UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
mPhase Technologies, Inc.
(Formerly Tecma Laboratories, Inc.)
(Name of Small Business Issuer in its charter)
New Jersey 22-2287503
(State or other jurisdiction of (I.R.S.Employer Identification Number)
incorporation or organization)
587 Connecticut Ave, Norwalk, CT 06854-0566
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (203) 838-2741
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Securities to be registered under Section 12(g) of the Act:
Common stock, no par value per share, 50,000,000 shares authorized, 17,194,043
shares issued and outstanding as of March 31, 1999. As of that date, it is
estimated that approximately 4,511,000 shares were in the public float with an
aggregate market value of approximately $16,353,000.<PAGE>
Part I.......................................................................1
Item 1. Description of Business ..........................................1
A1) Business Development, Organization and
Acquisition Activities.................................................1
A2) Communications Industry and Potential
effect on the Company's Plan of Operation .............................4
A3) Management's Plan of Operation. . . . . . . . . . . . . . 10
Item 2. Description of Property . . . . . . . . . . . . . . 13
Item 3. Directors, Executive Officers and Significant Employees 14
Item 4. Remuneration of Directors and Executive Officers . . 16
Item 5. Security Ownership of Management and Certain Security holders 16
Item 6. Interest of Management and Others in Certain Transactions 18
Item 7. Description of Securities. . . . . . . . . . . . . . 19
Part II . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 1 Market Price of and Dividends on the Registrant's Common Equity
and Other Stockholder Matters. . . . . . . . . . . . 20
Item 2 Legal Proceedings . . . . . . . . . . . . . . . . . 21
Item 3 Changes in and Disagreements With Accountants. . . . 21
Item 4 Recent Sales of Unregistered Securities. . . . . . . 22
Item 5 Indemnification of Directors and Officers. . . . . . 23
Part F/S ................................................................
Financial Statements.......................................................
Part III ...............................................................
Item 1 Index to Exhibits (Pursuant to Item 601 of Regulation SB)......
Part III ..............................................................
Item 2 Description of Exhibits ......................................
<PAGE>
Part I
Item 1. Description of Business
A(1) Business Development, Organization, and Acquisition Activities
mPhase Technologies, Inc., hereinafter sometimes referred to as "the Company",
was organized as Tecma Laboratory, Inc. by the filing of certificate of
incorporation with the Secretary of State of the State of New Jersey on December
18, 1979. As amended on August 28, 1987, the certificate of incorporation was
amended to change its name to Tecma Laboratories, Inc. and the number of shares
authorized to be issued was increased to 50,000,000 shares no par value common
stock. On April 7, 1997, the Company amended its certificate of incorporation
to change its name to Lightpaths TP Technologies, Inc. On June 2, 1997, the
Company amended the certificate of incorporation and changed its name to mPhase
Technologies, Inc. On March 31, 1997 the Company filed an amendment to its
certificate of incorporation pursuant to which it effected a reverse split of
its issued and outstanding shares of common stock on a one share for ten
share basis.
Until the completion of the reverse acquisition and spinoff, discussed below,
the Company conducted its business under the name of Tecma Laboratories, Inc.
and was primarily engaged in research, development and the exploitation of
certain patented products in the health care field.
On February 17, 1997, the stockholders of the Company approved the acquisition
of Lightpaths, Inc., a Delaware Corporation, with the acquisition deemed to be
effective as of that date.
As part of the transaction whereby the Company acquired Lightpaths, Inc. on
January 29, 1997, the Company concurrently formed another wholly owned
subsidiary called TLI Industries, Inc., hereinafter referred to as "TLI." The
shares of TLI were spun off to the stockholders of the Company, effective
March 31 ,1997, after transferring certain assets and liabilities, primarily
fixed assets, patents and shareholder loans related to the prior business of
Tecma Laboratories, Inc. Because liabilities transferred to TLI were in
excess of the book value of the assets transferred there in a gain on the
disposal of discontinued operations on March 31, 1997. This loss was treated
as a decrease of the accumulated deficit by the Company prior to the spin-off.
As a consequence of the above described transactions, most of which required and
obtained approval by the stockholders of the Company on February 17, 1997, the
Company became the holding company of its wholly owned subsidiary, Lightpaths,
Inc.
On June 25, 1998, the Company acquired Microphase Telecommunications, Inc., a
Delaware corporation, hereinafter referred to as "MicroTel," by the issuance of
2,500,000 shares of its common stock in exchange for all the issued and
outstanding shares of MicroTel. The primary assets acquired by way of this
acquisition were patents and patent applications utilized in the Company's
proprietary TRAVERSERTM Digital Video Data Delivery System, hereinafter referred
to either as the TRAVERSERTM DVDDS technology or product.
On August 21, 1998, the Company incorporated a 100% wholly owned subsidiary
called mPhaseTV.net/Inc., a Delaware corporation. The Company intends for this
subsidiary to be the marketing vehicle for its cable business.
The primary business of mPhase Technologies, Inc. is to design, develop,
manufacture and market high-bandwidth telecommunications products incorporating
direct subscriber line ("DSL") technology. The Company's products allow high
speed broadband transmission over the installed copper telephone wire infra
structure and will enable telecommunications service providers to transmit up to
400 channels of MPEG-2 digital television, high speed Internet and traditional
telephone voice services simultaneously over copper wire.
1<PAGE>
(1) Principal Products and Principal Markets
A New Twist To Twisted Pair
The Company's TRAVERSERTM product line is designed to provide a cost-effective
solution for high-speed digital data transmission over the installed twisted
pair, copper wire infrastructure, and an alternative to cable access television
("CATV") as well as direct broadcast satellite services ("DBS"). By using the
installed public telephone infrastructure, the TRAVERSERTM product line supports
high-speed, "last mile" communication solutions without requiring costly
upgrades from copper to coaxial cable or fiber optics. The Company intends to
target independent telephone companies ("telcos"), Competitive Local Exchange
Carriers ("CLECs"), independent Local Exchange Carriers ("ILECs"),
International Local Exchange Carriers ("IXCs"), Internet Service Providers
("ISPs") and Regional Bell Operating Companies ("RBOCs") to allow these service
providers to offer customers an integrated package of enhanced services.
Industry sources indicate that investment in copper infrastructure in the United
States is approximately $300 billion and $1 trillion worldwide. The Gartner
Group estimates the number of copper lines worldwide will grow by nearly 50
million per year for the next 5 years. The Company believes that telcos will
seek to protect this significant investment in copper wire by utilizing the
current infrastructure rather than pursuing costly fiber or hybrid fiber coaxial
cable upgrades. In addition, telcos will need to address competition from cable
companies, which are upgrading their networks in order to provide cable modem
service and cable telephony in addition to traditional television services.
There are currently over 30 million Internet accounts in the United States using
28.8 Kbps or 56 Kbps modern speeds. Driven by slow and unreliable service from
their current Internet service providers via remote dial-up, many consumers and
telecommuters are demanding reliable, high-speed Internet access. Digital
Subscriber Line ("DSL") technology allows telephone companies to provide
high-speed Internet access and maximize the potential of installed telephone
lines, thus avoiding installation of new wiring, a process which is time
consuming and extremely expensive.
Using its proprietary hardware, mPhase offers a specific type of DSL called Rate
Adaptive Digital Subscriber Line ("RADSL"), allowing high-speed data
transmission at speeds up to 6 Mbps downstream and up to 1 Mbps upstream,
increasing through-put up to 200 times faster than an existing 28.8 Kbps
Internet connection. mPhase's DSL technology is unique in that it enables
simultaneous delivery of high-speed Internet access, digital television
programming, and telephone communications over an existing telephone line on an
unshared platform. Because the transmission speed is rate adaptive, Mphase's
DSL adjusts to the length and signal quality of the telephone line,
automatically selecting the highest practical operating speed. Furthermore,
the one-to-one connectivity maintains reliable service, which does not degrade
or decrease in speed with increased volume of subscribers.
mPhase believes it is the first affordable alternative to coaxial and fiber
delivery for RBOCs and local telephone exchange carriers. The mPhase DSL
transceiver is the only technology able to transport voice, digital television
video programming, and data over the existing telephone infrastructure without
impacting voice traffic or degrading the quality of service. Other potential
applications made possible by mPhase's products include video teleconferencing,
remote education, tele-medicine, and e-commerce.
(ii) Status of Products and Services
mPhase is a development stage company in its final stages of on-site beta
testing. To date, the Company has not generated any significant revenues
through product sales or licensing in technology. The Company has installed the
2<PAGE>
system capable of transmitting digital television, Internet data and voice
service simultaneously at Hart Telephone in Hartwell Georgia, its beta
customer. The Company believes that it will be able to reach commercial
production of the TRAVERSERTM DVDDS version 1.0, an 99-channel end-to-end
system solution, by the end of calendar year 1999. The 99-channel prototype
will be completed and installed by the end of June 1999. Beta tests for the
99-channel product will commence immediately after installation. The
TRAVERSERTM DVDDS version 1.1 will be the Company's first commercial product.
The Company expects to launch a 400-channel system, version 2.0, by calendar
year end 2000.
Generally speaking, mPhase DSL products are being designed to allow high
bandwidth access utilizing the installed twisted pair existing telephone
infrastructure under its proprietary TRAVERSERTM DVDDS technology. mPhase
products in development include video teleconferencing and multi-conferencing
systems, high bit rate Internet and Intranet delivery, distance learning,
tele-medicine, network packet transferring and corporate data networks for
banking and publishing.
In addition to its products utilizing its TRAVERSERTM technology, the Company
also has designed products identified as Transmit/Receive Filters and Plain Old
Telephone Service ("POTS") Splitter Product - The Company's POTS splitter
product will be marketed as well as Drop In transmit and receive filters to
XDSL vendors providing integrated XDSL equipment to their customers. The
Company does not believe its inherent competitive advantage will be impaired by
the sale of Transmit/Receive Filters and POTS splitter products to potential
competitors.
(iii) Research and Development Activities
Georgia Tech Research Institute ("GTRI") conducts a significant amount of
research and development for the Company. After the development of the
TRAVERSERTM DVDDS, version 1.1, the Company expects GTRI to continue research
and development of the TRAVERSERTM product to enhance features and functionality
, as well as coordinate the effort to develop the TRAVERSERTM, version 2.0 and
additional products utilizing TRAVERSERTM technology.
The team at GTRI conducts research under the supervision of David Klimek, the
Company's Chief Technology Officer, who works in conjunction with Ronald
Bohlander, a Manager in the Manufacturing Technology Program at GTRI, and the
project supervisors at GTRI.
To date, $3.7 million has been billed to mPhase for research and development
conducted by GTRI, of which $2.2 million remained outstanding at December 31,
1998. GTRI is expected to complete development of the TRAVERSERTM DVDDS
pursuant to a basic ordering agreement comprised of a series of delivery orders,
which outline the timing, necessary actions and form of payment for specific
tasks related to the completion of certain components of the TRAVERSERTM product
line.
mPhase is the sole, worldwide licensee of the technology developed by GTRI in
conjunction with the TRAVERSERTM product line. Upon completion of the
commercial product, GTRI will receive a royalty of 3% to 5% of product sales.
The amount of research and development costs expended from October 2, 1996 (date
of Inception) through December 31, 1998 was approximately $4,376,944. The
Company was obligated to pay licensing fees (see Part 1, Item 1, A(2) D.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements,
Labor Contracts) on product licenses for patents held by others through
June 25, 1998, and as of that date, the Company eliminated this obligation with
the acquisition of its 100% wholly owned subsidiary, MicroTel. Presently, as a
result of the preceding acquisition and the present ordering agreements with
GTRI, the Company will be subject to royalty payments of 3% and 4%
respectively, on the sale of its products of the TRAVERSERTM product line. As
of December 31, 1998, the Company had not consummated any sales and has
recorded only nominal revenue from licensing fees. Accordingly, none of the
research and development costs have been borne by any customers.
3<PAGE>
During the fiscal year ending June 30, 1999, the Company plans to incur
research and development expenses of approximately $5,000,000 as a
consequence of the continued development of its current DSL products.
(iv) Employees
The Company presently has seven employees, two of whom are full-time and five of
whom are part-time, and who are concurrently employed by Microphase Corporation,
a Connecticut corporation, that could be deemed to be affiliated because of some
common officers although the two companies are not identical with respect to
their controlling stockholders.
(v) Impact of Environmental Laws
The Company is not aware of any federal, state or local environmental laws which
would effect its operations.
A(2) Communications Industry and Potential Effect on the Company's Plan of
Operation
A. Copper (The company's technology.)
There has been a total revolution in communications technology since the first
copper cable was installed for telephone connectivity more than a century ago.
Since then a rich copper infrastructure has been installed in the earth and
overhead. This infrastructure constitutes a collective asset with an
installment cost valued at hundreds of billions of dollars which
criss-crosses the United States and every other country in the world.
Notwithstanding, only recently has technology been developed capable of
transforming this expansive copper network originally designed for analog voice
delivery into an affordable, high speed, data-intensive digital communications
delivery system capable of meeting the demands of today's advanced high-tech,
high-volume use.
Dataquest, a source of information concerning the telecommunications industry,
estimates that there is 182 million copper wire telephone lines in the United
States and over 827 million lines worldwide. Currently, copper wire and cable
infrastructures must deal with the increasing challenge to support the large
volume of data traffic generated by Internet access from residences and small
offices via remote dial-up. As a result of the exponential growth of the
Internet and the use of the World Wide Web, there is a digital data traffic
dilemma. The volume of data being transmitted over the copper infrastructure
has increased rapidly but the current capacity of the copper infrastructure to
support it remains static.
Utilizing its proprietary TRAVERSERTM technology, mPhase has converted existing
twisted pair copper telephone lines into programmable high speed access paths
for multimedia and data communications. Accordingly, mPhase can now offer
RBOC's, telcos, CLECs, ILECs, ISPs, IXCs, foreign LECs and other
telecommunication companies the first affordable alternative to coaxial and
fiber optic delivery.
B. Various Forms of Competition
The telecommunications equipment market is characterized by swift technological
change. Several competing solutions such as fiber optic, cable, wireless and
satellite technologies will coexist in a competitive environment and compete
with DSL for market share. Service providers may use other technologies to
deploy high-speed transmission such as fiber optic cable, hybrid coaxial
cable, ISDN and other alternatives. However, based on industry standards, the
Company believes that DSL will prove to be the most cost-effective and
deployment-ready broadband solution in the near-term.
4<PAGE>
Within the DSL arena, the Company has numerous competitors including ADTRAN,
Alacatel, Aware, Inc., Broadband Technologies, CISCO Systems, Inc., ESI, General
Data Com, Orckit Communications, PairGain Technologies, TUT Systems, Westell
Technologies, AG Communications Systems, Copper Mountain, Diamond Lane, Paradyne
and SourceNet. However, based on information made public, none of the Company's
competitors offer digital television transmission capability.
b.(1) ISDN
Emerging technologies for high speed data transmission over copper lines include
ISDN (Integrated Services Digital Network), currently delivering 128 Kilo Bytes
Per Second ("KBPS") computer networking connections two times faster than those
available with fastest analog modems.
While ISDN does provide faster access (128 Kbps) than analog modems (56 kbps),
it is expensive, difficult to install, not really fast enough to satisfy
consumer demand and does not allow simultaneous data transmission while
maintaining normal telephone service on the same line. In addition, it is not
capable of delivering digital television.
By contrast, the TRAVERSERTM DVDDS version 1.0 increases data speed throughput
up to 50 times faster than an ISDN connection!
b.(2) Fiber Optic Cable
Fiber Optic cable is another alternative which allows high bandwidth
transmission. But it requires a longer lead time to install and is very
expensive to install. Of the estimated 180 plus million conventional telephone
lines installed in the United States and more than 700 million world wide, fiber
accounts for only a mere three (3%) percent although cable industry pundits have
projected an increase in saturation of fibre optic cable installations to cover
up to ten (10%) percent of the existing telephone infrastructure.
b.(3) Coaxial
Cable modems also promise the potential of wider bandwidth (up to 10 Mbps as
compared to 56 Kbps analog modems). But coaxial cable is relatively expensive
and it cannot deliver data efficiently without interfering with normal
telephone and cable television services. The mPhase TRAVERSERTM DVDDS version
1.0, on the other hand, is fast, affordable and works with POTS.
B. Initial Customer Base and Marketing Plan
To date, numerous domestic, independent telcos have indicated interest in the
TRAVERSERTM DVDDS version 1.1. These domestic telcos are members of the United
States Telephone Association ("USTA") comprising more than 1,100 members, the
National Telephone Cooperative Association ("NTCA"), a non-profit association
representing more than 500 small and rural telephone cooperatives and commercial
companies, or the Organization Promoting the Advancement of Small Telephone
Companies ("OPASTCO"), comprising more than 500 ILEC members in the United
States and Canada. OPASATCO membership includes commercial and cooperative
telephone companies, which range in size from 100 to 50,000 access lines and
collectively serve over 2.5 million customers primarily in rural areas. mPhase
is an associate member of OPASTCO and was a panel participant at a recent
conference regarding the cable telephony threat and the telco response. The
Company believes its relationship with OPASTCO will augment its ability to
directly market its products to ILECs.
In August 1998. mPhase signed an agreement with Hart Telephone Company, valued
at $1.5 million, to provide 1,000 units of the TRAVERSERTM DVDDS version 1.0.
The Company also signed a distribution agreement with CariPAC Limited, a leading
data communications and networking provider in Hong Kong and China,valued at $15
5<PAGE>
million, to distribute its TRAVERSERTM DVDDS products throughout Hong Kong and
the Peoples' Republic of China. The Company is also in negotiations with
several international telcos in Brazil, China, Mexico and Russia regarding the
possibility of deploying the mPhase TRAVERSERTM DVDDS.
Domestic Market
Dataquest estimates that there are approximately 182 million local access lines
in the United States, consisting of 164 million lines owned and operated by
RBOCs and approximately 18 million lines owned by independent telephone
companies other than the RBOCs. There are approximately 1,200 independent
telcos in the continental United States. According to the Gartner Group,
approximately 65% of phone lines in the United States are DSL-ready.
The Company has targeted a group of approximately 300 domestic, independent
and regional telcos for initial marketing efforts and the Company continues
to expand this list as it nears production phase. Potential customers are
selected from a universe including independent telcos with 5,000 access lines
or more.
Management believes that there is a significant opportunity to market the
Company's products to larger independent telcos (greater than 20,000 lines), as
well as the smaller telcos (from 5,000 to 20,000 lines). The Company believes
that the ILECs more readily embrace new technology and will typically be the
early adopters of advanced DSL technology.
International LECs and foreign telcos also provide a large market opportunity.
Penetration rates of cable television and DBS in the international markets are
much lower internationally. The TRAVERSERTM would cost a service provider far
less per subscriber than fiber or coax networks and would provide the most cost-
effective method for service providers to increase the value of the existing
copper infrastructure.
Teledensity rates (measured in number of access lines per 100 inhabitants) are
low in developing nations but are expected to enter a period of dramatic
growth. Many governments recognize that an advanced communications system is
key to industrialization and are therefore promoting construction of telephone
infrastructure. The Company believes that because these regions have the lowest
teledensity rates,they will also exhibit the fastest growth over the next 5-year
period. Specifically, Dataquest predicts that compounded annual growth of access
lines between 1997 and 2001 in Eastern Europe, Latin America, Africa, and Asia
will be 9.8%, 16.9%, 15.5% and 17.5% respectively.
Marketing Strategy
The Company has focused initial marketing efforts on both domestic and
international telcos, which have responded positively to DSL technology and more
specifically, to DSL service provision via TRAVERSERTM technology. The Company's
initial marketing efforts target small to medium-sized, independent telcos,
which are most threatened by the prospect of cable telephony and need to expand
their service provision rapidly. Furthermore, independent telcos often have a
faster response time in implementing new technology.
The Company also intends to market to larger telcos in the United States who
also need to respond to the threat of competition from cable companies, as well
as new entrants to the telecommunications market such as CLECs, ISPs, and long
distance providers who are continually seeking access to local service. The
Company believes that it will also be successful in penetrating larger telcos,
but expects that it will have a longer sales cycle than with the smaller
independent companies.
Internationally, many countries also exhibit optimal conditions for telecom,
broadband and video application growth. Most developing nations have low
teledensity rates and few over-air options. Moreover, cable service is rarely
6<PAGE>
available in most international markets, particularly in areas outside of the
urban centers making them prime candidates for the TRAVERSERTM system. For
example, the majority of Central and South American homes receive only two or
three broadcast channels. According to industry research, the current cable
subscriber base in South America of 8.3 million represents less than ten (10%)
percent of the TV households, with over half concentrated in Argentina.
The Company intends to use a number of marketing strategies to facilitate
product sales. mPhase will develop a direct sales force to market its products
directly to service providers, as well as negotiate with international
resellers. The Company has already signed one non-exclusive agreement with
CariPAC to distribute the product in Hong Kong and the People's Republic of
China. The Company is currently in discussions with other third party
distributors and intends to pursue the resale channel for various parts of the
world.
To date, the Company has made no sales of its technology and has limited
resources to market its products. However, as part of its sales and marketing
initiative, the Company recently hired an executive vice president of marketing
who will oversee all marketing efforts. In addition, a substantial portion of
the proceeds from new offerings of its securities will be used to expand the
Company's marketing and sales force to include direct marketers and sales
representatives responsible for telco accounts.
Product Overview
The Company's patent-protected TRAVERSERTM DVDDS products utilize technology
licensed on an exclusive basis to the Company by Georgia Tech Research Institute
and RADSL technology licensed on a non-exclusive basis by Globespan
Semiconductor, Inc. (formerly AT&T Paradyne, Inc.). GTRI currently conducts a
significant portion of the engineering research and design efforts for the
Company in developing the TRAVERSERTM product line. The Company's proprietary
system also utilizes an advanced filter technology developed by Microphase
Corporation ("Microphase"), a world leader in diplexer and Detector Log Video
Amplifier ("DVLA") technology. The hybrid filters in mPhase circuit boards
enable more efficient impedance matching of the copper loop, longer transmission
distances, and decreased signal bit errer rates.
The TRAVERSERTM is a complete, end-to-end data transmission solution, which
enables service providers to transmit broadcast quality video at up to 5 Mbps,
simultaneous Internet access at up to 1 Mbps (in four segments via Ethernet) and
traditional voice. The TRAVERSERTM product is installed in the telco central
office with a set-top box configuration, trademarked the Intelligent Network
Interface ("INI"), at the customer premise. The Company's network product is
utilized in conjunction with popular telecommunications transport protocols such
as: Digital Signal Level 3.0 ("DS3"), Synchronous Optical NETwork ("SONET"),
Synchronous Digital Hierarchy ("SDH"), Asynchronous Transfer Mode ("ATM") or
frame relay and is highly adaptable. The Company is also in the process of
evaluating the ease with which its network products can be used in conjunction
with other transport protocols. The TRAVERSERTM is transparent to the switch and
DLC manufacturer, supports emergency service operation and relieves dial-up
Internet switch congestion.
With the TRAVERSERTM, the content provider receives and distributes digital data
(television signals and Internet) to a typical telephone company central office
via satellite or a SONET telecommunications network. A programming and control
center located at the central office will combine the video and Internet data as
well as local off-air broadcasts for transmission over the TRAVERSERTM DVDDS.
The central office then delivers traditional analog voice signal, digital
television, and Internet data via the TRAVERSERTM DVDDS over the existing copper
twisted-pair infrastructure to the customer premises. At the customer premises,
the TRAVERSERTM Intelligent Network Interface ("INI") passes through the phone
7<PAGE>
lines and connects to the television set and the computer. The video signal is
sent as both an S-video signal and a channel 3 or 4 RF modulated signal.
Internet is accessed via a 10baseT Ethernet connection over category-5 wiring.
The TRAVERSERTM product line is able to partition bandwidth, using mPhase's
proprietary framer chip, enabling all 6 Mbps of upstream and 1 Mbps of
downstream bandwidth to be used to transmit data exclusive of the digital
television application. The ability to segment and scale the bandwidth
according to individual needs ideally targets the small office/home office
("SOHO") market.
The Company's DSL-based, high-speed data delivery solutions are useful for
vertical data communications applications such as videoconferencing,
tele-medicine and all types of corporate data network markets. Furthermore,
the Company's products provide a non-shared data transmission line, while most
other DSL products use a multiplexed modem at the central office.
Production Strategy
mPhase plans to use contract manufacturing companies to provide manufacturing
services and to support responsive customer service. The Company is targeting
leading contract manufacturing companies with which it believes long-term
relationships can be established and which have strategically located facilities
in North America, Mexico and Asia. In doing so, the Company is following a
trend already well established among original equipment manufacturers ("OEMs").
The production scale, infrastructure, purchasing volume and expertise of leading
contract manufacturers can enable OEMs to reduce production cycle time and
accelerate time to market. As electronic products have become technologically
advanced, internal manufacturing has required significantly increased working
capital, equipment, labor and infrastructure. Contract manufacturers enable
OEMs to manufacture without making the substantial capital investments required
for internal production.
Because OEMs are faced with increasing challenges in planning procuring and
managing their inventories efficiently due to frequent design changes, short
product life cycles, large investments in electronic components, component price
fluctuations and the need to achieve economies of scale in materials
procurement. Contract manufacturers' inventory management expertise and volume
procurement can reduce OEM production and inventory costs.
Contract manufacturers with worldwide capabilities also are able to offer OEMs
a variety of options on manufacturing locations to better address their
objectives regarding costs, shipment location, frequency of interaction with
manufacturing specialists and local content requirements of end-market
countries.
D. Patents and Licenses
The Company has filed and intends to file United States patents and/or copyright
applications relating to certain of its proposed products and technologies
either with its collaborators/strategic partners or on its own behalf. There
can be no assurance, however, that any of the patents obtained will result in
the Company protecting a commercially significant protection of its
technologies or that the Company will have adequate resources to enforce its
patents. Because the Company may license its technology and products in foreign
markets, it may also elect to seek foreign patent protection. With respect to
foreign patents, the patent laws of other countries may differ significantly
from those of the United States as to the patentability of the Company's
products or technology. In addition, it is possible that competitors in both
the United States and foreign countries, many of which have substantially
greater resources and have made substantial investments in competing
technologies, may have applied for, or may in the future apply for and
obtain, patents which will have an adverse impact on the Company's ability to
make and sell its products. There can also be no assurance that competitors
will not infringe on the Company's patents. Defense and prosecution
8<PAGE>
of patent suits, even if successful, are both costly and time consuming. An
adverse outcome in the defense of a patent suit could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require the Company to cease its operations.
The intellectual property owned and licensed by mPhase falls into two essential
categories, analog and digital intellectual property. The Company owns all of
the intellectual property related to the analog component of its DSL-based
products, previously held by Microphase Corporation. The provisional patents
and subsequent United States patent applications will be under the name of
mPhase.
mPhase acquired the intellectual property rights for the analog components
related to the TRAVERSERTM from MicroTel.
The following are titles of United States provisional patent applications for
the analog portion of the technology used in relation to the TRAVERSERTM
DVDDS: (a) Video Voice Isolation Filter for Telephone User Installation;
(b) Video Voice Isolation Filter for Rack Mount Telephone Equipment;
and (c) Voice Channel Noise Filter for Telephony.
The DSL filter technology developed by Microphase Corporation which is now
patent pending under application by mPhase, enables increased video clarity
over copper wire, longer transmission distances and decreased signal error
rate. The intellectual property related to the Microphase DSL filters falls
into two categories: the POTS filter, which separates the TRAVERSERTM DSL
spectrum from the traditional voice service and the upstream/downstream
filtering, which separates the two distinct portions of the TRAVERSERTM DSL
spectrum from each other. Both of these components are key to providing a DSL
signal at sufficient quality and service distances for combined video and
data delivery.
Digital intellectual property licensing is comprised of: (a) a non-exclusive
license from GlobeSpan Semiconductor, Inc. for the rights to use the GlobeSpan
RADSL chipset; and (b) an exclusive, worldwide license to manufacture and market
products using the technology developed under contract by GTRI. The exclusive
license with GTRI is applicable for the duration of their patent protecting the
system design and other technology related to the TRAVERSERTM product line.
Currently, GTRI has both regular and provisional United States patents pending
for transport and system design and proprietary framing and has filed all
necessary paperwork for permanent copyrights. United States patents for the
digital intellectual property have an effective filing date of November 4, 1997
and are pending. The Company believes that in the future it will have the
opportunity to acquire intellectual property rights from GTRI.
The licensed technology developed at GTRI centers around the capabilities of the
TRAVERSERTM DVDDS. The four (4) United States patents under application are:
(1) System and Method for Maintaining Timing Syncronization in a Digital Video
Network; (2) System and Method for the Delivery of Digital Video and Data over
a Communications Channel; (3) Computer System and Method for Providing Digital
Video and Data over a Communications Channel; and (4) Apparatus and Method for
Transporting Infrared and Radio Frequency Signals.
The exclusively licensed digital intellectual property allows several unique
aspects of the DVDDS. Among these is the backplane design, which allows the
ability to have every subscriber view any channel available. All subscribers in
a given system could be watching the same channel, or could be watching
different channels with no degradation of service. The proprietary design,
which does not incorporate a Digital Subscriber Line Access Multiplexer
("DSLAM") architecture, makes the DVDDS a true broadcast system rather than a
mere video delivery system.
Intellectual property rights also cover the development of the Framer and the
Framer chip. The Framer is an Application Specific Integrated Circuit (ASIC)
9<PAGE>
which gives the TRAVERSERTM DVDDS the capability of allocating both the
downstream and upstream bandwidth into virtually any application required.
This feature allows the TRAVERSERTM to deliver both MPEG-2 Digital Video and
Internet data simultaneously and also allows for future applications of the
DVDDS. This proprietary capability will not be able to be duplicated without a
serious endeavor to avoid patent infringement.
Patents pending also protect the software management and control of the
individual TRAVERSERTM links, the DVDDS, all firmware, C++ and Java code written
for the project and the channel changing methodology and interface to EPG
(electronic program guide) at the customer site through the Intelligent Network
Interface.
The Company also relies on unpatented proprietary technology, and there can be
no assurance that others may not independently develop the same or similar
technology or otherwise obtain access to the Company's unpatented technology. If
the Company is unable to maintain the proprietary nature of its TRAVERSERTM
technology, the Company's future operations could be adversely affected.
E. Regulation
The Federal Communication Commission ("FCC") and various state public utility
and service commissions, regulate most of the Company's potential domestic
customers. Changes to FCC regulatory policies affect the accessibility of
services, and other terms on which telecommunications providers conduct their
business, may adversely impact the Company's potential penetration into certain
markets. While the statutory and regulatory framework for telephone providers
providing video products has become more favorable, it is uncertain at this
time how this will affect the demand for products based upon DSL technology. In
addition, the Company's business and results of operations may also be
adversely affected by the imposition of certain tariffs, duties and other
import restrictions on components which the Company obtains from non-domestic
suppliers. Changes in current or future laws or regulations, in the U.S. or
elsewhere, could materially adversely affect the Company's business.
A(3) Management's Plan of Operation
To date, the Company has had no operating revenue. There can be no assurance
whatsoever that the TRAVERSERTM technology and products, when developed and
manufactured, will be able to compete successfully in the marketplace and/or
generate revenue. Moreover, the Company forecasts ongoing significant losses
into the foreseeable future, including, but not limited to, costs such as
general and administrative, marketing and sales, advertising, engineering,
drafting, manufacturing, assembly, quality control, cost of materials and
research and development expenses. Consequently, the Company will continue to
have high levels of operating expense before developing significant revenues
and will be required to make substantial capital expenditures in connection
with its ongoing research and development activities.
As a result of forecasted operating losses and the significant outlays for
research and development, the Company will be required to raise additional
capital through the issuance of its common stock, estimated at $15,000,000 at a
price per share to be determined, to sophisticated investors in a transaction
which is expected to be exempt from registration pursuant to Rule 506 of
Regulation D promulgated by the Securities and Exchange Commission ("the SEC")
under the Securities Act of 1933, as amended. Upon completion of this private
offering, the Company will have sufficient working capital for at least one year
and does not anticipate other offerings of its common stock during that time.
The TRAVERSERTM technology and products currently being developed by the Company
utilize new concepts and designs in transporting signals over traditional
twisted copper pair telephone wires. The prospects for success by mPhase
therefore will
10<PAGE>
depend on its ability to successfully sell its products to potential customers
who may be inhibited from doing business with the Company because of their
commitment to their own technologies and products. As a result, demand and
market acceptance for the TRAVERSERTM technology and products now under
development by the Company is subject to a high level of risk in relation to
their acceptance in the marketplace.
Reliance Upon Technology and Product Development by GTRI
If GTRI is unable to complete its development activities pursuant to contract
arrangements, the Company would have to complete development itself or through
third parties. Although management at mPhase believes it has sufficient
information to allow the completion of development of these products, there is
no assurance that the Company will have sufficient economic or human resources
to complete such development in a timely manner, or that it could enter into
economically reasonable arrangements for the completion of such products by
third parties. In addition, the Company's success will depend upon its
technologies and proposed products meeting acceptable performance criteria and
upon their timely introduction into the marketplace.
First to Market with a Video Solution
The Company intends to benefit from being first to market with a product that
allows the delivery of digital quality television over copper wire. The Company
estimates that it would take a competitor several years to develop comparable
technology without patent infringement. The Company believes that competitors
are focusing their product development on high-speed Internet data transmission
only and have overlooked the vast opportunity in digital television transmission
over copper wire.
Flexibility of Service Offerings
With the TRAVERSERTM, telcos can partition the bandwidth allocated to a given
line in nearly countless configurations. This flexibility will enable telcos to
provide Internet data only service using the entire bandwidth at 6 Mbps speeds
up to 18,000 feet or video data without Internet up to 15,000 feet. This feature
of the TRAVERSERTM system enables the telcos to remotely configure a customer's
bandwidth according to the needs of that specific subscriber.
Maximizing Breadth of Customer Base
The Company believes that the historical barriers in the communications industry
are being deconstructed. Companies that have traditionally offered only type of
service are expanding into different products. Cable companies are now offering
Internet and telephony services in addition to cable television. Long distance
companies are now entering the local, cellular and Internet Service Provider
("ISP") markets and, in some cases, the video distribution market. mPhase
intends to target all carriers and believes that most carriers would be
interested in offering a variety of services.
Leveraging the Success Based Economics of DSL
Because the TRAVERSERTM incorporates DSL technology, a significant portion of
the service provider's capital expenditures is success-based. The Company's
TRAVERSERTM system is modular and scalable so service providers can buy
equipment where they have presold lines, thereby eliminating stranded plant or
unused equipment. The Company estimates that eighty (80%) percent of
expenditures are variable and are incurred when a subscriber is added, compared
to twenty (20%) percent which is fixed common equipment in the central office
that is necessary regardless of the number of subscribers on the system.
11<PAGE>
Providing a Turnkey-Solution for Content - mPhase TV.net
The Company has organized a subsidiary corporation, mPhaseTV.net, which is an
integrator and aggregator of both digital television programming and Internet
content. mPhase TV.net will provide content for the telcos and other service
providers who install the TRAVERSERTM DVDDS hardware. mPhaseTV.net's content
package for both the Internet and the digital television applications of the
TRAVERSERTM is expected to rollout simultaneously and is contingent upon the
deployment rate of the TRAVERSERTM DVDDS version 1.1. The programming available
from mPhaseTV.net will be a suggested package of channels but can be customized
by each customer for local programming, existing and future ethnic channels,
special interest programming or preferred movie packages.
mPhaseTV.net has signed an agreement with InfoSpace.com Inc. ("InfoSpace")
(NASDAQ:INSP), a leading provider of Internet content, who will co-brand
Internet content for mPhase. Features included will be InfoSpace.com Yellow &
White Pages, Classifieds, Finance, Shopping, Net Community, and City Guide.
InfoSpace will act as the Internet portal for mPhase TV.net.
mPhaseTV.net will provide a gateway to the Internet through a proprietary mPhase
website, which consumers access through an mPhaseTV.net service provider. When
accessing the Internet, the telco subscriber will automatically enter the mPhase
homepage, similar to any on-line access provider. The mPhase Internet portal
will be powered by InfoSpace. The Company has signed an agreement with InfoSpace
to aggregate content and coordinate regional banner advertising with
mPhaseTV.net. Revenues from service provision will be shared between InfoSpace
and mPhaseTV.net. Any revenues derived from e-commerce will be shared between
InfoSpace, mPhaseTV.net and the telco or service provider, based on pre-
negotiated contracts.
Enable Service Providers to Benefit from E-Commerce and Internet Advertising
Telcos and service providers using the TRAVERSERTM product will benefit from
additional revenue streams derived through E-Commerce and advertising profit
sharing. The Company anticipates negotiating individual agreements with service
providers who purchase the TRAVERSERTM product related to revenue generated from
e-commerce and online advertising profit sharing. These agreements would be
dependent upon the terms of the agreements between the Company and e-commerce
participants, who generally reward Internet content providers featuring online
shopping on their website with a percentage of revenues generated through that
site. The Company would then pass along a portion of revenues to the telcos or
service providers.
Continued Product Enhancements
The Company anticipates developing a number of future products, which can be
incorporated into the TRAVERSERTM product line using mPhase's proprietary framer
chip to allocate both the downstream and upstream bandwidth dynamically for a
myriad of applications. In addition to digital television and Internet usage,
applications such as video conferencing and digital telephony (virtual copper)
become a technical and economic possibility. Remote security system monitoring,
utility meter reading, and any Ethernet data application can be performed with
the proper connectivity. When MPEG-2 video is not being transmitted over a
particular link, the entire bandwidth is automatically allocated to Ethernet.
Future Product Offerings
The Company also has several additional products under development to enhance
and expand its target market. These products include the DVDDS version 2.0, a
Digital Loop Carrier TRAVERSERTM solution, and a DSL repeater. The TRAVERSERTM
12<PAGE>
DVDDS version 2.0 will address connectivity to ATM networks, targeting the
larger CLECs, certain foreign telephone companies, as well as the RBOCs.
Version 2.0 will offer a capacity of 400 digital video channels.
Strategic Partnerships
The Company intends to seek additional strategic partners for the aggregation
and development of television and Internet content, manufacturing, sales and
distribution and technological advancements. mPhase relies on the additional
expertise that other companies have in various specific fields, which relate to
the successful commercialization of the TRAVERSERTM, and intends to leverage
that expertise to enhance its product appeal. The Company is actively looking in
international markets for resellers and distributors who have established
relationships with pre-existing carriers. mPhase is also exploring the
possibility of seeking a partner to provide a turnkey video package, which it
can then resell to telcos who purchase the Company's hardware products.
B. Segment Data
As of December 31, 1998, no sales revenue has been generated by the Company.
Accordingly, no table showing percentage breakdown of revenue by business
segment or product line is included.
C. Forward Looking Statements
Forward-looking statements above and elsewhere in this report that suggest that
the Company will increase revenues, become profitable and achieve significant
growth are subject to risks and uncertainties. Forward-looking statements
include the information concerning possible or assumed future results of
operations and cash flows. Words such as "believes," "expects," "anticipates,"
or similar expressions identify these statements. Such forward-looking
statements are based on the beliefs of the Company and its Board of Directors in
which they attempt to analyze the Company's competitive position in its industry
and the facts affecting its business. Investors should understand that each of
the foregoing risk factors, in addition to those discussed elsewhere in this
document could affect the future results of the Company, and could cause those
results to differ materially from those expressed in the forward-looking
statements contained or incorporated by reference herein. In addition, there can
be no assurance that the Company and its Board have correctly identified and
assessed all of the factors affecting the Company's business.
Item 2. Description of Property
The Company's corporate headquarters are located at 587 Connecticut Avenue,
Norwalk, CT 06856-0960. The Company also leases office space as well as
administrative services of Microphase Corporation including the use of
accounting personnel on a month to month basis for $5,000 per month. The
Company also maintains an office at the facilities of Georgia Tech Research
Corporation in Atlanta Georgia where the GTRI also has research facilities as
part of its contractual relations relating to a basic ordering agreement
between mPhase and Georgia Tech Research Corporation.
13<PAGE>
Item 3. Directors, Executive Officers and Significant Employees
(a) Directors and Executive Officers and Significant Employees
The names, ages and positions of the Company's present directors and executive
officers are as follows:
Name Age Position
Necdet F. Ergul 75 Director, Chairman of the Board
Ronald A. Durando 42 Director, President and Chief
Executive Officer
Gustave T. Dotoli 62 Director and Chief Operating
Officer
David Klimek 44 Director, Chief Technology
Officer
J. Lee Barton 45 Director
Hal L. Willis 45 Executive Vice President -
Corporate Development
Susan E. Cifelli 41 Executive Vice President -
Sales and Marketing
(b) Other relationships
Necdet F. Ergul, Director and Chairman of the Board of the Company is also the
Chairman of the Board of Microphase Corporation. Ronald A. Durando, president
of the Company is also Chief Operating Officer of Microphase Corporation.
Gustave T. Dotoli is also Vice President of Corporate Development at Microphase
Corporation.
(c) Work Experience
Necdet F. Ergul: Chairman of the Board of Directors. Mr. Ergul has been
Chairman of the Board at mPhase since October 1996 with the exception of a three
month period when he temporarily resigned from that position due to the press of
personal business. He is also the President and Chief Executive Officer of
Microphase Corporation which he founded in 1955. In addition to his management
responsibilities at Microphase, he is active in engineering design and related
research and development. Mr. Ergul holds a Masters Degree in Electrical
Engineering from the Polytechnic Institute of Brooklyn, New York.
Ronald A. Durando: Mr. Durando has been President and Chief Executive Officer
of mPhase since the Company's inception in October of 1996. In addition, he has
been the Chief Operating Officer of Microphase Corporation since 1994. From 1987
to 1994, he was the President and Chief Executive Officer of Nutley Securities,
Inc., a registered broker-dealer. From 1982 to 1987 Mr. Durando worked as a
Registered Representative for several Security Brokerage firms. From 1973 to
1982, Mr. Durando held various positions at Nova Electric Manufacturing Company,
including Head of Electromechanical Design.
Gustave T. Dotoli: Mr. Dotoli has been Chief Operating Officer of mPhase since
October of 1996. In addition, Mr. Dotoli has been the Vice President of
Corporate Development at Microphase Corporation since December of 1996. He is
formerly the President and Chief Executive Officer of the following
corporations: Imperial Electro-Plating, Inc., World Imports USA, Industrial
Chemical Supply, Inc., SISCO Beverage, Inc. and Met Pack, Inc. Mr. Dotoli
earned a B.S. degree in Industrial Engineering from Fairleigh Dickenson
University in 1959.
14<PAGE>
David Klimek: Mr. Klimek has been Chief Technology Officer of mPhase since
June, 1998 and Director of Engineering since the Company's inception in
October 1996. He has more than 18 years of technical engineering and design
expertise and presently holds 13 individual or co-authored U.S. Patents. From
1982 to 1990, Mr. Klimek was the Research and Development Manager at Digital
Controls, Inc.
In 1982, he received his Bachelor of Science degree in Electrical Engineering
from Milwaukee School of Engineering, Milwaukee, WI. In addition, he graduated
from the U.S. Navy Basic Electronics School at Great Lakes Naval Training Center
in 1972.
Hal L. Willis: Mr. Willis has been Executive Vice President - Corporate
Development of mPhase since October 1998. Prior to joining mPhase, Mr. Willis
had 17 years of cable television industry experience with Gaylord Entertainment
Company. Mr. Willis was formerly Vice President and General Manager - Worldwide
for the Country Music Television Cable Network ("CMT") and longtime General
Counsel of the Nashville Network (TNN). Mr. Willis worked with Gaylord
Entertainment Company, overseeing its launch of TNN and its acquisition of CMT.
Susan E. Cifelli: Ms. Cifelli joined mPhase in the capacity of Executive Vice
President - Marketing during February 1999. Ms. Cifelli has 18 years of
experience in the telecommunications industry with Bell Atlantic, NYNEX and New
England Telephone Company. Most recently, she was Project Manager for the
"Infospeed" DSL Services Marketing Project at Bell Atlantic. Prior to this, she
was the Project and Product Manager for marketing InfoFone Services in the State
of New York. Ms. Cifelli holds an Masters of Science degree in
Telecommunications & Computing Management from Polytecnic University and a
Bachelors of Art from the State University of New York at Buffalo.
J. Lee Barton: Mr. Barton became a member of the board of mPhase in February
1999. Mr. Barton is presently Chief Executive Officer of Lintel, Inc. a holding
company that includes Hart Telephone Company, a 10,000 line Local Exchange
Carrier in Northeast Georgia; Hart Communications, an interconnect carriers'
carrier and long distance company; Hart Cellular, a partnership in two RSA's in
North Georgia; Hart Cable, a recently formed cable television company; and Hart
GlobalNet.
(d) Involvement in certain material legal proceedings during the last five
years
A. No director, executive officer, significant employee or consultant has
been convicted in a criminal proceeding, exclusive of traffic violations.
B. No bankruptcy petitions have been filed by or against any business or
property of any director, executive officer, significant employee or
consultant of the Company nor has any bankruptcy petition been filed
against a partnership or business association where these persons were a
general partner or executive officer.
15<PAGE>
Item 4. Renumeration of Existing Directors, Executive Officers and
Consultants
A. Remuneration During Period ended June 30, 1998
(i) Compensation of Officers
Options,
Warrants
Capacities Or Other
In Which Remuneration Aggregate Stock
Name of Individual Was Recorded Remuneration Rights
Necdet F. Ergul Chairman of the Board -0- - 0 - (1)
Ronald A. Durando President and Chief
Executive Officer 150,000 - 0 - (1)
Gustave Dotoli Chief Operating Officer 120,000 - 0 - (1)
David Klimek Manager of Engineering 68,500 - 0 - (1)
(ii) Compensation of Directors
There were no arrangements pursuant to which any director of the Company was
compensated for the period ended June 30, 1998 for any service provided as a
director.
(1) Does not include options issued with an exercise price of one dollar
($1.00) per share, and therefore no compensatory element.
B. Remuneration Subsequent to year-end for the six month period ending
December 31, 1998
Options,
Warrants
Capacities Or Other
Name of Individual In Which Remuneration Aggregate Stock
or Identity of Group Was Recorded Remuneration Rights
Necdet F. Ergul Chairman of the Board -0- $ 256,250 (1,2)
Ronald A. Durando President and Chief
Executive Officer 75,000 $ 256,250 (1,2)
Gustave Dotoli Chief Operating Officer 60,000 $ 85,417 (1,2)
David Klimek Manager of Engineering 37,985 - 0 - (1)
There were no arrangements pursuant to which any director of the Company was
compensated for the period ended June 30, 1998 for any service provided as a
director.
(1) Does not include options issued with an exercise price of one dollar
($1.00) per share, and therefore no compensatory element.
(2) Includes grant of shares valued at $1.7083 per share, issued in January of
1999 for services performed through December 31, 1998. 150,000 shares
were issued to Necdet F. Ergul; 150,000 shares were issued to Ronald A.
Durando; and 50,000 shares were issued to Gustave T. Dotoli.
Item 5. Security Ownership of Management and Certain Security holders
A. The following table sets forth information concerning stock ownership of
(i) each director, (ii) each executive officer (iii) the directors and
officers of the Company as a group, (iv) and each person known by the
Company to own beneficially more than 10% of the Common Stock as of June
25, 1998.
16<PAGE>
Amount
Title Name and Address of Shares Percent
of of Held By of
Class Owner of Shares Owner Class
Common Necdet F. Ergul (1) 1,306,148 7.6
" Ronald A. Durando (1)(2) 1,966,148 11.4
" Gustave Dotoli (1) 775,000 4.5
" J. Lee Barton (1) 2,545,000 14.8
" David Klimek (1) 300,000 1.8
" Hal L. Willis (1) 150,000 0.9
" All Directors and
Officers as a group
(6 persons) Total 7,042,296 41.0%
(1) c/o mPhase Technologies, Inc.,
(2) Includes 320,000 shares held by Nutley Securities, Inc. which is owned
100% by Mr. Durando.
B. Persons Sharing Ownership of Control Shares
No persons other than J. Lee Barton, Ronald A. Durando and Necdet F. Ergul
own or shares the power to vote 5% or more of the Company's securities.
C. Non-voting Securities and Principal Holders Thereof.
The Company has not issued any non-voting securities.
D. Options, Warrants and Rights
The Company has issued 1,621,845 five year warrants to purchase mPhase
common stock in connection with Rule 505 offerings of its securities to
investors. It also issued 75,000 five year warrants to a company called
VMW, Inc., the first 25,000 warrants exercisable at $1.06 per share and
the balance of 50,000 exercisable at $2.375 per share. In addition, the
Company issued 400,000 five year warrants to Kaufman Brothers, a New York
City investment banker, exercisable at $1.00 per share. The warrants
granted the Kaufman Brothers also contain provisions which would allow for
a conversion to common stock without any proceeds being received by the
Company under a formula which would reduce the number of shares issued
when the warrants are exercised based in part on the marketplace of the
Company's common stock when the warrants are exercised.
The Company has also granted stock options to its directors, officers,
legal counsel and certain consultants, in August 1997 and again in
January/March 1999. The total number of stock options granted and
outstanding as of March 31, 1999 was 5,703,750. Of this number, 5,573,750
were exercisable at $1.00 per share, 80,000 were exercisable at $1.50 per
share, and 50,000 were exercisable at $2.00 per share.
In August 1997, the Company granted Thomas A. Murphy, a former director
and officer of the Company, 750,000 options to purchase mPhase common
stock at a price of $1.00 per share. As a consequence of negotiations
between the Company and Mr. Murphy, this former director and officer
agreed to waive any claim he may have had to the 750,000 stock options
that had been granted to him.
E. Parents of the Issuer
Under the definition of parent, as including any person or business entity
who controls substantially all (more than 80%) of the issuers of common
17<PAGE>
stock, the Company has no parents. No person other than Messrs. J. Lee
Barton, and Ronald A. Durando own or share the power to vote 10% or more of the
Company's securities.
Item 6. Interest of Management and Others in Certain Transactions
The management of the Company are also employees of an affiliated group of
companies which have recorded material transactions with the Company. The
Company's management is in a position to, and in the future may, influence
future operations of the Company for the benefit of other companies that are
under their control.
During the period ended June 30, 1997, the Company advanced $164,000 and
$250,090 to companies then under common control. Additionally, the Company
agreed to reimburse another affiliate $383,266 for research and development
expenses as well as certain marketing expenses and $42,500 for other costs.
On May 1, 1997 the Company entered into an agreement with Microphase
Corporation, an affiliated company with certain directors and officers in
common, whereby the Company will utilize office space as well as the
administrative services of Microphase Corporation such as its accounting
personnel. This agreement calls for payments of $10,000 a month and is on a
month to month basis.
On October 27, 1997, the Company, in connection with a planned joint venture
licensing agreement with Global Music & Media, Inc., a Tennessee corporation,
became the 41.724% owner in an unconsolidated subsidiary known as Complete
Telecommunications, Inc. Pursuant to the original concept for the joint
venture, the Company made an investment of $300,000 and issued to Global
Music & Media, Inc. 250,000 shares of its common stock then valued at
$125,000. The Company also advanced $150,000 to the joint venture which was to
bear interest at twelve (12%) percent per annum. No payments have been
received by the Company from the joint venture with Global Music & Media,Inc.
During the fiscal year 1998, Global Music & Media, Inc. commenced an action
against the Company alleging it was the holder of an exclusive license to
market the Company's TRAVERSERTM technology and related projects.
Prior to its merger with Lightpaths, Inc., when known as Tecma Laboratories,
Inc., the corporation had abandoned its Bridgewater, New Jersey facility and had
taken the position it had no obligation for rent under a lease with U.S. Land
Resources, L.P. which has since expired. Notwithstanding, the Company recorded
$54,250 on its books for unpaid rent which is included in accounts payable as of
June 30, 1998. As a consequence of a lawsuit brought by U.S. Land Resources
which named the former legal counsel for the Company as a defendant, in March
1999, the Company negotiated a settlement of this obligation which was funded in
substantial part by the aforesaid former legal counsel of the Company and,
accordingly, had no further impact on its books.
Prior to recapitalization due to the reverse acquisition discussed in A(1)
Business Development, Organization and Acquisition Activities, the Company
issued 1,500,000 and 27,465 shares of stock in cancellation of $75,000 of loans
and $6,866 of accounts payable respectively, bringing the aggregate shares to
11,404,270 prior the recapitalization and the reverse split noted below.
The Company effected a one-for-ten reverse split for the shares above, effective
March 31, 1997.
The Company issued 6,600,000 post reverse split shares in connection with the
reverse acquisition discussed above.
18<PAGE>
On June 25, 1998, the Company issued 2,500,000 shares in consideration for all
the issued and outstanding shares of MicroTel, which was then an affiliate of
Microphase Corporation which holds certain provisional patents and copyrights
relating to the Company's TRAVERSERTM technology. As a consequence of this
acquisition, the Company eliminated a Technology, Patent and Trademark License
Agreement it had entered into with MicroTel.
Item 7. Description of Securities
(a) Common or Preferred Stock
(1) Description of Rights and Liabilities of Common Stockholders
(i) Dividend Rights-The holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefore at such
times and in such amounts as the board of directors of the Company may from time
to time determine.
(ii) Voting Rights-Each holder of the Company's common stock are entitled to one
vote for each share held of record on all matters submitted to the vote of
stockholders, including the election of directors. All voting is noncumulative,
which means that the holders of 50% of the shares voting for the election of the
directors can elect all the directors. The board of directors may issue shares
for consideration of previously authorized but unissued common stock without
further stockholder action.
(iii) Liquidation Rights- Upon liquidation, the holders of common stock are
entitled to receive pro rata all of the assets of the Company available for
distribution to such holders.
(iv) Preemptive Rights-Holders of common stock are not entitled to preemptive
rights.
(v) Conversion Rights-No shares of common stock are currently subject to
outstanding options, warrants, or other convertible securities.
(vi) Redemption Rights-No redemption rights exist for shares of common stock
(vii) Sinking Fund Provisions- No sinking fund provisions exist for shares of
common stock.
(viii) Further Liability For Calls- No shares of common stock are subject to
further call or assessment by the issuer.
(2) Potential Liabilities of Common Stockholders to State or Local Authorities
No material potential liabilities are anticipated to be imposed on stockholders
under state statues.
(b) Debt Securities
The Company is not registering any debt securities, nor are any debt securities
presently outstanding.
(c) Other Securities To Be Registered
The Company is not registering any securities other than its common stock.
19<PAGE>
Part II
Item 1 Market Price of and Dividends on the Registrant's Common Equity and
Other Stockholder Matters
(a) Market Information
(1)The common stock of the Company is presently traded on the NASDAQ OTC
Bulletin Board, under the symbol "XDSL".
The following represents the high and low, bid and ask prices of the Company's
common stock the last two fiscal years as provided by the National Quotation
Bureau, Inc.. The quotations shown reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not represent actual transactions.
THESE FIGURES HAVE BEEN ADJUSTED TO REFLECT A 1 FOR 10 REVERSE SPLIT ON MARCH 1,
1997 AND A REVERSE SPLIT OF 1 FOR 2 EFFECTIVE ON SEPTEMBER 21, 1995
Bid Prices Ask Prices
High Low High Low
1996
October 1 through December 31 $.03125 $ .03125 $ .28125 $ .28125
1997
Jan. 1 through Mar. 31 $ .625 $ .03125 $ .78125 $ .28125
Apr. 1 through June 30 $ 3.75 $ 1.75 $ 5.00 $ 2.125
July 1 through Sept. 30 $ 2.125 $ 1.375 $ 2.3475 $ 1.875
Oct. 1 through Dec. 31 $ 1.406 $ .625 $ 1.875 $ .8125
1998
Jan. 1 through Mar. 31 $ 1.75 $ .875 $ 2.00 $ 1.0
April 1 through June 30 $ 2.375 $ 1.125 $ 2.5625 $ 1.28125
July 1 through Sept. 30 $ 5.125 $ .71875 $ 5.25 $ .875
Oct. 1 through Dec. 31 $ 7.813 $ 1.3125 $ 3.9375 $ 1.500
1999
Jan. 1 through Mar. 31 $ 7.375 $ 1.875 $ 7.375 $ 1.9688
(2)(i) The common stock of mPhase is subject to outstanding options issued to
directors, officers, consultants and legal counsel of the Company as follows:
5,488,750 options to purchase 5,488,750 shares of the Company's common stock at
$1.00 per share, 80,000 options to purchase 80,000 shares of the Company's
common stock of $1.50 per share and 50,000 options to purchase 50,000 shares of
the Company's common stock at a price of $2.00 per share. In addition, the
Company has issued 1,621,845 warrants to purchase 1,621,845 shares of the
Company's common stock at $0.75 per share, 25,000 warrants to purchase 25,000
shares of the Company's common stock at $1.06 per share, 50,000 warrants to
purchase 50,000 shares of the Company's common stock at $2.4375 per share and
400,000 warrants to purchase 400,000 shares of the Company's common stock at a
price of $1.00 per share but with provisions which would allow the holder of
the warrants to reduce the number of shares exercised proportionately to the
market price of the Company's stock in lieu of payment for these options.
(ii) All of the issued and outstanding shares of the Company's common stock is
subject to being sold under Rule 144 promulgated by the United States Securities
and Exchange Commission under the Securities Act of 1933, as amended. Except for
a limited number of shares sold under Rule 504 of Regulation D, sales of
unregistered shares of mPhase common stock made by the Company to investors have
been made with the understanding that it would file to become a reporting
company which would then allow the investors to sell the shares purchased
pursuant to Rule 144 after a one year holding period. As of March 31, 1999,
the public float consisted of approximately 4,511,000 shares and the remaining
12,683,000 issued and outstanding shares were subject to Rule 144restrictions.
20
(iii) No common stock is currently being publicly offered by the Company.
However, management continues to seek additional capital to fund its research
and development projects through the private placement of its securities with
institutions and other sophisticated investors. The Company presently plans a
to implement a private placement of its securities that would raise $15,000,000
pursuant to Rule 506 of Regulation D promulgated by the SEC.
(b) Shareholders
As of March 31, 1999, the Company had issued 17,194,043 shares, all of which
were still outstanding and held by individual shareholders and brokerage firms
and/or clearing houses in "street name" for their clients. The Company believes
that there are approximately 750 beneficial owners of its common stock,
including shares held in street name.
(c) Dividends
The Company has not paid any dividends, other than a dividend having a value of
$11,404, distributed to shareholders of record on February 16, 1997. In
addition, certain assets and liabilities from the health care business were
transferred to TLI, which was then spun off to shareholders of record prior to
the date of the acquisition by the Company of Lightpaths, Inc., the subsidiary
which then held the rights to the mPhase technology and products which are now
identified as the TRAVERSERTM technology and products. The Company does not
anticipate paying dividends in the immediate foreseeable future. The board of
directors of the Company will review its dividend policy from time to time to
determine the desirability and feasibility of paying dividends after giving
consideration to the Company's earnings, financial condition, capital
requirements and such other factors as the board may deem relevant.
Item 2. Legal Proceedings
The Company is not currently involved in any legal proceeding nor does it have
knowledge of any threatened litigation, except for a lawsuit instituted by
Global Music and Media Inc, a Tennessee Corporation, over an alleged breach of
an April 30, 1997 agreement whereby Global alleges it was given the exclusive
right to market mPhase technology as well as television programming and
related services. The Company has asserted the April 30, 1997 agreement
relied upon by Global was superseded by an October 27, 1997 agreement with
respect to which Global and a related company has defaulted under its
obligations. Accordingly, the Company does not believe there is any merit to
the contentions of Global and intends to vigorously defend the lawsuit.
The Company was previously involved in an action arising out of a lease entered
into by its predecessor in name with U.S. Land Resources, L.P. which has since
been resolved and settled at a minimal cost. Another matter which did not
result in litigation but was settled by the Company involved claims by Thomas
A. Murphy, a former director and executive of the Company who agreed to waive
all claims against the Company in return for allowing him to retain the
benefit of 525,000 shares of mPhase common stock he had acquired as a
founding shareholder of Lightpaths, Inc. and as a director of the Company.
Item 3. Changes in and Disagreements With Accountants
Effective for the fiscal year ended June 30, 1997, the Company changed its
accountants from Mauriello, Franklin & LaBrace, CPAs to Schuhalter, Coughlin &
Suozzo, LLC. Mauriello, Franklin & Labrace, CPAs declined to stand for
re-election in March of 1997. In the Auditor's report for the fiscal year ended
June 30, 1996, Mauriello, Franklin & Labrace, CPAs expressed an opinion which
was qualified as to the Company's ability to continue as a going concern.
There were no disagreements with the former accountant on any matter of
accounting principals or practices, financial statement disclosure, or
auditing scope or procedure. 21<PAGE>
Item 4. Recent Sales of Unregistered Securities
(a) In June 1997, the Company issued 594,270 post reverse split shares for
aggregate consideration of $897,405, pursuant to Rule 504 of Regulation D of
the United States Securities and Exchange Commission. In July 1997, the Company
issued 49,300 post reverse split shares for aggregate consideration of
$98,600,pursuant to Rule 504 of Regulation D of the United States Securities and
Exchange Commission.
In November 1997, 300,000 post reverse split shares were issued for services
rendered to the Company valued at twenty-five ($0.25) cents per share in
connection with efforts to obtain markets for the Company's technology.
In November 1997, the Company also issued 300,000 post reverse split shares to
shareholders of Complete Telecommunications, inc. for aggregate consideration of
$300,000 and issued 250,000 post reverse split shares as part of its investment
in Complete Telecommunications, Inc.
During the fiscal year ended June 1998, the Company issued 2,195,014 post
reverse split shares for aggregate consideration of $1,677,218, which net of
offering costs of $205,203, generated net proceeds of 1,472,015 to the
Company. In addition, during the same time period, warrants to purchase
1,621,845 shares of mPhase common stock at a price of $.75 per share were
issued pursuant to an offering made under Rule 505 of Regulation D promulgated
by the United States Securities and Exchange Commission under authority
granted that federal agency by provisions of the Securities Act of 1933, as
amended.
On June 25, 1998, the Company issued 2,500,000 shares in consideration for all
the shares outstanding of Microphase Telecommunications, Inc., a Connecticut
corporation, which is also an affiliate that holds substantially all the patents
and copyrights to the Company's technology.
During the six month period ended December 31, 1998, the Company issued 360,000
shares valued at $615,000, considering the Rule 144 restrictions to which they
were subject, and charged the same to stock based compensation in the statement
of operations.
During the six month period ended December 31, 1998, the Company issued 54,332
shares valued at $40,750 for services.
Also during the six period ended December 31, 1998, the Company issued 3,115,000
shares for $3,197,416, which net of offering costs aggregating $132,666,
generated net proceeds of $3,064,750 to the Company.
Subsequent to December 31, 1998, the Company issued 85,000 shares for services
rendered valued at $0.50 per share resulting in net proceeds to the Company of
$42,500 for bookkeeping purposes.
(b) The Company has not publicly offered any unregistered securities. It has no
agreement with any person who may be deemed an underwriter. However, it has sold
shares of its common stock in private transactions, including the Rule 504 and
Rule 505 offerings discussed below.
(d) The issuer has not sold any securities for other than cash, except for
1,000,000 shares of its common stock issued to the following persons:
(1) 600,000 shares of stock issued to Nutley Securities, Inc. a company in which
Ronald A. Durando is President, valued at $0.01 per share in connection with his
services as a "finder fee" at the time of the acquisition of Lightpaths, Inc.
22<PAGE>
(2) 100,000 shares of common stock, valued at $0.25 per share, issued to Robert
H. Jaffe & Associates, P.A. in consideration of services to be rendered by that
law firm in connection with drafting the Company's initial registration
statement on SEC Form 10-SB, and 300,000 shares to six investors who performed
services for the Company in connection with efforts to obtain markets for the
Company's technology.
(e) The unregistered shares of common stock sold by the Company pursuant to
Rule 504 in June/July 1997 were offered in accordance with provisions of
Regulation D of the United States Securities and Exchange Commission and
similar exemption provisions in the states where these offerings were made.
These offerings were made to accredited investors, who represented in
subscription agreements that they had sufficient assets such that they could
afford to lose their entire investment without significantly affecting their
personal financial condition.
(f) The unregistered shares of common stock sold by the Company pursuant to Rule
505 in 1998 were offered in accordance with provisions of Regulation D of the
United States Securities and Exchange Commission and similar exemption
provisions in the states where these offerings were made. These offerings were
made to accredited investors, who represented in subscription agreements that
they had sufficient assets such that they could afford to lose their entire
investment without significantly affecting their personal financial condition.
Item 5. Indemnification of Directors and Officers
THE BYLAWS OF THE COMPANY PROVIDE FOR INDEMNIFICATION OF EMPLOYEES AND AGENTS IN
CERTAIN CASES. INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS
BEEN INFORMED 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.
23<PAGE>
TABLE OF CONTENTS
The following documents are filed as part of this report:
a) mPhase Technologies, Inc. and Subsidiary Page
Report of Schuhalter, Coughlin & Suozzo, LLC F-1
Consolidated Balance Sheet as of June 30, 1998 and
December 31, 1998 (Unaudited) F-2, F-3
Consolidated Statement of Operations From the Company's
Inception, October 2, 1996 through June 30, 1997 and
December 31,1998 (Unaudited) and for the year ended
June 30, 1998 and the six months ended
December 31, 1998 (Unaudited) F-4 - F-5
Consolidated Statement of Changes in Stockholder's
Deficit from Inception, October 2, 1996 through
June 30, 1997 and for the year ended June 30, 1998
and the six months ended December 31, 1998 (Unaudited)F-6, F-7, F-8
Consolidated Statement of Cash Flows From the Company's
Inception, October 2, 1996, through June 30, 1997 and
December 31, 1998 (Unaudited) and for the year ended
June 30, 1998 and the six months ended
December 31, 1998 (Unaudited) F-9
Notes to Consolidated Financial Statements F-10
b) Interim Financial Statements are not provided in this
section as they are included above
c) Financial Statements of Businesses Acquired or to be Acquired
1) Tecma Laboratories, Inc.
Report of Mauriello, Franklin & Labrace, CPA's F-21
Balance Sheets as of June 30, 1996 F-22
Statements of Income for the years ended June 30, 1996
and 1995 F-23
Statements of Stockholder's Equity for the years ended
June 30, 1996 and 1995 F-24
Statements of Cash Flows for the years ended June 30,
1996 and 1995 F-25
Notes to the Financial Statements F-26
2) Microphase Telecommunications, Inc.
Report of Schuhalter, Coughlin & Suozzo, LLC F-34
Balance Sheet as of June 30, 1998 F-35
Statement of Operations for the year
ended June 30, 1998 F-36 - F-37
Statement of Cash Flows for the year ended June 30, 1998 F-38
Notes to Financial Statements F-39
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
mPhase Technologies, Inc.
We have audited the accompanying balance sheets of mPhase Technologies, Inc. as
of June 30, 1997 and June 30, 1998 and the related statements of operations,
changes in stockholders' equity, and cash flows for the period October 2, 1996
(date of inception) through June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at June 30, 1998 and the results
of its operations and its cash flows for the period of October 2, 1996 (date of
inception) through June 30, 1998 in conformity with generally accepted
accounting principles.
The Company is in the development stage as of June 30, 1998. Recovery of the
Company's assets is dependent upon future events, the outcome of which is
indeterminable. In addition, successful completion of the Company's development
program and its transition, ultimately, to attaining profitable operations is
dependent upon obtaining adequate financing to fulfill its development
activities and achieving a level of sales adequate to support the Company's
cost structure.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, conditions
exist which raise substantial doubt about the Company's ability to continue as
a going concern unless it is able to generate sufficient cash flows to meet its
present and future obligations and sustain its operations. Management's plan in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Schuhalter, Coughlin & Suozzo, LLC
Schuhalter, Coughlin & Suozzo, LLC
Raritan, New Jersey
January 28, 1999
F-1<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Balance Sheet
June 30, December 31,
1998 1998
(Unaudited)
ASSETS
Cash and equivalents $ - $ 969,680
Prepaid expenses 16,000 4,400
Deposits - 7,415
Equipment used in research and development, less
accumulated depreciation of $29,427 and $47,661 59,115 82,603
Marketing equipment, less accumulated depreciation
of $5,268 and $8,951 16,350 15,826
Patents and licensing rights, at cost, less
accumulated amortization of $46,534 and $142,366 1,084,492 972,624
Organization costs, less accumulated amortization
of $187 and $253 468 1,122
Note receivable - unconsolidated subsidiary, net
of $150,000 bad debt reserve - -
Goodwill, less accumulated amortization of
$0 and $49,929 998,085 948,181
TOTAL 2,174,510 3,001,851
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Cash overdraft 8,432 -
Accounts payable 1,706,584 2,290,288
Accrued expenses 638,554 601,079
Due to affiliates 525,729 442,490
Deferred revenue - 40,000
Loan payable 210,000 222,600
TOTAL LIABILITIES 3,089,299 3,596,457
STOCKHOLDERS DEFICIT
Common stock, no par value, 50,000,000 shares
authorized; 13,579,711 shares issued and
outstanding at June 30, 1998 and 17,109,043
shares issued and outstanding at
December 31, 1998 (unaudited) 4,215,489 7,976,739
Deficit accumulated during development stage,
subsequent to recapitalization effective
October 2, 1996 (5,122,305) (8,563,372)
Treasury Stock, 13,750 shares at cost (7,973) (7,973)
TOTAL STOCKHOLDERS' DEFICIT (914,789) (594,606)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $2,174,510 $3,001,851
The accompanying notes are an integral part of these financial statements.
F-2<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Statement of Operations
From
October 2,
1996
(Date of For the
Inception) Year
to Ended
June 30, June 30,
1997 1998
TOTAL REVENUE $ - $ -
COSTS AND EXPENSES
Research and development (including $109,646
and $101,240 for the periods ended
June 30, 1997 and 1998 respectively and
$302,188 for the period ended 192,502 2,297,282
December 31, 1998 incurred with affiliate)
Licensing fees, including $450,000 for the
period ending June 30, 1998 incurred
with affiliate 37,500 450,000
General and administrative (including $223,488
and $61,131 for the period ended June 1997
and 1998 respectively, and $60,000 for the
period ended December 31, 1998 incurred
with affiliate) 540,722 1,109,801
Depreciation and amortization 10,522 29,131
Stock based compensation - 150,000
Interest expense - -
TOTAL COSTS AND EXPENSES (781,247) (4,036,214)
NET (LOSS) FROM OPERATIONS $ (781,246) (4,036,214)
LOSS FROM UNCONSOLIDATED SUBSIDIARY
INCLUDING $150,000 RESERVE FOR BAD DEBT - (304,845)
NET (LOSS) $ (781,246) $(4,341,059)
BASIC LOSS PER COMMON SHARE $ (.100) $ (.465)
COMMON SHARES OUTSTANDING 7,806,457 9,336,340
DILUTED LOSS PER COMMON SHARE $ (.068) $ (.313)
COMMON SHARES AND EQUIVALENTS OUTSTANDING 11,481,457 13,883,185
The accompanying notes are an integral part of these financial statements.
F-3<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Statement of Operations - (Continued)
From
October 2,
For the 1996
Six (Date of
Months Inception)
Ended to
December 31, December 31,
1998 1998
(Unaudited) (Unaudited)
$ - $ -
1,887,210 4,376,994
- 487,500
717,786 2,368,309
165,721 205,374
655,750 805,750
14,600 14,600
(3,441,067) (8,258,527)
(3,441,067) (8,258,527)
- (304,845)
$(3,441,067)$(8,563,372)
$ (.251)$ (.500)
13,736,365 17,109,043
$ (.160)$ (.344)
21,536,960 24,909,638
The accompanying notes are an integral part of these financial statements
F-4<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Deficit
From July 1, 1996 to June 30, 1998 and December 31, 1998 (Unaudited)
Number Common Treasury
of Shares Stock Stock (Deficit) Total
Balance, July 1, 1996,
as previously
reported 9,876,800 $ 389,291 $ - $(671,039) $ (281,748)
Conversion of Loans
Payable to Common
Stock 1,500,000 5,000 - - 75,000
Conversation of
Accounts Payable
to Common Stock 27,465 6,866 - - 6,866
One-for-Ten Reverse
Common Stock Split(10,263,838) - - - -
Assignment of
Certain Assets and
Liabilities of
Prior Tecma
Laboratories, Inc.
to TLI Industries,
Inc. and Spin-off
of 100% of TLI
Industries Common
Stock to
Shareholders, net
of $46,990 Loss
from Discontinued
Operations and
Dividend of $11,404 - - - 133,332 133,332
Subtotal 1,140,427 471,157 - (537,707) (66,550)
Issuance of Common
Stock in
Consideration for
100% of the Common
Stock of Lightpaths,
Inc. 6,600,000 66,550 - - 66,550
Elimination of
Predecessor Retained
Deficit in
Recapitalization - (537,707) - 537,707 -
Balance as Restated
for Recapitalization,
Effective for
October 2, 1996
(Date of Inception
for Lightpaths,
Inc.) 7,740,427 $ - $ - $ - $ -
The accompanying notes are an integral part of these financial statements.
F-5<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Deficit (Continued)
From July 1, 1996 to June 30, 1998 and December 31, 1998 (Unaudited)
Number Common Treasury
of Shares Stock Stock (Deficit) Total
Balance, as Restated 7,740,427 $ - - - -
Issuance of Common
Stock, in Private
Placement Transactions,
Net of Offering Costs
of $138,931 594,270 758,474 - - 758,474
Net (Loss) for the
Year - $ - $ - $ (781,246)$ (781,246)
Balance, June 30,
1997 8,334,697 758,474 - (781,246) (22,772)
Issuance of Common
Stock, Net of
Offering Costs
of $205,203 2,195,014 1,472,015 - - 1,472,015
Issuance of Common
Stock for Services 300,000 150,000 - - 150,000
Issuance of Common
Stock in Connection
with investment in
Subsidiary 250,000 125,000 - - 125,000
Repurchase of 13,750
Shares of Common
Stock at Cost - - (7,973) - (7,973)
Issuance of common
stock in
consideration for
100% of the common
stock of Microphase
Telecommunications,
Inc. 2,500,000 1,710,000 - - 1,710,000
Net loss for the year - - - (4,341,059)(4,341,059)
Balance, June 30,
1998 13,579,711$4,215,489 $ (7,973)$(5,122,305)$ (914,789)
The accompanying notes are an integral part of these financial statements.
F-6<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Deficit (Continued)
From July 1, 1996 to June 30, 1998 and December 31, 1998 (Unaudited)
Number Common Treasury
of Shares Stock Stock (Deficit) Total
Balance,July 1,1998 13,579,711 $4,215,489 $(7,973) $(5,122,305) $(914,789)
Issuance of common
shares for services
(unaudited) 414,332 655,750 - - 655,750
Issuance of common
stock net of offering
costs of $142,000
(unaudited) 3,115,000 3,105,500 - - 3,105,500
Net loss for six
months ended
December 31, 1998
(unaudited) - - - (3,441,067) (3,441,067)
Balance, December 31,
1998 (unaudited) 17,109,043 7,976,739 (7,973) (8,563,372) (594,606)
The accompanying notes are an integral part of these financial statements.
F-7<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Statement of Cash Flow
From
October 2,
1996
(Date of For the
Inception) Year Ended
June 30, June 30,
1997 1998
Cash Flow Used In Operating Activities:
Net (Loss) $ (781,246)$(4,341,059)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and Amortization 10,522 41,467
Depreciation of research and
development equipment 2,053 27,374
Interest expense - -
Loss on unconsolidated subsidiary - 304,845
Stock based compensation - 150,000
Changes in assets and liabilities:
(Increase) Decrease in deposits - -
(Increase) Decrease in prepaid expenses (6,705) (9,295)
Increase in accounts payable 86,297 1,620,387
Increase in accrued expenses 227,197 452,180
Increase in due to affiliate 425,766 78,294
Increase in deferred revenue - license fee - -
Increase in cash overdraft - 8,432
Increase in receivables from subsidiary - (150,000)
Net cash (used in) operating activities (450,216) (1,817,375)
Cash Flow Used in Investing Activities:
Investment in organizational costs (54,110) -
Investment in licensing rights (655) -
Investment in fixed assets (80,906) (29,254)
Investment in unconsolidated subsidiary - -
Net cash (used in) investing activities (135,641) (29,254)
Cash Flow From Financing Activities:
Proceeds from loan - 210,000
Proceeds from issuance of common stock, net
of offering costs of $138,931, $205,203
and $132,666 747,674 1,482,815
Repurchase of Treasury stock at cost - (7,973)
Net cash provided by financing activities 747,674 1,684,842
Net Increase (Decrease)in Cash 161,787 (161,787)
Cash, Beginning of Period - 161,787
Cash, End of Period $ 161,787 $ -
The accompanying notes are an integral part of these financial statements.
F-8<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Statement of Cash Flow - (Continued)
From
October 2,
For the 1996
Six (Date of
Months Inception)
Ended to
December 31, December 31,
1998 1998
(Unaudited)
$(3,441,067)$(8,563,372)
149,510 201,499
18,234 47,661
12,600 12,600
- 304,845
655,750 805,750
(7,415) (7,415)
11,600 (4,400)
583,704 2,290,288
(29,896) 649,481
(83,239) 6,821
40,000 40,000
- 8,432
- (150,000)
(2,090,219) (4,357,810)
(720) (54,830)
- (655)
(44,881) (155,041)
- -
(45,601) (210,526)
- 210,000
3,105,500 5,335,989
- (7,973)
3,105,500 5,538,016
969,680 969,680
- -
$ 969,680 $ 969,680
The accompanying notes are an integral part of these financial statements.
F-9<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
NOTE 1 - LOSSES DURING THE DEVELOPMENT STAGE:
The Company and its predecessor corporation, discussed in Notes 2 and 3 below,
have recorded operating losses since inception, totaling $5,840,334 through June
30, 1998 which represents $718,029 operating losses by the predecessor and
$5,122,305 by the Company since the recapitalization.
Management plans to raise additional capital, primarily through the issuance of
common stock, until successful operations are obtained and the Company is no
longer in the development stage.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon the Company's ability to meet its
financing requirements, and the success of its future operations. Management
believes that actions presently being taken to underwrite the Company's
development stage through completion will provide the necessary financial
requirements which in turn will provide the opportunity for the Company to
continue as a going concern.
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS:
The Company and its predecessor corporation was organized in the State of New
Jersey in December, 1979 under the name Tecma Laboratories, Inc. On April 7,
1997, the Company amended its certificate of incorporation and changed its name
to Lightpaths TP Technologies, Inc. On June 2, 1997, the Company amended the
certificate of incorporation and changed its name to mPhase Technologies, Inc.
The predecessor corporation was a development stage company primarily engaged in
research, development and the exploitation of certain products in the medical
and health care field. Since the recapitalization discussed in Note 3, the
Company is still in the development stage. The present activities of the
Company are focused on the completion of its proprietary Traverser Digital
Data Delivery System utilizing existing twisted pair copper wire infrature in
"plain old telephone systems" or "POTS".
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. Significant intercompany
accounts and transactions have been eliminated in consolidation. These include
Lightpaths, Inc., a Delaware corporation, formed on October 2, 1996.
Additionally, the Company formed another wholly owned subsidiary called TLI
Industries, Inc. on January 29, 1997, shares of which were spun off to the
stockholders of the Company, effective March 31, 1997, after transferring
certain assets and liabilities, primarily fixed assets, patents and shareholder
loans.
Effective for the period beginning July 1, 1998, these also include Microphase
Telecommunications, Inc. ("Microtel"). The liabilities in excess of basis, and
therefore the resultant gain on the disposal of discontinued operations reduced
by the loss from this discontinued operation through March 31, 1997, was treated
as a decrease of the accumulated deficit prior to the recapitalization.
F-10<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
The consolidated financial statements do not include an affiliate (see Note 5 -
Related Party Transactions) which the Company has been dependent upon for
facilities and technological assistance (see also Note 3).
Schedule of NonCash Investing and Financing Activities:
From
October 2, For the
1996 For the Six
(Date of Year Months
Inception) Ended Ended
to June 30, June 30, December 31,
1997 1998 1998
(Unaudited)
Accounts payable assumed in the
reverse acquisition of Lightpaths, Inc. $ 66,500
Common stock issued in connection with
investmentin subsidiary $ 125,000
Common stock issued for services $ 150,000 $655,750
Common stock issued in connection with
the acquisition of Microphase
Telecommunications, Inc. $1,710,000
Other Supplemental Cash Flow Information:
Interest paid $ 0 $ 0 $ 2,000
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of five years.
Research and Development:
Research and development costs are charged to operations as incurred.
Income Taxes:
Income taxes have been provided using the liability method in accordance with
FASB Statement No. 109, Accounting for Income Taxes.
Dependence:
The Company is dependent on an affiliated company for facilities and
technological assistance. (See Note 5 - Related Party Transactions). The
Company is also dependent on a co-patent holder, a research institute affiliated
with Georgia Tech University. This institute presently has the most significant
commitment of the Company. (See Note 6)
F-11<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
Effect of Uncertainty of Affiliate:
The affiliated companies for which the Company's depended on have not been
audited. Management has indicated that the affiliated companies have fiscal
uncertainties which question their ability to continue as a going concern. No
liabilities have been recorded in these financial statements for this
uncertainty.
Financial Instruments:
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles (GAAP) requires the use of management's estimates.
The following methods and assumptions were used by the Company to estimate fair
values of financial instruments as discussed herein:
Cash and equivalents:
The carrying amount approximates fair value because of the short period of
maturity.
Receivables from and Payables to Affiliates:
The carrying amount approximates fair value because the Company anticipates
either repayment or offsets in the current period.
Marketing Expenses:
Marketing expenses are charged to Operations as incurred. Included in General
and Administrative expenses is $85,941 and $118,858 of marketing expenses for
the periods ended June 30, 1997 and 1998 respectively.
Licensing Rights:
Licensing rights are recorded at cost including $51,555 acquired in the
acquisition of Lightpaths, Inc. and are being amortized over the license period
of sixty months.
Equity Method:
The investment in a corporation in which the company has a 41.724% interest is
carried at cost, adjusted for the corporation's proportionate share of their
undistributed earnings or (loss).
Loss per Common Share
For the period ended June 30, 1997, and all periods subsequent thereto, the
Company adopted FASB 128 Statements of Financial Accounting Standards No. 128,
"Earnings Per Share," to compute earnings per share. Basis EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
F-12<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. EPS from inception to date at December 31, 1998 is computed as if all
these shares were outstanding for all periods presented.
Long-Lived Assets
In March, 1995, the FASB issued SFAS No. 121 "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of" which states that
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable and long-lived assets and certain identifiable
intangibles are to be disposed of, they should be reported at the lower of
carrying amount or fair value less cost to sell. SFAS No. 121 also established
the procedures for review of recoverability and measurement of impairment, if
necessary, of long-lived assets and certain identifiable intangibles to be held
and used by an entity. The Company adopted SFAS No. 121 for the year ended June
30, 1997, and all periods subsequent thereto. The carrying value of assets of
the Company have not been affected by this statement.
Stock-Based Compensation:
The Company accounts for stock based compensation in accordance with SFAS No.
123, "Accounting for "Stock-Based Compensation," which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of the Accounting Principles Board (APB)
Opinion No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair value-based method, as defined in SFAS No. 123, had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure required by SFAS No. 123. As such,
compensation expense is generally recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
Purchase of Subsidiary
In June, 1998, the Company issued 2,500,000 post reverse split shares in
exchange for all of the issued and outstanding shares of Microphase
Telecommunications, a Delaware corporation. The transaction is an acquisition
accounted for as a purchase of Microphase Telecommunications, Inc. pursuant to
APB 16. The excess (approximately $998,085) of the total acquisition cost over
the recorded value of assets acquired was allocated to goodwill and will be
amortized over ten years effective July 1, 1998. Pursuant to the agreement of
merger, Microphase Telecommunications has become a wholly owned subsidiary.
As such, the Company will no longer be subject to the licensing fee for
technology development and transfer discussed in Note 6. The agreement of
merger further provides for the payment of a 3% royalty on the net sales of
mPhase Technologies, Inc. to be paid to Microphase Corporation, an affiliate.
The agreement also provides that the Company shall receive from Microphase
Corporation a 3% royalty on the net sales of digital subscriber line components.
F-13<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
Condensed financial information for the corporation immediately before the
acquisition is as follows:
June 30,
Balance Sheet 1998
Assets:
Patents, net of $12,336 accumulated amortization $ 131,830
Total Assets $ 131,830
Liabilities Due to Affiliates $ 286,169
Common stock 1,000
Retained Deficit (155,339)
Total Liabilities and Shareholders Deficit $ 131,830
For the
Six
Months
Ended
June 30,
Summary of Statement of Operations 1998
Revenues - including
Licensing fees from M-Phase Technologies, Inc. $ 457,500
Expenses 400,551
Operating Income 72,288
Gain on sale of patents and license rights 366,650
Net Income $ 438,938
F-14<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
Investment in Unconsolidated Subsidiary
On July 31, 1997 the Company and or its designates, agreed to purchase up to a
50% interest in Complete Telecommunications, Inc., together with Global Music
and Medica, Inc., a Tennessee corporation, a transaction which was memorialized
in an October 27, 1997 license agreement. Complete was intended to be a local
cable provider and a marketing vehicle for the Company's technology in certain
markets in the United States. The October 27th licensing agreement with
Complete, provided Complete certain rights of distribution in the continental
United States for mPhase technology for $2,000,000, the terms of which were
$300,000 cash and $1,700,000 to be paid upon the receipt by Complete of a
proposed financing ranging from $3,000,000 to $5,000,000 pursuant to a memo of
understanding between the Company and Global dated April 30, 1997.
The Company has an interest in a corporation, Complete Telecommunications, Inc.
which is involved in marketing the Company's technology. The investment is
accounted for using the equity method and represents a 41.724% ownership in the
subsidiary. The Company's accumulated deficit in the unconsolidated loss of the
corporation included in retained deficit at June 30, 1998 amounted to $304,845.
Unaudited condensed financial information of the unconsolidated subsidiary is as
follows:
Balance Sheet June 30, 1998
Assets:
Licensing fee, Net of $300,000
accumulated amortization $ 0
Pre-organizational costs, net of
$120,908 of accumulated amortization 211,081
TOTAL ASSETS $ 211,081
Liabilities, including $150,000
note payable to mPhase 641,704
Common stock 300,000
Retained Deficit (730,623)
TOTAL LIABILITIES AND SHAREHOLDERS DEFICIT $ 211,081
Summary of Statement of Operations June 30, 1998
Revenues $ 0
Expenses (730,623)
NET LOSS $(730,623)
F-15<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
NOTE 4 - COMMON STOCK:
Prior to June 30, 1989 the predecessor corporation issued 8,800,200 shares of
common stock for aggregate consideration of $222,093, after giving effect for a
stock split of 600 for 1 on September 1, 1987.
During 1988 the predecessor corporation entered into an Underwriting Agreement
with First Nutley Securities, Inc. for the proposed sale of its securities. The
underwriter agreed to sell 600,000 units to the public on a "best efforts,
250,000 unit or more" basis as to the first 250,000 units, and a "best efforts
basis" as to the remaining 350,000 Units at a price to the public of $1.00 per
unit. Each unit consisted of four shares of common stock, no par value, four
Class A redeemable common stock purchase warrants, and four Class B redeemable
common stock purchase warrants. Each Class A warrant and Class B warrant had
entitled the holder to purchase one share of common stock at a purchase price of
$.50 and $1.00 per share for a two and three year period respectively, after the
offering. The terms of the Class A and Class B warrants were extended to
February 13, 1997 and February 13, 1998 respectively and are now expired. Prior
to their expiration 4,400 net warrants for a like amount of common shares were
exercised for consideration of $2,125.
On July 20, 1989 the unit public offering was completed, 256,050 units were
issued, and the Company received $206,062 which was net of certain expenses of
the sale and offering costs of $49,988, and after giving effect to deferred
offering costs it had previously recorded of $53,015, generated net proceeds to
the Company of $153,048. Concurrently, the predecessor corporation issued
102,440 warrants to the underwriter for $.00025 per warrant and received $25.
During the six months ended December 31, 1995 the predecessor corporation issued
48,000 shares for aggregate consideration of $12,000.
Prior to recapitalization due to the reverse acquisition discussed in Note 3,
the Company issued 1,500,000 and 27,465 shares of stock in cancellation of
$75,000 of loans and $6,866 of accounts payable respectively, bringing the
aggregate shares to 11,404,270.
The Company effected a one-for-ten reverse split for the shares above, effective
March 31, 1997.
The Company issued 6,600,000 post reverse split shares in connection with the
reverse acquisition of Lightpaths, Inc. discussed in Note 3.
In June of 1997, the Company issued 594,270 post reverse split shares for
897,405, which net of offering costs of $138,931, generated net proceeds of
$758,474 to the Company. Included in the net proceeds was a stock subscription
of 10,800 which was collected in early July, 1997.
In October, 1997, the Company issued 250,000 shares in connection with its
investment in an unconsolidated subsidiary valued at $125,000 considering the
Rule "144" restrictions to which they were subject.
F-16<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
During the year ended June 30, 1998, the Company issued 2,195,014 post reverse
split shares for $1,677,218, which net of offering costs of $205,203, generated
net proceeds of $1,472,015 to the Company.
During the year ended June 30, 1998, the Company issued 250,000 shares valued at
$125,000 in connection with an investment in subsidiary.
During the year ended June 30, 1998, the Company issued 300,000 shares, valued
at $150,000, considering the Rule "144" restrictions which they were subject to,
and charged the same to stock based compensation in the statement of operations.
On June 25, 1998, the Company issued 2,500,000 shares, valued at $1,710,000 in
consideration for 100% of the common stock of Microphase Telecommunications,
Inc.
During the six month period ended December 31, 1998, the Company issued 360,000
shares, valued at $615,000, considering the Rule "144" restrictions which they
were subject to, and charged the same to stock based compensation in the
statement of operations.
During the period ended December 31, 1998, the Company issued 54,332 shares
valued at $40,750 for services.
During the period ended December 31, 1998, the Company issued 3,115,000 shares
for $3,197,416, which net of offering costs of $132,666, generated net proceeds
of $3,064,750 to the Company.
RESERVED SHARES:
On August 15, 1997, the Board of Directors authorized the grant of options to
purchase 3,675,000 shares of the Company's common stock at $1.00 per share,
including grants to purchase 3,000,000 shares of the Company's common stock to
officers and directors, upon the approval and implementation of a stock option
plan. No compensation was charged to expense as the grant price approximates
the fair market value of the options considering the Rule "144" restrictions on
the shares if exercised during the period. No shares have been exercised
under these grants. During the year ended June 30, 1998, the Company
terminated an employee for cause, which under the terms of the Company's
stock option plan voided a grant of options to purchase 750,000 shares at
$1.00 per share. The effect of such was to reduce the options outstanding from
3,675,000 to 2,925,000. During the period ended December 31, 1998, the Company
also issued options to purchase an additional 2,648,750 shares of the Company's
common stock at $1.00 per share, bringing the total to 5,573,750 of such
options.
During the six month period ended December 31, 1998, the Company issued options
to purchase 80,000 shares of the Company's common stock at $1.50 per share, and
50,000 shares of the Company's common stock at $2.00 per share.
During the period ended December 31, 1998, the Company issued 1,621,845 warrants
to purchase one share of common stock at a price of $0.75 per share, exercisable
for five years from the date of issuance. These warrants are callable by the
Company if the trading price of the common stock traded on the exchange in which
the Company is listed remains over $5.00 per share for a specified period of
time.
F-17<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
During the six month period ended December 31, 1998, the Company also issued
400,000 warrants to purchase one share of common stock at a price of $1.00 per
share, exercisable for five years from the date of issuance. These warrants are
callable by the Company is the trading price of the common stock traded on the
exchange in which the Company is listed remains over $5.00 per share for a
specified period of time.
During the six month period ended December 31, 1998, the Company issued 25,000
warrants on September 15, 1998 to purchase one share of common stock at a price
of $1.06 per share, and 50,000 warrants on September 15, 1998 to purchase one
share of Common Stock at a price of $2.4375 exercisable for five years from the
date of issuance. These warrants are callable by the Company if the trading
price of the common stock traded on the exchange in which the Company is listed
remains over $5.00 per share for a specified period of time.
NOTE 5 - RELATED PARTY TRANSACTIONS:
The management of the Company are also employees of an affiliated Company which
have recorded material transactions with the Company. The Company's management
is in a position to, and in the future may, influence future operations of the
Company for the benefit of other companies that are under their control.
During the period ended June 30, 1997, the Company advanced $164,000 and
$250,000 to companies then under common control. Additionally, the Company
agreed to reimburse another affiliate $383,266 for research and development
expenses as well as certain marketing expenses and $42,500 for other costs
including licensing fees and facilities and administrative services discussed in
Note 6.
The Company has agreed in principle to have a convertible option to convert its
$164,000 account receivable to equity in that affiliate.
On August 15, 1997 the Board of Directors of the Company and the Board of
Directors of the affiliates agreed to permit the right of offset for the above
advances against the liability of the affiliate discussed in Note 6.
On October 27, 1997, the Company, in connection with a planned joint venture
licensing agreement discussed in Note 3, became the 41.724% owner in an
unconsolidated subsidiary which included the investment of $300,000 and 250,000
shares of common stock valued at $125,000. Additionally, the Company advanced
$150,000 in the form of a note receivable bearing interest of 12% and due within
one year. No interest income was recorded in the statement of operations as the
unconsolidated subsidiary has failed to make any payments under the note. The
proposed joint venture partner in the unconsolidated subsidiary has continually
failed to raise and contribute its originally planned equity contributions to
the unconsolidated subsidiary and commenced an action against the Company and
the Company is presently negotiating a proposed revised licensing agreement with
the co-owners of the subsidiary.
F-18<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
During the period ended June 30, 1998, the subsidiary is not consolidated in
these financial statements as management of the Company does not believe it had
effective control of the subsidiary.
During the period ended June 30, 1997, the Company paid $95,141 in offering
costs to a securities firm owned by a director, and dring the period ended June
30, 1998 the Company paid offering costs to the same firm totaling $153,999.
The licensing fees paid by the Company, discussed in Note 6, were paid to an
affiliate. The acquisition, pursuant to an agreement dated June 25, 1998,
discussed in Note 2, was of the same affiliate the licensing fees were
previously paid to and this company was acquired from another affiliate the
Company will be obligated to pay a 3% royalty to on revenues from the
Company's proprietary TRAVERSER Digital Video Data Delivery System.
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
On February 15, 1997 the Company entered into a Technology, Patent and Trademark
License Agreement with Microphase Telecommunications, Inc., an affiliated
Company. The agreement permits the Company to utilize the patent and trademark
technology of Microphase Telecommunications, Inc. under a licensing arrangement
with payments as follows:
(1) a one time non-refundable payment of $37,500 which the Company has
recorded as a license agreement in the Balance Sheet.
(2) Minimum annual royalties, based upon sales of the Company at rates of ten
(10%) percent on the first $1,000,000 of sales; nine (9%) percent for
sales between $1,000,001 and $5,000,000; eight (8%) percent for sales
between $5,000,001 and $10,000,000; seven (7%) percent for sales between
$10,000,001 and $20,000,000; and six (6%)percent for sales above
$20,000,000 per year. Regardless of the Company sales, the Company has
agreed to pay $50,000, $250,000 and $500,000 as a minimum payment in years
one, two and three and additionally, $1,000,000 every year thereafter.
(3) The Company also agreed to make payments of $37,500 per month, starting
June 1, 1997 and during the life of the Agreement, which in periods where
no royalties are earned, can be applied to the minimum royalty above, for
technology development and transfer. The Agreement is for the life of the
trademark and patented items, which have been applied for and are expected
to be seventeen years. During the period ended June 30, 1997, $37,500 has
been charged to expense under this Agreement.
On May 1, 1997 the Company entered into an agreement with Microphase
Corporation, an affiliate with common yet unidentical ownership, whereby the
Company will use office space as well as the administrative services of the
Company including the use of accounting personnel. This Agreement is for
$5,000 per month and is on a month to month basis. During the period ended
June 30, 1997, $10,000 has been charged to expense under this Agreement.
The predecessor corporation had previously abandoned its Bridgewater, New Jersey
facility and has claimed no obligation for rent under a lease which has since
expired during the current period. The Company has recorded $54,250 for unpaid
rent under this Agreement and the same is included in accounts payable at June
30, 1997. Management believes it will have no obligation under this lease and
if it is found otherwise, believes such obligation will be less than the amounts
recorded in the financial statements.
F-19<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
The Company has entered into various agreements with Georgia Tech Research
Corporation, GTRC, a Company affiliated with Georgia Tech Research Institute,
located in Atlanta, Georgia, pursuant to which the Company receives technical
assistance in developing the commercialization of its digital video and data
system. If and when sales commence utilizing this particular technology, the
Company will be obligated to record and pay to GTRC a royalty of net sales of 3%
to 5%, determined by mutual agreement on a product by product basis.
The dollar amount incurred by the Company of GTRC for technical assistance with
respect to its Research and Development activities during the year ended June 30
, 1998 totaled $2,100,644 and included in accounts payable at June 30, 1998 is
$1,310,062 to GTRC. For the six months ended December 31, 1998, the $1,565,068
of research and development expenses with GTRC and $1,847,249 was included in
accounts payable to GTRC at December 31, 1998.
In June, 1998, the Company was advised by Global Music & Media, Inc., a
Tennessee Corporation, and a major shareholder in the Company's unconsolidated
subsidiary, Complete Telecommunictions, Inc. that they may be subject to suit
for an alleged breach of contract of an April 30, 1997 agreement, and
subsequently a suit was filed. The suit alleges Global was given the
exclusive right to market mPhase Technology as well as television programming
and related services. The Company believes the April 30, 1997 agreement was
never intended to give exclusive rights to its technology; the April 30, 1997
agreement was superseded by the October 27, 1997 agreement with respect to
which Global and a related Company has defaulted under its obligations and
clearly does not provide for exclusivity. Accordingly, the Company considers
the suit meritless and intends to vigorously defend its position.
NOTE 7 - CORPORATE INCOME TAXES:
No provision has been made for corporate income taxes due to cumulative losses
incurred. The Company has available unrealized tax benefits of approximately
$1,935,000 in the form of net operating loss carryforwards of approximately
$5,221,200 for federal income tax purposes and $5,025,200 for state income tax
purposes to reduce future taxable income.
The Company has recognized these tax benefits as a deferred tax asset subject to
a 100% valuation allowance since it is uncertain whether or not these tax
benefits will be realized.
As of June 30, 1998 these losses expire as follows:
Federal State
June 30, 1998 through 2005 $ 0 $5,025,200
June 30, 1999 and 2000 175,000 0
June 30, 2001 thru 2005 47,000 0
June 30, 2006 76,000 0
June 30, 2007 48,000 0
June 30, 2008 75,000 0
June 30, 2009 73,000 0
June 30, 2010 86,000 0
June 30, 2011 85,600 0
June 30, 2012 519,400 0
June 30, 2013 4,036,200 -
TOTAL: $5,221,200 $5,025,200
F-20<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
NOTE 8 - PROPERTY AND EQUIPMENT:
Property and equipment owned by the Company at June 30, 1997, June 30, 1998 and
December 31, 1998 (Unaudited) as well as the estimated useful lives used in
computing depreciation are as follows:
June 30, June 30, December 31,
1997 1998 1998
(Unaudited)
Equipment used in research
and development (5-7 years) $ 66,906 $ 88,542 $ 130,264
Marketing equipment (3-5 years) 14,000 21,618 24,977
Subtotal 80,906 110,160 155,241
Less accumulated depreciation (2,442) (34,695) (56,812)
Net Total $ 78,464 $ 75,465 $ 98,429
Depreciation expense for the period ended June 30, 1997, June 30, 1998 and
December 31, 1998 (Unaudited) was $389, $4,879 and $3,883 respectively for
marketing equipment and $2,053, $27,374 and $18,234 respectively for equipment
used in research and development.
NOTE 9 - CREDIT RISK AND CONCENTRATIONS OF CREDIT RISK:
In the course of the Company business, it has advanced monies to a supplier and
a licensing agent in the technology industries. Furthermore, these are
affiliated companies with limited history of operations.
These expose the Company to risk of loss of the amounts advanced should the
supplier ultimately be unable to produce what the Company intends upon
purchasing as well as risk of loss should the technology to be assigned
encounters obsolescence prior to its utilization by the Company.
Additionally, the Company may be exposed to off-balance sheet risk arising
from potential claims should the technology or products create a liability in
which the Company's counterparties may fail to satisfy their obligations.
The Company measures its exposure on a commitment by commitment basis. This
risk can be effected by changes in geographic, industrial or other economic
factors. To alleviate the potential for risk concentration, management has
monitored the progress of the supplier as well as the status of technological
advances and changes with its providers and within the industry itself.
F-21<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited for the Six Months Ended December 31, 1998)
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of the Company's financial instruments are as follows:
June 30, 1998 December 31, 1998
(Unaudited)
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Cash and
Equivalents $ - $ - $ 969,681 $ 969,681
Stock Subscription
Receivable - - - -
Liabilities:
Cash overdraft $ 8,432 $ 8,432 $ - $ -
Accounts payable $1,571,945 $1,571,945 $2,163,449 $2,163,449
Accrued expenses $ 638,554 $ 638,554 $ 601,078 $ 601,078
Due to Affiliate(s) $ 8,432 $ 8,432 $ 699,990 $ 699,990
NOTE 11 - YEAR 2000 ISSUES
Many computer systems and software programs, including several used by the
Company may require modification and conversion to allow date code fields to
accept dates beginning with the year 2000. Major system failures or erroneous
calculations can result if computer system failures are not year 2000 compliant.
The Company is in the process of evaluating the computer systems they now have
in use and does not anticipate a major undertaking to be compliant.
All costs associated with year 2000 compliance that have been incurred by the
Company have been expensed and have not been capitalized. The overall cost t
othe Company of modifications and conversion for year 2000 compliance with
relation to the financial statements taken as a whole is not material. The
Company is advised by a substantial majority of its vendors of computer products
upgraded to be year 2000 compliant, or will not be affected by the year 2000
problem. The Company's business could be materially adversely affected if the
Company's computer-based systems are not year 2000 compliant in a timely manner,
the Company incurs significant additional expenses pursuing year 2000
compliance, the Company's vendors do not timely provide year 2000 compliant
products, or the Company is subject to warranty or other claims by the
Company's clients related to product failures caused by the year 2000 problem.
NOTE 12 - SUBSEQUENT EVENTS
Common Stock:
During the period ended June 30, 1999, the Company issued 85,000 shares, valued
at $145,208, considering the Rule "144" restrictions which they were subject to,
and charged the same to stock based compensation in the statement of operations.
F-22<PAGE>
INDEPENDENT AUDITORS' REPORT
March 25, 1997
To the directors and stockholders of
Tecma Laboratories, Inc.:
We have audited the accompanying balance sheets of Tecma Laboratories, Inc. (A
Development Stage Company), at June 30, 1996 and 1995, and the related
statements of operations, stockholders' deficiency, and cash flows for the two
years then ended and for the cumulative period from inception (December 20,
1979) to June 30, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Tecma Laboratories, Inc. and the results of
operations and cash flows for the two years ended June 30, 1996 and for the
cumulative period from inception (December 20, 1979) to June 30, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and has utilized
substantially all of the cash funds which were derived from the initial public
offering of securities. These factors raise substantial doubt about the
Company's 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 that might result from the outcome of this uncertainty.
/s/ Mauriello, Franklin & LaBrace, CPA's
Mauriello, Franklin & LaBrace, CPA's
PAGE 1
F-23<PAGE>
TECMA LABORATORIES, INC.
(A Development Stage Company)
BALANCE SHEETS
June 30,
1996 1995
ASSETS
Current assets:
Cash in banks $ 173 $ 39
Prepaid expenses and other current assets - -
Total current assets 173 39
Security deposits 4,370 4,370
Patents, at cost, net of accumulated
amortization of $7,642 and $6,432
respectively (Note 1) 12,939 14,149
Property and equipment, at cost, net of
accumulated depreciation of $39,918 and
$31,176 respectively (Notes 1 and 3) 28,752 37,494
Total assets $ 46,234 $ 56,052
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable-trade $ 57,898 $ 18,898
Accrued interest-stockholders (Note 4) 48,897 31,536
Accrued legal fees 3,000 3,000
Total current liabilities 109,795 53,434
Loans payable-stockholders (Note 4) 218,187 210,767
Total liabilities 327,982 264,201
Stockholders' deficiency:
Common stock-no par value; Authorized-
50,000,000 shares; Issued and outstanding
-9,876,800 shares (1995 - 9,828,800 shares)
(Note 2) $389,291 $377,291
Deficit accumulated during the development stage (671,039) (585,440)
Total stockholders' deficiency $(281,748) $(208,149)
Total liabilities and stockholders' deficiency $ 46,234 $ 56,052
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
PAGE 2
F-24<PAGE>
TECMA LABORATORIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
TOTAL FROM INCEPTION TO JUNE 30, 1996
Common Stock Accumulated
Shares Amount Deficit Total
Issued prior to June 30, 1982 4,177,200 $ 159,216
Issued July 1, 1982
to June 30, 1989 4,623,000 62,877
Balance, July 1, 1989 8,800,200 $222,093 $(188,339) $33,754
Proceeds from initial public
offering, net of offering
costs of $103,003 1,024,200 153,048 - 153,048
Sale of 102,440 warrants
at $.00025 each - 25 - 25
Proceeds from exercise
of 4,400 warrants 4,400 125 - 2,125
Net loss for year ended
June 30, 1990 - - (39,145) (39,145)
Net loss for year ended
June 30, 1991 - - (75,739) (75,739)
Net loss for year ended
June 30, 1992 - - (47,854) (47,854)
Net loss for year ended
June 30, 1993 - - (75,650) (75,650)
Net loss for year ended
June 30, 1994 - - (72,910) (72,910)
Net loss for year ended
June 30, 1995 - - (85,803) (85,803)
Proceeds from issuance of
common stock 48,000 12,000 - 12,000
Net loss for year ended
June 30, 1996 - - (85,599) (85,599)
Balance, June 30, 1996 9,876,800 $389,291 $ (671,039) $(281,748)
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
PAGE 3
F-25<PAGE>
TECMA LABORATORIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Total From
Years Ended Inception
June 30, To June 30,
1996 1995 1996
Revenue:
Sales $ -0- $ -0- $ 2,409
Interest income -0- -0- 15,132
Total Revenue -0- -0- $17,541
Costs and expenses:
Write off of investment in common
stock- foreign corporation -0- -0- 141,208
Selling and administrative
expenses 57,086 60,107 438,207
Depreciation-property and
equipment 8,742 8,743 39,918
Amortization-patents 1,210 1,209 7,642
Interest expense 18,561 15,744 61,605
$ (85,599)$ 85,803 $688,580
Net loss (Note 5) $ (85,599)$(85,803) $(671,039)
Net loss per share (Note 1) $ -0- $ -0-
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
PAGE 4
F-26<PAGE>
TECMA LABORATORIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Years Ended Total From
June 30, Inception to
1996 1995 June 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(85,599)$ (85,803) $ (671,039)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 9,952 952 47,560
Interest expense 17,361 14,540 48,897
Increase (decrease) in cash arising from
changes in current assets and liabilities:
Security deposits - - (4,370)
Accounts payable 39,000 2,364 57,898
Accrued expenses - - 3,000
Total adjustments $66,313 $26,856 $152,985
Net cash used in operating activities $(19,286) $(58,947) $(518,054)
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent expenditures - - (20,581)
Property and equipment expenditures - - (68,670)
Net cash used in investing activities - - (89,251)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $ 12,000 $ - $490,143
Proceeds from sale and exercise of
common stock warrants - - 2,150
Net borrowings from shareholders 7,420 56,022 218,187
Public offering expenditures - - (103,002)
Net cash provided by financing activities $ 19,420 $56,022 $607,478
NET INCREASE (DECREASE) IN CASH $ 134 $(2,925) $ 173
Cash balance, beginning of year 39 2,964
Cash balance, end of year $ 173 $ 39
Supplementary cash flow data:
Interest paid $ - $ - $ -
Income taxes paid $ - $ - $ -
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
PAGE 5
F-27<PAGE>
TECMA LABORATORIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Organization and Nature of Business
The Company was organized under the laws of the State of New Jersey on December
20, 1979 for the primary purpose of research, development, and exploitation of
certain products in the medical and health care fields.
The Company is in the development stage and has had no U.S. operations but has
invested monies in a 97% owned predecessor foreign subsidiary to develop and
produce quinine. The operation was unsuccessful and the investment was written
off in June 1984. Since then, the Company has been engaged in the research,
development and patenting of medicinal products derived from botanical sources.
The Company has patented several products and is in the process of producing and
marketing these products.
In July, 1989 the Company successfully completed a unit public offering of its
securities (See Note 3).
Basis of Presentation
The Company's financial statements have been presented on a going concern basis
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.
The Company reported a net loss of approximately $86,000 for the year ended June
30, 1996 and cumulative losses since inception of approximately $671,000.
Further the Company has utilized substantially all of its cash funds which were
derived from the initial public offering of securities.
The continuation of the Company is dependent upon obtaining additional financing
and the commencement of production, marketing, and sales of its patented
products. To obtain these objectives, management is pursuing a number of options
including borrowing of funds from major shareholders, a secondary offering of
securities, and a merger with another corporation (See Note 8).
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Research and Development
Research and development costs are charged to operations as incurred.
Property and Equipment
Property and equipment are stated at cost and depreciation has been provided on
a straight line basis commencing at the time the assets were placed in service
(October 1991) based on the following useful lives:
Useful Lives
Lab equipment and fixtures 10 years
Office equipment 5 years
Office furniture 7 years
Leasehold improvements 10 years
PAGE 6
F-28<PAGE>
TECMA LABORATORIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies (Continued)
Patent Costs
Patent costs are capitalized as incurred and amortized over the remaining
legal life of the patents commencing when the patents are issued by federal
authorities. As of June 30, 1996, five patents were issued and amortization
provided thereon.
Income Taxes
Taxes are computed on pre-tax financial income which is consistent with income
reported for income tax filing purposes.
Loss Per Share
Loss per share is based on the weighted average number of common shares
outstanding.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and 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.
PAGE 7
F-29<PAGE>
TECMA LABORATORIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies (Continued)
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments purchased with a maturity of three months or less to be cash
equivalents.
Note 2--Capitalization Changes
The Company entered into an Underwriting Agreement with First Nutley Securities,
Inc. for the proposed sale of its securities. The underwriter agreed to sell
600,000 Units to the public on a "best efforts, 250,000 unit or more" basis as
to the first 250,000 Units, and on a "best efforts basis" as to the remaining
350,000 Units at a price to the public of $1.00 per Unit. Each Unit consisted
of four shares of common stock, no par value, four Class A redeemable common
stock purchase Warrants, and four Class B redeemable common stock purchase
Warrants. Both classes of Warrants were exercisable and transferable
immediately upon the successful closing of the offering herein. Each Class A
Warrant and Class B Warrant entitled the holder to purchase one share of common
stock at a purchase price of $.50 and $1.00 per share for two and three year
periods respectively, from the effective date of the offering. The terms of
the Class A and Class B warrants have expired.
On July 20, 1989 the unit public offering was completed, 256,050 Units were
issued, and the Company received $206,062 which is net of certain expenses of
the sale and offering costs of $49,988. Concurrently the Company issued 102,440
warrants to the underwriter for $.00025 per warrant and received $25. The
warrants entitled the Underwriter to purchase 102,440 shares of common stock at
$.30 per share for a period of 48 months commencing February 13, 1990. The term
for exercise of the warrants had been extended until February 13, 1997 at which
time they expired.
Note 3--Property and Equipment
Property and equipment are comprised as follows:
June 30,
1996 1995
Laboratory equipment
and fixtures $ 9,922 $ 9,922
Office equipment 5,239 5,239
Office furniture 30,480 30,480
Leasehold improvements 23,029 23,029
Total cost 68,670 68,670
Accumulated depreciation 39,918 31,176
Net $ 28,752 $ 37,494
PAGE 8
F-30<PAGE>
TECMA LABORATORIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 4--Related Party Transactions
During the years ended June 30, 1996 and 1995, the Company engaged in the
following related party transactions:
1. Was advanced unsecured funds with no stated maturity from two major
stockholders of $7,420 and $56,022 to pay for rent and other related
operating expenditures of which $218,187 and $210,767 was owing as of
June 30, 1996 and 1995 respectively.
2. Was charged 8% interest per annum on such loans totaling $17,361 in 1996
and $14,540 in 1995 of which $48,897 and $31,536 was outstanding at June
30, 1996 and 1995 respectively.
Note 5--Corporate Income Taxes
No provision has been made for corporate income taxes due to cumulative losses
incurred. As of June 30, 1996 and 1995, the Company has available unrealized
tax benefits of approximately $253,000 and $219,000 respectively in the form
of net operating loss carryforwards which can reduce future taxable income.
The Company has recognized these tax benefits as a deferred tax asset subject to
a 100% valuation allowance since it is more likely than not that these tax
benefits will not be realized.
As of June 30, 1996 these losses expire as follows:
Federal State
December 31, 1996 thru 1999 $175,000 $ -0-
June 30, 1997 thru 2000 -0- 233,000
June 30, 2001 thru 2005 47,000 222,000
June 30, 2006 76,000 -0-
June 30, 2007 48,000 -0-
June 30, 2008 75,000 -0-
June 30, 2009 73,000 -0-
June 30, 2010 86,000 -0-
June 30, 2011 86,000 -0-
$666,000 $455,000
PAGE 9
F-31<PAGE>
TECMA LABORATORIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 6-Fair Value of Financial Instruments
The fair value of the Company's long-term debt to stockholders is deemed equal
to its reported value based on estimated interest rates available to the Company
for debt of similar terms and maturity.
Note 7-Commitments
The Company is committed to a three year operating lease covering its plant and
office facility in Bridgewater, New Jersey, commencing from August 12, 1996. The
minimum annual rent is $32,775 and is without regard to the Company's
proportionate share of real estate taxes, utilities, and maintenance costs which
it is obligated to pay. The Company reported lease charges of $48,136 and
$47,866 in the years ended June 30, 1996 and 1995 respectively.
Future minimum rental payments for the five years ending June 30, 2001 and
thereafter are as follows:
Year Ended June 30,
1997 $ 27,312
1998 32,775
1999 32,775
2000 5,463
2001 -0-
Thereafter -
Total $ 98,325
Note 8--Subsequent Events
Effective January 27, 1997 the Company terminated its facility lease due to
constructive eviction. The Company is disputing both unpaid and paid rent and
escalation charges from the landlord based on the Company being the last tenant
in an unoccupied building which has not been maintained. The Company feels the
settlement of such dispute shall not have a material adverse effect on the
financial statements.
Effective February 5, 1997 the Company authorized the issuance of 1,500,000 and
27,465 shares of unissued common stock in consideration for the forgiveness of
$75,000 of loans payable -stockholders as described in Note 4 and accounts
payable of $6,866.
PAGE 10
F-32<PAGE>
TECMA LABORATORIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 8--Subsequent Events (Continued)
On March 24, 1997 a majority of the stockholders of the Company approved the
following resolutions:
1) Agreed to the terms of an Exchange and Plan of Reorganization Agreement
dated January 15, 1997 with the stockholders of Lightpaths, Inc., a
Delaware Corporation, wherein the Company shall acquire 100% of the issued
and outstanding common stock of Lightpaths, Inc. in consideration for 6.6
million post reverse split shares of the Company. The Company shall
account for the acquisition as a pooling of interests for financial
reporting purposes.
Summarized operating data giving effect to the acquisition had it occurred
on July 1, 1995 has not been disclosed since there is minimal historical
operating data for Lightpaths, Inc.
2) Authorized a 1 for 10 reverse stock split to be effective March 31, 1997
for stockholders of record of the same date and to change the name of the
Company to Lightpaths TP Technologies, Inc.
3) Authorized the transfer to a newly formed wholly-owned subsidiary, TLI
Industries, Inc. all of its assets and all of its liabilities effective
March 31, 1997. Immediately thereafter the Company shall spin off all of
the outstanding shares of TLI's common stock to the stockholders of the
Company as a dividend.
F-33<PAGE>
To the Board of Directors and Stockholders of
Microphase Telecommunications, Inc.
We have audited the accompanying balance sheets of Microphase
Telecommunications, Inc., Inc. as of June 30, 1997 and June 30, 1998 and the
related statements of operations, changes in stockholders' equity, and cash
flows for the period September 12, 1995 (date of inception) through June 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at June 30, 1998 and the results
of its operations and its cash flows for the period of September 12, 1995 (date
of inception) through June 30, 1998 in conformity with generally accepted
accounting principles.
As discussed in Note 3, substantially all transactions of the Company have been
incurred with affiliates, and the Company is dependent on these affiliates.
The Company was in the development stage as of June 30, 1998. As discussed in
Note 2, on June 25, 1998, effective for accounting purposes July 1, 1998, the
Company was acquired by mPhase Technologies, Inc. Recovery of the Company's
assets is dependent upon future events, the outcome of which is indeterminable.
In addition, successful completion of the Company's development program and its
transition, ultimately, to attaining profitable operations is dependent upon
obtaining adequate financing to fulfill its development activities and achieving
a level of sales adequate to support the Company's cost structure.
/s/ Schuhalter, Coughlin & Suozzo, LLC
Schuhalter, Coughlin & Suozzo, LLC
Raritan, New Jersey
January 28, 1999
F-34<PAGE>
MICROPHASE TELECOMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Balance Sheet
June 30,
1997 1998
ASSETS
Cash and equivalents $ - $ -
Patents and licensing rights, at cost, less
accumulated amortization of $9,639 and $12,336 154,230 998,585
Goodwill, less accumulated amortization of
$0 - 998,585
TOTAL 154,230 1,997,170
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Due to affiliates 747,507 286,170
TOTAL LIABILITIES 747,507 286,170
STOCKHOLDERS EQUITY
Common stock, no par value, 5,000,000 shares
authorized; 1,000 shares issued and
outstanding at June 30, 1997 and 1998
shares issued and outstanding at
June 30, 1998 1,000 1,000
Retained Deficit (594,277) (155,339)
Additional paid in capital - 1,865,339
TOTAL STOCKHOLDERS' EQUITY (593,277) 1,711,000
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 154,230 $1,997,170
F-35<PAGE>
MICROPHASE TELECOMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statement of Operations
From From
Inception Inception
to to
(September 12, For the (September 12,
1995) Year 1995)
Through Ended Through
June 30, June 30, June 30,
1997 1998 1998
TOTAL REVENUE $ 119,712 $ 472,839 $ 592,551
COSTS AND EXPENSES
Marketing (including $350,000 and
$161,750 for the periods ended
June, 1997 and 1998, respectively
incurred with affiliate) 350,000 161,750 511,750
Research and development (including
$136,750 for the period ended
June 30, 1997 incurred with affiliate) 136,750 - 136,750
General and administrative (including
$217,600 for the periods ended
June 1997 and June 30, 1998 incurred
with affiliate) 217,600 217,600 435,200
Depreciation and amortization 9,639 21,201 30,840
TOTAL COSTS AND EXPENSES (713,989) (400,551)(1,114,540)
NET INCOME (LOSS) FROM OPERATIONS (594,277) 72,288 (525,989)
GAIN ON SALE OF PATENTS AND
LICENCE RIGHTS - 366,650 366,650
NET INCOME (LOSS) $(594,277)$ 438,938 $ (155,339)
F-36<PAGE>
MICROPHASE TELECOMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Deficit
From September 12, 1995 (Date of Inception) to June 30, 1998
Additional
Number Common Paid in
of Shares Stock Capital (Deficit) Total
September 12, 1995 - $ 1,000 $ - $ - $ -
Initial capitalization 1,000 1,000 - - 1,000
Net (Loss) for the
Period from September
12, 1995 to June 30,
1997 - - - (594,277) (594,277)
Balance, June 30, 1997 1,000 1,000 - (594,277) (593,277)
Increase in additional
paid in capital in
connection with push
down accounting
pursuant to merger
agreement dated
June 25, 1998 - - 1,865,339 - 1,865,339
Net income for the year - - - 438,938 438,938
Balance, June 30, 1998 1,000 $ 1,000 $1,865,339 $(155,339)$1,711,000
F-37<PAGE>
MICROPHASE TELECOMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flow
From From
Inception Inception
to to
(September 12, For the (September 12,
1995) Year 1995)
Through Ended Through
June 30, June 30, June 30,
1997 1998 1998
Cash Flow From Operating Activities:
Net (Loss) Income $(594,277) $ 438,938 $ 155,339
Adjustments to reconcile net (loss)
to net cash (used in) operating
activities:
Depreciation and Amortization 9,639 21,201 30,840
Gain on the sale of patents and
license rights - (366,650) (366,650)
Changes in assets and liabilities:
Increase (decrease) in due
to affiliate 747,507 (93,489) 654,018
Net cash from operating
activities 162,869 - 162,869
Cash Flow Used in Investing Activities:
Investment in licensing rights (163,869) - (163,869)
Net cash (used in) investing
activities rights (163,869) - (163,869)
Cash Flow From Financing Activities:
Proceeds from issuance of common 1,000 - 1,000
Net cash provided by financing
activities 1,000 - 1,000
Net Increase (Decrease)in Cash - - -
Cash, Beginning of Period - - -
Cash, End of Period $ - $ - $ -
F-38<PAGE>
MICROPHASE TELECOMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 1 - DEVELOPMENT STAGE ENTERPRISE:
The Company was organized in the State of Delaware on September 12, 1995.
The Company is a development stage company primarily engaged in research and
development of technological products in the defense and communications
industries. On June 25, 1998 the Company sold all its technology relating to the
defense industry to one affiliate and, simultaneously retained all its
technology relating to the communications industry. The present activities of
the Company are focused on the completion of its proprietary Traverser
Digital Date Delivery System utilizing existing twisted pair copper wire
infrastructure in "plain old telephone systems" or "POTS".
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Push Down Method of Accounting
The financial statement includes the accounts of the Company, as adjusted for a
write up of intangible assets for its merger (acquisition by mPhase
Technologies, Inc. "mPhase") whereby the Company became a wholly owned
subsidiary of mPhase, utilizing the push down method of accounting.
Intangible Assets
Patents and goodwill are recorded at cost. Amortization is provided on the
straight-line method over the estimated useful lives of seventeen and ten years,
respectively.
Research and Development
Research and development costs are charged to operations as incurred.
Income Taxes
Income taxes have been provided using the liability method in accordance with
FASB Statement No. 109, Accounting for Income Taxes.
Dependence
The Company is dependent on an affiliated company for facilities and
technological assistance. (See Note 3 - Related Party Transaction)
Financial Instruments
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles (GAAP) requires the use of management's estimates.
The following methods and assumptions were used by the Company to estimate fair
values of financial instruments as discussed herein:
Receivables from and Payables to Affiliates
The carrying amount approximates fair value because the Company anticipates
either repayment or offsets in the current period.
F-39<PAGE>
MICROPHASE TELECOMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
Long-Lived Assets
In March, 1995, the FASB issued SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" which states that
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable and long-lived assets and certain identifiable
intangibles are to be disposed of, they should be reported at the lower of
carrying amount of fair value less cost to sell. SFAS No. 121 also established
the procedures for review of recoverability and measurement of impairment, if
necessary, of long-lived assets and certain identifiable intangibles to be held
and used by an entity. The Company adopted SFAS No. 121 for the year ended June
30, 1997, and all periods subsequent thereto. The carrying value of assets of
the Company have not been affected by this statement.
NOTE 3 -RELATED PARTY TRANSACTIONS:
The management of the Company are also employees of an affiliated Company which
have recorded material transactions with the Company. The Company's management
is in a position to, and in the future may, influence future operations of the
Company for the benefit of other companies that are under their control.
The licensing fees received by the Company, discussed in Note 2, were paid by an
affiliate. The acquisition, pursuant to an agreement dated June 25, 1998,
discussed in Note 2, was of the same affiliate the licensing fees were
previously received from and this company has acquired the Company from
another affiliate.
The Company will be obligated to pay a 3% royalty to on revenues from the
Company's proprietary TRAVERSER Digital Video Data Delivery System to the
affiliate going forward.
Prior to June 25, 1998, the Company was dependent on an affiliate experiencing
financial difficulties. Subsequent to June 25, 1998, the Company became the
wholly owned subsidiary fo a different affiliate whose financial state indicated
going concern uncertainties.
NOTE 4 - CREDIT RISK AND CONCENTRATIONS OF CREDIT RISK:
In the course of the Company business, it has advanced monies to a supplier and
a licensing agent in the technology industries. Furthermore, these are
affiliated companies with limited history of operations.
These expose the Company to risk of loss of the amounts advanced should the
supplier ultimately be unable to produce what the Company intends upon
purchasing as well as risk of loss should the technology to be assigned
encounters obsolescence prior to its utilization by the Company. Additionally,
the Company may be exposed to off-balance sheet risk arising from potential
claims should the technology or products create a liability in which the
Company's counterparties may fail to satisfy their obligations.
The Company measures its exposure on a commitment by commitment basis. This risk
can be effected by changes in geographic, industrial or other economic factors.
To alleviate the potential for risk concentration, management has monitored the
progress of the supplier as well as the status of technological advances and
changes with its providers and within the industry itself.
F-40<PAGE>
Part III
Item 1 Index to Exhibits (Pursuant to Item 601 of Regulation SB)
Exhibit Name and/or Identification of Exhibit
Number
1. Underwriting Agreement
Not applicable
2. Plan of Acquisition, Reorganization, Arrangement, Liquidation, or
Succession.
(a) Exchange of Stock Agreement and Plan of Reorganization, Dated
January 15, 1997
(b) Exchange of Stock Agreement and Plan of Reorganization, Dated June
25, 1998
3. Certificate of Incorporation and By-Laws
(a) Certificate of Incorporation of Tecma Laboratory, Inc. filed
December 20, 1979
(b) Certificate of Correction to Certificate of Incorporation of Tecma
Laboratory, Inc. dated June 29, 1987
(c) Certificate of Amendment of Certificate of Incorporation of Tecma
Laboratory, Inc. dated August 28, 1987 (changing name to Tecma
Laboratories, Inc.)
(d) Certificate of Amendment of Certificate of Incorporation of Tecma
Laboratories, Inc. filed April 7, 1997 (changing its name to
Lightpaths TP Technologies, Inc.
(e) Certificate of Amendment of Certificate of Incorporation filed June
2, 1997 (changing its name to mPhase Technologies, Inc.)
(f) Certificate of Incorporation of Lightpaths, Inc. Filed October 2,
1996 with the Delaware Secretary of State
(g) By-Laws of mPhase Technologies, Inc.
(h) mPhaseTV.net/Inc. Certificate of Incorporation dated August 21, 1998.
(i) Certificate of Incorporation of Microphase Telecommunications, Inc.
4. Instruments Defining the Rights of Security Holders
(a) mPhase Long Term Stock Incentive Plan authorized by the Company on
August 15, 1997
(b) A warrant agreement between the Company and Jersey Transfer & Trust
Co., Warrant Agent, relating to the warrants issued pursuant to Rule
505 offering
5. Opinion on Legality
Not applicable
6. No Exhibit Required
Not applicable
7. Opinion on Liquidation Preference
Not applicable
8. Opinion on Tax Matters
Not applicable
<PAGE>
Exhibit Name and/or Identification of Exhibit
Number
9. Voting Trust Agreement and Amendments
Not applicable
10. Material Contracts
(a) Technology agreement Dated February 15, 1997 between Microphase
Telecommunications and mPhase Technologies, Inc.
(b) Loan Agreements and Promissory Notes between Janifast Holdings, LTD
(the Maker) and mPhase Technologies Inc. (the Holder), Dated April
10,1997, May 5, 1997, June 19, 1997 and August 31,
(c) Joint Venture Agreement dated April 30, 1997 between the Company and
Global Music & Medica, Inc. detailing terms and conditions under
which Complete Telecommunications, Inc. is to be organized and
operated.
(d) License Agreement dated October 27, 1997 between the Company,
Complete Telecommunications, Inc. and Global Music & Media, Inc.
(e) License Agreement dated March 26, 1998, by and between Georgia Tech
Research Corporation and the Company relating to the
commercialization of a certain invention entitled "Digital Video and
Data System."
(f) Infospace Content Distribution Agreement dated January 25, 1998, by
and between InfoSpace.com, Inc. and the Company.
(g) IP Equity Internet Investor Communication dated February 1, 1999.
11. Statement Re Computation of Per Share Earnings
Primary and fully diluted earnings per share
12. No Exhibit Required
Not applicable
13. Annual or Quarterly Reports - Form 10-Q
Not applicable
14. Material Foreign Patents
Not applicable
15. Letter on Unaudited Interim Financial Information
Not applicable
16. Letter from Mauriello, Franklin & LaBrace, CPAs
17. Letter on Director Resignation
18. Letter on Change in Accounting Principles
Not applicable
<PAGE>
Exhibit Name and/or Identification of Exhibit
Number
19. Reports Furnished to Security Holders
Not applicable
20. Other Documents or Statements to Security Holders
Not applicable
21. Subsidiaries of Small Business Issuer
See list of subsidiaries
22. Published Report Regarding Matters Submitted to Vote of Security Holders
Not applicable
23. Consent of Experts and Counsel
Consents of Schuhalter, Coughlin & Suozzo, LLC and Mauriello,
Franklin & LoBrace, P.C.
24. Power of Attorney
Not applicable
25. Statement of Eligibility of Trustee
Not applicable
26. Invitations for Competitive Bids
Not applicable
27. Financial Data Schedule
Not applicable
28. Information from Reports Furnished to State Insurance Regulatory
Authorities
Not applicable
99. Additional Exhibits
(a) Patent Application (not supplied to protect confidentiality of
information - can be supplied to Commission if requested under
protective order)
(b) Sample Subscription Agreement for Rule 504 Offering
(c) Sample Subscription Agreement for Rule 505 Offering
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Act of 1934, the registrant
caused this registration statement to be signed on its behalf by the
undersigned, hereunto duly authorized.
mPhase Technologies, Inc.
(Registrant)
Date: April 23, 1999
By: /s/ Ronald Durando
Ronald Durando, Director and President
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
EXHIBITS TO FORM 10-SB
DATED AS OF AUGUST 31, 1998
FILED BY mPHASE TECHNOLOGIES, INC.
(Formerly Tecma Laboratories, Inc.),
A NEW JERSEY corporation
IRS EMPLOYER IDENTIFICATION NUMBER 22-2287503
<PAGE>
EXHIBIT 2
PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT,
LIQUIDATION OR SUCCESSION
<PAGE>
EXCHANGE OF STOCK AGREEMENT AND PLAN OF REORGANIZATION
Exchange of Stock Agreement and Plan of Reorganization dated as of January 15,
1997 (the "Agreement"), by and between Tecma Laboratories, Inc. ("Tecma" or "the
public company") a New Jersey Corporation, having its principal place for the
transaction of business at 7 Finderne Avenue, Bridgewater, New Jersey and
Lightpaths, Inc. a Delaware Corporation, ("Lightpaths" or "the Corporation"),
having its principal place for the transaction of business at 8 Mountain Avenue,
Springfield, New Jersey 07081.
W I T N E S S E T H:
WHEREAS, the shareholders of Lightpaths collectively own 10,000 shares (the
"Corporation Shares") which constitutes all of the issued and outstanding shares
of the common stock of the Corporation; and WHEREAS, before giving effect to a
reverse stock split on a ten share for one share basis ("the Stock Split"),
Tecma shall have a capitalization of 50,000,000 shares of common stock, no par
value per share, of which 11,404,265 shares are issued and outstanding; and
WHEREAS, Tecma desires to acquire from the stockholders of Lightpaths all of the
Corporation Shares in exchange solely for 6,600,000 shares (after giving effect
to the Stock Split) of Tecma common stock (the "New Issue Exchange Shares"); and
WHEREAS, at the closing of the exchange of stock contemplated by this Agreement,
Tecma will not have any assets or liabilities, said assets and liabilities
having been transferred to a new business entity to be called TLI Industries,
Inc. in accordance with authority granted by the board of directors of the
public company to be confirmed at a stockholders' meeting of Tecma scheduled
to be held on January 17, 1997; and WHEREAS, it is the intention of Tecma and
Lightpaths that the exchange of the Corporation Shares for the New Issue
Exchange Shares constitute a "reorganization" as defined in Section 368(a) (1)
(B) of the Internal Revenue Code of 1986, as amended.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
contained in this Agreement, IT IS AGREED is follows:
ARTICLE I
EXCHANGE OF SHARES
Section 1.1 Exchange of Stock. Subject to the terms and conditions of this
Agreement, at the "Closing" as such term as defined in Section 7.1 hereof, the
Corporation Shares shall be exchanged with Tecma for the New Issue Exchange
Shares.
Section 1.2 Delivery of Certificates. After the Closing, certificates
representing all of the outstanding shares of Corporation Shares duly endorsed
to Tecma with signatures guaranteed and with all requisite stock transfer tax
stamps affixed, shall be delivered to the public company. The cost of any
transfer tax stamps required to be affixed to any stock certificates shall be
paid by Lightpaths. Upon delivery by Tecma of the certificates evidencing the
new Issue Exchange Shares, all shareholders of Lightpaths, shall be vested with
good and valid title to such New Issue Exchange Shares, free and clear of all
liens, claims and encumbrances. The New Issue Exchange Shares shall constitute
more than eighty (80%) percent of the outstanding common stock of Tecma giving
effect to the Stock Split.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TECMA
Tecma represents and warrants to Lightpaths as follows:
Section 2.1 Organization and Qualification of Tecma. Tecma is a corporation
duly incorporated, duly organized, validly existing and in good standing under
the laws of the State of New Jersey. It has the corporate power and authority
to own or lease and operate all of its properties and assets and to carry on its
<PAGE>
business as such business in now being conducted and is duly licensed or
qualified to do business and is in good standing in the State of New Jersey. The
legal representatives of Tecma (the "Representatives") have received copies of
the certificate of incorporation and by-laws of Tecma, certified by its
Secretary to be complete and correct, as amended.
Section 2.2 Capitalization and Ownership of Tecma. The authorized capital stock
of Tecma consists of (i) 50,000,000 shares of common stock, no par value per
share, of which 11,404,265 shares are issued and outstanding prior to giving
effect to the Stock Split. All outstanding shares of Tecma common stock are
validly issued, fully paid for and nonassessable with no personal liability
attaching to the ownership thereof and free of preemptive rights. There are no
shares of Tecma common stock issued or outstanding except as referred to above,
and, except as set forth on Exhibit 2.2 of the disclosure document annexed
hereto (the "Disclosure Document"), there are no options, calls, subscriptions,
warrants, rights, agreements or commitments of any character obligating the
public company, contingently or otherwise, to issue shares of its common stock
or to register shares of its common stock under the Securities Act of 1933, as
amended (the "1933 Act"), or any other applicable federal or state securities
laws.
Section 2.3 No Violations. The execution and delivery of this Agreement by
Tecma will not violate any provisions of its certificate of incorporation or
by-laws, conflict with any law, rule, statute or regulation to which is subject
or violate or result in a default under any agreement to which Tecma is a party
or by which it is bound.
Section 2.4 Investments. Tecma has not made any investments and does not own
any capital stock of any other corporation or other entity.
Section 2.5 Consents and Approvals. To the best knowledge of Tecma, no permit,
consent, approval or authorization of, or declaration, filing or registration
with any public body or authority or other person, firm or entity is necessary
in connection with the execution and delivery by the public company of this
Agreement or the consummation by it of the transactions contemplated hereby.
Section 2.6 Compliance with Law. Tecma holds all licenses, franchises, permits
and authorizations necessary for the lawful conduct of its business, and has
complied and is in compliance with all applicable statutes, laws, ordinances,
rules and regulations of all federal, state, local and foreign governmental
bodies, agencies and subdivisions having, asserting or claiming jurisdiction
over it or over any part of its operations. In connection with the sale of its
securities, the public company has complied with applicable provisions of the
1933 Act, the Securities Exchange Act of 1934 Act, as amended (the "1934 Act"),
all rules and regulations of the United States Securities and Exchange
Commission ("SEC") and the laws, rules and regulations of each state in which
such securities here offered for sale.
Section 2.7 Financial Statements. The Representatives have received copies of
the financial statements of Tecma for the fiscal years ended June 30, 1994 and
June 30, 1995 including the related balance sheets, statements of operations,
statement of changes in shareholders' equity for such years and the notes
thereto. The financial statements for the fiscal year ending June 30, 1996 and
the six month period ending December 31, 1996 are in the process of being
prepared by the public company and will be supplied to Lightpaths at least five
days prior to closing. The financial statements of Tecma represent or will
represent when presented to Lightpaths (a) the financial position, results of
operations and changes in financial position of Tecma, as of the respective
dates and for the respective periods indicated, and (b) have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied.
<PAGE>
Section 2.8 Existing Condition. Except as disclosed in Exhibit 2.8 of the
Disclosure Document, since December 31, 1996, Tecma has not:
(a) incurred any liabilities out of the ordinary course of business;
(b) sold, encumbered, assigned or transferred any of its assets;
(c) made or suffered any amendment or termination of any material agreement,
contract, commitment, lease under which the public company is lessee, or
canceled, modified or waived any significant debts or claims held by it or
waived any rights of significant value, whether or not in the ordinary
course of business;
(d) suffered any damage, destruction or loss, whether or not covered by
insurance;
(e) suffered any material adverse change in its business, operations, assets,
properties, prospects or condition (financial or otherwise) other than the
transactions required to transfer the assets and liabilities of the public
company to a new business entity called TLI Industries, Inc. as more fully
reflected in a certain information statement dated as of January 15, 1997
prepared to be submitted to Tecma stockholders, a copy of which is
attached as Exhibit "A" to this Agreement;
(f) made commitments or agreements for capital expenditures;
(g) hired any employees or increased the salaries or other compensation of, or
made any advance or loan to, any of its employees or consultants or made
any increase in, or any addition to, other benefits to which any of its
employees may be entitled;
(h) changed any of the accounting principles followed by it or the methods of
applying such principles;
(i) entered into any transaction other than in the ordinary course of business
consistent with past practice; or
(j) issued any shares of its common stock.
Section 2.9 Title to Properties; Leasehold Interests. Tecma has good and valid
title to all properties and assets, real, personal and mixed, free and clear of
all mortgages, liens, pledges, security interests, charges, claims, restrictions
and other encumbrances and defects of title of any nature whatsoever, except for
liens for taxes not yet due and payable.
Section 2.10 Condition of Tangible Assets. All material items of tangible
personal property are in good condition and repair, subject to normal wear and
tear, and are usable in the regular and ordinary course of business of Tecma.
Section 2.11 Books of Account. The books, records and accounts of Tecma
maintained with respect to its business accurately and fairly reflect, in
reasonable detail, all the transactions and all the assets and liabilities of
the public company. Tecma has not engaged in any transaction, maintained any
bank account or used any of its funds except for transactions, bank accounts
and funds which have been and are reflected in the normally maintained books
and records of the business.
Section 2.12 Litigation. Except as listed and annexed to Exhibit 2.13 of the
Disclosure Document, no litigation, including any arbitration, investigation or
other proceeding of or before any court, arbitrator or governmental or
regulatory official, body or authority is pending or, to the best of its
knowledge, is threatened against Tecma. The public company is not a party to or
subject to the provisions of any judgment, order, writ, injunction, decree or
award of any court, arbitrator or governmental or regulatory official, body or
authority which may materially and adversely affect the business or assets of
Tecma.
<PAGE>
Section 2.13 Contracts and Commitments. Except as listed and annexed to
Exhibit 2.13 of the Disclosure Document, Tecma is not a party to any written or
oral:
(a) agreement, contract or commitment with any present or former employee or
consultant or for the employment of any person, other than contracts
terminable at will without future liability to the public company;
(b) agreement contract or commitment for the future purchase of, or payment
for, equipment, supplies or products, or for the performance of services
by a third party except for any agreement, contract or commitment arising
in the ordinary course of business;
(c) agreement, contract or commitment to finance any acquisition of or
purchase any asset or to perform any service; or
(d) note, debenture, bond, equipment trust agreement, letter of credit
agreement, loan agreement or to their contract or commitment for the
borrowing or lending of money or agreement or arrangement for a line of
credit or guarantee, pledge or undertaking of the indebtedness of any
other person.
Each of the agreements, contracts, commitments, leases, plans and other
instruments, documents and undertakings annexed to Exhibit 2.13 is valid and
enforceable in accordance with its terms except as the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting the rights of
creditors generally; Tecma is not in default of the performance, observance or
fulfillment of any material obligations, covenant or condition contained
therein; and no event has occurred which with or without the giving of notice or
lapse of time, or both, would constitute a default thereunder; furthermore,
except as may be disclosed on Exhibit 2.13, no such agreement, contract,
commitment, lease, plan or other instrument, document or undertaking, in the
reasonable opinion of the public company, contains any contractual requirement
with which there is a likelihood Tecma will be unable to comply.
Section 2.14 No Broker or Finder. Tecma has not dealt with or retained any
finder or broker whose fees or expenses have been paid by the public company or
for whose fees or expenses it would be responsible in connection with this
Agreement or the transactions contemplated hereby.
Section 2.15 Personnel and Certain Authorized Persons. Exhibit 2.15 of the
Disclosure Document contains a true and complete list of all bank accounts of
Tecma and the names of all persons who are authorized signatories with respect
to such accounts.
Section 2.16 Employee Benefit Plans and Arrangements. Tecma has not sponsored,
maintained or supported, or otherwise been a party to, in default under, or had
any liability or accrued obligations under, any plan, program, fund or
arrangement, either qualified or non-qualified for federal income tax purposes,
relating to the employees of the public company, whether for the benefit of a
single individual or for more than one individual, and whether or not funded,
including, without limitation, any incentive or other benefit arrangement for
employees, their dependents and/or their beneficiaries and any "employee pension
benefit plan" or "employee welfare benefit plan", as such terms are defined in
Section 3 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Tecma has not, at any time, maintained or contributed or been
required to maintain or contribute to any "Multi-Employer Plan" as such term is
defined in Section 3(37) of ERISA.
Section 2.17 Completeness of Disclosure. No representation or warranty in this
Agreement nor any certificate, Exhibit, statements, document or instrument
furnished or to be furnished to Lightpaths by Tecma pursuant to this Agreement,
or in connection with the negotiation, execution or performance of this
Agreement, contains any untrue statement of a material fact or omits to state a
material fact required to be stated or necessary to make any statement made, not
misleading.
<PAGE>
Section 2.18 Tax Matters. Tecma has filed or will file on a timely basis
(including all extensions) all tax returns which were required to have been
filed, or are hereafter required to be filed up to the Closing Date by it
(including, without limitation, all federal, state, county, local and foreign
tax returns) and such returns are complete and accurate in all material
respects, and the public company has paid or provided for all taxes, interest
or penalties which have been incurred or are due and payable pursuant to such
returns or pursuant to any assessments received by it in connection with such
returns. No foreign, federal, state, local or other taxing authority has
provided the public company with any notice of any questions relating to, or
claims asserted for, taxes against Tecma for which it may be liable. All
taxes which Tecma is required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid over to the
proper governmental authorities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LIGHTPATHS
Lightpaths represents and warrants to Tecma as follows:
Section 3.1 Organization and Qualification of Lightpaths. Lightpaths is a
corporation duly incorporated, duly organized, validly existing and in good
standing under the laws of Delaware. The Corporation has the corporate power and
authority to own or lease and operate all of its properties and assets and to
carry on its business as such business is now being conducted and is duly
licensed or qualified to do business and is in good standing in all
jurisdictions in which the nature of its business or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualifications necessary and where the failure to qualify would not have a
material adverse effect on operations, properties, assets, liabilities, earnings
or business.
Section 3.2 Capitalization and Ownership of Lightpaths. The authorized capital
stock of Lightpaths consists of 100,000 shares of common stock, $.001 par value
per share, of which 10,000 shares are issued and outstanding. All outstanding
shares of Lightpaths common stock are validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership thereof,
free of preemptive rights and are owned free and clear of all liens, claims and
encumbrances. No securities are issued or outstanding except for the
aforementioned 10,000 shares of common stock and, at closing, there will be no
options, calls, subscriptions, warrants, rights, agreements or commitments of
any character obliging the Corporation on a contingent basis or otherwise, to
issue shares of common stock or to register shares of its common stock under
the 1933 Act or other applicable federal or state securities laws.
Section 3.3 Authority. Lightpaths has the full power and authority to enter
into this Agreement and to carry out its obligations hereunder. Other than
approval by its board of directors, no proceedings, on the part of the
Corporation are necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement constitutes the legal, valid and bind
obligation of Lightpaths enforceable in accordance with its terms.
Section 3.4 Consents and Approvals. No permit, consent, approval or
authorization of, or declaration, filing or registration with, any public body
or authority or other person, firm or entity is necessary in connection with the
execution and delivery by Lightpaths of this Agreement or the consummation by
the Corporation of the transactions contemplated hereby.
Section 3.5 Financial Statements. Tecma has received copies of the audited
financial statements of Lightpaths prepared for the period ending December 31,
1996 by Schuhalter, Coughlin & Suozzo, LLC of Raritan, New Jersey, certified
public accountants for Lightpaths. These financial statements (a) present
fairly the financial position, results of operations and changes in financial
position of the Corporation, as of the respective dates and for the respective
periods indicated, and (b) have been prepared in accordance with GAAP
consistently applied.
Section 3.6 Completeness of Disclosure. No representation or warranty in this
Agreement nor any certificate, exhibit, statements, document or instrument
furnished or to be furnished to Tecma by Lightpaths in connection with the
negotiation, execution or performance of this Agreement, contains any untrue
statement of a material fact or omits to state a material fact required to be
stated or necessary to make any statement made, not misleading.
ARTICLE IV
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 4.1 Survival of Representations and Warranties. The representations and
warranties made by the parties to this Agreement or in any certificate, exhibit,
document or instrument furnished hereunder shall survive for one year from the
closing of the transactions contemplated hereby.
ARTICLE V
AGREEMENTS PENDING CLOSING
Section 5.1 Agreement Pending the Closing. Tecma covenants and agrees that,
pending the Closing and except as otherwise agreed to in writing by Lightpaths,
it will:
(a) Business in the Ordinary Course. Conduct its business solely in the
ordinary course.
(b) Maintenance of Physical Assets. Continue to maintain and service the
physical assets used in the conduct of its business in the same manner as
has been its consistent past practice.
(c) Employees and Business Relations. Continue to maintain its business
relations and relations with its employees in the same manner as has been
its consistent past practice.
(d) Compliance with Law. etc. Comply with all laws, ordinances, rules,
regulations and orders applicable to it or their operations, assets or
properties in respect thereof, the noncompliance with which might
materially affect its business or assets.
(e) Cooperation. Cooperate with the other parties to this Agreement and use
its best efforts to cause all of the conditions to the obligations on its
part to be performed under this Agreement to be satisfied before or
immediately after the Closing Date.
(f) Sales of Assets; Negotiations. Except for the transaction deemed to have
taken place as of January 1, 1997 whereby the assets and liabilities of
Tecma were transferred to a new business entity to be called TLI
Industries, Inc., all as more fully set forth in the information statement
dated as of January 15, 1997 attached as Exhibit "A" to this Agreement,
other than in the ordinary course of business consistent with past
practice, the public company will not initiate or participate in any
discussions or negotiations or enter into any agreement to sell or
encumber any part of its assets.
(g) Press Releases. No party to this Agreement shall give notice to third
parties or otherwise make any public statement or release concerning this
Agreement or the transactions contemplated hereby except for such written
information as shall have been approved in writing by the representatives
of Lightpaths as to form and content.
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO THE CLOSING
AND ADDITIONAL COVENANTS OF TECMA
Section 6.1 Conditions Precedent to the Obligations of Lightpaths. All
obligations of Lightpaths under this Agreement are subject to the fulfillment or
satisfaction, and Tecma covenants and agrees to fulfill or satisfy, prior to or
at the Closing, each of the following conditions precedent:
(a) Representations and Warranties True as of the Closing Date. The
representations and warranties of Tecma contained in this Agreement or in
an Exhibit contained in the Disclosure Document, certificate or document
delivered by the public company to Lightpaths pursuant to its provisions
shall be true on the date of this Agreement without regard to any updates
furnished by Tecma after the date of this Agreement and shall be true on
the Closing Date with the same effect as though such representations and
warranties were made as of such date.
(b) Compliance with this Agreement. Tecma shall have performed and complied
with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing.
(c) No Threatened or Pending Litigation. On the Closing Date, no suit, action
or other proceeding, or injunction or final judgment relating thereto,
shall be threatened or be pending before any court or government or
regulatory official, body or authority in which it is sought to restrain
or prohibit or to obtain damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby, and
no investigation that might result in any such suit, action or proceeding
shall be pending or threatened.
(d) Consents and Approvals. All of the consents required to carry out the
transactions contemplated hereunder have been obtained or will be obtained
by the closing date including resolutions of the board of directors and
stockholders of Tecma approving the entry into this Agreement and the
carrying out of transactions contemplated herein.
(e) Material Adverse Changes. There has been no material adverse change in
the business, operations, assets or properties of Tecma other than the
transactions whereby the existing assets and liabilities of the public
company were transferred to a new entity called TLI Industries, Inc. as
more fully described in the information statement dated as of January 15,
1997 attached as Exhibit "A" to this Agreement.
(f) Approval of Counsel; Corporate Matters. All actions, proceedings,
resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall
have been approved on the Closing Date by counsel for Lightpaths in the
exercise of its reasonable judgment.
(g) Certificates. Tecma shall have delivered to the representatives of
Lightpaths, one or more certificates for the New Issue Exchange Shares and
the public company shall also have delivered to the representatives of
Lightpaths such other documents, instruments, certifications and further
assurances as its counsel may reasonably require.
(h) Resignations. Subsequent to the election of three qualified nominees of
Lightpaths to be directors of Tecma and their acceptance of the legal
duties and obligations related thereto, all officers and predecessor
directors of the public company shall have submitted written resignations.
(i) No Liabilities. At closing, Tecma shall have no liabilities or
obligations, either accrued, absolute, contingent or otherwise.
<PAGE>
For purposes of this Agreement, the terms "liabilities" shall include,
without limitation, any direct or indirect indebtedness, guaranty,
endorsement, indemnity, claim, loss, damage, deficiency, cost, expense, or
obligation, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured or a reserve for any of the foregoing.
(j) Stock Split And Change in Par Value. Tecma shall have authorized and
effected a one share for ten share reverse stock split (the "Stock Split")
such that each holder of outstanding shares of Tecma common stock, par
value $.001 (the "Old Tecma Stock"), shall receive one $.001 par value
share of Tecma common stock for every ten shares of Old Tecma Stock that
the stockholder owns.
(k) Assignment and Assumption Agreement. Tecma shall have executed and
delivered a copy to Lightpaths, an Assignment and Assumption Agreement by
and between TLI Industries, Inc. and Tecma pursuant to which, for a period
of one year, TLI Industries, Inc. agrees to assume or satisfy any
liabilities of the public company that remain or are otherwise asserted
after the transfer of its assets to TLI Industries, Inc.
Section 6.2 Conditions Precedent to the Obligations of Tecma. All obligations
of Tecma under this Agreement are subject to the fulfillment or satisfaction,
prior to or at the Closing, of each of the following conditions precedent:
(a) Representations and Warranties True as of the Closing Date. The
representations and warranties of Lightpaths contained in this Agreement
or in any list, certificate or document delivered by Lightpaths to Tecma
pursuant to the provisions of this Agreement shall be true on the Closing
Date with the same effect as though such representations and warranties
were made as of such date.
(b) Compliance with this Agreement. Lightpaths shall have performed and
complied with all agreements and conditions required by this Agreement to
be performed or complied with by them prior to or at the Closing.
(c) No Threatened or Pending Litigation. On the Closing Date, no suit, action
or other proceeding, or injunction of final judgment relating thereto,
shall be threatened or be pending against Lightpaths before any court or
governmental or regulatory official, body or authority in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby, and no investigation that might result in any such
suit, action or proceeding shall be pending or threatened.
(d) Material Adverse Changes. There shall have been no material adverse
changes in the business, operations, assets or properties of Lightpaths.
(e) Approval of counsel; Corporate Matters. All actions, proceedings,
resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall
have been approved on the Closing Date by counsel for Tecma in the
exercise of its reasonable judgment.
(f) Certificates. Lightpaths shall have delivered to Tecma one or more
certificates for the Corporation Shares and shall also have delivered to
Tecma such other documents, instruments, certifications and further
assurances as its counsel may reasonably require.
<PAGE>
ARTICLE VII
CLOSING, FURTHER ASSURANCES
AND CONDITIONS SUBSEQUENT
Section 7.1 Closing. The Closing (the "Closing") of the exchange of the
Corporation Stock and the New Issue Exchange Shares shall take place at the
offices of Robert H. Jaffe & Associates, P.A. on February 15, 1997 or such other
place or date as may be mutually agreed upon in writing by the parties hereto.
The date of the Closing is sometimes herein referred to as the "Closing Date".
Section 7.2 Acts to be Performed by the Corporation. Following the Closing
Lightpaths shall cause Tecma to:
(a) accept the resignation of its present registered agent in the State of New
Jersey and appoint a successor thereto;
(b) change the address of its registered office in the State of New Jersey;
(c) change the address of its principal executive offices and to take all
actions necessary to qualify to transact business in the jurisdiction
thereof and all other jurisdictions in which the nature of business
conducted by Tecma or the character or location of the properties and
assets owned or leased by it make such qualification necessary, except
where the failure to so qualify would not have a material adverse effect
on the public company; and
(d) execute the appropriate certificates and make the appropriate public
filings to effectuate each of the foregoing actions.
Section 7.3 Further Assurances. After the Closing, Tecma and Lightpaths agree
to execute, acknowledge and deliver to the other such other instruments of
conveyance and transfer and will take such other actions and execute and deliver
such other documents, certifications and further assurances as the other may
reasonably require in order to vest more effectively the Corporation Shares and
the New Issue Exchange Shares, as the case may be, in the owners thereof. In
addition, each of the parties will cooperate by executing and delivering to the
other such additional instruments and documents and take such other actions as
may be reasonably requested from time to time by any other party necessary to
carry out, evidence and confirm the intended purposes of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Termination.
(a) Anything herein or elsewhere to the contrary notwithstanding, this
Agreement may be terminated by written notice of termination at any time
before the Closing Date only as follows:
(i) by mutual consent of Tecma and Lightpaths;
(ii) by Lightpaths at any time if the representations and warranties of
Tecma move to be materially incorrect when made;
(iii) by Tecma at any time if the representations and warranties of
Lightpaths were materially incorrect when made; or
(iv) by either Tecma or Lightpaths if the transactions contemplated by
this Agreement do not close on or before April 15, 1997 unless
extended in writing by mutual agreement of the parties.
<PAGE>
(b) In the event of the termination and abandonment hereof pursuant to the
provisions of this Section 8.01, this Agreement, except as provided in
this Section 8.01(b) shall become void and have no effect, without any
liability on the part of any of the parties or their directors or officers
or stockholders in respect of this Agreement. Notwithstanding any such
termination and abandonment, the provisions of Section 5.01(j) regarding
confidential information shall remain binding upon the parties hereto.
Section 8.2 Brokers' and Finders' Fees. Each party represents and warrants to
the other that all negotiations relative to this Agreement have been carried on
by it directly without the intervention of any person except for Ronald A.
Durando of Nutley, New Jersey, and Tecma agree to indemnify and hold Lightpaths
harmless against any and all claims, losses, liabilities and expenses which may
be asserted against or incurred by it as a result of its dealings, arrangements
or agreements with any other person.
Section 8.3 Income, Sales, Transfer and Documentary Taxes, etc. Lightpaths
shall pay all federal, state and local income taxes, if any, due as a result
of the purchase, sale or transfer of the New Issue Exchange Shares and the
Corporation Shares in accordance herewith.
Section 8.4 Expenses. Each party shall pay its own expenses incidental to the
preparation of this Agreement.
Section 8.5 Contents of Agreement; Parties in Interest; etc. This Agreement,
including Exhibit "A" attached hereto and the annexed Disclosure Documents, set
forth the entire understanding of the parties with respect to the transactions
contemplated by this Agreement. It shall not be amended or modified except by
written instrument duly executed by representatives of Tecma and Lightpaths.
Any and all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded by
this Agreement.
Section 8.6 Assignment and Binding Effect. This Agreement may not be assigned
prior to the Closing by either party without the prior written consent of the
other.
Section 8.7 Waiver. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party.
Section 8.8 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally or sent by telegram or by
registered or certified mail, postage prepaid, as follows:
If to Tecma, to:
Tecma, Inc.
7 Finderne Avenue
Bridgewater, New Jersey
Attn: Theodore Trenzeluk, President
With a required copy to:
Joel R. Weiner, Esq.
1952 Washington Valley Road
P.O. Box 591
Martinsville, NJ 08836
and
William J. Reilly, Esq.
19 Raymond Drive
Portsmouth, RI 02871
If to Lightpaths, to:
Ronald A. Durando
Microphase Corporation
587 Connecticut Post Road
Norwalk, Connecticut 06854
With a copy to:
Robert H. Jaffe, Esq.
Robert H. Jaffe & Associates, P.A.
8 Mountain Avenue
Suite 200
Springfield, New Jersey 07081
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communications will be deemed to have been given as
of the date so delivered, telephoned or mailed.
Section 8.9 Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of New Jersey.
Section 8.10 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto.
Section 8.11 Section Headings. All section headings contained in this
Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 8.12 Schedules and Exhibits. All Exhibits referred to herein are
intended to be and hereby are specifically made a part of this Agreement.
Section 8.13 Severability. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions.
Section 8.14 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the
date first above written .
ATTEST: TECMA, INC.
___________________________ _____________________________
, Secretary Theodore Trenzeluk, President
ATTEST: LIGHTPATHS, INC.
_______________________________ ______________________________
, Assistant RONALD A. DURANDO, President
Secretary
<PAGE>
EXCHANGE OF STOCK AGREEMENT AND PLAN OF REORGANIZATION
Exchange of Stock Agreement and Plan of Reorganization dated as of June 25,
1998(the "Agreement"), by and between mPhase Technologies, Inc., ("mPhase" or
"the Public Company") a New Jersey corporation, having its principal place for
the transaction of business at 587 Connecticut Avenue, Norwalk, Connecticut,
06854 and Microphase Telecommunications, Inc., a Delaware corporation
("MicroTel" or "the Corporation"), having its principal place for the
transaction of business at 8 Mountain Avenue, Springfield, New Jersey 07018.
W I T N E S S E T H:
WHEREAS, the existing shareholders of MicroTel collectively own 5,000,000
shares (the "Corporation Shares") which constitutes all of the issued and
outstanding shares of the common stock of the Corporation; and
WHEREAS, mPhase has a capitalization of 50,000,000 shares of common stock,
no par value per share, of which 10,979,711 shares are issued and outstanding or
otherwise the subject of subscription agreements as of the date of this
Agreement; and
WHEREAS, mPhase desires to acquire from the stockholders of MicroTel all
of the Corporation Shares in exchange solely for 2,500,000 shares of mPhase
common stock (the "New Issue Exchange Shares"); and
WHEREAS, it is the intention of mPhase and MicroTel that the exchange of
the Corporation Shares for the New Issue Exchange Shares be a tax free exchange
of shares pursuant to appropriate revisions of the Internal Revenue Code of
1986, as amended.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
contained in this Agreement, IT IS AGREED is follows:
ARTICLE I
EXCHANGE OF SHARES
Section 1.1 Exchange of Stock. Subject to the terms and conditions of
this Agreement, at the "Closing Date" as such term as defined in Section 7.1
hereof, the Corporation Shares shall be exchanged with mPhase for the New Issue
Exchange Shares.
Section 1.2 Delivery of Certificates. At the Closing Date, certificates
representing all of the issued and outstanding shares of Corporation Shares duly
endorsed to mPhase with signatures guaranteed and with all requisite stock
transfer tax stamps affixed, shall be delivered to the Public Company. The cost
of any transfer tax stamps required to be affixed to any stock certificates
shall be paid by MicroTel. Upon delivery by mPhase of the certificates
evidencing the New Issue Exchange Shares all shareholders of MicroTel shall
be vested with good and valid title to such New Issue Exchange Shares, free
and clear of all liens, claims and encumbrances.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF mPHASE
mPhase represents and warrants to MicroTel as follows:
Section 2.1 Organization and Qualification of mPhase. mPhase is a
corporation duly incorporated, duly organized, validly existing and in good
standing under the laws of the State of New Jersey. It has the corporate power
and authority to own or lease and operate all of its properties and assets and
to carry on its business as such business is now being conducted and is duly
licensed or qualified to do business and is in good standing in the State of
New <PAGE>
Jersey. The legal representatives of mPhase (the "Representatives") have
provided to MicroTel copies of the certificate of incorporation and by-laws of
mPhase, certified by its assistant secretary to be complete and correct, as
amended.
Section 2.2 Capitalization and Ownership of mPhase. The authorized
capital stock of mPhase consist of (i) 50,000,000 shares of common stock, $0.001
par value per share, of which 10,979,711 shares are issued and outstanding or
otherwise the subject of subscription agreements. All outstanding shares of
mPhase common stock are validly issued, fully paid for and nonassessable with no
personal liability attaching to the ownership thereof and free of pre-emptive
rights. There are no shares of mPhase common stock issued or outstanding except
as referred to above, and, except as set forth in the disclosure document
annexed hereto (the "Disclosure Document"), there are no options, calls,
subscriptions, warrants, rights, agreements or commitments of any character
obligating the Public Company, contingently or otherwise, to issue shares of
its common stock or to register shares of its common stock under the
Securities Act of 1933, as amended (the "1933 Act"), or any other applicable
federal or state securities laws.
Section 2.3 No Violations. The execution and delivery of this Agreement
by mPhase will not violate any provisions of its certificate of incorporation or
by-laws, conflict with any law, rule, statute or regulation to which is subject
or violate or result in a default under any agreement to which mPhase is a party
or by which it is bound.
Section 2.4 Investments. mPhase has not made any investments and does not
own any capital stock of any other corporation or other entity except for
Complete Telecommunications, Inc., a Georgia corporation, which is presently
winding down its marketing operations.
Section 2.5 Consents and Approvals. To the best knowledge of mPhase, no
permit, consent, approval or authorization of, or declaration, filing or
registration with any public body or authority or other person, firm or entity
is necessary in connection with the execution and delivery by the Public Company
of this Agreement or the consummation by it of the transactions contemplated
hereby.
Section 2.6 Compliance with Law. mPhase holds all licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business, and
has complied and is in compliance with all applicable statutes, laws,
ordinances, rules and regulations of all federal, state, local and foreign
governmental bodies, agencies and subdivisions having, asserting or claiming
jurisdiction over it or over any part of its operations. In connection with
the sale of its securities, the Public Company has complied with applicable
provisions of the 1933 Act, the Securities Exchange Act of 1934 Act, as
amended (the "1934 Act"), all rules and regulations of the United States
Securities and Exchange Commission ("SEC") and the laws, rules and
regulations of each state in which such securities have been offered for sale.
Section 2.7 Financial Statements. The Representatives have provided to
MicroTel copies of the financial statements of mPhase for the fiscal years ended
June 30, 1996 and June 30, 1997 including balance sheets, statements of
operations, statement of changes in shareholders' equity for such years and the
footnotes thereto. The financial statements of mPhase represent (a) the
financial position, results of operations and changes in financial position of
mPhase, as of the respective dates and for the respective periods indicated, and
(b) have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied.
Section 2.8 Existing Condition. Except as disclosed in the Disclosure
Document, since June 30, 1997, mPhase has not:
<PAGE>
(a) incurred any liabilities out of the ordinary course of
business; except for those shown in the unaudited nine month financial statement
of the public company.
(b) sold, encumbered, assigned or transferred any of its assets;
(c) made or suffered any amendment or termination of any material
agreement, contract, commitment, lease under which the Public Company is lessee,
or canceled, modified or waived any significant debts or claims held by it or
waived any rights of significant value, whether or not in the ordinary course of
business;
(d) suffered any damage, destruction or loss, whether or not
covered by insurance;
(e) suffered any material adverse change in its business,
operations, assets, properties, prospects or condition (financial or otherwise);
(f) made commitments or agreements for capital expenditures;
(g) hired any employees or increased the salaries or other
compensation of, or made any advance or loan to, any of its employees or
consultants or made any increase in, or any addition to, other benefits to which
any of its employees may be entitled;
(h) changed any of the accounting principles followed by it or the
methods of applying such principles; or
(i) entered into any transaction other than in the ordinary course
of business consistent with past practice.
Section 2.9 Title to Properties. mPhase has good and valid title to all
properties and assets, real, personal and mixed, free and clear of all
mortgages, liens, pledges, security interests, charges, claims, restrictions
and other encumbrances and defects of title of any nature whatsoever, except
for liens for taxes not yet due and payable.
Section 2.10 Condition of Tangible Assets. All material items of tangible
personal property are in good condition and repair, subject to normal wear and
tear, and are usable in the regular and ordinary course of business of mPhase.
Section 2.11 Books of Account. The books, records and accounts of mPhase
maintained with respect to its business accurately and fairly reflect, in
reasonable detail, all the transactions and all the assets and liabilities of
the Public Company. mPhase has not engaged in any transaction, maintained any
bank account or used any of its funds except for transactions, bank accounts
and funds which have been and are reflected in its normally maintained books
and records.
Section 2.12 Litigation. No litigation, including any arbitration,
investigation or other proceeding of or before any court, arbitrator or
governmental or regulatory official, body or authority is pending or, to
the best of its knowledge, is threatened against mPhase, except for claims
made by Global Music & Media, Inc. with respect to a license agreement and
certain claims alleged to that entered with Complete Telecommunications, Inc.
and a potential lawsuit relating to a lease arrangement entered into between
mPhase and a landlord relating to facilities rented by the public company when
it was known as Tecma Laboratories, Inc., provision for which has already been
made in the Company's financial statements. The Public Company is not a party
to or subject to the provisions of any judgment, order, writ, injunction,
decree or award of any court, arbitrator or governmental or regulatory
official, body or authority which may materially and adversely affect the
business or assets of mPhase.
<PAGE>
Section 2.13 Contracts and Commitments. Except as listed and annexed to
the Disclosure Document, mPhase is not a party to any written or oral:
(a) agreement, contract or commitment with any present or former
employee or consultant or for the employment of any person, other than contracts
terminable at will without future liability to the Public Company;
(b) agreement contract or commitment for the future purchase of,
or payment for, equipment, supplies or products, or for the performance of
services by a third party except for any agreement, contract or commitment
arising in the ordinary course of business;
(c) agreement, contract or commitment to finance any acquisition
of or purchase any asset or to perform any service; or
(d) note, debenture, bond, equipment trust agreement, letter of
credit agreement, loan agreement or to their contract or commitment for the
borrowing or lending of money or agreement or arrangement for a line of credit
or guarantee, pledge or undertaking of the indebtedness of any other person.
Section 2.14 Representation as to Contractual Obligations. Each of the
agreements, contracts, commitments, leases, plans and other instruments,
documents and undertakings referenced in the financial statements of public
company, including, but not limited to, substantial monthly obligations due to
Georgia Tech Research Institute in connection with the development of its
proprietary Traverser Digital Video and Data Delivery System are valid and
enforceable in accordance with its terms except as the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting the rights of
creditors generally; mPhase is not in default of the performance, observance or
fulfillment of any material obligations, covenant or condition contained
therein; and no event has occurred which with or without the giving of notice
or lapse of time, or both, would constitute a default thereunder; furthermore,
except as may be disclosed in the financial statements of the Company, no
such agreement, contract, commitment, lease, plan or other instrument,
document or undertaking, in the reasonable opinion of the Public Company,
contains any contractual requirement with which there is a likelihood mPhase
will be unable to comply.
Section 2.15 No Broker or Finder. mPhase has not dealt with or retained
any finder or broker whose fees or expenses have been paid by the Public Company
or for whose fees or expenses it would be responsible in connection with this
Agreement or the transactions contemplated hereby.
Section 2.16 Employee Benefit Plans and Arrangements. mPhase has not
sponsored, maintained or supported, or otherwise been a party to, in default
under, or had any liability or accrued obligations under, any plan, program,
fund or arrangement, either qualified or non-qualified for federal income tax
purposes, relating to the employees of the Public Company, whether for the
benefit of a single individual or for more than one individual, and whether or
not funded, including, without limitation, any incentive or other benefit
arrangement for employees, their dependents and/or their beneficiaries and any
"employee pension benefit plan" or "employee welfare benefit plan", as such
terms are defined in Section 3 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). mPhase has not, at any time, maintained or
contributed or been required to maintain or contribute to any "Multi-Employer
Plan" as such term is defined in Section 3(37) of ERISA.
Section 2.17 Completeness of Disclosure. No representation or warranty
in this Agreement or in the financial statements of the Company nor in any other
certificate, exhibit, statements, document or instrument furnished or to be
furnished to MicroTel by mPhase pursuant to this Agreement, or in connection
with the negotiation, execution or performance of this Agreement, contains any
untrue statement of a material fact or omits to state a material fact required
to be stated or necessary to make any statement made, not misleading.
<PAGE>
Section 2.18 Tax Matters. mPhase has filed or will file on a timely
basis (including all extensions) all tax returns which were required to have
been filed, or are hereafter required to be filed up to the Closing Date by it
(including, without limitation, all federal, state, county, local and foreign
tax returns) and such returns are complete and accurate in all material
respects, and the Public Company has paid or provided for all taxes, interest
or penalties which have been incurred or are due and payable pursuant to such
returns or pursuant to any assessments received by it in connection with such
returns. No foreign, federal, state, local or other taxing authority has
provided the Public Company with any notice of any questions relating to, or
claims asserted for, taxes against mPhase for which it may be liable. All
taxes which mPhase is required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid over to the
proper governmental authorities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MICROTEL
MicroTel represents and warrants to mPhase as follows:
Section 3.1 Organization and Qualification of MicroTel. MicroTel is a
corporation duly incorporated, duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Corporation has the
corporate power and authority to own or lease and operate all of its properties
and assets and to carry on its business as such business is now being conducted
and is duly licensed or qualified to do business and is in good standing in all
jurisdictions in which the nature of its business or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualifications necessary and where the failure to qualify would not have a
material adverse effect on operations, properties, assets, liabilities, earnings
or business.
Section 3.2 Capitalization and Ownership of MicroTel. The authorized
capital stock of MicroTel consists of 5,000,000 shares of common stock, $.002
par value per share, of which 5,000,000 shares are issued and outstanding. All
outstanding shares of MicroTel common stock are validly issued and outstanding,
fully paid and nonassessable with no personal liability attaching to the
ownership thereof, free of preemptive rights and are owned free and clear of all
liens, claims and encumbrances. No securities are issued or outstanding except
for the aforementioned 5,000,000 shares of common stock and, at closing, there
will be no options, calls, subscriptions, warrants, rights, agreements or
commitments of any character obliging the Corporation on a contingent basis or
otherwise, to issue shares of common stock or to register shares of its common
stock under the 1933 Act or other applicable federal or state securities laws.
Section 3.3 Authority. MicroTel has the full power and authority to enter
into this Agreement and to carry out its obligations hereunder. Other than
approval by its board of directors, no proceedings, on the part of the
Corporation are necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement constitutes the legal, valid and bind
obligation of MicroTel enforceable in accordance with its terms.
Section 3.4 Consents and Approvals. No permit, consent, approval or
authorization of, or declaration, filing or registration with, any public body
or authority or other person, firm or entity is necessary in connection with the
execution and delivery by MicroTel of this Agreement or the consummation by the
Corporation of the transactions contemplated hereby.
<PAGE>
Section 3.5 Financial Statements. mPhase has received copies of the
unaudited financial statements of MicroTel internally prepared for fiscal period
ending June 30, 1997. These financial statements (a) present fairly the
financial position, results of operations and changes in financial position of
the Corporation, as of the respective dates and for the respective periods
indicated, and (b) have been prepared in accordance with GAAP consistently
applied.
Section 3.6 Assets of Microtel. The assets of MicroTel consist of patents
and patent applications described in Exhibit "A" attached to this Agreement. Of
these patents and patent applications, the parties acknowledge that the listing
attached as Exhibit "B" to this Agreement are in the process of being
transferred to Microphase Corporation, a Connecticut corporation that was the
original sole stockholder of MicroTel. Accordingly, the patents and patent
applications identified on Exhibit "B" and are not considered assets of the
Corporation at the time of the consummation of the merger contemplated by this
Agreement.
Section 3.7 Completeness of Disclosure. No representation or warranty in
this Agreement nor any certificate, exhibit, statements, document or instrument
furnished or to be furnished to mPhase by MicroTel in connection with the
negotiation, execution or performance of this Agreement, contains any untrue
statement of a material fact or omits to state a material fact required to be
stated or necessary to make any statement made, not misleading.
ARTICLE IV
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 4.1 Survival of Representations and Warranties. The
representations and warranties made by the parties to this Agreement or in any
certificate, exhibit, document or instrument furnished hereunder shall survive
for one year from the closing of the transactions contemplated hereby.
ARTICLE V
AGREEMENTS PENDING CLOSING
Section 5.1 Agreement Pending the Closing. mPhase covenants and agrees
that, pending the Closing and except as otherwise agreed to in writing by
MicroTel, it will:
(a) Business in the Ordinary Course. Conduct its business solely
in the ordinary course;
(b) Maintenance of Physical Assets. Continue to maintain and
service the physical assets used in the conduct of its business in the same
manner as has been its consistent past practice;
(c) Employees and Business Relations. Continue to maintain its
business relations and relations with its employees in the same manner as has
been its consistent past practice;
(d) Compliance with Law. etc. Comply with all laws, ordinances,
rules, regulations and orders applicable to it or their operations, assets or
properties in respect thereof, the noncompliance with which might materially
affect its business or assets;
(e) Cooperation. Cooperate with the public company that is party
to this Agreement and use its best efforts to cause all of the conditions to the
obligations on its part to be performed under this Agreement to be satisfied
before or immediately after the Closing Date;
<PAGE>
(f) Sales of Assets; Negotiations. Other than in the ordinary
course of business consistent with past practice, the Public Company will not
initiate or participate in any discussions or negotiations or enter into any
agreement to sell or encumber any part of its assets; and
(g) Press Releases. Neither of the parties to this Agreement shall
give notice to third parties or otherwise make any public statement or release
concerning this Agreement or the transactions contemplated hereby except for
such written information as shall have been approved in writing by the
representatives of the public company as to form and content.
ARTICLE VI
CONDITIONS PRECEDENT TO THE CLOSING
AND ADDITIONAL COVENANTS OF mPHASE
Section 6.1 Conditions Precedent to the Obligations of MicroTel. All
obligations of MicroTel under this Agreement are subject to the fulfillment or
satisfaction, and mPhase covenants and agrees to fulfill or satisfy, prior to or
at the Closing, each of the following conditions precedent:
(a) Agreement to Review and Allocate Patents and Patent Applications for
Reassignment to Microphase Corporation. The duly authorized representatives of
mPhase are to continue to review with the Engineering Department of the Company
and the Engineering Department of Microphase Corp., a stockholder of that
Company, to finally determine which of the aforesaid patents and patent
applications filed with the United States Patent and Trademark Office, a copy of
which is attached as Exhibit "A" to this Agreement, should be reassigned to
Microphase Corporation. It is the intention of this provision that MicroTel
shall maintain those patents which are relevant to the Traverser Digital Video
and Data Delivery System being developed by mPhase;
(b) Arrangement for Royalty Agreement. In exchange for releasing certain
of the patents previously assigned to MicroTel, mPhase is to arrange with
Microphase Corporation that, upon consummation of this merger, MicroTel will
receive a three (3%) percent royalty on the net sales of digital subscriber line
components that constitute part of the Traverser Digital Video and Data Delivery
systems and related technology being developed by mPhase;
(c) Cancellation of Previous Compensation Agreement Dated May 15, 1997
and Arrange for Royalty Agreement. mPhase is to cancel a certain agreement
dated May 15, 1997 whereby that Company has agreed to pay certain minimum annual
royalties based on a sliding scale of sales of mPhase technology. The Company
will acknowledges that, as part of the agreement of Microphase Corporation as a
stockholder of MicroTel to allow this merger transaction to be consummated,
mPhase has agreed to pay Microphase Corporation a three (3%) percent royalty of
all sales made of the mPhase technology whether or not those sales will result
in the sales by Microphase Corporation of digital subscriber line components
designed and/or manufactured by Microphase Corporation;
(d) Consents and Approvals. All of the consents required to carry
out the transactions contemplated hereunder have been obtained or will be
obtained by the closing date, including resolutions of the board of directors
and stockholders of mPhase, if required, approving the entry into this
Agreement and the carrying out of transactions contemplated herein;
(e) Material Adverse Changes. There has been no material adverse
change in the business, operations, assets or properties of mPhase;
(f) Approval of Counsel; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved on the Closing Date by counsel for MicroTel in the exercise of its
reasonable judgment;
<PAGE>
(g) Certificates. mPhase shall have delivered to the legal
representatives of MicroTel, one or more certificates for the New Issue Exchange
Shares and the Public Company shall also have delivered to the representatives
of MicroTel such other documents, instruments, certifications and further
assurances as its counsel may reasonably require; and
(h) No Liabilities. At closing, mPhase shall have no liabilities
or obligations, either accrued, absolute, contingent or otherwise.
For purposes of this Agreement, the terms "liabilities" shall
include, without limitation, any direct or indirect indebtedness, guaranty,
endorsement, indemnity, claim, loss, damage, deficiency, cost, expense, or
obligation, fixed or unfixed, choate or inchoate, liquidated or unliquidated,
secured or unsecured or a reserve for any of the foregoing.
Section 6.2 Conditions Precedent to the Obligations of mPhase. All
obligations of mPhase under this Agreement are subject to the fulfillment or
satisfaction, prior to or at the Closing, of each of the following conditions
precedent:
(a) Representations and Warranties True as of the Closing Date.
The representations and warranties of MicroTel contained in this Agreement or in
any list, certificate or document delivered by MicroTel to mPhase pursuant to
the provisions of this Agreement shall be true on the Closing Date with the same
effect as though such representations and warranties were made as of such date;
(b) Compliance with this Agreement. MicroTel shall have performed
and complied with all agreements and conditions required by this Agreement to be
performed or complied with by them prior to or at the Closing;
(c) No Threatened or Pending Litigation. On the Closing Date, no
suit, action or other proceeding, or injunction of final judgment relating
thereto, shall be threatened or be pending against MicroTel before any court or
governmental or regulatory official, body or authority in which it is sought to
restrain or prohibit or to obtain damages or other relief in connection with
this Agreement or the consummation of the transactions contemplated hereby, and
no investigation that might result in any such suit, action or proceeding shall
be pending or threatened;
(d) Material Adverse Changes. There shall have been no material
adverse changes in the business, operations, assets or properties of MicroTel;
(e) Approval of counsel; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved on the Closing Date by counsel for mPhase in the exercise of its
reasonable judgment;
(f) Certificates. MicroTel shall have delivered to mPhase one or
more certificates for the Corporation Shares and shall also have delivered to
mPhase such other documents, instruments, certifications and further assurances
as its counsel may reasonably require; and
(g) Resignations. Subsequent to the election of three qualified
nominees of mPhase to be directors of MicroTel and their acceptance of the legal
duties and obligations related thereto, all officers and predecessor directors
of the corporation shall have submitted written resignations.
<PAGE>
ARTICLE VII
CLOSING, FURTHER ASSURANCES
AND CONDITIONS SUBSEQUENT
Section 7.1 Closing. The Closing Date (the "Closing") for the exchange
of the Corporation Stock and the New Issue Exchange Shares shall take place at
the offices of Robert H. Jaffe & Associates, P.A. on June 30, 1998 or such other
place or date as may be mutually agreed upon in writing by the parties hereto.
Section 7.2 Acts to be Performed by the Corporation. Following the
Closing Date, MicroTel shall cause mPhase to:
(a) accept the resignation of its present registered agent in the
State of New Jersey and appoint a successor thereto;
(b) change the address of its registered office in the State of New
Jersey;
(c) change the address of its principal executive offices and to
take all actions necessary to qualify to transact business in the jurisdiction
thereof and all other jurisdictions in which the nature of business conducted by
mPhase or the character or location of the properties and assets owned or leased
by it make such qualification necessary, except where the failure to so qualify
would not have a material adverse effect on the Public Company; and
(d) execute the appropriate certificates and make the appropriate
public filings to effectuate each of the foregoing actions;
Section 7.3 Further Assurances. After the Closing Date, mPhase and
MicroTel agree to execute, acknowledge and deliver to the other such other
instruments of conveyance and transfer and will take such other actions and
execute and deliver such other documents, certifications and further assurances
as the other may reasonably require in order to vest more effectively the
Corporation Shares and the New Issue Exchange Shares, as the case may be, in the
owners thereof. In addition, each of the parties will cooperate by executing
and delivering to the other such additional instruments and documents and take
such other actions as may be reasonably requested from time to time by any
other party necessary to carry out, evidence and confirm the intended purposes
of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Termination.
(a) Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated by written notice of termination at any time
before the Closing Date only as follows:
(i) by mutual consent of mPhase and MicroTel;
(ii) by MicroTel at any time if the representations and
warranties of mPhase move to be materially incorrect when made;
(iii) by mPhase if the representations and warranties of
MicroTel are found to have been materially incorrect when made; or
(iv) by either mPhase or MicroTel if the transactions
contemplated by this Agreement do not close on or before June 30, 1998 unless
extended in writing by mutual agreement of the parties.
<PAGE>
(b) In the event of the termination and abandonment of this
Agreement, except as provided in this Section 8.1, this Agreement shall become
void and have no effect, without any liability on the part of any of the parties
or their directors or officers or stockholders. Notwithstanding any such
termination and abandonment, the provisions of Section 5.1 regarding
confidential information shall remain binding upon the parties hereto.
Section 8.2 Brokers' and Finders' Fees. Each party represents and
warrants to the other that all negotiations relative to this Agreement have been
carried on by it directly without the intervention of any person.
Section 8.3 Income, Sales, Transfer and Documentary Taxes; etc. MicroTel
shall pay all federal, state and local income taxes, if any, due as a result of
the purchase, sale or transfer of the New Issue Exchange Shares and the
Corporation Shares in accordance herewith.
Section 8.4 Expenses. Each party shall pay its own expenses incidental
to the preparation of this Agreement.
Section 8.5 Contents of Agreement. This Agreement, including the annexed
Disclosure Documents, set forth the entire understanding of the parties with
respect to the transactions contemplated by this Agreement. It shall not be
amended or modified except by written instrument duly executed by
representatives of mPhase and MicroTel. Any and all previous agreements and
understandings between or among the parties regarding the subject matter
hereof, whether written or oral, are superseded by this Agreement.
Section 8.6 Assignment and Binding Effect. This Agreement may not be
assigned prior to the Closing by either party without the prior written consent
of the other.
Section 8.7 Waiver. Any term or provision of this Agreement may be waived
at any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party.
Section 8.8 Notices. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given only if delivered personally or sent by
telegram or by registered or certified mail, postage prepaid, as follows:
If to mPhase to: Ronald A. Durando, President
mPhase Technologies, Inc.
587 Connecticut Avenue
Norwalk, Connecticut 06854-0960
With a required copy to: Louis M. Federici, Esq.
Parrett, Porto, Parese & Colwell
367 Whitney Avenue
New Haven, Connecticut 06511
If to MicroTel, to: Necdet F. Ergul, Chairman
Microphase Telecommunications, Inc.
587 Connecticut Avenue
Norwalk, Connecticut 06854-0960
With a copy to: Robert H. Jaffe, Esq.
Robert H. Jaffe & Associates, P.A.
8 Mountain Avenue
Springfield, New Jersey 07081
<PAGE>
or to such other address as the addressee may have specified in a notice
duly given to the sender as provided herein. Such notice, request, demand,
waiver, consent, approval or other communications will be deemed to have been
given as of the date so delivered, telephoned or mailed.
Section 8.9 Governing Law. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of Delaware.
Section 8.10 No Benefit to Others. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto.
Section 8.11 Section Headings. All section headings contained in this
Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation of this
Agreement.
Section 8.12 Schedules and Exhibits. All Exhibits referred to herein are
intended to be and hereby are specifically made a part of this Agreement.
Section 8.13 Severability. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions.
Section 8.14 Counterparts. This Agreement may be executed in any number
of counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the date first above written .
ATTEST: mPHASE TECHNOLOGIES, INC.
______________________________ ____________________________
Gustave T. Dotoli, Secretary Ronald A. Durando, President
ATTEST: MICROPHASE TELECOMMUNICATIONS, INC.
_______________________________ ______________________________
Barbara Hyra, Assistant Necdet F. Ergul, Chairman
<PAGE>
EXHIBIT 3
CERTIFICATE OF INCORPORATION AND BY-LAWS
<PAGE>
CERTIFICATE OF INCORPORATION
IS TO CERTIFY THAT, there is hereby organized a corporation under and by virtue
of N.J.S. 14A:1-1 et seq., the "New Jersey Business Corporation Act."
1. The name of the Corporation is: TECMA LABORATORY, INC.
2. The address of the Corporation's initial registered office is:
700 Park Avenue, Plainfield, N.J. 07060
and the name of the registered agent at such address is:
David H. Rothberg
3. The purposes for which this Corporation is organized are:
To engage in any activity within the purposes for which Corporations may
be organized under the "New Jersey Business Corporation Act." N.J.S. 14A
1-1 et seq.
4. The aggregate number of shares which the Corporation shall have authority
to issue is: 1000 no par value
5. The first Board of Directors of this Corporation shall consist of 1
Director and the name and address of each person who is to serve as such
Director is:
` Name Address Zip Code
Theodore Trenzeluk 200 North 5th Ave.,
Manville, New Jersey 08835
6. The name and address of each incorporator is:
Name Address Zip Code
Theodore Trenzeluk 200 North 5th Ave.,
Manville, New Jersey 08835
In Witness Whereof, each individual incorporator, being over twenty-one years of
age has signed this Certificate; or if the Incorporator be a corporation has
caused this Certificate to be signed by its duly authorized officers this 18th
Day of December 1979.
<PAGE>
CERTIFICATE OF CORRECTION
TO CERTIFICATE OF
INCORPORATION
OF
TECMA LABORATORY, INC.
Under Section 14A:1-6(5) of Title 14A, Corporations, General, of the New Jersey
Statutes, the undersigned does hereby correct the Certificate of Incorporation
of Tecma Laboratory, Inc., which Certificate contained an inaccurate record of
the Corporation's actions involved therein and was erroneously executed
containing said inaccuracies. Said Certificate of Incorporation is corrected
herein described in paragraph hereof.
1. NAME
The name of the corporation is Tecma Laboratory, Inc. (hereinafter referred to
as the "Corporation").
2. CORRECTION
The authorized shares of the Corporation is corrected by deleting Paragraph 4
of the Certificate of Incorporation which reads as follows:
4. The aggregate number of shares which the Corporation shall ave authority
to issue is 1,000 no par value", and inserting in place thereof:
4. The aggregate number of shares which the Corporation shall have authority
to issue is 20,000 no par value.
"Said correction is necessary because, despite the Corporation having advised
its then attorney that it desired to have authorized 20,000 shares of common
stock, no par value, said attorney, in preparing the Certificate of
Incorporation, had inadvertently only listed authorized shares totaling 1,000,
which error was not realized until June 18,1987 when the Corporation
received a Certified Copy of the Certificate of Incorporation.
<PAGE>
3. EFFECTIVE DATE
Pursuant to 14A:l-6(5) of Title 14A, Corporations, General, of the New Jersey
Statutes, said Certificate of Incorporation as corrected shall be deemed to
have been effective in its corrected form as of December 20, 1979, the
original filing date of said Certificate of Incorporation.
The undersigned, as President of the above Corporation, has signed the
Correction to the Certificate of Incorporation this 19th day of June, 1987.
ATTEST: TECMA LABORATORY INC.
By:
Secretary Theodore Trenzluk, President<PAGE>
STATE OF NEW JERSEY
DEPARTMENT OF STATE
I, the Secretary of State of the State of New Jersey, do hereby Certify that the
foregoing is a true copy of
Certificate of Incorporation, Correction and Amendment thereto:
TECMA LABORATORIES, INC. (Formerly TECMA LABORATORY, INC.)
as the same is taken from and compared with the original filed in this office on
the dates set forth on each instrument.
and now remaining on file and of record in my office
In Testimony Whereof. I
have hereunto set my hand
and affixed my Official Seal
at Trenton this 19th
day of July 1989
Secretary of State<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION OF
TECMA LABORATORY, INC.
FILED
AUG 28 1987
JANE BURGIO
Secretary of State
Under Section 14A:9-4(3) of Title 14A, Corporations,
General, of the New Jersey Statutes, the undersigned does hereby amend the
Certificate of Incorporation of Tecma Laboratory, Inc. as follows:
1. NAME
The name of the Corporation is Tecma Laboratory, Inc.,
(hereinafter referred to as the "Corporation").
2. AMENDMENTS
The amendments to the Certificate of Incorporation adopted by the
shareholders are as follows:
(a) CHANGE OF NAME
The name of the Corporation is hereby changed to Tecma Laboratories,
Inc., from Tecma Laboratory, Inc., by deleting Paragraph I of the Certificate of
Incorporation which reads as follows:
1. The name of the Corporation is "Tecma Laboratory, Inc." and
inserting in place thereof:
1. The name of the Corporation is "Tecma Laboratories, Inc."
<PAGE>
(b) AUTHORIZED SHARES
The authorized shares of the Corporation are hereby changed to 50,000,000
shares no par value from 20,000 shares no par value, by deleting Paragraph 4 of
the Certificate of Incorporation, as corrected, which reads as follows:
4. The aggregate number of shares which the Corporation shall have authority
to issue is 20,000 no par value" and inserting in place thereof:
4. The aggregate number of shares which the Corporation shall have authority
to issue is 50,000,000 no par value."
(c) REGULATION OF POWERS OF CORPORATION
The following paragraph 7 is hereby added to the Certificate of Incorporation as
follows:
7. REGULATION OF POWERS OF CORPORATION
(a) The management of the business and the conduct of the affairs of the
Corporation, including the election of the Chairman of the
Board of Directors, if any, the President and the Treasurer, the Secretary and
other principal officers of the Corporation, shall be vested in its Board of
Directors.
(b) A majority of the entire Board of Directors of the Corporation shall
constitute a quorum for the transaction of business except that the By-Laws may
prescribe a lesser proportion, consistent with the provisions of the New Jersey
Business Corporation Act, in the event of a vacancy or vacancies in the entire
Board.
(c) One or more of all the Directors of the Corporation may be removed for
cause by the Shareholders by the affirmative vote of the majority of the votes
cast by the holders of shares entitled to vote for the election of Directors;and
one or more of all the Directors may be removed without cause by like vote of
said shareholders. The Board of Directors shall have the power to remove the
Directors for cause and to suspend Directors pending a final determination that
cause exists for a removal.<PAGE>
(d) In the interim between annual meetings of
shareholders or of special meetings of shareholders called for the election
of Directors, newly created directorships may be filled by the Board of
Directors.
(e) The Corporation is hereby authorized to lend money to, or guarantee any
obligation of, or otherwise assist, any officer or other employee of the
Corporation or of any subsidiary, whether or not such officer or employee is a
director thereof, whenever, in the judgment of the Board of Directors, such
loan, guarantee or assistance may reasonably be expected to benefit the
Corporation.
(f) The Corporation shall have the power, to the full extent permitted by the
New Jersey Business Corporation Act, to indemnify each corporate agent as the
term "corporate agent" is defined by said Act.
(g) Except as otherwise provided by the New Jersey Business Corporation Act,
any action required or permitted to be taken at a meeting of shareholders by the
New Jersey Business Corporation Act, the Certificate of Incorporation, or the
By-Laws of the Corporation may be taken without a meeting upon the written
consent of less than all the shareholders entitled to vote thereon, if the
shareholders who so consent would be entitled to cast at least the minimum
number of votes which would be required to take such action at a meeting at
which all shareholders entitled to vote thereon were present. In the event
of such written action, prompt notice of such action shall be given to all
shareholders who would have been entitled to vote upon the action if such
meeting were held, and the written consents of the shareholders consenting
thereto shall be filed within the minutes or proceedings of the shareholders.
3. DATE OF ADOPTION
The date of the adoption of this Amendment to the Certificate of Incorporation
by the Shareholders was August 1, 1987.
4. NUMBER OF SHARES OUTSTANDING AND ENTITLED TO VOTE
The number of shares of the capital stock of the Corporation entitled to vote on
the adoption of this Amendment to the Certificate of Incorporation was FOURTEEN
THOUSAND SIX HUNDRED SIXTY SEVEN (14,667) shares.
<PAGE>
5. NUMBER OF SHARES VOTED
The number of shares of capital stock of the Corporation which voted for the
adoption of said Amendments was THIRTEEN THOUSAND ONE HUNDRED SEVENTY FIVE
(13,175) shares and the number of shares voted against the adoption of said
Amendment was zero (0) shares. Shares not voting were ONE THOUSAND FOUR HUNDRED
NINETY TWO (1,492) shares.
The undersigned as President of the above Corporation has signed this Amendment
of Certificate of Incorporation this 1st day of August 1987.
ATTEST TECMA LABORATORY, INC.
BY:
Joel R. Weiner, Assistant Theodore Trenzeluk, President
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Under Section 14A:9-4(3) of Title 14A, Corporations, General, of the New Jersey
Statutes, the undersigned does hereby amend the Certificate of Incorporation of
Tecma Laboratories, Inc. as follows:
1. Name:
The name of the corporation is hereby changed to Lightpaths TP Technologies,
Inc. by deleting paragraph 1 of the Certificate of Incorporation filed with the
Secretary of State on December 18, 1979 stating that:
1. "The name of the Corporation is Tecma Laboratory, Inc." and inserting in
place thereof:
1. The name of the Corporation is "Lightpaths TP Technologies, Inc."
2. Date of Adoption:
The date of the adoption of this Amendment to the Certificate of Incorporation
by the Shareholders was March 24, 1997.
3. Number of Shares Outstanding and Entitled to Vote:
The number of shares of the capital stock of the Corporation entitled to vote on
the adoption of this Amendment to the Certificate of Incorporation was FIFTY
MILLION (50,000,000) shares.
4. Number of Shares Voted:
The number of shares of capital stock of the Corporation which voted for the
adoption of said Amendments was 8,404,800 shares and the number of shares voted
against the adoption of said Amendment was -0- shares. Shares not voting were
2,999,465 shares.
The undersigned as President of the above Corporation has signed this
Certificate of Amendment of Certificate of Incorporation this 31st day of
March, 1997.
ATTEST: TECMA LABORATORIES, INC.
_________________________ ____________________________
Joel R. Weiner, Assistant Theodore Trenzeluk, President
Secretary
<PAGE>
FILED
CERTIFICATE OF AMENDMENT JUN 2 1997
OF
CERTIFICATE OF INCORPORATION LONNA R. HOOKS
Secretary of State
Under Section 14A:9-4(3) of Title 14A, Corporations, General, of the New Jersey
Statutes, the undersigned does hereby amend the Certificate of Incorporation of
Lightpaths TP Technologies, Inc. (formerly Tecma Laboratories, Inc.) as follows:
1. Name:
The name of the corporation is hereby changed to mPhase Technologies, Inc. by
deleting paragraph 1 of the Certificate of Incorporation filed with the
Secretary of State on December 18, 1979 and amended on April 7, 1997 stating
that:
1. The name of the Corporation is "Lightpaths TP Technologies, Inc."
and inserting in place thereof:
1. The name of the Corporation is "mPhase Technologies, Inc."
2. Date of Adoption:
The date of the adoption of this Amendment to the Certificate of Incorporation
by the Shareholders was May 15, 1997.
3. Number of Shares Outstanding and Entitled to Vote:
The number of shares of the capital stock of the Corporation entitled to
vote on the adoption of this Amendment to the Certificate of Incorporation
was SEVEN MILLION, SEVEN HUNDRED FORTY THOUSAND, FOUR HUNDRED TWENTY SEVEN
(7,740,427) shares.
4. Number of Shares Voted:
The number of shares of capital stock of the Corporation which voted for
the adoption of said Amendments was 7,491,320 shares and the number of
shares voted against the adoption of said Amendment was -0- shares.
Shares not voting were 249,107 shares.
The undersigned as President of the above Corporation has signed this
Certificate of Amendment of Certificate of Incorporation this 15th day of May,
1997.
ATTEST: LIGHTPATHS TP TECHNOLOGIES, INC.
Gustave T. Dotoli Ronald A. Durando
Assistant Secretary President
<PAGE>
CERTIFICATE OF INCORPORATION
OF
LIGHPATHS, INC.
FIRST: The name of the corporation is LightPaths, Inc.
SECOND: The address of its registered office in the State of Delaware is
Three Mill Road, Suite 206, Wilmington, Delaware 19806, New Castle County. Its
registered agent at such address is The Incorporators Ltd.
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 corporation shall have the authority to issue One Thousand
(1,000) shares of common stock with no par value.
FIFTH: The Board of Directors is expressly authorized to adopt, amend, or
repeal the By-Laws of the Corporation.
SIXTH: The stockholders and directors may hold their meetings and keep the
books and documents of the corporation outside the State of Delaware, at such
places as may be from time to time designated by the By-Laws, except as
otherwise required by the Laws of Delaware.
SEVENTH: The corporation is to have perpetual existence.
EIGHTH: The name and mailing address of the incorporator is Robert H. Jaffe,
Esq., 8 Mountain Avenue, Springfield, New Jersey 07081.
NINTH: The initial board of the corporation shall be composed of the
following person: Ronald A. Durando, 107 Rhoda Avenue, Nutley, New Jersey
07110.
The number of directors of the corporation shall be fixed from time to time by
its by-laws and may be increased or decreased.
TENTH: No director of the corporation shall have personal liability to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty or
loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (c) under Section 174 of the Delaware Corporation Law, or (d) for any
transaction from which the directory derived an improper personal benefit.
THE UNDERSIGNED Incorporator for the purpose of forming a corporation pursuant
to the laws of the State of Delaware, does make this Certificate, Hereby
declaring and certifying that the facts herein stated are true.
Dated: September 30, 1996
By:
Robert H. Jaffe
Incorporator
<PAGE>
By-LAWS
of
MPHASE TECHNOLOGIES, INC.
ARTICLE I - OFFICES
The registered office of the corporation shall be 8 Mountain Avenue,
Springfield, New Jersey 07081.
The registered agent at said office is Robert H. Jaffe, Esq.
The corporation may also have offices at such other places within or without the
State of New Jersey as the board may from time to time determine or the business
of the corporation may require.
ARTICLE II - SHAREHOLDERS
1. PLACE OF MEETINGS.
Meeting of shareholders shall be held at the principal office of the corporation
or at such place within or without the State of New Jersey as the board shall
authorize.
2. ANNUAL MEETING
The annual meeting of the shareholders shall be held on the 20th day of
December at 10 A.M. in each year if not a legal holiday, and, if a legal
holiday, then on the next business day following at the same hour, when the
shareholders shall elect a board and transact such other business as may
properly come before the meeting.
3. SPECIAL MEETINGS
Special meetings of the shareholders may be called by the board or by the
president and shall be called by the president or the secretary at the request
in writing of a majority of the board or at the request in writing by
shareholders owning a majority in amount of the shares issued and outstanding.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at a special meeting shall be confined to the purposes
stated in the notice.
4. NOTICE OF MEETINGS OF SHAREHOLDERS
Written notice of the time, place and purpose or purposes of every meeting of
shareholders shall be given not less than 10 nor more than 60 days before the
date of the meeting, either personally or by mail, to each shareholder of record
entitled to vote at the meeting.
When a meeting is adjourned to another time or place, it shall not be necessary,
unless the by-laws otherwise provide, to give notice of the adjourned meeting if
the time and place to which the meeting is adjourned are announced at the
meeting at which the adjournment is taken and at the adjourned meeting only
such business is transacted as might have been transacted at the original
meeting. However, if after the adjournment the board fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice.
<PAGE>
5. WAIVER OF NOTICE OR OF LAPSE OF TIME
(a) Notice of meeting need not be given to any shareholder who signs a waiver
of notice, in person or by proxy, whether before or after the meeting, the
attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him,
(b) Whenever shareholders are authorized to take any action after the lapse
of a prescribed period of time, the action may be taken without such lapse if
such requirement is waived in writing, in person or by proxy, before or after
the taking of such action, by every shareholder entitled to vote thereon as at
the date of the taking of such action.
6. ACTION BY SHAREHOLDERS WITHOUT A MEETING
Any action required or permitted to be taken at a meeting of shareholders by
statute, the certificate of incorporation, or by-laws, other than the annual
election of directors, may be taken without a meeting upon the written consent
of shareholders who would have been entitled to cast the minimum number of votes
which would be necessary to authorize such action at a meeting at which all
shareholder entitled to vote thereon were present and voting. The written
consent of the shareholders consenting thereto shall be filed with the minutes
of proceedings of shareholders.
7. QUORUM 0F SHAREHOLDERS.
(a) Unless otherwise provided in the certificate of incorporation, the holders
of shares entitled to cast a majority of the votes at a meeting shall constitute
a quorum at such meeting. The shareholders present in person or by proxy at a
duly organized meeting may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. Less than a quorum may adjourn.
(b) Whenever the holders of any class or series of shares are entitled to vote
separately on a specified item of business, by the affirmative vote of a
majority of the remaining directors even though less than a quorum of the
board, or by a sole remaining director. A director so elected by the board
shall hold office until the next succeeding annual meeting of shareholders
and until his successor shall have been ejected and qualified.
(b) When one or more directors shall resign from the board effective at a
future date, a majority of the directors then in office including those who have
so resigned, shall have power to fill such vacancy or vacancies, the Vote
thereon to take effect when such resignations become effective, and each
director so chosen shall hold office as herein provided in the filling of
other vacancies.
(c) Any directorship to be filled by reason of an increase in the number of
directors shall be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose, unless the certificate of
incorporation or a by-law adopted by the shareholders authorizes the board to
fill such directorship. A director elected by the board to fill ant such
directorship shall hold office until the next succeeding annual meeting of
shareholders and until his successor shall have been elected and qualified.
(d) If by reason of death, resignation or other cause the corporation has no
directors in office, any shareholder or the executor or administrator of a
deceased shareholder may call a special meeting of shareholders for the election
of directors and, over his own signature, shall give notice of said meeting in
accordance with the by-laws.
<PAGE>
5. REMOVAL OF DIRECTORS
One or more or all the directors of a corporation may be removed for cause by
the shareholders by the affirmative vote of the majority of the votes cast by
the holders of shares entitled to vote for the election of directors.
6. QUORUM Of BOARD OF DIRECTORS AND COMMITTEES ACTION OF DIRECTORS WITHOUT A
MEETING
A majority of the entire board, or of any committee thereof, shall constitute a
quorum for the transaction of business, unless the certificate of incorporation
shall prove that a greater or lesser number shall constitute a quorum, which in
no case shall be less than the greater of two persons or one-third of the entire
board or committee, except that when a board of one director is authorized one
director shall constitute a quorum. Any action required or permitted to be
taken pursuant to authorization voted at a meeting of the board or any committee
thereof, may be taken without a meeting if, prior or subsequent to such action,
all members of the board or of such committee, as the case may be, consent
thereto in writing and such written consents are filed with the minutes of the
proceedings of the board or committee. Such consent shall have the same effect
as a unanimous vote of the board or committee for all purposes.
7. PLACE OF BOARD MEETINGS.
Meetings of the board may be held either within or without the State of New
Jersey.
8. REGULAR ANNUAL MEETING
A regular annual meeting of the board shall be held immediately following the
annual meeting of shareholders at the place of such annual meeting of
shareholders.
9. NOTICE OF MEETINGS OF THE BOARD ADJOURNMENT
(a) Regular meetings of the board may be held with or without notice.
Special meetings of the board shall be held upon notice to the directors and may
be called by the president upon three days' notice to each director either
personally or by mail or by wire; special meetings shall be called by the
president or by the secretary in a like manner on written request of two
directors. Notice of any meeting need not be given to any director who signs a
waiver of notice, whether before or after the meeting. The attendance of any
director at a meeting without protesting prior to the conclusion of the meeting
the lack of notice of such meeting shall constitute a waiver of notice by him.
Neither the business to be transacted at, nor the purpose of, any meeting of the
board need be specified in the notice or waiver of notice of such meeting.
Notice of an adjourned meeting need not he given if the time and place are
fixed at the meeting adjourning and if the period of adjournment does not
exceed ten days in any one adjournment.
(b) A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place. Notice of the adjournment
shall be given all directors who were absent at the time of the adjournment and,
unless such time and place are announced at the meeting, to the other directors.
10. EXECUTIVE AND OTHER COMMITTEES
The board, by resolution adopted by a majority of the entire board, may
designate from among its members an executive committee and other committees,
each consisting of three or more directors. Each such committee shall serve
at the pleasure of the board.
<PAGE>
11. COMPENSATION
No compensation shall be paid to directors, as such, for their services, but by
resolution of the board a fixed sum and expenses for actual attendance, at each
regular or special meeting of the board may be authorized. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefore.
ARTICLE IV - OFFICERS
1. OFFICES, ELECTION, TERM, SALARIES, SECURITY
(a) The officers of the corporation shall consist of a president, a secretary,
a treasurer, and, if desired, a chairman of the board, one or more
vice-presidents, and such other officers as the board may determine. The
officers shall be elected or appointed by the board.
(b) Any two or more offices may be held by the same person.
(c) Any officer elected or appointed as herein provided shall hold office until
the next regular meeting of the board following the annual meeting of
shareholders or until a successor is elected or appointed and has qualified
subject to earlier termination by removal or resignation.
(d) All officers of the corporation, as between themselves. and the
corporation, shall have such authority and perform such duties in the management
of the corporation as may be provided in the by-laws, or as may be determined by
resolution of the board not inconsistent with the by-laws.
(e) he salaries of all officers shall be fixed by the board.
(f) In case the board shall so require, any officer 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 and including responsibility for negligence and
for the accounting for all property, funds or securities of the corporation
which may come into his hands.
(2) DELEGATION OF DUTIES.
In case of the absence of any officer of the corporation, or for any other
reason that may seem sufficient to the board, the directors may, by a majority
vote of the board, delegate the powers and duties of such officer, for the
time being, to any other officer, or to any director.
(3) REMOVAL AND RESIGNATION OF OFFICERS; FILLING OF VACANCIES.
(a) Any officer elected or appointed by the board may be removed by the board
with or without cause. An officer elected by the shareholders may be removed,
with or without cause, only by vote of the shareholders but his authority to act
as an officer may be suspended by the board for cause.
(b) An officer may resign by written notice to the corporation. The
resignation shall be effective upon receipt therefor by the corporation or at
such subsequent time as shall be specified in the notice of resignation.
(c) Any vacancy occurring among the officers, however caused may be filled by
election or appointment by the board for the unexpired term.
<PAGE>
4. PRESIDENT
The president shall be the chief executive officer of the corporation; he shall
preside at all meetings of the shareholders and of the board: he shall have the
management of the business of the corporation and shall see that all orders and
resolutions of the board are carried into effect.
5. VICE-PRESIDENTS
During the absence or disability of the president, the vice-president, or if
there are more than one, the executive vice-president shall have all the powers
and function of the president. Each vice-president shall perform such other
duties as the board shall prescribe.
6. SECRETARY
The secretary shall: attend all meetings of the board and of the shareholders;
record all votes and minutes of all proceedings in a book to be kept for that
purpose; give or cause to be given notice of all meetings of shareholders and of
the special meeting of the board; keep in safe custody the seal of the
corporation and affix it to any instrument when authorized by the board; when
required, prepare a list of shareholders or cause to be prepared and available
at each meeting of shareholders entitled to vote thereat, indicating the number
or shares of each respective class held by each; keep all the documents and
records of the corporation as required by law or otherwise in a proper and safe
manner; and perform such other duties as may be prescribed by the board.
7. ASSISTANT - SECRETARIES
During the absence or disability of the secretary, the assistant-secretary, or
if there are more than one, the one so designated by the secretary or by the
board, shall have all the powers and functions of the secretary.
8. TREASURER
The treasurer shall: have the custody of the corporate funds and securities;
keep full and accurate accounts of receipts and disbursements in the corporate
books, deposit all money and other valuables in the name and to the credit of
the corporation in such depositories as may be designated by the board;
disburse the funds of the corporation as may be ordered or authorized by the
board and preserve proper vouchers for such disbursements; render to the
president and board at the regular meetings of the board, or whenever they
require it, an account of all his transactions as treasurer and of the
financial condition of the corporation; render a full financial report at the
annual meeting of the shareholders if so requested; be furnished by all
corporate officers and agents at his request, with such reports and statements
as he may require as to all financial transactions of the corporation; and
perform such other duties as are given to him by the by-laws or as from time to
time are assigned to him by the board or the president.
9. ASSISTANT-TREASURER
During the absence or disability of the treasurer, the assistant-treasurer, or
if there are more than one, the one so designated by the secretary or by the
board, shall have all the powers and functions of the treasurer.
<PAGE>
ARTICLE V - CERTIFICATES FOR SHARES AND DIVIDENDS
1. CERTIFICATES REPRESENTING SHARES
The shares of the corporation shall be represented by certificates signed by, or
in the name of the corporation by, the chairman or vice-chairman of the board,
or the president or a vice-president and by the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation and
shall be sealed with the seal of the corporation or a facsimile thereof.
2. LOST OR DESTROYED CERTIFICATES
The board may direct a new certificate or certificates to be issued in place of
any certificate or certificate theretofore issued by the corporation, alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate to be lost or destroyed. When authorizing such
issue of a new certificate or certificates, the board may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such lost
or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
corporation a bond in such sum and with such surety or sureties as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost or destroyed.
3. TRANSFER OF SHARES
(a) Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, and
cancel the old certificate: every such transfer shall be entered on the
transfer book of the corporation which shall be kept at its principal office.
No transfer shall be made within ten days next preceding the annual meeting of
shareholders.
(b) The corporation shall be entitled to treat the holder of record of any
share 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 on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by New Jersey statutes.
<PAGE>
4. CLOSING TRANSFER B00KS
The board shall have the power to close the share transfer books of the
corporation for a period of not more than ten days during the thirty-day period
immediately preceding (a) any shareholders' meeting, or (b) any date upon which
shareholders shall be called upon to or have a right to take action without a
meeting, or (c) any date fixed for the payment of a dividend or other form of
distribution, and only those shareholders of record at the time the transfer
books are closed, shall be recognized as such for the purpose of (a) receiving
notice of or voting at such meeting, or (b) allowing them to take appropriate
action, or (c) entitling them to receive any dividend or other form or
distribution.
5. DIVIDENDS
(a) Subject to the provisions of the certificate of incorporation and to
applicable law, the corporation may, from time to time by action of its board,
declare and pay dividends or make other distribution on its outstanding shares
in cash or in its own shares or in its bonds or other property, including the
shares or bonds of other corporations, except when the corporation is insolvent
or would thereby be made insolvent.
(b) Dividends may be declared or paid and other distributions may be made out
of surplus only, except as otherwise provided by statute.
ARTICLE VI - CORPORATE SEAL
The seal of the corporation shall be circular in form and bear the name of the
corporation, the year of its organization and the words "Corporate Seal, New
Jersey." The seal may be used by causing it to be impressed directly on the
instrument or writing to be sealed, or upon adhesive substance affixed thereto.
The seal on the certificates for shares or on any corporate obligation for the
payment of money may be a facsimile, engraved or printed.
ARTICLE VII - FISCAL YEAR
The fiscal year shall begin the first day of July in each year.
ARTICLE VIII - BY-LAW CHANGES
AMENDMENT, REPEAL, ADOPTION, ELECTION OF DIRECTORS
(a) Except as otherwise provided in the certificate of incorporation the
by-laws may be amended, repealed or adopted by vote of the holders of the shares
at the time entitled to vote in the election of any directors. By-laws may also
be amended, repealed or adopted by the board but any by-law adopted by the board
may be amended by the shareholders entitled to vote thereon.
(b) If any by-law regulating an impending election of directors is adopted,
amended or repealed by the board, there shall be set forth in the notice of the
next meeting of shareholders for the election of directors the by-law so
adopted, amended or repealed, together with a concise statement of the changes
made.
<PAGE>
ARTICLE IX - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
The Corporation shall indemnify any directors, officers, employees, or agents to
the full extent permitted by the New Jersey Business Corporations Act.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
MPHASETV.NET/INC.
---------------------------
Under Section 102 of the
Delaware General Corporation Law
------------------------
Article 1
The name of the Corporation is: mPhaseTV.net/Inc.
Article 2
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of its registered agent at
that address is The Corporation Trust Company.
Article 3
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Delaware General
Corporation Law (the "DGCL").
Article 4
Section 4.1 Authorized Capital. The Corporation shall have authority
to issue TEN MILLION (10,000,000) shares of Common Stock at $.001 par value
per share. Each share of Common Stock shall be identical in all respects and
for all purposes and entitles to one vote in all proceedings in which action
may or is required to be taken by holders of the Common Stock; participate
equally in all dividends payable with respect to Common Stock. as, if, and
when declared by the Board of Directors of the Corporation; and share ratably
in all distributions of assets of the corporation in the event of any
voluntary of involuntary liquidation, or winding up of the affairs of the
corporation or any other distribution of assets, rights or property.
Section 4.2 Authorized Capital. Each share of Common Stock shall be
identical in all respects and for all purposes and entitled to one vote per
share in all proceedings in which action may or is required to be taken by the
stockholders of the Corporation; participate equally in all dividend payable
with respect to the Common Stock, as, if, and when declared by the Board of
Directors of the Corporation, subject to any dividend preferences of the
Preferred Stock then outstanding; and share ratably in all assets of the
Corporation in the event of any voluntary of involuntary liquidation, or
winding up of the affairs of the Corporation upon any distribution of the
assets of the Corporation, subject to any liquidation preferences of the
Preferred Stock then outstanding.
<PAGE>
Article 5
The name and address of the sole incorporator is:
Eric H. Rock
Balboni Law Group LLC
3475 Lenox Road, N.E.
Suite 990
Atlanta, GA 303326
Tel (404) 812-3110
Fax (404) 812-3101
Article 6
The furtherance and not in limitation of the powers conferred upon the
Board of Directors by statute, the Board of Directors is expressly authorized to
make, alter, or repeal the BY-Laws of the Corporation, subject to the power of
the stockholders to adopt any By-Laws or to amend or repeal any by-Laws adopted,
amended or repealed by the Board of Directors.
Article 7
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of the,, any court or equitable
jurisdiction within the State of Delaware may, on the application in any
summary way of this Corporation or of any creditor or stockholder thereof or
on the application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of the DGCL
or on the application of trustees in dissolution or of any receiver or
appointed for this Corporation under the provisions of Section 279 of the
DGCL, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be
binding on all the creditors or class of creditors, and/or on all the case may
be, and also on this Corporation.
Article 8
No person who is or was a director of this Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for the breach of ny fiduciary duty as a director, unless, and only to the
extent that, such director is liable (a) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (b) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended to authorize corporate action further limiting or
climinating the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended. No amendment to, repeal or
adoption of, any provision of this Certificate of Incorporation inconsistent
with this article shall apply to or have any effect on the liability of any
director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment, repeal, adoption of an
inconsistent provision.<PAGE>
Article 9
The Corporation shall indemnify each person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer employee or agent or another
corporation, partnership, join venture, trust or other enterprise, to the
fullest extent permitted by Section 145 of the DGCL, as amended. The
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in an official capacity and as to action in another capacity while
holding such office, and such indemnification shall inure to the benefit of
the heirs, executors and administrators of such a person.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation this 21st day of August, 1998.
Eric H. Rock, Incorporator
<PAGE>
CERTIFICATE OF INCORPORATION
OF
MICROPHASE TELECOMMUNICATIONS, INC.
FIRST: The name of the corporation is MICROPHASE TELECOMMUNICATIONS, INC.
SECOND: The address of its registered office in the State of Delaware is Three
Mill Road, Suit 206, City of Wilmington, County of New Castle, 19806-2146. Its
registered agent at such address is The Incorporators Ltd.
THIRD: 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 corporation shall have the authority to issue five
million(5,000,000) shares of common stock with a par value of $.002 each.
FIFTH: The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the corporation.
SIXTH: The stockholders and directors may hold their meetings and keep the
books and documents of the corporation outside the State of Delaware, at such
places from time to time designated by the By-Laws, except as otherwise
required by the Laws of Delaware.
SEVENTH: The corporation is to have perpetual existence.
EIGHTH: The name and mailing address of the incorporator is Patricia L. Ryan,
Three Mill Road, Wilmington, DE 19806-2146.
NINTH: The number of directors of the corporation shall be fixed from time to
time by its By-Laws and may be increased or decreased.
TENTH: The Board of Directors is expressly authorized and shall have such
authority as set forth in the By-Laws to the extent such authority would be
valid under Delaware Law.
ELEVENTH: No director of the corporation shall have personal liability to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty or
loyalty to the corporation or it's stockholders, (b)for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (c) under Section 174 of the Delaware Corporation Law, or (d) for any
transaction from which the director derived an improper personal benefit.
THE UNDERSIGNED Incorporator for the purpose of forming a corporation pursuant
to the laws of the State of Delaware, does make this Certificate, hereby
declaring and certifying that the facts herein stated are true.
Sept. 12, 1995
By: /s/ Patricia L. Ryan
<PAGE>
CERTIFICATION
I, PATRICIA L. RYAN, Notary Public for the State of Delaware
and County of New Castle, do hereby certify that the above and foregoing is a
true and correct copy of the original Certificate of Incorporation of
MICROPHASE TELECOMMUNICATIONS, INC. as received and filed in the Office of the
Secretary of State, the 12th day of September in the year of our Lord, one
thousand nine hundred ninety-five, at 9:00 A.M.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of
office this 15th day of September in the year of our Lord, on thousand nine
hundred ninety-five
Patricia L. Ryan
Notary Public
<PAGE>
EXHIBIT 4
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
<PAGE>
mPHASE TECHNOLOGIES, INC.
LONG TERM STOCK INCENTIVE PLAN
ARTICLE I
GENERAL PROVISIONS
Section 1.1 Purposes of the Plan.
The purposes of the mPhase Technologies, Inc. Long Term Stock Incentive Plan are
to advance the interests of mPhase Technologies, Inc. by providing equity
incentives to selected key employees and consultants of the Company and its
subsidiaries who contribute and are expected to contribute materially to the
success of the company and/or its subsidiaries, to provide a means of rewarding
outstanding performance, and to protect the long-term interests of the Company
and its subsidiaries by enabling them to maintain a competitive position in
attracting and retaining the key personnel and consultants necessary for growth
and profitability.
Section 1.2 Definitions.
For the purposes of this Plan:
(a) "Board of Directors" means the Board of Directors of mPhase Technologies,
Inc.
(b) "Committee" means the Board of Directors setting as a Compensation
Committee.
(c) "Company" means mPhase Technologies, Inc.
(d) "Fair Market Value" means the average of the bid and asked price of the
Company's common stock on the relevant date as quoted by the National
Association of Securities Dealers on the OTC Bulletin Board or such other
stock exchange such as the NASDAQ Small Cap Market on which the shares are
traded. If no sale shall have been made on that date, the Fair Market Value
shall be the average price on the next preceding day there is a sale. During
such times as the shares are not traded, the Committee shall exercise its
best judgment and good faith to determine the Fair Market Value of the
Company's common stock on the relevant date and shall consider all factors
deemed to be relevant to such determination.
(e) "Plan" means the mPhase Technologies, Inc. Long Term Stock Incentive Plan
as set forth herein.
(f) "shares" means shares of the Company's no par value common stock.
(g) "stock option" means a right granted to purchase stock in accordance with
Article II of the Plan.
(h) "subsidiaries" means Lightpaths, Inc., a Delaware corporation, and any
other direct or indirect subsidiary of the Company.
Section 1.3 Administration.
(a) The Committee shall hold meetings relative to the Plan at such times and
places as it may determine. The Committee shall from time to time at its
discretion determine which key employees or consultants of the Company and its
subsidiaries shall be granted stock options and the amount of common stock
covered by such stock options.
<PAGE>
(b) Except as hereinafter provided, the Committee shall have full and final
authority, binding upon all who have an interest in the Plan, to (i) interpret
the Plan, (ii) interpret the stock options granted or awarded under the Plan,
and (iii) make all determinations necessary or advisable. No member of the
Committee shall incur any liability to any person for anything done or
omitted to be done the member or by any other member of the Committee in
connection with the Plan, except for his own willful misconduct or gross
negligence.
Section 1.4 Adjustments Upon Changes in Capitalization.
In the event of any change in the number of issued and outstanding shares which
results from a stock split, reverse stock split, the payment of a stock dividend
or any other change in capital structure of the Company such as a merger,
consolidation, reorganization or recapitalization, the Committee shall
appropriately adjust (a) the maximum number of shares of common stock which may
be issued under stock options pursuant to the Plan, (b) the number of shares
subject to each outstanding stock option and the price per share thereof (but
not the total price) so that, upon exercise of the stock option, the optionee
shall receive the same number of shares he or she would have received had he
or she been the holder of all shares subject to his or her outstanding stock
option or options immediately before the effective date of such change in the
capital structure of the Company. Such adjustments shall not result in the
issuance of fractional shares.
The foregoing adjustments shall be made by the Committee. No stock option
granted pursuant to this Plan shall be adjusted in a manner that causes an
Incentive Stock Option (as defined in Article II) to fail to continue to qualify
as an "Incentive Stock Option" within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"). The grant of stock
options pursuant to the Plan shall not affect in any way the discretionary
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure or to merge
or consolidate or dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
Notwithstanding anything herein to the contrary, if the Company shall adopt a
plan of dissolution or liquidation of the Company, or if mPhase Technologies,
Inc. shall enter into a definitive agreement providing for the reorganization,
merger or consolidation of the Company with or into one or more corporations, as
a result of which the Company will not be the surviving entity (it being
understood that the Company shall not be deemed to be the surviving entity if
more than fifty (50%) percent of the Company's voting stock will be held, after
such transaction by another entity), or if the Company shall agree to sell
substantially all of the assets of the Company to one or more entities, the
Company may give a person holding stock options written notice thereof requiring
such Optionee either (a) to exercise his or her stock options within thirty days
after receipt of such notice, including all installments whether or not they
would otherwise be exercisable at that date, or (b) to surrender such stock
options or any unexercised portion thereof. Those stock options which the
Company requests to be exercised and which shall not have been exercised in
accordance with the provisions of the Plan by the end of such thirty day period
shall automatically lapse irrevocably and the Optionee shall have no further
rights with respect to such stock options.
Section 1.5 Amendment, Suspension or Termination of Plan.
The shareholders of the Company or its Board of Directors may at any time,
without the consent of any optionee, alter, amend, revise, suspend, or
discontinue the Plan, provided that such action may not (i) adversely affect any
stock options theretofore granted under the Plan or, (ii) cause any Incentive
Stock Option (as defined in Article II) to fail to qualify as such under Section
422A of the Code.
<PAGE>
Section 1.6 Effectiveness.
The Plan shall be effective until August 15, 2007, such date being ten years
after the date of adoption of this Plan.
Section 1.7 Withholding Taxes.
(a) The Company or its subsidiaries may withhold from an optionee, as a
condition of exercise of a stock option any taxes that it or its subsidiaries
are required to withhold in connection with the exercise of a stock option.
(b) At any time when an optionee is required to pay to the Company an amount
required to be withheld under applicable income tax laws upon exercise of a
stock option, the optionee may satisfy this obligation in whole or in part by
electing (the "Election") to have the Company withhold shares having a value
equal to the amount required to be withheld or by tendering to the Company
shares having a value equal to the amount required to be withheld. The value of
the shares to be withheld or tendered shall be based on the Fair Market Value of
the Company's common stock on the date that the amount of tax to be withheld
shall be determined ("Tax Date").
(c) Each Election must be made prior to the Tax Date. The Committee may
disapprove of any Election, may suspend or terminate the right to make such
Election, or may provide with respect to any stock option that the right to make
Elections shall not apply to such stock option. Any Election once made is
irrevocable.
(d) If the optionee is an officer or director of the Company within the meaning
of Section 16 of the Securities Exchange Act of 1934, then an Election is
subject to the following additional restrictions:
(1) No Election shall be effective for a Tax Date which occurs within six
months of the grant of a stock option, except that this limitation shall not
apply in the event that an optionee dies or becomes permanently and totally
disabled prior to the expiration of such six month period.
(2) The Election must be made either six months prior to the Tax Date or must
be made during a period beginning on the third business day following the date
of the release for publication the Company's quarterly or annual statements of
earnings and ending on the twelfth business day following such date.
<PAGE>
ARTICLE II
STOCK OPTION PROGRAM
Section 2.1 Number of Shares Authorized for Stock Options.
The total number of shares of the Company's common stock which may be issued and
sold pursuant to stock options granted under the Plan shall not exceed 5,000,000
shares. The limitation established herein shall be subject to adjustment as
provided in Section 1.4 hereof. If any stock option granted under this Plan
shall expire or be forfeited prior to being exercised in full, the unpurchased
shares subject to such stock option shall be available for the granting of
further stock options under the Plan.
Section 2.2 Eligibility for Stock Options.
Stock options may be granted only to salaried employees of the Company and its
subsidiaries who are officers (including officers who are members of the Board
of Directors of the Company or any of its subsidiaries) as well as to other key
employees and consultants of the Company and its subsidiaries. The Committee
may, from time to time and upon such terms and conditions and for such
consideration as it may determine, authorize the granting of stock options to
eligible employees and consultants and may fix the number of shares to be
covered by each stock option as it deems appropriate. Successive stock
options may be granted to the same persons whether or not the stock option or
stock options first granted to such persons remain unexercised. Stock options
granted may be (i) stock options which are intended to qualify as Incentive
Stock Options,(ii) stock options which are not intended to qualify
("Non-Qualified Stock Options"), or (iii) combinations of the foregoing.
Each stock option granted shall be identified as to its status, Incentive
Stock Option or Non-Qualified Stock Option, and such status shall not
thereafter be subject to change. The granting of a stock option to an
employee shall not give such employee any right to be granted any future
stock option under the Plan, or any right to be retained in the employ of the
Company by virtue of his or her participation in the Plan.
Section 2.3 Terms and Conditions.
The grant of a stock option shall be evidenced by a notice to the optionee of
such grant signed on behalf of the Committee by the president or duly authorized
vice president of the Company. The notice shall describe such stock option,
state that such stock option is subject to all the terms and conditions of
Article II of the Plan, and set forth the terms and conditions of the stock
option. In addition:
(a) In the case of Incentive Stock Options, the option price will not be less
than the Fair Market Value of the Stock on the date of the grant. In the case
of Non-Qualified Stock Options, the option price shall not be less than the
lowest of (i) the Fair Market Value of the Company's common stock on the date of
the grant, (ii) the Fair Market Value of the Stock on January 1 of a calendar
year within three years of the calendar year in which the grant is made or (iii)
the book value per share of the common stock on the date on which such stock
option first becomes exercisable. An amendment to an outstanding Incentive
Stock Option that constitutes a modification, extension, or renewal of the stock
option, pursuant to Section 425(h) of the Code, shall be considered as the grant
of a new stock option on the date of such amendment and, therefore, the option
price shall be adjusted so that it shall not be less than the Fair Market Value
of the Company's common stock on the date of such amendment.
(b) The number of shares in a given stock option will be adjusted pursuant to
Section 1.4 so that the total value of the stock option remains the same after
any such adjustment.
<PAGE>
(c) No stock option by its terms will be exercisable more than five (5) years
after the date of grant.
(d) Unless otherwise provided by the Committee, unexercised stock options will
expire as follows:
(i) If an employee's employment is terminated for cause, such employee's
Stock Options will expire immediately upon termination.
(ii) If an employee's employment is terminated as a result of death,
permanent and total disability or retirement (pursuant to a retirement plan of
the Company or its subsidiaries or pursuant to a resolution of the Committee
that such employee shall be deemed to have retired), such employee's stock
options will expire on the sooner of (x) twelve (12) months from the date of
death, permanent and total disability or such retirement or (y) the expiration
date established in the grant.
(iii) If an employee's employment is terminated for any other reason,
such employee's stock options will expire on the sooner of (x) three (3) months
from the date of such termination or (y) the expiration date established in
the grant.
For purposes of the Plan, an optionee shall be considered permanently and
totally disabled if he or she is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
s determined in accordance with the applicable benefit plans of the Company
and its subsidiaries. An optionee shall not be considered to be permanently
and totally disabled unless he or she furnishes proof of the existence thereof
in such form and manner and at such times as is required under the applicable
benefit plan of the Company and its subsidiaries. Unless otherwise provided
by the Committee, a stock option shall not be exercisable for more shares than
the number of shares which could have been purchased if the stock option were
exercised on the date of termination of employment.
(e) An optionee or assignee of a stock option shall have any rights with
respect to any shares covered by such stock option until the date of the
issuance of a stock certificate for such shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as otherwise provided herein
for stock dividends.
(f) The stock option shall be exercisable in whole or in part from time to time
during the term thereof as may be determined by the Committee; provided,
however, that unless otherwise provided by the Committee, (i) no stock option
may be exercised prior to the first anniversary of the date of granting of such
stock option and (ii) each stock option shall be exercisable in part or in full
at any time after such first anniversary.
(g) The employee may exercise stock options by notifying the secretary of the
Company that he or she is exercising the stock options and by presenting payment
for the shares for which stock options are being exercised. Payment for the
shares may be in the form of cash, banker's check, certified check or personal
check.
<PAGE>
(h) At the time of exercise of any stock option, the Company may require the
optionee to execute any documents or take any action which may be then necessary
to comply with any and all applicable federal or state laws, regulations or
rules regulating the sale and issuance of securities by mPhase Technologies, Inc
. and the Company may, if it deems necessary, include provisions in the stock
option agreements to assure such compliance. With respect to Non-Qualified
stock options, income recognized at the time the stock options are exercised
(measured by the excess of the market value of the Company's common stock on
the date of exercise over the option price) will be subject to federal and
state income tax withholding requirements. The Company may, from time to
time, change its requirements with respect to enforcing compliance with the
applicable securities laws, such requirements to be determined by the Company
in its judgment as necessary to assure compliance with said laws. Such
changes may be made with respect to any particular stock option or common
stock issued upon exercise thereof.
(i) The Company shall not be obligated to sell or issue any shares upon
exercise of any stock option unless:
(a) the shares with respect to which the stock option is being exercised have
been registered under all applicable federal and state laws, regulations or
rules or are exempt from such registration; and
(b) in the event the common stock has been listed on any recognized stock
exchange such as the NASDAQ Small Cap Market, the shares with respect to which
the stock option is being exercised have been duly listed on such exchange in
accordance with the procedure specified therefor.
Section 2.4 Limits on Incentive Stock Options.
An individual may be granted one or more Incentive Stock Options, provided that
the aggregate Fair Market Value (determined at the time that such Incentive
Stock Options are granted) of the common stock with respect to which Incentive
Stock Options are exercisable for the first time by such individual during any
calendar year shall not exceed $1,000,000.
Section 2.5 Governing Law.
The provisions of this Plan and any option agreement issued pursuant to its
provisions are to be governed under New Jersey law and the forum for any dispute
arising out of its provisions or any option agreement issued thereunder shall be
the state courts of New Jersey or the United States District of New Jersey.
<PAGE>
EXHIBIT 10
MATERIAL CONTRACTS
<PAGE>
MICROPHASE TELECOMMUNICATIONS, INC.
DIGITAL SUBSCRIBER LINE
TECHNOLOGY, PATENT, AND TRADEMARK LICENSE AGREEMENT
This Agreement is made effective this 15th day of February, 1997, between
Microphase Telecommunications, Inc., a Delaware Corporation having a place of
business at 587 Connecticut Avenue, Norwalk, CT 06854-0960 (referred to as
Microphase Telecommunications, Inc.) and LightPaths, Inc., a Delaware
Corporation, having a place of business at 587 Connecticut Avenue, Norwalk,
CT06854-0960 (referred to as LightPaths).
WHEREAS, Microphase Telecommunications, Inc. is engaged in the development of
hardware and software systems and related services to provide digital
interactive subscriber audio and data communications (DSL BUSINESS).
WHEREAS, Microphase Telecommunications, Inc. in the establishment of its DSL
BUSINESS, has developed extensive technical information, including, know-how,
and trade secrets in connection with the design, manufacture and use of
systems which provide digital audio and data communications over conventional
copper twisted wire telephone lines on an interactive, bi-directional basis
(MICROPHASE TELECOMMUNICATIONS, INC. DSL TECHNOLOGY).
WHEREAS, Microphase Telecommunications, Inc. is in the process of obtaining
patents relating to such MICROPHASE TELECOMMUNICATIONS, INC. DSL TECHNOLOGY;
WHEREAS, Microphase Telecommunications, Inc. has adopted the trademark, mfXDSL
to identify products and services provided as part of the DSL BUSINESS; and
WHEREAS, LightPaths desires to establish and expand the DSL business and in
connection therewith needs to acquire, a license to use Microphase
Telecommunications, Inc. technical information, patent rights and trademarks in
connection with its manufacture and sale of such products in the DSL BUSINESS.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall have
the meanings stated below:
(a) Licensed Trademarks means the Trademark mfXDSL, as described in the
registrations or applications for registration listed in Appendix A.
(b) Licensed Patent Rights shall refer to the patents and patent applications
listed in Appendix B, any other patent applications derived therefrom, and any
patents, reissues, and foreign counterparts issuing as a result of said
applications and patents.
(c) Licensed Products and Services means systems, components, software, or
services provided or manufactured by LightPaths in the operation of DSL BUSINESS
which either (I) utilizes MICROPHASE TELECOMMUNICATIONS, INC. DSL TECHNOLOGY
acquired by LightPaths pursuant to this Agreement or (ii) are described in the
Licensed Patent Rights; (iii) are sold by LightPaths in association with the
Licensed Trademarks, or (iv) are subject to Copyright owned by Microphase
Telecommunications, Inc.
(d) Technical Information means trade secrets, know-how and information
disclosed to LightPaths under this Agreement relating in any manner to the
Licensed Products and Services including but not limited to MICROPHASE
TELECOMMUNICATIONS, INC. DSL TECHNOLOGY.
(e) Software and Documentation shall refer to any software, manuals and
information that is subject to copyright owned by Microphase Telecommunications,
Inc. and is included in Licensed Products and Services.
(f) Net Sales Price means: (i) in a normal arm's length business transaction,
LightPaths invoice price for the Licensed Products or Services sold, exclusive
of freight and delivery charges, sales or other taxes identified in the invoice
as part of the price, less allowances for returns actually taken by LightPaths
customers and trade discounts (except cash discounts and deductions for any
agent's commissions) identified on the invoice; or (ii) in the case of Licensed
Products used by LightPaths for its own purposes, the fair market value of such
Licensed Products as of their date of use; or (iii) in the case of Licensed
Products and Services sold to a Related Company (defined below) or in a
transaction to at arms length, the fair market price of such Licensed Products
and Services as of the date of such sale.
(g) Related Company means any company controlling, controlled by (either
directly or indirectly) or under common control with LightPaths.
(h) Territory means the world:
2. GRANT OF LICENSES
(a Microphase Telecommunications, Inc. hereby grants to LightPaths an
exclusive license, within the Territory, including the right to grant
sublicenses (i) manufacture, use and sell Licensed Products and provide
License Services under the Licensed Patent Rights; (ii) utilize the Technical
Information in connection with the manufacture, use and sales of Licensed
Products and Services; and (iii) use the Licensed Trademarks on and in the
advertising, packaging, marketing, sale of Licensed Products and Services,
and as a corporate logo (iv) use Software and Documentation in connection with
the manufacture, use and sale of Licensed Products and Services; said license
grants being limited to use in the DSL BUSINESS. Nothing in this Agreement
shall be construed as granting a license for products or services other than
those expressly defined as Licensed Products and Services.
3. DISCLOSURE OF TECHNICAL INFORMATION
(a) Upon the execution of this Agreement and periodically during the term of
this Agreement, Microphase Telecommunications, Inc. shall disclose to LightPaths
such Technical Information pertaining to the Licensed Products and Services as
Microphase Telecommunications, Inc. believes is reasonably required to allow
LightPaths to exercise the rights granted herein. Nothing in this Agreement
shall be construed as requiring Microphase Telecommunications, Inc., to disclose
information which is subject to restriction by a third party.
<PAGE>
(b) Microphase Telecommunications, Inc. will provide LightPaths with technical
assistance reasonably required to permit Light Paths to utilize the Technical
Information (i) by use of correspondence to answer system, components, software,
and service technical questions, where possible, and (ii) if necessary, by
conducting one training session each year during the term of this Agreement.
Said training sessions shall be conducted at Microphase Telecommunications,
Inc., each session to be scheduled on mutually agreeable dates. All
transportation, meals and other costs of LightPaths personnel during such
sessions shall be borne entirely by LightPaths.
4. FEES AND ROYALTIES
(a) LightPaths shall pay to Microphase Telecommunications, Inc. by May 1, 1997,
a non-refundable license fee of thirty seven thousand, five hundred ($37,500.00)
dollars.
(b) In addition, LightPaths shall pay to Microphase Telecommunications, Inc.
during the term of this Agreement, a royalty based on the rates specified in
Appendix C which are expressed in percent of the Net Sales Price of Licensed
Products and Services manufactured, used, sold or provided by LightPaths.
(c) LightPaths shall also pay to Microphase Telecommunications, Inc. a
technology development and transfer fee of $37,500.00 per month, with the first
payment commencing on June 1, 1997. This fee will be applied as a partial
payment against the minimum annual royalty payments as described further in
Paragraph 5 of this Agreement.
5. MINIMUM ANNUAL ROYALTY
LightPaths shall maintain sufficient annual sales to provide at least the
minimum annual royalty payments to Microphase Telecommunications, Inc.
specified below.
During the first three calendar years of this Agreement, LightPaths shall have
the option to maintain this Agreement in effect by paying to Microphase
Telecommunications, Inc., within thirty days after the close of the calendar
year, the difference between actual royalties paid and said minimum royalty,
less any applicable payments from the technology development fee as specified at
Paragraph 4(c). In the event LightPaths fails to pay said difference, Microphase
Telecommunications, Inc., shall have the right to terminate the exclusive nature
of this Agreement by giving 90 days written notice. Thereafter, the licenses
granted under this Agreement shall become non-exclusive and LightPaths right to
sublicense shall cease except to such extent as it is necessary for its
customers to utilize the Licensed Product and Services provided by LightPaths
in the course of the DSL BUSINESS. If, during the first three years
LightPaths does not pay the difference or thereafter in the event that the
actual royalties accrued in any one year fall below applicable specified
Minimum Annual Royalty.
(i.) First calendar year of this Agreement $ 50,000
(ii.) Second calendar year $250,000
(iii.) Third calendar year $500,000
(iv.) Thereafter, each calendar year $1,000,000
<PAGE>
6. PAYMENTS
(a) Royalties shall be paid on or before the last day of January, April, July
and October of each year with respect to all sales or uses of the Licensed
Products and Services during the preceding calendar quarter.
(b) All payments payable by LightPaths to Microphase Telecommunications, Inc.
shall be paid in United States Dollars to the account of Microphase
Telecommunications, Inc. by Bank Transfer. For the purposes of computing royalty
payments, the Net Sales Price of all Licensed Products and Services sold
hereunder shall be determined by converting any currency in which the Net Sales
Price was denominated into United States Dollars at the average spot rate of
exchange of Citibank, N.A. New York, New York, USA, in effect on the last day of
the calendar quarter for which royalties are computed. The rate of exchange used
shall be clearly indicated in the report specifying the royalty payment due.
(c) All royalty payments from LightPaths to Microphase Telecommunications, Inc.
shall be made free and clear of, and without deduction for, any taxes, levies,
duties, charges, fees, deductions, withholdings or restrictions of any nature
imposed by any jurisdiction or by any political subdivision thereof or taxing
authority therein, unless LightPaths is compelled by law to make such deduction
or withholding. In the event that any such deduction or withholding is required,
LightPaths agrees to furnish to Microphase Telecommunications, Inc. official tax
receipts or other evidence issued by the tax authorities sufficient to enable
Microphase Telecommunications, Inc. to establish payment of the taxes described
above in support of its claim for United States tax credits.
7. RECORDS, REPORTS AND INSPECTION
(a) LightPaths shall at all times keep complete and proper records of all
Licensed Products and Services manufactured, used or sold by LightPaths. Sales
shall be considered as made on the date of the invoice or shipment, whichever
shall occur earlier.
(b) During the term of this Agreement, LightPaths shall send to Microphase
Telecommunications, Inc., on or before the last day of each January, April, July
and October, a full statement in writing, in the English language, identifying
separately the total number of units in each product category of Licensed
Products and Services manufactured or provided, the total number used, and the
total number sold by LightPaths during the preceding calendar quarter, together
with the Net Sales Price thereof and a computation of royalties due Microphase
Telecommunications, Inc. The statements to be certified as to their accuracy by
the Chief Financial Officer of LightPaths or individual having authority
therefrom.
(c) Microphase Telecommunications, Inc. shall have the right, upon giving at
least fourteen (14) days advance notice, at any time during normal business
hours, to audit LightPaths records by having an independent auditor examine and
make copies of any portion of the books and records of LightPaths relating to
this Agreement. Such records shall be kept available by LightPaths for at least
three (3) years after expiration of the calendar year in which they are made. In
the event that such examination reveals an underpayment of royalties due
Microphase Telecommunications, Inc. from LightPaths of an amount greater than
ten percent of the payment made, then LightPaths shall pay to Microphase
Telecommunications, Inc. the amount due plus the costs of such audit.
(d) Any claim by LightPaths of overpayment of royalties shall be made within
three (3) years of the date of such payment, stating the basis for such claim
and providing evidence of such overpayment.
<PAGE>
8. DISCLAIMER OF WARRANTY
(a) Microphase Telecommunications, Inc. will not be responsible for, and
LightPaths will indemnify and defend Microphase Telecommunications, Inc.
harmless against, all claims for loss, liability, damage or expenses
(including, without limitation, reasonable attorneys fees, court costs and
costs of investigation) arising in connection with the manufacture, use, sale
or warranty (express or implied) by LightPaths, by a Related Company or by
their customers, of the Licensed Products and Services. In no event will
Microphase Telecommunications, Inc. be liable for indirect, special or
consequential damages incurred by LightPaths, a Related Company or third
parties in connection with this Agreement or the Licensed Products and Services.
(b) Microphase Telecommunications, Inc. makes no representation or warranty
with respect to Technical Information including MICROPHASE TELECOMMUNICATIONS,
INC. DSL TECHNOLOGY disclosed under this Agreement or of LightPaths ability to
use the same, except to state that, unless otherwise specified in this Agreement
at the time of disclosure, such Technical Information is the same as that
currently used by Microphase Telecommunications, Inc. in its DSL BUSINESS.
9. TRADEMARK USE
(a) LightPaths recognizes Microphase Telecommunications, Inc. prior proprietary
rights in the Licensed Trademark, and agrees that it will acquire no rights
therein by the use of said trademark according to the provisions of this
Agreement. LightPaths further agrees that it will use its best efforts to
maintain the goodwill associated with the Licensed Trademark, and will take no
action which may result in damage to such goodwill or said trademark. LightPaths
shall use the Licensed Trademark in strict accordance with this Agreement and
the standards set by Microphase Telecommunications, Inc.
(b) Wherever the Licensed Trademarks are used by LightPaths, LightPaths shall
use the notation Trademark Reg. or, or any other marking required which
indicates that the Licensed Trademarks are registered. In addition,
appropriate legends, satisfactory to Microphase Telecommunications, Inc.
indicating that the Licensed Trademarks are owned by Microphase
Telecommunications, Inc. shall be affixed to any product, label, box or other
packaging, or any advertising materials which employ any of the Licensed
Trademarks. All advertising materials and labels or other materials which
bear the Licensed Trademark or refer to Microphase Telecommunications, Inc.,
shall be subject to, and submitted for, Microphase's prior examination and
approval.
(c) LightPaths agrees that it is the intent of this Agreement that all Licensed
Products and Services shall be sold, advertised, distributed and marketed only
under the Licensed Trademarks. The Licensed Trademarks shall be affixed by
LightPaths to all of the Licensed Products and Services by application directly
to the Product, if possible or to the containers thereof where direct
application is impractical.
(d) It is the intention of the parties that all use of the Licensed Trademark
by LightPaths shall at all times insure to the benefit of Microphase.
<PAGE>
10. QUALITY CONTROL, USE AND INSPECTION
(a) LightPaths agrees that the products it sells under the Licensed Trademark
shall conform to the standards of quality set by Microphase Telecommunications,
Inc.. In order that such standards may be maintained and controlled by
Microphase Telecommunications, Inc., and to prevent possible deception of the
public, Microphase Telecommunications, Inc. shall have the right to inspect
the specific products involved and the facilities of LightPaths which are used
in the manufacture and handling of Licensed Products and Services. Within
thirty (30) days after notice from Microphase Telecommunications, Inc. that
Licensed Products and Services do not conform, LightPaths agrees to make
any necessary changes as requested by Microphase Telecommunications, Inc. to
make such products conform to said standards.
(b) LightPaths shall use the Technical Information provided by Microphase
Telecommunications, Inc. in the manufacture of Licensed Products and the
provision of Services to insure compliance with the quality standards and
specifications set by Microphase Telecommunications, Inc.
(c) Microphase Telecommunications, Inc. shall also have the right, upon
reasonable advance notice, to LightPaths and during normal business hours, to
inspect LightPaths manufacturing operations and quality control procedures to
ensure the maintenance of quality standards established by Microphase
Telecommunications, Inc. pursuant to this Agreement.
11. NON-DISCLOSURE
(a) LightPaths understands that the Technical Information represents valuable
property of Microphase Telecommunications, Inc. and are of a highly confidential
nature. LightPaths, therefore, shall maintain all Technical Information in
confidence and shall not disclose Technical Information to others without the
express written consent of Microphase Telecommunications, Inc. LightPaths shall
not use the Technical Information except in accordance with the terms of this
Agreement. LightPaths shall have no liability for the use or disclosure of
Technical Information which at the time of such disclosure is part of the public
domain.
(b) LightPaths shall not make copies of the Technical Information disclosed by
Microphase Telecommunications, Inc. without prior express, written consent of
Microphase Telecommunications, Inc., unless, for internal use only, it is
essential for the effective use of the rights granted herein. All such essential
copies shall contain the Microphase Telecommunications, Inc. proprietary and
confidential notice, shall be individually numbered, and a record kept of the
number and location of each copy. The documents which contain the Technical
Information are unpublished and all rights thereof are reserved by Microphase
Telecommunications, Inc.
(c) LightPaths agrees that it will notify each of its personnel to whom any
Technical Information is disclosed of his/her obligations not to disclose such
Technical Information commensurate in scope with LightPaths non-disclosure
obligations contained in this Agreement.
(d) LightPaths agrees to institute internal procedures for maintaining strict
control over documents containing Technical Information provided by Microphase
Telecommunications, Inc. and shall take steps to insure that such documents are
clearly identified as the property of Microphase Telecommunications, Inc. Said
documents shall not be incorporated into documents of LightPaths except by
reference.
<PAGE>
(e) In the event of termination, and upon expiration, of this Agreement,
LightPaths shall immediately return to Microphase Telecommunications, Inc. all
Technical Information provided by Microphase Telecommunications, Inc. as well as
any copies and derivatives thereof and cease all use thereof.
(f) LightPaths acknowledges that Microphase Telecommunications, Inc. shall
suffer irreparable injury in the event LightPaths breaches any of its
obligations under this Section. Therefore, LightPaths agrees, that in
addition to all other remedies to which Microphse Telecommunications, Inc.
may be entitled at law or in equity, Microphase Telecommunications, Inc.
shall be entitled to seek any remedy in equity including an injunction
permanently restraining LightPaths from breaching or further breaching any
of the obligations contained herein.
LightPaths agrees that it will not oppose the seeking of such remedy on the
basis that there exists an adequate remedy at law for damages.
12. DILIGENCE
LightPaths shall market and solicit sales of the Licensed Products and Services
diligently and in a good faith manner to an extent as wide as its facilities
permit and shall employ and utilize engineering personnel having reasonable
experience and expertise in the design and use of Licensed Products in order to
maximize sales of the Licensed Product throughout the Territory.
13. TERM
This Agreement shall remain in full force and effect until the last to expire of
the Licensed Patents and for a period of seven (7) years thereafter. This
Agreement shall be deemed automatically renewed for additional seven (7) year
terms unless Microphase Telecommunications, Inc. notifies LightPaths prior to
the expiration of the then current term that the Agreement will not be renewed.
14. TERMINATION
(a) This Agreement shall automatically terminate in the event that LightPaths
(i) is in liquidation, either voluntarily or involuntarily, or is placed in
receivership or otherwise enters into any scheme or composition with its
creditors or makes an assignment for the benefit of creditors or (ii) once sales
commence, ceases to sell the Licensed Products and Services for a period of six
(6) months.
(b) This Agreement may be terminated upon ninety (90) days prior written notice
by Microphase Telecommunications, Inc. to LightPaths.
(i) in the event that LightPaths fails to make any payment due hereunder;
or
(ii) upon the breach or default by LightPaths of one or more terms of any other
license Agreement with Microphase Telecommunications, Inc.
(c) This Agreement may be terminated by either party.
(i) immediately, in the event that the other party defaults under or breaches
any of the terms of this Agreement other than payment and such default or breach
is not remedied within a period of ninety (90) days after notification thereof;
or
(ii) immediately in the event that this Agreement is, in total, held invalid or
unenforceable by the determination of a court of competent jurisdiction.
<PAGE>
(d) LightPaths may terminate this Agreement at any time upon ninety (90) days
prior written notice to Microphase Telecommunications, Inc., provided that the
manufacture, use and sale of the Licensed Products and Services has ceased prior
to the date of such notice, and provided, further, LightPaths destroys or
disposes of all Licensed Products on hand to the satisfaction of Microphase
Telecommunications, Inc. as of the date of giving such notice.
(e) The foregoing grant of licenses has been made in recognition of, and
conditioned upon, a careful examination of the personal skills, reputation and
ability of LightPaths current ownership and control. LightPaths shall notify
Microphase Telecommunications, Inc. in writing of any change in its ownership or
control, to the extent practicable prior to the effective date thereof and, in
no event, more than thirty (30) days thereafter. In the event there is any
change in LightPaths ownership or control to which Microphase
Telecommunications,Inc. has not, in its sole discretion, consented,
Microphase Telecommunications, Inc. shall have the right to terminate this
Agreement on thirty (30) days written notice to LightPaths.
15. RIGHTS AFTER TERMINATION OR EXPIRATION
(a) Upon any termination or expiration of this Agreement, LightPaths shall
cease all further use of Technical Information and discontinue manufacture use,
or sale of Licensed Products and Services. Also on termination or expiration,
LightPaths shall cease all use of the Licensed Trademarks and shall not
thereafter, either directly or indirectly, adopt a trademark or trade name which
when compared to the Licensed Trademark would be likely to cause confusion, nor
shall LightPaths make an reference of any kind which might create the impression
that LightPaths continues to be licensed by Microphase Telecommunications, Inc.
(b) Termination or expiration of this Agreement shall not release LightPaths
from its obligation to make payment in full of all royalties then owing and,
further, shall not relieve the parties from such obligation or liabilities
hereunder which expressly extend beyond such termination or expiration.
(c) The provisions of Paragraph 12 hereof shall survive any termination or
expiration of this Agreement.
16. LITIGATION
(a) Microphase Telecommunications, Inc. specifically disclaims any financial
or other responsibility for litigation of any type to which LightPaths may
become a party as a result of its exercising the rights granted therein.
Microphase Telecommunications, Inc. does agree, however, without liability
for any costs of such litigation, provide such assistance and cooperation as
may be reasonably necessary to assist LightPaths in its defense of any
litigation which seeks to restrict the exercise of LightPath's rights under
this Agreement.
(b) LightPaths shall promptly notify Microphase Telecommunications, Inc. of any
infringement or threatened infringement of the Licensed Trademark which shall be
come known to it. Microphase Telecommunications, Inc. shall use its own
discretion in deciding whether to act on this information, and its refusal to
act thereon shall not affect this Agreement. Microphse Telecommunications,
Inc. shall have the sole right to initiate legal action for infringement of
said trademark. LightPaths shall provide Microphase Telecommunications, Inc.
with such assistance and cooperation as may be reasonably necessary in
connection therewith, but without liability for any costs of such legal
proceedings.
(c) LightPaths shall promptly advise Microphase Telecommunications, Inc. in
writing of any notice or claim of infringement of a third party?s trademark
arising out of LightPaths use of the Licensed Trademarks in the Territory; in
such event Microphase shall assume control of the defense of any such
infringement suit with counsel of its own choice, and at its own expense.
LightPaths shall provide Microphase Telecommunications, Inc. with such
assistance and cooperation as may be reasonably necessary in connection
therewith.
<PAGE>
17. WAIVER OF DEFAULT
No waiver by either party of any default of the other party shall be held to be
a waiver of any other or subsequent default. The failure of either party at any
time to enforce or require performance of any of the provisions of this
Agreement, or to exercise any right or option herein provided, shall in no way
be construed to be a waiver of that and/or other provisions of this Agreement or
to affect the right of such party thereafter to enforce each and every such
provision. All waivers shall be in writing, signed by the waiving party.
18. DISCLAIMER OF AGENCY
It is agreed that LightPaths is an independent contractor and not the agent of
Microphase Telecommunications, Inc. LightPaths has no right or authority to
assume, create or incur any liability or obligation of any kind, express or
implied, against, in the name of, or on behalf of Microphase Telecommunications,
Inc.
19. NOTICES
All notices required of the parties under this Agreement shall be in writing.
Any such notice shall be deemed served if sent registered or certified mail,
postage prepaid, addressed to the other party at the address set forth above, or
at such other address as may hereafter be designated by either party in writing.
20. ASSIGNMENT
This Agreement shall be binding upon the parties hereto and Microphase
Telecommunications, Inc. respective successors and assigns. This Agreement and
the rights and obligations hereunder shall not be assignable by LightPaths
whether by merger, operation of law or otherwise except with the prior written
consent of Microphase Telecommunications, Inc.
21. MISCELLANEOUS
(a) This Agreement shall be governed by and construed in accordance with the
substantive laws of the State of Connecticut.
(b) This Agreement constitutes the entire Agreement between the parties and
supersedes all prior agreements, negotiations or discussions between the parties
with respect to the Licensed Products and Services, and shall not be modified or
amended except by an instrument in writing of a date subsequent hereto, duly
executed by each of the parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
By:_________________________________ Microphase Telecommunications,Inc.
Name: Torry Guardino, Chief Contracting Officer
Date:________________________________
By:_________________________________ LightPaths, Inc.
Name: Gustave T. Dotoli, Executive Vice President
Date:________________________________<PAGE>
INTERNET INFOSPACE CONTENT (WORLD
WIDE WEB SITE) DISTRIBUTION AGREEMENT
THIS AGREEMENT, dated as of 1-25-98 (the "Effective Date"), is made by and
between InfoSpace.com, Inc., a Delaware corporation ("Infospace"), with offices
at 15375 NE 90th Street, Redmond, WA 98052, and MPhase Technologies, Inc., a New
Jersey corporation ("Company"), with offices at 587 Connecticut Ave., PO Box
566, Norwalk, Ct 06854-0566.
RECITALS
This Agreement is entered into with reference to the following facts:
A. InfoSpace maintains on certain locations of its Web Sites (as defined
below) and makes available to Internet users certain content, resources,
archives, indices, catalogs and collections of information (collectively, such
materials are identified in Exhibit A and referred to herein as the "Content").
B. InfoSpace wishes to grant certain rights and licenses to Company with
respect to access to the Content and certain other matters, and Company wishes
to grant certain rights and licenses to InfoSpace with respect to the Company
Web Sites (as defined below) and certain other matters, as set forth in this
Agreement.
AGREEMENT
Section 1. Definitions.
As used herein, the following terms have the following defined meanings:
"Advertising Revenue" means the net revenues received by a party for delivering
Impressions.
"Banner Advertisement" means a rotating banner advertisement of approximately 60
x 400 pixels located at the tope and/or bottom of a Web Page.
"Co-branded Pages" means, collectively, Query Pages and Results Pages that have
been branded for Company.
"Customers" means any third parties, which have established a contractual
relationship with Company to utilize the Company Proprietary Technology.
"Customer Co-branded Pages" means, collectively, Query Pages and Results pages
that have been developed to allow Company Customers with access to the Content.
"Company Marks" means those Trademarks of the Company set forth on Exhibit B
hereto and such other Trademarks (if any) as Company may from time to time
notify InfoSpace in writing to be "Company Marks" within the meaning of this
Agreement.
"Company Web Sites" means, collectively, all Web Sites maintained by or on
behalf of Company and its affiliates.
<PAGE>
"Graphical User Interface" means a graphical user interface, to be designed by
Company and InfoSpace and implemented by InfoSpace pursuant to the terms of this
Agreement, that contains or implements branding, graphics, navigation, content
or other characteristics or features such that a user reasonably would conclude
that such interface is part of the Company Web Sites.
"Impression" means a user's viewing of any discrete screen of a Co-branded Page
containing any Banner Advertisement.
"Impression Traffic Threshold" means an average of 50,000 Impressions per day
for thirty (30) consecutive days.
"InfoSpace Marks" means those Trademarks of InfoSpace (if any) set forth on
Exhibit B hereto and such other Trademarks as InfoSpace may from time to time
notify Company in writing to be "InfoSpace Marks" within the meaning of the
Agreement.
"InfoSpace Web Sites" means, collectively: (a) the Web Site the primary home
page of which is located at http.//www.infospace.com: and (b) other Web Sites
maintained by InfoSpace and its affiliates.
"Intellectual Property Rights" means any patent, copyright, rights in
Trademarks, trade secret rights, moral rights and other intellectual property or
proprietary rights arising under the laws of any jurisdiction.
"Person" means any natural person, corporation, partnership, limited liability
company or other entity.
"Proprietary Technology" means the MPhase high bandwidth delivery mechanism
which provides access to digital data through the standard twisted pair medium.
"Query Page" means any page hosted on the Company Web Sites which incorporates
the Graphical User Interface and on which users may input queries and searches
relating to the Content.
"Results Page" means any page hosted on the InfoSpace Web Sites which
incorporates the Graphical User Interface and displays Content in response to
queries and searches made on a Query Page.
"Trademarks" means any trademarks, service marks, trade dress, trade names,
corporate names, proprietary logos or indicia and other source or business
identifiers.
"Transactional Revenue" Means the revenues generated from the purchase of
products through InfoSpace's proprietary Active Shopper technology as it is
employed in the Co-branded or Customer Co-branded Pages.
"Web Site" means any point of presence maintained on the Internet or on any
other public data network. With respect to any Website maintained on the
World Wide web, such Website includes all HTML pages (or similar unit of
information presented in any relevant data protocol) that either (a) are
identified by the same second-level domain (such as infospace.com) or by the
same equivalent level identifier in any relevant address scheme, or (b)
contain branding, graphics, navigation or other characteristics such that a
user reasonably would conclude that the pages are part of an integrated
information servicing offering.
<PAGE>
2. Certain Rights Granted.
2.1 InfoSpace Grant. Subject to the terms and conditions of this
Agreement, InfoSpace hereby grants to Company the following rights:
(a) the right to include on the Company Web Sites hypertext
links (whether in graphical, text or other format) which enable "point and
click" access to locations of the InfoSpace Web Sites specified by InfoSpace
(and subject to change by InfoSpace from time to time); and
(b) the right to permit users to link to Results Pages via
Query Pages hosted on the Company Web Sites.
(c) the right to promote the service to Company Customers
provided that Company shall not promote the service to entities that are
determined by InfoSpace, in InfoSpace's discretion, to be potential direct
customers of InfoSpace or where promotion of the service to customers would
cause a conflict of interest with InfoSpace's business.
2.2 Company Grant. Subject to the terms and conditions of this
Agreement, Company hereby grants InfoSpace the following rights:
(a) the right to include on the InfoSpace Web Sites hypertext
links (whether in graphical, text or other format) which enable "point and
click" access to locations of the Company Web Sites specified by Company
(and subject to change by Company from time to time);
(b) the right to sell and serve Banner Advertisements
directly on the Co-branded Pages as provided in Section 4; and
(c) the right to trace the number of Impressions.
2.3 Limitations. Other than what is stated in this agreement,
Company and its affiliates shall have no right to reproduce or sub-license,
re-sell or otherwise distribute all or any portion of the Content to any
Person via the Internet (including the Work wide Web) or any successor public or
private data network. In addition, neither party shall have any right to: (a)
edit or modify any Banner Advertisements submitted for a Co-branded Page (but
without limiting InfoSpace's right to reject any Banner Advertisements
pursuant to this Agreement); or (b) remove, obscure or alter any notices of
Intellectual Property Rights appearing in or on any materials (including
Banner Advertisements) provided by the other party.
2.4 Company Marks License. Subject to Section 2.6, Company hereby
grants InfoSpace the right to use, reproduce, publish, perform and display the
Company and Company Customer Marks: (a) on the InfoSpace Web Sites in connection
with the posting of hyperlinks to the Company Web Sites; (b) in and in
connection with the development, use, reproduction, modification, adaption,
publication, display and performance of the graphical User Interface and
Results Pages; and (c) in promotional and marketing materials, content
directories and indexes, and electronic and printed advertising, publicity,
press releases, newsletters and mailings about InfoSpace.
<PAGE>
2.5 InfoSpace Marks License. Subject to Section 2.6, InfoSpace
hereby grants the right to use, reproduce, publish, perform and display the
InfoSpace Marks: (a) on the Company Web Sites in connection with the posting of
hyperlinks to the InfoSpace Web Sites; (b) in and in connection with the
development, use, reproduction in promotional and marketing materials, content
directories and indexes, and electronic and printed advertising, publicity,
press releases, newsletters and mailings about Company.
2.6 Approval of Trademark Usage. InfoSpace shall not use or
exploit in any manner any of the Company Marks, and Company shall not use or
exploit in any manner any of the InfoSpace Marks, except in such manner and
media as the other party may consent to in writing, which consent shall not be
unreasonably withheld or delayed. Either party may revoke or modify any such
consent upon written notice to the other party.
2.7 Nonexlusivity. Except as expressly provided in Section 4.1,
each party acknowledges and agrees that the rights granted to the other party in
this Section 2 are non-exclusive, and that, without limiting the generality of
the foregoing, nothing in this Agreement shall be deemed or construed to
prohibit either party from participating in similar business arrangements as
those described herein including soliciting third party advertisements or other
materials, serving advertisements or other materials to third parties' Web
Sites, or hosting or permitting third parties to place advertisements on such
party's Web Site, whether or not, in each such case, such advertisements are
competitive with the products, services or advertisements of the other party.
3. Certain Obligations of the Parties.
3.1 Graphical User Interface and Co-branded Pages. Company and
InfoSpace will cooperate to design the user-perceptible elements of the
Graphical User Interface, with the goals of: (a) conforming the display
output of the "look and feel" associated with the applicable Company Web Sites:
and (b) maximizing the commercial effectiveness thereof. Following agreement by
the parties upon the design specifications thereof, InfoSpace will use
commercially reasonable efforts to develop the Graphical User Interface and to
implement the same on Co-branded Pages as contemplated by this Section 3.1,
or for any nonconformity with the design specifications agreed upon by the
parties, provided InfoSpace has used commercially reasonable efforts to
develop and implement the same as provided in this Section 3.1.
3.2 Third Party Relationships. INFOSPACE will assist Company in
working with any third parties or Company Customers to facilitate Internet
access and customization to Content in such a manner that the third parties
branding, graphical "look and feel", and desired navigation is maintained
("Co-branded Pages"), INFOSPACE will share a portion of the advertising and
transaction revenue with Company or Company assigned third party as defined
in Exhibit C. InfoSpace shall have no liability or obligation for failure to
develop or implement the design for any Customer Co-branded Pages as
contemplated by this Section 3.2, or for any nonconformity with the design
specifications agreed upon by the parties, provided InfoSpace has used
commercially reasonable efforts to develop and implement the same as provided in
this Section 3.2.
<PAGE>
3.3 Company Obligations. Company shall work with its Customers to
ensure the integration of links to pages of the InfoSpace Web Sites determined
by InfoSpace (and subject to change by InfoSpace from time to time) on the
primary home page for each Company and Customer Web Sites. In addition, the
InfoSpace logo and at least one other link pointing to pages of the InfoSpace
Web Sites specified by InfoSpace (and subject to change by InfoSpace from time
to time) will be present on all Co-branded Pages. Each link contemplated by
this Section 3.2 shall be: (a) prominent in relation to links to other Web
Sites on the applicable page (and in any event at least as prominent as any
link to any third party Web Site); and (b) above-the-fold (i.e., immediately
visible to any user accessing the applicable page without the necessity of
scrolling downward or horizontally).
3.4 Accessibility of Web Sites. Each party will use commercially
reasonable efforts to ensure accessibility of its Web Sites (including, in the
case of InfoSpace, the accessibility of the Content).
3.5 Impression Information. InfoSpace shall track and allow the
Company to remotely access in electronic form information maintained by
InfoSpace concerning the number of Impressions.
3.6 Publicity. The parties may work together to issue publicity
and general marketing communications concerning their relationship and other
mutually agreed-upon matters, provided, however, that neither party shall have
nay obligation to do so. In addition, neither party shall issue such publicity
and general marketing communications concerning their relationship without the
prior written consent of the other party (not to be unreasonably withheld).
Neither party shall disclose the terms of this Agreement to any third party
other than its outside counsel, auditors, and financial advisors, except as
required by law.
4. Service Fees and Revenue Share.
4.1 Placement of Banner Advertisements. In addition to the terms
and conditions otherwise set forth in this Agreement, Banner Advertisements on
the Co-branded Pages shall be governed by the terms and conditions set forth on
Exhibit C.
4.2 Service Fees. Company shall pay to InfoSpace Service Fees as
defined in Exhibit C.
4.3 Advertising Revenue Share. The parties shall share in revenue
generated from Advertising as stipulated in Exhibit C.
4.4 Transaction Revenue Share. The parties shall share in the
revenue generated from e-commerce transactions ad stipulated in Exhibit C.
4.3 Records and Audit: Late Payments. During the Term, each party
shall maintain accurate records of Advertising Revenues received and
calculations of the fees payable to the other party pursuant to this
Agreement. Either party, at its expense, and upon ten (10) days' advance
notice to the other party, shall have the right once during the Term to
examine or audit such records in order to verify the figures reported in
any quarterly report and the amounts owned to such party under this
Agreement. Any such audit shall be conducted, to the extent possible, in a
manner that does not interfere with the ordinary business operations of the
audited party. In the event that any audit shall reveal an underpayment of
more than ten percent (10%) of the amounts due to the auditing party for any
quarter, the other party will reimburse such party for the reasonable cost of
such audit.
<PAGE>
5. Warranties, Indemnification and Limitation of Direct Liability.
5.1 Warranties
Each party to this Agreement represents and warrants to the other party
that:
a) it has the full corporate right, power and authority to enter into
this Agreement and to perform the acts required of it hereunder;
b) its execution of this Agreement by such party and performance of its
obligations hereunder, do not and will not violate any agreement to which it is
a party or by which it is bound;
c) when executed and delivered, this Agreement will constitute the
legal, valid and binding obligation of such party, enforceable against it in
accordance with its terms; and
d) its Web Sites and the content contained therein, and all Banner
Advertisements served or submitted by it to the Co-branded Pages, as the case
may be, will not contain any material that is obscene, libelous or defamatory,
or infringing of any third party Intellectual Property Rights.
5.2 Indemnification. Each party (the "Indemnifying Party") will
defend, indemnify and hold harmless the other party (the "Indemnified Party"),
and the respective directors, officers, employees, and agent of the Indemnified
Party, from and against any and all claims, costs, losses, damages, judgments
and expenses (including reasonable attorneys' fees) arising out of or in
connection with any third-party claim alleging any breach of such party's
representations or warranties or covenants set forth in this Agreement. The
Indemnified Party agrees that the Indemnifying Party shall have sole and
exclusive control over the defense and settlement of any such third party
claim. The Indemnified Party shall promptly notify the Indemnifying Party
of any such claim of which it becomes aware and shall: (a) at the
Indemnifying Party's expense, provide reasonable cooperation to the
Indemnifying Party in connection with the defense or settlement of any such
claim; and (b) at the Indemnified Party shall not acquiesce to any judgment or
enter into any settlement that adversely affects the Indemnified Party's
rights or interests without prior written consent of the Indemnified Party.
5.3 Limitation of Liability; Disclaimer.
(a) Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO
THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), ARISING FROM ANY PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS,
INFOSPACE'S LIABILITY (WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE AND
NOTWITHSTANDING ANY FAULT, NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR IMPUTED),
PRODUCT LIABILITY OR STRICT LIABILITY OF INFOSPACE) UNDER THIS AGREEMENT OR
WITH REGARD TO ANY OF THE PRODUCTS OR SERVICES REFERENCED BY INFOSPACE UNDER
THIS AGREEMENT (INCLUDING ANY SERVERS OR OTHER HARDWARE, SOFTWARE AND ANY
OTHER ITEMS USED OR PROVIDED BY INFOSPACE OR ANY THIRD PARTIES IN CONNECTION
WITH HOSTING THE CO-BRAND PAGES), THE INFOSPACE WEB SITES AND ANY OTHER ITEMS OR
SERVICES FURNISHED UNDER THIS AGREEMENT WILL IN NO EVEN EXCEED THE COMPENSATION
PAID BY COMPANY TO INFOSPACE UNDER THIS AGREEMENT.
<PAGE>
(b) No Additional Warranties. EXCEPT AS SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS,
ANY REPRESENTATIONS OR WARRANTIES EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED
WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.), AND EACH
PARTY HEREBY SPECIFICALLY DISCLAIMS ANY CLAIM IN TORT (INCLUDING NEGLIGENCE),
IN EACH CASE, REGARDING THEIR WEB SITES, ANY PRODUCTS OR SERVICES PROVIDED
UNDER THIS AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, COMPANY
ACKNOWLEDGES THAT THE INFOSPACE WEB SITES AND THE CONTENT (INCLUDING ANY SERVERS
OR OTHER HARDWARE, SOFTWARE AND ANY OTHER ITEMS USED OR PROVIDED BY INFOSPACE OR
ANY THIRD PARTIES IN CONNECTION WITH HOSTING THE INFOSPACE WEB SITES OR THE
CONTENT OR PERFORMANCE OF ANY SERVICES HEREUNDER) ARE PROVIDED "AS IS" AND THAT
INFOSPACE MAKES NO WARRANTY THAT IT WILL CONTINUE TO OPERATE ITS WEB SITES IN
THEIR CURRENT FORM. THAT ITS WEB SITES WILL BE ACCESSIBLE WITHOUT INTERRUPTION,
THAT THE SITES WILL MEET THE REQUIREMENTS OR EXPECTATION OF THE OTHER PARTY, OR
THAT THE CONTENT OR ANY OTHER ANY MATERIALS ON ITS WEB SITES OR THE SERVERS AND
SOFTWARE THAT MAKES ITS WEB SITES AVAILABLE ARE FREE FROM ERRORS, DEFECTS,
DESIGN FLAWS OR OMISSIONS.
6. Term and Termination.
6.1 Term. The term of this Agreement is as set froth on Exhibit C
6.2 Termination. Either party may terminate the Term upon not less
than thirty (30) days' prior written notice to the other party of any material
breach hereof by such other party, provided that such other party has not cured
such material breach within such thirty (3) day period.
6.3 Effect of Termination. Upon termination or expiration of the
Term for any reason, all rights and obligations of the parties under this
Agreement shall be extinguished, except that: (a) all accrued payment
obligations hereunder shall survive such termination or expiration; and (b)
the rights and obligations of the parties under Sections 4.2, 4.3, 5, 6, 7
and 8 shall survive such termination or expiration.
7. Intellectual Property.
7.1 Company. As between the parties, Company retains all right,
title and interest in and to the Company Web Sites (including, without
limitation, any and all content, data, URLs, domain names, technology, software,
code, user interfaces, "look and feel", Trademarks and other items posted
thereon or used in connection or associated therewith; but excluding any
Content or other items supplied by InfoSpace) and the Company Marks along
with all Intellectual Property Rights associated with any of the foregoing.
All goodwill arising out of InfoSpace's use of any of the Company Marks shall
inure solely to the benefit of the Company.
<PAGE>
7.2 InfoSpace. As between the parties, InfoSpace retains all
right, title and interest in and to the Content and the InfoSpace Web Sites
(including, without limitation, any and all content, data, URLs, domain names,
technology, software, code, user interfaces, "look and feel", Trademarks and
other items posted thereon or used in connection or associated therewith; but
excluding any items supplied by Company) and the InfoSpace Marks, along with all
Intellectual Property Rights associated with any of the foregoing. All goodwill
arising out of Company's use of any of the InfoSpace Marks shall inure solely to
the benefit of InfoSpace.
7.3 Copyright Notices. All Co-branded pages will include the
following acknowledgement along with the InfoSpace logo.
"Powered by InfoSpace" or "Powered by InfoSpace.com"
InfoSpace and company acknowledge that the Co-branded Pages may also contain
copyright and patent notices of copyrighted or copyrightable works, including
those of InfoSpace Content providers.
7.4 Other Trademarks. InfoSpace shall not register or attempt to
register any of the Company Marks or any Trademarks which Company reasonably
deems to be confusingly similar to any of the Company Marks. Company shall not
register or attempt to register any of the InfoSpace Marks.
7.5 Further Assurances. Each party shall take, at the other
party's expense, such action (including, without limitation, execution of
affidavits or other documents) as the other party may reasonably request to
effect, perfect or confirm such other party's ownership interests and other
rights as set forth above in this Section 7.
8. General Provisions.
8.1 Confidentiality. Each party (the "Receiving Party") undertakes
to retain in confidence the terms of this Agreement and all other non-public
information and know-how of the other party disclosed or acquired by the
Receiving Party pursuant to or in connection with this Agreement which is either
designated as proprietary and/or confidential or by the nature of the
circumstances surrounding disclosure, ought in good faith to be treated as
proprietary and/or confidential ("Confidential Information"); provided that each
party may disclose the terms and conditions of this Agreement to its immediate
legal and financial consultants in the ordinary course of its business. Each
party agrees to use commercially reasonable efforts to protect Confidential
Information of the other party, and in any event, to take precautions at least
as great as those taken to protect its own confidential information of a similar
nature. Company acknowledges that the terms of this Agreement are Confidential
Information of InfoSpace. The foregoing restrictions shall not apply to any
information that: (a) was known by the Receiving Party prior to disclosure
thereof by the other party; (b) was in or entered the public domain through no
fault of the Receiving Party; (c) is disclosed to the Received Party by a third
party legally entitled to make such disclosure without violation of any
obligation of confidentiality; (d) is required to be disclosed by applicable
laws or regulations (but in such event, only to the extent required to be
disclosed); or (e) is independently developed by the Receiving Party without
reference to any Confidential Information of the other party. Upon request
of the other party, or in any event upon termination or expiration of the
Term, each party shall return to the other all materials, in any medium,
which contain, embody, reflect or reference all or any part of any
Confidential Information of the other party. Each party acknowledges that
breach of this provision by it would result in irreparable harm to the other
party, for which money damages would be an insufficient remedy, and therefore
that the other party shall be entitled to seek
injunctive relief to enforce the provisions of this Section 8.1.
<PAGE>
8.2 Independent Contractors. Company and InfoSpace are independent
contractors under this Agreement and nothing herein shall be construed to create
a partnership, joint venture, franchise or agency relationship between Company
and InfoSpace. Neither party has any authority to enter into agreements of any
kind on behalf of the other party.
8.3 Assignment. Neither party may assign this Agreement or any of
its rights or delegate any of its duties under this Agreement without the prior
written consent of the other party, not to be unreasonably withheld; except that
either party may, without the other party's consent, assign this Agreement or
any of its rights or delegate any of its duties under this Agreement; (a) to any
affiliate of such party; or (b) to any purchaser of all or substantially all of
such party's assets or to any successor by way of merger, consolidation or
similar transaction. Subject to the foregoing, this Agreement will be binding
upon, enforceable by, and inure to the benefit of the parties and their
respective successors and assigns.
8.4 Choice of Law; Forum Selection. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Washington without reference to its choice of law rules, Company hereby
irrevocably consents to exclusive personal jurisdiction and venue in the state
and federal courts located in King County, Washington with respect to any
actions, claims or proceedings arising out of or in connection with this
Agreement, and agrees not to commence or prosecute any such action, claim or
proceeding other than in the aforementioned courts.
8.5 Nonwaiver. No waiver of any breach of any provision of this
Agreement shall constitute a waiver of any prior, concurrent or subsequent
breach of the same or any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized representative
of the waiving party.
8.6 Force Majeure. Neither party shall be deemed to be in default
of or to have breached any provision of this Agreement as a result of any delay,
failure in performance or interruption of service, resulting directly or
indirectly from acts of God, acts of civil or military authorities, civil
disturbances, wars, strikes or other labor disputes, fires, transportation
contingencies, interruptions in telecommunications or Internet services or
network provider services, failure of equipment and/or software, other
catastrophes or any other occurrences which are beyond such party's reasonable
control.
8.7 Notices. Any notice or other communication required or
permitted to be given hereunder shall be given in writing and delivered in
person, mailed via confirmed facsimile or e-mail, or delivered by recognized
courier service, properly addressed and stamped with the required postage, to
the individual signing this Agreement on behalf of the applicable party at its
address specified in the opening paragraph of the agreement and shall be deemed
effective upon receipt. Either party may from time to time change the
individual to receive notices or its address by giving the other party notice of
the change in accordance with this section. In addition, a copy of any
notice sent to InfoSpace shall also be sent to the following address:
InfoSpace.com, Inc.
15375 NE 90th Street
Redmond, WA 98052
Fax: (425) 883-4846
Attention: General Counsel
<PAGE>
8.8 Integration. This Agreement contains the entire understanding
of the parties hereto with respect to the transactions and matters contemplated
hereby, supersedes all previous agreements or negotiations between InfoSpace and
Company concerning the subject matter hereof, and cannot be amended except by a
writing signed by both parties.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the Effective Date.
mPhase Technologies Inc. InfoSpace.Com Inc.
("Company") ("InfoSpace")
By (signature) By (signature
Name Ronald A. Durando Name Chris Matty
Title 2-10-99 Title 2-10-99 V.P. Business Div.
<PAGE>
EXHIBIT A
CONTENT
The Content consists of, but is not limited to, the following indexes,
directories and other items and services (as the same may by updated, revised or
modified by InfoSpace in its sole discretion from time to time):
1. Yellow Pages
2. White Pages
3. Classifieds
4. City Guides
5. Investing
6. News
7. Sports Scores
8. Community
9. Government
10. Active Shopper
11. International Listings
12. Other items and services that may from time to time be added to the
InfoSpace Web Sites by InfoSpace (in its sole discretion)
Note: The actual name of these services may change.
<PAGE>
EXHIBIT B
TRADEMARKS
Company Marks
[Co-brand Partner to supply list of its applicable trademarks]
InfoSpace Marks
InfoSpace
InfoSpace.com
INFO
SPACE Powered By InfoSpace
.COM
Powered by InfoSpace.com
The Ultimate Directory
<PAGE>
EXHIBIT C
1. Service Fees.
Company shall pay to InfoSpace a monthly service fee of $5,000 for the delivery,
servicing and maintenance of the Co-branded pages. The above payment is set to
commence upon the signing of this agreement at which time the effort shall begin
to develop and implement the Co-branded Pages.
Company shall pay, or arrange for the payment by the Customer, an additional
$5,000 per year for each Customer for which InfoSpace develops Customer
Co-branded pages. The above payment is set to commence upon the signing of
Customer co-branding agreement at which time the effort shall begin to
develop and implement the Customer Co-branded Pages. The parties agree to
discuss the Customer Co-grand fees and adjust them if necessary. The parties
agree to discuss and modify the payment terms for Company Customers if market
conditions warrant such considerations.
Service fees shall be required until such time that the Minimum Traffic
Threshold has been met. At such time that the Minimum Traffic Threshold has
been met the parties shall share in the advertising revenue that is generated on
the Co-branded Pages.
Any revenue share attributable to the Company Customers shall be subject to the
same Minimum Traffic Threshold as stipulated above.
2. Advertising Revenue Share.
Banner Advertisements. InfoSpace shall have the exclusive right to serve
Banner Advertisements on the Co-branded Pages and Customer Co-branded Pages.
The appearance of the Banner Advertisements will be as reasonably determined by
InfoSpace; provided, that InfoSpace may reject any Banner Advertisement if such
Banner Advertisement would materially adversely affect the download time or
performance of such Co-branded page. Neither party will submit for any
Co-branded Page any Banner Advertisement which: (a) contains any link to any
Web Site maintained by or on behalf of, or which is otherwise intended to
promote the products or services of, any Person which could reasonably be
deemed to be a material direct competitor of InfoSpace or (b) contains any
material that is libelous or defamatory or that infringes any Intellectual
Property Right or other
right of any third party.
Either INFOSPACE, Company or Company Customer will have the right to sell Banner
Advertisements on all the search and results pages within the Co-branded pages
that use INFOSPACE's product and contents. The selling party shall receive a
30% commission for ad acquisition. Based upon mutual agreement, if a third
party sells the advertisements, the actual amount of the advertising fee will
be deducted. Advertising revenue will be then shared every quarter as follows:
50% to INFOSPACE and
50% to Company and/or Company Customer
<PAGE>
Any amounts not paid when due will be subject to a finance charge equal to one
and one-half percent (1.5%) per month or the highest rate allowable by law,
whichever is less, determined and compounded daily from the date due until the
date paid. Payment of such finance charges will not excuse or cure any breach
or default for late payment. Each party may accept any check or payment
without prejudice to its rights to recover the balance due or to pursue any
other right or remedy. No endorsement or statement on any check or payment
or letter accompanying any check or payment or elsewhere will be construed as an
accord or satisfaction. Unless explicitly stated on Exhibit C, all amount
payable under this Agreement are denominated in United States dollars and
each party will pay all amounts payable under this Agreement in lawful money
of the United States. Other than as explicitly stated on Exhibit C, InfoSpace
shall have no obligation to share with, or account to Company regarding, any
sums received by InfoSpace or any of its affiliates from any advertisements
or promotions on any of the
InfoSpace Web Sites (including, without limitation, any of the Co-branded
Pages), including, without limitation, any Banner Advertisements thereon.
Advertising Revenue share payments will be reconciled and paid within thirty
(30) days following the calendar quarter in which the applicable Advertising
Revenues are received. The Selling Party will provide with each such payment
a report setting forth Advertising Revenues received by it for such quarter
and the percentage thereof payable to the other party.
3. Transactional Revenue Share.
At such time that Transaction Revenues become material (in excess of $1000 per
month attributable to the Co-branded Pages), the parties will share in the
Transactional Revenues as follows: On a quarterly basis, InfoSpace will
calculate the percentage of e-commerce channel traffic generated by the Company
Co-brand and/or Customer Co-brand. The resulting percentage will be multiplied
by the total Transactional e-Revenue generated by the InfoSpace e-commerce
channel in order to determine that amount attributable to the Co-branded Pages.
The resulting amount will be shared according to the following schedule:
50% to INFOSPACE and
50% to Company and/or Company Customer.
[For Example, assuming the company co-brand e-commerce traffic is 2,000 page
views for month X, and InfoSpace's eshopping channel traffic is 2,000,000 per
views for hypothetical month X, and the total transactional revenue generated by
the InfoSpace e-commerce channel is $5,000 in month X, then the following would
be the payment due to the Company:
Hypothetical Month X:
a. Company e-commerce Page views: 20,000
b. Divided by InfoSpace eshopping page views: 2,000,000
c. Equal 1% in this example.
d. 1% of $5,000 (total InfoSpace eshopping channel revenue) equals $50.00.
e. In this example, $50.00 is the amount subject to the revenue share.
Once InfoSpace has completed the development of it transaction-tracking tool,
the revenue share calculations will be based on actual transactions that occur
through the Co-branded Pages.
Transactional Revenue share payments will be reconciled and paid within thirty
(30) days following the calendar quarter in which the applicable Transactional
Revenues are received. InfoSpace will provide with each such payment a report
setting forth the basis for the Transactional Revenues received for such quarter
payable to the Company. During the Term, each party shall maintain accurate
records of Transactional Revenues received and calculations of the fees payable
to the other party.
Appendix A
Trademarks
Trademark Country & Goods Issue Date Reg. No.
XDSL TBD
(TO BE SUPPLIED)
APPENDIX B
PATENTS
CUNTRY SER. NO. FILING & DATE STATUS
USA TBD
(TO BE SUPPLIED)
APPENDIX C
ROYALTY SCHEDULE
Up to $1,000,000 10%
$1,000,001 and $5,000,000 9%
$5,000,001 and $10,000,000 8%
$10,000,001 and $20,000,000 7%
above $20,000,000 6%
<PAGE>
IP EQUITY
February 1, 1999
587 Connecticut Avenue
P.O. Box 566
Norwalk, CT 06854 0566
Attn: Ronald A. Durando
Re: IP Equity Internet Investor Communications
Dear Mr. Durando:
We are extremely pleased to have been selected as your Internet Investor
Communications agency. We look forward to working with you in the exciting and
challenging months ahead.
This letter is to serve as our contract, and will summarize the arrangement
under which we will develop for approval by you and implementation by us.
A program for communication with your investors over the Internet
A campaign to achieve your Internet public relations objectives
In particular, our services will consist of some or all of the following, as we
may agree.
FINANCIAL PUBLIC RELATIONS: We will work with you to create
accurate coverage of your activities, in as favorable a light as is
fair, by financial publications print and Internet media including
our own electronically distributed newsletter and web site, Internet
Stock News. Internet Stock News will be distributed a minimum of 48
times throughout the year and will provide weekly updates about your
company including news headlines and hyperlinks to full press
releases.
NEWS MEDIA: We will work with you to prepare, and we will then
disseminate, 10 company specific press releases devoted towards
investor communications over Business Wire circuits as well as 12
press releases regarding your profile in Internet Stock News over
Business Wire and 3 press releases regarding your profile in
Internet Stock News via Internet News Bureau, The Investor's
Business Daily, and IPO Monitor circuits and forms of Internet or
print media.
INTERNET PRESENCE: We will create a graphic company profile and
report which will include your company's logo, a description of your
company, industry comparisons, links to e-mail addresses and web
sites, and investor relations information on our
Internetstocknews.com web site.
DISCUSSION BOARDS: We will use our best efforts to initiate and
maintain discussion boards to facilitate online discussion of your
company by and among persons knowledgeable about your company, your
investors and interested members of the general public on the
Silican Investor, FreeRealTime.com & Yahoo! web sites. In addition,
we will create message boards for
discussion of your company on our Internetstocknews.com web site when
development is complete. We will also monitor message boards on a weekly
basis for abnormal activities or rumors and report these items to you.
<PAGE>
CHAT: We, via our InternetStockNews editor or editors will be
available monthly for a one-hour chat about our Featured Companies
currently via the Yahoo! Chat system and on the
Internetstocknews.com web site when development is completed.
INDUSTRY CONTACTS: We will attempt to promote your company's
products and services, if beneficial, to our industry contacts and
other clients.
PERSONAL RELATIONS: We will answer e-mail and phone calls from
media and investment banking representatives as well as from retail
investors and potential clientele regarding your company promptly
and on an individual basis.
INDEPENDENT ANALYSIS: We will figure out your valuation based on
projected revenues, earnings, and share dilution when compared with
competitors within your specific industry and report this
information to you on a quarterly basis.
STRATEGIC ADVISING: We will inform you of potential opportunities
to expand and more efficiently operate your business with regards to
advertising and strategic partnerships with other Internet commerce
and content companies.
A/V CORPORATE OVERVIEW: Working with one of our development
affiliates, A/V Newswire, we will create an audio-visual corporate
overview using Real Networks technology so that your company's story
will be available for viewing online 24 hours a day, every day in a
viewer-friendly format. Links to this production will be placed on
our web site and in our news releases.
As comparison for the services to be furnished by IP Equity, as described
above, your company shall:
Pay IP Equity $8000 five (5) days after signature of this letter.
Pay IP Equity $12,000 on the date which is three (3) months after the
Effective Date of this agreement.
Pay IP Equity $12,000 on the date which is six (6) months after the
Effective Date of this agreement.
Pay IP Equity $12,000 on the date which is nine (9) months after the
Effective Date of this agreement.
Pay IP Equity $12,000 on the date which is one (1) year after the
Effective Date of this agreement.
Deliver certificates, registered in the name of IP Equity, Inc., a
California Corporation, for 50,000 shares of your company's stock (subject to a
1-year restriction from sale) by March 1st, 1999.<PAGE>
Deliver a stock option, registered in the name of IP Equity, Inc., a
California Corporation, to purchase 50,000 shares of your company's common stock
at $2 per share, with an expiration date of March 1st, 2003 or later by March
1st, 1999.
Services beyond the scope of those described above, your company and IP Equity
will be subject to further agreement as to the nature and scope of the
additional services, and as to the compensation for these additional services.
In addition to the compensation described above, your company shall reimburse
IP Equity for all out-of-pocket disbursements made in the performance of its
duties under this agreement, including but not limited to subcontractors'
charges, photocopying, postage, and long distance charges. Bills for work
done on your company's behalf, by outside contractors, and ordered and
supervised by IP Equity, will be subject to the standard supervision fee of
20%. Estimates of costs for such work will be presented to your company for
approval prior to commitments or expenditures by IP Equity for significant
amounts in excess of $500. Out-of-pocket projects estimated to exceed $5000
will require a 50% advance payment before commencement of work.
Your company expressly understands, acknowledges and agrees that IP Equity
relies on, and will rely on, your company and its employees and agents for the
accuracy of information which your company and its employees and agents for the
accuracy of information which your company provides to IP Equity and which IP
Equity will be disseminating to the public. Accordingly, your company agrees
to assume liability for, and agrees to indemnify, protect, save, defend, and
hold harmless, IP Equity, its shareholders, directors, officers, and their
respective agents, consultants, employees, successors, and assigns of, from
and against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, costs and expenses, including attorney's fees, which
may be incurred by, imposed on, asserted against, or suffered by them relating
to, or arising out of, errors, misstatements, or omissions in any information
furnished by your company or by its employees or agents to IP Equity regarding
your company including, but not limited to your company's financial position,
business operation and prospects, management, revenues, earnings, forward
looking statements or projections, government filings,and regulatory and/or
governmental matters.
This agreement supersedes all prior agreements or undertakings, contains all of
the terms and conditions agreed upon by us, and it may be modified, or amended,
only by an instrument in writing signed by each of us.
This agreement shall be governed by, and construed in accordance with, the laws
of the State of California, United States of America, excluding any choice of
law rules which may direct the application of the laws of any other jurisdiction
. Any litigation relating to or arising out of, this Agreement must be tried and
litigated exclusively in the state or federal courts located in the County of
San Diego, State of California, and such party consents to in personam
jurisdiction in that state.
The prevailing party in any litigation, arbitration, mediation, bankruptcy,
insolvency or other proceeding ("Proceeding") arising out of, or relating to,
this agreement shall be entitled to recover from the unsuccessful party all
costs, expenses (including expert witness and other fees and costs), and actual
attorney's fees relating to, or arising out of (a) the Proceeding (whether or
not the Proceeding proceeds to judgement), and (b) any post judgement or award
resulting from the Proceeding.
This agreement is to be effective on IP Equity's receipt of the initial payment
noted above, and this agreement shall continue in full force until it is
terminated within 90 days advance written notice either by your company or by IP
Equity.
<PAGE>
To express your understanding of, and agreement to, the matters state above,
please sign this facsimile and fax it back to us.
If you have any questions regarding this agreement or concerning any facet of
our work, please call us at your convenience. We look forward to working with
you and enjoying a long and successful relationship.
Sincerely,
IP Equity, Inc.
By: By: Chris
Agarwal, its President Ronald A. Durando, its President
IP Equity, Inc.
4220 Camino Ticino
San Diego, CA 92122
Ph: (619) 457-9780
Fax: (619) 457-9784
E-mail: [email protected]
This Loan Agreement is made as of August 31, 1997 by and between Janifast
Holdings, Ltd., hereinafter sometimes referred to as "Janifast" or "the
Company", as Borrower, with offices located at 587 Connecticut Avenue,
Norwalk, CT 06854 and mPhase Technologies Inc as Lender, hereinafter sometimes
referred to as "mPhase", with an office and mailing address located at 587
Connecticut Avenue,
Norwalk, CT 06854.
WHEREAS, mPhase has agreed to advance the sum of $14,000 as a one year bridge
loan represented by a negotiable promissory note payable by Janifast, in
accordance with the terms and conditions of this loan agreement and a promissory
note, a copy of which is attached as "Exhibit A" to this Agreement;
WHEREAS, the Board of Directors of Janifast has authorized the officers of the
Company to enter into this Loan Agreement, borrow the sum of $14,000 and to pay
the consideration for this loan transaction that is detailed in this Loan
Agreement;
WHEREAS, Janifast has made preliminary arrangements to merge with a public
company whose shares are now trading on the NASDAQ OTC Bulletin Board;
WHEREAS, it is anticipated that, upon completion of the merger with the
existing public company, the total issued and outstanding shares of Janifast is
anticipated to be approximately 5,300,000.
NOW, THEREFORE, in consideration of the sum of Ten ($10.00) Dollars, lawful
money of the United States, receipt of which is hereby acknowledged by
mPhase, and the mutual covenants and agreement hereinafter set forth and
other valuable consideration, the parties agree as follows:
The representations contained in the "Whereas" clauses are deemed to be
incorporated in and made an integral part of this Loan Agreement.
Janifast hereby agrees to borrow the sum of $14,000 from mPhase at an interest
rate of twelve (12%) percent per annum with interest to be paid semi-annually
for a period of one year in accordance with the terms and conditions of a
promissory note attached as Exhibit A to this Agreement, said loan
transaction to be effective as of August 31, 1997.
As consideration for the $14,000 loan advance, Janifast hereby agrees to pay
all relevant costs and expenses required to close the loan transaction,
including legal fees and such other costs as would be normal in such
transactions.
As additional consideration for the $14,000 bridge loan, the officers of the
Company hereby authorize at the request of mPhase, to convert said loan into
shares of Janifast equal to at least zero point nine six two five percent
(0.9625%) of the total issued and outstanding shares of the Company subsequent
to its merger with a public company, said shares to be Rule 144 restricted
shares and the certificates representing said shares to bear and appropriate
Rule 144 restrictive legend, and prior to any Rule 504 offering or other
public offering.
Janifast further agrees that, without cost to the lender, it will register the
first thirty (30%) percent of the shares to which the $14,000 loan may be
converted or make arrangements with other Janifast shareholders to exchange
thirty (30%) of the shares into which the loan may be converted with free
trading shares. The holding period of the remaining seventy (70%) percent of
the shares into which the loan may be converted shall be deemed to have started
with the date of this Agreement.
<PAGE>
All notices due under this Agreement shall be in writing and be addressed to
the parties at the addresses set forth at the head of this Agreement. The form
of notice that will be deemed effective will be personal delivery, certified
mail, return receipt requested and facsimile transmission showing a confirmed
receipt by the person to whom the notice is addressed.
This loan Agreement will be governed by the laws of the state of Delaware. The
parties further agree that the venue for any legal action taken to enforce this
Agreement shall be either the United States District Court for the District of
Connecticut, Stamford Division or the Superior Court of Connecticut,
Stamford/Norwalk Judicial District.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the day, month
and year first set forth above.
WITNESSETH: JANIFAST HOLDINGS, LTD
As Borrower
Robert H. Jaffe Kin Chung Chau
Secretary President
mPHASE TECHNOLOGIES, INC.
As Lender
Gustave Dotoli
Chief Operating Officer
<PAGE>
PROMISSORY NOTE
$14,000
AUGUST 31, 1997
FOR VALUE RECEIVED, the undersigned, JANIFAST HOLDINGS, LTD., a Delaware
Corporation, hereinafter sometimes referred to as "Janifast" or "the Maker",
promises to pay to the order of mPhase Technologies Inc, hereinafter sometimes
referred to as "mPhase" or "the Holder", at the offices of Janifast Holdings,
Ltd., located at 587 Connecticut Avenue, Norwalk, CT 06854, the principal sum
of Fourteen Thousand Dollars ($14,000), together with interest on the
unpaidprincipal amount at the rate of twelve percent (12%) per annum, said
payments to be made in accordance with the provisions of this promissory note,
hereinafter referred to as "the Note", with the final maturity date for any
unpaid principal or accrued interest to be August 31, 1998, one year from the
date of the execution of this Note by the Maker.
Payment Provisions: Payments of interest only on the Fourteen Thousand Dollars
($14,000) principal amount of this Note shall be required on the twenty-eighth
day of February, 1998 and each six-month period thereafter until the maturity
date.
Default Provisions: If any of the following events ("Events of Default") shall
occur, all amounts of principal unpaid on the Note, as well as unpaid accrued
interest, shall be deemed to be immediately due and payable, unless cured
within seven (7) days written notice in accordance with the notice provisions
made part of this Note. In the event of default, mPhase may, at his option,
pursue any of the remedies provided for in this Note or by law and by statute or
any guarantee agreement. The reliance of the Holder upon any single remedy
would not prevent it from using or invoking any remaining remedies provided by
law or statute or any agreement of guaranty relating to this Note. The Events
of Default are as follows:
If Janifast shall fail to pay when due any required payment of principal, or
interest provided for in this Note for more than fifteen (15) days after the
due date of same;
If Janifast fails to diligently preserve its corporate existence or other
corporate rights granted to it in the State of Delaware by the failure to timely
file state tax returns, annual reports or other required documents; or
If Janifast should be adjudicated by a court of comparative jurisdiction to be
bankrupt, insolvent, or placed in receivership, or should proceedings be
instituted by or against the maker for bankruptcy, insolvency, receivership, or
assignment for the benefit of creditors.
Promissory Note August 31, 1997
Notice of Opportunity to Cure Default: In the event any payment of principal or
interest required by this Note is not timely paid in accordance with its payment
provisions, or Janifast fails to diligently preserve its corporate existence or
corporate rights granted to it by the State of Delaware and after written notice
of one or more of these Events of Default in accordance with the notice
provisions of this Note is given to the Maker and such Event or Events of
Default, as the case may be, is not cured within seven (7) days of such notice,
then an in that event, the entire principal and all accumulated interest shall
become immediately due and payable and mPhase shall be entitled to pursue all
remedies provided by this Note by law, statute, or any guaranty agreement
relating to this note.<PAGE>
General Provisions:
If any Event of Default is not cured after notice to Janifast as provided in
this Note and this Note is given to an attorney who files suit to collect on
same, the Maker agrees to pay, in addition to any unpaid principal and
accrued interest, reasonable attorney's fees and costs.
This Note is deemed to have been executed in the State of Connecticut and shall
be governed, construed and enforced in accordance with the laws of the State of
Connecticut. In the event of suit to enforce the Note, mPhase may, at his
option, bring suit in either the United States District Court for the District
of Connecticut, Stamford Division or the Superior Court of Connecticut,
Stamford/Norwalk Judicial District. The Maker hereby consents to such
jurisdiction and venue and waives its right to trial by jury.
Janifast may not prepay the principal amount of this Note without first
requesting and obtaining written approval of the Holder and/or its authorized
representative.
This Note is being issued pursuant to a loan agreement entered into on even date
by and between Janifast and mPhase providing in part for the right of the holder
to convert a $14,000 principal amount of this loan into shares of common stock
equal to zero point nine six two five percent (0.9625%) of the number of shares
of the Maker to be issued and outstanding after a proposed merger with a public
company whose stock is presently trading on the NASDAQ OTC Bulletin Board.
Promissory Note August 31, 1997
Notice Provisions: Any notices required by this Note shall be served by
Certified or Registered mail, postage prepaid, addressed to the addresses listed
below:
To the Maker at: Janifast Holdings, Ltd
587 Connecticut Avenue
Norwalk, CT 06854
Attention: Kin Chung Chau
President
To the Holder at: mPhase Technologies Inc
587 Connecticut Avenue
Norwalk, CT 06854
Attention: Gustave T. Dotoli
Chief Operating Officer
<PAGE>
IN WITNESS WHEREOF, the undersigned persons, being duly authorized to do so
pursuant to the certificate of incorporation any bylaws of Janifast Holdings,
Ltd., a Delaware Corporation, have executed this Note in the corporate
capacities stated below on this thirty-first day of August, 1997.
ATTEST: JANIFAST HOLDINGS, LTD
Robert H. Jaffe, Secretary Kin Chung Chau, President<PAGE>
LOAN AGREEMENT
This Loan Agreement is made as of June 19, 1997 by and between Janifast
Holdings, Ltd., hereinafter sometimes referred to as "Janifast" or "the Company"
, as Borrower, with offices located at 587 Connecticut Avenue, Norwalk, CT
06854 and mPhase Technologies Inc as Lender, hereinafter sometimes referred
to as "mPhase", with an office and mailing address located at 587 Connecticut
Avenue, Norwalk, CT 06854.
WHEREAS, mPhase has agreed to advance the sum of $64,000 as a one year bridge
loan represented by a negotiable promissory note payable by Janifast, in
accordance with the terms and conditions of this loan agreement and a promissory
note, a copy of which is attached as "Exhibit A" to this Agreement;
WHEREAS, the Board of Directors of Janifast has authorized the officers of the
Company to enter into this Loan Agreement, borrow the sum of $64,000 and to pay
the consideration for this loan transaction that is detailed in this Loan
Agreement;
WHEREAS, Janifast has made preliminary arrangements to merge with a public
company whose shares are now trading on the NASDAQ OTC Bulletin Board;
WHEREAS, it is anticipated that, upon completion of the merger with the existing
public company, the total issued and outstanding shares of Janifast is
anticipated to be approximately 5,300,000.
NOW, THEREFORE, in consideration of the sum of Ten ($10.00) Dollars, lawful
money of the United States, receipt of which is hereby acknowledged by mPhase,
and the mutual covenants and agreement hereinafter set forth and other valuable
consideration, the parties agree as follows:
The representations contained in the "Whereas" clauses are deemed to be
incorporated in and made an integral part of this Loan Agreement.
Janifast hereby agrees to borrow the sum of $64,000 from mPhase at an interest
rate of twelve (12%) percent per annum with interest to be paid semi-annually
for a period of one year in accordance with the terms and conditions of a
promissory note attached as Exhibit A to this Agreement, said loan transaction
to be effective as of June 19, 1997.
As consideration for the $64,000 loan advance, Janifast hereby agrees to pay all
relevant costs and expenses required to close the loan transaction, including
legal fees and such other costs as would be normal in such transactions.
As additional consideration for the $64,000 bridge loan, the officers of the
Company hereby authorize at the request of mPhase, to convert said loan into
shares of Janifast equal to at least four point four percent (4.4%) of the total
issued and outstanding shares of the Company subsequent to its merger with a
public company, said shares to be Rule 144 restricted shares and the
certificates representing said shares to bear and appropriate Rule 144
restrictive legend, and prior to any Rule 504 offering or other public offering.
<PAGE>
Janifast further agrees that, without cost to the lender, it will register the
first thirty (30%) percent of the shares to which the $64,000 loan may be
converted or make arrangements with other Janifast shareholders to exchange
thirty (30%) of the shares into which the loan may be converted with free
trading shares. The holding period of the remaining seventy (70%) percent of
the shares into which the loan may be converted shall be deemed to have
started with the date of this Agreement.
All notices due under this Agreement shall be in writing and be addressed to the
parties at the addresses set forth at the head of this Agreement. The form of
notice that will be deemed effective will be personal delivery, certified mail,
return receipt requested and facsimile transmission showing a confirmed receipt
by the person to whom the notice is addressed.
This loan Agreement will be governed by the laws of the state of Delaware. The
parties further agree that the venue for any legal action taken to enforce this
Agreement shall be either the United States District Court for the District of
Connecticut, Stamford Division or the Superior Court of Connecticut,
Stamford/Norwalk Judicial District.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the day, month
and year first set forth above.
WITNESSETH: JANIFAST HOLDINGS, LTD
As Borrower
Robert H. Jaffe Kin Chung Chau
Secretary President
mPHASE TECHNOLOGIES, INC.
As Lender
Gustave Dotoli
Chief Operating Officer
<PAGE>
PROMISSORY NOTE
$64,000
JUNE 19, 1997
FOR VALUE RECEIVED, the undersigned, JANIFAST HOLDINGS, LTD., a Delaware
Corporation, hereinafter sometimes referred to as "Janifast" or "the Maker",
promises to pay to the order of mPhase Technologies Inc, hereinafter sometimes
referred to as "mPhase" or "the Holder", at the offices of Janifast Holdings,
Ltd., located at 587 Connecticut Avenue, Norwalk, CT 06854, the principal sum of
Sixty Four Thousand Dollars ($64,000), together with interest on the unpaid
principal amount at the rate of twelve percent (12%) per annum, said payments to
be made in accordance with the provisions of this promissory note, hereinafter
referred to as "the Note", with the final maturity date for any unpaid principal
or accrued interest to be June 19, 1998, one year from the date of the execution
of this Note by the Maker.
Payment Provisions: Payments of interest only on the Sixty-four Thousand Dollars
($64,000) principal amount of this Note shall be required on the nineteenth day
of December, 1997 and each six-month period thereafter until the maturity date.
Default Provisions: If any of the following events ("Events of Default") shall
occur, all amounts of principal unpaid on the Note, as well as unpaid accrued
interest, shall be deemed to be immediately due and payable, unless cured within
seven (7) days written notice in accordance with the notice provisions made part
of this Note. In the event of default, mPhase may, at his option, pursue any of
the remedies provided for in this Note or by law and by statute or any guaranty
agreement. The reliance of the Holder upon any single remedy would not prevent
it from using or invoking any remaining remedies provided by law or statute or
any agreement of guaranty relating to this Note. The Events of Default are as
follows:
If Janifast shall fail to pay when due any required payment of principal, or
interest provided for in this Note for more than fifteen (15) days after the due
date of same;
If Janifast fails to diligently preserve its corporate existence or other
corporate rights granted to it in the State of Delaware by the failure to timely
file state tax returns, annual reports or other required documents; or
If Janifast should be adjudicated by a court of comparative jurisdiction to be
bankrupt, insolvent, or placed in receivership, or should proceedings be
instituted by or against the maker for bankruptcy, insolvency, receivership, or
assignment for the benefit of creditors.
Promissory Note June 19, 1997
Notice of Opportunity to Cure Default: In the event any payment of principal or
interest required by this Note is not timely paid in accordance with its payment
provisions, or Janifast fails to diligently preserve its corporate existence or
corporate rights granted to it by the State of Delaware and after written notice
of one or more of these Events of Default in accordance with the notice
provisions of this Note is given to the Maker and such Event or Events of
Default, as the case may be, is not cured within seven (7) days of such notice,
then an in that event, the entire principal and all accumulated interest shall
become immediately due and payable and mPhase shall be entitled to pursue all
remedies provided by this Note by law, statute, or any guaranty agreement
relating to this note.
<PAGE>
General Provisions:
If any Event of Default is not cured after notice to Janifast as provided in
this Note and this Note is given to an attorney who files suit to collect on
same, the Maker agrees to pay, in addition to any unpaid principal and
accrued interest, reasonable attorney's fees and costs.
This Note is deemed to have been executed in the State of Connecticut and shall
be governed, construed and enforced in accordance with the laws of the State of
Connecticut. In the event of suit to enforce the Note, mPhase may, at his
option, bring suit in either the United States District Court for the District
of Connecticut, Stamford Division or the Superior Court of Connecticut,
Stamford/Norwalk Judicial District. The Maker hereby consents to such
jurisdiction and venue and waives its right to trial by jury.
Janifast may not prepay the principal amount of this Note without first
requesting and obtaining written approval of the Holder and/or its authorized
representative.
This Note is being issued pursuant to a loan agreement entered into on even date
by and between Janifast and mPhase providing in part for the right of the holder
to convert a $64,000 principal amount of this loan into shares of common stock
equal to four point four percent (4.4%) of the number of shares of the Maker to
be issued and outstanding after a proposed merger with a public company whose
stock is presently trading on the NASDAQ OTC Bulletin Board.
Promissory Note June 19, 1997
Notice Provisions: Any notices required by this Note shall be served by
Certified or Registered mail, postage prepaid, addressed to the addresses listed
below:
To the Maker at: Janifast Holdings, Ltd
587 Connecticut Avenue
Norwalk, CT 06854
Attention: Kin Chung Chau
President
To the Holder at: mPhase Technologies Inc
587 Connecticut Avenue
Norwalk, CT 06854
Attention: Gustave T. Dotoli
Chief Operating Officer
IN WITNESS WHEREOF, the undersigned persons, being duly authorized to do so
pursuant to the certificate of incorporation any bylaws of Janifast Holdings,
Ltd., a Delaware Corporation, have executed this Note in the corporate
capacities stated below on this nineteenth day of June, 1997.
ATTEST: JANIFAST HOLDINGS, LTD
Robert H. Jaffe, Secretary Kin Chung Chau, President
<PAGE>
LOAN AGREEMENT
This Loan Agreement is made as of May 5, 1997 by and between Janifast Holdings,
Ltd., hereinafter sometimes referred to as "Janifast" or "the Company", as
Borrower, with offices located at 587 Connecticut Avenue, Norwalk, CT 06854 and
mPhase Technologies Inc as Lender, hereinafter sometimes referred to as
"mPhase", with an office and mailing address located at 587 Connecticut
Avenue, Norwalk, CT 06854.
WHEREAS, mPhase has agreed to advance the sum of $50,000 as a one year bridge
loan represented by a negotiable promissory note payable by Janifast, in
accordance with the terms and conditions of this loan agreement and a promissory
note, a copy of which is attached as "Exhibit A" to this Agreement;
WHEREAS, the Board of Directors of Janifast has authorized the officers of the
Company to enter into this Loan Agreement, borrow the sum of $50,000 and to pay
the consideration for this loan transaction that is detailed in this Loan
Agreement;
WHEREAS, Janifast has made preliminary arrangements to merge with a public
company whose shares are now trading on the NASDAQ OTC Bulletin Board;
WHEREAS, it is anticipated that, upon completion of the merger with the existing
public company, the total issued and outstanding shares of Janifast is
anticipated to be approximately 5,300,000.
NOW, THEREFORE, in consideration of the sum of Ten ($10.00) Dollars, lawful
money of the United States, receipt of which is hereby acknowledged by mPhase,
and the mutual covenants and agreement hereinafter set forth and other valuable
consideration, the parties agree as follows:
The representations contained in the "Whereas" clauses are deemed to be
incorporated in and made an integral part of this Loan Agreement.
Janifast hereby agrees to borrow the sum of $50,000 from mPhase at an interest
rate of twelve (12%) percent per annum with interest to be paid semi-annually
for a period of one year in accordance with the terms and conditions of a
promissory note attached as Exhibit A to this Agreement, said loan
transaction to be effective as of May 5, 1997.
As consideration for the $50,000 loan advance, Janifast hereby agrees to pay all
relevant costs and expenses required to close the loan transaction, including
legal fees and such other costs as would be normal in such transactions.
As additional consideration for the $50,000 bridge loan, the officers of the
Company hereby authorize at the request of mPhase, to convert said loan into
shares of Janifast equal to at least three point four three seven five percent
(3.4375%) of the total issued and outstanding shares of the Company subsequent
to its merger with a public company, said shares to be Rule 144 restricted
shares and the certificates representing said shares to bear and appropriate
Rule 144 restrictive legend, and prior to any Rule 504 offering or other
public offering. <PAGE>
Janifast further agrees that, without cost to the lender,
it will register the first thirty (30%) percent of the shares to which the
$50,000 loan may be converted or make arrangements with other Janifast
shareholders to exchange thirty (30%) of the shares into which the loan may
be converted with free trading shares. The holding period of the remaining
seventy (70%) percent of the shares into which the loan may be converted
shall be deemed to have started with the date of this Agreement.
All notices due under this Agreement shall be in writing and be addressed to the
parties at the addresses set forth at the head of this Agreement. The form of
notice that will be deemed effective will be personal delivery, certified mail,
return receipt requested and facsimile transmission showing a confirmed receipt
by the person to whom the notice is addressed.
This loan Agreement will be governed by the laws of the state of Delaware. The
parties further agree that the venue for any legal action taken to enforce this
Agreement shall be either the United States District Court for the District of
Connecticut, Stamford Division or the Superior Court of Connecticut,
Stamford/Norwalk Judicial District.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the day, month
and year first set forth above.
WITNESSETH: JANIFAST HOLDINGS, LTD
As Borrower
Robert H. Jaffe Kin Chung Chau
Secretary President
mPHASE TECHNOLOGIES, INC.
As Lender
Gustave Dotoli
Chief Operating Officer
<PAGE>
PROMISSORY NOTE
$50,000
MAY 5, 1997
FOR VALUE RECEIVED, the undersigned, JANIFAST HOLDINGS, LTD., a Delaware
Corporation, hereinafter sometimes referred to as "Janifast" or "the Maker",
promises to pay to the order of mPhase Technologies Inc, hereinafter sometimes
referred to as "mPhase" or "the Holder", at the offices of Janifast Holdings,
Ltd., located at 587 Connecticut Avenue, Norwalk, CT 06854, the principal sum of
Fifty Thousand Dollars ($50,000), together with interest on the unpaid principal
amount at the rate of twelve percent (12%) per annum, said payments to be made
in accordance with the provisions of this promissory note, hereinafter referred
to as "the Note", with the final maturity date for any unpaid principal or
accrued interest to be May 5, 1998, one year from the date of the execution of
this Note by the Maker.
Payment Provisions: Payments of interest only on the Fifty Thousand Dollars
($50,000) principal amount of this Note shall be required on the fifth day of
November, 1997 and each six-month period thereafter until the maturity date.
Default Provisions: If any of the following events ("Events of Default") shall
occur, all amounts of principal unpaid on the Note, as well as unpaid accrued
interest, shall be deemed to be immediately due and payable, unless cured within
seven (7) days written notice in accordance with the notice provisions made part
of this Note. In the event of default, mPhase may, at his option, pursue any of
the remedies provided for in this Note or by law and by statute or any guaranty
agreement. The reliance of the Holder upon any single remedy would not prevent
it from using or invoking any remaining remedies provided by law or statute or
any agreement of guaranty relating to this Note. The Events of Default are as
follows:
If Janifast shall fail to pay when due any required payment of principal, or
interest provided for in this Note for more than fifteen (15) days after the due
date of same;
If Janifast fails to diligently preserve its corporate existence or other
corporate rights granted to it in the State of Delaware by the failure to timely
file state tax returns, annual reports or other required documents; or
If Janifast should be adjudicated by a court of comparative jurisdiction to be
bankrupt, insolvent, or placed in receivership, or should proceedings be
instituted by or against the maker for bankruptcy, insolvency, receivership, or
assignment for the benefit of creditors.
Promissory Note May 5, 1997
Notice of Opportunity to Cure Default: In the event any payment of principal or
interest required by this Note is not timely paid in accordance with its payment
provisions, or Janifast fails to diligently preserve its corporate existence or
corporate rights granted to it by the State of Delaware and after written notice
of one or more of these Events of Default in accordance with the notice
provisions of this Note is given to the Maker and such Event or Events of
Default, as the case may be, is not cured within seven (7) days of such notice,
then an in that event, the entire principal and all accumulated interest shall
become immediately due and payable and mPhase shall be entitled to pursue all
remedies provided by this Note by law, statute, or any guaranty agreement
relating to this note.
<PAGE>
General Provisions:
If any Event of Default is not cured after notice to Janifast as provided in
this Note and this Note is given to an attorney who files suit to collect on
same, the Maker agrees to pay, in addition to any unpaid principal and
accrued interest, reasonable attorney's fees and costs.
This Note is deemed to have been executed in the State of Connecticut and shall
be governed, construed and enforced in accordance with the laws of the State of
Connecticut. In the event of suit to enforce the Note, mPhase may, at his
option, bring suit in either the United States District Court for the District
of Connecticut, Stamford Division or the Superior Court of Connecticut,
Stamford/Norwalk Judicial District. The Maker hereby consents to such
jurisdiction and venue and waives its right to trial by jury.
Janifast may not prepay the principal amount of this Note without first
requesting and obtaining written approval of the Holder and/or its authorized
representative.
This Note is being issued pursuant to a loan agreement entered into on even date
by and between Janifast and mPhase providing in part for the right of the holder
to convert a $50,000 principal amount of this loan into shares of common stock
equal to three point four three five percent (3.4375%) of the number of shares
of the Maker to be issued and outstanding after a proposed merger with a public
company whose stock is presently trading on the NASDAQ OTC Bulletin Board.
Promissory Note May 5, 1997
Notice Provisions: Any notices required by this Note shall be served by
Certified or Registered mail, postage prepaid, addressed to the addresses listed
below:
To the Maker at: Janifast Holdings, Ltd
587 Connecticut Avenue
Norwalk, CT 06854
Attention: Kin Chung Chau
President
To the Holder at: mPhase Technologies Inc
587 Connecticut Avenue
Norwalk, CT 06854
Attention: Gustave T. Dotoli
Chief Operating Officer
IN WITNESS WHEREOF, the undersigned persons, being duly authorized to do so
pursuant to the certificate of incorporation any bylaws of Janifast Holdings,
Ltd., a Delaware Corporation, have executed this Note in the corporate
capacities stated below on this fifth day of May, 1997.
ATTEST: JANIFAST HOLDINGS, LTD
Robert H. Jaffe, Secretary Kin Chung Chau, President
<PAGE>
LOAN AGREEMENT
This Loan Agreement is made as of April 10, 1997 by and between Janifast
Holdings, Ltd., hereinafter sometimes referred to as "Janifast" or
"the Company", as Borrower, with offices located at 587 Connecticut Avenue,
Norwalk, CT 06854 and mPhase Technologies Inc as Lender, hereinafter
sometimes referred to as "mPhase", with an office and mailing address located
at 587 Connecticut Avenue, Norwalk, CT 06854.
WHEREAS, mPhase has agreed to advance the sum of $50,000 as a one year bridge
loan represented by a negotiable promissory note payable by Janifast, in
accordance with the terms and conditions of this loan agreement and a promissory
note, a copy of which is attached as "Exhibit A" to this Agreement;
WHEREAS, the Board of Directors of Janifast has authorized the officers of the
Company to enter into this Loan Agreement, borrow the sum of $50,000 and to
pay the consideration for this loan transaction that is detailed in this Loan
Agreement;
WHEREAS, Janifast has made preliminary arrangements to merge with a public
company whose shares are now trading on the NASDAQ OTC Bulletin Board;
WHEREAS, it is anticipated that, upon completion of the merger with the
existing public company, the total issued and outstanding shares of Janifast
is anticipated to be approximately 5,300,000.
NOW, THEREFORE, in consideration of the sum of Ten ($10.00) Dollars, lawful
money of the United States, receipt of which is hereby acknowledged by mPhase,
and the mutual covenants and agreement hereinafter set forth and other
valuable consideration, the parties agree as follows:
The representations contained in the "Whereas" clauses are deemed to be
incorporated in and made an integral part of this Loan Agreement.
Janifast hereby agrees to borrow the sum of $50,000 from mPhase at an interest
rate of twelve (12%) percent per annum with interest to be paid semi-annually
for a period of one year in accordance with the terms and conditions of a
promissory note attached as Exhibit A to this Agreement, said loan transaction
to be effective as of April 10, 1997.
As consideration for the $50,000 loan advance, Janifast hereby agrees to pay
all relevant costs and expenses required to close the loan transaction,
including legal fees and such other costs as would be normal in such
transactions.
As additional consideration for the $50,000 bridge loan, the officers of the
Company hereby authorize at the request of mPhase, to convert said loan into
shares of Janifast equal to at least three point four three seven five percent
(3.4375%) of the total issued and outstanding shares of the Company subsequent
to its merger with a public company, said shares to be Rule 144 restricted
shares and the certificates representing said shares to bear and appropriate
Rule 144 restrictive legend, and prior to any Rule 504 offering or other
public offering.
Janifast further agrees that, without cost to the lender, it will register the
first thirty (30%) percent of the shares to which the $50,000 loan may be
converted or make arrangements with other Janifast shareholders to exchange
thirty (30%) of the shares into which the loan may be converted with free
trading shares. The holding period of the remaining seventy (70%) percent of
the shares into which the loan may be converted shall be deemed to have
started with the date of this Agreement.
<PAGE>
All notices due under this Agreement shall be in writing and be addressed to
the parties at the addresses set forth at the head of this Agreement. The
form of notice that will be deemed effective will be personal delivery,
certified mail, return receipt requested and facsimile transmission showing a
confirmed receipt by the person to whom the notice is addressed.
This loan Agreement will be governed by the laws of the state of Delaware.
The parties further agree that the venue for any legal action taken to enforce
this Agreement shall be either the United States District Court for the
District of Connecticut, Stamford Division or the Superior Court of
Connecticut, Stamford/Norwalk Judicial District.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the day,
month and year first set forth above.
WITNESSETH: JANIFAST HOLDINGS, LTD
As Borrower
Robert H. Jaffe Kin Chung Chau
Secretary President
mPHASE TECHNOLOGIES, INC.
As Lender
Gustave Dotoli
Chief Operating <PAGE>
PROMISSORY NOTE
$50,000
APRIL 10, 1997
FOR VALUE RECEIVED, the undersigned, JANIFAST HOLDINGS, LTD., a Delaware
Corporation, hereinafter sometimes referred to as "Janifast" or "the Maker",
promises to pay to the order of mPhase Technologies Inc, hereinafter sometimes
referred to as "mPhase" or "the Holder", at the offices of Janifast Holdings,
Ltd., located at 587 Connecticut Avenue, Norwalk, CT 06854, the principal sum
of Fifty Thousand Dollars ($50,000), together with interest on the unpaid
principal amount at the rate of twelve percent (12%) per annum, said payments
to be made in accordance with the provisions of this promissory note,
hereinafter referred to as "the Note", with the final maturity date for any
unpaid principal or accrued interest to be April 10, 1998, one year from the
date of the execution of this Note by the Maker.
Payment Provisions: Payments of interest only on the Fifty Thousand
Dollars ($50,000) principal amount of this Note shall be required on the tenth
day of October, 1997 and each six-month period thereafter until the maturity
date.
Default Provisions: If any of the following events ("Events of Default")
shall occur, all amounts of principal unpaid on the Note, as well as unpaid
accrued interest, shall be deemed to be immediately due and payable, unless
cured within seven (7) days written notice in accordance with the notice
provisions made part of this Note. In the event of default, mPhase may, at
his option, pursue any of the remedies provided for in this Note or by law and
by statute or any guaranty agreement. The reliance of the Holder upon any
single remedy would not prevent it from using or invoking any remaining
remedies provided by law or statute or any agreement of guaranty relating to
this Note. The Events of Default are as follows:
If Janifast shall fail to pay when due any required payment of principal, or
interest provided for in this Note for more than fifteen (15) days after the
due date of same;
If Janifast fails to diligently preserve its corporate existence or other
corporate rights granted to it in the State of Delaware by the failure to
timely file state tax returns, annual reports or other required documents; or
If Janifast should be adjudicated by a court of comparative jurisdiction to be
bankrupt, insolvent, or placed in receivership, or should proceedings be
instituted by or against the maker for bankruptcy, insolvency, receivership,
or assignment for the benefit of creditors.
Promissory Note April 10, 1997
Notice of Opportunity to Cure Default: In the event any payment of
principal or interest required by this Note is not timely paid in accordance
with its payment provisions, or Janifast fails to diligently preserve its
corporate existence or corporate rights granted to it by the State of Delaware
and after written notice of one or more of these Events of Default in
accordance with the notice provisions of this Note is given to the Maker and
such Event or Events of Default, as the case may be, is not cured within seven
(7) days of such notice, then an in that event, the entire principal and all
accumulated interest shall become immediately due and payable and mPhase shall
be entitled to pursue all remedies provided by this Note by law, statute, or
any guaranty agreement relating to this note.
<PAGE>
General Provisions:
If any Event of Default is not cured after notice to Janifast as provided in
this Note and this Note is given to an attorney who files suit to collect on
same, the Maker agrees to pay, in addition to any unpaid principal and accrued
interest, reasonable attorney's fees and costs.
This Note is deemed to have been executed in the State of Connecticut and
shall be governed, construed and enforced in accordance with the laws of the
State of Connecticut. In the event of suit to enforce the Note, mPhase may,
at his option, bring suit in either the United States District Court for the
District of Connecticut, Stamford Division or the Superior Court of
Connecticut, Stamford/Norwalk Judicial District. The Maker hereby consents to
such jurisdiction and venue and waives its right to trial by jury.
Janifast may not prepay the principal amount of this Note without first
requesting and obtaining written approval of the Holder and/or its authorized
representative.
This Note is being issued pursuant to a loan agreement entered into on even
date by and between Janifast and mPhase providing in part for the right of the
holder to convert a $50,000 principal amount of this loan into shares of
common stock equal to three point four three seven five percent (3.4375%) of
the number of shares of the Maker to be issued and outstanding after a
proposed merger with a public company whose stock is presently trading on the
NASDAQ OTC Bulletin Board.
Promissory Note April 10, 1997
Notice Provisions: Any notices required by this Note shall be served by
Certified or Registered mail, postage prepaid, addressed to the addresses
listed below:
To the Maker at: Janifast Holdings, Ltd
587 Connecticut Avenue
Norwalk, CT 06854
Attention: Kin Chung Chau
President
To the Holder at: mPhase Technologies Inc
587 Connecticut Avenue
Norwalk, CT 06854
Attention: Gustave T. Dotoli
Chief Operating Officer
IN WITNESS WHEREOF, the undersigned persons, being duly authorized to do so
pursuant to the certificate of incorporation any bylaws of Janifast Holdings,
Ltd., a Delaware Corporation, have executed this Note in the corporate
capacities stated below on this tenth day of April, 1997.
ATTEST: JANIFAST HOLDINGS, LTD
Robert H. Jaffe, Secretary Kin Chung Chau, President
<PAGE>
AGREEMENT
AGREEMENT made and entered into as of April 30, 1997 by and between mPhase
Technologies, Inc., a Delaware corporation with its principal offices at 587
Connecticut Avenue Norwalk, Connecticut 06854-1789 (hereinafter referred to as
"mPhase")and Global Music & Media, Inc.Tennessee corporation with its
principal offices at 1024-C 18th Avenue South, Nashvi1le Tennessee 37212
(hereinafter referred to as "GLOBAL").
WHEREAS, mPhase owns, controls, and/or is in a position to facilitate various
proprietary patents, designs, information, copyrights, and other pertinent
technology necessary to bring about the delivery of television programming,
internet content, health care data transfer, hospitality services, video
conferencing, long distance telephone service, remote banking and remote
airline reservations, across existing anlog telephone lines, for commercial
uses(hereinafter referred to as the "Technology"); and
WHEREAS, GLOBAL has extensive contacts, experience, and knowledge in the
television and music fields, as well as the internet, which has allowed it to
acquire the rights to distribute programming originated by a number of
programming services (hereinafter referred to as the "Programming"); and
WHEREAS, mPhase and GLOBAL have, by Agreement dated April 9, 1997, agreed to
jointly form a corporation which shall become the vehicle through which the
parties will market the Technology in conjunction with the Programming, in
accordance with the terms and conditions hereinafter set forth (hereinafter
referred to as the "Venture");
THEREFORE, in consideration of the mutual covenants herein contained, and
other good and valuable consideration, receipt and sufficiency of which are
acknowledged, the parties hereby agree as follows:
1. TECHNOLOGY
The Technology which is the subject of this Agreement consists of a series of
propietary patents, designs, and other pertinent technology with respect to
noise filtering and digital compression of date which has been developed and
is owned and controlled solely by Michrophase Corporation, and which has been
licensed on an exclusive basis to mPhase for unrestricted exploitation
throughout the world. The Technology will allow the compression and delivery
of television programming, as well as voice, date and other digital services,
across existing twister-pair copper, analog telephone lines. The Technology
will be utilized by mPhase to develop a digital set-up device and/or
computer-resident subscriber presence board which will receive the Programming
and other services, as packaged and distributed by the Venture, for use in
conjunction with traditional television sets and/or computers (such device
hereinafter referred to as the "Network Interface").
Nothing contained in this Agreement shall be construed by the parties or by
any third parties to grant to the Venture or the Corporation any rights
whatsoever with respect to any military technology or application developed by
MicroPhase, mPhase, or any of the corporate affiliates of either, from
pursuing the sale or licensing of any military technology or application to
any party at any time.
2. PROGRAMMING
The Programming which is the subject of this Agreement shall consist of a
package containing a number of satellite- and/or fiber line-delivered
television programming services, commonly referred to in the trade as "cable
networks", as well as independent and network-affiliate broadcast stations,
all of which are currently available via alternative means of access and
distribution. <PAGE>
3. MARKETING & DISTRIBUTION
The Technology and the Programming, as well as other ancillary services to be
developed by the Venture, will be packaged, marketed, and distributed by the
Venture under the tradename "COMPLETE TV"(subject to trademark clearance), as
more fully described in this Agreement.
4. STARTUP OBLIGATIONS OF mPHASE
mPhase will utilize the Technology to design and manufacture the Network
Interface, for retail sale by the Venture to its subscribers, for the
exploitation of the Programming and other services as contemplated herein, and
will obtain all necessary licenses required for such use of the Technology by
the Venture.
mPhase will initially make all necessary arrangements for switching and
delivery via fiber optic lines of the Programming from the "Complete TV"
headend to telco central offices, as required for ultimate delivery to
consumers who subscribe to the Complete TV service. The parties acknowledge
that mPhase has the potential to bring to the Venture a corporate customer
with a subscriber base which is anticipated to reach 20,000 homes by year-end
1997.
5. STARTUP OBLIGATIONS OF GLOBAL
GLOBAL will arrange and secure a lineup of Programming designed to most
effectively market the Complete TV service, and will enter into affiliation
agreements with the requisite programming services and broadcasters to acquire
the rights to distribute the Programming. GLOBAL will, in consultation with
mPhase, further make arrangements for the joint development of user intrface
software for use by subscribers in connection with the Network Interface as a
means of navigating the "Complete TV" service.
GLOBAL, will, in consultation with mPhase, make arrangements for the reception,
decoding, and digitization of the Programming, as well as its delivery via fiber
optic lines to the appropriate telco central offices and
switching locations.
GLOBAL will, subject to the prior approval of mPhase, identify and develop a
marketing and distribution plan and budget for the Complete TV service which
takes into account all potential sources of revenue in light of current market
conditions.
6. CORPORATE STRUCTURE
mPhase and GLOBAL hereby agree to form a new corporation, tentatively named
Complete Telecommunications, Inc., for the sole purpose of pursuing the
Venture contemplated in this Agreement (hereinafter referred to as the
"Corporation"). The Corporation will be organized under the laws of the State
of Delaware with its principal offices initially located at GLOBAL's address.
Fifty Percent (50%) of the original capital stock of theCorporation shall be
issued to mPhase or its designees or affiliates, and Fifty Percent (50%) of
the original capital stock of the Corporation shall be issued to GLOBAL or its
designees or affiliates.
The Board of Directors of the Corporation shall have a total of six (6)
members, three (3) Directors will be elected by each of mPhase and GLOBAL.
The parties acknowledge that mPhase and/or its affiliates have entered into
certain agreements with DeKalb Telephone Cooperative, Inc. For the provision
of services to the Venture, and it is agreed that the General Manager of that
entity will be offered a position as an advisory member of the Corporations
Board of Directors.
<PAGE>
The parties will, as soon as practicable, enter into a Shareholders'
Agreement, in form and substance consistent with the purposes of the Venture
and containing customary restrictions on the sale, transfer, encumbrance, or
other disposition of shares of the Corporation consistent with the nature of
the business and the objectives of the parties.
7. OPERATIONAL STRUCTURE
The Chief Executive Officer of the Corporation shall be shall be responsible
for the day-to-day operation of the Venture. The Board of Directors of the
Corporation shall have full and complete authority to appoint the additional
principal officers of the Corporation and to remove any officers of the
Corporation in its sole discretion.
The Chief Executive Officer shall develop and present to the Board of
Directors for its approval, on or before June 15, 1997, a comprehensive
business plan for the Corporation. Except to the extent inconsistent with the
terms of this Agreement, said business plan will incorporate the terms of the
April 9, 1997 Agreement between the parties and the April 25, 1997, Global
Telekom White Paper, each of which is attached hereto and hereby incorporated
herein by this reference.
The parties acknowledge that the network controller and the Network Interface
devices which are to be sold to the end user by the Corporation are to be
purchased by the Corporation from mPhase, that certain expenses incurred by
the parties in the course of the start-up and formation of the Venture and the
Corporation will be reimbursed by the Corporation after its organization, and
that in the future certain fees will be paid to both parties from the revenues
of the Corporation as compensation for services and facilities provided to the
Corporation on an ongoing basis. The aforementioned business plan which is to
be presented to the Board of Directors by the Chief Executive Officer will
address all such issues to the extent they can be identified at the time.
8. FINANCING
It is the intention of both GLOBAL and mPhase to work together, utilizing
financial resources and introductions to be provided by GLOBAL, to assist the
Venture in securing adequate short term and long term financing for the
application and deployment of the Technology and the distribution of the
Programming.
The parties acknowledge that both of them have certain financial resources
which would enable them to secure a certain level of initial debt and/or
equity funding for the Venture, under terms acceptable to both parties, within
approximately thirty to forty five days following execution of this Agreement,
and that a certain level of initial financing will be required in order to
allow the Venture to proceed with the deployment and actuation of the
Technology and the distribution of the Programming, as described in this
Agreement, in a timely manner.
It is understood that the financing efforts on behalf of the Venture pursued
by GLOBAL and mPhase will be designed to acquire a short term investment in
the amount of $3,000,000 to $5,000,000, and that such efforts will be
undertaken immediately and on a best efforts basis. The parties acknowledge
that the equity allocations with respect to the Corporation set forth in this
Agreement will be applicable only in the event that the short term funding for
the Venture is consummated in a timely manner, and is facilitated through
associates and/or resources related to GLOBAL. Accordingly, the parties have
agreed that in the event that edequate short term financing has not ben
secured by GLOBAL, in a manner consistent with the foregoing, within a period
of ninety days following the approval of the business plan referenced above,
<PAGE>
mPhase shall have the right to pursue and consummate other financing
alternatives without any obligation to preserve the agreed-upon equity
position of GLOBAL. Both parties agree to negotiate in good faith to achieve
the funding objectives.
9. OWNERSHIP AND EXPLOITATION
The Corporation will have the sole and exclusive right, for a period of ninety
nine (99) years, throughout the world and in all media and markets, to market,
distribute, sell, advertise, and promote the Network Interface, as well as
television programming and other services offered under the Complete TV
tradename, including without limitation all elements and derivative products
thereof. Provided, however, nothing contained herein will be interpreted to
prohibit mPhase from licensing or selling any or all portions of the
Technology to third parties for the manufacture by such parties of devices or
systems similar to those utilized in the Network Interface. It is further
agreed that all rights in and to the Complete TV tradename and trademark, and
in and to all other marks, designs, or logos which may be used to identify or
in conjunction with the Complete TV service, shall for all purposes and for
all times be the sole and exclusive property of the Corporation.
10. WARRANTIES
Each party to this Agreement hereby warrants and represents to the other that
it has the full and unconditional right and authority to enter into, perform,
and be bound by all the terms of this Agreement and to grant to the other
party all of the rights herein granted to said party, without the necessity of
said party obtaining any rights or paying any monies other than as provided
herein. Each party to this Agreement further warrants and represents that
there is no conract, understanding, or pending or contemplated action (other
than as specifically disclosed in writing by mPhase to GLOBAL) which will in
any way interfere with or adversely affect any of the rights granted under
this Agreement, that all elements and materials furnished by such party in
connection with the Agreement will be free and clear of all liens and
encumbrances, and, to the best of its knowledge, will not violate the private,
civil, or property rights, intellectual property rights, or any other right of
any person or entity whatsoever. mPhase and GLOBAL each hereby agree to
defend, indemnify, and hold harmless the other from all claims actions,
damages, losses, liabilities, and expenses (including, without limitation,
attorneys? fees) in any way directly or indirectly arising or resulting from
the acts or omissions of the indemnifying party or the breach by the
indemnifying party of any of the warranties, representations, terms, or
conditions contained in this Agreement.
Each party shall promptly notify the other in writing of any claim or action
as to which indemnification might be required hereunder. The party entitled
to indemnification with respect to any claim or action hereunder shall have
the right, at its own cost and expense, to participate in the defense thereof
with councel of its choice.
11. NOTICES
All notices and correspondence to be given pursuant to this Agreement shall be
sent to the aprties at the following respective addresses:
If to mPhase: If to GLOBAL:
Ronald A. Durando Stephen A. French
mPhase Technologies, Inc. Global Music & Media, Inc.
587 Connecticut Avenue 1024-C Eighteenth Avenue South
Norwalk, Connecticut 06854-1789 Nashville, Tennessee 37212
<PAGE>
12. TERM
The term of this Agreement shall commence on the execution of this Agreement
and shall continue until the expiration of the rights granted pursuant to this
Agreement (and thereafter as to all warranties and representations, which
shall survive the termination of this Agreement). Either party hereto shall
be entitled to terminate this Agreement by giving written notice to the other
party upon the occurrence of any of the following events; (a) the other party
shall have failed, within thirty (30) days after receiving written notice of
the same, to remedy any breach by it of any provision of this Agreement or any
warranty or representation made by it hereunder: (b) the other party shall go
into bankruptcy, liquidation or receivership, make any arrangement for the
benefit of creditors, or a receiver or other custodian of any kind of its
business or any part thereof shall be appointed. All the ten-existing rights
of the non-breaching party shall survive such termination.
13. CORPORATE AUTHORITY
GLOBAL and mPhase each warrant and represent that it is duly incorporated and
in good standing, with the power and authority to execute, deliver, perform,
and be bound by all of the terms of this Agreement.
14. RELATIONSHIP OF THE PARTIES
Nothing in this Agreement shall, as between GLOBAL and mPhase, be construed to
create (and neither party shall make any representation to the contrary) a
partnership, joint venture, or any relationship other than that of independent
contractors.
15. MISCELLANEOUS
(a) No failure or delay on the part of either party in exercising any right,
power, or remedy hereunder shall operate as a waiver thereof nor preclude any
other or further exercise thereof or the exercise of any other right, power, or
remedy hereunder, the remedies herein provided for shall be cumulative, and
not exclusive of any other remedies provided for at law or in equity.
(b) If either party is ordered by any court or by other legal process to make
any payment, which is due hereunder to the other, to some other party, payment
by such party in accordance with suchlegal process shall discharge said party's
obligation to the other to the extent thereof.
(c) This Agreement, including any exhibits, schedules, or attachments hereto
referred to herein or delivered pursuant hereto, all of which form a part
hereof, contain the entire understanding of the parties with respect to the
matters set out herein, merging and superseding all prior and contemporaneous
agreements and understandings between the parties with respect to such matters.
This Agreement may be amended or supplemented only by a written instrument duly
executed by both parties or their respective heirs,
successors, assigns, or legal representatives.
(d) Any provision of this Agreement which is ruled unnforceable in any
jurisdiction shall, as such jurisdiction, be ineffective to such extent, but
shall not render invalid or unenforceable the remaining provisions in that
jurisdiction or any provisions in any other jurisdiction. This Agreement shall
be governed by, construed in accordance with, and enforceable under the laws of
the State of Delaware as a contract entered into and to be fully performed
therein. The parties hereby agree that the U.S. District Court for
the District of Delaware (or, in the absence of jurisdiction or venue in said <PAGE>
court, the appropriate state courts sitting in Wilmington, Delaware) shall have
exclusive jurisdiction of any and all litigation arising hereunder, and the
prevailing party in any such litigation shall be entitled to recover its costs
and attorneys' fees incurred in connection therewith.
(e) Neither this Agreement nor any of th rights or obligations of any party
hereunder may be assigned or delegated without the prior written consent of
the other party hereto.
(f) The captions used in this Agreement are solely for the convenience of
the parties, and in all events the language of the body of this Agreement
shall control.
(g) This Agreement shall not be deemed effective until executed by both
parties hereto.
The parties hereto have caused this Agreement to be executed by their duly
authorized respective representatives as of the date first above written.
mPhase Technologies, Inc. Global Music & Media, Inc.
By: By:
Title: Title:
Witness: Witness:
<PAGE>
GLOBAL MUSIC & MEDIA, INC.
"A MultiFacedted, MultiNational, MultiMedia Group"
Scarritt Place South * 1024-C Eighteenth Avenue South * Nashville, TN
37212
Telephone & Voice Mail: (615)327-4235
Facsimile: (615)327-4236
April 9, 1997
Mr. Ronald A. Durando
President
Mphase Technologies, Inc.
587 Connecticut Avenue
Norwalk, CT 06854-1789
Dear Ron:
The purpose of this letter is to evidence the mutual intention of Global Music
& Media, Inc. And Mphase Technologies, Inc., to enter into an arrangement
whereby our jointly-owned subsidiary Global Telecom, Inc. Will provide certain
services with respect to the exploitation of certain technologies owned by
Mphase, as generally described in the April 9, 1997, Memorandum from Stephen
A. French to Hal Willis, Jerry Gardner, and Tom Murphy. The parties
acknowledge the existence of agreements between the DeKalb Telephone
Cooperative and affiliated companies of each party, and acknowledge that the
consent of DeKalb may be required for the consummation of the transactions
contemplated herein.
The parties agree to use their best efforts to execute a formal agreement
memorializing their relationship, to the best of their ability in light of
current circumstances, on or before April 30, 1997. The contents of this
letter and the existence of our relationship will remain confidential, except
with respect to representatives or employees of the respective parties and as
otherwise agreed by both parties.
If the foregoing meets with your approval, please express your consent by your
signature in the space provided below and on the enclosed copy of this letter.
Very truly yours,
MPHASE TECHNOLOGIES, INC. GLOBAL MUSIC & MEDIA, INC.
By By
Ronald A. Durando Hal L. Willis
President Chairman, Managing Director
Witness Witness<PAGE>
mPHASE LICENSE AGREEMENT
This Agreement is made effective this 27th day of October, 1997 among mPhase
Technologies, Inc. a Delaware Corporation, having a place of business at 587
Connecticut Avenue, Norwalk, CT 06854-0960 (referred to as "mPhase"), Complete
Telecommunications, Inc., a Delaware Corporation, having a place of business at
1024-C 18th Avenue South, Nashville, TN 37212 (referred to as "CTI"), and Global
Music & Media, Inc. a Tennessee Corporation, having a place of business at
1024-C 18th Avenue South, Nashville, TN 37212 (referred to as "Global");
(mPhase, CTI and Global being collectively referred to as the Parties).
WHEREAS, mPHASE and GLOBAL have entered into a Joint Venture Agreement dated
April 30, 1997 for the purpose of establishing a digital subscriber line service
business to supply packaged TV programming and Internet related services under
the trademark COMPLETE TV over existing twisted-pair copper analog telephone
lines using certain mPhase technology (referred to as the Venture Business);
WHEREAS, mPhase and Global, in order to implement said Joint Venture Agreement,
have established CTI to operate the Venture Business;
WHEREAS, the Parties desire to enter into an additional Agreement to further the
purposes of the Joint Venture Agreement; and
NOW THEREFORE, the Parties agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall have
the meanings stated below:
(a) "CTI Trademarks" means the Trademark COMPLETE TV, and such other mark or
marks as CTI shall establish to identify the services that it provides in the
operation of the Venture Business.
(b) "Licensed Products and Services" means systems, components, and
software, which use mPhase Technology (as defined herein) for the transmission
and reception of TV programming and Internet data; and TV programming,
packaged and provided by CTI under the CTI Trademarks, and associated
services, all of which being sold or provided in the operation of the Venture
Business.
(c) "mPhase Technology" refers to the technology owned or controlled by or
licensed to mPhase relating to the design, manufacture and use of systems and
software which provide digital video and data communications over copper
twisted pair telephone networks on an interactive, bi-directional basis, said
systems utilizing a rate adaptive digital subscriber line modem pair to
transmit packaged data to a subscriber placed receiver.
(d) "Related Company" means any company controlling, controlled by (either
directly or indirectly) or under common control with CTI.
(e) "Territory" means the United States and Canada.
(f) "Field of Use" means that segment of the telecommunications industry in
which data, voice and video is transmitted to consumers over wire systems
owned and operated by limited areas, local companies, specifically excluding
regional systems such as the former Bell system companies and other companies
of similar size and distribution area.
2. GRANT OF LICENSES
(a) mPhase hereby grants to CTI an exclusive license, within the Territory,
without the right to grant sublicenses (except as specified below) to utilize
mPhase Technology in connection with the marketing and sale of Licensed
Products and Services, said license grant being limited to use in the Field of
Use. Nothing in this Agreement shall be construed as granting a license for
products or services other than those expressly defined as Licensed Products
and Services. Nothing in this Agreement shall be construed as restricting the
exploitation of mPhase Technology by mPhase for use in the delivery of TV
programming and Internet data related services packaged by others outside of
the Field of Use.
<PAGE>
(b) mPhase hereby grants to CTI the limited right to grant sublicenses to
its customers to use software and documentation included in mPhase Technology
as may be necessary for the use of the Licensed Products and Services provided
by CTI in the course of the Field of Use. Such sublicenses shall be granted
only under the terms and conditions of an Agreement approved by mPhase.
(c) Nothing in this Agreement shall be construed as granting a license to
CTI under any patent owned or licensed to mPhase covering mPhase Technology.
mPhase hereby agrees to refrain from suing CTI based on infringement of the
patent
rights of mPhase for activities of CTI licensed herein.
d) Nothing in this Agreement shall be construed as restricting CTI's rights
to market and sell its packaged TV programming and Internet services,
independent of the rights granted herein, except in the event that CTI desires
to market such products to customers or potential customers of mPhase, then
CTI shall seek the consent of mPhase prior to making contact and shall
cooperate with mPhase in the solicitation of such customers.
3. DISCLOSURE OF mPHASE TECHNOLOGY
(a) Upon the execution of this Agreement and periodically during the term of
this Agreement, mPhase shall disclose to CTI such mPhase Technology pertaining
to the Licensed Products and Services as mPhase believes is reasonably
required to allow CTI to exercise the rights granted herein. Nothing in this
Agreement shall be construed as requiring mPhase to disclose information which
is subject to restriction by a third party.
(b) mPhase Technology disclosed to CTI in writing hereunder shall be
identified by an appropriate legend such as "CONFIDENTIAL" or other similar
legend. CTI agrees that any copies of mPhase Technology made by CTI to the
extent permitted under this Agreement, shall include said legend.
(c) mPhase will provide CTI with technical assistance reasonably required to
permit CTI to utilize the mPhase Technology (i) by use of correspondence to
answer system, components, software, and service technical questions, where
possible, and (ii) if necessary, by conducting one training session each year
during the term of this Agreement. Said training sessions shall be conducted
at mPhase, each session to be scheduled on mutually agreeable dates and not to
exceed two consecutive weekdays in length. CTI may send up to a total of three
employees to each session for the purpose of learning as much of the processes
for marketing the Licensed Products and Services as possible. All
transportation, meals and other costs of CTI's personnel during such sessions
shall be borne entirely by CTI.
4. FEES
CTI shall pay to mPhase, upon the execution of this Agreement, a
non-refundable license fee of $300,000.00 as a down payment on the total
license fee of $2,000,000.00, in exchange for 550,000 shares of mPhase
Technologies, Inc. common stock with legend.
5. DISCLAIMER OF WARRANTY
(a) mPhase will not be responsible for, and CTI will indemnify and defend
mPhase from and hold mPhase harmless against, all claims for loss, liability,
damage or expenses (including, without limitation, reasonable attorneys' fees,
court costs and costs of investigation) arising as a result of the actions of
CTI in connection with the manufacture marketing, use, sale or warranty
(express or implied) by CTI, by a Related Company or by their customers, of
the Licensed Products and Services. In no event will mPhase be liable for
indirect, special or consequential damages incurred by CTI, a Related Company
or third parties in connection with this Agreement or the Licensed Products
and Services.<PAGE>
(b) mPhase makes no representation or warranty with respect to
information that it discloses to CTI including mPhase Technology disclosed
under this Agreement or of CTI's ability to use the same, except to state
that, unless otherwise specified in this Agreement at the time of disclosure
such information is the current information used in related businesses using
mPhase Technology.
6. IMPROVEMENTS
CTI agrees to disclose to mPhase any improvements developed by CTI during the
term of this Agreement relating to the manufacture or use of the Licensed
Products and Services and to grant to mPhase the nonexclusive, royalty-free,
right to use and sublicense said improvements in the manufacture, use and sale
of its products and the provision of services.
7. MANUFACTURE AND SUPPLY
a) The Parties acknowledge that mPhase has the exclusive right to
manufacture or supply data delivery systems using the mPhase Technology. CTI
agrees to purchase its requirements for data delivery systems and components
therefore exclusively from mPhase. Contingent on the successful completion of
the design, evaluation, and trial phases of the development of data delivery
systems using the mPhase
Technology, mPhase will supply such systems to CTI at mutually acceptable
terms and conditions.
b) An appropriate manufacturing warranty shall be given by mPhase which
will be consistent with reasonable practices in the telecommunication
industry.
8. NON-DISCLOSURE
(a) CTI understands the mPhase Technology represents valuable property of
mPhase and are of a highly confidential nature. CTI, therefore, shall maintain
all mPhase Technology in confidence and shall not disclose mPhase Technology
to others without the express written consent of mPhase. CTI shall not use the
mPhase Technology except in accordance with the terms of this Agreement.
(b) CTI shall not make copies of the mPhase Technology disclosed by mPhase
without the prior express, written consent of mPhase, unless, for internal use
only, it is essential for the effective use of the rights granted herein. All
such essential copies shall contain the mPhase proprietary and confidential
notice, shall be individually numbered, and a record kept of the number and
location of each copy. The documents which contain the mPhase Technology are
unpublished and all rights thereto are reserved by mPhase.
(c) CTI agrees that it will notify each of its personnel to whom any mPhase
Technology is disclosed of his/her obligations not to disclose such mPhase
Technology commensurate in scope with CTI's non-disclosure obligations
contained in this Agreement.
(d) CTI agrees to institute internal procedures for maintaining strict
control over documents containing mPhase Technology provided by mPhase and
shall take steps to insure that such documents are clearly identified as the
property of mPhase. Said documents shall not be incorporated into documents of
CTI except by reference.
(e) In the event of termination, and upon expiration, of this Agreement, CTI
shall immediately return to mPhase, all mPhase Technology provided by mPhase
as well as any copies and derivatives thereof and cease all use thereof.
<PAGE>
(f) CTI acknowledges that mPhase shall suffer irreparable injury in the
event CTI breaches any of its obligations under this Section. Therefore, CTI
agrees that, in addition to all other remedies to which mPhase may be entitled
at law or in equity, mPhase shall be entitled to seek any remedy in equity
including an injunction permanently restraining CTI from breaching or further
breaching any of the obligations contained herein. CTI agrees that it will not
oppose the seeking of such remedy on the basis that there exists an adequate
remedy at law for damages.
9. DILIGENCE
CTI shall market and solicit sales of the Licensed Products and Services
diligently and in a good faith manner to an extent as wide as its facilities
permit and shall employ and utilize engineering personnel having reasonable
experience and expertise in the design and use of Licensed Products and
Services in order to maximize the sales of the Licensed Products and Services
throughout the Territory.
10. TERM
This Agreement shall remain in full force and effect for a period of seventeen
(17) years from the effective date indicated in the introduction to this
Agreement. This Agreement shall be deemed automatically renewed for additional
seventeen (17) year terms unless mPhase notifies CTI within sixty (60) days
prior to the expiration of the then current term that the Agreement will not
be renewed.
11. TERMINATION
(a) This Agreement shall automatically terminate in the event that CTI (i) is
in liquidation, either voluntarily or involuntarily, or is placed in
receivership or otherwise enters into any scheme or composition with its
creditors or makes an assignment for the benefit of creditors or (ii) ceases
to sell the Licensed Products and Services for a period of six (6) months.
(b) This Agreement may be terminated immediately by mPhase:
(i) in the event that CTI fails to make any payment due hereunder; or
(ii) upon the breach or default by CTI of one or more terms of the license
Agreement with mPhase.
(c) This Agreement may be terminated by either party:
(i) immediately, in the event that the other party defaults under or
breaches any of the terms of this Agreement other than payment and such
default or breach is not remedied within a period of thirty (30) days after
notification thereof; or
(ii) immediately in the event that this Agreement is, in total, held invalid
or unenforceable by the determination of a court of competent jurisdiction.
(d) CTI may terminate this Agreement at any time upon sixty (60) days prior
written notice to mPhase, provided that the use of all mPhase Technology in
the marketing and sale of Licensed Products and Services has ceased prior to
the date of such notice, and provided, further, that CTI destroys all Licensed
Products on hand which use mPhase Technology as of the date of giving such
notice.
<PAGE>
(e) The foregoing grant of licenses has been made in recognition of, and
conditioned upon, a careful examination of the personal skills, reputation and
ability of CTI's current ownership and control, particularly their ability to
obtain and package TV programming. CTI shall notify mPhase in writing of any
change in its ownership or control, which would materially alter the
participation of individuals constituting the management of CTI existing as of
the Effective Date of this Agreement to the extent practicable prior to the
effective date thereof and, in no event, more than thirty (30) days
thereafter. In the event there is any change in CTI's ownership or control to
which mPhase has not, in its sole discretion, consented, mPhase shall have the
right to terminate this Agreement on thirty (30) days written notice to CTI.
12. RIGHTS AFTER TERMINATION OR EXPIRATION
(a) Upon any termination or expiration of this Agreement, CTI shall cease
all further use of mPhase Technology and discontinue the marketing and sale of
Licensed Products and Services using said Technology. CTI shall thereafter
make no reference of any kind which might create the impression that CTI
continues to be licensed by mPhase.
(b) Termination or expiration of this Agreement shall not release CTI from
its obligation to make payment in full of all royalties then owing, and
further, shall not relieve the parties from such obligation or liabilities
hereunder which expressly extend beyond such termination or expiration.
(c) The provisions of Paragraph 8 hereof shall survive any termination or
expiration of this Agreement.
13. LITIGATION
mPhase specifically disclaims any financial or other responsibility for
litigation or any type to which CTI may become a party as a result of its
exercising the rights granted herein. mPhase does agree, however, to without
liability for any costs of such litigation,
provide such assistance and cooperation as may be reasonably necessary to
assist CTI in its defense of any litigation which seeks to restrict the
exercise of CTI's rights under this Agreement. In the event that mPhase, in
its sole discretion determines that it is in its best interest to participate
in such litigation, then it shall have the right to take control of such
litigation assuming the responsibility for such expense as the parties shall
mutually agree.
14. WAIVER OF DEFAULT
No waiver by either party of any default of the other party shall be held to
be a waiver of any other subsequent default. The failure of either party at
any time to enforce or require performance of any of the provisions of this
Agreement, or to exercise any right or option herein provided, shall in no way
be construed to be a waiver of that or any other provision of this Agreement
or to affect the right of such party thereafter to enforce each and every such
provision. All waivers shall be in writing, signed by the waiving party.
15. DISCLAIMER OF AGENCY
It is agreed that CTI is an independent contractor and not the agent of mPhase.
CTI has no right or authority to assume, create or incur any liability or
obligation of any kind, express or implied, against, in the name of, or on
behalf of mPhase.
16. NOTICES
All notices required of the parties under this Agreement shall be in writing.
Any such notice shall be deemed served if sent registered or certified airmail,
postage prepaid, addressed to the other party at the address set forth above, or
at such other address as may hereafter be designated by either
party in writing.
<PAGE>
17. ASSIGNMENT
This Agreement shall be binding upon the parties hereto and mPhase's respective
successors and assigns. This Agreement and the rights and obligations hereunder
shall not be assignable by CTI whether by merger, operation of law or otherwise
except with the prior written consent of mPhase.
18. MISCELLANEOUS
(a) This Agreement shall be governed by and construed in accordance with the
substantive laws of the State of Connecticut.
(b) This Agreement constitutes the entire Agreement between the parties and
supersedes all prior agreements, negotiations, or discussions between the
parties with respect to the Licensed Products and Services, and shall not be
modified or amended except by an instrument in writing of a date subsequent
hereto duly executed by each of the parties.
(c) It is hereby agreed among the Parties that the obligations of mPhase with
respect to the licensing of mPhase Technology under the Joint Venture Agreement
are fully met by the provisions of this License Agreement and that any
inconsistencies or conflicts between the Joint Venture Agreement and this
License Agreement shall be controlled by this License Agreement.
In acceptance of the above provisions, the parties hereto have executed this
agreement below.
mPhase Corporation Global Music & Media
By: By:
Signature:______________________ Signature:______________________
Typed Name & Title: Typed Name & Title:
Ronald A. Durando, President and CEO Hal L. Willis, Chairman
Date:___________________________ Date:__________________________
Witness:________________________ Witness:_______________________
CTI, Inc.
By:
Signature:______________________
Typed Name & Title:
Jerry L. Gardner, President
Date:___________________________
Witness:________________________
<PAGE>
LICENSE AGREEMENT
THIS AGREEMENT is made and entered into the day of
1998 (hereinafter "Effective Date") by and between the GEORGIA TECH RESEARCH
CORPORATION, a nonprofit corporation organized and existing under the laws of
the State of Georgia and having its principle offices at the Georgia Institute
of Technology (hereinafter "GIT"), Centennial Research Building, Atlanta,
Georgia 30332-0415, (hereinafter "GTRC") and mPhase Technologies, Inc., a
corporation existing under the laws of the State of New Jersey and having its
principle offices at 587 Connecticut Avenue, Norwalk, CT 06854-0566
(hereinafter "LICENSEE").
W I T N E S S E T H:
WHEREAS, GTRC owns and wants to provide for the commercialization of a certain
invention entitled ADigital Video and Data System, which is the subject of
GTRC Invention Disclosure number 1941 and in respect of which GTRC is seeking
patent protection (hereinafter "Invention"); and
WHEREAS, GTRC has available to it certain know-how, technology, trade secrets
and methods (hereinafter "Know-how") which relate to the Invention; and
WHEREAS, LICENSEE wishes to utilize the Invention and Know-how related to the
Invention (hereinafter "Technology") to achieve the development, manufacture,
and sale of Products containing the Technology in the "Field of Use" as
defined in Section 1.8 herein.
NOW, THEREFORE, GTRC and LICENSEE in consideration of the foregoing and the
mutual promises contained herein and intending to be legally bound hereby
agree as follows:
1. DEFINITIONS
As used herein:
1.1 "Net Selling Price" shall mean the gross sales by LICENSEE or any
approved sub-licensee of the Products, less only usual trade discounts, sales
tax which the seller has to pay or absorb, customs duties and transportation
and insurance charges, if not included in the gross price, and any and all
Federal, foreign, State or local taxes (except income tax) incurred by the
seller on such sales.
<PAGE>
1.2 "Patent" shall mean any issued Letters Patent disclosing and claiming
the Invention, including a reissued patent, a patent issuing from a
continuation application, divisional application or continuation-in-part
application, and means any foreign patent similar thereto.
1.3 "Products" shall mean any method through which the Technology is
commercialized and utilized by LICENSEE.
1.4 "Sales", "Sell, or "Sold" shall mean any sale, transfer, lease, license,
permission to use or other transfer of the right of possession or other
conveyance by LICENSEE or any approved sublicensee.
1.5 Sales Made shall mean Sales for which payment has been received by
LICENSEE.
1.6 "Proprietary Information" shall mean information and trade secrets owned
or controlled by GTRC at any time during the term of this Agreement, which
relates to the Inventions covered by the Licensed Patents, including but not
limited to, invention records, research records and reports, engineering and
technical data, designs, production specifications, processes, methods,
procedures, facilities and know-how.
1.7 "Territory" shall mean the world.
1.8 A Field of Use shall mean:
i. delivery and/or distribution of compressed digital video streams (such
as MPEG-2), audio streams, data (such as Internet) or telephony; and
ii. control and/or management of systems delivering and/or distributing
digital video streams (such as MPEG-2), audio systems, data (such as Internet)
or telephony.
2. GRANT OF LICENSE
2.1 With respect to the Technology to which GTRC has exclusive rights, GTRC
hereby grants to LICENSEE an exclusive, nontransferable, royalty-bearing
license, with a right of sublicense, to make, have made, sell, and use
Products in the Field of Use throughout the Territory. LICENSEE shall not
export any Product or enter into any sublicense without fully and completely
complying with any and all United States export or munitions control
regulations and laws.
2.2 Any provision of this Agreement to the contrary notwithstanding, GTRC
reserves an irrevocable, nonexclusive, royalty-free, nontransferable license
to make and use the Technology for educational and research and development
activities practiced by GTRC and GIT.
3. CONSIDERATION
3.1 In consideration of the granting herein of the License as described in
Article 2, LICENSEE shall:
3.1.1 Pay GTRC One Hundred U.S. Dollars ($100.00), the receipt and
sufficiency of which is hereby acknowledged;
3.1.2 Pay GTRC the Royalties as set forth below in Article 5; and
3.1.3 Pay GTRC the payments as required in accordance with the Basic
Ordering Research Agreement between GTRC and LICENSEE dated April
14, 1997, and any subsequent amendments to that Agreement.
<PAGE>
4. SUBLICENSES
4.1 Subject to this Paragraph, LICENSEE may grant sublicenses to persons or
entities specifically approved in writing by GTRC, which approval shall not be
unreasonably withheld, provided that each sublicense contains a provision that
such sublicense and the rights thereby granted are personal to the sublicensee
thereunder and such sublicense cannot be further assigned or sublicensed.
4.2 Any sublicense granted pursuant to this Article shall be in accordance
with the terms and conditions of this Agreement and shall at a minimum,
contain the same protection for GTRC's Proprietary Information as is set forth
herein.
4.3 In respect of any sublicense granted by LICENSEE in accordance with this
Article, LICENSEE shall promptly pay to GTRC an amount equal to Thirty percent
(30%) of any lump sum or other payment howsoever calculated, made by the
sublicensee thereunder in consideration for the grant of such sublicense to it
by the LICENSEE.
5. ROYALTIES
5.1 LICENSEE shall pay GTRC royalties at a rate to be agreed on a fair and
reasonable basis, but not to exceed Five percent (5%), nor be less than Three
percent (3%), of Sales Made by LICENSEE or any sublicensee under this
Agreement.
5.2 Should a patent not be allowed in any country of the Territory, or if
after allowance should any issued patent be ruled invalid in any countryof the
Territory, then the royalty shall be reduced by Fifty percent (50%) of the
existing royalty rate for Sales Made in such country as from the date of final
rejection of the patent application or the date of final ruling after appeal
that the patent is invalid.
5.3 All payments to GTRC under this Agreement shall be made in U.S. dollars
at GTRC's address for notice. Such payments shall be paid to GTRC quarterly
on a calendar year basis. Payment for Sales Made during each quarter of each
calendar year shall be made to GTRC within thirty (30) days after the last day
of each quarter.
5.4 LICENSEE shall pay all royalties due hereunder to GTRC and GTRC shall
not be required to look to any other entity for payment.
6. ACCOUNTS
6.1 Not later than March 1 of each calendar year LICENSEE shall furnish to
GTRC a statement showing Sales Made by LICENSEE during the immediate preceding
calendar year, and the royalties payable thereon calculated in the manner
required in Article 5.
6.2 LICENSEE shall keep at its usual place of business true and particular
accounts of all matters connected with the use of the Technology and the
manufacture and sale of all Products and shall keep books of account relating
to royalties payable hereunder containing true entries complete in every
particular as may be necessary or proper for enabling the amount of such
royalties to be conveniently ascertained.
6.3 If requested in writing by GTRC, LICENSEE shall at all reasonable times
produce evidence of the matters referred to in Article 6 and shall permit such
evidence to be verified by an independent accountant to be selected and paid
for by GTRC. LICENSEE shall give such accountant all necessary facilities for
verifying such evidence and shall give such information as may be necessary or
proper to enable the amount of the royalties to be verified.
<PAGE>
7. IMPROVEMENTS
7.1 Should LICENSEE or any consultant or employee of LICENSEE during the
term of this Agreement make or discover any improvement in connection with the
Technology in the Field of Use, whether patentable or not, which if practiced
would constitute an infringement of any Patent of the Technology, LICENSEE
shall forthwith disclose or cause the same to be disclosed to GTRC, and such
improvement shall be deemed to be a part of the "Technology" and shall be
subject to the terms hereof for the purpose of calculating royalties
hereunder. The foregoing notwithstanding, LICENSEE shall own all right, title
and interest in any such discovery or improvement. However, LICENSEE shall
make available to GTRC and GIT any improvements or modifications it makes to
the Technology and grants to GTRC and GIT an irrevocable, non-exclusive,
royalty-free, non-transferable license to use the improvements throughout the
world for educational and research and development purposes only. If so
requested by GTRC, LICENSEE shall make available or supply to GTRC such
information or data as is necessary or convenient for the proper understanding
or use of such discovery or improvement.
7.2 If GTRC makes or discovers any improvement developed within the Georgia
Tech Research Institute (GTRI), or jointly by staff of GIT with an employee of
LICENSEE, in connection with the Technology, whether patentable or not, which
if practiced would constitute an infringement of any Patent on the Technology,
GTRC shall, subject to the pre-existing rights of any third party, forthwith
disclose or cause the same to be disclosed to LICENSEE and such improvement
shall be deemed to be included in the term "Technology" and to be included in
this Agreement and be subject to the terms hereof and any application for
letters patent or other equivalent protection made in respect thereof shall be
treated as if it were included in the term "Patent". The costs of prosecuting
such applications for letters patent or equivalent protection and maintaining
the letters patent issuing from such applications shall be borne by LICENSEE
during the term of this agreement. Any such discovery or improvement shall
belong to and be the sole and exclusive property of GTRC.
8. NEW DEVELOPMENTS
8.1 Should GTRC make or discover any new invention which if practiced would
not constitute an infringement of the relevant Patent or other equivalent
protection in respect of the Technology, but which has a similar application
or use as the inventions, then, subject to the pre-existing rights of any
third party, GTRC shall offer to LICENSEE the right of first refusal to take
up a license to make, sell anduse such new invention within the Territory.
9. CONFIDENTIALITY
9.1 Neither party shall disclose any Proprietary Information received from
the other party other than to employees of the party who must have access to
such Information in order to carry out the party's obligations under this
Agreement and to potential sublicensees of the Technology, provided such
disclosure is in accordance with Paragraph 9.3 hereof. Prior to disclosure of
Proprietary Information to employees, such employees shall be under a written
obligation of confidentiality at least as restrictive as the provisions
contained herein. Proprietary Information shall be maintained in confidence
for so long as such Information is maintained in confidence by the owner
thereof.
9.2 To protect Proprietary Information, the recipient shall adopt security
measures commonly observed in industries that rely on Proprietary Information.
These measures shall include, but not be limited to, restricted access to such
information, marking such information, and the selective destruction of
sensitive materials. Upon termination of this Agreement, the recipient shall
return or destroy all documents or materials embodying Proprietary
Information.
<PAGE>
9.3 Any disclosure of Proprietary Information by the recipient to potential
sublicensees of the Technology shall be prohibited, unless such potential
sublicensee has signed an agreement which imposes obligations of
confidentiality and nonuse at least as restrictive as those imposed on the
recipient hereunder.
10. INITIAL DEVELOPMENT AND FULL USE OF TECHNOLOGY
10.1 As soon as reasonably practicable after the Effective Date of this
Agreement, but not later than Twenty Four (24) months after the Effective Date
hereof, LICENSEE shall take steps to meet the reasonable requirements of the
market by offering for sale Products in sufficient quantities to meet a
reasonable public demand.
10.2 Should GTRC not receive at least Fifty Thousand U.S. Dollars ($50,000)
in royalty payments from LICENSEE within Thirty-six (36) months from the
Effective Date of this Agreement and should GTRC not receive at least One
Hundred Thousand U.S. Dollars ($100,000) in royalty payments during each
twelve (12) month period thereafter, GTRC shall have the option to terminate
the license granted hereunder, to allow this Agreement to continue in full
force and effect or to convert the license granted hereunder to a nonexclusive
license upon written notice to LICENSEE.
11. PROTECTION OF INTELLECTUAL PROPERTY
11.1 GTRC shall file any and all future patent applications, trademark
registrations or copyright registrations (hereinafter "Intellectual Property
Protection"), domestic and/or foreign, in GTRC's name to protect the
Technology and/or improvements to the Technology licensed hereunder. LICENSEE
shall be responsible for all costs, fees and expenses incurred in connection
with the filing, prosecution and maintenance of all Intellectual Property
Protection and the maintenance of any patent, trademark or copyright issuing
thereon. GTRC agrees to keep LICENSEE advised, in a timely manner, of any
deadlines which would require action on the part of the LICENSEE in the
prosecution of such Intellectual Property Protection.
11.2 If, at any time during the term of this Agreement, LICENSEE elects to
abandon it's right in any pending Intellectual Property Protection or any
patent, trademark or copyright issued thereon, either domestic or foreign, it
shall notify GTRC of that decision at least two (2) months prior to any
deadline for filing any response or taking any other action necessary to
maintain any such Intellectual Property Protection. Thereafter, GTRC shall
have the right and option to take over the sole and exclusive responsibility
for the prosecution of any such Intellectual Property Protection and/or the
maintenance of any such patent, trademark or copyright solely at GTRC's
expense and in such an event the rights granted under this Agreement shall
become nonexclusive for such country or countries of the Territory.
11.3 If patent, trademark or copyright protection is obtained for the
Technology and/or improvements to the Technology, LICENSEE shall cooperate
with GTRC in enforcing or policing such protection as provided in Article 12
herein and by taking all appropriate measures including marking trade secrets
and other Proprietary Information as required and taking other measures as
mutually agreed to by GTRC and LICENSEE.
12. NOTICE OF INFRINGEMENT AND ENFORCEMENT OF RIGHTS
12.1 Immediately upon LICENSEE's learning of any infringement,
misappropriation or other unauthorized use of GTRC's Proprietary Information,
and/or Patents, copyrights or trademarks pertaining to GTRC's Invention
licensed hereunder (hereinafter "Intellectual Property Rights"), LICENSEE
shall promptly inform GTRC.
<PAGE>
12.2 If LICENSEE and GTRC agree to jointly pursue enforcement of GTRC's
Intellectual Property Rights, then the parties hereto shall share equally all
costs, fees and/or expenses incurred in connection with enforcement of GTRC's
Intellectual Property Rights provided only that GTRC's maximum exposure for
such costs, fees and expenses shall be the amount of royalties paid and/or
payable to GTRC by LICENSEE hereunder. Any payments accruing from such action
to enforce GTRC's Intellectual Property Rights shall be paid to LICENSEE and
GTRC in proportion to the parties' respective contributions to all costs, fees
and/or expenses incurred in such action.
12.3 In the event that either party shall determine, for any reason, that it
does not choose to enforce GTRC's Intellectual Property Rights, then that
party shall promptly notify the other party of such decision. The party
choosing to enforce GTRC's Intellectual Property Rights may then proceed with
such enforcement action solely at its own expense and any and all recoveries
shall be awarded solely and exclusively to that party.
13. INDEMNITY
13.1 LICENSEE hereby indemnifies and holds harmless GTRC, GIT, and the Board
of Regents of the University System of Georgia, and their employees, officers,
board members and agents (hereinafter Indemnitees) from and against all
claims, suits, liabilities, damages, costs, fees, expenses or losses arising
out of or resulting from LICENSEE's performance of this Agreement, including
but not limited to any third party claims against Indemnitees for patent,
copyright, and/or trademark infringement and/or patent interference, and any
damages, losses or liabilities whatsoever with respect to death or injury to
any person and damage to any property arising from the possession, use or
operation of Products produced or sold by LICENSEE or its sublicensees or
their customers in any manner whatsoever.
14. DISCLAIMER, WARRANTY AND LIMITATION OF LIABILITY
14.1 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, GTRC DISCLAIMS ANY AND
ALL PROMISES, REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE TECHNOLOGY,
INCLUDING ITS CONDITION, CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION, THE
EXISTENCE OF ANY LATENT OR PATENT DEFECTS THEREIN AND ITS MERCHANTABILITY OR
FITNESS FOR A PARTICULAR USE OR PURPOSE.
14.2 In no event shall GTRC be liable for any use by LICENSEE of the
Technology or any loss, claim, damage or liability, of whatsoever kind or
nature, which may arise from or in connection with LICENSEE's performance
under this Agreement.
15. TRADEMARK
15.1 Except for the purposes of identifying the Technology, no right, title,
interest or license to any trademark or service mark, is granted to LICENSEE.
16. PRODUCT LIABILITY
16.1 LICENSEE shall during the term of this Agreement maintain in full force
and effect a product liability insurance policy and shall each year provide
evidence of such policy.
17. RELATIONSHIP BETWEEN GTRC AND LICENSEE
17.1 GTRC and LICENSEE are and shall remain independent contractors and
nothing herein shall create a partnership or joint venture between GTRC and
LICENSEE.
<PAGE>
18. ADVERTISING, PUBLICITY AND PUBLICATIONS
18.1 Except as otherwise provided herein, LICENSEE shall not use the names of
Georgia Tech Research Corporation, the Georgia Tech Research Institute, the
Georgia Institute of Technology, Georgia Tech, the Georgia Tech Foundation or
any of their respective affiliates or divisions in any advertisement or sales
materials without the prior written consent of GTRC.
18.2 In any publication (including advertisements, sales and trade literature
and instruction manuals) relating to the Invention used pursuant to this
Agreement, LICENSEE shall give due credit to GTRC, as owner and licensor and
in the case of professional journals, trade publications and editorials to
the relevant staff of GTRI, as Inventors of the Invention.
18.3 GTRC and the Inventors shall have the right to publish papers and other
scholarly materials on the Technology in the appropriate literature. Such
publication shall in no event disclose proprietary or confidential information
of the other party. GTRC and GIT may catalog and place such publications in
the GIT library. LICENSEE shall have the right to review materials related to
the Technology for Thirty (30) days from receipt by LICENSEE of the material
for review, prior to publication.
19. TERM AND TERMINATION
19.1 This Agreement shall commence on the Effective Date of this Agreement
and shall continue until the expiration of the last expiring patent covering
any of the Technology licensed hereunder. Notwithstanding the foregoing, the
obligations of the parties under Articles 5, 6, 9, 14, 15 and 19 shall survive
any termination of this Agreement.
19.2 In the event of the breach of a material obligation hereunder by either
party, the nonbreaching party shall inform the alleged breaching party of said
breach in writing. The alleged breaching party shall have sixty (60) days
from the date of said notification during which time to cure the breach. In
the event the alleged breaching party does not cure the breach within sixty
(60) days, the nonbreaching party may terminate the Agreement upon written
notice to the breaching party.
19.3 LICENSEE shall, within ten (10) days of termination of this Agreement
for any reason, deliver to GTRC all written documentation in the possession of
LICENSEE which contains Proprietary Information pertaining to the Technology.
20. NOTICES
20.1 All notices required or permitted under this Agreement shall be in
writing and shall be delivered personally or sent by certified registered mail
to LICENSEE or GTRC at the addresses set forth below:
GTRC:
GEORGIA TECH RESEARCH CORPORATION
Centennial Research Building
Georgia Institute of Technology
Atlanta, Georgia 30332-0415
Attn: Director, Technology Licensing
LICENSEE:
mPhase Technologies, Inc.
587 Connecticut Avenue
Norwalk, CT 06854
Attn: Mr. Ronald A. Durando
<PAGE>
21. WAIVER
21.1 Waiver by either party of any term or provision of this Agreement shall
not constitute a continuing waiver thereof nor of any further or additional
rights such party may hold under this Agreement.
22. SEVERABILITY
22.1 If any provision of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity, illegality or unenforceability of the
remaining provisions shall not in any way be affected or impaired.
23. GOVERNING LAW
23.1 This Agreement shall be construed in accordance with the laws of the
State of Georgia, U.S.A.
24. ENTIRE AGREEMENT
24.1 This Agreement is the complete and exclusive statement between the
parties relating to the subject matter hereof, and supersedes all prior
understandings, communications, or representations, either oral or written,
between the parties. This License Agreement may not be modified or altered
except by a written instrument duly executed by LICENSEE and GTRC.
25. CUMULATIVE RIGHTS
25.1 Unless expressly stated to the contrary elsewhere in this Agreement, all
rights, powers and privileges conferred hereunder upon the parties hereto
shall be cumulative and not restrictive of those given by law.
26. SECTION HEADINGS
26.1 Section headings have been inserted herein for convenience of reference
only and shall in no way modify or restrict any of the terms or provisions of
this Agreement.
27. ASSIGNMENT
27.1 Subject to this Paragraph, the License is personal to LICENSEE. It is
expressly understood by the parties that the License may be assigned to the
Georgia Institute of Technology or the Board of Regents of the University
System of the State of Georgia. Except as otherwise agreed herein, this
Agreement may not be assigned by either party without the prior written
consent of the other.
28. SUCCESSORS AND ASSIGNS
28.1 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but nothing contained
herein shall be deemed to permit assignment by either party except as
otherwise permitted in this Agreement.
29. INTERPRETATION
29.1 In the interpretation of this Agreement, words importing the singular or
plural number shall be deemed to import the plural and singular number
respectively, words denoting gender shall include all genders and references
to persons shall include corporations or other bodies and vice versa.
<PAGE>
30. FORCE MAJEURE
30.1 Neither party shall be held in breach of this Agreement because of acts
or omissions caused by any act of God or other cause beyond the control of the
parties, including, but not limited to, fire, floods, labor disputes, or other
unforeseen circumstances.
IN WITNESS WHEREOF, the parties have set their hands and seals and duly
executed this Agreement effective as of the date first above written.
Georgia Tech Research Corporation mPhase Technologies, Inc.
By: By:
Typed Name: Typed Name:
Title: Title:
Date: Date:
By:
Typed Name:
Title:
Date:<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS<PAGE>
mPhase Technologies, Inc.
A DEVELOPMENT STAGE ENTERPRISE
COMPUTATION OF PER SHARE EARNINGS
(In thousands except per share amounts)
For the
Period From From
October 2, 1996 October 2,1996
(Date of (Date of
Inception) For the Inception)
Through Year Ended To
June 30, 1997 June 30, 1998 December 31,1998
BASIC EARNINGS PER SHARE:
1) Shares outstanding (1) 7,806 13,736 17,109
Total Common Shares
Outstanding 7,806 13,736 17,109
Net (loss) (781) $(4,341) $(8,563)
Per Share Amounts:
Net (loss) per share $ (.100) $(.251) $(.500)
For the
Period From From
October 2, 1996 October 2, 1998
(Date of (Date of
Inception) For the Inception)
Through Year Ended To
June 30, 1997 June 30, 1998 December 31, 1998
DILUTED EARNINGS PER SHARE:
1)Shares outstanding (1) 7,806 17,736 17,109(2)
Net effect of dilutive
stock options based on
the treasury stock
method using current
market price 3,675 5,704 5,704
Net effect of warrants
outstanding,had they been
exercised at the beginning
of the period - 2,097 2,097
Total Common Shares and
Equivalents Outstanding 11,481 21,537 24,910
Net (loss) $(781) $(4,341) $(8,563)
Per Share Amounts:
Net (loss) per share $ (.068) $(.0160) $(.344)
1) Average shares outstanding are based upon the weighted average shares
outstanding for the period presented giving retroactive recognition for the
number of equivalent shares received by Lightpaths, Inc.
2) From Inception to December 31, 1998, the average shares outstanding include
all shares outstanding, and all options and warrants outstanding as of December
31, 1998.
<PAGE>
EXHIBIT 16
LETTER FROM MAURIELLO, FRANKLIN & LABRACE, CPA's
<PAGE>
April 23, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: mPhase Technologies, Inc. (formerly Tecma Laboratories, Inc.)
We were previously the principal accountant for Tecma Laboratories, Inc. and,
under the date of March 25, 1997, we reported on the consolidated financial
statements of Tecma Laboratories, Inc. as of and for the year ended June 30,
1996. On March 31, 1997, we declined to stand for re-appointment, to maintain
independence as a result of an aquisition and spinoff, as princial accountant.
We have read sttements included under Item 3 on page 23 of its registration
statement on Form 10-SB dated April 23, 1999, and we agree with such statements.
Very truly yours,
/s/ Mauriello, Franklin & LaBrace, CPA's
Mauriello, Franklin & LaBrace, CPA's
<PAGE>
EXHIBIT 17
LETTER ON DIRECTOR RESIGNATION
<PAGE>
DAVID ROSENBERG
429 Marcy Avenue
Brooklyn, New York 11206
(718) 782-1835
January 9, 1999
PERSONAL AND CONFIDENTIAL
Mr. Ronald A. Durando
mPhase Technologies, Inc.
587 Connecticut Avenue
Norwalk, CT 06854
Dear Ron:
This will confirm my advice to you and the other members of the board of
directors of mPhase Technologies, Inc. that the demands on my time as president
of U.S. Chocolate Corporation, as well as the pressure of other personal
business matters, requires me with regret to resign my position as a member
of the board of directors of mPhase Technologies, Inc.
Accordingly, please accept my resignation as a member of the board and any other
position I may hold or have been assigned as an officer, employee or agent of
mPhase Technologies, Inc. effective today, January 9, 1999. You may file this
letter of resignation together with any board mniutes that may be appropriate to
these factual circumstances.
Sincerely yours,
David Rosenberg
mphase\rosenb.res<PAGE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES<PAGE>
Subsidiaries:
1. Microphase Telecommunications, Inc. (a Delaware Corporation)
587 Connecticut Avenue
Norwalk, Connecticut 06854-0566
100% owned as of June 25, 1998
2. Lightpaths, Inc. (a Delaware Corporation)
587 Connecticut Avenue
Norwalk, Connecticut 06854-0566
3. Complete Telecommunications, Inc. (a Delaware Corporation)
1024-C 18th Avenue South
Nashville, Tennessee 37212
<PAGE>
EXHIBIT 23
CONSENT OF EXPERTS
<PAGE>
CONSENT OF INDEPENDANT PUBLIC ACCOUNTS
MAURIELLO, FRANKLIN & LABRACE, CPA's
We hereby consent to the incorporation by reference in this Registration
Statement on SEC Form 10-SB of our report dated March 17, 1997, appearing in
the Financial Statements of Tecma Laboratories, Inc. for the period from July
1, 1994 through June 30, 1996.
/s/Mauriello, Franklin & LaBrace, CPA's
Mauriello, Franklin & LaBrace, CPA's
April 23, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Form 10-SB of our report dated September
12, 1997, except as to Note 11, as to which the date is December 5, 1997, on
our audit of the consolidated financial statements of CyberSense Systems
Corporation.
/s/ Schuhalter, Coughlin & Suozzo, LLC
Schuhalter, Coughlin & Suozzo, LLC
Raritan, New Jersey
April 23, 1999 <PAGE>
EXHIBIT 99
ADDITIONAL EXHIBITS
<PAGE>
SUBSCRIPTION AGREEMENT
mPhase Technologies. Inc.
(A New Jersey Corporation)
THE 700.000 UNITS OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933. AS
AMENDED (THE "ACT"),
IN RELIANCE UPON CERTAIN EXEMPTIONS FROM REGISTRATION
PROVIDED IN THE ACT AND THE RULES AND REGULATIONS
THERETO INCLUDING RULE 505 OF REGULATION D OF THE ACT,
NOR HAVE SUCH SECURITIES BEEN REGISTERED OR QUALIFIED
UNDER ANY STATES SECURITIES LAWS. ACCORDINGLY. IT IS
UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THE
UNITS OF THIS COMPANY UNLESS SUCH UNITS ARE
SUBSEQUENTLY REGISTERED OR QUALIFIED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR EXEMPTIONS
THEREFROM ARE WAILABLE.
Date: January 20,1998
This Subscription Agreement is entered into by and between (the "Subscriber")
and mPhase Technologies Inc a New Jersey Corporation ("the Company") as of
the date it is accepted below by the Company.
1. Subscription. The subscriber hereby agrees to purchase Units of mPhase
Technologies Inc. common stock and common stock purchase warrants at a price
of $.75 per Unit
2. Acceptance. Acceptance by the Company shall be evidenced by its delivery
to Subscriber of a full executed Subscription Agreement. Execution of this
Agreement by the Subscriber does not require the Company to accept any
Subscription and this Agreement shall not be binding unless and until accepted
in writing by the Company.
3. Company's Representations. The company represents that it has been duly
organized under the laws or the State ot New Jersey.
4. Subscriber's Representations. The Company is offering and shall issue the
Units Subscribed for in this Agreement without registering them pursuant to
the Securities
Act of 1933 as amended ("the Act") and in particular Rule 505 of Regulation D
of the Act
The Company is doing so in reliance upon, among other things, the Subscriber's
following
representations:
(a)Accuracy of the Information Provided and Subscriber's Representations
The Subscriber's representations in this Agreement are complete and accurate
to the best of the Subscriber's knowledge, and the Company may rely upon them.
The Subscriber will notify the Company immediately if any material change
occurs in any of this information before the sale of the Units.
B) Access to Data The Subscriber has reviewed among other
documents the Company's Confidential Memorandum dated as of January 20. 1998
issued by counsel in lieu of a disclosure statement and any amendments
thereto ("the Statement"). The Subscriber understands that an investment in
the Company involves significant risk, including those described in the
Memorandum. The Subscriber hereby acknowledges it has requested and has been
afforded the opportunity to ask questions and receive answers concerning the
terms and conditions of the Offering and to obtain any additional information
<PAGE>
that the Company possess or can acquire without unreasonable effort or expense
that is neccesary to verify the accuracy of the information set forth in the
Statement. No oral representations have been made or oral information
furnished to the Subscriber in connection wiih the offering that were in any
way inconsistent with the Statement.
(C) Investment. The Subscriber is acquiring the Units for investment only and
for the Subscriber's own account not as a nominee or agent and not with a
view to, or for resale in connection with any distribution thereof. The
Subscriber understands that, by reason of a specific exemption from the
registration provision of the Act, the Units have not been, and (except as
provided in Section 5 below) will not be registered under the Act, and that
the availability of such exemption depends upon, among other things, the bona
fide nature of the investment intent and the accuracy of the Subscriber's
representations as expressed herin.
(d) Restriction on Transfer. The Subscriber acknowledges that the Units must
be held indefinitely unless subsequently registered under the Act or unless an
exemption from such registration is availab1e.
I. Registration Rights. The Company is in the process of becoming a full
reporting company under Section 12g and other registration provisions of the
Securities and Exchange Act of 1934 as amended. It is anticipated mPhase
Technologies Inc. will within 6 months of January 20, 1998 register the
Units offered hereby with the Securities and Exchange Commission. The Company
cannot guarantee that its application for registration will be approved by the
commission.
(e) Authorization. This Agreement. when fully executed and delivered by the
Company, will constitute a valid and legally binding obligation of the
Subscriber. enforceable in accordance with its terms. The person signing this
document and all documents necessary to consummate the purchase of the Units
has all requisite authority to sign such documents on behalf of the
Subscriber, if it is an entity investor.
(f) No Duplication The Subscriber nas not duplicated or distributed the attached
Confidential Memorandum to anyone other than his or her Purchaser Representarive
or other personal advisors, and will not do so in the future.
(g) Investment Sophistication The Subscriber has such knowledge and
experience in financial and business matters to be capable or evaluating the
merits and risks of the proposed investment.
(h) Adequate Financial Means The Subscriber has adequate means of providing
ror his current needs possible personal contingencies and he is able to bear
the economic risks of the investment (i.e. he can afford a complete loss.)
I) Limitcd Trading Market The Subscriber acknowledges that prior to this
Offering there has been a limited trading market for the Company's Common
Stock and after completion or this Offering there can be no assurance that a
trading market will continue or if it does continue that it will be active or
maintained and thus. the Subscriber may not be able to readily if ever to
liquidate his investment.
5. Indemnification Under This Agreement. The Subscriber shall indemnify and
hold harmless the Companv and each of' its affiliates from and against all
losses, damages and liabilities (including but not limited to court costs and
reasonable attorney?s fees arsing or resulting from. or attributable to any
breach of the representations and warranties set forth in or this Subscription
Agreement or in any other document furnished by the Subscriber.
<PAGE>
6. No Transfer and Subsequent Disposition The Subscriber hereby agrees that
he will not sell. transfer or otherwise dispose of the Units unless in the
opinion of counsel to the Company, such sale. transter or disposition may be
legally made without (I) registration under the Act, and/or (ii) registration
and/or qualification under then applicable state and/or federal statutes. or
such sale, transfer or disposition shall have been so registered and/or
qualified and/or appropriate prospectus shall then in effect.
The Units offered hereby have not been registered under the Act and are being
sold in reliance upon the exemption contained in Rule 505 of Regulation D of
the Act. A purchaser of the Units will not be able to sell and/or otherwise
dispose of their Units unless a registration statement is in effect and/or in
exemption from the registration requirements of said act is available.
7. Power of Attorney of Spouse If the Subscriber is a married person and a
resident or a community property state. the Subscriber agrees to cause the
Subscriber's spouse to execute this Agreement at the space provided for that
spouse's signature immediatley following the signature of the Subscriber.
and by such signature here to said spouse certifies that said spouse is the
spouse of the person who signed this Agrement, that said spouse has read and
approves the provisions hereof and hereby consents and agrees to this
Agreement and agrees to be bound by and accepts such provisions of this
Agreement in lieu or all other interests and spouse may have in the Company,
whether such interest be community property or otherwise. Said spouse grants
to the Subscriber irrevocable power ot attorney to represent said spouse in
all matters connected with the Company to the end that.in all cases the
Company may rely on any approval, direction, vote or action taken by the
subscriber. and said spouse's attorney-in-fact. Such power of attorney is.
and shall be deemed to be. coupled with an interest so that the authority
granted hereby may continue during the entire penod of the Company and
regardless of the death or incapacity of the spouse granting the same. Said
spouse further agrees to execute. Acknowledge and deliver such otner and
further instruments and documents as may be required to evidence such power or
attorney.
8. Entirety The terms of this Agreement are intended by the parties as a
final expression of their agreement with the terms included in this Agreement
and may not be contradicted by evidence of any prior or contemporaneous
agreement. arrangement, understanding or negotiation (whether oral or
written).
9. Waiver No waiver or modification of any of the terms of this Agreement
shall be valid unless in writing. No waiver of a breach of. or default under,
any provision hereof shall be deemed a waiver of such provision or of any
subsequent breach or default of the samne or similar nature or or. any other
provision or condition of this Agreement
10. Counteerparts This Agreement may be executed in two or more
counerparts. each orf which shall be deemed an original. but all of which
together shall constitute one and the same instrument.
11) NOTICES Execpt as otherwise reguired in this Agreement, any notice
reguired or permitted under this Agreement shall be given in writing and
shall be deemed effectively given upon personal delivery or upon deposit with
the United States Post Office by registered or certified mail postage
prepaid addressed as follows
<PAGE>
To the Company.
mPhase Technologies. Inc.
587 Connecticut Avenue
Norwalk. Connecticut 068S4~960
Attention: Ronald A. Durando
Telephone: (203)838-274 I
With a copy to: Robert H. Jaffe. Esq.
3 Mountain Avepue
Springfield. New Jersey 07081
Te1ephone: (973)467~2246
To the Subscriber: At the address set forth beneath the Subscriber's
signature
Any party may changce his. her or its address for notice in accordance with
the provisions of this Paragraph.
12. Non-Assignabilirv The ob1igations of the Subscriber hereunder shall not
be delegated or assigned to any other party without the prior written consent
of Company.
13. Expenses. Each party shall pay all of its costs and expenses that it
incurs with respect to the negotiation. execution and delivery of this
Agreement.
14 Applicable Law. This Agreement shall be construed and enforced pursuant
to the Laws of the State of New Jersey.
15. Form of Ownership. Please indicate the form of ownership that the
Subscriber desires for the Units:
Individual
Joint Tenants with Right of Survivorship
Tenants in Common
Community Property
Trust
Corporarion
Partnership
Other:
16) Survivor All representations. warranties and covenants contained in this
Subscription Agreement shall survive the acceptance of the subscription. The
Subscriber acknowledges and agrees that this Subscription Agreement shall
survive (i) changes in the transactions, documents and instruments described in
the Memorandum that are not material, and (ii) the death or disability of the
Subscriber.
17. Gender Numbers etc Terms used herein in any number or gender include
other numbers or genders, as the context may require. If the Subscriber is an
entity. all references to "him" or "his" shal1 be deemed to include "it" or
"its"
<PAGE>
MPHASE
TECHNOLOGIES
SIGNATURE PART OF SUBSCRIPTION AGREEMENT
INDIVIDUAL(S) SIGN HERE:
SUBSCRIBER:
(Signature)
(Print Name)
(Address)
SocialSecurity #
Number of Units Subscribed For Purchase:
SPOUSE OF SUBSCRIBER:
(Signature)
ACCEPTED:
mPHASE Technologies Inc.
By
Title
DATE:
<PAGE>
SUBSCRIPTION AGREEMENT
LIGHTPATHS TP TECHNOLOGIES, INC.
(Formerly Tecma Laboratories, Inc.)
A New Jersey Corporation
Dated: March 1, 1997
This Subscription Agreement is entered into by and between
The "Subscriber") and LightPaths TP Technologies, Inc., formerly known
as Tecma Laboratories, Inc., a New Jersey Corporation (hereinafter sometimes
referred to as "the Company"), as of the date it is accepted below by the
Company.
1.Rule 504 Offering: The shares of LightPaths Common Stock being offered hereby
have been offered pursuant to Rule 504 of Regulation D and, accordingly, are
exempt from registration under the Securities Act of 1933, as amended. This
offering has not been reviewed by the Securities and Exchange Commission or
any other state securities commission nor has any such federal or state agency
with oversight supervision of securities offerings made any findings or
determinations as to the fairness of an investment in these shares.
2.No Restrictive Legend: The issuance of stock certificates to the Subscriber,
in accordance with this Subscription Agreement, will be done without
restrictive legend. The shares of Common Stock of LightPaths representing the
shares subscribed to shall be represented by this Subscription Agreement when
signed by both the Company and the Subscriber until such time as the actual
issuance of the certificates.
3.Lock-Up Agreement: In connection with the offering, all Subscribers agree
that for a period of sixty (60) days from the date of their Subscription, that
they will not, without the prior written consent of the Company, offer, sell,
grant any option with respect to, pledge gypothecate or otherwise dispose of
any shares of Common Stock in a public transaction.
4.Number of Shares: The Subscriber hereby agrees to purchase shares
of LightPaths Common Stock at a price of $1.50 per share.
5.Acceptance of Subscription: Acceptance by the Company of this Subscription
shall be evidenced by the delivery to the Subscriber of a fully executed
Subscription Agreement. If the offer of the Subscriber is accepted, the
Company will execute a copy of this Subscription Agreement and return said
copy to the Subscriber.
6.Representations of the Company: The Company represents that it has been duly
organized under the laws of the State of New Jersey and it has entered into an
agreement to acquire all of the issued and outstanding shares of LightPaths,
Inc., a Delaware Corporation, a description of which is contained in an
information statement provided to the Subscriber.
7.Representations of the Subscriber: The Company is offering and shall issue
the shares subscribed for in this Agreement without registering them pursuant
to the 1933 Act and Rule 504 of Regulation D. The Company is doing so in
reliance upon, among other things, the truthfulness of the following
representations made by the Subscriber.
a)Accurace of the Information Provided and Subscriber's Representations - The
Representations in this Agreement are complete and accurate to the best of the
Subscriber's knowledge and the Company may rely upon them. The Subscriber
will notify the Company immediately if any material change occurs in any of
this information before consummating the purchase of the Shares.
<PAGE>
b)Risk Factors - The Subscriber understands that an investment in the Company
involves significant risks, including those described in the information
statement provided. The Subscriber hereby acknowledges it has requested and
has been afforded the opportunity to ask questions and receive answers
concerning the terms and conditions of the Offering and to obtain any
additional information possessed by the Company or that can be acquired
without unreasonable effort or expense. No oral representations have been
made or oral information furnished to the Subscriber in connection with the
Offering that was in any way relied upon by the Subscriber in executing this
Subscription Agreement.
c)Investment Objective - The Subscriber is acquiring the Shares for investment
for his own account, not as a nominee or agent, and not with a view to, or for
resale in connection with, any distribution thereof.
d)Authorization - This Agreement, when fully executed and delivered by the
Company, will constitute a valid and legally binding obligation of the
Subscriber, enforceable in accordance with its terms. The person signing this
document and all documents necessary to consummate the purchase of the shares
has all requisite authority to sign such documents on behalf of the
Subscriber, if it is an entity investor.
e)No Duplication - The Subscriber has not duplicated or distributed the
Statement to anyone other than his or her Purchaser Representative or other
personal advisors, and will not do so in the future.
f)Investment Sophistication - The Subscriber has such Knowledge and experience
in financial and business matters to be capable of evaluating the merits and
risks of the proposed investment.
g)Ability to Absorb Loss - The personal financial situation of the Subscriber
is such that he can comply with the minimum applicable suitability
requirements applicable to the sophisticated investor. He is aware that the
shares of LightPaths Common Stock being purchased constitute a speculative
investment involving a high degree of risk. Accordingly, the Subscriber
hereby acknowledges that he is able (i) to bear the economic risk of this
investment; (ii) to hold the shares for an indefinite period of time if
required; and (iii) to afford the complete loss of his investment.
h)Limited Trading Market - The Subscriber acknowledges that prior to this
Offering, there has been a very limited trading market in the Common Stock of
Tecma Laboratories, Inc., the predecessor in name to the Company. After
completion of this Offering, there can be no assurance that a trading market
will develop or if it does develop, that it will be active or maintained.
i)Applicable to New York Investors Only - The Attorney General of the State of
New York does not pass upon or endorse the merits of any private offering. No
offering document has been filed with or otherwise approved by the Law of the
State of New York. Any representation to the contrary is unlawful.
j)Applicable to Florida Residents Only - The Shares referred to herein will be
sold to the Subscriber in a transaction exempt under Section 517.061 of the
Florida Securities Act. The shares have not been registered under said act in
the State of Florida. In addition, if sales are made to five or more persons
in the State of Florida, any sale in the State of Florida is voidable by the
purchaser within three (3) days after the first tend or consideration in made
by such purchaser to the issuer, an agent of the issuer, or an escrow agent or
within three (3) days after the availability of that privilege is communicated
to such purchaser, whichever occurs later.
<PAGE>
k)Applicable to New Jersey Residents Only- The attorney General of the State
of New Jersey does not pass upon or endorse the merits of ant private
offerings. No offering document has been filed with, or otherwise approved by
the Department of Law and Public Safety of the State of New Jersey. Any
representations to the contrary is unlawful.
8.Indemnification Under This Agreement: The Subscriber shall indemnify and
hold harmless the Company and each of its affiliates from and against all
losses, damages and liabilities (including but not limited to, court costs and
reasonable attorney's fees) arising or resulting from, or attributable to any
breach of the representations and warranties set forth in Section 7 of this
Subscription Agreement or in any other document furnished by the Subscriber to
any of the foregoing parties or the fact that any representations,
acknowledgments or understanding set forth in Paragraph 7 are untrue or
without adequate factual basis to be considered true and not misleading.
9.Entirety: The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to the terms included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement, arrangement, understanding or negotiation(oral or
written).
10.Waiver: No waiver or modification of any terms of this Agreement shall be
valid unless in writing. No waiver of a breach of, or default under, any
provision hereof shall be deemed a waiver of such provision or of any
subsegment breach or default of the same or similar nature or of any other
provision or condition of this Agreement.
11.Counterparts: This AGreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all which together shall
constitute one and the same instrument.
12.Notices: Except as otherwise required in this Agreement, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery or upon deposit with the
United States Post Office, by Registered or Certified Mail, postage prepaid,
addressed as follows:
To the Company mPhase Technologies. Inc.
587 Connecticut Avenue
Norwalk. Connecticut 068S4~960
Attention: Ronald A. Durando
Telephone: (203)838-274 I
With a copy to: Robert H. Jaffe. Esq.
3 Mountain Avepue
Springfield. New Jersey 07081
Telephone: (973)467~2246
To the Subscriber: At the address set forth beneath the Subscriber's
signature
Any party may change his. her or its address for notice in accordance with the
provisions of this Paragraph.
12. Non-Assignabilirv The obligations of the Subscriber hereunder shall not
be delegated or assigned to any other party without the prior written consent
of Company.
13. Expenses Each party shall pay all of its costs and expenses that it
incurs with respect to the negotiation. execution and delivery of this
Agreement.
<PAGE>
14 Applicable Law This Agreement shall be construed and enforced pursuant
to the Iaws of the State of New Jersey.
15. Form of Ownership Please indicate the form of ownership that the
Subscriber desires for the Units:
Individual
Joint Tenants with Right of Survivorship
Tenants in Common
Community Property
Trust
Corporation
Partnership
Other:
16) Survivor All representations. warranties and covenants contained in this
Subscription Agreement shall survive the acceptance of the subscription. The
Subscriber acknowledges and agrees that this Subscription Agreement shall
survive (i) changes in the transactions. documents and instruments described
in the Memorandum that are not material. and (ii) the death or disability of
the Subscriber.
17. Gender Numbers etc Terms used herein in any number or gender include
other numbers or genders as the context may require. If the Subscnber is an
entity. all references to "him" or "this" shall be deemed to include "it"or
"its"
<PAGE>
SIGNATURE PORTION OF SUBSCRIPTION
TO LIGHTPATHS TP TECHNOLOGIES INC.
ORGANIZATIONS SIGN HERE
Subscriber
(print Name of Organization)
By
(Signature)
(Print name and titles)
(Address)
Fed ID NO.
Number of Shares Subscribed for
Purchase:
ACCEPTED
Lightpaths Tp Technologies Inc.
BY:
TITLE:
DATE:
