article and Section headings and Table of Contents are for reference and convenience only and shall not be considered in the interpretation of this Agreement.

 

Article 2 TERM.

 

2.01        Term . The term of this Agreement shall commence on the Effective Date and shall continue until December 31, 2016 (the “ Term ”).

 

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Article 3 GRANT OF MARKET EXCLUSIVITY.

 

3.01        Conditions to Grant of Market Exclusivity . The right of Market Exclusivity granted pursuant to Section 3.02 shall be conditioned upon CARE21’s timely payment of the Market Fee set forth in Section 4.01 in accordance with the schedule set forth in such Section.

 

3.02        Grant of Market Exclusivity to the Territory . In consideration for payment of the Market Fee provided for in Section 4.01 , XG hereby grants to CARE21 during the Term, an exclusive right to exploit XG Technology in the Field of Use within the Territory (the right of “ Market Exclusivity ”). XG will not grant any other person any right to exploit or use XG Technology in the Field of Use within the Territory prior to the expiry or earlier termination of the Term. The right of Market Exclusivity provided for herein shall only be assignable as provided in Section 6.01 and Section 7.01 below.

 

Article 4 COMPENSATION TO XG.

 

4.01        Fees . In consideration for grant of the right of Market Exclusivity pursuant to Section 3.02 , CARE21 shall pay to XG a fee (the “ Market Fee ”) in the amount of $15,000,000 (fifteen million U.S. Dollars) payable as follows:

 

(a)          $440,000 (four hundred and forty thousand U.S. dollars) payable on the Effective Date;

 

(b)          $1,560,000 (one million, five hundred and sixty thousand U.S. dollars) to be paid on January 25, 2012;

 

(c)          2,200,000 (two million, two hundred thousand U.S. dollars) to be paid on February 25, 2012;

 

(d)          800,000 (eight hundred thousand U.S. dollars) to be paid on March 25, 2012;

 

(e)          $5,000,000 (five million U.S. dollars) to be paid in five (5) consecutive monthly installments of $1,000,000 commencing on April 25, 2011; and

 

(f)          $5,000,000 (five million U.S. dollars) to be paid in ten (10) consecutive monthly installments of $500,000 commencing on September 25, 2012.

 

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Article 5 PRE-DEPLOYMENT CONDITIONS.

 

5.01        Pre-deployment Conditions . If CARE21 wishes there to be deployed a Network in the Territory, then:

 

(1)         on or before October 31, 2016, CARE21 must deliver to XG a five-year development strategy with respect to the Network and related business expansion (the “ Strategic Roadmap ”) as well as annual fiscal year business and financial plans (each an “ Annual Plan ”), which shall describe strategies as to all items of operation and describe Strategic Roadmap progress, including, without limitation, roll out by number of nodes, terminals and End Users and Base Stations and/or Access Points in the Territory, timing, geography, operating expenses, revenue generation, equipment expenses, management fees, and outsourced tasks and responsibilities as well as strategies for establishing sales channels (retail, indirect and prepaid), back office administration, customer care, sales and marketing, network operation and maintenance, billing and provisioning, product fulfillment, E911, DID, backhaul, tower sites and termination services; and

 

(2)         on or before December 31, 2016, CARE21 must procure the execution of a definitive technology deployment and cooperation agreement (the “ Definitive Agreement ”) by a corporation to be 51% owned by CARE21 and 49% owned by XG (“ MAXCOM ”) providing inter alia for a schedule for deployment of a Network in the Territory, grant of a license to MAXCOM to practise XG Intellectual Property in the Field of Use within the Territory and an obligation for CARE21 to fund MAXCOM up to an agreed amount by an agreed date.

 

5.02        No obligation to deploy . Unless and until expressly agreed in a Definitive Agreement, XG shall be under no obligation to deploy any Deliverables or Network in the Territory.

 

Article 6 ASSIGNMENT OF RIGHT OF MARKET EXCLUSIVITY.

 

6.01        Right to assign right of Market Exclusivity . Upon ten (10) business days prior written notice to MBTH and XG, CARE21 shall have the right at any time until December 31, 2016 to assign its right of Market Exclusivity and obligations under this Agreement to MBTH (and only MBTH) and MBTH agrees to any such assignment and to be bound by all the obligations of CARE21 under this Agreement.

 

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6.02        Consideration for assignment . The consideration for any such assignment shall be the issue to CARE21 of membership interests in MBTH at a price per MBTH share of:

 

(1)         $1.00, if such assignment is made on or before March 31, 2012;

 

(2)         $1.50, if such assignment is made after March 31, 2012 and on or before July 31, 2012;

 

(3)         $2.00, if such assignment is made after July 31, 2012 and on or before November 30, 2012;

 

(4)         $3.00, if such assignment is made after November 30, 2012 and on or before November 30, 2013;

 

(5)         $4.00, if such assignment is made after November 30, 2013 and on or before November 30, 2014;

 

(6)         $5.00, if such assignment is made after November 30, 2014 and on or before November 30, 2015; and

 

(7)         $6.00, if such assignment is made after November 30, 2015 and on or before December 31, 2016,

 

where the total consideration shall equal the aggregate amount of Market Fee paid to XG by CARE21, and received by XG, as at the date of such assignment.

 

Article 7 RIGHT TO RE-ASSIGN RIGHT OF MARKET EXCLUSIVITY BACK TO XG.

 

7.01        Right to re-assign right of Market Exclusivity . If the right of Market Exclusivity is assigned to MBTH pursuant to Section 6.01 above, upon ten (10) business days prior written notice to XG, MBTH shall have the right, at any time within the sixty (60) days after such assignment by CARE21 to MBTH is completed, to re-assign the right of Market Exclusivity and its obligations under this Agreement back to XG, and XG agrees to any such assignment.

 

7.02        Consideration for re-assignment . The consideration for any such re-assignment shall be the issue to MBTH of new shares of $0.01 each in the Common Stock of XG (each an “XG Share”) at a price per XG Share of:

 

(1)         $1.00, if such assignment is made on or before March 31, 2012;

 

(2)         $1.50, if such assignment is made after March 31, 2012 and on or before July 31, 2012;

 

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(3)         $2.00, if such assignment is made after July 31, 2012 and on or before November 30, 2012;

 

(4)         $3.00, if such assignment is made after November 30, 2012 and on or before November 30, 2013;

 

(5)         $4.00, if such assignment is made after November 30, 2013 and on or before November 30, 2014;

 

(6)         $5.00, if such assignment is made after November 30, 2014 and on or before November 30, 2015;and

 

(7)         $6.00, if such assignment is made after November 30, 2015 and on or before December 31, 2016,

 

where the total consideration shall equal 110% of the aggregate amount of Market Fee paid to XG by CARE21 and/or MBTH, and received by XG, as at the date of such re-assignment.

 

7.03        Survival. Termination or expiry of the Term of this Agreement shall not affect the right of re-assignment provided for in this Article 7 , which shall continue in full force and effect.

 

Article 8 MAXCOM purchase option in favor of XG.

 

8.01        MAXCOM purchase option in favor of XG. If MAXCOM has been constituted as provided in Section 5.01(2) , between May 1, 2013 and April 30, 2014, XG shall have the right to purchase all the shares in MAXCOM not then held by XG for a purchase price of $50,000,000 (fifty million US Dollars) and between May 1, 2014 and April 30, 2015, XG shall have the right to purchase all such shares for a purchase price of $100,000,000 (one hundred million US Dollars).

 

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Article 9 CONFIDENTIALITY.

 

9.01        General Obligations . All Confidential Information obtained by one Party from another Party shall be held in confidence by the receiving Party to the same extent and in at least the same manner as the receiving Party protects its own Confidential Information of a similar nature, but in any event to at least a reasonable extent and in a reasonable manner, or to any more restrictive extent or manner required by Law. Neither CARE21 nor MBTH nor XG shall disclose, publish, release, transfer or otherwise make available Confidential Information of, or obtained from, another Party in any form to, or for the use or benefit of, any Person without the disclosing Party’s consent. Each of CARE21, MBTH and XG shall, however, be permitted to disclose relevant aspects of another’s Confidential Information to its officers, directors, agents, professional advisors, contractors, subcontractors and employees and to the officers, directors, agents, professional advisors, contractors, subcontractors and employees of its Affiliates with a “need to know”, to the extent that such disclosure is not otherwise restricted under this Agreement, any Consents or any Governmental Approvals and only to the extent that such disclosure is reasonably necessary for the performance of its duties and obligations, or exercise of its rights, under this Agreement; provided, however, that the receiving Party shall take all reasonable measures to prevent the disclosure or duplication of the disclosing Party’s Confidential Information in contravention of the provisions of this Agreement by such officers, directors, agents, professional advisors, contractors, subcontractors and employees. The obligations in this Section shall not restrict any disclosure pursuant to any Law (provided that the receiving Party shall give prompt notice to the disclosing Party of any applicable order issued pursuant to any such Law).

 

9.02        Unauthorized Acts . Without limiting any Party’s rights in respect of a breach of this Article, each Party shall:

 

(1)         promptly notify another Party of any unauthorized possession or use, or attempt thereof, of such other Party’s Confidential Information by any Person that may become known to such Party;

 

(2)         promptly furnish to another Party full details of the unauthorized possession or use, or attempt thereof, and assist such other Party in investigating or preventing the recurrence of any unauthorized possession or use, or attempt thereof, of Confidential Information;

 

(3)         cooperate with another Party in any litigation and investigation against third parties deemed necessary by such other Party to protect its proprietary rights; and

 

(4)         promptly use its commercially reasonable efforts to prevent a recurrence of any such unauthorized possession or use, or attempt thereof, of Confidential Information.

 

9.03        Irreparable Harm . Each Party acknowledges that use of another Party’s Confidential Information in a manner contrary to the provisions of this Article 9 may cause irreparable harm for which money damages may not make such Party whole and each Party hereby consents that such other Party may seek injunctive or other equitable relief. Notwithstanding the foregoing, each Party shall be entitled to pursue any other available remedies at law or equity, including the recovery of money damages, with respect to the actual or threatened breach of the foregoing obligations with respect to its Confidential Information.

 

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Article 10 REPRESENTATIONS AND WARRANTIES.

 

10.01      By CARE21 .

 

CARE21 represents and warrants that:

 

(1)         it is a corporation duly incorporated, validly existing and in good standing under the Laws of England and Wales;

 

(2)         as of the Effective Date it has, and covenants that during the Term it will maintain, all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement;

 

(3)         the execution, delivery and performance of this Agreement by CARE21 has been duly authorized by ;

 

(4)         as of the Effective Date, the execution, delivery and performance of this Agreement does not, and covenants that during the Term it will not, conflict with, result in a breach of or constitute a default under any other agreement to which is a party or by which is bound;

 

(5)         as of the Effective Date it is, and covenants that during the Term it will remain, duly licensed, authorized or qualified to do business and is in good standing in every jurisdiction in which a license, authorization or qualification is required for the ownership or leasing of its assets or the transaction of business of the character transacted by it, except where the failure to be so licensed, authorized or qualified would not have a material adverse effect on ’s ability to fulfill its obligations under this Agreement;

 

(6)         as of the Effective Date it is, and covenants that during the Term it will remain, in compliance with all Laws applicable to and has obtained all applicable permits and licenses required of in connection with its obligations under this Agreement; and

 

(7)         as of the date hereof does not have, and throughout the Term shall immediately notify XG of, claims of any nature, threatened or realized or yet to be realized against it by any person for any reason; and that no INVESTOR GROUP Personnel have been convicted of a crime in any jurisdiction to which it belongs, and throughout the Term shall immediately notify XG if any INVESTOR GROUP Personnel are convicted of such a crime. The occurrence of any such claim or crime shall constitute a material breach of this Agreement and shall give rise to XG’s termination right pursuant to Section 11.01(1) .

 

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10.02      By MBTH .

 

MBTH represents and warrants that:

 

(1)         it is a limited liability company duly incorporated, validly existing and in good standing under the Laws of the State of Delaware;

 

(2)         as of the Effective Date it has, and covenants that during the Term it will maintain, all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement;

 

(3)         the execution, delivery and performance of this Agreement by MBTH has been duly authorized by MBTH;

 

(4)         as of the Effective Date the execution, delivery and performance of this Agreement does not, and covenants that during the Term it will not, conflict with, result in a breach of or constitute a default under any other agreement to which MBTH is a party or by which MBTH is bound;

 

(5)         as of the Effective Date it is, and covenants that during the Term it will remain, duly licensed, authorized or qualified to do business and is in good standing in every jurisdiction in which a license, authorization or qualification is required for the ownership or leasing of its assets or the transaction of business of the character transacted by it, except where the failure to be so licensed, authorized or qualified would not have a material adverse effect on MBTH’s ability to fulfill its obligations under this Agreement; and

 

(6)         as of the Effective Date it is, and covenants that during the Term it will remain, in compliance with all Laws applicable to MBTH and has obtained all applicable permits and licenses required of MBTH in connection with its obligations under this Agreement.

 

10.03      By XG .

 

XG represents and warrants that:

 

(1)         as of the Effective Date it is, and during the Term it will remain, entitled to grant to CARE21 the right to Market Exclusivity that it grants to CARE21 under this Agreement during the Term;

 

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(2)         it is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware;

 

(3)         as of the Effective Date it has, and covenants that during the Term it will maintain, all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement;

 

(4)         the execution, delivery and performance of this Agreement by XG has been duly authorized by XG;

 

(5)         as of the Effective Date the execution, delivery and performance of this Agreement does not, and covenants that during the Term it will not, conflict with, result in a breach of or constitute a default under any other agreement to which XG is a party or by which XG is bound;

 

(6)         as of the Effective Date it is, and covenants that during the Term it will remain, duly licensed, authorized or qualified to do business and is in good standing in every jurisdiction in which a license, authorization or qualification is required for the ownership or leasing of its assets or the transaction of business of the character transacted by it, except where the failure to be so licensed, authorized or qualified would not have a material adverse effect on XG’s ability to fulfill its obligations under this Agreement; and

 

(7)         as of the Effective Date it is, and covenants that during the Term it will remain, in compliance with all Laws applicable to XG and has obtained all applicable permits and licenses required of XG in connection with its obligations under this Agreement.

 

10.04      DISCLAIMER .

 

EXCEPT AS SPECIFIED IN THIS AGREEMENT, THE PARTIES MAKE NO OTHER WARRANTIES AND EXPLICITLY DISCLAIM ALL OTHER WARRANTIES, EXPRESS OR IMPLIED.

 

 

Article 11 TERMINATION.

 

11.01      Termination for Cause . This Agreement may be terminated immediately upon notice in writing to the defaulting Party if:

 

(1)         the defaulting Party commits any material breach of any term of this Agreement and (in the case of a breach capable of being remedied) shall have failed to remedy the breach within thirty (30) days (or such longer period as the non-defaulting Party giving notice may agree) after receipt of written notice giving full particulars of the breach and requiring it to be remedied; provided, however, that where the claimed breach is capable of being cured but cannot reasonably by its nature be cured within thirty (30) days, the breaching Party shall not be considered to be in default so long as it commences the cure within the thirty (30) days and diligently in good faith pursues the full measure of the cure; or

 

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(2)         any Party ceases doing business in the ordinary course, becomes or is declared insolvent or bankrupt, is the subject of any proceeding relating to its liquidation or insolvency (whether voluntary or involuntary) which is not dismissed within sixty (60) days, or makes an assignment for the benefit of creditors.

 

11.02      Additional Termination Right . In addition to the foregoing, this Agreement may be terminated immediately by XG if CARE21 fails to make any payment of Market Fee on its due date as provided in Section 4.01 of this Agreement.

 

11.03      Effect of Termination . Termination of this Agreement shall be deemed to be notice of immediate assignment of this Agreement to MBTH for the purposes of Article 6 and the consideration for any such assignment shall be the issue to CARE21 of membership interests in MBTH at the price per MBTH share provided for under Section 6.02 as at the date of termination and the total consideration shall equal the aggregate amount of Market Fee paid to XG by CARE21, and received by XG, as at the date of termination, and (if, by the date of termination, MAXCOM has been constituted as provided in Section 5.01(2)) all shares in MAXCOM not held by XG shall be transferred by CARE21 for nil consideration to XG. The provisions of this clause shall not preclude a Party from claiming damages arising from breach of contract. On the termination of this Agreement, all rights and obligations of the Parties under this Agreement shall automatically terminate except for such assignment as provided above and such other rights as shall have accrued prior to such termination, and any obligations which expressly or by implication are intended to come into or continue in force on or after such termination.

 

Article 12 MISCELLANEOUS PROVISIONS.

 

12.01      Assignment . Except as expressly provided in Article 6 , CARE21 may not, without XG’s prior written consent, assign this Agreement to a third party. Except as expressly provided in Article 7 , MBTH may not, without XG’s prior written consent, assign this Agreement to a third party. XG may assign this Agreement in its discretion. Upon XG’s assignment of this Agreement, XG shall be released from any obligation or liability under this Agreement. The consent of XG to any assignment of this Agreement shall not constitute XG’s consent to further assignment. This Agreement shall be binding on the Parties and their respective successors and permitted assigns. Any assignment in contravention of this subsection shall be void.

 

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12.02      Notices . Any notice, notification, request, demand or determination provided by a Party pursuant to this Agreement shall be provided in accordance with this Section 12.02 . Except as otherwise specified in this Agreement, all notices, requests, consents, approvals, agreements, authorizations, acknowledgements, waivers and other communications required or permitted under this Agreement shall be in writing and shall be deemed given one day after being sent by express overnight courier with a reliable system for tracking delivery to the address specified below, or by e-mail transmission (where receipt is acknowledged by the recipient) or facsimile transmission (with acknowledgment of receipt from the recipient’s facsimile machine) to the addresses set forth below:

 

In the case of CARE21:

 

24 Long Garden Walk,

Farnham

Surrey

GU9 7HX

United Kingdom

 

Attention: Markus Losada

Email: markus@care21.com

 

In the case of XG:

 

Roger Branton CFO

240 South Pineapple Ave.

Suite 701

Sarasota, Florida 34236

United States

Email: rbranton@xgtechnology.com

 

In the case of MBTH:

 

Roger Branton

240 South Pineapple Ave.

Suite 701

Sarasota, Florida 34236

United States

Email: rbranton@mooersco.com

 

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Any Party may change its address for notification purposes by giving the other Parties notice of the new address and the date upon which it will become effective.

 

12.03      Counterparts; Electronic Signatures . This Agreement may be signed in any number of counterparts, each of which when executed and delivered shall constitute an original instrument, but all of which together shall constitute one and the same instrument. This Agreement may be executed and delivered by telecopier, other facsimile transmission, portable document format (PDF) or other electronic format all with the same force and effect as if the same was a fully executed and delivered original manual counterpart.

 

12.04      Relationship . The Parties intend to create an independent contractor relationship and nothing contained in this Agreement shall be construed to make either CARE21 or XG or MBTH partners, joint venturers, principals, agents or employees of the others. Each Party shall have the responsibility and liability for its employees, agents or contractors adhering to and complying with the terms of this Agreement. No Party shall have any right, power or authority, express or implied, to bind the others.

 

12.05      Expenses for Preparation of Contract . Except as otherwise provided, each Party shall pay its own expenses and costs incidental to the preparation of this Agreement.

 

12.06      Consents, Approvals and Requests . Except as specifically set forth in this Agreement, all consents and approvals to be given by any Party under this Agreement shall not be unreasonably withheld or delayed and each Party shall make only reasonable requests under this Agreement.

 

12.07      Severability . If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to Law, then the remaining provisions of this Agreement, if capable of substantial performance, shall remain in full force and effect.

 

12.08      Waivers . No delay or omission by any Party to exercise any right or power it has under this Agreement shall impair or be construed as a waiver of such right or power. A waiver by any Party of any breach or covenant shall not be construed to be a waiver of any succeeding breach or any other covenant. All waivers must be signed by the Party waiving its rights.

 

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12.09      Dispute Resolution.

 

(1)         If a dispute, claim, misunderstanding or difference of opinion arises between the Parties under this Agreement or in connection with the performance hereunder (“ Dispute ”), representatives of the Parties will initially meet to seek a resolution of any such Dispute. Any Party may provide the others with written notice of any Dispute, with a reasonably detailed description of the basis for the Dispute and a proposed resolution. The Parties’ representatives shall meet within fifteen (15) days of such notice and negotiate in good faith in an effort to cooperatively and amicably resolve the Dispute. If the Dispute cannot be resolved based on good faith negotiations within thirty (30) days after notice of the Dispute, the terms of Section 12.09(2) shall apply.

 

(2)         If negotiations were not successful pursuant to Section 12.09(1) , the Dispute shall be referred to negotiation between senior executives of the Parties. If such representatives are unable to resolve the dispute within thirty (30) days after the initial request to resolve the dispute at this level, then any Party may seek to enforce any and all rights and remedies available to it, whether under this Agreement, at law, in equity, or otherwise.

 

12.10      Remedies Cumulative; Time is of the Essence . No right or remedy herein conferred upon or reserved to any Party is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy under this Agreement, or under applicable law, whether now or hereafter existing. In addition to other remedies which may be available, the Parties shall have the right to seek specific performance and other injunctive and equitable relief. Each Party acknowledges and agrees that time is of the essence with respect to a Party’s obligations under this Agreement.

 

12.11      Entire Agreement . This Agreement represents the entire agreement between the Parties with respect to its subject matter, and there are no other representations, understandings or agreements between the Parties relative to such subject matter.

 

12.12      Amendments . No amendment to, or change, waiver or discharge of, any provision of this Agreement shall be valid unless in writing and signed by an authorized representative of each of the Parties.

 

12.13      Survival . The terms of Article 7 and the terms of any other Section which by their nature should survive to give adequate meaning and effect to such terms, shall survive the expiration or termination of this Agreement.

 

12.14      Governing Law . This Agreement and the rights and obligations of the Parties under this Agreement shall be governed by and construed in accordance with the Laws of the State of Florida, without giving effect to the principles thereof relating to the conflicts of Laws.

 

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12.15      Jurisdiction and Venue . Each Party irrevocably agrees that any legal action, suit or proceeding brought by it in any way arising out of this Agreement must be brought solely and exclusively in the United States District Court for the Southern District of Florida located in Broward County or in the state courts of the State of Florida located in Broward County and irrevocably accepts and submits to the sole and exclusive jurisdiction of each of the aforesaid courts in personam, generally and unconditionally with respect to any action, suit or proceeding brought by it or against it by another Party; provided, however, that this Section shall not prevent a Party against whom any legal action, suit or proceeding is brought by another Party in the state courts of the State of Florida from seeking to remove such legal action, suit or proceeding, pursuant to applicable federal Law, to the district court of the United States for the district and division embracing the place where the action is pending in the state courts of the State of Florida, and in the event an action is so removed each Party irrevocably accepts and submits to the jurisdiction of the aforesaid district court. Each Party hereto further irrevocably consents to the service of process from any of the aforesaid courts by mailing copies thereof by registered or certified mail, postage prepaid, to such Party at its address designated pursuant to this Agreement, with such service of process to become effective thirty (30) days after such mailing.

 

12.16      Covenant of Further Assurances . CARE21 and XG covenant and agree that, subsequent to the execution and delivery of this Agreement and, without any additional consideration, each of CARE21 and XG shall execute and deliver any further legal instruments and perform any acts that are or may become necessary to effectuate the purposes of this Agreement.

 

12.17      Negotiated Terms . The Parties agree that the terms and conditions of this Agreement are the result of negotiations between the Parties and that this Agreement shall not be construed in favor of or against any Party by reason of the extent to which any Party or its professional advisors participated in the preparation of this Agreement.

 

12.18      Non-Competition . During the Term and for a period of two (2) years thereafter, CARE21 agrees that neither it nor any of its Affiliates nor CARE21 employees shall, directly or indirectly, (1) own, manage, control or participate in the ownership, management or control of any person or entity engaged in a business that competes with XG’s business outside the Field of Use in the Territory (each such business, a “ Competitor ”) or (2) provide any services or otherwise engage in any activities that compete with or which would enable a third party to compete with XG’s business outside the Field of Use in the Territory; provided, however, that the ownership of securities representing no more than one percent (1%) of the outstanding voting power of a Competitor, which securities are listed on any national securities exchange or traded actively in the national over-the-counter market shall not be deemed to a violation of this Section 12.18 . CARE21 shall cause each of itsemployees to enter into a non-compete agreement incorporating the terms of this Section 12.18 .

 

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12.19      Non-Solicitation . Except as otherwise permitted by this Agreement or as otherwise agreed to by the Parties, during the Term of this Agreement and for a period of one (1) year after the termination of this Agreement, no Party may hire any individual that is an employee of another Party or was an employee any time during the Term of this Agreement.

 

*        *        *        *

 

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IN WITNESS WHEREOF, each of CARE21 and XG and MBTH has caused this Agreement to be signed and delivered by its duly authorized representative.

 

  xG Technology, Inc.
     
  By: /s/ Richard L. Mooers
  Name: Richard L. Mooers
  Title: Chairman
  Date: 18 th Dec 2011
     
  CARE21 LIMITED
     
  By: /s/ MA Losada
  Name: Markus Losada
  Title: Owner
  Date: 18 th December 2011
     
  MB Technology Holdings, Inc.
     
  By: /s/ Richard L. Mooers
  Name: Richard L. Mooers
  Title: Chairman
  Date: 18 th Dec 2011

 

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Ex 23.1

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the inclusion in this Registration Statement on Form S-1 of our report dated March 5, 2013 relating to the financial statements of xG Technology, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 

 

/s/ Friedman LLP

 

March 5, 2013

East Hanover, New Jersey