Dear Investors,
It is unfortunate that as a company, we are wasting time and money in court, and through emails defending the company and our investors, from a myopic view, that has hampered the success of this company in the public markets.
As the company sees it, Mr. Buonincontri continues to play games with investors’ and employees’ money and lives, citing sentences from legal proceedings he uses out of context to support his attacks on a company he has invested in, along with his family, and received consulting money from in the amount of $50,000.00 dollars. Instead, of moving forward in positive ways to benefit all investors, which would include himself and the small minority he represents.
The company wants to make the following remarks as it pertains to the reason for this last hearing, and its outcome, as well as the future of this litigation.
Much claim has been made to the wrong doing and potential securities fraud of previous management, that required a complete an immediate disclosure of financials to Mr. Buonincontri as the purported note agent. Mr. Buonincontri at that time, approximately a year ago, also filed to place the company in Receivership using the public exposure of these financials as a prerequisite. Judge Welty, a previous judge made a ruling, that our current judge cited in his current rulings, and I quote:
While the Court has found that the company was delinquent and incomplete in its financial reporting and had poor financial controls, the Court has found no evidence of fraudulent conduct on the part of any officer of the company or that the company assets are likely to be concealed or lost unless a receiver is appointed. While the company is in a poor financial position, the evidence suggests that has more to do with the nature of a start-up company that needs greater investment, than gross mismanagement. In short, there is little evidence that either investors or the company would benefit from the appointment of a receiver.
The company does not now, or in the future, have a problem with disclosure of financial information, except when someone is attempting to place it in Receivership, such as Mr. Buonincontri has attempted previously. The judge was correct, we are a start-up company that needs “greater investment”, and our financials controls were not appropriate. We are in debt, and the resolution of that debt can only be corrected with capital investments and sales, not under the fear of bankruptcy court, and litigation, which has been created by Mr. Buonincontri. The fact that we are in debt is known to everyone, including Mr. Buonincontri, the use of financials to place the company in bankruptcy, using financials that were not certified and GAAP approved as demanded by the note, and something the company could not perform, created more risk to the company by Mr. Buonincontri, and still does. Audited and approved financials are needed and are being developed by a major firm we have engaged, MARCUM, LLP. However, given the litigation, issues with the previous CFO, Mr. Lang, and previous CEO Mr. Melby, as well as the ongoing litigation, the need to close sales, and raise capital, along with just the daily running of the company, engaging a new firm following being let go by another, getting approved, and moving forwarded with approved public audited financials simply takes time, and during that time, it was our legal counsel’s recommendation that anything less than audited financial disclosure to Mr. Buonincontri put the company at more risk.
The courts current ruling demands that all financials delivered to Mr. Buonincontri be sealed, which means they cannot be used for public dissemination, to be traded on, or used in litigation against the company and exposed to the public. They are selective to Mr. Buonincontri only. What he will find in those financials is that the company is in debt and needs capital investment, and sales. Something he knew previously. I believe, that Mr. Buonincontri, and the minority he represents are looking for retribution, or embezzled funds, as a way to continue to lash out at the company. Not for financials in order to determine if they should convert into equity. EVERYONE KNOWS THE FINANCIAL STATE of ORHUB. If individuals want retribution, give current management time to complete audited financials, if individuals want change at multiple levels, and sales and capital, then give new management time to do it without the fear of litigation or bankruptcy that Mr. Buonincontri has engendered. The Judge ruled that all financials be delivered to Mr. Buonincontri be sealed. This a win for the company, noteholders, and investors:
IT IS ORDERED that, within ten days of the filed date of this Order, the Company is to provide plaintiffs with financial records, including but not limited to those records referenced in Mr. Monte’s email dated May 20, 2019. The Company’s failure to comply with this Order in a timely manner will result in additional sanctions under Rule 37(c)(1).
IT IS FURTHER ORDERED that the records disclosed in response to the preceding paragraph may be labeled “Confidential” and will not be used or disclosed for purposes other than this litigation. Unless otherwise agreed by the parties, if any party intends to use a confidential document in a motion or at trial, the confidential document shall be filed under seal.
IT IS FURTHER ORDERED that the Company timely will produce additional financial documents as those documents are prepared by the Company’s new auditors/accountants.
IT IS FURTHER ORDERED that plaintiffs are awarded their reasonable costs and attorney’ fees for the limited purpose of filing the Motion for Sanctions and the Reply.
The company is required to pay attorneys fees only in conjunction as described above for “ a limited purpose”:
Attorneys’ fees on all other issues will be held in abeyance pending the resolution of the case.
The judge noted orally, in court that he has great concerns as to the reasons for Mr. Buonincontri’s actions, and that he does not award attorneys’ fees out of proportion to the initial financial concerns for which a case exists. This was reiterated in his rulings:
Although the issue of the reasonableness of AXT’s expenses is not before it, the Company’s complaint about the size of plaintiffs’ claim raises significant questions including the most obvious: “why would someone spend over a half million dollars to protect a $100,000 investment in a company that is insolvent?” The Court sees no reason why AXT should remain as Note Agent if it does not have the support of a majority of the Note Holders. Mr. Buonincontri agreed to those rules when he signed the Note Agreement.
The question of the validity of the new note agent vote was not before the court, the purpose of the vote from the companies perspective was to show the judge, yet again, Mr. Buonincontri does not represent the majority of Noteholders which was clear to the court after testimony from Bruce Longmeier, a noteholder, and being told under oath that approximately 60% of Noteholders supported Mr. Buonincontri’s removal. Mr Buonincontri received one vote.
The court offered a simple remedy to solve this issue which will immediately put an end to this litigation and which the company has already engaged with, knowing Mr. Buonincontri is not supported by a majority of Noteholders:
The events were too recent for the Court to address the second Stribrny election at the November 21 hearing. Unless the parties can come to an agreement to stop the hemorrhaging attorneys’ fees, the Court anticipates that it will be asked to resolve issues concerning Mr. Stribrny’s election in the near future.
Any election will have a better chance of surviving the Court’s scrutiny if the process was vetted by a lawyer (like Mr. Lieberman) with substantial experience in securities law and votes of shareholders/debtholders. A properly conducted vote could avoid big problems later – not just from Mr. Buonincontri but by a disgruntled Note Holder who votes one way only to claim at a later date that he was not provided with material disclosures relevant to his decision.
Clearly, the judge simply wants an independent third party with legal expertise not Mr. Buonincontri, or the company, to proceed with a vote. The company, noteholders and shareholders, which the judge included in his statement, in the majority, are not in support of Mr. Buonincontri, and the company will move forward with this approach to end this litigation as directed by the court, as needed. Another positive for the noteholders and shareholders of this company.
With regards to the conversion of the notes into equity that was under consideration. The judge, and rightly so, made the following judgement.
IT IS FURTHER ORDERED that any Note Holder who wants to voluntarily convert his/her debt into equity may do so in accordance with terms agreed upon between the consenting Note Holder and the Company. The Court offers no opinion on whether conversion is a good idea or a bad idea.
The restriction blocking all noteholders from converting was lifted by the court. Conversion can proceed for those wanting more equity and more voting power at .021 cents as requested by the company previously. The initial goal of the company in attempting to convert all noteholders was to simply stop the litigation, remove Mr. Buonincontri as Note Agent, and give noteholders majority control over the company. Now those wishing to remain as creditors can, however it should be noted that the court had great concerns with the Note as written, and he expressed this orally as to both sides, well as in the courts rulings:
As an initial matter, these findings are based on a full-day evidentiary hearing that occurred before either side had an opportunity to conduct full discovery. A factfinder may take a different view of the evidence after the record is fully developed and after the parties have an opportunity to conduct discovery. The factual conclusions in this ruling are not final except for the purposes of the pending motions.
First, the Court finds that the Note Agreement is ambiguous...
To be sure, the Note Agreement contains a “Miscellaneous” provision (i.e., boilerplate) that indicates that “This Agreement may be amended by an affirmative vote of more than 50 percent of the Note Holders with votes tabulated by the principal of the Notes held by such Note Holders. . .
However, the specific Note signed by Mr. Buonincontri contains the following additional statement:
This Note may not be amended, modified or changed, nor shall any waiver of any provision thereof the effective, except only by an instrument in writing and signed by the party against whom enforcement of any waiver, amendment, change, modification or discharge is sought; provided, however, that this paragraph shall in no way be a limitation on the provisions of the consents and waivers set forth above.
The court addressed the ambiguity of the note orally to both parties at the end of the hearing. The ambiguity of the note as the court interpreted it would require fact finding by a jury or judge in a trial. The judge indicated multiple times that this disagreement needs to be “settled” by the parties. Such a trial with discovery, depositions, and additional attorneys’ fees with appeals could take years, in a litigation battle that began in October of 2018 with Mr. Buonincontri’s first filing. I can assure you this would not be in the best interest of the noteholders, shareholders, Mr. Buonincontri’s companies or ORHUB. It will only benefit attorneys by not hundreds of thousands, but attorneys’ fees into the millions, ridiculously fighting for a start-up trading at .03 cents, with no Intellectual Property, patents, and software that will soon be reproduced by companies like Cerner and Epic, major EHR companies with billions of dollars.
This company has a window of opportunity that is quickly closing, hampered by litigation that will benefit no one except Mr. Buonincontri as the highest and number one creditor in the current Note agreement under dispute. It is my understanding the Note was written in conjunction with Mr. Mike Williams, a mentor of Mr. Buonincontri’s, a question I have asked often, as to what purpose, since when the Note was signed by Mr. Melby, the company was immediately in default of the Note. A fact which I noted to judge Brodman.
I approached Mr. Buonincontri immediately after the hearing, heeding the Courts words regarding a “settlement”. Shook hands, did not cast judgement, and requested we talk to move this company forward. However here we are again in “attack and defend mode” following a biased email from Mr. Buonincontri that fails to see the big picture that the Court has offered.
Mr. Buonincontri and I continued talking, and he indicated to me I was the person that could turn this company around, he did not want to be note agent, only the top creditor, that he was willing to settle. Then, his email, disparaging myself and the company beginning with:
“As predicted, ORhub’s year-long campaign of excuses, outright lies, threats and innuendo...”
Can I believe Mr. Buonincontri’s words, or his email? Does he want to work with me or not? Why does he tell me one thing about settling with the company, with myself as CEO, then attack me and the company publicly, which clearly effects perception and stock price?
Judge Brodman was impressive in his demeanor, oral summary and written summary. I encourage all investors to read it. Mr Buonincontri has previously provided a link. His take home message, get this settled. If not, you are going to a trial. That trial will benefit your attorneys only, and I do not dispense attorneys’ fees out of proportion to an investor, with a limited investment. Also not one, I believe as CEO, that has acted as a paid consultant for the company.
A ground swell of litigation has begun against Mr. Buonincontri and others by Noteholders and Shareholders. I have done my best to prevent litigation of investor vs investor in ORHUB, as our efforts directed in unity towards success will yield a more positive outcome. A company divided amongst itself is doomed to fail, not only will the company not survive, but everyone involved will lose more than investment dollars in the upcoming additional litigation. They will lose time, money, and most importantly peace of mind.
In closing, I will continue my efforts to finally end this litigation, and more litigation, I am calling for Rick to come back to the settlement table with reasonable plans that benefit the company and all investors, not just himself as a lead creditor. In addition:
End negative email campaigns against the company.
Work to make this company a success, and not attack it publicly anymore, but work with me, the new CEO, as he has stated he wants to
To allow the conversion of notes into equity by those that want to at .021 cents without attempts to block the conversion again
To set aside efforts to be note agent, and help pick a completely independent and unbiased note agent for those that want to remain in a note, an individual with legal and SEC expertise in convertible notes
To have the new independent note agent and his/her recommended individual(s), create a note that is not ambiguous and not constructed by the company, or business partners or acquaintances of Rick’s, and maintains the financial integrity of those that wish to remain in a note.
The company will comply with the court orders to:
Supply all current financials under seal, as directed by the court, and subsequent audited financials
Pay limited attorney’s fees as approved by the court
In addition, the company will make available as a public company, all audited financials through Marcum, LLP ASAP, and allow a review of financials by all investors before a decision to convert any debt into equity occurs, with complete oversight by the new independent Note agent.
I am tasking Rick and the company to have this completed before the holidays, so that beginning in 2020, this company is unified in its goals, and can finally move forward without the shadow of litigation, and become what all of its current investors and management want, a success.
Robert R. Lazzara, MD
CEO and Chairman
