0001144204-15-011533.txt : 20150224 0001144204-15-011533.hdr.sgml : 20150224 20150223212925 ACCESSION NUMBER: 0001144204-15-011533 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20150224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Microphase Corp CENTRAL INDEX KEY: 0001574969 IRS NUMBER: 060710848 STATE OF INCORPORATION: CT FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-12G SEC ACT: 1934 Act SEC FILE NUMBER: 000-55382 FILM NUMBER: 15641660 BUSINESS ADDRESS: STREET 1: 587 CONNECTICUT AVENUE CITY: NORWALK STATE: CT ZIP: 06854 BUSINESS PHONE: 203-866-8000 MAIL ADDRESS: STREET 1: 587 CONNECTICUT AVENUE CITY: NORWALK STATE: CT ZIP: 06854 10-12G 1 v398941_10-12g.htm 10-12G

  

  

 

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



 

FORM 10



 

GENERAL FORM FOR REGISTRATION OF SECURITIES
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number       



 

MICROPHASE CORPORATION

(Exact Name of Registrant as specified in its charter)



 

 
Connecticut   06-0710848
(State of Incorporation)   (IRS Employer ID No.)

587 Connecticut Avenue
Norwalk, CT 06854

(Address of principal executive offices)

(203) 866-8000

(Registrant’s telephone number, including area code)



 

Securities to be Registered Under Section 12(b) of the Act: None

Securities to be Registered Under Section 12(g) of the Act:

Common Stock, No Par Value Per Share

(Title of each class to be so registered)



 

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

 
Large accelerated filer o   Accelerated filer o
Non-accelerated filer o   Smaller reporting Company x
 

 


 
 

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Table of Contents

The cross-reference table below identifies where the items required by Form 10 can be found in the statement.

   
Item No.   Item Caption   Page
1
    Business.       1  
1A
    Risk Factors.       6  
2
    Financial Information.       26  
3
    Properties.       33  
4
    Security Ownership of Certain Beneficial Owners and Management.       34  
5
    Directors and Executive Officers.       35  
6
    Executive Compensation.       37  
7
    Certain Relationships and Related Transactions, and Director Independence.       37  
8
    Legal Proceedings.       39  
9
    Market Price of and Dividends on the Registrant’s Common Equity and Related
Stockholder Matters.
      39  
10
    Recent Sale of Unregistered Securities.       41  
11
    Description of Registrant’s Securities to be Registered.       41  
12
    Indemnification of Directors and Officers.       43  
13
    Financial Statements and Supplementary Data.       F-1  

    Index to Financial Statements       F-1  
14
    Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
      44  
15
    Financial Statements and Exhibits.       44  

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EXPLANATORY NOTE

You should rely only on the information contained in this registration statement or in a document referenced herein. We have not authorized anyone to provide you with any other information that is different. You should assume that the information contained in this registration statement is accurate only as of the date hereof except where a different specific date is set forth.

As used in this registration statement, unless the context otherwise requires, the terms the “Company,” “we,” “us,” “our,” or “Microphase” refer to Microphase Corporation, a Connecticut corporation.

FORWARD-LOOKING STATEMENTS

Except for statements of historical fact, some information in this document contains “forward-looking statements” that involve substantial risks and uncertainties. You can identify these forward-looking statements by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would” or similar words. The statements that contain these or similar words should be read carefully because these statements discuss our future expectations, contain projections of our future results of operations or of our financial position, or state other forward-looking information. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able accurately to predict or control. Further, we urge you to be cautious of the forward-looking statements which are contained in this registration statement because they involve risks, uncertainties and other factors affecting our operations, market growth, service, products and licenses. The factors listed in the sections captioned “Risk Factors” and “Description of Business,” as well as other cautionary language in this registration statement and events in the future may cause our actual results and achievements, whether expressed or implied, to differ materially from the expectations we describe in our forward-looking statements. The occurrence of any of the events described as risk factors or other future events could have a material adverse effect on our business, results of operations and financial position. Since our common stock is considered a “penny stock,” we are ineligible to rely on the safe harbor for forward-looking statements provided in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).

WHERE YOU CAN FIND MORE INFORMATION ABOUT US

When this registration statement becomes effective, we will begin to file reports, proxy statements, information statements and other information with the United States Securities and Exchange Commission (the “SEC”). You may read and copy this information, for a copying fee, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on its Public Reference Room. Our SEC filings will also be available to the public from commercial document retrieval services, and at the Web site maintained by the SEC at http://www.sec.gov.

Our Internet website address is http://www.microphase.com. Information contained in our website does not constitute part of this registration statement. When this registration statement is effective, we will make available, through a link to the SEC’s Web site, electronic copies of the materials we file with the SEC (including our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, the Section 16 reports filed by our executive officers, directors and 10% stockholders and amendments to those reports). To receive paper copies of our SEC filings, please contact us by mail addressed to Investor Relations, Microphase Corporation, 587 Connecticut Avenue, Norwalk, CT 06854 or by telephone at (203) 866-8000.

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ITEM 1. BUSINESS.

General Information

Our business address is 587 Connecticut Avenue, Norwalk, CT 06854. Our Internet website address is www.microphase.com. The information contained in, or that can be accessed through, our website is not part of this registration statement.

History

Microphase Corporation was founded in 1955, by Mr. Necdet Ergul, and was originally incorporated in the Commonwealth of Massachusetts and reincorporated under Connecticut law in 1959. As we enter our 60th year, Microphase, now located in Norwalk, CT and Folsom, CA, is engaged in the design and manufacture of Radio Frequency (RF) and microwave electronic components and subsystems, as one of the oldest and most experienced microwave product companies in the industry. The contributions of Microphase to filter and multiplexer technology has been extensive. In fact, the terminology, technical definitions, and standards developed by Microphase have become parameters of specifications in the industry.

Microphase Corporation specializes in microwave electronics that provides core technology solutions for radar systems. These solutions include complex components and devices for detection, filtering, conditioning, and amplification of radar signals. Radar signals are bursts of microwave energy that are emitted by a transmitter. When these radar signals come in contact with an object they are reflected back towards the transmitter and are captured by a radar receiver. The received reflected radar signals are usually very weak and buried in noise and require ultra-sensitive detection and high precision video amplification systems in order to accurately recover the signals and facilitate use of the information received.

Microphase Corporation designs and manufactures components and subsystems that carry out these functions. Products include: (1) Filters that sort out and clarify microwave signals; (2) Multiplexers that are a series of filters combined in a single package; (3) Solid State Amplifiers that amplify microwave signals; (4) Detectors and Limiters that are semiconductor devices for detection of radar signals and protection of receivers from damage from high power signals and jamming; (5) Detector Log Video Amplifiers that are fully integrated detection systems ruggedized to meet the most stringent requirements of the military environments; and (6) Integrated Assemblies that combine multiple functions from a range of components and devices including transmitters, receivers, filters, amplifiers, detectors, and other functionality into single, efficient, high performance, multifunction assemblies.

Microwave technology is a well-established and dominant electronics field with a wide range of applications across a diverse mix of military and commercial market sectors. These applications and market sectors cover commercial wireless infrastructure including cell tower, tower-mount, and pole-mount macro-, mini-, and micro-cell base stations; wireless backhaul and enterprise networks comprising point to point and multipoint microwave towers and links; defense & aerospace including radar systems, telemetry transmitters for missile systems, electronic warfare (EW) systems, tactical radio communications systems for ground, sea, and airborne applications; satellite communications; land mobile radio systems for public safety and homeland security communications networks; broadcast systems including digital TV transmitters; electronic test and measurement instruments including high precision RF and microwave signal generators and analyzers; medical instrumentation including MRI and laser systems and RF surgical probe systems; microwave wireless multimedia devices; GPS receivers; automotive sensor; tollway transponders; security scanners; and household appliances including microwave ovens, cordless phones, set-top boxes, cable and Wi-Fi modems.

We have a long history of supplying high power, high frequency, RF and microwave products, including filters, log video amplifiers, detectors and integrated assemblies, to prime contractors that in turn supply government military customers. These prime contractors include, but are not limited to, Lockheed Martin, BAE, Raytheon, Saab, and Northrop Grumman. Our products have been used in numerous programs dating back to 1956, when Microphase introduced its first diplexer to Lockheed Martin. Continuing its technology leadership, Microphase designed a seven channel multiplexer, now housed in the Smithsonian Institute of Technology, which was onboard the first US piloted space flight, the Mercury Freedom 7 Capsule, on May 5, 1961. Other notable contributions include products used in the Atlas Missile, Vanguard Missile, Polaris Missile System (recipient of citation from Bureau of Naval Weapons), SHRIKE Missile, ARM Missile, the

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Patriot Missile System, THAAD (Terminal High Altitude Area Defense), the Samos, Tiros, and Currier Space Probes, the B1 Bomber, the F111, EA6B, F14, F16, F18, Gripen fighter, and the F35 joint strike fighter planes, and more recently drone programs including the Predator, the Reaper and the Shadow.

As the need for more secure communications increases, the need for higher powered and higher frequency devices is needed for applications in military, public safety/homeland security, medical, autonomous auto, commercial communications and other fields.

The Company recently signed an agreement to develop a new line of test probe products for the RF/Microwave Test and Measurement (“T&M”) industry. Our T&M products and solutions are designed for daily use by thousands of electronic and wireless engineers around the world and could reduce test and measurement time from days and weeks to minutes. The Company expects a diverse customer base which target end users in the areas of research, product design and development, component/device design and development, semiconductor chip and integrated circuit design and development, production testing, incoming inspection and quality control.

RF/Microwave Industry

The RF/Microwave industry is vast, comprising a wide range of diverse technologies that incorporate everything from tiny components to large integrated systems. The scope of applications for RF/Microwave products is nearly as broad as the number of technologies themselves, with a reach that grows wider with each passing year. RF/Microwave products support a variety of market segments including defense and aerospace; mobile wireless infrastructure networks; multimedia devices; household appliances such as microwave ovens, set top boxes and entertainment systems; public safety/homeland security communications; broadcast systems; automotive sensors; and other markets. These markets have traditionally presented a wide range of opportunities and diverse customers for Microphase’s RF/Microwave products. As a customer-driven global provider of RF/Microwave components, devices, and integrated assemblies we plan to expand market penetration in emerging technology markets including 5th Generation (5G) wireless mobile communications, commercial drone systems, and Internet of Things (IoT), which provides for advanced interconnection of devices, systems, and services within the existing Internet infrastructure and is expected to rely heavily on wireless links to lead in automation in nearly all fields from residential to commercial, healthcare and industrial markets.

The RF/Microwave components drive annual opportunities that are valued in the billions of dollars. The market segments for Microphase products including filters, detector log video amplifiers, power amplifiers, and integrated assemblies together are valued at more than $4 billion annually as calculated by the Company based on data from CTIA-The Wireless Association, the Microwave Journal, Civitas Group and Transparance Market Research.

Defense Industry

The US Department of Defense (“DOD”) is committed to ensuring a high state of military readiness, with funding priorities focused on the safety and effectiveness of US troops, national defense, homeland security, and battlefield command, control and communication systems. Advanced radar systems, jamming systems, smart munitions, electronic surveillance and communication systems are important DOD capabilities. The Company’s products and technologies are mission-critical components which are supplied to the major US Defense Original Equipment Manufacturers (“OEMs”) that develop and manufacture these systems for the DOD.

Microphase is world-renowned in the RF and microwave defense electronics industry for its technical expertise in high frequency, high power products that support secure communications between military assets. The Company possesses a high degree of engineering talent and technical expertise in high frequency, high power communications. The Company focuses on more complex and higher performance products with higher technical requirements.

Global RF/Microwave Test and Measurement Industry

The global RF/microwave test and measurement industry is estimated to reach $4.2 billion in 2016, growing at a compound annual rate of 7% as the increasing complexity of products translates into growth opportunities for RF/microwave test and measurement vendors. This market estimate was calculated by the Company based

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on data from the US Department of Labor, the Institute of Electrical and Electronics Engineers (“IEEE”), Frost and Sullivan, and Keysight Technologies, Inc. (NYSE:KEYS). Key factors driving the growth include, the growth in wireless and mobile devices, revolving wireless standards, and a focus on Multiple Input Multiple Output (“MIMO”) technology using multiple antennas to make use of reflected signals to provide gains in channel robustness and throughput. As standards continue to evolve and emerge, there is expected to be a greater demand for state of the art vector network and spectrum analyzers and related accessories.

Microphase plans to introduce unique and highly flexible calibrated impedance and utility probes, universal test platforms and fixtures, and modular impedance analyzer probe systems. These products are intended to provide the most cost effective and most efficient tools for test and characterization of RF/microwave and wireless components, devices, and circuits. Our test and measurement solutions enable board-less, connector-less, solder-less and non-destructive test and measurement of RF/Microwave and wireless packaged and unpackaged devices, components, and circuits. The product line is proprietary and protected by two issued patents and more than 18 patent applications currently in process. The RF/Microwave test and measurement industry is dominated by 5 major global test equipment manufacturers including Keysight Technologies (formerly Agilent Technologies), Anritsu, Rohde & Schwarz, Tektronix (a division of Danaher), and National Instruments. These manufacturers offer a range of vector network and spectrum analyzers which are key electronic test and measurement instruments for test and performance characterization of RF and microwave components, devices, and circuits. In addition to these five major test equipment manufacturers there are several small manufacturers that offer a wide range of test and measurement tools and accessories many of which are designed and intended to work and/or interface with test instruments manufactured by these five major manufacturers. Microphase T&M products include tools and solutions that are intended to interface directly with test instruments from all five test equipment manufacturers as well as test solutions that operate independent of these instruments and in some cases compete with these instruments.

Growth Strategy

While our core market historically has been the military electronic defense industry and the commercial wireline telecommunication industry, we intend to leverage our high-frequency RF and microwave expertise to expand into high growth sectors of the wireless and RF microwave industries where we can command significant leadership. The strategic plan is to develop and/or acquire proprietary technologies and solutions that will supersede existing solutions and products from the perspectives of cost, size, weight, reliability and performance, have general appeal to the end user markets worldwide, and enable the Company to command significant market leadership.

The Company will be diversifying its market focus beyond its legacy products by introducing a mix of defense, Department of Homeland Security and commercial products for the wireless telecom, autonomous auto, test & measurements, and medical instrumentation markets. This strategy should enable Microphase to broaden its customer base and reduce risk by spreading its revenue base across multiple market sectors. Targeted strategic acquisitions should increase our market share and technology value of our product lines as well as broaden our product offering and diversify our customer base.

Groundbreaking technologies and innovative solutions should drive our strategic roadmap for long-term growth and profitability. Discussions are underway for collaboration and joint development with certain potential strategic partners. Microphase is aggressively pursuing access to niche products and solutions with first-to-market opportunities.

Recent Developments

Pursuant to the Company’s growth strategy, on March 31, 2013 the Company acquired a line of detector log video amplifier (“DLVA”) threat detection products from Microsemi Corporation, a global designer, manufacturer and marketer of analog and mixed-signal integrated circuits and semiconductors. The acquired product line specializes in threat detection assemblies used in many DOD programs. The product line is complementary to Microphase’s existing portfolio of high end Video Amplifier products and has enabled the Company to enhance its market leadership position by allowing it to expand its product offerings. This line of business accounted for 23% of Company’s 2014 sales.

In July of 2014, Microphase executed a Stock Purchase Agreement with AmpliTech Group, Inc., a publicly-traded provider of RF/Microwave and low-noise amplifiers for critical and high-reliability, wireless

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and satellite communications applications. Microphase received 8,666,666 shares of common stock of Amplitech Group, Inc. for a $200,000 investment. To date this investment has been a passive investment.

In August of 2014, Microphase entered into an agreement with Dynamac, Inc. (“Dynamac”), a privately-held company located in Addison, Illinois, regarding a new line of test probe products. The Company believes there are significant opportunities in the RF/Microwave Test and Measurement industry for low-cost, high-frequency calibrated test probe products and related test platforms and accessories. Microphase and Dynamac formed a strategic partnership that is expected to enable both companies to use their core competencies, technologies and resources to develop, manufacture and market a unique portfolio of the industry’s first low-cost RF/Microwave and Millimeter-wave calibrated test probes and related universal test platforms as alternative commercial products to conventional custom test solutions. Dynamac’s product line is protected by a strong intellectual property portfolio which includes two issued patents, 18 patents applications in process and trade secrets. Microphase and Dynamac expect to file additional patent applications to protect several additional products planned for future development. Microphase is required to provide additional funding to enable transition of T&M products from prototype phase to full scale production. The parties are continuing to negotiate a timeframe for such funding and delivery of engineering prototypes.

Existing Product Families

Detector Log Video Amplifiers:  Microphase DLVA products are complex subsystem modules that are used primarily in radar and electronic warfare (EW) systems to detect and process with high precision and accuracy incoming signals having fast instantaneously varying power levels in highly electromagnetic dense and noisy environments to deliver clear linearized video output signals to advanced early warning radar and control systems.

Detectors and Limiters:  These products are used by our customers for vertical integration in receiving subsystems and/or systems for detection of a wide range of signals and delivery of linearized output signals as well as limiting the power of incoming signals to protect receivers from jamming, desensitization, and/or damage.

Filters:  Microphase’s filter portfolio offers a complete line of bandpass, bandstop, lowpass, and highpass filter products for both transmitter and receiver applications. Microphase filters are used in a wide range of communications, broadcast, radar, and satellite systems, etc. to provide channel selectivity, to eliminate or mitigate noise, interference and/or spurious emissions.

Switched Filter Banks:  A switched filter assembly typically consists of a bank of filters and digitally controlled high speed switch matrix. Each filter within the filter bank covers a specific frequency band. The filters are selected and switched in nanoseconds by a digital control signal. Microphase offers switched filter assemblies consisting of up to 16 filters or channels for use in EW, military and aerospace, and communications systems.

Duplexers and Multiplexers:  Our duplexers consist of two filters which provide high degree of isolation between transmit and receive signals enabling transmitter and receiver to operate safely and reliably via a single common antenna. Microphase multiplexers consist of multiple filters designed and arranged in such a way to provide contiguous and non-contiguous channels. Microphase designs and manufactures multiplexers with up to 16 channels using various advanced filter technologies to meet customer-specific requirements.

Amplifier Solutions:  Microphase offers a family of custom designed and manufactured amplifiers covering frequency range up to 18 GHz providing linear amplification of signals for both transmitter and receiver applications for a wide range of military and commercial communications, radar, EW and ECM systems.

Multifunction Assemblies and Integrated Subsystems:  Many of Microphase products are leveraged, used, and integrated along with other functionality and technologies in the design, development, and manufacture of higher level functionality in smaller and more compact multifunction assemblies offering solutions with substantially mitigated risk and complexity when compared to discrete architectures.

Employees

As of February 12, 2015, the Company had 63 full-time employees, 3 part-time employees, 4 paid consultants and 1 contract worker.

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Reports to Security Holders.

1. The Company will file reports with the SEC. The Company will be a reporting company and will comply with the requirements of the Exchange Act.
2. The public may read and copy any materials the Company files with the SEC in the SEC’s Public Reference Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Section by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.

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ITEM 1A. RISK FACTORS.

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors in evaluating our business. If any of these risks, or other risks not presently known to us or that we currently believe are not significant, develops into an actual event, then our business, financial condition and results of operations could be adversely affected. If that happens, the market price of our common stock could decline.

RISKS RELATED TO OUR BUSINESS IN THE RF/MICROWAVE INDUSTRY, AND MILITARY INDUSTRY, FINANCIAL CONDITION AND COMMON STOCK.

Risks Related to Our Business

OUR CURRENT REVENUE IS ALMOST ENTIRELY DELIVERED FROM PRIME DEFENSE CONTACTORS TO THE U.S. GOVERNMENT AND ITS ALLIES AS CUSTOMERS, AND THE LOSS OF THESE RELATIONSHIPS, A REDUCTION IN U.S. GOVERNMENT FUNDING OR A CHANGE IN U.S. GOVERNMENT SPENDING PRIORITIES COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS.

We are highly dependent on sales to major defense contractors of advance weapons systems to the U.S. military. Such customer include Northrop Grumman, Lockheed Martin, Raytheon, British Aerospace and SAAB The percentage of our revenue that was derived from sales to major defense contractors and directly to the U.S. Government were 99% in fiscal 2014, 99% in fiscal 2013 and 99% in fiscal 2012. Therefore, any significant disruption or deterioration of our relationship with such major defense contrators or the U.S. Government would materially reduce our revenue. Our competitors continuously engage in efforts to expand their business relationships with the same major defense contrators and the U.S. Government and will continue these efforts in the future, and the U.S. Government may choose to use other contractors. We expect that a majority of the business that we seek will be awarded through competitive bidding. We operate in highly competitive markets and our competitors may have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas, and we may not be able to continue to win competitively awarded contracts or to obtain task orders under multi-award contracts. Further, the competitive bidding process involves significant cost and managerial time to prepare bids and proposals for contracts that may not be awarded to us, as well as the risk that we may fail to accurately estimate the resources and costs required to fulfill any contract awarded to us. Following any contract award, we may experience significant expense or delay, contract modification or contract rescission as a result of our competitors protesting or challenging contracts awarded to us in competitive bidding. Major defense contractors to whom we supply components for systems must compete with other major defense contractors (to whom we may not supply components) for military orders from the U.S. Government In addition there are other policy imperatives for consideration for limited resources and for uncertain levels of funding during the budget and appropriation process. Budget and appropriations decisions made by the U.S. Government are outside of our control and have long-term consequences for our business. U.S. Government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous factors, including sequestration (automatic, across-the-board U.S. Government budgetary spending cuts) and whether it will be superseded by alternate arrangements. A change in U.S. Government spending priorities or an increase in non-procurement spending at the expense of our programs, or a reduction in total U.S. Government spending, could have material adverse consequences on our future business.

FEDERAL GOVERNMENT CONTRACTS MAY BE TERMINATED BY THE FEDERAL GOVERNMENT AT ANY TIME PRIOR TO THEIR COMPLETION WHICH COULD LEAD TO UNEXPECTED LOSS OF SALES AND REDUCTION IN BACKLOG.

Under the terms of federal government contracts, the federal government may unilaterally:

terminate or modify existing contracts;
reduce the value of existing contracts through partial termination; and
delay the payment of our invoices by government payment offices.

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The federal government can terminate or modify any of its contracts with us or its prime contractors either for its convenience, or if we or its prime contractors default, by failing to perform under the terms of the applicable contract. A termination arising out of our default could expose us to liability and have a material adverse effect on our ability to compete for future contracts and subcontracts. If the federal government or its prime contractors terminate and/or materially modify any of our contracts or if any applicable options are not exercised, our failure to replace sales generated from such contracts would result in lower sales and could adversely affect our earnings, which could have a material adverse effect on our business, results of operations and financial condition. Our backlog as of December 31, 2014 was approximately $6 million. Our backlog could be adversely affected if contracts are modified or terminated.

OUR PRODUCTS WITH MILITARY APPLICATIONS ARE SUBJECT TO EXPORT REGULATIONS, WHICH MAY BE COSTLY.

We are required to obtain export licenses before filling foreign orders for many of our products with military or other governmental applications. United States Export Administration regulations control high tech exports like our products for reasons of national security and compliance with foreign policy, to guarantee domestic reserves of products in short supply and, under certain circumstances, for the security of a destination country. Thus, any foreign sales of our products requiring export licenses must comply with these general policies. In addition, these regulations are subject to change, and any such change may require us to improve our technologies, incur expenses or both in order to comply with such regulations.

WE DEPEND ON U.S. GOVERNMENT CONTRACTS RECEIVED BY MAJOR DEFENSE CONTRACTORS, WHICH OFTEN ARE ONLY PARTIALLY FUNDED, SUBJECT TO IMMEDIATE TERMINATION, AND HEAVILY REGULATED AND AUDITED. THE TERMINATION OR FAILURE TO FUND, OR NEGATIVE AUDIT FINDINGS FOR, ONE OR MORE OF THESE CONTRACTS COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS.

Over its lifetime, a U.S. Government program awarded to a major defense contractor may be implemented by the award of many different individual contracts and subcontracts. The funding of U.S. Government programs is subject to Congressional appropriations. Although multi-year contracts may be authorized and appropriated in connection with major procurements, Congress generally appropriates funds on a fiscal year basis. Procurement funds are typically made available for obligation over the course of one to three years. Consequently, programs often receive only partial funding initially, and additional funds are obligated only as Congress authorizes further appropriations. The termination of funding for a U.S. Government program with respect to a major defense contractors would result in a loss of anticipated future revenue attributable to that program, which could have an adverse impact on our operations. In addition, the termination of a program or the failure to commit additional funds to a program that already has been started could result in lost revenue and increase our overall costs of doing business.

Generally, U.S. Government contracts are subject to oversight audits by U.S. Government representatives. Such audits could result in adjustments to our contract costs. Any costs found to be improperly allocated to a specific contract will not be reimbursed, and such costs already reimbursed must be refunded. We have recorded contract revenues based on costs we expect to realize upon final audit. However, we do not know the outcome of any future audits and adjustments, and we may be required to materially reduce our revenues or profits upon completion and final negotiation of audits. Negative audit findings could also result in termination of a contract, forfeiture of profits, suspension of payments, fines and suspension or debarment from U.S. Government contracting or subcontracting for a period of time.

In addition, U.S. Government contracts generally contain provisions permitting termination, in whole or in part, without prior notice at the U.S. Government’s convenience upon the payment only for work done and commitments made at the time of termination. We can give no assurance that one or more of the U.S. Government contracts with a major defense contractor that we provide component products to will not be terminated under these circumstances. Also, we can give no assurance that we would be able to procure new contracts to offset the revenue or backlog lost as a result of any termination of our U.S. Government contracts. Because a significant portion of our revenue is dependent on our performance and payment under our U.S. Government contracts, the loss of one or more large contracts could have a material adverse impact on our business, financial condition, results of operations and cash flows.

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Our government business also is subject to specific procurement regulations and a variety of socio-economic and other requirements. These requirements, although customary in U.S. Government contracts, increase our performance and compliance costs. These costs might increase in the future, thereby reducing our margins, which could have an adverse effect on our business, financial condition, results of operations and cash flows. Failure to comply with these regulations and requirements could lead to fines, penalties, repayments, or compensatory or treble damages, or suspension or debarment from U.S. Government contracting or subcontracting for a period of time. Among the causes for debarment are violations of various laws, including those related to procurement integrity, export control, U.S. Government security regulations, employment practices, protection of the environment, accuracy of records, proper recording of costs and foreign corruption. The termination of a U.S. Government contract or relationship as a result of any of these acts would have an adverse impact on our operations and could have an adverse effect on our standing and eligibility for future U.S. Government contracts.

OUR BUSINESS COULD BE NEGATIVELY IMPACTED BY CYBERSECURITY THREATS AND OTHER SECURITY THREATS AND DISRUPTIONS.

As a U.S. defense contractor, we face certain security threats, including threats to our information technology infrastructure, attempts to gain access to our proprietary or classified information, threats to physical security, and possible domestic terrorism events. Our information technology networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. We are also involved with information technology systems for certain customers and other third parties, which generally face similar security threats. Cybersecurity threats in particular, are persistent, evolve quickly and include, but are not limited to, computer viruses, attempts to access information, denial of service and other electronic security breaches. We believe we have implemented appropriate measures and controls and we have invested in skilled IT resources to appropriately identify threats and mitigate potential risks, but there can be no assurance that such actions will be sufficient to prevent disruptions to mission critical systems, the unauthorized release of confidential information or corruption of data. A security breach or other significant disruption involving these types of information and IT networks and related systems could:

Disrupt the proper functioning of these networks and systems and therefore our operations and/or those of certain of our customers;
Result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or our customers, including trade secrets, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
Compromise national security and other sensitive government functions;
Require significant management attention and resources to remedy the damages that result;
Subject us to claims for contract breach, damages, credits, penalties or termination; and
Damage our reputation with our customers (particularly agencies of the U.S. Government) and the public generally.

Any or all of the foregoing could have a negative impact on our business, financial conditions, results of operations and cash flows.

WE ENTER INTO FIXED-PRICE CONTRACTS THAT COULD SUBJECT US TO LOSSES IN THE EVENT OF COST OVERRUNS OR A SIGNIFICANT INCREASE IN INFLATION.

We have a number of fixed-price contracts, which allow us to benefit from cost savings, but subject us to the risk of potential cost overruns, particularly for firm fixed-price contracts because we assume all of the cost burden. If our initial estimates are incorrect, we can lose money on these contracts. U.S. Government contracts can expose us to potentially large losses because the U.S. Government can hold us responsible for completing a project or, in certain circumstances, paying the entire cost of its replacement by another provider regardless of the size or foreseeability of any cost overruns that occur over the life of the contract. Because many of these contracts involve new technologies and applications and can last for years, unforeseen events,

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such as technological difficulties, fluctuations in the price of raw materials, problems with our suppliers and cost overruns, can result in the contractual price becoming less favorable or even unprofitable to us over time. The U.S. and other countries also may experience a significant increase in inflation. A significant increase in inflation rates could have a significant adverse impact on the profitability of these contracts. Furthermore, if we do not meet contract deadlines or specifications, we may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages or suffer major losses if the customer exercises its right to terminate. In addition, some of our contracts have provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts we may not realize their full benefits. Our results of operations are dependent on our ability to maximize our earnings from our contracts. Cost overruns could have an adverse impact on our financial results. The potential impact of such risk on our financial results would increase if the mix of our contracts and programs shifted toward a greater percentage of fixed-price contracts, particularly firm fixed-price contracts.

WE DERIVE A PORTION OF OUR REVENUE FROM INTERNATIONAL OPERATIONS AND ARE SUBJECT TO SOME OF THE RISKS OF DOING BUSINESS INTERNATIONALLY.

We are dependent on sales to customers outside the U.S. The percentage of our total revenue represented by revenue from products and services exported from the U.S. (including foreign military sales) or manufactured or rendered abroad was 3% in fiscal 2014, 3% in fiscal 2013 and 3% in fiscal 2012. Although we are paid in U.S. dollars for our export products and are therefore not subject to currency fluctuation risks, we are subject to other international business risks including:

The laws, regulations and policies of foreign governments relating to investments and operations, as well as U.S. laws affecting the activities of U.S. companies abroad, including the Foreign Corrupt Practices Act (“FCPA”);
Changes in regulatory requirements, including business or operating license requirements, imposition of tariffs or embargoes, export controls and other trade restrictions;
Uncertainties and restrictions concerning the availability of funding, credit or guarantees; The complexity and necessity of using, and disruptions involving our, international dealers, distributors, sales representatives and consultants;
Import and export licensing requirements and regulations, as well as unforeseen changes in export regulations;
Uncertainties as to local laws and enforcement of contract and intellectual property rights and occasional requirements for onerous contract clauses; and
Rapid changes in government, economic and political policies, political or civil unrest, acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation.

OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A NEGATIVE AUDIT OR INVESTIGATORY FINDING BY THE U.S. GOVERNMENT.

As a government contractor, we are subject to audits and investigations by U.S. Government agencies including the DCAA, the DCMA, the Inspector General of the DoD and other departments and agencies, the Government Accountability Office, the Department of Justice (DoJ) and Congressional Committees. From time to time, these and other agencies investigate or conduct audits to determine whether a contractor’s operations are being conducted in accordance with applicable requirements. The DCAA and DCMA also review the adequacy of and a contractor’s compliance with its internal control systems and policies, including the contractor’s accounting, purchasing, property, estimating, earned value management and material management accounting systems. Our final allowable incurred costs for each year are also subject to audit and have from time to time resulted in disputes between us and the U.S. Government. Any costs found to be improperly allocated to a specific contract will not be reimbursed or must be refunded if already reimbursed. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. Government. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us.

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NEGATIVE PUBLIC OR COMMUNITY RESPONSE TO MILITARY PROJECTS IN GENERAL OR OUR PROJECTS SPECIFICALLY CAN ADVERSELY AFFECT OUR ABILITY TO DEVELOP OUR PROJECTS.

Negative public or community response to our military projects can adversely affect our ability to develop, construct and operate our projects. This type of negative response can lead to legal, public relations and other challenges that impede our ability to meet our development and construction targets, achieve commercial operations for a project on schedule, address the changing needs of our projects over time and generate revenues. Some projects being developed by our competitors have been the subject of administrative and legal challenges from groups opposed to military projects in general or concerned with potential impacts. In the future, we also expect this type of opposition as we develop and construct our future projects. An increase in opposition to our requests for permits or successful challenges or appeals to permits issued to us could materially adversely affect our future development plans. If we are unable to develop, construct and operate the production capacity that we expect from our future development projects in our anticipated timeframes, it could have a material adverse effect on our business, financial condition and results of operations.

FUTURE LITIGATION OR ADMINISTRATIVE PROCEEDINGS RELATED TO OUR MILITARY, PROJECTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

In the future, we may be involved in legal proceedings, administrative proceedings, claims and other litigation that arise in the ordinary course of business related military, aerospace and telecommunications projects. Unfavorable outcomes or developments relating to any such proceedings, such as judgments for monetary damages, injunctions or denial or revocation of permits, could have a material adverse effect on our business, financial condition and results of operations.

WE HAVE NOT BEEN PROFITABLE DURING THE PAST THREE FISCAL YEARS.

During the past three fiscal years we have incurred losses from operations. These losses are attributable to lower volumes of our products sold to major defense contractors as a result of the overall reduction in defense spending and sequestration by the U.S. Congress. Sales have been almost entirely of our legacy products and we have not introduced new products into the market during such period. We have only been able to increase our revenues as a result of acquisitions and no assurance can be given that the Microphase will be able to identify and purchase strategic compliments to increase sales beyond its existing products.

WE HAVE BEEN UNABLE DURING THE PAST THREE YEARS TO MAXIMIZE DELIVERY OF OUR ORDERS.

Since the financial crisis of 2008, Microphase has been significantly short of capital needed to acquire parts for production of its products to complete orders for such products. Our overall credit at times has caused some vendors to require cash payments, in advance of delivery, of parts used in our products. Although access to the public financial markets should increase its ability to raise capital, however, no assurances can be given that a significant liquid market will develop for its common stock thereby allowing greater access to capital.

OUR OPERATING RESULTS HAVE HISTORICALLY BEEN SUBJECT TO SIGNIFICANT YEARLY AND QUARTERLY FLUCTUATIONS AND ARE EXPECTED TO CONTINUE TO FLUCTUATE.

Our operating results have historically been and are expected to continue to be subject to quarterly and yearly fluctuations as a result of a number of factors including:

our reliance on a limited number of customers for a large portion of our revenues;
our ability to successfully implement programs to stimulate sales by anticipating and offering customized new products and services customers will require in the future to increase the efficiency and profitability of their products;
our ability to successfully complete programs on a timely basis, to reduce our cost structure, including fixed costs, to streamline our operations and to reduce product costs;

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our ability to focus our business on what we believe to be potentially higher growth, higher margin businesses and to dispose of or exit non-core businesses;
increased price and product competition in our markets;
the inherent uncertainties of using forecasts, estimates and assumptions for asset valuations and in determining the amounts of accrued liabilities and other items in our consolidated financial statements;
our ability to implement our work plan without negatively impacting our relationships with our customers, the delivery of products based on new and developing technologies, the delivery of high quality products at competitive prices, the maintenance of technological leadership, the effectiveness of our internal processes and organizations and the retention of qualified personnel;
fluctuations in our gross margins;
the development, introduction and market acceptance of new technologies;
variations in sales channels, product costs and the mix of products sold;
the size and timing of customer orders and shipments;
our ability to maintain appropriate inventory levels;
the impact of acquired businesses and technologies;
the impact of our product development schedules, product quality variances, manufacturing capacity and lead times required to produce our products;
changes in legislation, regulation and/or accounting rules; the impact of higher insurance premiums and deductibles and greater limitations on insurance coverage; and
acts of terrorism or the outbreak of hostilities or armed conflict between countries.

THERE ARE A NUMBER OF TRENDS AND FACTORS WHICH AFFECT OUR MARKETS, INCLUDING ECONOMIC CONDITIONS IN THE UNITED STATES, EUROPE AND GLOBALLY, THAT ARE BEYOND OUR CONTROL. THESE TRENDS AND FACTORS MAY RESULT IN REDUCED DEMAND AND PRICING PRESSURE ON OUR PRODUCTS.

There are trends and factors affecting our markets that are beyond our control and may affect our operations. Such trends and factors include:

adverse changes in the public and private equity and debt markets and our ability, as well as the ability of our customers and suppliers, to obtain financing or to fund working capital and capital expenditures;
reduced capital spending and/or negative economic conditions in the United States, Europe as well as other areas of the world;
adverse changes in our credit condition or the credit quality of our customers and suppliers;
adverse changes in demand for our specialized products in the market;
the trend towards the sale of integrated products that do not require the components we make;
the greater uncertainty of the actual size and timing of, capital expenditures by military customers;
greater uncertainty surrounding inventory practices, including the timing of product and service deployment, of our type of customers;
policies of our customers regarding utilization of single or multiple vendors for the products they purchase;
the overall trend toward industry consolidation and rationalization among our customers, competitors and suppliers;

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conditions in the broader market for military and communications products;
governmental regulation or intervention affecting our products; and
the effects of war and acts of terrorism, such as disruptions in general global economic activity, changes in logistics and security arrangements that reduced customer demand for our products and services.

A NUMBER OF FACTORS COULD NEGATIVELY IMPACT OUR GROSS MARGINS, WHICH IN TURN WOULD NEGATIVELY AFFECT OUR OPERATING RESULTS. — 

Our gross margins may be negatively affected by a result of a number of factors, including:

increased price competition;
excess capacity or excess fixed assets;
customer and contract settlements;
higher product, material or labor costs;
increased inventory provisions or contract and customer settlement costs;
warranty costs;
obsolescence;
loss of cost savings on future inventory purchases as a result of high inventory levels;
introductions of new products and costs of entering new markets;
increased levels of customer services;
changes in distribution channels; and
changes in product and geographic mix.

FUTURE CASH FLOW FLUCTUATIONS MAY AFFECT OUR ABILITY TO FUND OUR WORKING CAPITAL REQUIREMENTS OR ACHIEVE OUR BUSINESS OBJECTIVES IN A TIMELY MANNER.

Our working capital requirements and cash flows historically have been, and are expected to continue to be, subject to quarterly and yearly fluctuations, depending on such factors as timing and size of capital expenditures, levels of sales, timing of deliveries and collection of receivables, inventory levels, customer payment terms and supplier terms and conditions. We believe our cash on hand and availability under our line of credit will be sufficient to fund our current business model, and meet our customer commitments for at least the next 12 months. However, a greater than expected slow-down in capital spending by our customers may require us to adjust our current business model. As a result, our revenues and cash flows may be materially lower than we expect and we may be required to reduce our capital expenditures and investments or take other measures in order to meet our cash requirements. We may seek additional funds from liquidity-generating transactions and other conventional sources of external financing (which may include a variety of debt, convertible debt and/or equity financings). We cannot provide any assurance that our net cash requirements will be as we currently expect. Our inability to manage cash flow fluctuations resulting from the above factors could have a material adverse effect on our ability to fund our working capital requirements from operating cash flows and other sources of liquidity or to achieve our business objectives in a timely manner.

OUR BUSINESS MAY BE MATERIALLY AND ADVERSELY AFFECTED BY INCREASED LEVELS OF DEBT.

In order to finance our business or to finance possible acquisitions we may incur significant levels of debt compared to historical levels, and we may need to secure additional sources of funding, which may include debt or convertible debt financing, in the future. A high level of debt, arduous or restrictive terms and conditions relating to accessing certain sources of funding, failure to meet the financial and/or other covenants

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in our credit and/or support facilities and any significant reduction in, or access to, such facilities, poor business performance or lower than expected cash inflows could have adverse consequences on our ability to fund our business and the operation of our business. Other effects of a high level of debt include the following:

we may have difficulty borrowing money in the future or accessing sources of funding;
we may need to use a large portion of our cash flow from operations to pay principal and interest on our indebtedness, which would reduce the amount of cash available to finance our operations and other business activities;
a high debt level, arduous or restrictive terms and conditions, or lower than expected cash flows would make us more vulnerable to economic downturns and adverse developments in our business; and
if operating cash flows are not sufficient to meet our operating expenses, capital expenditures and debt service requirements as they become due, we may be required, in order to meet our debt service obligations, to delay or reduce capital expenditures or the introduction of new products, sell assets and/or forego business opportunities including acquisitions, research and development projects or product design enhancements.

THE TESTING OF ELECTRONIC COMMUNICATIONS EQUIPMENT AND THE ACCURATE TRANSMISSION OF INFORMATION ENTAIL A RISK OF PRODUCT LIABILITY CLAIMS BY CUSTOMERS AND OTHERS.

Product liability claims may be asserted against us by end-users of any of our products. We maintain product liability insurance coverage with an aggregate annual liability coverage limit, regardless of the number of occurrences, of $2.0 million . There is no assurance that such insurance will continue to be available at a reasonable cost or will be sufficient to cover all possible liabilities. In the event of a successful suit against us, lack or insufficiency of insurance coverage could result in substantial cost and could have a material adverse effect on our business.

WE CANNOT PREDICT THE CONSEQUENCES OF FUTURE GEO-POLITICAL EVENTS, BUT THEY MAY ADVERSELY AFFECT THE MARKETS IN WHICH WE OPERATE, OUR ABILITY TO INSURE AGAINST RISKS, OUR OPERATIONS OR OUR PROFITABILITY.

Ongoing instability and current conflicts in global markets, including in the Middle East and Asia, and the potential for other conflicts and future terrorist activities and other recent geo-political events throughout the world have created economic and political uncertainties that could have a material adverse effect on our business, operations and profitability. These matters cause uncertainty in the world’s financial and insurance markets and may significantly increase the political, economic and social instability in the geographic areas in which we operate. These matters also may cause our insurance coverages and performance bonds to increase in cost, or in some cases, to be unavailable altogether.

WE HAVE MADE, AND PLAN TO CONTINUE TO MAKE, STRATEGIC ACQUISITIONS AND DIVESTITURES THAT INVOLVE SIGNIFICANT RISKS AND UNCERTAINTIES.

Strategic acquisitions and divestitures that we have made in the past, and may continue to make, present significant risks and uncertainties, which include:

Difficulty in identifying and evaluating potential acquisitions, including the risk that our due diligence does not identify or fully assess valuation issues, potential liabilities or other acquisition risks;
Difficulty in integrating newly acquired businesses and operations, including combining product and service offerings, and in entering into new markets in which we are not experienced, in an efficient and cost-effective manner while maintaining adequate standards, controls and procedures, and the risk that we encounter significant unanticipated costs or other problems associated with integration;
Difficulty in consolidating and rationalizing IT infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code;

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Challenges in achieving strategic objectives, cost savings and other benefits expected from acquisitions;
Risk that our markets do not evolve as anticipated and that the strategic acquisitions and divestitures do not prove to be those needed to be successful in those markets;
Risk that we assume significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying parties;
Potential loss of key employees or customers of the businesses acquired or to be divested;
Risk that we are not able to complete strategic divestitures on satisfactory terms and conditions or within expected timeframes;
Risk of diverting the attention of senior management from our existing operations;
the risk that the industry may develop in a different direction than anticipated and that the technologies we acquire do not prove to be those we need to be successful in the industry;
the risk that future valuations of acquired businesses may decrease from the market price we paid for these acquisitions;
the generation of insufficient revenues by acquired businesses to offset increased operating expenses associated with these acquisitions;
the potential difficulties in completing in-process research and development projects and delivering high quality products to our customers;
the potential difficulties in integrating new products, businesses and operations in an efficient and effective manner;
the risk that our customers or customers of the acquired businesses may defer purchase decisions as they evaluate the impact of the acquisitions on our future product strategy;
the potential loss of key employees, particularly those of the acquired organization;
the risk that acquired businesses will divert the attention of our senior management from the operation of our business; and
the risks of entering new markets in which we have limited experience and where competitors may have a stronger market presence.
Problems integrating the purchased operations, personnel or technologies;
Unanticipated costs;
Diversion of resources and management attention from our exploration business; and
Entry into regions or markets in which we have limited or no prior experience.

Our inability to successfully operate and integrate newly-acquired businesses appropriately, effectively and in a timely manner could have a material adverse effect on our ability to take advantage of further growth in demand for products in our marketplace, as well as on our revenues, gross margins and expenses.

THE OUTCOME OF LITIGATION OR ARBITRATION IN WHICH WE ARE INVOLVED IS UNPREDICTABLE AND AN ADVERSE DECISION IN ANY SUCH MATTER COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS.

From time to time, we are defendants in a number of litigation matters and are involved in a number of arbitrations. These actions may divert financial and management resources that would otherwise be used to benefit our operations. No assurances can be given that the results of these or new matters will be favorable to us. An adverse resolution of lawsuits or arbitrations could have a material adverse effect on our financial condition, results of operations and cash flows.

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WE FACE CERTAIN SIGNIFICANT RISK EXPOSURES AND POTENTIAL LIABILITIES THAT MAY NOT BE COVERED ADEQUATELY BY INSURANCE OR INDEMNITY.

We are exposed to liabilities that are unique to the products and services we provide. A significant portion of our business relates to designing, developing and manufacturing, components, integrated assemblies and subsystems for advanced defense, technology and communications systems and products. New technologies associated with these systems and products may be untested or unproven. Components of certain of the defense systems and products we develop are inherently dangerous. Failures of satellites, missile systems, air traffic control systems, homeland security applications and aircraft have the potential to cause loss of life and extensive property damage. In most circumstances, we may receive indemnification from the U.S. Government. While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs from an accident or incident. It also is not possible for us to obtain insurance to protect against all operational risks and liabilities. Substantial claims resulting from an incident in excess of U.S. Government indemnity and our insurance coverage would harm our financial condition, results of operations and cash flows. Moreover, any accident or incident for which we are liable, even if fully insured, could negatively affect our standing with our customers and the public, thereby making it more difficult for us to compete effectively, and could significantly impact the cost and availability of adequate insurance in the future.

WE ARE NOT ABLE TO INSURE AGAINST ALL POTENTIAL RISKS AND MAY BECOME SUBJECT TO HIGHER INSURANCE PREMIUMS.

We will have insurance policies covering certain risks associated with our business. However, any such insurance policies will not cover losses as a result of force majeure, natural disasters, terrorist attacks or sabotage, among other things. We do not expect to maintain insurance for certain environmental risks. In addition, our insurance policies may be subject to annual review by our insurers and may not be renewed at all or on similar or favorable terms. A serious uninsured loss or a loss significantly exceeding the limits of our future insurance policies could have a material adverse effect on our business, financial condition and results of operations.

CHANGES IN FUTURE BUSINESS OR OTHER MARKET CONDITIONS COULD CAUSE BUSINESS INVESTMENTS AND/OR RECORDED GOODWILL OR OTHER LONG-TERM ASSETS TO BECOME IMPAIRED, RESULTING IN SUBSTANTIAL LOSSES AND WRITE-DOWNS THAT WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

As part of our overall strategy, we will, from time to time, acquire a minority or majority interest in a business. These investments are made upon careful analysis and due diligence procedures designed to achieve a desired return or strategic objective. These procedures often involve certain assumptions and judgment in determining acquisition price. After acquisition, unforeseen issues could arise which adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Even after careful integration efforts, actual operating results may vary significantly from initial estimates.

OUR STRATEGY INCLUDES ORGANIC GROWTH, WHICH MAY NOT RESULT IN INCREASED REVENUES OR PROFITABILITY AND MAY DEPLETE OUR LIMITED CASH RESERVES WITHOUT RETURN ON INVESTMENT.

We intend to grow our business organically, focusing on sales to further increase our revenues and backlog, and ramping up manufacturing to meet the increased demand. This has been especially challenging in the past given our limited success in significantly expanding our product offerings. We may encounter difficulties caused by a number of factors, some of which are out of our control, including operational or personnel issues, delays in obtaining (or failure to obtain) required parts, supplies, or third-party technology; global recession concerns; access to credit by our customers, our suppliers, or ourselves; and our competitors may be more successful than we are technologically or in terms of sales generation. We are using cash reserves to make up-front investments in engineering and inventory. We may invest in the wrong technologies or products or the investment may not yield improved products and sales as anticipated. Our competition may make similar investments with greater success. If we fail to develop significant sales of products, it will negatively impact our business, our ability to become profitable, and results of operations. We would also expect such failure to cause fluctuations or decreases in our common stock price.

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IF WE ARE UNABLE TO FULFILL BACKLOG ORDERS DUE TO CIRCUMSTANCES INVOLVING US OR ONE OR MORE OF OUR SUPPLIERS OR CUSTOMERS, OUR ANTICIPATED RESULTS OF OPERATIONS WILL SUFFER.

As of February 12, 2015, we had approximately $6 million in backlog orders for our products. This represents approximately 75% of our anticipated fiscal 2015 annual revenues. Backlog orders represent revenue that we anticipate recognizing in the future, as evidenced by purchase orders and other purchase commitments received from customers, but on which work has not yet been initiated or with respect to which work is currently in progress. Our backlog orders are due, in large part, to the long lead-times associated with our electronic device products, which products generally are custom built to order. We may encounter difficulties in fulfilling these orders and commitments, which could lead to failing to deliver them in a timely manner. We may not ultimately recognize as revenue the amounts reflected as backlog. Factors that could affect our ability to fulfill backlog orders include difficulty we may experience in obtaining raw materials or sub-assemblies from suppliers, whether due to obsolescence, cash limitations, production difficulties on the part of suppliers, including the longer lead times we have recently seen with many suppliers, or customer-induced delays and product holds. If we were required to locate new suppliers or additional sources of supply, we could experience a disruption in our operations or incur additional costs in procuring required materials. Our anticipated results of operations and cash flows will suffer to the extent we are unable to fulfill backlog orders within established timeframes, particularly if delays in fulfilling backlog orders cause our customers to reduce or cancel their orders. Analysts and investors are likely to view us negatively if we fail to recognize as revenue the amounts reflected as backlog, which could lead to a decrease in our common stock price.

We may not sustain these backlog amounts in the future, particularly if we are not successful in continuing to grow our sales or if our investment in technologies and products or acquisitions fails to translate into increased sales.

THE HIGH COSTS OF BEING A U.S. PUBLIC REGISTRANT WILL PLACE PRESSURE ON OUR CASH FACILITIES.

The Company adopts rigorous procedures in connection with corporate governance, embracing measures that go beyond the minimum standards required by the OTC markets, Connecticut State law or our own by-laws. We observe such procedures because we consider this to be in the best interest of our stakeholders, including employees, customers, suppliers, financiers and shareholders. These measures carry a cost and these costs plus those of maintaining the quotation for our stock relative to the size of our business are high.

THE GLOBAL FINANCIAL CRISIS AND FRAGILE GLOBAL ECONOMY:

has had and may continue to have significant negative effects on our customers and our suppliers;
has had and may continue to have significant negative effects on our access to credit and our ability to raise capital;
may prevent us from accurately forecasting demand for our product;
may increase the risk that we could suffer unrecoverable losses on our customers’ accounts receivable; or
may increase the risk that we cannot sell inventory that is on hand, resulting in excess inventory levels.

AND MAY THEREFORE NEGATIVELY AFFECT OUR BUSINESS, MARKET SHARE, RESULTS OF OPERATIONS, AND FINANCIAL CONDITION.

The uncertainty and lack of confidence in the global economy since global financial crisis — which has included, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide, and concerns that the worldwide economic recession may be prolonged — has had and may continue to have a significant negative effect on our business and operating results. The potential effects of the fragile global economy are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict, and, therefore, prior results are not necessarily indicative of results to be expected in future periods.

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The economic crisis and recession has affected and may continue to affect our direct and indirect customers’ access to capital or willingness to spend capital on our products, and/or their levels of cash liquidity or willingness to pay for products that they will order or have already ordered from us. The effect of the current economic conditions on our customers may therefore lead to decreased demand, including order delays or cancellations, which in turn may result in lower revenue and may materially adversely affect our business, results of operations and financial condition.

Likewise, the current global economy may negatively affect our suppliers’ access to capital and liquidity with which to maintain their inventories and production levels and could cause them to raise prices or lower production levels, or result in their ceasing operations. The challenges that our suppliers may face in selling their products or otherwise in operating their businesses may lead to our inability to obtain the materials we use to manufacture our products. Indeed, we have observed a trend among our suppliers to have decreased inventory and therefore longer lead times in obtaining parts, supplies and other goods. These actions could cause us to have longer lead times in producing products for delivery to our customers, reductions in our revenue, increased price competition and increased operating costs, which could materially adversely affect our business, results of operations and financial condition.

The current economy and related market instability has made it difficult for us, our customers and our suppliers to accurately forecast future product demand trends, particularly in our communications equipment segment. If, as a result, we produce excess products, our inventory carrying costs will increase and result in obsolete inventory. Alternatively, due to the forecasting difficulty caused by the unstable economic conditions, we may be unable to satisfy demand for our products, which may in turn result in a loss of business opportunities and market share.

We finance a portion of our sales through trade credit. While we perform ongoing credit evaluations of our customers’ financial condition, we could suffer significant losses if our customers are unable or unwilling to pay us. Our record of losses from being unable to recover accounts receivable has been good but while global economic conditions continue, there is a risk of losses of accounts receivable that may have a negative impact on our financial results.

WE MUST BE ABLE TO ESTABLISH AND MAINTAIN REQUIRED DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING AND TO MEET THE PUBLIC REPORTING AND THE FINANCIAL REQUIREMENTS FOR OUR BUSINESS.

Our management has a legal and fiduciary duty to establish and maintain disclosure controls and control procedures in compliance with the securities laws, including the requirements mandated by the Sarbanes-Oxley Act of 2002. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. Because we have limited resources, we may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting, and disclosure controls and procedures. In addition, the attestation process by our independent registered public accounting firm is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accounting firm. If we cannot assess our internal control over financial reporting as effective or provide adequate disclosure controls or implement sufficient control procedures, or our independent registered public accounting firm is unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted.

COMPETITION WITHIN OUR MARKETS MAY REDUCE OUR REVENUES AND MARKET SHARE.

We operate in highly competitive markets and our competitors may have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas. We anticipate increasing competition in our core markets as a result of continued defense industry consolidation, including cross-border consolidation of competition, which has enabled companies to enhance their competitive position and ability to compete against us. We are also facing heightened competition in our domestic and international markets from foreign and multinational firms. In addition, as discussed in more detail above, increased pressure to limit U.S. defense spending and changes in the U.S. Government procurement environment may limit certain

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future market opportunities. For example, the DoD increasingly is awarding contracts through competitive bidding and relying on competitive contract award types. Additionally, some customers, including the DoD, are increasingly turning to commercial contractors, rather than traditional defense contractors, for information technology and other support work. If we are unable to continue to compete successfully against our current or future competitors, we may experience declines in revenues and market share which could negatively impact our results of operations, financial condition or liquidity. In addition, due to the current competitive environment, we continue to see an increase in bid protests from unsuccessful bidders on new program awards. Generally, a bid protest will delay the start of contract activities, delay earnings, and could result in the award decision being overturned, requiring a re-bid of the contract. Our direct competitors include: Akon, American Microwave, LabTec (England), Miteq, Genesis Microwave, Planar Microwave, Teledyne Microwave, Herotech, Aeroflex \ Meteliics, MaCom, Skyworks, K & L Microwave, Filtronetics, Remec, Anatech Electronics, Delta Microwave, Eastern Wireless TeleComm Inc, Lark Engineering, Lorch Microwave, Narda Microwave East, Spectrum Microwave.

ESTIMATES IN ACCOUNTING FOR MANY OF OUR PROGRAMS ARE ESPECIALLY CHALLENGING IN OUR INDUSTRY AND CHANGES IN OUR ESTIMATES COULD ADVERSELY AFFECT OUR FUTURE FINANCIAL RESULTS.

Contract accounting in our industry requires especially difficult judgments relative to assessing risks, including risks associated with customer directed delays and reductions in scheduled deliveries, unfavorable resolutions of claims and contractual matters, judgments associated with estimating contract revenues and costs, and assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total revenues and cost at completion is complicated and subject to many variables. For example, we must make assumptions regarding the length of time to complete the contract because costs also include expected increases in wages and prices for materials; consider whether the intent of entering into multiple contracts was effectively to enter into a single project in order to determine whether such contracts should be combined or segmented; consider incentives or penalties related to performance on contracts in estimating sales and profit rates, and record them when there is sufficient information for us to assess anticipated performance; and use estimates of award fees in estimating sales and profit rates based on actual and anticipated awards. Because of the significance of the judgments and estimation processes described above, it is likely that materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect our future results of operations and financial condition.

IF WE CANNOT EFFECTIVELY MANAGE OUR INTERNAL GROWTH, OUR POTENTIAL BUSINESS PROSPECTS, REVENUES AND PROFIT MARGINS MAY SUFFER.

If we fail to effectively manage our internal growth in a manner that minimizes strains on our resources, we could experience disruptions in our operations and ultimately be unable to generate revenues or profits. We expect that we will need to significantly expand our operations to successfully implement our business strategy. As we add manufacturing, marketing, sales and installation and build our infrastructure, we expect that our operating expenses and capital requirements will increase. To effectively manage our growth, we must continue to expend funds to improve our operational, financial and management controls, and our reporting systems and procedures. In addition, we must effectively expand, train and manage our employee base. If we fail in our efforts to manage our internal growth, our prospects, revenue and profit margins may suffer.

RAPID GROWTH ESSENTIAL TO OUR BECOMING PROFITABLE COULD RESULT IN A STRAIN ON OUR RESOURCES.

Because of our size, growth will likely place a significant strain on our financial, technical, operational and management resources. The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the recruitment and retention of experienced managers and engineers, could have a material adverse effect on our business, financial condition and results of operations and our ability to timely execute this aspect of our business plan.

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OUR AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A “GOING CONCERN.” ACCORDINGLY, THERE IS SIGNIFICANT DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

As of June 30, 2014, we had an accumulated deficit of $10,717,263 and a total stockholders’ deficit of $1,525,284. As of December 31, 2014 (unaudited) we had an accumulated deficit of $12,602,806 and a total stockholders’ deficit of $836,094. A significant amount of capital will be necessary to grow and advance our business and these conditions raise substantial doubt about our ability to continue as a going concern.

If we continue incurring losses and fail to achieve profitability, we may have to cease our operations. Our financial condition raises substantial doubt that we will be able to continue as a “going concern”, and our independent auditors included an explanatory paragraph regarding this uncertainty in their report on our financial statements as of June 30, 2014. These financial statements do not include any adjustments that might result from the uncertainty as to whether we will continue as a “going concern”. Our ability to continue status as a “going concern” is dependent upon our generating cash flow sufficient to fund operations. Our business plans may not be successful in addressing these issues.

IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING, BUSINESS OPERATIONS WILL BE HARMED AND IF WE DO OBTAIN ADDITIONAL FINANCING THEN EXISTING SHAREHOLDERS MAY SUFFER SUBSTANTIAL DILUTION.

We anticipate that we will need to raise substantial capital to fund our operations for the next twelve months, depending on revenue from operations. Additional capital will be required to effectively support the operations and to otherwise implement overall business strategy. We currently do not have any contracts or commitments for additional financing. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail and possibly cease operations. Any additional equity financing may involve substantial dilution to then existing shareholders.

BECAUSE WE ARE SMALL AND DO NOT HAVE MUCH CAPITAL, WE MAY HAVE TO LIMIT BUSINESS ACTIVITY.

Because we are small and do not have much capital, we must limit our business activity. As such we may not be able to complete the sales and marketing efforts required to drive our sales. This is especially true with respect to our ability to obtain parts and materials necessary to build our products. The necessity of paying cash up front to secure parts necessary to build our products has in the past and could in the future put a severe strain on our ability to produce and deliver our products for our order backlog. In order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and company personnel having experience in the business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.

WE DEPEND ON MANUFACTURING LINES FOR CERTAIN OF OUR PRODUCTS, AND ANY SIGNIFICANT DISRUPTION IN PRODUCTION COULD IMPAIR OUR ABILITY TO DELIVER OUR PRODUCTS.

We currently manufacture and assemble our products at our facilities using production lines for certain product categories. Any significant disruption to one of these production lines will require time either to reconfigure and equip an alternative production line or to restore the original line to full capacity. Some of our production processes are complex, and we may be unable to respond rapidly to the loss of the use of any production line. This could result in delayed shipments, which could result in customer dissatisfaction, loss of sales and damage to our reputation.

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WE DESIGN CUSTOM PRODUCTS TO MEET SPECIFIC REQUIREMENTS OF OUR CUSTOMERS. THE UNCERTAIN NATURE OF THE DEVELOPMENT CYCLE FOR CUSTOM PRODUCTS CAN RESULT IN VARIABILITY IN THE TIMING OF OUR RECEIPT OF REVENUE FROM SUCH PRODUCTS.

The design and sales cycle for our custom products, from initial contact by our sales force to the commencement of shipments of those products may be lengthy. In this process, our sales and engineers work closely with the customer to analyze the customer’s system requirements and establish a technical specification for the custom product. We then select a process, evaluate components, and establish assembly and test procedures before manufacturing can begin. The length of this cycle is influenced by many factors, including the difficulty of the technical specification, the novelty and complexity of the design and the customer’s procurement processes. Our customers typically do not commit to purchase significant quantities of the custom product until they are ready to commence volume shipments of their own system or equipment. Our receipt of substantial revenue from sales of a custom product often depends on that customer’s commercial success in manufacturing and selling its system or equipment that incorporates our custom product. As a result, a significant period may elapse between our investment of time and resources in designing and developing a custom product and our receipt of substantial revenue from sales of that custom product.

The length of this process may increase the risk that a customer will decide to cancel or change its plans related to its system or equipment. Such a cancellation or change in plans by a customer could cause us to lose anticipated sales. In addition, our business, results of operations and financial condition could be materially adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle, chooses not to release its system or equipment that contains our custom products, or is not successful in the sale and marketing of its system or equipment that contains our custom products.

WE DEPEND ON COMPONENT AVAILABILITY, SUBCONTRACTOR PERFORMANCE AND OUR KEY SUPPLIERS TO MANUFACTURE AND DELIVER OUR PRODUCTS AND SERVICES.

We are dependent upon the delivery by suppliers of materials and the assembly by subcontractors of major components and subsystems used in our products in a timely and satisfactory manner and in full compliance with applicable terms and conditions. Some products require relatively scarce raw materials. We also are subject to specific procurement requirements that may, in effect, limit the suppliers and subcontractors we may utilize, including requirements for genuine original equipment manufacturer parts.

In some instances, we are dependent on sole-source suppliers. If any of these suppliers or subcontractors fails to meet our needs or becomes insolvent, we may not have readily available alternatives. While we enter into long-term or volume purchase agreements with certain suppliers and take other actions, such as accelerating supplier payments commensurate with value delivered, to ensure financial viability and the availability of needed materials, components and subsystems, we cannot be sure that such items will be available in the quantities we require, if at all. In addition, some of our suppliers or subcontractors, especially smaller entities, may continue to be impacted by global economic conditions, which could impair their ability to meet their obligations to us. If we experience a material supplier or subcontractor problem, our ability to satisfactorily and timely complete our customer obligations could be negatively impacted which could result in reduced sales, termination of contracts and damage to our reputation and relationships with our customers. We could also incur additional costs in addressing such a problem. Any of these events could have a negative impact on our results of operations, financial condition or liquidity. In addition, we must comply with other procurement requirements, including restrictions on the use of certain chemicals in the European Union and conducting diligence and providing disclosure regarding the use of certain minerals, known as conflict minerals, which may impact our procurement practices and increase our costs.

IF WE CANNOT ESTABLISH AND MAINTAIN RELATIONSHIPS WITH DISTRIBUTORS, WE MAY NOT BE ABLE TO INCREASE REVENUE.

In order to increase our revenues and successfully commercialize our systems, we must establish and maintain relationships with potential distributors, sales representatives or other resellers. A reduction, delay or cancellation of orders from one or more significant customers could significantly reduce our revenues and could damage our reputation among our potential customers.

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IF WE EXPERIENCE QUALITY CONTROL PROBLEMS OR SUPPLIER SHORTAGES FROM POTENTIAL SUPPLIERS, OUR REVENUES AND PROFIT MARGINS MAY SUFFER.

Our dependence on third-party suppliers for components involves several risks, including limited control over pricing, availability of materials, quality and delivery schedules. Any quality control problems or interruptions in supply with respect to one or more components or increases in component costs could materially adversely affect our potential customer relationships, revenues and profit margins.

OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO DEVELOP NEW OFFERINGS AND TECHNOLOGIES FOR OUR CURRENT AND FUTURE MARKETS.

To achieve our business strategies and continue to grow our revenues and operating profit, we must successfully develop new offerings and technologies or adapt or modify our existing offerings and technologies for our current core defense markets and our future markets, including new growth and emerging markets. Accordingly, our future performance depends on a number of factors, including our ability to:

Identify emerging technological trends in our current and target markets;
Identify additional uses for our existing technology to address customer needs in our current and future markets;
Enhance our offerings by adding innovative features that differentiate our offerings from those of our competitors;
Develop and manufacture and bring solutions to market quickly at cost-effective prices; and
Effectively structure our businesses, through the use of joint ventures, collaborative agreements and other forms of alliances, to reflect the competitive environment.

We believe that, in order to remain competitive in the future, we will need to continue to invest significant financial resources to develop new offerings and technologies or to adapt or modify our existing offerings and technologies, including through internal research and development, acquisitions and joint ventures or other teaming arrangements. These expenditures could divert our attention and resources from other projects, and we cannot be sure that these expenditures will ultimately lead to the timely development of new offerings and technologies or identification of and expansion into new markets. Due to the design complexity of our products, we may in the future experience delays in completing the development and introduction of new products. Any delays could result in increased costs of development or deflect resources from other projects. In addition, there can be no assurance that the market for our offerings will develop or continue to expand or that we will be successful in newly identified markets as we currently anticipate. The failure of our technology to gain market acceptance could significantly reduce our revenues and harm our business. Furthermore, we cannot be sure that our competitors will not develop competing technologies which gain market acceptance in advance of our products.

Additionally, the possibility exists that our competitors might develop new technology or offerings that might cause our existing technology and offerings to become obsolete. If we fail in our new product development efforts or our products or services fail to achieve market acceptance more rapidly than our competitors, our ability to procure new contracts could be negatively impacted, which would negatively impact our results of operations and financial condition.

THIRD PARTIES MAY CLAIM IN THE FUTURE THAT WE ARE INFRINGING DIRECTLY OR INDIRECTLY UPON THEIR INTELLECTUAL PROPERTY RIGHTS, AND THIRD PARTIES MAY INFRINGE UPON OUR INTELLECTUAL PROPERTY RIGHTS.

Many of the markets we serve are characterized by vigorous protection and pursuit of intellectual property rights, which may result in protracted and expensive litigation. Third parties may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and we may be found to be infringing or to have infringed directly or indirectly upon those intellectual property rights. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. Moreover, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our

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products, services and solutions. Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, know-how, confidentiality provisions and licensing arrangements to establish and protect our intellectual property rights. If we fail to successfully protect and enforce these rights, our competitive position could suffer. Our pending patent and trademark registration applications may not be allowed, or competitors may challenge the validity or scope of our patents or trademark registrations. In addition, our patents may not provide us a significant competitive advantage. We may be required to spend significant resources to monitor and police our intellectual property rights. We may not be able to detect infringement and our competitive position may be harmed before we do so. In addition, competitors may design around our technology or develop competing technologies.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD AFFECT OUR ABILITY TO COMPETE.

There can be no assurance that trade secrets and other intellectual property will not be challenged, invalidated, misappropriated or circumvented by third parties. In some instances, we have augmented our technology base by licensing the proprietary intellectual property of others. In the future, we may not be able to obtain necessary licenses on commercially reasonable terms. We enter into confidentiality and invention assignment agreements with our employees and enter into non-disclosure agreements with our suppliers and appropriate customers so as to limit access to and prevent disclosure of our proprietary information. These measures may not suffice to deter misappropriation or third party development of similar technologies. Moreover, the laws concerning intellectual property vary among nations and the protection provided to our intellectual property by the laws and courts of foreign nations may not be as advantageous to us as the remedies available under U.S. law.

MANY OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE DO. IF WE ARE UNABLE TO KEEP PACE WITH OUR COMPETITORS IN ANTICIPATING AND RESPONDING TO THE RAPID CHANGES INVOLVING THE MILITARY INDUSTRIES, WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH THEM AND THEREBY POSSIBLY CAUSING OUR STOCK PRICE TO DECLINE.

Our future success depends, in part, upon our ability to enhance our current products and services and to develop and introduce new products and services that keep pace with technological developments, respond to the growth in the military, aerospace and telecommunications equipment markets in which we compete, encompass evolving customer requirements, and provide a broad range of products and achieve market acceptance of our products. Most of our existing and potential competitors have larger technical staffs, more established and larger marketing and sales organizations and significantly greater financial resources than we do. Our lack of resources relative to our competitors may cause us to fail to anticipate or respond adequately to technological developments and customer requirements or to experience significant delays in developing or introducing new products and services. These failures or delays could reduce our competitiveness, revenues, profit margins or market share, cash flow and stock price.

BECAUSE WE DEPEND ON COMPUTER AND TELECOMMUNICATIONS SYSTEMS WE DO NOT OWN OR CONTROL, WE ARE POTENTIALLY SUBJECT TO THE ADVERSE EFFECTS OF THIRD PARTY OPERATIONAL SYSTEM FAILURES.

We have entered into agreements with third parties for hardware, software, telecommunications and database services in connection with the operation of our facilities. We have several licenses from third parties. We may be subject to disruptions of our operational systems arising from events that are wholly or partially beyond our control (for example, natural disasters, acts of terrorism, epidemics, computer viruses and telecommunications outages). These third party systems and licenses on which we rely could also suffer operational system failure. Any interruptions to our arrangements with third parties, to our computing and communications infrastructure, or our information systems could significantly disrupt our business operations and result in potential liability or reputational damage or otherwise have an adverse impact on our financial results.

TECHNOLOGICAL CHANGE COULD AFFECT OUR OPERATIONS.

The military, aerospace, and telecommunications industries are characterized by rapid and significant technological advancements and introductions of new products and services utilizing new technologies. As others use or develop new technologies, we may be placed at a competitive disadvantage, and competitive

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pressures may force us to implement such new technologies at substantial costs. In addition, other companies in our industries have greater financial, technical and personnel resources that may allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can. We may be unable to respond to such competitive pressures and implement such technologies on a timely basis or at an acceptable cost. One or more of the technologies that we currently use or may implement in the future may become obsolete.

WE MAY NOT BE ABLE TO ATTRACT OR RETAIN THE SPECIALIZED TECHNICAL AND MANAGERIAL PERSONNEL NECESSARY TO ACHIEVE OUR BUSINESS OBJECTIVES.

Competition for certain key positions and specialized technical personnel in the high-technology industry is strong. We believe that our future success depends in part on our continued ability to train, hire, assimilate, and retain qualified personnel in a timely manner, particularly our Chief Executive Officer, other senior-executives and other key positions in our areas of potential growth.

We may also find it difficult to attract or retain qualified employees because of our size. In addition, if we have not properly sized our workforce and retained those employees with the appropriate skills, our ability to compete effectively may be adversely affected. If we are not successful in attracting and retaining qualified employees, in the future, we may not have the necessary personnel to effectively compete in the highly dynamic, specialized and volatile industry in which we operate or to achieve our business objectives.

OUR REPUTATION AND ABILITY TO DO BUSINESS MAY BE IMPACTED BY THE IMPROPER CONDUCT OF OUR EMPLOYEES, AGENTS OR BUSINESS PARTNERS.

We have implemented compliance controls, policies and procedures designed to prevent reckless or criminal acts from being committed by our employees, agents or business partners that would violate the laws of the jurisdictions in which we operate, including laws governing payments to government officials (such as the FCPA), and to detect any such reckless or criminal acts committed. We cannot ensure, however, that our controls, policies and procedures will prevent or detect all such reckless or criminal acts. If not prevented, such reckless or criminal acts could subject us to civil or criminal investigations and monetary and non-monetary penalties and could have a material adverse effect on our ability to conduct business, our results of operations and our reputation.

THE LOSS OF ONE OR MORE MEMBERS OF OUR SENIOR MANAGEMENT OR KEY EMPLOYEES MAY ADVERSELY AFFECT OUR ABILITY TO IMPLEMENT OUR STRATEGY.

Our success depends to a significant extent upon the continued services of Mr. Necdet F. Ergul, Mr. James Ashman and Mr. Michael Ghadaksaz . The loss of the services of Messrs. Ergul, Ashmand or Ghadaksaz could have a material adverse effect on our growth, revenues, and prospective business. Both of these individuals are committed to devoting substantially all of their time and energy to the Company. Any of these employees could leave us with little or no prior notice. We do not have “key person” life insurance policies covering any of our employees. Additionally, there are a limited number of qualified technical personnel with significant experience in the design, development, manufacture, and sale of our products, and we may face challenges hiring and retaining these types of employees.

We depend on our experienced management team and the loss of one or more key executives could have a negative impact on our business. We also depend on our ability to retain and motivate key employees and attract qualified new employees. If we lose a member of the management team or a key employee, we may not be able to replace him or her. Integrating new employees into our management team and training new employees with no prior experience in the wind industry could prove disruptive to our operations, require a disproportionate amount of resources and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient technical and managerial personnel could limit or delay our development efforts, which could have a material adverse effect on our business, financial condition and results of operations.

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WE DEPEND ON THE RECRUITMENT AND RETENTION OF QUALIFIED PERSONNEL, AND OUR FAILURE TO ATTRACT AND RETAIN SUCH PERSONNEL COULD SERIOUSLY HARM OUR BUSINESS.

Due to the specialized nature of our business, our future performance is highly dependent upon the continued services of our key engineering personnel and executive officers, the development of additional management personnel and the hiring of new qualified engineering, manufacturing, marketing, sales and management personnel for our operations. Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel. In addition, certain personnel may be required to receive security clearance and substantial training in order to work on certain programs or perform certain tasks. The loss of key employees, our inability to attract new qualified employees or adequately train employees, or the delay in hiring key personnel could seriously harm our business.

RISKS RELATED TO OUR COMMON STOCK

POTENTIAL FUTURE FINANCINGS MAY DILUTE THE HOLDINGS OF OUR CURRENT SHAREHOLDERS.

In order to provide capital for the operation of our business, in the future we may enter into financing arrangements. These arrangements may involve the issuance of new shares of common stock, preferred stock that is convertible into common stock, debt securities that are convertible into common stock or warrants for the purchase of common stock. Any of these items could result in a material increase in the number of shares of common stock outstanding, which would in turn result in a dilution of the ownership interests of existing common shareholders. In addition, these new securities could contain provisions, such as priorities on distributions and voting rights, which could affect the value of our existing common stock.

WE CURRENTLY DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK. AS A RESULT, YOUR ONLY OPPORTUNITY TO ACHIEVE A RETURN ON YOUR INVESTMENT IS IF THE PRICE OF OUR COMMON STOCK APPRECIATES.

We currently do not expect to declare or pay dividends on our common stock. In addition, in the future we may enter into agreements that prohibit or restrict our ability to declare or pay dividends on our common stock. As a result, your only opportunity to achieve a return on your investment will be if the market price of our common stock appreciates and you sell your shares at a profit.

YOU MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST DUE TO THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK.

We are in a capital intensive business and we do not have sufficient funds to finance the growth of our business or to support our projected capital expenditures. As a result, we will require additional funds from future equity or debt financings, including sales of preferred shares or convertible debt, to complete the development of new projects and pay the general and administrative costs of our business. We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of holders of our common stock. We are currently authorized to issue 7,800,000 shares of common stock and 200,000 shares of preferred stock. Additionally, the shareholders of the corporation have approved an increase in the number of authorized shares of common stock to 50,000,000, and accordingly the Board of Directors may subsequently approve increases in authorized common stock up to such amount. The potential issuance of such additional shares of common stock or preferred stock or convertible debt may create downward pressure on the trading price of our common stock. We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in future public offerings or private placements for capital raising purposes or for other business purposes. The future issuance of a substantial number of common shares into the public market, or the perception that such issuance could occur, could adversely affect the prevailing market price of our common shares. A decline in the price of our common shares could make it more difficult to raise funds through future offerings of our common shares or securities convertible into common shares.

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THERE IS CURRENTLY NO PUBLIC MARKET FOR OUR COMMON STOCK. FAILURE TO DEVELOP OR MAINTAIN A TRADING MARKET COULD NEGATIVELY AFFECT ITS VALUE AND MAKE IT DIFFICULT OR IMPOSSIBLE FOR YOU TO SELL YOUR SHARES.

There is currently no public market for our common stock and an active public market for our common stock may not develop. Failure to develop or maintain an active trading market could make it difficult for you to sell your shares or recover any part of your investment in us. Even if a market for our common stock does develop, the market price of our common stock may be highly volatile. In addition to the uncertainties relating to future operating performance and the profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.

“PENNY STOCK” RULES MAY MAKE BUYING OR SELLING OUR COMMON STOCK DIFFICULT.

If the market price for our common stock is below $5.00 per share, trading in our common stock may be subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules would require that any broker-dealer that would recommend our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations would require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock.

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ITEM 2. FINANCIAL INFORMATION.

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

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations. This MD&A is provided as a supplement to, and should be read in conjunction with, the accompanying financial statements, financial data and related notes. Except for the historical information contained herein, the discussions in MD&A contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements. Our future results could differ materially from those discussed herein.

RESULTS OF OPERATIONS

OVERVIEW

Microphase Corporation designs and manufactures custom RF (radio frequency) and microwave products from DC to 40 GHz. Our products include components, subsystems and multi-function assemblies for the military and commercial markets. The Company has been in business for over 58 years and is one of the oldest and most established RF and microwave products companies in the industry.

The Company’s RF and microwave products enable the transmission, reception and processing of high frequency signals in defense electronics, homeland security systems and telecommunication networks. Our RF products are typically used in high frequency applications and include filters, switch filters, diplexers, multiplexers, detectors, detector logarithmic video amplifiers (DLVA) and multi-function assemblies. The end products in which the Company’s products are used include fighter planes, missiles, submarines, ships, drones, and IED jammers. Customers include Lockheed Martin, Raytheon, Saab, Rockwell Collins, L3 Communications and Northrup Grumman. Sales to the military markets comprised 100% of sales for 2013 and 2014.

Many years of deficit spending have caused U.S. Government budgets to come under significant pressure in recent years. In particular, the Budget Control Act of 2011 resulted in automatic spending reductions known as sequestration, through budget caps for both defense and non-defense spending. According to usgovernmentspending.com spending on Military Defense has gone from $693.5 billion in the government fiscal year 2010 (ending September 30) to $705.6 billion in 2011, $677.9 billion in 2012, $633.4 billion in 2013 and $603.5 in 2014. This decrease has had a significant negative impact on Microphase’s customers, with a resultant negative impact on Microphase’s results during and prior to the past three fiscal years.

ACQUISITIONS

Microphase is responding to the decrease in the defense budget by pursuing acquisitions of companies or product lines which are similar and/or related to existing product lines. In March of 2013 the Company acquired the assets of a DLVA manufacturing business in Folsom, California from Microsemi Corp. for $100,000 in cash plus a $650,000 note with payments through December 2014. That business contributed $1,705,117 in revenues and net operating losses of ($154,119) in fiscal 2014 as meaningful sales began in the 2nd fiscal quarter after the acquisition in March 2013.

On July 9, 2014 Microphase executed a securities purchase agreement with AmpliTech Group Inc. of Bohemia, N.Y. to purchase, as amended, 8,666,666 AmpliTech common shares at $0.023 per share for a total purchase price of $200,000. The purchase price was made up of two installments of $100,000. To date the investment has been a passive investment in the public stock of the AmpliTech.

On August 8, 2014 the Company signed a strategic partnership agreement with Dynamac, Inc. to develop, manufacture and market a portfolio of low cost RF/Microwave and Millimeter-wave calibrated test probes and related universal test platforms. Microphase agreed to pay a one-time licensing and rights fee of $350,000 of which $50,000 was paid in the first quarter of fiscal 2015, and the remaining $300,000 was originally due in the second quarter. The Company is presently renegotiating repayment terms as well as the expected delivery date of the initial proto-type products. Microphase also agreed to pay a 25% royalty fee based on the list price of each product sold by Microphase. Microphase has a first right of refusal to purchase the product line for $2.5 million for 3 years from the date of the agreement.

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TWELVE MONTHS ENDED JUNE 30, 2014 VS. JUNE 30, 2013

Revenues.  Total revenues for the year ended June 30, 2014 were $7,198,816, up from $5,473,756, in 2013, an increase of 32%. The revenue increase for the current fiscal year was due to the new revenues of $1,705,117 from the acquisition of certain products and customers from Microsemi Corp. in March of 2013. These products are manufactured in Folsom, California and comprise a new division at Microphase known as Microphase West.

Cost of sales.  Cost of sales increased $660,155 for the year ended June 30, 2014 from $3,625,158 in 2013 to $4,285,313 an increase of 18%. This increase in cost of sales is in line with the increase in revenues. The gross profit margin for 2013 was 34% and for 2014 was 40%. This reflects reduced occupancy costs from a reduction in manufacturing space pursuant to the sale of the building in November 2013 and the lease back of approximately 50% of the building.

General and Administrative Expenses.  Selling, general and administrative expenses were $2,693,692 for the year ended June 30, 2013 compared to $2,573,984 for the year ended June 30, 2014, a decrease of $119,708 or 4%. SG&A expenses in 2013 included $895,484 of non-cash charges relating to consulting fees in connection with the issuance of common stock and that amount in 2014 was $450,000, a reduction of $445,484. SG&A expenses also decreased due to reduced occupancy charges due to the sale and then lease-back of the building.

Engineering and Research Expenses.  Engineering and research expenses were up from $681,632 in 2013 to $717,847 in 2014, an increase of 5%. Engineer and research expenses increased due to the acquisition of the products line from Microsemi Corp. and due to the return of an engineer from an extended absence.

Non-operating Income (Loss).  Non-operating income increased from ($13,972) in 2013 to $2,279 in 2014, an increase of $16,071. This increase was due to the sale of certain equipment in excess of book value.

Interest (Expense and Credit costs) net.  Interest expense and credit costs increased from $374,640 in 2013 to $421,597 in 2014, an increase of 13%. The 2013 amount included $135,776 in interest and fees for the Gerber Finance Inc. debt facility, and $238,864 in interest on other debt. The 2014 amount included $219,285 in interest and fees to Gerber, and $202,312 in interest on other debt. The higher interest costs in 2014 reflect the higher debt levels incurred to fund the operations of the Microphase West business and the payment of the penalty rate of interest of 12% versus the base rate of 7%.

Realized Gain on Sale of Building.  The Company realized a gain on the sale of its headquarters building in Norwalk, CT in November of 2013 of $2,355,904, net of a swap mortgage charge of $351,999. The Company sold the building and then leased back approximately 50% of the building.

Realized Loss on Securities.  The realized loss on securities increased from $0 in 2013 to ($60,033) in 2014. There were no sales of securities in 2013 and in 2014 the Company transferred at fair market value its shares in mPhase Technologies, Inc. to two officers in exchange for reduction in shareholder loans.

Net Income (Loss).  Microphase recorded a net gain of $1,496,125 for the year ended June 30, 2014 as compared to a loss of ($1,915,588) for 2013 the same period ended June 30, 2013, an increase of $3,411,713. Without the gain on the sale of the building, the net loss for 2014 would have been ($859,779), a decrease of $1,055,809 from 2013. The decrease in net loss in 2014 was due to the reduction of the $895,484 of non-cash charges in 2013 to 450,000 in 2014 discussed above in SG&A and the additional revenues from Microphase West. This represents income per share of $0.53 in 2014 as compared to a loss per common share of ($0.96) in 2013, based upon weighted average common shares outstanding during the periods ending June 30, 2014 and June 30, 2013 of 2,844,806 and 1,991,791 respectively.

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SIX MONTHS ENDED DECEMBER 31, 2014 VS. DECEMBER 31, 2013

Revenues.  Total revenues for the six months ended December 31, 2014 were $3,779,078, up from $2,924,443, in 2013, an increase of $854,635 or 29%. The revenue increase for the current period was due to an increase in revenues of $356,059 from Microphase West and an increase in revenues of $498,576 primarily due to two DLVA programs in Microphase East, which began shipping in July 2014.

Cost of sales.  Cost of sales increased $351,719 for the six months ended December 31, 2014 from $1,891,799 in 2013 to $2,243,518, an increase of 19%. This increase in cost of sales is due to the increase in revenues. The gross profit margin for 2013 was 35% and for 2014 was 41%. This improvement reflects an increase in productivity from the volume increase and reduced occupancy related costs from a reduction in manufacturing space pursuant to the sale of the building in November 2013 and the lease back of approximately 50% of the building.

General and Administrative Expenses.  Selling, general and administrative expenses were $936,310 for the six months ended December 31, 2013 compared to $1,918,138 for the six months ended December 31, 2014, an increase of $981,828 or over 100%. SG&A expenses in 2014 include a $630,000 non-cash charge for stock grants and the remaining $351,828 increase is due to higher payroll expenses from the addition of one senior staff member and three senior accounting employees to Microphase East and additional staff at Microphase West, as well as approximately $90,000 higher professional fees in the current period.

Engineering and Research Expenses.  Engineering and research expenses for the six months ended December 31, 2013 were up from $321,461 to $500,629 in the same period in 2014, an increase of $179,168, or 56%. Engineering and research expenses in 2014 include an $80,000 non-cash charge for stock grants and increased staffing due to the acquisition of the product line from Microsemi Corp. and the return of a senior engineer from an extended absence in the current period.

Non-operating Income (Loss).  Non-operating income (loss) increased from ($7,544) of loss in the six months ended December 31, 2013 to $1,018 in 2014. This includes the receipt of $2,275 of salvage proceeds from a vehicle previously leased.

Interest (Expense and Credit costs) net.  Interest expense and credit costs decreased from $236,170 during the six months ended December 31, 2013 to $119,589 for the current period in 2014, a decrease of $116,581. The 2013 amount included $89,185 in interest and fees for the Gerber Finance Inc. debt facility, and $146,984 in interest on other debt, which includes mortgage interest in 2013 through November. The 2014 amount included $71,656 in interest and fees to Gerber, and $47,933 in interest on other debt. The lower interest costs in 2014 reflect the lower debt levels of the Gerber Facility and the repayment of the bank debt related to the headquarters building.

Net loss.  Microphase recorded a net loss of $1,225,894 for the six months ended December 31, 2014 as compared to income of $1,887,063 for the same period ended December 31, 2013, a swing of $3,112,957. The primary factors for this swing are the $2,355,904 non-recurring gain from the sale of the Company’s headquarters in 2013 combined with a significant amount of non-cash charges relating to the issuance of stock, $933,866, incurred in the six month period in 2014 for charges; $710,000 of which related to the grant of shares to long time employees as well as consultants and $223,866 of beneficial conversion feature interest expense associated with the offer to convert long standing loans to related parties resulting in a corresponding loss on debt settlements. This represents a loss per common share of ($.52) in 2014 as compared to net income per share of $.73 in 2013, based upon basic & diluted weighted average common shares outstanding during the six month periods ending December 31, 2014 and December 31, 2013 of 3,592,142 and 2,577,101 respectively.

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LIQUIDITY AND CAPITAL RESOURCES

Through the fiscal year ended June 30, 2014, the Company reported net income of $1,496,125 and had cash and cash equivalents of $445,080. At June 30, 2014 Microphase had a working capital deficit of $1,127,954 as compared to a working capital deficit of $2,537,807 as of June 30, 2013, an improvement of $1,409,853 in the deficit. The primary source of the improvement in fiscal 2014 compared to fiscal 2013 was from the sale of the Company’s headquarters, less the associated mortgage payoff, and proceeds from the issuance of common stock in private placements. Our financial condition raises substantial doubt that we will be able to continue as a “going concern”, and our independent auditors included an explanatory paragraph regarding this uncertainty in their report on our financial statements as of June 30, 2014. As of June 30, 2014, we had an accumulated deficit of $10,717,263. Through the six months ended December 31, 2014, the Company reported a net loss of $1,225,894 which included non-cash charges relating to the issuance of stock of $933,866. We had cash of $48,161 at December 31, 2014 and we had a working capital deficit of $1,512,757. When compared to the working capital deficit of $1,127,954 on June, 30, 2014, this represents an increase of $384,803 primarily due the $550,000 of investments made during the six months ended December 31, 2014.

Cash used in operating activities was $808,474 during the twelve months ended June 30, 2014 and $452,266 for 2013.

During the 2014 fiscal year the cash used in operating activities consisted principally of the net income of $1,496,125 reduced by: the gain on the sale of the building of $2,355,904, by an increase in accounts receivable of $437,861, by an increase in other current assets of $109,715, by a reduction in the cash overdraft of $129,353, and by a decrease in accounts payable of $247,215. The cash used in operating activities was decreased by non-cash charges related to the issuance of common stock of $450,000, an increase in accrued Officers wages of $174,286, a decrease in inventory of $155,444 and depreciation and amortization of $109,855.

During the 2013 fiscal year the cash used in operating activities consisted principally of the net loss of $1,915,588 increased by: a decrease in reserves for accounts receivable and inventory of $54,000, by an increase in other current assets of $12,110, by a reduction in the cash overdraft of $55,664, by a decrease in accounts payable of $4,048 and a decrease of other current liabilities of $154,488. The cash used in operating activities was decreased by non-cash charges related to the issuance of common stock of $895,484, an increase in accrued Officers wages of $290,723, a decrease in inventory of $207,068 and depreciation and amortization of $82,588.

Cash from operating activities was $104,696 during the six months ended December 31, 2014 as compared to $386,856 (used in) operating activities for the same period in 2013, a swing of $491,552.

During the six month period in 2014 the cash provided by operating activities in spite of the net loss of $1,225,894, primarily because a significant amount of non-cash charges relating to the issuance of stock of $933,866, incurred in this period for charges; $710,000 relating to the grant of shares to long time employees as well as consultants for additional efforts preparing the Company to be in position bring its financial reporting current and $223,866 loss on the settlement of liabilities associated with the offer to convert long standing loans to related parties and pay a cumulative preferred dividend at an equivalent rate of $1.50 per share, as approved by the shareholders, which is less than the value of our common offered in concurrent private placements. The net loss was also offset by depreciation and amortization of $44,929, by a decrease in other current assets of $47,202, an increase in accrued expenses of $92,248, and from a decrease in accounts receivable of $321,835. Cash provided by operating activities was decreased primarily due to a decrease in customer deposits of $89,634, a decrease in trade payables of $4,685 and a reduction in unpaid compensation to officers of $29,750.

During the six month period in 2013 the cash used in operating activities consisted principally of the net income of $1,887,063 reduced by the non operating gain on real estate of $2,355,903, which was offset by depreciation and amortization of $39,226, by an increase in customer deposits of $68,752, an increase in trade payables of $13,874 and an increase in accrued expenses of $147,890. Cash provided by operating activities was decreased primarily by an increase in accounts receivable of $141,987, an increase in other current assets of $56,736, and by an increase in inventory of $14,025.

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The Company has financed its operations in recent years primarily through a debt facility with a financial firm, loans from officers and related parties and since April of 2013 the private placement of common stock to accredited investors.

The Company entered into a revolving credit facility with Gerber Finance, Inc. (“Gerber”) in 2012 with a maximum for this line of $1,500,000. The outstanding balance as of June, 30, 2014 was $925,304 and as of June 30, 2013 was $1,171,859. Under this agreement the Company receives funds based on a borrowing base which consists of various percentages of certain assets. The interest rate for 2014 was 12% and there is an annual facility fee of 1.75% plus monthly collateral monitoring fees of $1,500 and other fees. The outstanding balance as of December 31, 2014 was $792,368.

From July 1, 2014 through December 31, 2014 the Company completed transactions in private placements of its common stock to accredited investors pursuant to Rule 504 of regulation D and Section 4(2) of the Securities Act of 1933, as amended. The Company issued 261,782 shares of its common stock at $2.00 per share including 68,782 shares paid to finders and received net proceeds of $354,550, after deducting $31,450 of cash costs, which was used for working capital.

During the six month period ended December 31, 2014 the Company paid the remaining $360,000 on its acquisition note with Microsemi Corp. in full. We also invested $200,000 in a securities purchase agreement with AmpliTech Group Inc. of Bohemia, N.Y. Additionally during this six month period the Company invested $50,000 toward the total purchase price of $350,000 for a one-time licensing and rights fee in connection with the execution of a strategic partnership agreement with Dynamac, Inc. to develop, manufacture and market a portfolio of low cost RF/Microwave and Millimeter-wave calibrated test probes and related universal test platforms. The Company is presently renegotiating the terms for the remaining $300,000 licensing and rights fee and the expected delivery date of the initial proto-type products. Microphase also agreed to pay a 25% royalty fee based on the list price of each product sold by Microphase. Microphase has a first right of refusal to purchase the product line for $2.5 million for 3 years from the date of the agreement.

During the 12 month period ended June 30, 2014 the Company raised capital through private placements of common stock with accredited investors, whereby the Company issued 756,725 shares of the Company’s common stock at $2.00 per share, including 196,725 shares to finders, generating net proceeds to the Company of $1,019,551 which is net of $102,750 of offering costs.

During the 12 month period ended June 30, 2013 the Company raised capital through private placements of common stock with accredited investors, whereby the Company issued 294,641 shares of the Company’s common stock at $2.00 per share, including 57,141 shares to finders, generating net proceeds to the Company of $439,375 which is net of $35,624 of offering costs.

Preferred stock dividend

Effective December 31, 2014 the Board of Directors approved and declared payable all cumulative dividends in arrears for preferred shares of Microphase outstanding at September 30, 2014, under the original terms for preferred shares commencing with preferred shares issued since March 31, 2010. The Board also authorized the conversion of the liability for the preferred dividend payable into common shares at $1.50 consistent with the conversion rate for debt conversions approved by shareholders at the October 4th special meeting, resulting in the issuance of 329,825 shares of the Company’s common stock as payment of $494,735.

Capital stock conversions

Effective December 31, 2014, an officer and a former employee converted $150,000 and $170,000, respectively, or a total of $320,000 of related party loans into 213,333 shares of the Company’s common stock. Another officer converted $180,000 of related party loans into 1,800 shares of the Company’s preferred stock. Two officers each converted $80,000, or a total of $160,000 of unpaid compensation into a total of 1,600 shares of the Company’s preferred stock. A strategic vendor converted $15,000 of accounts payable into 10,000 shares of the Company’s common stock.

Other stock issuances

Effective December 31, 2014, the Company issued 355,000 shares of its common stock to advisors, consultants and employees valued at $710,000, which will be charged to operations in the quarter ending December 31, 2014.

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CURRENT STATUS AND MANAGEMENT’S PLANS

The Company has been seeking to diversify its market focus beyond its legacy products. By utilizing our current capability together and positioning ourselves through targeted acquisitions, strategic alliances and product partnering we believe we can augment our current product offerings and will further enable us to continue to introduce a mix of Military Electronic Defense, Department of Homeland Security and commercial products for the wireless telecom, autonomous auto, test & measurements, and medical instrumentation markets. This strategy should enable Microphase to broaden its customer base and reduce risk by spreading its revenue base across multiple market sectors. Targeted strategic acquisitions should increase our market share and technology value of our product lines as well as broaden our product offering and diversify our customer base.

The Company anticipates that it will need between $750,000 to $1,500,000 of additional capital over the next eighteen months. We may also need to issue shares of the Company’s common stock to maintain and fund the existing strategic alliances, product partnering and those targeted acquisitions the Company believes it can integrate in a productive manner. Having integrated the business component that we acquired from Microsemi Corp. we plan to finalize and implement our strategic partnership to develop, manufacture and market a portfolio of low cost RF/Microwave and Millimeter-wave calibrated test probes and related universal test platforms with Dynamac.

The Company’s ability to continue as a going concern and its future success is dependent upon its ability to raise capital in the near term to: (1) satisfy its current obligations, (2) continue its research and development efforts, and (3) successfully continue the development, marketing and delivery of its products.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ASSUMPTIONS

The SEC defines critical accounting policies as those that are, in management’s view, most important to the portrayal of our financial condition and results of operations and those that require significant judgments and estimates.

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

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

Basis of Accounting

The accompanying consolidated financial statements have been prepared using the accrual basis of accounting.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers deposits that can be redeemed on demand and investments that have original maturities of less than three months, when purchased, to be cash equivalents. Company’s cash and cash equivalents were deposited primarily in two financial institutions.

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Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of Accounts Receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change in the future.

Depreciation and Amortization

Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally, accelerated depreciation methods) for tax purposes where appropriate. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.

Income Taxes

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740 “Income Tax”. ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of certain assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has adopted the provisions of FASB ASC 740-10-05 “Accounting for Uncertainty in Income Taxes”. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is determined by dividing the net earnings (loss) by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings (loss) by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities (such as stock options, preferred stock subsequent to October 4, 2014, and convertible securities) outstanding under the treasury stock method. There were no dilutive financial instruments issued or outstanding for the periods presented. On October 4, 2014 the shareholders approved a convertible feature in preferred stock, such preferred stock at par value convertible into common shares at agreed upon market value.

Inventory Obsolescence

Inventory quantities and related values are analyzed at the end of each fiscal quarter to determine those items that are slow moving or obsolete. An inventory reserve is recorded for those items determined to be slow moving with a corresponding charge to cost of goods sold. Inventory items that are determined obsolete are written off currently with a corresponding charge to cost of goods sold.

Revenue Recognition

Revenues and costs of revenues are recognized during the period in which the products are shipped. The Company applies the provisions of FASB Accounting Standards Codification (“ASC”) 605-10, Revenue Recognition in Financial Statements ASC 605-10, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605-10 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue for sale of products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) the collectability is reasonably assured.

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The Company’s sources of revenue are from the sale of various component amplifiers and filters. Revenue is recognized upon shipment of such products, FOB shipping point. The Company offers a 100% satisfaction guarantee against defects for 90 days after the sale of their product except for a few circumstances. There are no maintenance or service contracts related to any product sale.

Use of Estimates

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 the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates.

OFF BALANCE SHEET TRANSACTIONS

As of February 12, 2015, we did not have any off-balance sheet arrangements.

ITEM 3. PROPERTIES.

Corporate Offices

We maintain our current principal office at 587 Connecticut Avenue, Norwalk, Connecticut 06854. Our telephone number at this office is (203) 866-8000. In November 2013 the Company sold the headquarters building to 587 Connecticut Avenue LLC. From November 27, 2013 through the present the Company leases back a portion of the building, approximately 15,000 sq. ft., for $10,103 per month. The rent expense for the period November 27, 2013 to June 30, 2014 was $79,721. Under the terms of the lease, either party may terminate the lease with 90 days prior notice. The Company anticipates moving to Shelton Connecticut on or about April 1, 2015, to a facility with 15,000 square feet with monthly rent of $15,000, for a 7-year term with annual escalations of 3%.

In connection with the acquisition of selected assets from Microsemi the Company signed a lease for 4,000 square feet of space at Microsemi Corp’s facility in Folsom, California. The initial terms of the lease were $8,400 per month rent with a term of one year. The rent expense for this facility for 2013 was $25,200. The commitment for fiscal 2014 was $75,600. The lease was renegotiated in April of 2014 with a new rent of $7,000 per month beginning in June 2014. The end of the lease is currently June 2015. The commitment for fiscal 2015 is $84,000.

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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth as of February 12, 2015 certain information regarding the beneficial ownership of our shares:

1. by each person who is known by us to be the beneficial owner of at least five percent (5%) of our outstanding common stock;
2. by each of our directors;
3. by each executive officer named in the compensation table: and
4. by all of our directors and executive officers as a group

       
AFFILIATES(1 & 2)   Shares   Warrants/
conversion
rights
  TOTAL   Percent of
Common
RCKJ Trust(3)(4)(5)(6)     1,265,923       1,166,640       2,432,563       41.85 % 
James Ashman     20,000             20,000       0.43 % 
Michael Ghadaksaz     20,000             20,000       0.43 % 
Ned Ergul(4)(5)(7)     920,419       585,867       1,506,286       28.79 % 
Jeffrey Peterson     10,000             10,000       0.22 % 
Ronald Durando(8)     0       0       0       0  
Brian Kelly     198,000             198,000       4.26 % 
Total Affiliates     2,434,342       1,752,507       4,186,849       75.98 % 

Microphase Holding Company, LLC, a limited liability company, in which the RCKJ Trust owns 50% of the membership interests and Mr. Ergul owns 50% of the membership interests, is the owner of 1,833,702 shares of Common Stock and 11,876 shares of preferred stock convertible into 791,734 common shares; however, Microphase Holding Company, LLC is not included in the above table because such shares have been included in the amounts indicated for the RCKJ Trust and Mr. Ergul.

(1) Unless otherwise indicated, the address of each beneficial owner is 587 Connecticut Avenue, Norwalk, Connecticut 06854-1711.
(2) Unless otherwise indicated, Microphase believes that all persons named in the table have sole voting and investment power with respect to all shares of the Company beneficially owned by them. The percentage for each beneficial owner listed above is based upon 4,645,306 shares outstanding on February 3, 2015 and, with respect to each person holding options, warrants or similar conversion rights to purchase shares that are exercisable within 60 days after February 3, 2015, the number of options and warrants or similar conversion rights are deemed to be outstanding and beneficially owned by the person for the purpose of computing such person’s percentage ownership, but are not deemed to be outstanding for the purpose of computing the percentage owenrship of any other person.
(3) On February 9, 2015 Mr. Durando assigned all his interests in the Common and Preferred stock of the Company held in MHC, Durando Investments, LLC and individually, for a period not less than three years, to the RCKJ Trust. Decisions with respect to the voting and disposition of such shares shall be made by the trustee, Dennis Durando, Mr. Durando’s brother, who disclaims beneficial ownership of such shares in his individual capacity.
(4) Includes 916,851 shares owned by Microphase Holding Company, LLC.
(5) Includes as warrants the conversion rights of 5,938 shares of preferred stock convertible into 395,867 common shares owned by Microphase Holding Company, LLC.
(6) Includes as warrants the conversion rights of 1,050 and 11,511 shares of preferred stock convertible into 70,000 and 700,773 common shares owned by RCKJ Trust previously owned by Mr. Durando individually and Durando Investments, LLC, respectively.
(7) Includes as warrants the conversion rights of 2,850 shares of preferred stock convertible into 190,000 common shares owned by Mr. Ergul.
(8) Mr. Durando was the Company’s chief operating officer since October 31, 2006 and a director since March 31, 2010 until his resignation from such positions on January 22, 2015.

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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS.

The following table contains information with respect to our directors and executive officers. To the best of our knowledge, none of our directors or executive officers have an arrangement or understanding with any other person pursuant to which he or she was selected as a director or officer. There are no family relationships between any of our directors or executive officers, other than Jeffery Peterson, who is the son in law of Necdet Ergul. Directors serve one year terms. Our executive officers are appointed by and serve at the pleasure of the board of directors.

Necdet F. Ergul, age 92, Chairman of the Board of Directors, Chief Executive Officer and President.

Mr. Ergul has guided the development of Microphase Corporation, which he founded in 1955, since inception to become a leading developer of military electronic defense and telecommunications technology. In addition to his management responsibilities at Microphase, he is active in engineering design and related research and development. Under Mr. Ergul’s direction, Microphase has achieved its current position in the industry with respect to the design and physical miniaturization of passive Multiplexers.

Mr. Ergul holds a Masters Degree in Electrical Engineering from the Polytechnic Institute of Brooklyn, New York.

Mr. Paul H. DeCoster, age 81, Director.

Mr. DeCoster combines over 50 years experience as an attorney working on corporate matters. Presently Mr. DeCoster has a limited practice for corporate clients and their respective owners and family members. Mr. DeCoster was a Partner in Jackson & Nash, LLP, where he worked for over 27 years through 1999, Mr. DeCoster received an bachelor of arts in history from Yale; 1955, and he received an LLB from Yale law school in 1958, and was admitted to the New York Bar in 1959.

James Ashman, age 60, Chief Financial Officer and Director.

Mr. Ashman has more than 20 years experience as a senior finance executive in the technology, telecommunications, software and advanced materials industries. Prior to that he spent 11 years as an investment banker, primarily at Prudential Securities, and executed public offerings of debt and equity, private placements and merger and acquisition advisories for companies in a wide range of industries. From 2013 to 2014 he was the Chief Financial Officer of DefenCall Inc., an emergency communication company in New Canaan, CT. From 2009 to 2013, he was the Chief Financial Officer of Axxun Inc., a software development company in Stamford, CT. From 2001 to 2008 Mr. Ashman was a member of the Board of Directors and Chairman of the finance committee and the compensation committee of Starfire Systems, Inc., a Malta, N.Y.-based developer and manufacturer of nano-structured ceramic materials and finished products. From 2005 to 2006 Mr. Ashman was the Chief Financial Officer of Phone Labs Technology Corporation, a New York City-based designer and manufacturer of cell phone docking stations. From 2003 to 2004 Mr. Ashman was the Interim Chief Financial Officer of SMART System technologies, Inc., an RFID payment company in NYC. From 1999 to 2002 he was a partner in TechOne Group LLC, an early stage venture capital firm based in Albany, N.Y. From 1994 to 1999 Mr. Ashman was Executive Vice President, Chief Financial Officer and a Director of CAI Wireless Systems, Inc., a publicly traded wireless telecommunications company acquired by MCI/WorldCom.

In addition to his position at Microphase he is also currently Chairman of the Board of SouthWest NanoTechnologies, Inc., a manufacturer of advanced materials based in Norman, Oklahoma. He has an undergraduate degree in economics from Columbia University and an MBA from Columbia Business School.

Michael Ghadaksaz, age 59, Chief Technology Officer, Chief Marketing Officer & Director.

Mr. Ghadaksaz combines over 29 years of experience in RF/Microwave, wireless technology, test & measurements, defense, and venture capital industries senior technology and executive management. Previously, he had been involved in 10 companies in RF/Microwave and Millimeter-wave products, wireless technology, electronic test & measurements, public safety land mobile radio, telecom, and military communications industries holding positions including President and Chief Technical Officer, Vice President of Business Development and Corporate Officer, Director of Technology Planning and Business Strategy, Director of Technology Strategy, Senior Scientist, Senior Member of Technical Staff, and Technical Manager. He had also served as a senior technology and business consultant to venture capital firms and technology investment banks. From 2010 to 2013, Mr. Ghadaksaz was the President and Chief Technical Officer of AES Technologies, Inc., an electronic test & measurement technology start-up company. From 2008 to 2010, he was Director of North America Technology Planning and Business Strategy for Huawei

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Technologies, a leading global and China’s largest telecom equipment manufacturer. From 2003 to 2008, he was Vice President of Business development, Corporate Officer, and Member of Board of Directors’ Technical Committee of Merrimac Industries (now Crane Aerospace), a leading manufacturer of integrated RF, Microwave, and Millimeter-wave products and solutions. From 1999 to 2002, he was Director of Technology Strategy of Motorola, the leading global manufacturer of land mobile radio products for Public Safety and Homeland Security markets. From 1995 to 1999, he was Senior Scientist and Director of Applications of Hughes Aircraft Company (now Raytheon), a leading defense and aerospace system manufacturer. Prior to his employment at Hughes Aircraft, Mr. Ghadaksaz held engineering and management positions at GTE Laboratories (now Verizon), General Electric Mobile Communications Business (now Harris), Canadian Marconi Defense Communications Division and Bell Canada Enterprises. Mr. Ghadaksaz holds several patents and was recipient of 2012 Illinois 10th Congressional District Community Leadership Award for Entrepreneurial Excellence.

He has an undergraduate degree from University of Ottawa and a Master’s degree in Microwave Electronics from Carleton University in Ottawa, Canada.

Jeffrey Peterson, 57, Chief Administrative Officer, Secretary, Treasurer and Director.

Mr. Peterson has over 14 years of accounting department and operations experience with the Company in Norwalk, CT, with various roles including recently returning as the Company’s controller. He also has 14 years of operations experience as assistant vice president with the Industrial Bank of Japan, New York Bank in New York, New York.

He has an undergraduate degree in Asian Studies from Vassar College, 1979, and an MBA from Pace University, 1983, and a bachelors’ degree in accounting from Pace University, 2003. He attained the CPA accreditation in 2005.

Family Relationships.

There are no family relationships between any of our directors or executive officers, other than Jeffery Peterson, who is the son in law of Necdet Ergul.

Involvement in Certain Legal Proceedings.

Except as discussed below, there have been no events under any bankruptcy act, any criminal proceedings and any judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of Registrant during the past ten years.

On October 19, 2007, in connection with the settlement and dismissal of a civil law suit originally filed on November 16, 2005 by the Securities and Exchange Commission in the Federal District Court in the District of Connecticut, the SEC issued a Cease and Desist Order and certain remedial sanctions against a former officer and director of the Company. The civil suit was filed against Packport.com, Inc., Microphase Corporation, and others, including such former officer and director of the Company. The civil suit named as respondents such former officer and director of the Company and others in connection with their activities as officers and directors of Packetport.com. The SEC cease and desist order found that such former officer and director of the Company (1) had violated Section 5 of the Securities Act of 1933, as amended, by making unregistered sales of common stock of Packetport.com; (2) had violated Section 16(a) of the Securities Exchange Act of 1934, as amended, and Rule 16(a) thereunder by failing to timely disclose the acquisition of his holdings on Forms 3 and 4; (3) had violated Section 13(d) of the Securities Exchange Act of 1934, as amended, for failing to disclose the acquisition of more than five percent of the stock of Packetport.com. Under the order such former officer and director of the Company agreed to disgorge $150,000 and Microphase agreed to disgorge $750,000. More information regarding the detailed terms of the settlement can be found in SEC Release No 8858 dated October 18, 2007 promulgated under the Securities Act of 1933 and SEC Release No. 56672 dated October 18, 2007 promulgated under the Securities Exchange Act of 1934.

Such former officer and director of the Company, together with Microphase Corporation and others, without admitting or denying the findings of the SEC, except as to jurisdiction and subject matter, have consented to the entry of the Order Instituting Cease and Desist Proceedings, Making Findings and Imposing a Cease and Desist Order and Remedial Sanctions pursuant to Section 8A of the Securities Exchange Act of 1933 and Section 21C of the Securities Exchange Act of 1934.

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The Board of Directors acts as the Audit Committee and the Board has no separate committees. The Company has no qualified financial expert at this time because it has not been able to hire a qualified candidate. The Company intends to continue to search for a qualified individual for hire.

ITEM 6. EXECUTIVE COMPENSATION

The following table provides each element of compensation paid or granted to each Executive officer and director, for service rendered during the fiscal year ended June 30, 2014.

Summary Compensation Table

           
Name and Principal Position   Year   Salary
($)
  Bonus
($)
  Option Awards
($)
  All Other Compensation
($)*
  Total
($)
Necdet F. Ergul-Chairman of the Board, Chief Executive Officer     FYE June 30, 2014     $ 250,000     $ 0     $ 0     $ 0     $ 250,000  
    FYE June 30, 2013     $ 250,000     $ 0     $ 0     $ 0     $ 250,000  
Ronald A. Durando-Chief Operating Officer, Director(1)     FYE June 30, 2014     $ 250,000     $ 26,900     $ 0     $ 0     $ 276,900  
    FYE June 30, 2013     $ 250,000     $ 23,750     $ 0     $ 0     $ 273,750  
Brian Kelly-Strategic Consultant     FYE June 30, 2014     $ 0     $ 0     $ 0     $ 199,038     $ 199,038  
    FYE June 30, 2013     $ 0     $ 0     $ 0     $ 160,353     $ 166,353  

(1) Mr. Durando resigned as Chief Operating Officer and Director on January 22, 2015.

Currently, the Company has employment agreements with Necdet Ergul, James Ashman, Michael Ghadaksaz and Ronald Durando.

Mr. Necdet Ergul, Chief Executive Officer, is presently compensated at an annualized rate of approximately $225,000.00 during fiscal 2015.

Mr. James Ashman, Chief Financial Officer and Director, joined the Company in August of 2014 and is presently compensated at an annualized rate of approximately $135,000 during fiscal 2015.

Mr. Michael Ghadaksaz, Chief Marketing and Technical Officer and Director, joined the Company in April of 2014 and is presently compensated at an annualized rate of approximately $135,000 during fiscal 2015.

Mr. Jeffrey Peterson, Chief Administrative Officer, Secretary and Treasurer, re-joined the Company in July of 2014 and is presently compensated at an annualized rate of approximately $90,000.00 during fiscal 2015.

Mr. Ronald Durando, Strategic consultant, re-joined the company in February of 2015 and is presently compensated at an annualized rate of approximately $225,000.00 during fiscal 2015.

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The Company had activities with related parties during the fiscal years 2014, 2013 and 2012 as follows:

Effective March 6, 2013 the Company received title to the corporate headquarters and production facility in Norwalk, CT in an exchange transaction intended to be tax free under IRC sec 351 from Microphase Holding Company, LLC, (“MHC”), an 82% shareholder of the Company at the time. Title to the building had originally been held by Edson Realty, Inc. (Edson), a related party which had transferred the building to MHC together with 2,532 preferred shares of the Company and 1,280,543 common shares of the Company for the assumption of $2,268,975 of mortgage and mortgage related obligations by MHC for a like amount of preferred and common shares of the Company, on the same date. The Company also issued 10,000 shares of its $100 par value preferred stock to MHC to complete the transaction. The historical carrying value of the building and underlying land as held by Edson and then MHC, $500,247, was recorded as the historical cost on the Company's books as of March 6, 2013. The Company recorded liabilities in excess of basis of $2,268,729 in connection with this transfer treated for accounting purposes as a contribution of property, which is shown as a reduction of equity in the Statement of Changes in Stockholders' Deficit during the fiscal year ended June 30, 2013.

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Prior to March 6, 2013 the Company was a guarantor of the mortgage note by Edson to Capital One Bank as part of the terms of its former lease with Edson. The balance of this note at June 30, 2012 was $2,289,268 plus any adjustments for swap differences. The Company assumed this mortgage in connection with the transfer of the building to the Company treated for accounting purposes as a contribution of property discussed above and the balance at June 30, 2013 was $2,270,187. On November 22, 2013 this mortgage was satisfied together with all mortgage related obligations including adjustments for swap differences, when the building was sold to an unrelated third party. Amortization of deferred finance costs included in interest expense for this mortgage was $20,192 and $1,524 in 2014 and 2013, respectively.

The Company has some common management and common significant shareholders with mPhase Technologies, Inc. and had owned a total of 42,793,354 shares of this publicly traded company. These shares were valued at $38,514 as of June 30, 2012. These shares were valued at $55,632 as of June 30, 2013 and effective June 30, 2014 the shares were transferred to two officers as partial payment of loans due to them by the Company; the transfer was valued at $34,235 based upon the closing trading price for these shares on that date. The Company realized a $60,033 loss on the disposition of these shares, $38,636 of which had previously been reserved for market value declines through June 30, 2013 and 21,397 was attributable to the year ended June 30, 2014.

The Company sub-leases office space to mPhase. In 2014 the rent received was $20,090, and in 2013 the amount was $12,290. In 2012 the rent received was $45,360. As of June 30, 2014 mPhase owed the Company $16,183, and at June 30, 2013 mPhase owed the Company $43,584. As of June 30, 2012 mPhase owed the Company $45,918.

Employment Contracts:

The Company has entered into employment contracts with Messrs. Ergul, Ashman and Ghadaksaz. Mr. Ergul entered into an employment agreement with the Company dated as of February 6, 2015 (the “Ergul Agreement”), pursuant to which Mr. Ergul will receive $225,000 per year in base compensation, in addition to certain benefits, for serving as the Company’s Chief Executive Officer. The term of the Ergul Agreement shall continue through February 1, 2018 and Mr. Ergul may receive severance for terminations under circumstances other than for Cause (as such term is defined therein). The Ergul Agreement contains provisions regarding indemnification, confidentiality and non-competition, among others.

Mr. Ashman entered into an employment agreement with the Company dated as of February 6, 2015 (the “Ashman Agreement”), pursuant to which Mr. Ashman will receive $135,000 per year in base compensation, in addition to certain benefits, for serving as the Company’s Chief Financial Officer. Mr. Ashman’s employment is “at will”, but Mr. Ashman shall receive six months’ severance upon termination. The Ashman Agreement contains provisions regarding indemnification, confidentiality and non-competition, among others.

Mr. Ghadaksaz entered into an employment agreement with the Company dated as of February 6, 2015 (the “Ghadaksaz Agreement”), pursuant to which Mr. Ghadaksaz will receive $135,000 per year in base compensation, in addition to certain benefits, for serving as the Company’s Chief Technology Officer and Chief Marketing Officer. Mr. Ghadaksaz’s employment is “at will”, but Mr. Ghadaksaz shall receive six months’ severance upon termination. The Ghadaksaz Agreement contains provisions regarding indemnification, confidentiality and non-competition, among others.

Mr. Durando entered into an employment agreement with the Company dated as of February 6, 2015 (the “Durando Agreement”), pursuant to which Mr. Durando will receive $225,000 per year in base compensation, in addition to certain benefits, for serving as the Company’s Strategic Advisor. The term of the Durando Agreement shall continue through February 1, 2018 and Mr. Durando may receive severance for terminations under circumstances other than for Cause (as such term is defined therein). The Durando Agreement contains provisions regarding indemnification, confidentiality and non-competition, among others.

The Company owed $534,849 to Mr. Ergul and $415,552 to its former chief operating officer as June 30, 2014 and 2013.

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Mr. Kelly entered into a consulting agreement with the Company dated as of June 8, 2008 (the “Kelly Agreement”), pursuant to which Mr. Kelly will receive $192,000 per year in base compensation, in addition to certain benefits, for serving as the Company’s Contractual General Manager. The term of the Kelly Agreement shall continue until terminated by either party. The Kelly Agreement contains provisions regarding indemnification, confidentiality and non-competition, among others.

Equity Lines of Credit:

The Company has guaranteed to Edson, and Messrs. Durando and Ergul, its majority shareholders, the repayment of loan origination costs, interest charges and the principal in full, for an Equity Line of Credit with Wells Fargo Bank totaling up to $250,000, the proceeds of which the Company received a concurrent loan from Edson when the credit line was funded on August 15, 2008. Edson incurred approximately $3,200 loan origination costs. The credit line was secured by residential real estate owned by Edson at that time. In June 2010 the Company issued 2,532 shares of its preferred stock to Edson to secure repayment of the $250,000 plus costs incurred, agreeing to continue to pay interest charges and committing to repay the principal by March 2012. This agreement was extended through March 2013, and again through June 2014. On June 30, 2013 the balance was $244,362 which is shown as a reduction of equity in the Statement of Changes in Stockholders' Deficit for the fiscal years ended June 30, 2013. In March, 2013 the Company agreed to assume the remaining balance owing by Edson and, effective June 30, 2014, indemnified Messrs. Durando and Ergul from any liability pertaining to this note, of $243,296 for the cancellation of 2,433 shares of its $100 par value preferred stock. There shares were reflected as not outstanding since March, 2010.

Effective June 30, 2014 the Company has guaranteed to Mr. Ergul, the repayment of a second Equity Line of Credit, totaling $131,545, with Wells Fargo Bank, secured by his principal residence. The proceeds of this home equity loan were primarily used to fund loan advances to the Company by the president in recent fiscal years. The Company committed to pay interest charges and the principal in full for this obligation and recorded the assumption as a $100,000 reduction of loans and a $31,545 reduction of unpaid compensation due to the president.

ITEM 8. LEGAL PROCEEDINGS.

Other than the legal proceeding disclosed in Item 5 above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, pending or threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information.

There is no established public trading market for our common stock.

Restrictions of Transfer.

The ability of individual stockholders to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer’s securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Presently, we have no plans to register our securities in any particular state. Further, our shares may be subject to the provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the “penny stock” rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.

The SEC generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the SEC; authorized for quotation on The NASDAQ Stock Market; issued by a registered investment

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company; excluded from the definition on the basis of price (at least $5.00 per share) or the issuer’s net tangible assets; or exempted from the definition by the SEC. Broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000 by an individual, or $300,000 together with his or her spouse), are subject to additional sales practice requirements.

For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent to clients disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade and/or maintain a market in our common stock and may affect the ability of stockholders to sell their shares.

We have not previously filed a registration statement under the Securities Act. Shares sold pursuant to exemptions from registration are deemed to be “restricted” securities as defined by the Securities Act. As of February 12, 2015, out of a total of 4,645,306 shares outstanding, 4,645,306 shares are restricted securities and can only be sold or otherwise transferred pursuant to a registration statement under the Securities Act or pursuant to an available exemption from registration. Of such restricted shares, 2,444,342 (52.6%) shares are held by affiliates (directors, officers and 10% holders), with the balance of 2,200,964 (47.4%) shares being held by non-affiliates. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares of a reporting company for at least six months, including any person who may be deemed to be an “affiliate” of the company (as the term “affiliate” is defined under the Securities Act), is entitled to sell, within any three-month period, an amount of shares that does not exceed the greater of (i) the average weekly trading volume in the company’s common stock, as reported through the automated quotation system of a registered securities association, during the four calendar weeks preceding such sale or (ii) 1% of the shares then outstanding. In order for a stockholder to rely on Rule 144, adequate current public information with respect to the company must be available. A person who is not deemed to be an affiliate of the company and has not been an affiliate for the most recent three months, and who has held restricted shares for at least six months is entitled to sell such shares without regard to the various resale limitations under Rule 144. Under Rule 144, the requirements of paragraphs (c), (e), (f), and (h) of such Rule do not apply to restricted securities sold for the account of a person who is not an affiliate of an issuer at the time of the sale and has not been an affiliate during the preceding three months, provided the securities have been beneficially owned by the seller for a period of at least one year prior to their sale. For purposes of this registration statement, a controlling stockholder is considered to be a person who owns 10% or more of the company’s total outstanding shares, or is otherwise an affiliate of the Company. No individual person owning shares that are considered to be not restricted owns more than 10% of the Company’s total outstanding shares.

Holders

As of February 12, 2015, we had 162 holders of record of common stock per the shareholder list provided by the Company’s transfer agent.

As of February 12, 2015, we had 7 holders of record of the Company’s preferred stock as maintained by the Company’s Secretary and Treasurer.

Dividends

The Registrant has not paid any cash dividends on common stock to date and does not anticipate or contemplate paying any dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the growth of the Registrant’s business.

Equity Compensation Plan Information

We currently do not have an equity compensation plan. The Board of Directors authorized the implementation of a stock option plan for fiscal 2015 reserving 250,000 share of common stock for such purpose.

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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.

Common Stock Transactions

During the Fiscal Year ended June 30, 2013, the Company issued 447,742 shares of its common stock for services and charged $895,484 to selling general and administrative expense, valuing the shares based upon the value of concurrent private placements. The Company also issued 294,641 shares of its common stock to accredited investors in private placements of its common stock to accredited investors pursuant to Rule 504 of regulation D and Section 4(2) of the Securities Act of 1933, as amended, which included 57,141 shares to finders and $35,625 of offering costs, generating $439,375 net proceeds to the Company.

During the Fiscal Year ended June 30, 2014, the Company issued 225,000 shares of its common stock for services and charged $450,000 to selling general and administrative expense, valuing the shares based upon the value of concurrent private placements. The Company also issued 756,725 shares of its common stock to accredited investors in private placements of its common stock to accredited investors pursuant to Rule 504 of regulation D and Section 4(2) of the Securities Act of 1933, as amended, which included 196,725 shares to finders and $102,750 of offering costs, generating $1,019,551 net proceeds to the Company.

Preferred Stock Transactions

During the fiscal year ended June 30, 2013 the Company issued 10,000 shares of preferred stock, $100 par value per share, in connection with the acquisition of the building at 587 Connecticut Avenue in Norwalk, CT from a related party.

Also during the year ended June 30, 2013 the Company issued 500 shares of preferred stock to two officers in connection with the cancelation of $50,000 of debt owed to these officers.

As of June 30, 2014 and 2013, 23,543 and 23,543 preferred shares have been issued and the cumulative dividends undeclared were approximately $459,400 and $318,200, respectively.

Preferred stock dividend

Effective December 31, 2014 the Board of Directors approved and declared payable all cumulative dividends in arrears for preferred shares of Microphase outstanding at September 30, 2014, under the original terms commencing with preferred shares issued since March 31, 2010. The Board also authorized the conversion of the liability for the preferred dividend payable into common shares at $1.50 consistent with the conversion rate for debt conversions approved by shareholders at the October 4, 2014 special meeting, resulting in the issuance of 329,825 shares of the Company’s common stock as payment of $494,735.

Conversions of Debt

Effective December 31, 2014, Mr. Durando and a former employee converted $150,000 and $170,000, respectively, or a total of $320,000 of related party loans into 213,333 shares of the Company’s common stock. Mr. Ergul converted $180,000 of related party loans into 1,800 shares of the Company’s preferred stock. Messrs. Ergul and Durando each converted $80,000, or a total of $160,000 of unpaid compensation into a total of 1,600 shares of the Company’s preferred stock. A strategic vendor converted $15,000 of accounts payable of into 10,000 shares of the Company’s common stock.

Other stock issuances

Effective December 31, 2014, the Company issued 355,000 shares of its common stock to advisors, consultants and employees valued at $710,000, which will be charged to operations in the quarter ending December 31, 2014.

ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.

Common and Preferred Stock

The Company is authorized by its Certificate of Incorporation and Certificate of Designation to issue an aggregate of 8,000,000 shares of capital stock, of which 7,800,000 are shares of common stock, no par value per share (the “Common Stock”) and 200,000 are shares of Series A Convertible Preferred Stock, par value $100.00 per share (the “Preferred Stock”). As of February 12, 2015, 4,645,306 shares of Common Stock and 26,943 shares of Preferred Stock were issued and outstanding, respectively.

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Common Stock

The holders of our Common Stock (i) have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by our Board of Directors; (ii) are entitled to share ratably in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs; (iii) do not have pre-emptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights; and (iv) are entitled to one non-cumulative vote per share on all matters on which shareholders may vote.

The shares of our Common Stock are not subject to any future call or assessment and all have equal voting rights. There are no special rights or restrictions of any nature attached to any of the shares of our Common Stock and they all rank at equal rate or “pari passu”, each with the other, as to all benefits, which might accrue to the holders of the shares of our Common Stock. All registered shareholders are entitled to receive a notice of any general annual meeting to be convened.

At any general meeting, subject to the restrictions on joint registered owners of shares of our Common Stock, on a showing of hands every shareholder who is present in person and entitled to vote has one vote, and on a poll every shareholder has one vote for each share of our Common Stock of which he is the registered owner and may exercise such vote either in person or by proxy. Holders of shares of our Common Stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in such event, the holders of the remaining shares will not be able to elect any of our directors.

Preferred Stock

As of February 12, 2015, 200,000 shares of our Preferred Stock RCKJ Trust shares are authorized of which 26,943 were issued and outstanding, held by seven shareholders, MHC, Mr. Ergul, and 4 other shareholders.

Dividends

The preferred stock, with respect to dividends ranks senior to the common stock and of the Company. Holders of Preferred Stock are entitled to receive, when and as declared by the Board of Directors, dividends, at the annual rate of 6% of the stated par value, or $100 per share. Dividends are cumulative and accrue from the effective date of issuance of the Preferred Stock until declared.

Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders Preferred Stock shall be entitled to be paid the full par value of such Preferred Stock, plus the dividends accumulated thereon up to the date of such liquidation, dissolution, or winding up of the Company (whether or not the Company shall have a surplus or earnings available for dividends), and no more. After payment to the holders of the Preferred Stock of the full amount payable to them as aforesaid, the remaining assets of the Company shall be payable to and distributed pro rata among the holders of record of the Common Stock. For purposes of this Subsection (b), the consolidation or merger of the Company with or into another corporation or entity shall not constitute, nor shall the sale, lease or conveyance of all or substantially all of the assets of the Company as an entity in and of itself, constitute, a liquidation, dissolution or winding up of affairs of the Company.

Conversion

The preferred shares are convertible into common shares at any time at the option of the holders the preferred shares, on notice to the Company. The conversion price is set by the board of directors at the time of each issuance of preferred. The presently issued and outstanding 26,943 preferred shares were convertible into common at $1.50 per share, or 66  2/3 shares of common for each share of preferred through December 31, 2014, 3,400 convertible into Common at $1.50 after December 31, 2014 and the balance are expected to be convertible into common at the trading price on the date of future conversions subsequent to this filing should the Company’s common stock become quoted in an established public trading market.

Voting Rights

The holders Preferred Stock, voting together with the holders of Common Stock, have one vote per share for the election of directors and on all other matters.

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Transfer Agent and Registrar

The transfer agent and registrar for our Common Stock is:
Jersey Stock Transfer, LLC
TEL: (973) 814-7004
FAX: (973) 215-2740
PO BOX 606
1250 SUSSEX TURNPIKE, #606
MOUNT FREEDOM,
NJ 07970-0606

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Our directors and officers are indemnified as provided by the Connecticut corporate law. We have agreed to indemnify each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

We have been advised that in the opinion of the SEC indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court’s decision.

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ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

A. INDEX TO FINANCIAL STATEMENTS

 
  Page
Report of Independent Registered Certified Public Accounting Firm on the Consolidated Financial Statements     F-2  
Consolidated Balance Sheets — June 30, 2014 and June 30, 2013, and December 31, 2014 (unaudited)     F-3  
Consolidated Statements of Operations — Fiscal Years ended June 30, 2014 and June 30, 2013, and the six months ended December 31, 2014 and 2013 (unaudited)     F-4  
Consolidated Statements of Comprehensive Income (Loss) — Fiscal Years ended June 30, 2014 and June 30, 2013, and the six months ended December 31, 2014 and 2013 (unaudited)     F-5  
Consolidated Statements of Stockholders’ Deficit — Fiscal Years ended June 30, 2014 and June 30, 2013; and the six months ended December 31, 2014 (unaudited)     F-6  
Consolidated Statements of Cash Flows — Fiscal Years ended June 30, 2014 and June 30, 2013, and the six months ended December 31, 2014 and 2013 (unaudited)     F-7  
Notes to Consolidated Financial Statements     F-8  

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REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
  Stockholders of Microphase Corporation

We have audited the accompanying consolidated balance sheets of Microphase Corporation as of June 30, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit, and cash flows for each of the years in the two year period ended June 30, 2014. Microphase Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Microphase Corporation as of June 30, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the two year period ended June 30, 2014, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that Microphase Corporation will continue as a going concern. As more fully described in the notes to the financial statements, the Company has suffered recurring losses from operations and has a working capital deficit as of June 30, 2014. These conditions raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Rosenberg Rich Baker Berman & Company

 

Somerset, New Jersey
February 23, 2015

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MICROPHASE CORPORATION
 
Consolidated Balance Sheets

     
  December 31,
2014
  June 30,
2014
  June 30,
2013
     (unaudited)          
ASSETS
                          
CURRENT ASSETS
                          
Cash   $ 48,161     $ 445,080     $  
Accounts receivable, net of allowance of $20,000 and $49,000 on June 30, 2014 and 2013, and $28,830 on December 31, 2014 (unaudited)     557,535       888,200       445,339  
Inventory     766,877       772,682       920,126  
Due from related parties     22,820       25,039       41,395  
Prepaid and other current assets     97,631       144,833       35,118  
TOTAL CURRENT ASSETS     1,493,024       2,275,834       1,441,978  
Property and equipment, net (includes property disposed 11-22-13 with a net value $613,507 at June 30, 2013)     217,282       254,456       933,432  
OTHER ASSETS
                          
Cash – restricted     100,000       100,000       100,000  
Intangible assets     482,011       139,766       155,277  
Investments     151,667             55,632  
TOTAL OTHER ASSETS     733,678       239,766       310,909  
TOTAL ASSETS   $ 2,443,984     $ 2,770,056     $ 2,686,319  
LIABILITIES AND STOCKHOLDERS’ DEFICIT
                          
CURRENT LIABILITIES
                          
Cash Overdraft   $     $     $ 129,353  
Credit Facility – Revolving Loan     792,368       925,304       1,171,859  
Accounts payable     302,367       307,052       554,266  
Accrued expenses     951,162       1,086,399       923,912  
Deferred Revenue & Customer Deposits     24,276       113,910       198,591  
Notes Payable – Related Parties, current portion     224,464       194,723       196,221  
Asset Acquisition Note(s) Payable     300,000       360,000       525,000  
Equity Lines of Credit     371,302       374,841       243,267  
Other termed debts – current portion     39,842       41,559       37,316  
TOTAL CURRENT LIABILITIES     3,005,781       3,403,788       3,979,785  
Other termed debts, net of current portion     53,077       65,802       68,216  
Notes Payable – Related Parties, net of current portion     221,220       825,750       897,727  
Real Estate Mortgage (property disposed and mortgage
satisfied 11-22-13)
                2,270,187  
COMMITMENTS AND CONTINGENCIES                  
STOCKHOLDERS’ DEFICIT
                          
6% cumulative preferred stock, $100 par value, 200,000 shares authorized, 23,543 and 23,543 shares issued and outstanding on June 30, 2014 and 2013, and 26,943 shares issued and outstanding on December 31, 2014 (unaudited), respectively     2,694,300       2,354,300       2,354,300  
Common stock, no par value 4,800,000 shares authorized, 3,475,366 and 2,493,641 shares issued and outstanding at June 30, 2014 and 2013, and 7,800,000 shares authorized and 4,645,306 outstanding on December 31, 2014 (unaudited), respectively     6,447,455       4,553,168       3,083,617  
Additional Paid In Capital     2,673,290       2,284,511       2,284,511  
Other Comprehensive Loss     (48,333 )            (38,636 ) 
Accumulated Deficit     (12,602,806 )      (10,717,263 )      (12,213,388 ) 
TOTAL STOCKHOLDERS’ DEFICIT     (836,094)       (1,525,284)       (4,529,596)  
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 2,443,984     $ 2,770,056     $ 2,686,319  

 
 
The accompanying notes are an integral part of these consolidated financial statements.

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TABLE OF CONTENTS

MICROPHASE CORPORATION
 
Consolidated Statements of Operations

       
  For The Six Months Ended
December 31,
(unaudited)
  For the Fiscal Year Ended
June 30,
     2014   2013   2014   2013
     (unaudited)   (unaudited)          
Revenues   $ 3,779,078     $ 2,924,443     $ 7,198,816     $ 5,473,756  
Cost of Sales     2,243,518       1,891,799       4,285,313       3,625,158  
Gross Profit     1,535,560       1,032,644       2,913,503       1,848,598  
Selling, General and Administrative Expenses (including non-cash stock related charges of $450,000 and $895,484 in 2014 & 2013, and $630,000 for the six months ended December 31, 2014)     (1,918,138 )      (936,310 )      (2,573,984 )      (2,693,692 ) 
Engineering and Research expenses (including non-cash stock related charges of $80,000 for the six months ended December 31, 2014)     (500,629 )      (321,461 )      (717,847 )      (681,632 ) 
Non-operating Income (Loss)     1,018       (7,544 )      2,279       (13,972 ) 
Interest (Expense and Credit costs) net     (119,589 )      (236,170 )      (421,597 )      (374,640 ) 
Loss From Continuing Operations, before Income (Loss) from long term investments   $ (1,001,778 )    $ (468,841 )    $ (797,646 )    $ (1,915,338 ) 
(Loss) on Settlement of Liabilities (including $218,836, loss on settlement of liabilities with related parties)   $ (223,866 )                   
Realized Gain on Sale of Building           2,355,904       2,355,904        
Realized (Loss) on Securities                 (60,033 )       
Loss From Continuing Operations, before Income Taxes     (1,225,644 )      1,887,063       1,498,225       (1,915,338 ) 
Income Taxes     (250 )            (2,100 )      (250 ) 
Net Income (Loss)   $ (1,225,894 )    $ 1,887,063     $ 1,496,125     $ (1,915,588 ) 
Preferred dividends declared and settled in common stock, including $164,913 loss on settlement of dividend payable     (659,649 )                   
Net Income (Loss) available to common shareholders   $ (1,885,543 )    $ 1,887,063     $ 1,496,125     $ (1,915,588 ) 
Basic & Diluted Net income (loss) per share:   $ (0.52 )    $ 0.73     $ 0.53     $ (0.96 ) 
Weighted Average Number of Shares Outstanding:
                                   
Basic & Diluted     3,592,142       2,577,101       2,844,806       1,991,791  

 
 
The accompanying notes are an integral part of these consolidated financial statements.

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TABLE OF CONTENTS

MICROPHASE CORPORATION
 
Consolidated Statements of Comprehensive Income (Loss)

       
  For The Six Months Ended
December 31,
  Fiscal Years Ended
June 30,
     2014   2013   2014   2013
     (unaudited)   (unaudited)          
Net income (loss)   $ (1,225,894 )    $ 1,887,063     $ 1,496,125     $ (1,915,588 ) 
Other comprehensive income (loss):
                                   
Net unrealized gain (loss) on securities available-for-sale, net of income taxes     (48,333 )      12,838       (21,397 )      17,117  
Other comprehensive income (loss), net of income taxes                        
Total comprehensive income (loss)   $ (1,274,227 )    $ 1,899,901     $ 1,474,728     $ (1,898,471 ) 
Total comprehensive income (loss) attributable to Microphase Corporation   $ (1,274,227 )    $ 1,899,901     $ 1,474,728     $ (1,898,471 ) 
Basic & Diluted Comprehensive income (loss) per share from:
                                   
Continuing Operations   $ (0.35 )    $ 0.74     $ 0.52     $ (0.95 ) 
Weighted Average Number of Shares Outstanding;
                                   
Basic & Diluted     3,592,142       2,577,101       2,844,806       1,991,791  

 
 
The accompanying notes are an integral part of these consolidated financial statements.

F-5


 
 

TABLE OF CONTENTS

MICROPHASE CORPORATION
 
Statement of Changes in Stockholders’ Deficit
For the year ended June 30, 2013 and the year ended June 30, 2014,
and the six months ended December 31, 2014 (unaudited)

               
               
  Preferred Stock   Common Stock   Additional Paid
In Capital
  Other Comprehensive Loss   Accumulated Deficit
     Shares   Amount   Shares   Amount   Amount
Balance, June 30, 2012     13,043     $ 1,304,300       1,752,258     $ 1,752,258     $ 2,284,511     $ (55,753 )    $ (7,529,071 )    $ (2,243,755 ) 
Unrealized investment gain during the fiscal
year
                                                 17,117                17,117  
Issuance of Common Stock for Services                       447,742       895,484                                  895,484  
Exchange of Stock and issuance of Preferred shares in connection with transfer of Building     10,000       1,000,000                                     (2,768,729 )      (1,768,729 ) 
Issuance of Preferred shares for Cancellation of Debt     500       50,000                                                    50,000  
Issuance of Common Stock in Private Placements, including 57,141 of finder shares and net of $35,625 costs                       294,641       439,375                                  439,375  
Treasury stock, purchased at cost & retired                       (1,000 )      (3,500 )                                 (3,500 ) 
Net (Loss) For the Year Ended June 30, 2013                                                           (1,915,588 )      (1,915,588 ) 
Balance, June 30, 2013     23,543     $ 2,354,300       2,493,641     $ 3,083,617     $ 2,284,511     $ (38,636 )    $ (12,213,388 )    $ (4,529,596 ) 
Unrealized investment loss during the fiscal year                                                  (21,397 )               (21,397 ) 
Transfer realized loss during the fiscal year                                                  60,033                60,033  
Issuance of Common Stock in Private Placements, including 196,725 of finder shares and net of $102,750 costs                       756,725       1,019,551                                  1,019,551  
Issuance of Common Stock for Services                       225,000       450,000                                  450,000  
Net Income For the Year Ended June 30, 2014                                                           1,496,125       1,496,125  
Balance, June 30, 2014     23,543     $ 2,354,300       3,475,366     $ 4,553,168     $ 2,284,511     $     $ (10,717,263 )    $ (1,525,284 ) 
Issuance of Common Stock in Private Placements, including 68,782 of finder shares and net of $31,450 costs, (unaudited)                       261,782       354,550                                  354,550  
Unrealized investment loss during the Six Months Ended December 31, 2014,
(unaudited)
                                                 (48,333 )               (48,333 ) 
Conversion of strategic payables into common stock including loss on settlement of liabilities of $5,000 (unaudited)                       10,000       15,000       5,000                         20,000  
Conversion of related party loans into common stock including loss on settlement of liabilities of $106,666 (unaudited)                       213,333       320,000       106,666                         426,666  
Conversion of related party loans into preferred stock including loss on settlement of liabilities of $59,400 (unaudited)     1,800       180,000                         59,400                         239,400  
Conversion of unpaid compensation into preferred stock including loss on settlement of liabilities of $52,800 (unaudited)     1,600       160,000                         52,800                         212,800  
Issuance of Common Stock for Services (unaudited)                       355,000       710,000                                  710,000  
Preferred stock dividend declared on preferred shares held through September 30, 2014 paid in common stock including loss on settlement of dividend payable of $164,913 (unaudited)                       329,825       494,736       164,913                (659,649 )       
Net (Loss) For the Six Months Ended December 31, 2014, (unaudited)                                                           (1,225,894 )      (1,225,894 ) 
Balance, December 31, 2014, (unaudited)     26,943     $ 2,694,300       4,645,306     $ 6,447,454     $ 2,673,290     $ (48,333 )    $ (12,602,806 )    $ (836,095 ) 

 
 
The accompanying notes are an integral part of these consolidated financial statements.

F-6


 
 

TABLE OF CONTENTS

MICROPHASE CORPORATION
 
Consolidated Statements of Cash Flows

       
  For The Six Months Ended
December 31,
  For The Years Ended
June 30,
     2014   2013   2014   2013
     (unaudited)   (unaudited)          
Cash Flow From Operating Activities:
                                   
Net Income (Loss) From Operations   $ (1,225,894 )    $ 1,887,063     $ 1,496,125     $ (1,915,588 ) 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
                                   
Depreciation and amortization     44,929       39,226       109,855       82,588  
Realized loss on securities                 60,033        
Realized gain from sale of building & fixed assets     (2,275 )      (2,355,903 )      (2,355,904 )       
Non-cash charges relating to issuance of common stock
for service
    933,866             450,000       895,484  
Increase (decrease) in allowance for doubtful accounts and inventory reserve     8,830       1,000       (13,000 )      (54,000 ) 
Write-off of deferred finance charges           20,192       20,192        
Changes in assets and liabilities:
                                   
Accounts receivable     321,835       (141,987 )      (437,861 )      108,907  
Inventories     5,805       (14,025 )      155,444       207,068  
Other current assets     47,202       (56,736 )      (109,715 )      (12,110 ) 
Cash Overdraft                 (129,353 )      (55,664 ) 
Accounts payable     (4,685 )      13,874       (247,215 )      (4,048 ) 
Accrued Expenses     92,248       147,890       86,964       81,097  
Customer deposits     (89,634 )      68,752       (84,681 )      30,259  
Other current liabilities                       (154,488 ) 
Due to/from related parties mPhase & Edson Realty     2,219       3,798       16,356       47,504  
Officers wages     (29,750 )            174,286       290,723  
Net cash from (used in) operating activities   $ 104,696     $ (386,856)     $ (808,474)     $ (452,266)  
Cash Flow from Investing Activities:
                                   
Proceeds from surrender of insurance contract                       41,661  
Investments in common stock     (200,000 )                   
Purchase of intangible assets     (50,000 )                  (100,000 ) 
Purchase of fixed assets                       (2,119 ) 
Proceeds from sale of building & fixed assets     2,275       2,967,062       2,967,064        
Net Cash from (used in) investing activities   $ (247,725)     $ 2,967,062     $ 2,967,064     $ (60,458)  
Cash Flow from (used in) Financing Activities:
                                   
Proceeds from issuance of common stock     354,550       181,250       1,019,551       439,375  
Proceeds (Repayment) from loan payable (net)     (132,936 )      (456,154 )      (246,555 )      72,745  
Payments of mortgage           (2,275,982 )      (2,275,982 )       
Payments of equity lines of credit     (3,576 )                   
Payments of long-term debt     (925 )      (11,804 )      (17,665 )      (809 ) 
Payments on acquisition notes     (360,000 )      (81,250 )      (165,000 )      (125,000 ) 
Payments of capital lease obligations     (9,722 )      (2,062 )      (13,432 )      (15,693 ) 
Payments to related parties     (97,486 )            (67,188 )      (92,917 ) 
Advances from related parties                 60,760       229,500  
Payments of extended term arrangement     (3,795 )      (3,442 )      (7,999 )      (6,074 ) 
Purchase of treasury stock at cost                       (3,500 ) 
Net cash provided by (used in) financing activities   $ (253,890)     $ (2,649,444)     $ (1,713,510)     $ 497,627  
Net increase (decrease) in cash   $ (396,919)     $ (69,238)     $ 445,080     $ (15,097)  
CASH AND CASH EQUIVALENTS, beginning of period   $ 445,080                 $ 15,097  
CASH AND CASH EQUIVALENTS, end of period   $ 48,161           $ 445,080        

 
 
The accompanying notes are an integral part of these consolidated financial statements.

F-7


 
 

TABLE OF CONTENTS

MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 1 — Recent Losses and Managements Plans:

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However as of June 30, 2014 and 2013 and for the years then ended, the Company reported a net loss from operations, non recurring gains, of $797,646 and $1,915,338 respectively and net cash used in operations totaled $808,474 and $452,266 respectively. The Company also had negative working capital of $1,127,954 and $2,537,807 at June 30, 2014 and 2013 respectively. Further, the Company anticipates that it will experience negative cash flows from operations for 2015. These matters raise substantial doubt about the Company's ability to continue as a going concern.

The Company anticipates obtaining financing for operations through its debt facility with Gerber Financial, the issuance of debt to management and the sale of common and preferred securities though private placements. The company also anticipates increasing sales through the ramp up of the business acquired from Microsemi in March 2013 further discussed in Note 13. Management has also taken steps to reduce operating expenses, including reduction in the number of employees, furloughs of continuing employees, the reduction of employee benefits and changes in procurement policies. Management has also taken steps to accelerate accounts receivable collections, and is currently working on additional financing vehicles. Management believes that these steps will permit the Company to remain in operation. However, management advises that there can be no assurance that this will be the case.

Note 2 — Summary of Significant Accounting Policies:

(A) Microphase Corporation is a design to manufacture original equipment manufacturer (OEM) industry leader delivering world-class radio frequency (RF) and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assemblies and detector logarithmic video Amplifiers (DLVA) to the military, aerospace and telecommunications industries. Sales to military markets represent 100% of sales. The Company has two manufacturing facilities, one in Norwalk, Connecticut and one in Folsom, California. See Note 13 for further details.

(B) Property and Equipment — Stated at cost. Provision for depreciation and amortization for financial reporting and income tax purposes is made by annual charges to operations principally under the following methods and estimated useful lives:

   
  Method   Years
Property held under capital leases     Straight Line       5  
Furniture and fixtures     Straight Line       7  
Machinery and equipment     Straight Line       5  
Computer equipment     Straight Line       3  
Transportation equipment     Straight Line       5  
Leasehold improvements     Straight Line       31.5  

Maintenance and Repairs — Charged to expenses as incurred. Cost of major replacements and renewals are capitalized. Upon retirement or other disposition of equipment and improvements, the cost and related depreciation is removed from the accounts, and any gain or loss is recognized in income.

(C) Other Long Lived Assets — The Company reviews long-term assets for impairment whenever events or circumstances indicate that the carrying amount of those assets may not be recoverable. The Company also assesses these assets for impairment based on their future cash flows. Management has determined that there was no impairment charge to be recorded for the years ended 2013 and 2014 and the six months ended December 31, 2014.

F-8


 
 

TABLE OF CONTENTS

MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 2 — Summary of Significant Accounting Policies:  – (continued)

(D) Inventories — are stated at the lower of average cost or market under the first-in, first-out method. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory primarily based on our estimated forecast of product demand, anticipated end of product life and production requirements.

(E) Accounts Receivable — Management records receivables at net realizable value and they generally do not bear interest. This value includes an allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances which is charged to the provision for doubtful accounts. We calculate this allowance based on our history of write-offs, level of past due accounts and economic status of the customers. We consider a receivable delinquent if it is unpaid after 180 days after it is due.

(F) Accounting Estimates — Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements.

(G) Compensated Absences — Employees of the Company are entitled to vacation pay depending on length of service and current salary. Effective July 1, 2010, unused vacation days are only carried over to the subsequent year under special approval by management. The Company has provided for vacation liabilities in the accompanying financial statements.

(H) Research and Development Expenses — The Company charges the cost of research and development to operations.

(I) Revenue Recognition — As required, Microphase has adopted the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition in Financial Statements,” which provides guidelines on applying generally accepted accounting principles to revenue recognition based on interpretations and practices of the SEC. The Company recognizes revenue when products are shipped and title passes to the customer.

(J) Principles of Consolidation — The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.

(K) Earnings (Loss) Per Share — Basic earnings (loss) per share (“EPS”) is determined by dividing the net earnings (loss) by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings (loss) by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities (such as stock options, preferred stock subsequent to October 4, 2014, and convertible securities) outstanding under the treasury stock method. There were no dilutive financial instruments issued or outstanding for the periods presented. On October 4, 2014 the shareholders approved a convertible feature in preferred stock, such preferred stock at par value convertible into common shares at agreed upon market value.

(L) Basis of Presentation — The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the regulations of the Securities Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the six months ending December 31, 2014 are not necessarily indicative of the results that may be expected for a full fiscal year.

F-9


 
 

TABLE OF CONTENTS

MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 2 — Summary of Significant Accounting Policies:  – (continued)

(M) Recent Accounting Pronouncements — In January 2013 the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This update amended ASC 210, “Balance Sheet”, specifically the disclosure requirements created by ASU 2011-11, Disclosures About Offsetting Assets and Liabilities, issued by the FASB in December 2011. This update clarified the scope of these disclosure requirements to be applicable only to derivatives and securities borrowing and lending transactions that are offset in accordance with GAAP or are subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements continue to be effective for annual reporting periods, and interim periods within those years, beginning on or after January 1, 2013, which will be fiscal 2014 for the Company. Based on the scope clarification of this update, the Company does not believe it has any financial instruments requiring these disclosures but will continue to evaluate this assessment.

In July 2013, the FASB issued an accounting standards update that requires unrecognized tax benefits to be presented as a decrease in a net operating loss, similar tax loss or tax credit carry forward if certain criteria are met. This standard is to be applied prospectively and is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013, which for us is our fiscal 2015. Retrospective application is permitted. The adoption of this standard is not expected to have a material impact on our financial position, results of operations or cash flows.

In April 2014, the FASB issued an accounting standards update that raises the threshold for disposals to qualify as discontinued operations and allows companies to have significant continuing involvement and continuing cash flows with discontinued operations. This standard also requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. This standard is to be applied prospectively and is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014, which for us is our fiscal 2016. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The adoption of this standard is not expected to have a material impact on our financial position, results of operations or cash flows.

SUPPLEMENTAL CASH FLOW INFORMATION

       
  For the six months ended
December 31,
  For the years ended
June 30,
     2014   2013   2014   2013
     (Unaudited)   (Unaudited)
Statement of Operation Information:
                                   
Cash paid for state taxes   $ 250     $ 250     $ 250     $ 250  
Interest Accrued Unpaid   $ 113,181     $ 146,845     $ 108,251     $ 129,625  
Interest Paid (net interest income)   $ 72,573     $ 197,576     $ 368,110     $ 167,206  
Non Cash Investing and Financing Activities:
                                   
Assets acquired with debt financing   $ 300,000     $     $ 26,528     $ 650,000  
Issuances of Common Stock for services   $ 710,000     $     $ 450,000     $ 895,494  
Property contribution subject to mortgage debt assumption   $     $     $     $ 500,247  
Assumption of equity lines of credit subject to reduction of $100,000 loan payable, $31,545 of unpaid compensation in 2014 & the cancellation of $243,267 of preferred stock in 2013   $     $     $ 131,545     $ 243,267  
Conversion of $10,000 of strategic payables into common stock with beneficial conversion feature interest of $5,000   $ 20,000     $     $     $  

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 2 — Summary of Significant Accounting Policies:  – (continued)

       
  For the six months ended
December 31,
  For the years ended
June 30,
     2014   2013   2014   2013
     (Unaudited)   (Unaudited)
Conversion of $320,000 of related party loans, including $21,043 acrrued interest theron, into 213,333 shares of common stock with beneficial conversion feature interest of $106,666   $ 426,666     $     $     $  
Conversion of $180,000 of related party loans into 1,800 shares of preferred stock with beneficial conversion feature interest of $59,400   $ 239,400     $     $     $  
Conversions of $160,000 of unpaid compensation into 1,600 shares of preferred stockwith beneficial conversion feature interest of $52,800   $ 212,800     $    —     $    —     $    —  
Preferred stock dividend, declared on preferred shares held through September 30, 2014, of $494,736 paid through the issuance of 329,825 shares of common stock with beneficial conversion feature interest of $164,913   $ 659,649     $     $     $  

Note 3 — Inventories consist of the following:

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
     Amount   Amount   Amount
Raw materials   $ 383,882     $ 340,431     $ 449,981  
Work-in-process     404,995       454,251       500,145  
Reserve     (22,000 )      (22,000 )      (30,000 ) 
Total   $ 766,877     $ 772,682     $ 920,126  

The inventory reserve was increased by $2,000 in our west division and reduced by $10,000 in our east division during the year ended June 30, 2014.

Note 4 — Property and Equipment:

Property and equipment was comprised of the following:

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
Land   $     $     $ 446,250  
Building                 169,140  
Computers, machinery & equipment     3,386,534       3,388,809       3,388,810  
Furniture and fixtures     397,770       397,770       397,770  
Transportation equipment     40,438       40,438       13,910  
Property held under capital leases     111,495       111,495       111,495  
       3,936,237       3,938,512       4,527,371  
Less: accumulated depreciation and amortization     (3,718,955 )      (3,684,056 )      (3,593,939 ) 
Total   $ 217,282     $ 254,456     $ 933,432  

Depreciation expense was $94,344 and $81,063 in 2014 and 2013, respectively.

Depreciation expense was $34,899 and $45,556 in the six months end December 31, 2014 and 2013, respectively.

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 5 — Intangible Assets:

Intangible Assets were comprised of the following:

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
Customer Lists   $ 73,017     $ 73,071     $ 73,071  
Non-Compete     25,399       25,399       25,399  
Exclusive License(s)     406,861       56,861       56,861  
Amortization     (23,266 )      (15,511 )       
Total   $ 482,011     $ 139,766     $ 155,277  

The intangible assets acquired in March 2013 when the Company acquired certain assets from Microsemi Inc. for a total purchase price of $750,000 were valued by an outside valuation firm at $844,000, and the values for each intangible asset were determined on a relative fair value basis.

Amortization expense was $15,511 and $0 in 2014 and 2013, respectively.

During the six months ended December 31, 2014, the Company entered into a strategic partnership agreement with Dynamac, Inc. to develop, manufacture and market a portfolio of low cost RF/Microwave and Millimeter-wave calibrated test probes and related universal test platforms. Microphase agreed to pay a one-time licensing and rights fee of $350,000 of which $50,000 was paid in the first quarter of fiscal 2015, and the remaining $300,000 was originally due in the second quarter. The Company is presently renegotiating repayment terms as well as the expected delivery date of the initial proto-type products. Microphase also agreed to pay a 25% royalty fee discussed in Notes 11 & 13.

Amortization expense was $7,755 and $7,755 in the six months ended December 31, 2014 and 2013, respectively.

Note 6 — Fair Value of Financial Instruments:

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Quoted market prices are used to establish fair value when they are available and other valuation techniques are utilized to estimate the fair value of financial instruments that do not have quoted market prices.

The Company has long term debt with fixed interest rates, the carrying amount of which may be different from fair value as of June 30, 2014 and 2013. The Company decided that it is not practical to estimate the fair value of these financial instruments on the basis that they are held-to-maturity debts which have no immediately available market information on the fair value and the cost of making assumptions and applying estimation methodologies to assess the fair value estimates exceeds the benefit. Information pertinent to estimating the fair value such as carrying amount, effective interest rate, maturity and repayment term are disclosed in Notes 7, 8 & 9.

The Company has applied the fair value concepts to its available-for-sale securities. As such, the valuation techniques used to measure fair value is based on the source of the data used to develop the prices. The priority of these sources is defined as follows:

Level 1 — quoted prices in active markets.

Level 2 — other than quoted prices that are directly or indirectly observable.

Level 3 — unobservable inputs for the asset or liability.

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 6 — Fair Value of Financial Instruments:  – (continued)

Marketable securities, classified as available-for-sale securities, are measured at fair market value (Level 1) on a recurring basis as of June 30, 2014 amounting to $0. The amount at June 30, 2013 was $55,632. The amount at December 31, 2014 was $151,667.

Loss on Securities:

During the year ended June 30, 2014, the Company realized a $60,033 loss on the 42,793,354 shares of stock it held in mPhase Technologies, Inc., (mPhase) when the shares were transferred as loan repayments to two officers, each receiving 21,396,677 shares of mPhase, effective June 30, 2014.

Note 7 — Revolving Credit Line

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
The Company entered into a revolving loan agreement with Gerber Finance, Inc. (Gerber) in February of 2012 for a maximum of $1,500,000, which was amended to $1,150,000 in November of 2013 due to the sale of the headquarters building discussed in Note 14. Under this agreement, the Company can receive funds based on a borrowing base, which consists of various percentages of accounts receivable, inventory, a restricted cash account held by Gerber, equipment, and the building owned by Edson Realty, Inc. (Edson) prior to its sale. In connection with this agreement, the Company is subject to an annual facility fee (1.75%) on each anniversary, monthly collateral monitoring fees of $1,500 and other fees, plus interest currently at the default rate of 12%   $ 792,368     $ 925,304     $ 1,171,859  

The interest expense for 2014 and 2013 was $123,166 and $57,966 and the fees for 2014 and 2013 were $74,860 and $77,810. The effective interest rate for 2014 was 14.26% and for 2013 it was 9.00%.

The interest expense for the six months ended December 31, 2014 and 2013 was $50,943 and $86,138 and the fees for the same period ended December 31, 2014 and 2013 were $9,000 and $29,000. The effective annualized interest rate for the six months ended December 31, 2014 was 11.84% and for same the three months in 2013 was 15.52%.

There are financial covenants set forth in the Gerber agreement of February 3, 2012 and as amended on February 24, 2012. The covenants, covering among other things tangible net worth and net loss, were not effective until September 30, 2012. The Company has been in default since September 30, 2013 for failing to provide reviewed annual financial statements for 2014 and 2013.

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
Approximate Value of collateral at balance sheet dates — Inventories   $ 766,877     $ 772,682     $ 920,126  
Accounts Receivable     557,535       888,200       445,339  
     $ 1,324,412     $ 1,660,882     $ 1,365,465  

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 8 — Notes Payable — Related Parties:

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
Officers and Stockholders:
                          
Payable in monthly payments of $1,800 as revised, including interest at 6% through April, 2017.   $ 39,012     $ 245,497     $ 251,989  
Payable in monthly payments of $225, including interest at 6% through April, 2017.   $ 4,895       217,385       316,904  
Former Employee:
                          
Payable in monthly payments of $6,900 as revised, including interest at 6% through April, 2017   $ 162,111       324,205       304,880  
Stockholders:
                          
Two identical notes payable in combined monthly payments totaling $4,600 as revised, including interest at 6% through April, 2017   $ 117,374       114,283       107,814  
Other Related Parties:
                          
Payable in monthly payments of $900 as amended including interest at 6% through April, 2017   $ 18,468       17,979       16,961  
Two identical notes payable in combined monthly payments totaling 5,400 as amended, including interest at 6% through April, 2017   $ 103,824       101,124       95,400  
       445.684       1,020,473       1,093,948  
       (224,464 )      (194,723 )      (196,221 ) 
     $ 221,220     $ 825,750     $ 897,727  

The maturities of notes payable — related parties for each of the next five years & thereafter are as follows:

 
June 30  
2015     194,723  
2016     141,591  
2017     141,591  
2018     141,591  
2019     141,591  
2020 & thereafter     259,386  

Interest expense charged to operations on these loans amounted to $59,859 and $61,309 for the years ended June 30, 2014 and 2013 respectively.

Interest expense charged to operations on these loans amounted to $25,973 and $38,594 for the six months ended December 31, 2014 and 2013, respectively.

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 9 — Other termed debts

Long-term Debt:

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
GE Capital Corporation:
                          
Payable in monthly payments of $940, including interest at 7.99% through February, 2014, secured by machinery and equipment.   $           $ 8,236  
People's General Bank
                          
Overdraft protection credit line loan; up to $20,000 available at June 30, 2014, with minimum payments based upon a thirty six month payout from most recent utilization, or $315.53 plus interest at June 30, 2014.   $ 9,327     $ 11,044           
Ford Credit Company:
                          
Payable in monthly payments of $499, including interest at 4.90% through April, 2019 secured by transportation equipment.   $ 23,756     $ 25,744        
Payable in monthly payments of $428, including interest at 6.79% through August, 2014 secured by transportation equipment.         $ 849     $ 6,141  
     $ 33,143     $ 37,637     $ 14,377  
Less: current portion     (15,075 )      (16,732 )      (13,528 ) 
Total   $ 18,068     $ 20,905     $ 849  

The Company charged operations $504 and $1,704 in interest for these loans for the year ended June 30, 2014 and 2013, respectively.

The Company charged operations $1,486 and $1,350 in interest for these loans for the six months ended December 31, 2014 and 2013, respectively.

Capital Leases:

The Company is the lessee of equipment under capital leases expiring through March, 2016. The assets are recorded at the fair market value as of the date of the leases. The assets are amortized over their estimated productive lives. Amortization is included in depreciation expense.

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
The following is a summary of property held under capital leases:
                          
Property held under capital leases   $ 111,495     $ 111,495     $ 111,495  
Less: accumulated amortization     (88,156 )      (82,555 )      (71,352 ) 
Net property under capital leases   $ 23,339     $ 28,940     $ 40,143  
Minimum future lease payments under capital leases as of June 30, 2014 for the next four years are as follows:
                          
Total minimum lease payments   $ 25,020       31,336     $ 49,215  
Less: amount representing interest     (1,808 )      (2,030 )      (5,912 ) 
Present value of net minimum lease payments     23,212       29,306       43,303  
Less: current portion     (17,245 )      (17,245 )      (19,460 ) 
Long-term portion   $ 5,968     $ 12,061     $ 23,843  

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 9 — Other termed debts  – (continued)

Interest expense charged to operations under capital leases was $3,247 and $3,706 for the years ended June 30, 2014 and 2013 respectively.

Interest expense charged to operations under capital leases was $1,001 and $1,619 for the six months ended December 31, 2014 and 2013, respectively.

Extended Payment arrangements:

The Company is responsible for paying a former employee, disability benefits under a prior self-insured plan, through April, 2019. The plan requires monthly payments until the participant attains age 65. Interest has been imputed on this obligation at 5%.

Interest expense charged to operations for the extended disability payments was $2,218 and $2,569 in 2014 and 2013, respectively.

Interest expense charged to operations for the extended disability payments was $972 and $1,154 for the six months ended December 31, 2014 and 2013, respectively.

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
Total disability benefits   $ 37,595     $ 45,584     $ 55,800  
Less: amount representing interest     (972 )      (5,165 )      (7,948 ) 
Present value of disability benefits     36,623       40,418       47,852  
Less: current portion     (7,582 )      (7,582 )      (7,999 ) 
Long-term portion   $ 29,041     $ 32,836     $ 39,853  
Total minimum long term debt, capital lease & extended disability payments   $ 92,919     $ 107,361     $ 105,532  
Less: current portion     (39,842 )      (41,559 )      (37,316 ) 
Long-term portion   $ 53,077     $ 65,802     $ 68,216  

  

The maturities of all other termed debts for each of the next five years & thereafter are as follows:

 
June 30,
 
2015   $ 45,438  
2016     26,572  
2017     14,767  
2018     15,035  
2019     12,744  
Total minimum long term debt, capital lease & extended disability payments   $ 114,556  
Less: amount representing interest     (7,195 ) 
Present value of disability benefits   $ 107,361  
Less: current portion     (41,559 ) 
Long-term portion   $ 65,802  

Note 10 — Equity Lines of Credit:

The Company had previously guaranteed the payment of an Equity Line of Credit with Wells Fargo Bank totaling up to $250,000, the proceeds of which the Company received from a concurrent loan from Edson when the credit line was funded on August 15, 2008 discussed further in Note 14. In June 2014 the Company agreed to assume the remaining balance of $243,257 for the cancellation of 2,433 shares of its $100 par value preferred stock. These shares were reflected as not outstanding since March 2010.

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 10 — Equity Lines of Credit:  – (continued)

As of June 30, 2014 this line of credit has $250,000 available, secured by residential real estate owned by the vice president, of which $243,296 is outstanding, with an interest rate of 3.35%. Interest expense charged to operations on this loan amounted to $8,198 and $8,225 for the years ended June 30, 2014 and 2013 respectively.

Effective June 30, 2014 the Company also has guaranteed to its president, and a general member of MHC, the majority shareholder, individually as signatory’s, the repayment of a second Equity Line of Credit with Wells Fargo Bank as also discussed further in Note 14.

The Company charged operations $4,075 and $4,081 in interest for this line of credit for the six months ended December 31, 2014 and 2013, respectively.

As of June 30, 2014 this line of credit has $150,000 available, secured by the president’s principal residence, of which $131,545 is outstanding, with an interest rate of 3.0%. No interest expense was charged to operations on this loan for the years ended June 30, 2014 and 2013 respectively.

The Company charged operations $1,973 and $0 in interest for this line of credit for the six months ended December 31, 2014 and 2013, respectively.

Note 11 — Acquisition of Assets & Note Payable

The Company acquired certain assets including specific inventory and fixed assets from a RF services provider, Microsemi Corp-RF Integrated Solutions (“Microsemi”); which had eliminated providing certain RF services similar to that of the Company for approximately 10 customers. The acquisition was pursuant to a contract, originally dated March 27, 2013, which provided for a $100,000 down payment and a note payable for $650,000, with payments through December, 2014 as amended, inventory and fixed assets associated with these specific RF services, and intangible assets consisting of a customer list, non-compete clause and an exclusive license. The Contract also provided for 5% royalty on certain RF services we will provide to the specified 10 customers. (See also note 13)

On August 8, 2014 the Company signed a strategic partnership agreement with Dynamac, Inc. to develop, manufacture and market a portfolio of low cost RF/Microwave and Millimeter-wave calibrated test probes and related universal test platforms. Microphase agreed to pay a one-time licensing and rights fee of $350,000 of which $50,000 was paid in the first quarter of fiscal 2015, and the remaining $300,000 was originally due in the second quarter. The Company is presently renegotiating repayment terms as well as the expected delivery date of the initial proto-type products. Microphase also agreed to pay a 25% royalty fee based on the list price of each product sold by Microphase. Microphase has a first right of refusal to purchase the product line for $2.5 million for 3 years from the date of the agreement.

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
Asset acquisition note payable   $ 300,000     $ 360,000     $ 525,000  

Asset allocation on Acquisition date

The consideration paid for this portion of business was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. We assigned $155,250 to identifiable intangible assets, which consist of a customer list, non-compete clause and an exclusive license. The acquired intangible assets will be amortized over their estimate lives, which range from 5 to 10 years, primarily using accelerated amortization methods based on the cash flow streams used to value those assets. The exclusive license has a contractual indefinite life and will be reviewed annually for impairment. There was no excess of the purchase price over the estimated fair value of the net assets acquired and as such no goodwill was recorded. The Dynamac License was recorded at cost.

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 11 — Acquisition of Assets & Note Payable  – (continued)

     
Asset allocation   December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
Customer List   $ 73,017       73,017       73,017  
Non-Compete Clause     25,399       25,399       25,399  
Exclusive License(s)     406,861       56,861       56,861  
       505,277     $ 155,277     $ 155,277  
Accumulated Amortization     (23,266 )      (15,511 )       
Total   $ 482,011     $ 139,766     $ 155,277  

Note 12 — Accrued and Other Expenses:

Accrued expenses were comprised of the following:

     
  December 31, 2014
(unaudited)
  June 30, 2014   June 30, 2013
Salaries, wages and other compensation, including $503,474 & $415,552 to officers in 2014 and 2013 and $344,999 at December 31, 2014 (unaudited)   $ 651,661     $ 835,530     $ 666,452  
Royalties     135,902       85,256        
Professional fees     111,051       85,000       60,500  
Commissions     41,937       76,173       86,525  
Accrued Interest                 88,562  
Other miscellaneous accruals     10,611       4,450       21,873  
     $ 951,162     $ 1,086,399     $ 923,912  

401 (K) Employee Benefit Plan:

The Company sponsors a 401(K) plan for all eligible employees. Employee contributions are based on a percentage of compensation. Employer contributions for both matching and profit sharing are discretionary and determined annually by management. For the years ended June 30, 2013 and 2014, there were no employer contributions to the plan. At June 30, 2013 the Company owed $4,478 to the 401 K Plan and as of June 30, 2014 it owed $0.

Note 13 — Commitments and Contingencies:

The Company originally leased its Connecticut production and office facility from Edson, a related party, under a net operating lease through April, 2017. The lease required payments of minimum rents plus real estate taxes and other occupancy costs. The lease terminated in March of 2013 when the Company acquired the building from Edson.

In an agreement dated June 30, 2010 between Edson and the Company, it was agreed that, going forward, the Company would make timely payments of monthly rent in amounts required to satisfy Edson’s obligation under its mortgage loan on the property from Capital One Bank. This agreement also terminated with the termination of the lease. This resulted in a waiver of rents amounting to $179,004 in the year ended June 30, 2013 and rent expense after the waiver of $156,660. There was no rent expense with Edson for 2014 because the lease terminated in March 2013.

mPhase Technologies, Inc. (mPhase), a related company, reimbursed the Company for certain occupancy expenses on a monthly basis totaling $20,090 and $12,290 for the years ended June 30, 2014 and 2013, and $10,740 and $6,332 for the six months ended December 31, 2014 and 2013, respectively.

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 13 — Commitments and Contingencies:  – (continued)

In March of 2013 the Company acquired a division of Microsemi Inc. for $750,000 plus 5% royalty of gross sales. There were no sales in fiscal 2013 and no royalties paid. In connection with this acquisition the Company signed a lease for 4,000 square feet of space at Microsemi's facility in Folsom, CA. The initial terms of the lease were $8,400 per month rent with a term of one year. The rent expense for this facility for 2013 was $25,200. The commitment for fiscal 2014 was $75,600. The lease was renegotiated in April of 2014 with a new rent of $7,000 per month beginning in June 2014. The end of the lease is currently June 2015. The commitment for fiscal 2015 is $84,000.

In November 2013 the Company sold the headquarters building to 587 Connecticut Avenue LLC for $3,662,500. Beginning November 27, 2013 through the present the Company leases back a portion of the building for $10,103 per month. The rent expense for the period November 27, 2013 to June 30, 2014 was $79,721. Under the terms of the lease, either party may terminate the lease with 90 days prior notice.

The Company has employment contracts with two officers discussed in note 14 below.

The Company also has guaranteed to Edson, and its majority shareholders individually as signatory’s, the repayment of loan origination costs, interest charges and the principal in full, for an Equity Line of Credit with Wells Fargo Bank totaling up to $250,000, the proceeds of which the Company received a concurrent loan from Edson when the credit line was funded on August 15, 2008. Edson incurred approximately $3,200 loan origination costs (see note 14). The Company is a guarantor of a $243,296 note to Wells Fargo secured by real estate of one of the officers.

Rent expense was $60,618 for the six months ended December 2014 and 2013, respectively.

The Company is also a guarantor of a $131,545 note to Wells Fargo secured by real estate of another officer.

These notes were assumed by the Company effective June 30, 2013 and 2014, respectively.

The Company leases vehicles, office equipment and computer equipment under operating leases expiring through April, 2015. As of June 30, 2014, future minimum rental payments are 15,945 in fiscal 2015.

We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial transactions; government contracts and sub-contracts; alleged lack of compliance with applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters. Some potential legal proceedings and claims could seek damages, fines or penalties in substantial amounts or remediation of environmental contamination. As a government sub-contractor, we are subject to audits, reviews and investigations to determine whether our operations are being conducted in accordance with applicable regulatory requirements. Under federal government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment from U.S. Government contracting for a period of time. On the basis of information presently available, we do not believe that there are any existing proceedings or potential claims that would have a material effect on our financial position or results of operations.

On August 8, 2014 the Company signed a strategic partnership agreement with Dynamac, Inc. to develop, manufacture and market a portfolio of low cost RF/Microwave and Millimeter-wave calibrated test probes and related universal test platforms. Microphase agreed to pay a one-time licensing and rights fee of $350,000 of which $50,000 was paid in the first quarter of fiscal 2015, and the remaining $300,000 was originally due in the second quarter. The Company is presently renegotiating repayment terms as well as the expected delivery date of the initial proto-type products. Microphase also agreed to pay a 25% royalty fee based on the list price of each product sold by Microphase. Microphase has a first right of refusal to purchase the product line for $2.5 million for 3 years from the date of the agreement.

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 14 — Related Party Transactions:

The Company had activities with related parties during the fiscal years 2014 and 2013 as follows:

Effective March 6, 2013 the Company received title to the Corporate Headquarters and Production Facility in Norwalk, CT in an exchange transaction intended to be tax free under IRC sec 351 from Microphase Holding Company, LLC, (“MHC”), an 82% shareholder of the Company at the time. The building had originally been titled to Edson Realty, Inc. (Edson), another related party, which had transferred the building to MHC together with 2,532 preferred shares of the Company and 1,280,543 common shares of the Company for the assumption of $2,268,975 of mortgage and mortgage related obligations by MHC for a like amount of preferred and common shares of the Company, on the same date. The Company also issued 10,000 shares of its $100 par value preferred stock to MHC to complete the transaction. The historical carrying value of the building and underlying land as held by Edson and then MHC, $500,247, was recorded as the historical cost on the Company's books as of March 6, 2013. The Company recorded liabilities in excess of basis of $2,268,729 in connection with this transfer treated for accounting purposes as a contribution of property, which is shown as a reduction of equity in the Statement of Changes in Stockholders' Deficit during the fiscal year ended June 30, 2013.

Prior to March 6, 2013 the Company was a guarantor of the mortgage note by Edson to Capital One Bank as part of the terms of its former lease with Edson. The Company assumed this mortgage in connection with the transfer of the building to the Company treated for accounting purposes as a contribution of property discussed above and the balance at June 30, 2013 was $2,270,187. On November 22, 2013 this mortgage was satisfied together with all mortgage related obligations including adjustments for swap differences, when the building was sold to an unrelated third party. Amortization of deferred finance costs included in interest expense for this mortgage was $20,192 and $1,524 in 2014 and 2013, respectively.

mPhase Technologies, Inc. (mPhase) — The Company has some common management and common significant shareholders with mPhase and had owned a total of 42,793,354 shares of this publicly-traded company. These shares were valued at $55,632 as of June 30, 2013 and effective June 30, 2014 the shares were transferred to two officers as partial payment of loans due to them by the Company; the transfer was valued at $34,235 based upon the closing trading price for these shares on that date. The Company realized a $60,033 loss on the disposition of these shares, $38,636 of which had previously been reserved for market value declines through June 30, 2013 and 21,397 was attributable to the year ended June 30, 2014.

The Company sub-leases office space to mPhase. In 2014 the rent received was $20,090, and in 2013 the amount was $12,290. As of June 30, 2014 mPhase owed the Company $16,183, and at June 30, 2013 mPhase owed the Company $43,584.

Rent expense was $10,740 and $6,332 for the six months ended December 31, 2014 and 2013, respectively. At December 31, 2014 mPhase owed the Company $22,820.

Employment Contracts:

The Company has entered into employment contracts with two officers through 2015 that provides for a stated salary of $250,000 per year, plus company benefits. These contracts are subject to other items and include a non-compete covenant. The Company owed the officers $534,849 and $415,552 as June 30, 2014 and 2013.

Equity Lines of Credit:

The Company also has guaranteed to Edson, and its majority shareholders individually as signatory’s, the repayment of loan origination costs, interest charges and the principal in full, for an Equity Line of Credit with Wells Fargo Bank totaling up to $250,000, the proceeds of which the Company received a concurrent loan from Edson when the credit line was funded on August 15, 2008. Edson incurred approximately $3,200 loan origination costs. The credit line was secured by residential real estate owned by Edson at that time. In

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 14 — Related Party Transactions:  – (continued)

June 2010 the Company issued 2,532 shares of its $100 par value preferred stock to Edson to secure repayment of the $250,000 plus costs incurred, by the Company for the concurrent loan made to the Company, agreeing to continue to pay interest charges and committing to repay the principal by March 2012. This agreement was extended through March 2013, and again through June 2014. On June 30, 2013 the balance was $244,362 which is shown as a reduction of equity in the Statement of Changes in Stockholders' Deficit for the fiscal years ended June 30, 2013. In March, 2013 the Company agreed to assume the remaining balance from Edson and then effective June 30, 2014, indemnified the officers from any liability pertaining to this note, of $243,296 for the cancellation of 2,433 shares of its $100 par value preferred stock. There shares were reflected as not outstanding since March, 2010.

Effective June 30, 2014 the Company also has guaranteed to its president, and a general member of MHC, the majority shareholder, individually as signatory’s, the repayment of a second Equity Line of Credit with Wells Fargo Bank, secured by the president’s principal residence, totaling $131,545 at that date. The proceeds of this home equity loan were primarily used to fund loan advances to the Company by the president in recent fiscal years. The Company committed to pay interest charges and the principal in full for this obligation and recorded the assumption as a $100,000 reduction of loans and a $31,545 reduction of unpaid compensation due to the president.

Note 15 — Major Customers and Segments:

The Company had three customers in 2014 and in 2013 which each accounted for more than 10% of sales.

The Company recorded sales of $3,744,606 with the three customers during the year ended 2014. These sales represent 52% of total sales for the year. At June 30, 2014 these customers owed $584,242 to the Company.

The Company recorded sales of $2,618,307 with the three customers during the year ended 2013. These sales represented 48% of total sales for the year. At June 30, 2013 these customers owed $167,944 to the Company.

Sales to U.S. customers represented 97% of sales in 2014 and 2013, and the six months ended December 31, 2014 and 2013.

The Company recorded sales of $1,845,999 with three customers for the six months ended December 31, 2014. These sales represent 49% of sales for that period. At December 31, 2014, those 3 customers owed Microphase $320,054.

The Company recorded sales of $1,284,181 with three customers for the six months ended December 31, 2013. These sales represent 42% of sales for that period.

Note 16 — Income Taxes and Deferred Taxes:

There is no provision for federal income tax and state income tax is provided for at the minimum statutory amount. The Company has available at June 30, 2014 approximately $7,348,000 and $5,527,000 in federal and state unused operating loss carry-forwards that expire in various years from 2017 to 2034. The Company also has available at June 30, 2014 approximately $400,000 capital loss carry-forwards. As of June 30, 2013 the federal amount was $8,843,922 and the state amount was $6,723,005 for unused operating loss carry-forwards which expire in various years from 2017 to 2033.

Deferred income tax assets and liabilities result from differences in reporting of income and expenses and operating loss carry-forwards. No deferred income tax assets have been recorded due to the fact that it is unlikely the Company will derive any tax benefit from these factors. There were no material unrecorded taxes at the years ending June 30, 2014 or 2013.

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MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 17 — Stockholders' Equity:

Microphase Corporation has authorized capital of 7,800,000 shares of common stock with no par value and 200,000 shares of preferred stock with $100 par value per share, with 6% cumulative dividends when declared.

Common Stock Transactions

During the Fiscal Year ended June 30, 2013, the Company issued 447,742 shares of its common stock for services and charged $895,484 to selling general and administrative expense, valuing the shares based upon the value of concurrent private placements. The Company also issued 294,641 shares of its common stock to accredited investors in private placements of its common stock to accredited investors pursuant to Rule 504 of regulation D and Section 4(2) of the Securities Act of 1933, as amended, which included 57,141 shares to finders and $35,625 of offering costs, generating $439,375 net proceeds to the Company.

During the Fiscal Year ended June 30, 2014, the Company issued 225,000 shares of its common stock for services and charged $450,000 to selling general and administrative expense, valuing the shares based upon the value of concurrent private placements. The Company also issued 756,725 shares of its common stock to accredited investors in private placements of its common stock to accredited investors pursuant to Rule 504 of regulation D and Section 4(2) of the Securities Act of 1933, as amended, which included 196,725 shares to finders and $102,750 of offering costs, generating $1,019,551 net proceeds to the Company.

Preferred Stock Transactions

During the fiscal year ended June 30, 2013 the Company issued 10,000 shares of preferred stock, $100 par value per share, in connection with the acquisition of the building at 587 Connecticut Avenue in Norwalk, CT from a related party as discussed in Note 14.

Also during the year ended June 30, 2013 the Company issued 500 shares of preferred stock to two officers in connection with the cancelation of $50,000 of debt owed to these officers.

The preferred stock, with respect to dividends, liquidation payments, and liquidation rights, ranks senior to the common stock and of the Company. Holders of Preferred Stock are entitled to receive, when and as declared by the Board of Directors, dividends, at the annual rate of 6% of the stated par value, or $100 per share. Dividends are cumulative and accrue from the effective date of issuance of the Preferred Stock until declared.

As of June 30, 2014 and 2013, 23,543 and 23,543 preferred shares have been issued and the cumulative dividends undeclared were approximately $459,400 and $318,200, respectively.

In December 2014, the Board of Directors declared $494,735 of dividends on preferred shares outstanding as of September 30, 2014 and authorized the payment in 329,825 shares common stock using a conversion rate of $1.50 per share, charging an additional $164,193 to retained deficit for the loss on the settlement of the dividend payable.

As of December 31, 2014 26,943 preferred shares are outstanding and cumulative undeclared dividends on preferred stock are $35,315.

On October 4, 2014 at a special meeting of the shareholders of the Company the shareholders approved amendments to the Certificate of Incorporation of the Company to:

(1) Increase its authorized common stock from 4,800,000 shares of common stock without par value to 50,000,000 shares of common stock without par value for economic reasons the Board of Directors has implemented an increase to 7,809,000 shares;

(2) Increase its authorized preferred stock from 200,000 shares, $100 par value per share, to 2,000,000 shares of 6% convertible preferred stock, for economic reasons this has yet to be implemented, $100 par value per share. Each outstanding and hereafter issued share of the preferred stock will:

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TABLE OF CONTENTS

MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 17 — Stockholders' Equity:  – (continued)

i) be entitled to a cash dividend, payable quarterly on the last business day of each fiscal quarter of the Company, commencing with the fiscal quarter ended December 31, 2014, if and when declared by the Company's board of directors. These dividends will be cumulative, will accrue if not declared by the directors, and must be paid before any dividends or other distributions are made to the common shareholders.

ii) be entitled, on liquidation of the Company, to receive $100 per share plus accrued dividends before any distributions are made to the common shareholders.

iii) be convertible at the option of the holder into common stock of the Company at a price agreeable to the holders of the preferred stock.

The Board of Directors has not declared a dividend for the fiscal years ended June 30, 2014 or 2013.

Note 18 — Subsequent Events:

From July 1, 2014 through December 31, 2014 the Company completed transactions in private placements of its common stock to accredited investors pursuant to Rule 504 of regulation D and Section 4(2) of the Securities Act of 1933, as amended. The Company issued 261,782 shares of its common stock at $2.00 per share including 68,782 shares paid to finders and received net proceeds of $354,550, after deducting $31,450 of cash costs, which was used for working capital.

On October 4, 2014 at a special meeting of the shareholders of the Company, the shareholders approved and/or authorized the Board of Directors of the Company to:

(1) Pursue a going public transaction through a merger of the Company into an existing public company (“Pubco”), which is commonly referred to as an alternative public offering, whereby the Company receives controlling interest in Pubco. Alternatively, the Company may go public by filing a Form 10 or S-1 or other form or registration statement.

(2) Enter into agreements for the conversion of at least $660,000 of shareholder/note holder loans which together with accrued interest are estimated to total $1,160,000 of debt at September 30, 2014 into shares of common stock of the Company.

On July 9, 2014 Microphase executed a securities purchase agreement with AmpliTech Group Inc. of Bohemia, N.Y. to purchase, as amended, 8,666,666 AmpliTech common shares at $0.023 per share for a total purchase price of $200,000. The purchase price was made up of two installments of $100,000. The securities purchase agreement was executed in connection with a Memorandum of Understanding regarding the formation of a Strategic Partnership for joint product development, volume manufacture, co-branding and marketing of new and advanced integrated RF/Microwave and Millimeter-wave products including low noise amplifiers (LNA), power amplifier modules and filter subassemblies based on the Parties' proprietary design knowhow and intellectual property.

On August 8, 2014 the Company signed a strategic partnership agreement with Dynamac, Inc. to develop, manufacture and market a portfolio of low cost RF/Microwave and Millimeter-wave calibrated test probes and related universal test platforms. Microphase agreed to pay a one-time licensing and rights fee of $350,000 of which $50,000 was paid in the first quarter of fiscal 2015, and the remaining $300,000 was originally due in the second quarter. The Company is presently renegotiating repayment terms as well as the expected delivery date of the initial proto-type products. Microphase also agreed to pay a 25% royalty fee based on the list price of each product sold by Microphase. Microphase has a first right of refusal to purchase the product line for $2.5 million for 3 years from the date of the agreement.

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TABLE OF CONTENTS

MICROPHASE CORPORATION
 
Notes to Financial Statements
June 30, 2014
(Unaudited for the six months ended December 31, 2014 and 2013)

Note 18 — Subsequent Events:  – (continued)

Preferred stock dividend

Effective December 31, 2014 the Board of Directors approved and declared payable all cumulative dividends in arrears for preferred shares of Microphase outstanding at September 30, 2014, under the original terms commencing with preferred shares issued since March 31, 2010. The Board also authorized the conversion of the liability for the preferred dividend payable into common shares at $1.50 consistent with the conversion rate for debt conversions approved by shareholders at the October 4th special meeting, resulting in the issuance of 329,825 shares of the Company’s common stock as payment of $494,735. The Company also recorded beneficial conversion feature interest of $164,913 on the difference between the conversion price of $1.50 for the dividend payable and $2.00 value for recent private placements.

Capital stock conversions

Effective December 31, 2014, an officer and a former employee converted $150,000 and $170,000, respectively, or a total of $320,000 of related party loans into 213,333 shares of the Company’s common stock. Another officer converted $180,000 of related party loans into 1,800 shares of the Company’s preferred stock. Two officers each converted $80,000, or a total of $160,000 of unpaid compensation into a total of 1,600 shares of the Company’s preferred stock. A strategic vendor converted $15,000 of accounts payable of into 10,000 shares of the Company’s common stock. The Company recorded beneficial conversion feature interest of $223,866 on the difference between the conversion value of $1.50 and $2.00, the value of shares issued in recent private placements.

Other stock issuances

Effective December 31, 2014, the Company issued 355,000 shares of its common stock to advisors, consultants and employees valued at $710,000, which will be charged to operations in the quarter ending December 31, 2014.

Stock option plan

The Board of Directors approved the implementation of the 2015 stock option plans, reserving 250,000 shares of common stock for this plan.

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TABLE OF CONTENTS

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.

 
Exhibit
Number
  Description
 3.1   Amended and Restated Certificate of Incorporation
 3.2   Bylaws
10.1   Loan and Security Agreement dated as of February 3, 2012, by and between Microphase Corporation and Gerber Finance, Inc., as amended
10.2   Strategic Partnership between Microphase Corporation and Dynamac, Inc.
10.3   Assumption of Mortgage Debt entered into as of January 22, 2015
10.4   Employment Agreement by and between the Company and Necdet Ergul
10.5   Employment Agreement by and between the Company and James Ashman
10.6   Employment Agreement by and between the Company and Michael Ghadaksaz
10.7   Employment Agreement by and between the Company and Ron Durando
10.8   Consulting Agreement by and between the Company and Brian Kelly
23.1   Consent of independent registered public accounting firm

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TABLE OF CONTENTS

SIGNATURES

In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Date: February 23, 2015   MICROPHASE CORPORATION
    

By:

/s/ Necdet F. Ergul

Name:
Title: Chief Executive Officer, Chairman of the Board of Directors

    

By:

/s/ James Ashman

Name:
Title: Chief Financial Officer, Director

    

By:

/s/ Micheal Gadakhasz

Name:
Title: Director

    

By:

/s/ Jeffrey Peterson

Name:
Title: Director

    

By:

/s/ Paul H.DeCoster

Name:
Title: Director

45


EX-3.1 2 v398941_ex3-1.htm EXHIBIT 3.1

 

Exhibit 3.1

 

SECRETARY OF THE STATE OF CONNECTICUT
 
MAILING ADDRESS: COMMERCIAL RECORDING DIVISION, CONNECTICUT SECRETARY OF THE STATE, P.O. BOX 150470. HARTFORD, CT 06115-0470
DELIVERY ADDRESS: COMMERCIAL RECORDING DIVISION, CONNECTICUT SECRETARY OF THE STATE, 30 TRINITY STREET, HARTFORD, CT 06106
PHONE: 860-509-6003        WEBSITE: www.concord-sots.ct.gov

 

CERTIFICATE OF AMENDMENT

 

STOCK CORPORATION

 

USE INK. COMPLETE ALL SECTIONS. PRINT OR TYPE. ATTACH 81/2 X 11 SHEETS IF NECESSARY. 

 

FILING PARTY (CONFIRMATION WILL BE SENT TO THIS ADDRESS): FILING FEE: $100
   
      MAKE CHECKS PAYABLE TO “SECRETARY OF THE STATE”
NAME: Microphase Corporation    
ADDRESS: 587 Connecticut Avenue    
CITY: Norwalk    
STATE: Connecticut ZIP: 06854  
 
1. NAME OF CORPORATION:
 
Microphase Corporation
 

2. THE CERTIFICATE OF INCORPORATION IS (CHECK A, B OR C):
 
¨ A. AMENDED
 
¨ B. RESTATED
 
x C. AMENDED AND RESTATED
 
THE RESTATED CERTIFICATE CONSOLIDATES ALL AMENDMENTS INTO A SINGLE DOCUMENT.
 
3. CHECK 3A OR 3B OR BOTH, AS APPROPRIATE.
 
x   3A. TEXT OF EACH AMENDMENT / RESTATEMENT:
 
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION  
     
MICROPHASE CORPORATION  
     
(a Connecticut Business Corporation)  
     
(see attached)  
     
PAGE 1 OF 2 FORM CAS-1-1.0
    REV. 10/2014

 

 
 

 

 

¨ 3B. ELECTION OF BENEFIT CORPORATION STATUS. (MUST check box 3B if electing Benefit Corporation Status.)

 

The corporation elects to be a Benefit Corporation. In addition to the stated purposes for which the corporation is formed, the corporation shall also have the purpose to create a general public benefit as defined in the Connecticut Benefit Corporation Act. [NOTE: If the Benefit Corporation adopts one or more specific public benefits in addition to the required general public benefit, then the corporation must set forth the specific public benefit(s) in Box 3A, “TEXT OF EACH AMENDMENT/RESTATEMENT”, above. If so, then BOTH Box 3A AND Box 3B should be checked on the form.]

 

4. VOTE INFORMATION (SELECT A, B, C OR D): 

 

x A. THE AMENDMENT WAS APPROVED BY SHAREHOLDERS IN THE MANNER REQUIRED BY SECTIONS 33-600 TO 33-998 OF THE CONNECTICUT GENERAL STATUTES, AND BY THE CERTIFICATE OF INCORPORATION.
     
¨ B.

THE AMENDMENT WAS APPROVED BY THE INCORPORATORS.

NO SHAREHOLDER APPROVAL WAS REQUIRED.

     
¨ C.

THE AMENDMENT WAS APPROVED BY THE BOARD OF DIRECTORS.

NO SHAREHOLDER APPROVAL WAS REQUIRED.

     
¨ D. THE AMENDMENT WAS APPROVED BY A MINIMUM STATUS VOTE, AS REQUIRED BY THE CONNECTICUT  BENEFIT CORPORATION ACT. SELECT D IF A MINIMUM STATUS VOTE RESULTED IN THE ELECTION OF BENEFIT CORPORATION STATUS.

 

5. EXECUTION:

 

DATED THIS 6th DAY OF February, 2015 

         
NAME OF SIGNATORY    
(print or type)   CAPACITY/TITLE OF SIGNATORY   SIGNATURE
Necdet Ergul   President   /s/Necdet Ergul

 

 

PAGE 2 OF 2 FORM CAS-1-1.0
    REV. 10/2014

 

 
 

  

INSTRUCTIONS FOR COMPLETION OF THE

CERTIFICATE OF AMENDMENT STOCK CORPORATION

 

INSTRUCTIONS

 

PLEASE NOTE THAT THIS FORM MAY BE USED FOR ALL AMENDMENTS,

INCLUDING A CHANGE IN THE CORPORATION’S NAME.

 

1. NAME OF CORPORATION: Please provide the complete name of the corporation, as it currently appears on the records of the Secretary of the State. Note: If the corporation is adopting a new name, it must be set forth in item number 3 on the form.

 

2. THE CERTIFICATE OF INCORPORATION IS (check A, B or C): Please place a check next to the appropriate function. Note: If the Certificate of Incorporation is either Restated or Amended and Restated, each element of the corporation's certificate of incorporation must be set forth in item number 3 or on a referenced attachment

 

  A. Amended Only:  

Check this block only if the company’s Certificate of

Incorporation is being amended. Example: the company’s name is being changed.

       
  B. Restated Only:   Check this block only if the provisions of the original Certificate of Incorporation, as supplemented and amended, are merely being restated so that the effective provisions of the Certificate of Incorporation are integrated into one document. There cannot be any discrepancy between the above mentioned provisions and the provisions being restated.
       
  C. Amended and Restated:   Check this block only if the Certificate of Incorporation is being amended and every article of the original Certificate of Incorporation, as supplemented and amended, are integrated into one document.

 

3A.TEXT OF EACH AMENDMENT / RESTATEMENT: Please provide the full text of each amendment. In the case of an Amended and Restated certificate, provide the text of each amendment followed by a complete restatement of the corporation's certificate of incorporation. In the case of a Restatement, provide a complete expression of the corporation's certificate of incorporation. If the corporation elects Benefit Corporation status and adopts one or more specific public benefits in addition to the required general public benefit, then the corporation must set forth any adopted specific public benefits in this space. If so, then both Box 3A and 3B should be checked.

 

3B.ELECTION OF BENEFIT CORPORATION STATUS: This box must be checked if the corporation elects to be a Benefit Corporation under the Connecticut Benefit Corporation Act. If the Benefit Corporation elects to adopt one or more specific public benefits in addition to the required general public benefit, then it must include any adopted specific public benefits in Box 3A, TEXT OF EACH AMENDMENT/RESTATEMENT, above. If using Box 3A to set forth specific public benefits, the corporation must check BOTH box 3A AND 3B.

 

4.APPROVAL INFORMATION (select A, B, C or D): Please choose and complete A if shareholder approval was required and taken. Select B if the amendment, amendment and restatement or restatement was approved by incorporators without the need for shareholder approval. Select C if the amendment, amendment and restatement or restatement was approved by the board of directors without the need for shareholder approval. Select D if a Minimum Status Vote resulted in the election of Benefit Corporation status.

 

5.EXECUTION: The document must be executed by an authorized official of the corporation. That person must print or type their name, state the capacity under which they sign and provide a signature. The execution constitutes a legal statement under the penalties of false statement that the information provided in the document is true.

 

INSTRUCTIONS DO NOT SCAN THIS PAGE FORM CAS-1-1.0
    REV. 10/2014

 

 
 

 

CERTIFICATE OF AMEDNMENT

STOCK CORPORATION

 

MICROPHASE CORPORATION

(a Connecticut Business Corporation)

 

3.  TEXT OF EACH AMENDMENT/RESTATEMENT

 

The Certificate of Incorporation is amended as follows:

 

A. Article TWO is amended as follows:

 

TOTAL NUMBER OF AUTHORIZED SHARES:            8,000,000

 

There shall be two classes of stock having the following designations and numbers of authorized shares:

 

Common Stock, without par value                                         7,800,000

 

6% Convertible Preferred Stock, $100.00 par value              200,000

 

Each share of Preferred Stock outstanding on the date of effectiveness of this amendment shall be reclassified as one share of 6% Convertible Preferred Stock.

 

B.  Article THREE (I.) is amended as follows:

 

I.The holders of record of the 6% Convertible Preferred Stock, $100.00 Par Value (the “Preferred Shares”) shall be entitled to receive, out of funds legally available for the payment thereof, when and as declared by the Corporation’s board of directors, preferential cash dividends at the rate of 6% of the par value thereof per annum, and no more, which dividends shall accrue daily but be payable in equal quarterly installments on the first business days of January, April, July and October in each year. Such preferential dividends shall be cumulative so that, if for any dividend period cash dividends at the rate of 6% of the par value thereof per annum shall not have been declared and paid or set aside for payment on the Preferred Shares outstanding, the deficiency shall be declared and paid or set aside for payment before any dividend or distribution (except a distribution payable in additional shares of Common Stock, no par value (the “Common Shares”) may be declared and paid or set aside for payment on the Common Shares. Cash dividends on Preferred Shares shall accrue from the date of issue, if that be a dividend date, otherwise from the dividend date next preceding the date of issue of such Preferred Shares. Upon payment or setting aside for payment of all dividends, current and accumulated, at the rate of 6% of the par value thereof per annum upon the outstanding Preferred Shares, the Corporation’s board of directors may declare and pay out of funds legally available for the payment thereof, dividends and other distributions upon the Common Shares.

 

 
 

 

C.  Article THREE (II.) is amended as follows:

 

II.In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of record of the Preferred Shares shall be entitled to be paid the full par value of such Preferred Shares, plus the dividends accumulated thereon up to the date of such liquidation, dissolution, or winding up of the Corporation (whether or not the Corporation shall have a surplus or earnings available for dividends), and no more. After payment to the holders of the Preferred Shares of the full amount payable to them as aforesaid, the remaining assets of the Corporation shall be payable to and distributed pro rata among the holders of record of the Common Shares. For purposes of this Subsection (b), the consolidation or merger of the Corporation with or into another corporation or entity shall not constitute, nor shall the sale, lease or conveyance of all or substantially all of the assets of the Corporation as an entity in and of itself, constitute, a liquidation, dissolution or winding up of affairs of the Corporation as such terms are used herein.

 

D.  Article THREE (V.) is added:

 

V.The holders of record of shares of the 6% Convertible Preferred Stock shall have the right to convert each share of said stock into shares of Common Stock upon such terms and conditions as the corporation’s board of directors shall prescribe from time to time and as the holders of the 6% Convertible Preferred Stock shall agree to.

 

 
 

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

MICROPHASE CORPORATION

(a Connecticut Business Corporation)

 

1.NAME OF CORPORATION:         MICROPHASE CORPORATION

 

2. TOTAL NUMBER OF AUTHORIZED SHARES: 8,000,000

 

There shall be two classes of stock having the following designations and numbers of authorized shares:

 

  Common Stock, without par value 7,800,000
     
  6% Convertible Preferred Stock, $100.00 par value 200,000

 

Each share of Preferred Stock outstanding on the date of effectiveness of this amendment shall be reclassified as one share of 6% Convertible Preferred Stock.

 

3.TERMS, LIMITATIONS, RELATIVE RIGHTS AND PREFERENCES OF EACH CLASS OF SHARES AND SERIES THEREOF PURSUANT TO CONN. GEN. STAT. SECTION 33-665:

 

I.The holders of record of the 6% Convertible Preferred Stock, $100.00 Par Value (the “Preferred Shares”) shall be entitled to receive, out of funds legally available for the payment thereof, when and as declared by the Corporation’s board of directors, preferential cash dividends at the rate of 6% of the par value thereof per annum, and no more, which dividends shall accrue daily but be payable in equal quarterly installments on the first business days of January, April, July and October in each year. Such preferential dividends shall be cumulative so that, if for any dividend period cash dividends at the rate of 6% of the par value thereof per annum shall not have been declared and paid or set aside for payment on the Preferred Shares outstanding, the deficiency shall be declared and paid or set aside for payment before any dividend or distribution (except a distribution payable in additional shares of Common Stock, no par value (the “Common Shares”) may be declared and paid or set aside for payment on the Common Shares. Cash dividends on Preferred Shares shall accrue from the date of issue, if that be a dividend date, otherwise from the dividend date next preceding the date of issue of such Preferred Shares. Upon payment or setting aside for payment of all dividends, current and accumulated, at the rate of 6% of the par value thereof per annum upon the outstanding Preferred Shares, the Corporation’s board of directors may declare and pay out of funds legally available for the payment thereof, dividends and other distributions upon the Common Shares.

 

 
 

 

II.In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of record of the Preferred Shares shall be entitled to be paid the full par value of such Preferred Shares, plus the dividends accumulated thereon up to the date of such liquidation, dissolution, or winding up of the Corporation (whether or not the Corporation shall have a surplus or earnings available for dividends), and no more. After payment to the holders of the Preferred Shares of the full amount payable to them as aforesaid, the remaining assets of the Corporation shall be payable to and distributed pro rata among the holders of record of the Common Shares. For purposes of this Subsection (b), the consolidation or merger of the Corporation with or into another corporation or entity shall not constitute, nor shall the sale, lease or conveyance of all or substantially all of the assets of the Corporation as an entity in and of itself, constitute, a liquidation, dissolution or winding up of affairs of the Corporation as such terms are used herein.

 

III.The Corporation, at its option, may redeem the whole or any part (pro rata or by lot) of the Preferred Shares outstanding at any time, by paying therefor in cash the full par value thereof plus the dividends accumulated thereon to the date fixed for such redemption (the “redemption price”). Notice of such redemption specifying the time and place of redemption shall be mailed to each holder of record of the Preferred Shares to be redeemed at his or her address as the same appear on the records of the Corporation at least 30 days and not more than 60 days prior to the redemption date, unless such notice is waived by such holder. From and after the date specified as the redemption date in such notice, unless the Corporation shall fail to provide moneys at the time and place specified in such notice for the payment of the redemption price, all dividends on the Preferred Shares called for redemption shall cease to accrue and all rights of the holders thereof as shareholders of the Corporation shall cease and terminate. Any redemption hereunder shall be made in the manner determined by the Corporation’s board of directors and in accordance with all applicable provisions of law.

 

IV.The holders of record of the Preferred Shares, voting together with the holders of the Common Shares, shall have one vote per share for the election of directors and on all other matters to come to a vote of the shareholders of the Corporation.

 

V.The holders of record of shares of the 6% Convertible Preferred Stock shall have the right to convert each share of said stock into shares of Common Stock upon such terms and conditions as the corporation’s board of directors shall prescribe from time to time and as the holders of the 6% Convertible Preferred Stock shall agree to.

 

4.APPOINTMENT OF STATUTORY AGENT:

 

Jeffery Peterson, Secretary

Microphase Corporation

587 Connecticut Avenue

Norwalk, CT 06856

 

 

 

EX-3.2 3 v398941_ex3-2.htm EXHIBIT 3.2

 

Exhibit 3.2

 

BY-LAWS OF MICROPHASE CORPORATION

(A Connecticut Corporation)

 

ARTICLE I

 

SHAREHOLDERS

 

Section 1.01. Annual Meetings. The Annual Meeting of the shareholders of the Corporation for the election of Directors and for the transaction of such other business as properly may come before such meeting shall be held on the first Thursday in October at 10:00 A.M. at such place, either within or without the State of Connecticut, or at such other date and hour as may be fixed from time to time by resolution of the Board of Directors and set forth in the notice or waiver of notice of the meeting. Any previously scheduled Annual Meeting may be postponed by resolution of the Board of Directors upon notice given on or prior to the date previously scheduled for such Annual Meeting of the shareholders. [Section 33-695(a)(b).]

 

Section 1.02. Special Meetings. Special Meetings of the shareholders may be called at any time by the Chairman, the Vice Chairman, the Secretary, or any two Directors. A Special Meeting shall be called by the Chairman or the Vice Chairman, immediately upon receipt of a written request therefor delivered to the Secretary of the Corporation by shareholders holding not less than 10% of the voting power of all shares entitled to vote at the meeting, which request shall state the purpose or purposes of such meeting. If the Chairman or the Vice Chairman shall fail to call such meeting within 15 days after receipt of such request, any shareholder executing such request may call such meeting. Such Special Meetings of the shareholders shall be held at such places, within or without the State of Connecticut, as shall be specified in the respective notices or waivers of notice thereof. At any Special Meeting of shareholders, only such business may be transacted as is related to the purposes set forth in the notice thereof. [Section 33-696.]

 

Section 1.03. Notice of Meetings: Waiver. A notice in writing of each meeting of shareholders shall be given by or at the direction of the Chairman or the Vice Chairman or Secretary or the officer or person calling the meeting to each shareholder of record entitled to vote at such meeting, by leaving such notice with the shareholder or at the shareholder’s residence or usual place of business, or by mailing a copy thereof addressed to such shareholder at the last-known post-office address as last shown on the stock records of the Corporation, postage prepaid, not less than ten days nor more than 60 days before the date of the meeting. Each notice of a meeting of shareholders shall state the place, date and hour of the meeting. The general purpose or purposes for which a Special Meeting is called shall be stated in the notice thereof, and no other business shall be transacted at the meeting.

 

No notice of any meeting of shareholders need be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders need be specified in a written waiver of notice. The Secretary of the Corporation shall cause any such waiver to be filed with the records of the meeting. The attendance of any shareholder, in person or by proxy, at a meeting of shareholders without protesting, prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by such shareholder of notice of such meeting.

 

Except as set forth in Section 1.06 of these By-Laws, notice of any adjourned meeting of the shareholders of the Corporation need not be given. [Sections 33-699, 33-700.]

 

Section 1.04. Quorum. Except as otherwise required by law or by the Certificate of Incorporation, the presence in person or by proxy of the holders of a majority of the shares of stock entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business at such meeting. The shareholders present at a duly held meeting at which a quorum is present may continue to do business for the remainder of the meeting and any adjournment of it unless a new record date is or must be set for the adjourned meeting, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. [Section 33-709.]

 

Section 1.05. Voting. Every holder of record of shares entitled to vote at a meeting of shareholders shall be entitled to one vote for each share standing in his or her name on the books of the Corporation on the record date fixed pursuant to Section 5.04 of these By-Laws. Shares standing in the name of another domestic or foreign corporation of any type or kind may be voted by such officer, agent or proxy as the By-Laws of such corporation may provide, or in the absence of such provision, as the Board of Directors of such Corporation may determine. If a meeting of shareholders is duly held and if a quorum exists, action on a matter, other than the election of Directors, is approved by the shareholders if the votes cast by the shareholders favoring the action exceed the votes cast opposing the action, unless the Certificate of Incorporation, these By-laws or the law requires a greater number of affirmative votes. [Sections 33-705, 33-709.]

 

 
 

 

Section 1.06. Adjournment. If a quorum is not present at any meeting of the shareholders, the shareholders present in person or by proxy shall have the power to adjourn any such meeting until a quorum is present, without notice other than announcement at any such meeting of the place, date and hour to which such meeting is adjourned. However, if after the adjournment the Board of Directors fixes a new record date for the adjourned meeting pursuant to Section 5.04 of these By-Laws, a notice of the adjourned meeting, conforming to the requirements of Section 1.03 hereof, shall be given to each shareholder of record entitled to vote at such meeting. The holders of a majority of the voting power of the shares entitled to vote represented at a meeting may adjourn such meeting from time to time. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted on the original date of the meeting. [Section 33-699(e).]

 

Section 1.07. Proxies. Every person entitled to vote or execute consents, waivers or releases in respect of shares may do so either in person or by one or more agents authorized by a written proxy executed by such person. No such proxy shall be voted or acted upon after the expiration of 11 months from the date of such proxy, unless it expressly specifies a longer length of time for which it is to continue in force or limits its use to a particular meeting not yet held. Every proxy shall be revocable at the will of the shareholder executing it, unless it states that it is irrevocable and the appointment of proxy is coupled with an interest. An appointment of a proxy is effective when received by the Secretary of the Corporation or other officer or agent authorized to tabulate votes. [Section 33-706.]

 

Section 1.08. Organization; Procedure. At every meeting of shareholders the presiding officer shall be the Chairman or, in the event of his absence or disability, the Vice Chairman, or in the absence of such officers, a presiding officer chosen by a majority of the shareholders present in person or by proxy. The order of business and all other matters of procedure at every meeting of shareholders may be determined by such presiding officer. The Secretary, or, in his absence, an appointee of the presiding officer, shall act as Secretary of the meeting.

 

Section 1.09. Order of Business.

 

(a) At any Annual Meeting or Special Meeting of the shareholders, only such business shall be conducted as shall have been brought before the Annual Meeting or the Special Meeting (i) by or at the direction of the Board of Directors or (ii) by any shareholder who complies with the procedures set forth in this Section 1.09.

 

(b) For business properly to be brought before an Annual Meeting or Special Meeting by a shareholder, the shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the Annual Meeting or Special Meeting; provided, however, that in the event that less than 70 days’ notice or prior public disclosure of the date of the Annual Meeting or Special Meeting is given or made to shareholders, notice by the shareholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the Annual Meeting or Special Meeting was mailed or such public disclosure was made. To be in proper written form, a shareholder’s notice to the Secretary shall set forth in writing as to each matter the shareholder proposes to bring before the Annual Meeting or Special Meeting: (i) a brief description of the business desired to be brought before the Annual Meeting or Special Meeting and the reasons for conducting such business at the Annual Meeting or Special Meeting; (ii) the name and address, as they appear on the Corporation’s books, of the shareholder proposing such business; (iii) the class and number of shares of the Corporation which are beneficially owned by the shareholder; and (iv) any material interest of the shareholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at an Annual Meeting or Special Meeting except in accordance with the procedures set forth in this Section 1.09. The chairman of an Annual Meeting or Special Meeting shall, if the facts warrant, determine and declare to the Meeting, that business was not properly brought before such Meeting in accordance with the provisions of this Section 1.09 and, if he or she should so determine, he or she shall so declare to such meeting and any such business not properly brought before such meeting shall not be transacted.

 

 
 

 

(c) For a shareholder to nominate persons for election to the Board of Directors of the Corporation, the shareholder may nominate persons for election as Directors only if such intention to make such nomination is given by timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a shareholder’s notice of nomination must be delivered to or mailed and received at the principal offices of the Corporation not less than 60 days nor more than 90 days prior to the Annual Meeting or Special Meeting at which Directors will be elected; provided however, that in the event that less than 70 days’ notice or prior public disclosure of the date of such meeting is given or made to shareholders, notice by the shareholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of such meeting was mailed or such public disclosure was made. To be in proper written form, a shareholder’s notice to the Secretary shall set forth in writing (a) as to each person whom the shareholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of stock of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required under the rules and regulations of the Securities and Exchange Commission (including without limitation such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected) and (b) as to the shareholder giving the notice, (i) the name and address, as they appear on the Corporation’s books, of such shareholder and, (ii) the class and number of shares of stock of the Corporation which are beneficially owned by such shareholder. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures of this Section 1.09 and, if the chairman of the meeting should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

 

ARTICLE II

BOARD OF DIRECTORS

 

Section 2.01. General Powers. All the powers of the Corporation shall be exercised by or under the authority of the Board of Directors, and except as may otherwise be provided by law, by the Certificate of Incorporation or by these By-Laws, the business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors. [Section 33-735(b).]

 

Section 2.02. Number. The number of Directors constituting the entire Board of Directors shall be not less than two and not more than nine and the number of directorships at any time within such maximum and minimum shall be the number fixed by resolution of the shareholders or by resolution adopted by a 66-2/3% vote of the Board of Directors or, in the absence thereof, shall be the number of Directors elected at the preceding Annual Meeting of shareholders. [Section 33-737.]

 

Section 2.03. Qualifications of Directors. Directors need not be residents of the State of Connecticut or shareholders of the Corporation. [Section 33-736.]

 

Section 2.04. Election and Term of Directors. Except as otherwise provided in Section 2.14 of these By-Laws, the Directors shall be elected at each Annual Meeting of the shareholders to hold office until the next Annual Meeting of shareholders. Each Director shall hold office for the term for which he or she is elected and until such director’s successor has been duly elected and qualified, or until an earlier death, resignation, removal or a court order stating that by reason of incompetency or any other lawful cause, he or she is no longer a Director in office. If the Annual Meeting for the election of Directors is not held on the date designated therefor, the Directors shall cause the meeting to be held as soon thereafter as convenient. Except as otherwise required by applicable law or the Certificate of Incorporation, (i) in a contested director election where the number of nominees exceeds the number of directors to be elected, each Director shall be elected by a plurality of the votes cast “for” his or her election at a meeting of shareholders at which a quorum is present in person or by proxy and entitled to vote in the election; (ii) in all other elections, each Director shall be elected by a majority of the votes cast “for” his or her election at a meeting of shareholders at which a quorum is present in person or by proxy and entitled to vote in the election. Any incumbent nominee for Director who, in an uncontested director election, fails to receive a majority of votes cast “for” his or her election shall tender his or her resignation no later than five (5) business days after the date of the certification of the election results and, no later than ninety (90) days from such certification, the Board shall accept such resignation absent a compelling reason. [Sections 33-712, 33-737, 33-739]

 

 
 

 

Section 2.05. Regular Meetings. The Board of Directors shall meet for the purpose of electing officers and appointing committees, if any, and for the transaction of such other business as may properly come before such meeting, immediately following adjournment of the Annual Meeting of the shareholders at the place of such Annual Meeting of the shareholders. Notice of such meeting of the Board of Directors need not be given. Additional regular meetings of the Directors may be held at such places, dates and times as shall be determined from time to time by resolution of the Directors. Notice of regular meetings need not be given, except that if the Board of Directors shall fix or change the time or place of any such regular meeting, notice of such action shall be mailed promptly, or sent by telegram or facsimile, to each Director who shall not have been present at the meeting at which such action was taken, addressed to such Director at his or her usual place of business, or shall be delivered personally. Notice of such action need not be given to any Director who attends the first regular meeting after such action is taken without protesting the lack of notice, prior to or at the commencement of such meeting, or to any Director who submits a signed waiver of notice, whether before or after such meeting. [Sections 33-748, 33-750.]

 

Section 2.06. Special Meetings; Notice. Special Meetings of the Board of Directors shall be held whenever called by the Chairman or any two Directors, at such place (within or without the State of Connecticut), as may be specified in the respective notices or waivers of notice of such meetings. At least two days’ written or oral notice of Special Meetings of the Board of Directors shall be given to each Director. A written waiver of notice signed by a Director entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. The Secretary of the Corporation shall cause any such waiver to be filed with the records of the meeting. The attendance of a Director at a meeting without protesting, prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by such Director of notice of such meeting. No notice need be given of any adjourned meeting, unless the time and place of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of this section shall be given to each Director. [Sections 33-750, 33-751.]

 

Section 2.07. Quorum; Voting. Except as provided in the Certificate of Incorporation of this Corporation, a majority of the number of directorships at the time shall constitute a quorum for the transaction of business. Except as otherwise provided herein, required by law or the Certificate of Incorporation of this Corporation, the vote of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. [Section 33-752.]

 

Section 2.08. Adjournment. A majority of the Directors present, whether or not quorum is present, may adjourn any meeting of the Board of Directors to another time or place. Notice of the adjourned meeting shall be given to the extent required by Section 2.05 of these By-Laws.

 

Section 2.09. Action without a Meeting. If all the Directors severally or collectively consent in writing to any action taken or to be taken by the Corporation, and the number of such Directors constitutes a quorum for such action, such action shall be as valid corporate action as though it had been authorized at a meeting of the Board of Directors. The Secretary shall file such consents with the minutes of the meetings of the Board of Directors. [Section 33-749.]

 

Section 2.10. Regulations; Manner of Acting. To the extent consistent with applicable law, the Certificate of Incorporation and these By-Laws, the Board of Directors may adopt such rules and regulations for the conduct of meetings of the Board of Directors and for the management of the affairs and business of the Corporation as the Board of Directors may deem appropriate. The Directors shall act only as a Board, and the individual Directors shall have no power as such. At every meeting of the Board of Directors, the presiding officer shall be the Chairman or, in the event of his or her absence or disability, a presiding officer chosen by a majority of the Directors present.

 

Section 2.11. Resignations. Any Director may resign at any time by delivering a written notice of resignation, signed by such Director, to the Board of Directors. Such resignation shall be effective immediately upon receipt by the Corporation if no time is specified, or at such later time as the resigning Director may specify. [Section 33-741.]

 

Section 2.12. Removal of Directors. Any Director or Directors may be removed either with or without cause at any time by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote, at a Special Meeting of the shareholders called for such purpose, which purpose must be set forth in the notice of the meeting. [Section 33-742.]

 

Section 2.13. Vacancies and Newly Created Directorships. Subject to the provisions of Section 2.02 hereof, any newly created directorships resulting from any increase in the number of Directors and any vacancies occurring on the Board of Directors for any other reason shall be filled for the unexpired term by a vote of 66-2/3% of the Board of Directors (measuring the percentage of the directorships on the Board of Directors, in the case of any vacancy occurring by reason of an increase in the number of directorships, by the percentage prior to the vote on the increase). [Section 33-744.]

 

 
 

 

Section 2.14. Compensation. The amount, if any, which each Director shall be entitled to receive as compensation for his or her services as such shall be approved from time to time by the Board of Directors. [Section 33-745.]

 

Section 2.15. Action by Telephonic Communications. Members of the Board of Directors, or any Committee designated by the Board, may participate in a meeting of the Board of Directors or such Committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. [Section 33-748(b).]

 

ARTICLE III

 

EXECUTIVE COMMITTEE, AUDIT COMMITTEE AND OTHER COMMITTEES

 

Section 3.01. How Constituted. The Board of Directors, by resolution or resolutions adopted by a vote of 66-2/3% of the Board of Directors, may designate two or more Directors to constitute an Executive Committee, an Audit Committee or other Committees. The Board may so designate one or more Directors as alternate member(s) of any Committee who may replace any absent or disqualified member(s) at any meeting of the Committee. Any such Committee may be abolished or redesignated from time to time by resolution or resolutions similarly adopted by the Board of Directors. Each such Committee shall serve at the pleasure of the Board of Directors. Each member of any such Committee shall hold office until a successor shall have been designated or until such member shall cease to be a Director, or until his or her earlier death, resignation or removal. [Section 33-753.]

 

Section 3.02. Powers. During the intervals between the meetings of the Board of Directors, unless otherwise provided from time to time by resolutions adopted by a vote of 66-2/3% of the Board of Directors, the Executive Committee, if such a Committee shall have been established, shall have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation, subject to the limitations set forth below. No Committee, including the Executive Committee, shall have any power or authority in reference to the following matters:

 

(a) the declaration of any distribution or dividend in respect of shares of stock of the Corporation;

 

(b) approving or proposing to shareholders any action as to which shareholder approval is required by law;

 

(c) the filling of vacancies on the Board of Directors or on any Committee thereof;

 

(d) the amendment of the Certificate of Incorporation pursuant to Section 33-796 of the Connecticut Business Corporation Act;

 

(e) the amendment or repeal of the By-Laws, or the adoption of new By-Laws;

 

(f) the approval of a plan of merger not requiring shareholder approval;

 

(g) the authorization or approval of the reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; or

 

(h) the authorizing or approving of the issuance or sale or contract for sale of shares, or the determination of the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a Committee or a senior executive officer of the Corporation to do so within limits specifically prescribed by the Board of Directors.

 

Subject to the foregoing limitations, each other such Committee shall have and may exercise such powers of the Board as may be provided by resolution or resolutions similarly adopted. [Section 33-753(e)(f).]

 

Section 3.03. Proceedings. Any such Committee may fix its own rules of procedure and may meet at such place (within or without the State of Connecticut), at such date and time and upon such notice, if any, as it shall determine from time to time. Such Committee shall keep a record of its proceedings and shall report any such proceedings to the Board of Directors at the first meeting of the Board of Directors following any such proceedings.

 

 
 

 

Section 3.04. Quorum and Manner of Acting. Except as may be otherwise provided in the resolution designating any such Committee, at all meetings of any such Committee the presence of members constituting a majority of the total authorized membership of such Committee, but in no event less than two, shall constitute a quorum for the transaction of business; and the act of the majority of the members present at any meeting at which a quorum is present, but in no event less than two, shall be the act of such Committee. Any action required or permitted to be taken at any meeting of any such Committee may be taken without a meeting, if all members of such Committee shall consent to such action in writing and such writing or writings are filed with the proceedings of the Committee. The members of any such Committee shall act only as a Committee, and the individual members of such Committee shall have no power as such. [Sections 33-749, 33-752, 33-753(d).]

 

Section 3.05. Resignations. Any member of any Committee may resign at any time by delivering a written notice of resignation, signed by such member, to the Board of Directors. Unless otherwise specified therein, such resignation shall take effect upon delivery.

 

Section 3.06. Removal. Any member of any such Committee may be removed at any time, with or without cause, by resolution adopted by a vote of 66-2/3% of the Board of Directors.

 

Section 3.07. Vacancies. If any vacancy shall occur in any such Committee, by reason of disqualification, death, resignation, removal or otherwise, the remaining members shall continue to act, if they are at least two in number, and any such vacancy may be filled by resolution adopted by a vote of 66-2/3% of the Board of Directors.

 

ARTICLE IV

 

OFFICERS

 

Section 4.01. Number. The officers of the Corporation shall be elected by the Board of Directors and shall include a Chairman, a Vice Chairman, a Secretary and such other officers as the Board may appoint from time to time. Any two or more offices may be held by the same person. No officer, except the Chairman, need be a Director of the Corporation. [Section 33-763.]

 

Section 4.02. Election. Unless otherwise determined by the Board of Directors, the officers of the Corporation shall be elected by the Board of Directors at the first meeting of the Board of Directors following each annual meeting of the shareholders, and shall be elected to hold office until the first meeting of the Board following the next succeeding annual meeting of the shareholders. Each officer shall hold office until a successor has been elected and qualified, or until such officer’s earlier death, resignation or removal.

 

Section 4.03. Removal and Resignation; Vacancies. Any officer may be removed with or without cause at any time by the Board of Directors, but without prejudice to such officer’s contract rights, if any. Any officer may resign at any time by delivering a written notice of resignation, signed by such officer, to the Board of Directors. Unless otherwise specified therein, such resignation shall take effect upon delivery. Any vacancy occurring in any office of the Corporation by death, resignation, and removal or otherwise, shall be filled by the Board of Directors. [Section 33-766.]

 

Section 4.04. Authority and Duties of Officers. The officers of the Corporation shall have such authority and shall exercise such powers and perform such duties as may be specified in these By-Laws, except that in any event each officer shall exercise such powers and perform such duties as may be required by law.

 

Section 4.05. The Chairman. The Chairman shall have the following powers and duties:

 

(a) He or she shall perform such duties, in addition to those specified below, as may be assigned by the Board of Directors.

 

(b) He or she shall preside at all shareholders’ meetings.

 

(c) He or she shall preside at all meetings of the Board of Directors.

 

Section 4.06. The Secretary. The Secretary shall have the following powers and duties:

 

(a) He or she shall keep or cause to be kept a record of all the proceedings of the meetings of the shareholders and of the Board of Directors in books provided for that purpose.

 

 
 

 

(b) He or she shall cause all notices to be duly given in accordance with the provisions of these By-Laws and as required by law.

 

(c) Whenever any Committee shall be appointed pursuant to a resolution of the Board of Directors, he or she shall furnish a copy of such resolution to the members of such Committee.

 

(d) He or she shall be the custodian of the records and of the seal of the Corporation and cause such seal (or a facsimile thereof) to be affixed to all certificates representing shares of the Corporation prior to the issuance thereof and to all instruments the execution of which on behalf of the Corporation under its seal shall have been duly authorized in accordance with these By-Laws, and when so affixed he or she may attest the same.

 

(e) He or she shall properly maintain and file all books, reports, statements, certificates and all other documents and records required by law, the Certificate of Incorporation or these By-Laws.

 

(f) He or she shall have charge of the stock books and ledgers of the Corporation and shall cause the stock and transfer books to be kept in such manner as to show at any time the number of shares of stock of the Corporation of each class issued and outstanding, the names (alphabetically arranged) and the addresses of the holders of record of such shares, the number of shares held by each holder and the date as of which each became such holder of record.

 

(g) He or she shall sign certificates representing shares of the stock of the Corporation the issuance of which shall have been authorized by the Board of Directors.

 

(h) He or she shall perform, in general, all duties incident to the office of Secretary and such other duties as may be given to him or her by these By-Laws or as may be assigned to him or her from time to time by the Board of Directors, the Chairman or the Vice Chairman.

 

Section 4.07. Additional Officers. The Board of Directors may elect such other officers and agents as it may deem appropriate, and such other officers and agents shall hold their offices for such terms and shall exercise such powers and perform such duties as may be determined from time to time by the Board of Directors.

 

Section 4.08. Security. The Board of Directors may require any officer or agent of the Corporation to provide security for the faithful performance of his or her duties, in such amount and of such character as may be determined from time to time by the Board of Directors.

 

ARTICLE V

 

CAPITAL STOCK

 

Section 5.01. Certificated and Uncertificated Shares. Shares of the Corporation's stock may be certificated or uncertificated as provided under the Connecticut Business Corporation Act. Share certificates may be under seal, or facsimile seal, of the Corporation and shall be signed by (1) the Chairman or the Chief Executive Officer and by the Secretary or (2) by any two officers of the Corporation so authorized to sign by a resolution of the Board of Directors, except that such signatures may be facsimile if such certificate is signed by a transfer agent, or employee acting on behalf of such corporation or registrar. Each certificate representing shares shall set forth upon the face thereof as at the time of the issue: (1) the name of the Corporation; (2) a statement that the Corporation is organized under the laws of Connecticut; (3) the name of the person to whom issued, or that the same is issued to bearer; and (4) the number, class and designation of series, if any, of shares which such certificate represents. Within a reasonable time after the issuance of uncertificated shares, the Corporation shall send to the registered owner thereof a written statement containing (1) the name of the Corporation; (2) the name of the person to whom issued, or that the same is issued to bearer; and (3) the number, class and designation of series, if any, of shares which such certificate represents. [Sections 33-676 and 33-677.]

 

Section 5.02. Lost, Stolen or Destroyed Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate previously issued by the Corporation alleged to have been lost, stolen or destroyed, upon delivery to the Board of Directors of an affidavit of the owner or owners of such certificate, setting forth such allegation. The Board of Directors may require the owner of such lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate.

 

Section 5.03. Transfers of Stock; Registered Shareholders.

 

 
 

 

(a) Shares of stock of the Corporation shall be transferable upon the books of the Corporation only by the record holder of such stock, or by attorney lawfully constituted in writing, or, in the case of shares represented by a certificate, upon surrender to the Corporation or its transfer agent or agents of such certificate, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer. Within a reasonable time after the transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a written statement containing (1) the name of the Corporation; (2) the name of the person to whom issued, or that the same is issued to bearer; and (3) the number, class and designation of series, if any, of shares which such certificate represents.

 

(b) The Board of Directors, subject to these By-Laws, may make such rules, regulations and conditions as it may deem expedient concerning the subscription for, issue, transfer and registration of, shares of stock. Except as otherwise provided by law, the Corporation, prior to due presentment for registration of transfer, may treat the registered owner of shares as the person exclusively entitled to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. [Section 33-678.]

 

Section 5.04. Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, to demand a special meeting or entitled to receive payment of any distribution, or for any other proper purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but such period shall not exceed, in any case, 70 days. If the stock transfer books are closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least 10 full days immediately preceding the date of such meeting. In lieu of closing the stock transfer books, the Board of Directors by resolution may fix a date as the record date for any such determination of shareholders, such date in any case to be not earlier than the date such action is taken by the Board of Directors and not more than 70 days, and, in case of a meeting of shareholders, not less than 10 full days, immediately preceding the date on which the particular event, requiring such determination of shareholders, is to occur. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided in this Section 5.04, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. [Section 33-701.]

 

Section 5.05. Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents and one or more registrars, and may require all certificates representing shares to bear the signature of any such transfer agents or registrars. The same person may act as transfer agent and registrar for the Corporation.

 

ARTICLE VI

 

OFFICES

 

Section 6.01. Registered Office. The registered office of the Corporation in the State of Connecticut shall be located in the City of Norwalk. [Section 33-660.]

 

Section 6.02. Other Offices. The Corporation may maintain offices or places of business at such other locations within or without the State of Connecticut as the Board of Directors may from time to time determine or as the business of the Corporation may require.

 

ARTICLE VII

 

GENERAL PROVISIONS

 

Section 7.01. Dividends. Subject to any applicable provisions of law and the Certificate of Incorporation, dividends or other distributions upon the outstanding shares of the Corporation may be declared by the Board of Directors at any regular or Special Meeting of the Board of Directors and any such dividend or distribution may be paid in case, property or the Corporation’s own shares. [Section 33-674, 33-687.]

 

Section 7.02. Reserves. There may be set apart from time to time out of any funds of the Corporation available for dividends such reserve or reserves as the Board of Directors may deem appropriate and the Board of Directors may similarly modify or abolish any such reserve.

 

Section 7.03. Execution of Instruments. Subject to the approval of the Board of Directors, the Chairman, the Vice Chairman, the Secretary or any other officer may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors may authorize any other officer or agent to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization may be general or limited to specific contracts or instruments.

 

 
 

 

Section 7.04. Deposits. Any funds of the Corporation may be deposited from time to time in such banks, trust companies or other depositories as may be determined by the Board of Directors or by such officers or agents as may be authorized by the Board of Directors to make such determination.

 

Section 7.05. Checks, Drafts, etc. All notes, drafts, bills of exchange, acceptances, checks, endorsements and other evidences of indebtedness of the corporation, and its orders for the payment of money shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as the Board of Directors, the Chairman or the Vice Chairman from time to time may determine.

 

Section 7.06. Sale, Transfer, etc. of Securities. To the extent authorized by the Board of Directors, the Chairman or the Vice Chairman together with the Secretary may sell, transfer, endorse, and assign any shares of stock, bonds or other securities owned by or held in the name of the Corporation, and may make, execute and deliver in the name of the Corporation, under its corporate seal, any instruments that may be appropriate to effect any such sale, transfer, endorsement or assignment.

 

Section 7.07. Voting as Shareholder. Unless otherwise determined by resolution of the Board of Directors, the Chairman or the Vice Chairman shall have full power and authority on behalf of the Corporation to attend any meeting of shareholders of any corporation in which the Corporation may hold stock, and to act, vote (or execute proxies to vote) and exercise in person or by proxy all other rights, powers and privileges incident to the ownership of such stock; such officers acting on behalf of the Corporation shall have full power and authority to execute any instrument expressing consent to or dissent from any action of any such corporation without a meeting; and the Board of Directors may by resolution from time to time confer such power and authority upon any other person or persons. All acts, votes and exercises of other rights, powers and privileges incident to the ownership of stock in subsidiaries of the Corporation shall be carried out only pursuant to resolutions of the Board of Directors adopted in accordance with these By-Laws.

 

Section 7.08. Fiscal Year. Unless otherwise determined by the Board of Directors, the fiscal year of the Corporation shall, in each calendar year, commence on the first day of January of each year and shall terminate on the last day of December.

 

Section 7.09. Seal. The seal of the Corporation shall be circular in form and shall contain the name of the Corporation, the year of its incorporation and the words “INCORPORATED CONNECTICUT.” The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced, or may be used in any other lawful manner.

 

Section 7.10. Books and Records; Inspection. Except to the extent otherwise required by law, the books and records of the Corporation shall be kept at such place or places within or without the State of Connecticut as may be determined from time to time by the Board of Directors.

 

ARTICLE VIII

 

AMENDMENT OF BY-LAWS

 

 

Section 8.01. Amendment. All By-Laws of the Corporation, whether adopted by the Board of Directors or the shareholders, shall be subject to amendment, alteration or repeal:

 

(a)by the affirmative vote of the holders of not less than 80% of the voting power of shares entitled to vote at any Annual or Special Meeting of shareholders, the notice of which shall have specified or summarized the proposed amendment, alternation, repeal or new By-Laws, or

 

(b)by the affirmative vote of Directors holding a majority of the Directorships at any Regular or Special Meeting of Directors the notice or waiver of notice of which, unless none is required hereunder, shall have specified or summarized the proposed amendment, alteration, repeal or new By-Laws, provided, however, that Section 1.02 (regarding special meetings of shareholders), Section 2.02 (regarding the number of Directors), Section 2.07 (regarding quorum and voting requirements for Directors), Section 2.12 (regarding removal of Directors), Section 2.13 (regarding vacancies and newly created Directorships), Sections 3.01, 3.02, 3.06 and 3.07 (regarding Committees and their members), and this Section 8.01 (regarding amendments) may be amended, altered, or repealed only by the affirmative vote of either (i) the holders of not less than 80% of the voting power of shares entitled to vote at any Annual or Special Meeting of shareholders, the notice of which shall have specified or summarized the proposed amendment, alteration or repeal, or (ii) by a vote of 66- 2/3% of the Board of Directors at any Regular or Special Meeting of Directors the notice of which shall have specified the proposed amendment, alteration or repeal. The shareholders may at any time provide in the By- Laws that any other specified provision or provisions of the By-Laws may be amended, altered or repealed only in the manner specified in the foregoing clause (a) or in the foregoing proviso, in which event such provision or provisions shall be subject to amendment, alteration or repeal only in such manner. [Section 33- 806.]

 

 

EX-10.1 4 v398941_ex10-1.htm EXHIBIT 10.1

 

Exhibit 10.1

 

AMENDED AND RESTATED

 

LOAN AND SECURITY AGREEMENT

 

BETWEEN

 

GERBER FINANCE INC.

 

as Lender

 

MICROPHASE CORPORATION

 

as Borrower

 

and

 

EDSON REALTY, INC.

 

as Credit Party

 

Dated: February 3, 2012

 

 
 

 

I. DEFINITIONS 2
       
  1.1 General Definitions 2
       
  1.2 Accounting Terms 17
       
  1.3 Other Terms 17
       
  1.4 Rules of Construction 18
       
II. LOANS 18
       
  2.1 Revolving Credit Advances 18
       
III. REPAYMENT 19
       
  3.1 Repayment of the Revolving Credit Advances 19
       
IV. PROCEDURES 20
       
  4.1 Procedure for Revolving Credit Advances 20
       
V. INTEREST AND FEES 20
       
  5.1 Interest and Fees 20
       
VI. CONDITIONS PRECEDENT 22
       
  6.1 Conditions Precedent to Initial Loans 22
       
  6.2 Conditions Precedent to each Loan 22
       
VII. REPRESENTATIONS, WARRANTIES AND COVENANTS 23
       
  7.1 Corporate Existence; Compliance with Law 23
       
  7.2 Names; Organizational Information; Collateral Locations 23
       
  7.3 Power; Authorization; Enforceable Obligations 23
       
  7.4 Financial Statements and Projections; Books and Records 24
       
  7.5 Material Adverse Change 24
       
  7.6 Real Estate; Property 24
       
  7.7 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness 25

 

 
 

 

  7.8 Government Regulation; Margin Regulations 25
       
  7.9 Taxes; Charges 25
       
  7.10 Payment of Obligations 26
       
  7.11 ERISA 26
       
  7.12 Litigation 26
       
  7.13 Intellectual Property 26
       
  7.14 Full Disclosure 27
       
  7.15 Hazardous Materials 27
       
  7.16 Insurance 27
       
  7.17 Deposit and Disbursement Accounts 28
       
  7.18 Accounts 28
       
  7.19 Conduct of Business 28
       
  7.20 Further Assurances 28
       
VIII. FINANCIAL REPORTS; FINANCIAL COVENANTS 29
       
  8.1 Reports and Notices 29
       
  8.2 Financial Covenants 30
       
  8.3 Other Reports and Information 30
       
  8.4 Good Standing Certificates 30
       
IX. NEGATIVE COVENANTS 30
       
X. SECURITY INTEREST 32
       
  10.1 Grant of Security Interest 32
       
  10.2 Lender’s Rights 34
       
  10.3 Lender’s Appointment as Attorney-in-Fact 35
       
  10.4 Grant of License to Use Intellectual Property Collateral 36
       
  10.5 Terminations; Amendments Not Authorized 36

 

ii
 

 

  10.6 Inspections 36
       
XI. TERM 36
       
  11.1 Term of Agreement 36
       
  11.2 Termination of Lien 37
       
XII. EVENTS OF DEFAULT 37
       
  12.1 Events of Default 37
       
  12.2 Lender Remedies 39
       
  12.3 Waivers 40
       
  12.4 Proceeds 41
       
XIII. MISCELLANEOUS 41
       
  13.1 No Waiver; Cumulative Remedies 41
       
  13.2 Amendments and Waivers 41
       
  13.3 Expenses; Indemnity 41
       
  13.4 Borrowing Agency Provisions 42
       
  13.5 Guaranty 43
       
  13.6 Waivers 44
       
  13.7 Benefit of Guaranty 44
       
  13.8 Subordination of Subrogation 44
       
  13.9 Election of Remedies 44
       
  13.10 Liability Cumulative 45
       
  13.11 Waiver of Subrogation 45
       
  13.12 Further Assurances 45
       
  13.13 Successors and Assigns 45
       
  13.14 Descriptive Headings 45
       
  13.15 Rules of Construction 45

 

iii
 

 

  13.16 Notices 46
       
  13.17 Severability 46
       
  13.18 Entire Agreement; Counterparts 46
       
  13.19 SUBMISSION TO JURISDICTION 46
       
  13.20 WAIVER OF TRIAL BY JURY, CERTAIN DAMAGES AND SETOFFS 47
       
  13.21 GOVERNING LAW 48
       
  13.22 Reinstatement 48

 

iv
 

 

INDEX OF EXHIBITS AND SCHEDULES

 

Schedule I   -   General Terms for Letter of Credit
Schedule II   -   Conditions Precedent
Schedule III   -   Financial Covenants
Schedule IV   -   Cash Management
Schedule V   -   Addresses for Notices
         
Attachment A   -   Fees, Charges and Commissions
         
Exhibit A   -   Form of Note
Exhibit B   -   Form of Monthly Statement Report
Exhibit C   -   Form of Borrowing Base Certificate
Exhibit D   -   Form of Certificate of Compliance
Exhibit E   -   Form of Power of Attorney
Exhibit F   -   Form of Accountant’s Letter
Exhibit G   -   Form of Officer’s Certificate
Exhibit H   -   Form of Account Debtor Notification Letter
Exhibit I   -   Form of Intellectual Property Security Agreement

 

Disclosure Schedule 7.2   -   Names, Organizational Information and Collateral Locations
Disclosure Schedule 7.6   -   Real Estate
Disclosure Schedule 7.7   -   Ventures, Subsidiaries and Affiliates
Disclosure Schedule 7.9   -   Taxes
Disclosure Schedule 7.12   -   Litigation
Disclosure Schedule 7.13   -   Intellectual Property
Disclosure Schedule 7.15   -   Environmental Matters
Disclosure Schedule 7.16   -   Insurance
Disclosure Schedule 7.17   -   Deposit and Disbursement Accounts
Disclosure Schedule 9(b)   -   Indebtedness
Disclosure Schedule 9(e)   -   Permitted Liens

 

 
 

 

AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

 

This Amended and Restated Loan and Security Agreement is made as of February 3, 2012 by and among GERBER FINANCE INC., a New York corporation (“Lender”) MICROPHASE CORPORATION, a Connecticut corporation (individually, “Initial Borrower”) and, collectively, if more than one, the “Initial Borrowers”), and together with each other Person which, on or subsequent to the Closing Date, agrees in writing to become a “Borrower” hereunder, herein called, individually, a “Borrower” and, collectively, the “Borrowers,” and pending the inclusion by written agreement of any other such Person, besides each Initial Borrower, as a “Borrower” hereunder, all references herein to “Borrowers,” “each Borrower,” the “applicable Borrower,” “such Borrower” or any similar variations thereof (whether singular or plural) shall all mean and refer to the Initial Borrower or each one of them collectively) and any other Credit Party executing or becoming a party to this Agreement.

 

BACKGROUND

 

Borrowers have requested that Lender make loans and advances available to Borrowers; and

 

Lender has agreed to make such loans and advances to Borrowers on the terms and conditions set forth in this Agreement and any amendment thereto.

 

Borrowers and Lender are parties to a Loan and Security Agreement dated as of December 27, 2011 as amended (the “Existing Loan Agreement”).

 

Borrowers and Lender have agreed to amend and restate the Existing Loan Agreement on the terms and conditions set forth in this Agreement.

 

ARTICLE A

AMENDMENT AND RESTATEMENT

 

On the Closing Date, the Existing Loan Agreement shall be amended and restated in its entirety by this Agreement and (a) all references to the Existing Loan Agreement in any Credit Document other than this Agreement (including in any amendment, waiver or consent) shall be deemed to refer to the Existing Loan Agreement as amended and restated hereby, (b) all references to any section (or subsection) of the Existing Loan Agreement in any Credit Document (but not herein) shall be amended to be, mutatis mutandis, references to the corresponding provisions of this Agreement and (c) except as the context otherwise provides, all references to this Agreement herein (including for purposes of indemnification and reimbursement of fees) shall be deemed to be references to the Existing Loan Agreement as amended and restated hereby. This Agreement is not intended to constitute, and does not constitute, a novation of the obligations and liabilities under the Existing Loan Agreement (including the Obligations) or to evidence payment of all or any portion of such obligations and liabilities.

 

 
 

 

On and after the Closing Date, (a) the Existing Loan Agreement shall be of no further force and effect except as amended and restated hereby and except to evidence (i) the incurrence by any Borrower of the “Obligations” under and as defined therein (whether or not any of such “Obligations” is contingent as of the Closing Date), (ii) the representations and warranties made by any Borrower prior to the Closing Date and (iii) any action or omission performed or required to be performed pursuant to the Existing Loan Agreement prior to the Closing Date (including any failure, prior to the Closing Date, to comply with the covenants contained in the Existing Loan Agreement) and (b) the terms and conditions of this Agreement and rights and remedies under the Credit Documents, shall apply to all Obligations incurred under the Existing Loan Agreement and the Notes issued thereunder.

 

Except as expressly provided in any Credit Document or any amendment thereto that will become effective by the execution and delivery of such Credit Document in connection with the amendment and restatement of this Agreement, this Agreement (a) shall not cure any breach of the Existing Loan Agreement or any “Default” or “Event of Default” thereunder existing prior to the date hereof and (b) is limited as written and is not a consent to any other modification of any term or condition of any Credit Document, each of which shall remain in full force and effect.

 

Each Borrower reaffirms the Liens granted pursuant to the Existing Loan Agreement, which Liens shall continue in full force and effect during the term of this Agreement and any renewals or extensions thereof and shall continue to secure the Obligations.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and undertakings and terms and conditions contained herein, the parties hereto agree as follows:

 

I.            DEFINITIONS

 

1.1           General Definitions. When used in this Agreement, the following terms shall have the following meanings:

 

Account Control Agreement” has the meaning set forth in Schedule IV.

 

Account Debtor” means any Person who is or may become obligated with respect to, or on account of, an Account, Chattel Paper or General Intangibles (including a Payment Intangible).

 

Accounts” means all “accounts”, as such term is defined in the UCC, now owned or hereafter acquired by any Person.

 

Accounts Availability” means the amount of Revolving Credit Advances against Eligible Accounts Lender may from time to time make available to a Borrower up to eighty-five percent (85%) of the net face amount of such Borrower’s Eligible Accounts.

 

Affiliate” means with respect to any Person (i) each other Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, five percent (5%) or more of the Stock having ordinary voting power for the election of directors of such Person; (ii) each other Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person; or (iii) each of such Person’s officers, directors, joint venturers and partners. For the purpose of this definition, “control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

 

2
 

 

Agreement” means this Agreement including all appendices, exhibits or schedules attached or otherwise identified thereto, restatements and modifications and supplements thereto, and any appendices, exhibits or schedules to any of the foregoing, each as in effect at the time such reference becomes operative; provided, that except as specifically set forth in this Agreement, any reference to the Disclosure Schedules to this Agreement shall be deemed a reference to the Disclosure Schedules as in effect on the Closing Date or in a written amendment thereto executed by Borrowers and Lender.

 

Books and Records” means all books, records, board minutes, contracts, licenses, insurance policies, environmental audits, business plans, files, computer files, computer discs and other data and software storage and media devices, accounting books and records, financial statements (actual and pro forma), filings with Governmental Authorities and any and all records and instruments relating to, or otherwise necessary or helpful in the collection of or realization upon, the Collateral or any Borrower’s business.

 

Borrowing Base” means at any time with respect to any Borrower, an amount equal to the sum at such time of:

 

(a)          Accounts Availability; plus

 

(b)          Inventory Availability; plus

 

(c)          Equipment Availability; plus

 

(d)          Cash Collateral Availability; plus

 

(e)          Real Estate Availability; minus

 

(f)          the Reserves, including without limitation, the amount of Letter of Credit Obligations.

 

Borrowing Base Certificate” means a certificate in the form of Exhibit C.

 

Borrowing Representative” means Initial Borrower.

 

Business Day” means a day on which Lender is open for business and that is not a Saturday, a Sunday or other day on which banks are required or permitted to be closed in the State of New York.

 

Capital Expenditures” means all payments or accruals (including obligations under capital leases) for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and that are required to be capitalized under GAAP.

 

3
 

 

Cash Collateral” means $100,000 in a bank account under the dominion and control of Lender and maintained at a financial institution acceptable to Lender which shall be returned to Borrower once the Lender has received a written request from Borrower to reduce the Cash Collateral Availability to $0 and after which point the Obligations shall not exceed the sum of (i) Accounts Availability; plus (ii) Inventory Availability; plus (iii) Equipment Availability and (iv) Real Estate Availability.

 

Cash Collateral Account” has the meaning assigned to it in Schedule I.

 

Cash Collateral Availability” means the lesser of (i) $100,000 or (ii) 100% of the amount of the Cash Collateral.

 

Change of Control” means, with respect to any Person on or after the Closing Date, any change in the composition of such Person’s Stockholders as of the Closing Date shall occur which would result in any Stockholder or group acquiring 49.9% or more of any class of Stock of such Person, or that any Person (or group of Persons acting in concert) shall otherwise acquire, directly or indirectly (including through Affiliates), the power to elect a majority of the board of directors or managers of such Person or otherwise direct the management or affairs of such Person by obtaining proxies, entering into voting agreements or trusts, acquiring securities or otherwise.

 

Charges” means all federal, state, county, city, municipal, local, foreign or other governmental taxes (including taxes owed to PBGC at the time due and payable), levies, customs or other duties, assessments, charges, liens, and all additional charges, interest, penalties, expenses, claims or encumbrances upon or relating to (i) the Collateral, (ii) the Obligations, (iii) the employees, payroll, income or gross receipts of a Credit Party, (iv) the ownership or use of any assets by a Credit Party, or (v) any other aspect of a Credit Party’s business.

 

Chattel Paper” means all “chattel paper,” as such term is defined in the UCC, now owned or hereafter acquired by any Person.

 

Closing Date” means the Business Day on which the conditions precedent set forth in Article VI have been satisfied or specifically waived in writing by Lender, and the initial Loans has been made.

 

Collateral” has the meaning assigned to it in Section 10.1.

 

Collateral Account” means an account in Lender’s name under the dominion and control of Lender maintained at a financial institution acceptable to Lender into which all cash, checks, notes, drafts and other similar items relating to or constituting Proceeds of or payments made in respect of any Collateral shall be deposited.

 

Collection Account” means the account as may be specified in writing by Lender to Borrowing Representative as the “Collection Account”.

 

Contract Rate” means an interest rate per annum equal to the sum of (i) the Prime Rate plus (ii) three and three-quarters percent (3.75%).

 

4
 

 

Contracts” means all the contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Person may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account.

 

Contractual Obligation” means as to any Person, any provision of any security issued by such Person or of any agreement, instrument, or other undertaking to which such Person is a party or by which it or any of its property is bound.

 

Corporate Credit Party” means each Credit Party which is not a natural Person.

 

Credit Documents” means this Agreement, each Pledge Agreement, the Note, each Guaranty, each Power of Attorney, each Mortgage, each Life Insurance Assignment and all other documents, instruments and agreements now or hereafter executed and/or delivered in connection herewith or therewith.

 

Credit Parties” means each Borrower and each other Person (other than Lender) that is or may become a party to this Agreement or any other Credit Document.

 

Default” means any act or event which, with the giving of notice or passage of time or both, would unless cured or waived would become an Event of Default.

 

Default Rate” means the sum of (a) the interest rate or fee in effect from time to time as respects each Loan and (b) five percent (5%).

 

Deposit Accounts” means all “deposit accounts” as such term is defined in the UCC, now or hereafter held in the name of any Person.

 

Disbursement Accounts” has the meaning set forth in Schedule IV.

 

Disclosure Schedules” means the Disclosure Schedules prepared by Borrowers and denominated as Disclosure Schedules 7.2 through 9(e) in the Index of Exhibits and Schedules to this Agreement.

 

Documents” means all “documents,” as such term is defined in the UCC, now owned or hereafter acquired by any Person, wherever located, including all bills of lading, dock warrants, dock receipts, warehouse receipts, and other documents of title, whether negotiable or non-negotiable.

 

5
 

 

Eligible Accounts” means and includes each Account of each Borrower which conforms to the following criteria: (a) shipment of the merchandise or the rendition of services has been completed; (b) merchandise or services shall not have been repossessed, returned, rejected or disputed by the Account Debtor and there shall not have been asserted any offset, defense or counterclaim; (c) continues to be in full conformity with the representations and warranties made by any Borrower to Lender with respect thereto; (d) Lender is, and continues to be, satisfied with the credit standing of the Account Debtor in relation to the amount of credit extended; (e) there are no facts existing or threatened which are likely to result in any adverse change in an Account Debtor’s financial condition; (f) is documented by an invoice in a form approved by Lender and shall not be unpaid more than ninety (90) days from invoice date; (g) less than thirty-three percent (33%) of the unpaid amount of invoices due from such Account Debtor remain unpaid more than ninety (90) days from invoice date; (h) is not evidenced by chattel paper or an instrument of any kind with respect to or in payment of the Account unless such instrument is duly endorsed to and in possession of Lender or represents a check in payment of an Account; (i) if the Account Debtor is located outside of the United States, the goods which gave rise to such Account were shipped after receipt by a Borrower from or on behalf of the Account Debtor of an irrevocable letter of credit, assigned and delivered to Lender and confirmed by a financial institution acceptable to Lender and is in form and substance acceptable to Lender, payable in the full amount of the Account in United States dollars at a place of payment located within the United States; (j) Lender has a first priority perfected Lien in such Account and such Account is not subject to any other Lien other than Permitted Liens; (k) does not arise out of transactions with any employee, officer, agent, director, stockholder or Affiliate of a Borrower; (l) is payable to a Borrower; (m) does not arise with respect to goods which are delivered on a cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by reason of which the payment by the Account Debtor may be conditional; (n) is not an obligation of an Account Debtor that has suspended business, made a general assignment for the benefit of creditors, is unable to pay its debts as they become due or as to which a petition has been filed (voluntary or involuntary) under any law relating to bankruptcy, insolvency, reorganization or relief of debtors; (o) does not arise out of a bill and hold sale prior to shipment (p) does not arise out of a sale to any Person to which any Borrower is indebted, unless the amount of such indebtedness, and any anticipated indebtedness, is deducted in determining the face amount of such Account; (q) is net of any returns, discounts, claims, credits and allowances; (r) if the Account arises out of contracts between a Borrower and the United States, any state, or any department, agency or instrumentality of any of them, such Borrower has so notified Lender, in writing, prior to the creation of such Account, and, if Lender so requests, there has been compliance with any governmental notice or approval requirements, including compliance with the Federal Assignment of Claims Act; (s) is a good and valid account representing an undisputed bona fide indebtedness incurred by the Account Debtor therein named, for a fixed sum as set forth in the invoice relating thereto with respect to an unconditional sale and delivery upon the stated terms of goods sold by a Borrower, or work, labor and/or services rendered by a Borrower; (t) the total unpaid Accounts from such Account Debtor does not exceed twenty percent (20%) of all Eligible Accounts but only the excess above twenty percent (20%) shall be excluded from Eligible Accounts; (u) does not arise out of progress billings prior to completion of the order; (v) such Borrower’s right to payment is absolute and not contingent upon the fulfillment of any condition whatsoever; (w) a Borrower is able to bring suit and enforce its remedies against the Account Debtor through judicial process; (x) does not represent interest payments, late or finance charges or service charges owing to Borrower; and (y) is otherwise satisfactory to Lender as determined in good faith by Lender in the reasonable exercise of its discretion.

 

Eligible Equipment” means Equipment owned by Borrower, a Subsidiary or an Affiliate acquired after the Closing Date which is subject to the Lien in favor of Lender and is subject to no other Liens whatsoever (other than Permitted Liens) and which Lender in its sole discretion deems eligible for borrowing purposes.

 

6
 

 

Eligible Inventory” means Inventory owned by a Borrower which Lender, in its sole and absolute discretion, determines: (a) is subject to a first priority perfected Lien in favor of Lender and is subject to no other Liens whatsoever other than Permitted Liens; (b) is located on premises owned or operated by a Borrower; (c) is located on premises with respect to which Lender has received a landlord, mortgagee or warehouse agreement acceptable in form and substance to Lender; (d) is not in transit; (e) is not covered by a negotiable document of title, unless such document and evidence of acceptable insurance covering such Inventory has been delivered to Lender; (f) is in good condition and meets all standards imposed by any governmental agency, or department or division thereof having regulatory Governmental Authority over such Inventory, its use or sale including the Federal Fair Labor Standards Act of 1938 as amended, and all rules, regulations and orders thereunder; (g) is currently either usable or saleable in the normal course of a Borrower’s business; (h) is not placed by a Borrower on consignment or held by a Borrower on consignment from another Person; (i) is in conformity with the representations and warranties made by a Borrower to Lender with respect thereto; (j) is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third parties; (k) does not require the consent of any Person for the completion of manufacture, sale or other disposition of such Inventory by Lender following an Event of Default and such completion, manufacture or sale does not constitute a breach or default under any contract or agreement to which a Borrower is a party or to which such Inventory is or may be subject; (l) is not work-in-process or raw materials; (m) is covered by casualty insurance acceptable to Lender; and (n) not to be ineligible for any other reason.

 

Environmental Laws” means all federal, state and local laws, statutes, ordinances and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any applicable judicial or administrative interpretation thereof relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation).

 

Environmental Liabilities” means all liabilities, obligations, responsibilities, remedial actions, removal costs, losses, damages of whatever nature, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim, suit, action or demand of whatever nature by any Person, and which relate to any health or safety condition regulated under any Environmental Law, environmental permits or in connection with any Release, threatened Release, or the presence of a Hazardous Material.

 

Equipment” means all “equipment” as such term is defined in the UCC, now owned or hereafter acquired by any Person, wherever located.

 

Equipment Availability” means the amount of Revolving Credit Advances against Eligible Equipment Lender may from time to time make available to Borrowers up to the lesser of (a) $209,000 or (b) up to sixty percent (60%) of the value of Borrowers’ Eligible Equipment (calculated on the appraised forced liquidation value).

 

7
 

 

ERISA” means the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder.

 

ERISA Event” shall mean (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the IRC or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(b) of the IRC or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by any Credit Party of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by any Credit Party from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or to appoint a trustee to administer any Plan; (f) the incurrence by any Credit Party of any liability with respect to any withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by any Credit Party of any notice, or the receipt by any Multiemployer Plan from any Credit Party of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

 

Event of Default” has the meaning set forth in Section 11.1.

 

Financial Statements” means income statement, balance sheet and statement of cash flows of each Credit Party, internally prepared for each Fiscal Month, and reviewed for each Fiscal Year, prepared in accordance with GAAP.

 

Fiscal Month” means any of the monthly accounting periods of each Credit Party.

 

Fiscal Year” means the 12 month period of each Credit Party ending June 30th of each year. Subsequent changes of the fiscal year of each Credit Party shall not change the term “Fiscal Year” unless Lender shall consent in writing to such change.

 

Fixtures” means all “fixtures” as such term is defined in the UCC, now owned or hereafter acquired by any Person.

 

GAAP” means generally accepted accounting principles, practices and procedures in effect from time to time in the United States of America.

 

General Intangibles” means all “general intangibles” as such term is defined in the UCC, now owned or hereafter acquired by any Person including all right, title and interest which such Person may now or hereafter have in or under any Contract, all Payment Intangibles, customer lists, Licenses, Intellectual Property, interests in partnerships, joint ventures and other business associations, permits, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, Software, data bases, data, skill, expertise, experience, processes, models, drawings, materials, Books and Records, Goodwill (including the Goodwill associated with any Intellectual Property), all rights and claims in or under insurance policies (including insurance for fire, damage, loss, and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key-person, and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit accounts, rights to receive tax refunds and other payments, rights to receive dividends, distributions, cash Instruments and other property in respect of or in exchange for pledged Stock and Investment Property, and rights of indemnification.

 

8
 

 

Goods” means all “goods”, as such term is defined in the UCC, now owned or hereafter acquired by any Person, wherever located, including embedded software to the extent included in “goods” as defined in the UCC.

 

Goodwill” means all goodwill, trade secrets, proprietary or confidential information, technical information, procedures, formulae, quality control standards, designs, operating and training manuals, customer lists, and distribution agreements now owned or hereafter acquired by any Person.

 

Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

Guaranteed Indebtedness” means, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation (“primary obligations”) of any other Person (the “primary obligor”) in any manner, including any obligation or arrangement of such guaranteeing Person (whether or not contingent): (i) to purchase or repurchase any such primary obligation; (ii) to advance or supply funds (a) for the purchase or payment of any such primary obligation or (b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor; (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (iv) to indemnify the owner of such primary obligation against loss in respect thereof.

 

Guarantor” means each Person which executes a guaranty or a support, put or other similar agreement in favor of Lender in connection with the transactions contemplated by this Agreement.

 

Guaranty” means any agreement to perform all or any portion of the Obligations on behalf of any Borrower, in favor of, and in form and substance satisfactory to, Lender, together with all amendments, modifications and supplements thereto, and shall refer to such Guaranty as the same may be in effect at the time such reference becomes operative.

 

Hazardous Material” means any substance, material or waste which is regulated by or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance which is (a) defined as a “solid waste,” “hazardous waste,” “hazardous material,” “hazardous substance,” “extremely hazardous waste,” “restricted hazardous waste,” “pollutant,” “contaminant,” “hazardous constituent,” “special waste,” “toxic substance” or other similar term or phrase under any Environmental Laws, (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB’s), or any radioactive substance.

 

9
 

 

Hazardous Waste” has the meaning ascribed to such term in the Resource Conservation and Recovery Act (42 U.S.C. §§ 6901 et. seq.).

 

Indebtedness” of any Person means: (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (including reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers’ acceptances, whether or not matured, but not including obligations to trade creditors incurred in the ordinary course of business and not more than 45 days past due); (ii) all obligations evidenced by notes, bonds, debentures or similar instruments; (iii) all indebtedness created or arising under any conditional sale or other title retention agreements with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (iv) all obligations under capital leases; (v) all Guaranteed Indebtedness; (vi) all Indebtedness referred to in clauses (i), (ii), (iii), (iv) or (v) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; (vii) the Obligations; and (viii) all liabilities under Title III of ERISA.

 

Indemnified Person” has the meaning given to such term in Section 13.3(b).

 

Instruments” means all “instruments”, as such term is defined in the UCC, now owned or hereafter acquired by any Person, wherever located, including all certificated securities and all notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper.

 

Intellectual Property” means any and all Licenses, patents, patent registrations, copyrights, copyright registrations, trademarks, trademark registrations, trade secrets, domain names, website addresses and customer lists.

 

Intellectual Property Security Agreement” means the Intellectual Property Security Agreement in the form of Exhibit I made in favor of Lender by each applicable Credit Party.

 

Intercreditor Agreement” means any intercreditor and subordination agreement accepted by Lender from time to time.

 

Inventory” means all “inventory”, as such term is defined in the UCC, now or hereafter owned or acquired by any Person, wherever located.

 

Inventory Availability” means the amount of Revolving Credit Advances against Eligible Inventory Lender may from time to time make available to Borrowers up to the lesser of (a) $50,000, or (b) up to thirty-five percent (35%) of the value of Borrowers’ Eligible Inventory (calculated on the basis of the lower of cost or market, on a first-in first-out basis).

 

10
 

 

Investment Property” means all “investment property”, as such term is defined in the UCC, now owned or hereafter acquired by any Person, wherever located.

 

IRC” and “IRS” means respectively, the Internal Revenue Code of 1986 and the Internal Revenue Service, and any successors thereto.

 

ISP” means the International Standby Practices, International Chamber of Commerce Publication No. 590, as the same may be amended from time to time.

 

LC Issuer” shall mean a commercial bank or other financial institution selected by Lender, in is discretion, to issue Letters of Credit pursuant to this Agreement.

 

Lender” has the meaning set forth in the preamble to this Agreement and if Lender shall decide to assign or syndicate any of the Obligations such term shall include such assignee or such other members of the syndicate.

 

Letter of Credit” and L/Cmeans a letter of credit issued by an LC Issuer for Lender’s account, at the request of Borrowing Representative and on behalf of a Borrower containing terms and conditions satisfactory to Lender, which letter of credit may either be a commercial letter of credit or standby letter of credit.

 

Letter of Credit Fee” has the meaning set forth in Schedule I.

 

Letter of Credit Obligations” means all outstanding obligations (including all duty, freight, taxes, costs, insurance and any other charges and expenses) incurred by Lender, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance or guarantee, by Lender or another, of Letters of Credit or Letters of Guaranty, all as further set forth in Schedule I.

 

Letter-of-Credit Rights” has the meaning given to “letter-of-credit rights” as such term is defined in the UCC, now owned or hereafter acquired by any Person, including rights to payment or performance under a letter of credit, whether or not such Person, as beneficiary, has demanded or is at the time entitled to demand payment or performance.

 

Letters of Guaranty” and “L/Gmeans a letter of guaranty issued by Lender for the account of a Borrower guarantying payment of the purchase price of the goods financed thereby, containing terms and conditions satisfactory to Lender.

 

License” means any rights under any written agreement now or hereafter acquired by any Person to use any trademark, trademark registration, copyright, copyright registration or invention for which a patent is in existence or other license of rights or interests now held or hereafter acquired by any Person.

 

Lien” means any mortgage, security deed or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, security interest, charge, claim or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the UCC or comparable law of any jurisdiction.

 

11
 

 

Litigation” means any claim, lawsuit, litigation, investigation or proceeding of or before any arbitrator or Governmental Authority.

 

Loans” means the Revolving Credit Advances and all extensions of credit hereunder or under any Credit Document, including Letter of Credit Obligations.

 

Margin Stock has the meaning set forth in Section 7.8.

 

Material Adverse Effect” means a material adverse effect on (a) the condition, operations, assets, business or prospects of any Credit Party, (b) any Credit Party’s ability to pay or perform the Obligations in accordance with the terms hereof or any Credit Document, (c) the value of the Collateral, the Liens on the Collateral or the priority of any such Lien or (d) the practical realization of the benefits of Lender’s rights and remedies under this Agreement and the Credit Documents.

 

Maturity Date” means February 1, 2014.

 

Maximum Legal Rate” shall have the meaning given to such term in Section 5.1(a)(iv).

 

Maximum Revolving Amount” means ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000).

 

Minimum Actionable Amount” means $10,000.

 

Minimum Average Monthly Loan Amount” means $750,000.

 

Mortgage” means collectively, any mortgage or deed of trust which is executed in favor of Lender to secure the Obligations.

 

Multiemployer Plan” means a “multiemployer plan,” as defined in Section 4001(a) (3) of ERISA, to which any Credit Party is making, is obligated to make, has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them.

 

Note” means the promissory note of Borrowers executed in favor of Lender substantially in the form of Exhibit A.

 

12
 

 

Obligations” means all obligations under any Guaranty and all Loans, all advances, debts, liabilities, obligations, covenants and duties owing by any Credit Party to Lender (or any corporation that directly or indirectly controls or is controlled by or is under common control with Lender) of every kind and description (whether or not evidenced by any note or other instrument and whether or not for the payment of money or the performance or non-performance of any act), direct or indirect, absolute or contingent, due or to become due, contractual or tortious, liquidated or unliquidated, whether existing by operation of law or otherwise now existing or hereafter arising including any debt, liability or obligation owing from any Credit Party to others which Lender may have obtained by assignment or otherwise and further including all interest (including interest accruing at the then applicable rate provided in this Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in this Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), charges or any other payments any Credit Party is required to make by law or otherwise arising under or as a result of this Agreement or any other Credit Document, together with all reasonable expenses and reasonable attorneys’ fees chargeable to any Borrower’s account or incurred by Lender in connection with any Borrower’s account whether provided for herein or in any Credit Agreement.

 

Payment Intangible” has the meaning give to the term “payment intangible” in the UCC and in any event shall include, a General Intangible under which the Account Debtor’s principal obligation is a monetary obligation.

 

Payment Office” means 488 Madison Avenue, Suite 800, New York, New York 10022 or such other place as Lender may from time to time designate in writing.

 

PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

 

Permitted Liens” means the following Liens: (i) Liens for taxes or assessments or other governmental Charges or levies, either not yet due and payable or to the extent that nonpayment thereof is permitted by the terms of Section 7.10; (ii) pledges or deposits securing obligations under worker’s compensation, unemployment insurance, social security or public liability laws or similar legislation; (iii) pledges or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which any Credit Party is a party as lessee made in the ordinary course of business; (iv) deposits securing public or statutory obligations of any Credit Party; (v) inchoate and unperfected workers’, mechanics’, or similar liens arising in the ordinary course of business so long as such Liens attach only to Equipment, fixtures or real estate; (vi) carriers’, warehousemen’s, suppliers’ or other similar possessory liens arising in the ordinary course of business and securing indebtedness not yet due and payable in an outstanding aggregate amount not in excess of the Minimum Actionable Amount at any time so long as such Liens attach only to Inventory; (vii) deposits of money securing, or in lieu of, surety, appeal or customs bonds in proceedings to which any Credit Party is a party; (viii)  zoning restrictions, easements, licenses, or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real estate; (ix) Purchase Money Liens securing Purchase Money Indebtedness (or rent) to the extent permitted under Article IX(b); (x) Liens in existence on the Closing Date as disclosed on Disclosure Schedule 9(e) provided that no such Lien is spread to cover additional property after the Closing Date and the amount of Indebtedness secured thereby is not increased; and (xi) Liens in favor of Lender securing the Obligations.

 

13
 

 

Person” means any individual, sole proprietorship, partnership, limited liability partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof), and shall include such Person’s successors and assigns.

 

Prime Rate” means the “prime rate” which from time to time published in the “Money Rates” column of The Wall Street Journal (Eastern Edition, New York Metro); provided, however, if the Money Rates column of The Wall Street Journal (Eastern Edition, New York Metro) ceases to be published or otherwise does not designate a “prime rate” as of a Business Day, Lender has the right to obtain such information from a similar business publication of its selection. The Prime Rate shall be increased or decreased as the case may be for each increase or decrease in the Prime Rate in an amount equal to such increase or decrease in the Prime Rate; each change to be effective as of the day of the change in such rate.

 

Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title III of ERISA or Section 412 of the IRC or Section 302 of ERISA, and in respect of which a Credit Party is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

 

Pledge Agreement” means each pledge agreement in favor of Lender by any Credit Party.

 

Proceeds” means “proceeds”, as such term is defined in the UCC and, in any event, shall include: (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Credit Party or any other Person from time to time with respect to any Collateral; (b) any and all payments (in any form whatsoever) made or due and payable to a Credit Party from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of any Collateral by any governmental body, governmental authority, bureau or agency (or any person acting under color of governmental authority); (c) any claim of a Credit Party against third parties (i) for past, present or future infringement of any Intellectual Property or (ii) for past, present or future infringement or dilution of any trademark or trademark license or for injury to the goodwill associated with any trademark, trademark registration or trademark licensed under any trademark License; (d) any recoveries by a Credit Party against third parties with respect to any litigation or dispute concerning any Collateral, including claims arising out of the loss or nonconformity of, interference with the use of, defects in, or infringement of rights in, or damage to, Collateral; (e) all amounts collected on, or distributed on account of, other Collateral, including dividends, interest, distributions and Instruments with respect to Investment Property and pledged Stock; and (f) any and all other amounts , rights to payment or other property acquired upon the sale, lease, license, exchange or other disposition of Collateral and all rights arising out of Collateral.

 

Projections” means as of any date the balance sheet, statements of income and cash flow for Credit Parties and Subsidiaries (including forecasted Capital Expenditures) (a) by month for the next Fiscal Year, and (b) by year for the following three Fiscal Years, in each case prepared in a manner consistent with GAAP and accompanied by senior management’s discussion and analysis of such plan.

 

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Purchase Money Indebtedness” means (a) any Indebtedness incurred for the payment of all or any part of the purchase price of any fixed asset, (b) any Indebtedness incurred for the sole purpose of financing or refinancing all or any part of the purchase price of any fixed asset, and (c) any renewals, extensions or refinancings thereof (but not any increases in the principal amounts thereof outstanding at that time).

 

Purchase Money Lien” means any Lien upon any fixed assets which secures the Purchase Money Indebtedness related thereto but only if such Lien shall at all times be confined solely to the asset the purchase price of which was financed or refinanced through the incurrence of the Purchase Money Indebtedness secured by such Lien and only if such Lien secures only such Purchase Money Indebtedness.

 

Real Estate” means the real property and the improvements thereon located at 587 Connecticut Avenue, Norwalk, Connecticut.

 

Real Estate Availability” means at the date of determination, the lesser of (i) $350,000 and (ii) sixty percent (60%) of seventy percent (70%) of the fair market value of the Real Estate less the outstanding balance of prior Liens on the Real Estate.

 

Real Property” has the meaning assigned to it in Section 7.6.

 

Release” means, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials in the indoor or outdoor environment by such Person, including the movement of Hazardous Materials through or in the air, soil, surface water, ground water or property.

 

Requirement of Law” means as to any Person, the Certificate or Articles of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

Reserves” means reserves established by Lender from time to time in its good faith credit judgment, including to protect Lender’s interest in the Collateral, to protect Lender against possible non-payment of Accounts for any reason by Account Debtors, to protect against the diminution in value of any Collateral, to protect Lender against the possible non-payment of any Obligations, to protect Lender for any unpaid taxes, to protect Lender in respect of any state of facts that could constitute a Default or Event of Default and to protect Lender for any Letter of Credit Obligations.

 

Restricted Payment” means: (i) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets on or in respect of Credit Party’s Stock; (ii) any payment or distribution made in respect of any Subordinated Debt of any Credit Party in violation of any subordination or other agreement made in favor of Lender; (iii) any payment on account of the purchase, redemption, defeasance or other retirement of any Credit Party’s Stock or Indebtedness or any other payment or distribution made in respect of any thereof, either directly or indirectly; or (iv) any payment, loan, contribution, or other transfer of funds or other property to any Stockholder of such Person which is not expressly and specifically permitted in this Agreement; provided, that no payment to Lender shall constitute a Restricted Payment.

 

15
 

 

Revolving Credit Advances” shall have the meaning given to such term in Section 2.1(a).

 

Software” means all “software” as such term is defined in the UCC, including all computer programs and all supporting information provided in connection with a transaction related to any program.

 

Stock” means all certificated and uncertificated shares, options, warrants, membership interests, general or limited partnership interests, participation or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934).

 

Stockholder” means each holder of Stock of Borrower.

 

Subordinated Debt” means any note, document, instrument or agreement now or any time hereafter executed and/or delivered by any Credit Party with or in favor of any Subordinated Lender which evidences the principal, interest and other amounts owed by a Credit Party to such Subordinated Lender.

 

Subordinated Lender” means collectively, any Person who enters into a Subordination Agreement with Lender with respect to amounts owed by any Credit Party to such Subordinated Lender.

 

Subordination Agreement” means collectively, all subordination agreements accepted by Lender from time to time with respect to Indebtedness of any Credit Party.

 

Subsidiary” means, with respect to any Person, (i) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation has or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (ii) any partnership or limited liability company in which such Person or one or more Subsidiaries of such Person has an equity interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or manager or may exercise the powers of a general partner or manager.

 

Supporting Obligations” means all “supporting obligations” as such term is defined in the UCC, including Letter-of-Credit Rights or secondary obligations that supports the payment or performance of Accounts, Chattel Paper, Documents, General Intangibles, Instruments, or Investment Property.

 

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Tangible Net Worth” shall mean, with respect to any Person, at any date, the total assets (excluding any assets attributable to any issuances by such Person of any Stock after the Closing Date and excluding any intangible assets and loans made to any officer, director, shareholder or employee of such Person) minus the total liabilities, in each case, of such Person at such date determined in accordance with GAAP.

 

Term” means the Closing Date through the Maturity Date subject to acceleration upon the occurrence of an Event of Default hereunder or other termination hereunder.

 

Termination Date” means the date on which all Obligations under this Agreement are indefeasibly paid in full, in cash (other than amounts in respect of Letter of Credit Obligations if any, then outstanding, provided that a Borrower has funded such amounts in cash in full into the Cash Collateral Account), and no Borrower shall have any further right to borrow any moneys or obtain other Loans or financial accommodations under this Agreement.

 

UCC” means the Uniform Commercial Code as the same may, from time be in effect in the State of New York; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of this Agreement relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions; provided further, that to the extent that UCC is used to define any term herein or in any Credit Document and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern.

 

Uniform Customs” means with respect to a documentary Letter of Credit the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time and with respect to a standby Letter of Credit, the International Standby Practices, ISP.

 

Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title III of ERISA.

 

1.2           Accounting Terms. Any accounting terms used in this Agreement which are not specifically defined shall have the meanings customarily given them in accordance with GAAP and all financial computations shall be computed, unless specifically provided herein, in accordance with GAAP consistently applied.

 

1.3           Other Terms. All other terms used in this Agreement and defined in the UCC, shall have the meaning given therein unless otherwise defined herein.

 

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1.4           Rules of Construction. All Schedules, Addenda and Exhibits hereto or expressly identified to this Agreement are incorporated herein by reference and taken together with this Agreement constitute but a single agreement. The words “herein”, hereof” and “hereunder” or other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules thereto, as the same may be from time to time amended, modified, restated or supplemented, and not to any particular section, subsection or clause contained in this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. The term “or” is not exclusive. The term “including” (or any form thereof) shall not be limiting or exclusive. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references in this Agreement or in the Schedules to this Agreement to sections, schedules, disclosure schedules, exhibits, and attachments shall refer to the corresponding sections, schedules, disclosure schedules, exhibits, and attachments of or to this Agreement. All references to any instruments or agreements, including references to any of this Agreement or any of the other Credit Documents shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof.

 

II.           LOANS

 

2.1           Revolving Credit Advances.

 

(a)          Subject to the terms and conditions set forth herein and in the Credit Documents, Lender may, in its sole discretion, make revolving credit advances (the “Revolving Credit Advances”) to Borrowers from time to time during the Term which, in the aggregate at any time outstanding together with all outstanding Letter of Credit Obligations, will not exceed the lesser of (x) the Maximum Revolving Amount or (y) an amount equal to the Borrowing Base.

 

(b)          Notwithstanding the limitations set forth above, Lender retains the right to lend Borrowers from time to time such amounts in excess of such limitations as Lender may determine in its sole discretion.

 

(c)          Each Borrower acknowledges that the exercise of Lender’s discretionary rights hereunder may result during the term of this Agreement in one or more increases or decreases in the advance percentages used in determining Accounts Availability, Inventory Availability, Equipment Availability, Cash Collateral Availability and Real Estate Availability and each Borrower hereby consents to any such increases or decreases which may limit or restrict advances requested by Borrower.

 

(d)          If any Borrower does not pay any interest, fees, costs or charges to Lender when due, Borrowers shall thereby be deemed to have requested, and Lender is hereby authorized at its discretion to make and charge to any Borrower’s account, a Revolving Credit Advance as of such date in an amount equal to such unpaid interest, fees, costs or charges.

 

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(e)          If any Credit Party at any time fails to perform or observe any of the covenants contained in this Agreement or any other Credit Document, Lender may, but need not, perform or observe such covenant on behalf and in the name, place and stead of such Credit Party (or, at Lender’s option, in Lender’s name) and may, but need not, take any and all other actions which Lender may deem necessary to cure or correct such failure (including the payment of taxes, the satisfaction of Liens, the performance of obligations owed to Account Debtors, lessors or other obligors, the procurement and maintenance of insurance, the execution of assignments, security agreements and financing statements, and the endorsement of instruments). The amount of all monies expended and all costs and expenses (including attorneys’ fees and legal expenses) incurred by Lender in connection with or as a result of the performance or observance of such agreements or the taking of such action by Lender shall be charged to any Borrower’s account as a Revolving Credit Advance and added to the Obligations. To facilitate Lender’s performance or observance of such covenants of Credit Parties, each Credit Party hereby irrevocably appoints Lender, or Lender’s delegate, acting alone, as such Credit Party’s attorney in fact (which appointment is coupled with an interest) with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of such Credit Party any and all instruments, documents, assignments, security agreements, financing statements, applications for insurance and other agreements and writings required to be obtained, executed delivered or endorsed by such Credit Party.

 

(f)          Lender is authorized by Borrowers to record on its books or records the date, principal amount, amount and date of all payments of principal of and interest on each Loan, and the outstanding principal balance of the Loans and such recordation shall constitute prima facie evidence as to all such information contained therein. Lender shall provide Borrowing Representative on a monthly basis with a statement and accounting of such recordations but any failure on the part of Lender to keep such recordation (or any errors therein) or to send a statement thereof to Borrowing Representative shall not limit or otherwise affect the obligation of any Borrower to repay (with applicable interest) any Loans. Except to the extent that Borrowing Representative shall, within thirty (30) days after such statement and accounting is sent, notify Lender in writing of any objection any Borrower may have thereto (stating with particularity the basis for such objection), such statement and accounting shall be deemed final, binding and conclusive upon Borrowers, absent manifest error. The Loans made by Lender will be evidenced by a Note. Each Borrower will execute the Note simultaneously with the execution of this Agreement.

 

(g)          During the Term, each Borrower may borrow, prepay and reborrow Revolving Credit Advances, all in accordance with the terms and conditions hereof.

 

(h)          Subject to the terms and conditions of this Agreement including Schedule I, Borrowing Representative on behalf of each Borrower may request and Lender may agree to incur Letter of Credit Obligations. Notwithstanding anything to the contrary contained in this Agreement Lender shall not incur Letter of Credit Obligations.

 

2.2           Repayment of the Revolving Credit Advances. Borrowers shall be required to (a) make a mandatory repayment hereunder at any time that the aggregate outstanding principal balance of the Revolving Credit Advances made by Lender to Borrowers hereunder is in excess of the Borrowing Base and/or Maximum Revolving Amount, in an amount equal to such excess, and (b) repay on the expiration of the Term (i) the then aggregate outstanding principal balance of Revolving Credit Advances made by Lender to Borrowers hereunder together with accrued and unpaid interest, fees and charges and (ii) all other amounts owed Lender under this Agreement and the Credit Documents. Any payments of principal, interest, fees or any other amounts payable hereunder or under any Credit Document shall be made prior to 12:00 noon (New York time) on the due date thereof in immediately available funds.

 

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III.          PROCEDURES

 

3.1           Procedure for Revolving Credit Advances. Borrowing Representative on behalf of each Borrower may by written or telephonic notice request a borrowing of Revolving Credit Advances prior to 11:00 a.m. (New York time) on the Business Day of its request to incur, on that day, a Revolving Credit Advance. All Revolving Credit Advances shall be disbursed from whichever office or other place Lender may designate from time to time and, together with any and all other Obligations of Borrowers to Lender, shall be charged to Borrowers’ account on Lender’s books. The proceeds of each Revolving Credit Advance made by Lender shall be made available to Borrowers on the Business Day so requested by way of credit to the applicable Borrower’s operating account maintained with such bank as Borrowing Representative designated to Lender. Any and all Obligations due and owing hereunder may be charged to Borrowers’ account and shall constitute Revolving Credit Advances.

 

IV.         INTEREST AND FEES

 

4.1           Interest and Fees.

 

(a)          Interest.

 

(i)          Except as modified by Section 5.1(a)(iii) below, Borrowers shall pay interest on the unpaid principal balance of the Loans for each day they are outstanding at the Contract Rate.

 

(ii)         Interest and fees shall be computed on the basis of actual days elapsed in a year of 360 days. Interest shall be payable in arrears on the last day of each month and upon termination of this Agreement, or, at Lender’s option, Lender may charge Borrowers’ account for said interest.

 

(iii)        Effective upon the occurrence of any Event of Default and for so long as any Event of Default shall be continuing, the Contract Rate and the Letter of Credit Fee shall automatically be increased to the Default Rate, and all outstanding Obligations, including unpaid interest and Letter of Credit Fees, shall continue to accrue interest from the date of such Event of Default at the Default Rate applicable to such Obligations.

 

(iv)        Notwithstanding the foregoing, in no event shall the aggregate interest exceed the maximum rate permitted under any applicable law or regulation, as in effect from time to time (the “Maximum Legal Rate”) and if any provision of this Agreement or Credit Document is in contravention of any such law or regulation, interest payable under this Agreement and each Credit Document shall be computed on the basis of the Maximum Legal Rate (so that such interest will not exceed the Maximum Legal Rate) and once the amount of interest payable hereunder or under the Credit Documents is less than the Maximum Legal Rate, Lender shall not reduce interest payable hereunder or any Credit Document below the amount computed based upon the Maximum Legal Rate until the aggregate amount of interest paid equals the amount of interest which would have been payable if the Maximum Legal Rate had not been imposed.

 

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(v)         Borrowers shall pay principal, interest and all other amounts payable hereunder, or under any Credit Document, without any deduction whatsoever, including any deduction for any set-off or counterclaim.

 

(b)          Fees.

 

(i)          Minimum Loan Fee. In the event the average closing daily unpaid balances of all Loans hereunder during any calendar month is less than the Minimum Average Monthly Loan Amount, Borrowers shall pay to Lender a minimum loan fee at a rate per annum equal to the Contract Rate on the amount by which the Minimum Average Monthly Loan Amount exceeds such average closing daily unpaid balances. Such fee shall be charged to Borrower’s account on the first day of each month with respect to the prior month.

 

(ii)         Facility Fee. Borrowers hereby agree to pay Lender a facility fee in an amount equal to one and three-quarters percent (1.75%) of the Maximum Revolving Amount on the Closing Date and on each anniversary of the Closing Date which occurs prior to the Maturity Date. The facility fee for the period ending on the Maturity Date shall be deemed fully earned on the Closing Date and shall be payable by a charge to Borrower’s account upon the earlier of each anniversary of the Closing Date or the termination of this Agreement for any reason.

 

(iii)        Collateral Monitoring Fee. Borrowers shall pay Lender a collateral monitoring fee of $1,500 per month, payable on the Closing Date and on the first day of each month thereafter.

 

(c)          Field Examination Fee. Upon Lender’s performance of any collateral monitoring and/or verification including any field examination, collateral analysis or other business analysis, the need for which is to be determined by Lender and which monitoring is undertaken by Lender or for Lender’s benefit, an amount equal to the established rate by Lender from time to time which rate on the Closing Date is $900 per day for each person employed to perform such monitoring together with all costs, disbursements and expenses incurred by Lender and the person performing such collateral monitoring and/or verification shall be charged to Borrowers’ account.

 

(d)          Collection Fees. For purposes of determining the balance of the Loans outstanding, Lender will credit (conditional upon final collection) all such payments to Borrowers’ account upon receipt by Lender of good funds in dollars of the United States of America in Lender’s account, provided, however, for purposes of computing interest on the Obligations, Lender will credit (conditional upon final collection) all such payments to Borrowers’ account three (3) Business Days after receipt by Lender of good funds in dollars of the United States of America in Lender’s account. Any amount received by Lender after 12:00 noon (New York time) on any Business Day shall be deemed received on the next Business Day.

 

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(e)          Overline/Overadvance Fees. Under circumstances where any Borrower requests Revolving Credit Advances which would exceed the Maximum Revolving Amount and/or the Borrowing Base, Lender may impose fees in connection therewith. Such fees shall include (i) a monthly fee in the amount of two and one-half percent (2.50%) of the greater of (A) the highest amount by which the amount Revolving Credit Advances during such month exceeds the Borrowing Base and (B) if any, the amount approved by Lender for such Revolving Credit Advance in excess of the Borrowing Base for such month and (ii) two and one-half percent (2.50%) of the greater of (A) the highest amount by which the Revolving Credit Advances during such month exceeds the Maximum Revolving Amount and (B) if any, the amount approved by Lender for such Revolving Credit Advances in excess of the Maximum Revolving Amount for such month. Such fees shall be payable on the first day of each month with respect to the preceding calendar month.

 

(f)          Wire/Check Fee. For each wire transfer or check issued by Lender, on behalf of a Borrower, Borrowers shall pay Lender Lender’s standard fee for such service which fee is $45 as of the Closing Date.

 

VI.         CONDITIONS PRECEDENT

 

6.1           Conditions Precedent to Initial Loans. Without limitation of the discretionary nature of each Loan hereunder, the initial Loan to be made by Lender shall be subject to the fulfillment (to the satisfaction of Lender) of each of the conditions precedent set forth on Schedule II.

 

6.2           Conditions Precedent to each Loan. Without limitation of the discretionary nature of each Loan hereunder, each of the Loans (including the initial Loan) to be made by Lender shall be subject to the fulfillment (to the satisfaction of Lender) of each of the following conditions as of the date of each Loan:

 

(a)          Lender shall have received a Request for Loan for such Loan in form and in substance satisfactory to Lender;

 

(b)          The representations and warranties set forth in this Agreement and in the other Credit Documents, shall be true and correct in all material respects on and as of the date of such Loan with the same effect as though made on and as of such date, except to the extent that any such representation or warranty is expressly stated to relate to a specific earlier date, in which case, such representation and warranty shall be true and correct as of such earlier date;

 

(c)          No Default or Event of Default shall have occurred and be continuing at the time of and after giving effect to such Loan;

 

(d)          Lender shall have received all fees due and payable on or prior to such date; and

 

(e)          All legal matters incident to such Loan shall be satisfactory to Lender and its counsel.

 

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VII.        REPRESENTATIONS, WARRANTIES AND COVENANTS

 

To induce Lender to enter into this Agreement and to make the Loans, each Credit Party represents and warrants (each of which representations and warranties shall survive the execution and delivery of this Agreement), and promises to and agrees with Lender until the Termination Date as follows:

 

7.1           Corporate Existence; Compliance with Law. Each Corporate Credit Party: (a) is, as of the Closing Date, and will continue to be (i) a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation, (ii) duly qualified to do business and in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect, and (iii) in compliance with all Requirements of Law and Contractual Obligations, except to the extent failure to comply therewith could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (b) has and will continue to have (i) the requisite power and authority and the legal right to execute, deliver and perform its obligations under the Credit Documents, and to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore or proposed to be conducted, and (ii) all licenses, permits, franchises, rights, powers, consents or approvals from or by all Persons or Governmental Authorities having jurisdiction over Borrowers which are necessary or appropriate for the conduct of its business.

 

7.2           Names; Organizational Information; Collateral Locations. Disclosure Schedule 7.2 sets forth each Corporate Credit Party’s name as it appears in official filing in the state of its incorporation or other organization, the type of entity of each Corporate Credit Party, the state of each Corporate Credit Party’s incorporation or organization and organizational identification number issued by each Corporate Credit Party’s state of incorporation or organization or a statement that no such number has been issued. The location of each Corporate Credit Party’s chief executive office, corporate offices, warehouses, other locations of Collateral and locations where records with respect to Collateral are kept (including in each case the county of such locations) are as set forth in Disclosure Schedule 7.2 and, except as set forth in such Disclosure Schedule, such locations have not changed during the preceding twelve months. With respect to each of the premises identified in Disclosure Schedule 7.2 on or prior to the Closing Date a bailee, landlord or mortgagee agreement acceptable to Lender has been obtained. As of the Closing Date, during the prior five years, except as set forth in Disclosure Schedule 7.2, no Corporate Credit Party shall have been known as or conducted business in any other name (including trade names).

 

7.3           Power; Authorization; Enforceable Obligations. The execution, delivery and performance by each Credit Party of the Credit Documents to which it is a party, and the creation of all Liens provided for herein and therein: (a) are and will continue to be within such Credit Party’s power and authority; (b) have been and will continue to be duly authorized by all necessary or proper action; (c) are not and will not be in violation of any Requirement of Law or Contractual Obligation of such Credit Party; (d) do not and will not result in the creation or imposition of any Lien (other than Permitted Liens) upon any of the Collateral; and (e) do not and will not require the consent or approval of any Governmental Authority or any other Person. As of the Closing Date, each Credit Document shall have been duly executed and delivered on behalf of each Credit Party, and each such Credit Document upon such execution and delivery shall be and will continue to be a legal, valid and binding obligation of each Credit Party, enforceable against it in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency and other similar laws affecting creditors’ rights generally.

 

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7.4           Financial Statements and Projections; Books and Records.

 

(a)          The Financial Statements delivered by each Credit Party to Lender for its most recently ended Fiscal Year and Fiscal Quarter, are true, correct and complete and reflect fairly and accurately the financial condition of such Credit Party as of the date of each such Financial Statement in accordance with GAAP. The Projections most recently delivered by each Corporate Credit Party to Lender have been prepared in good faith, with care and diligence and use assumptions that are reasonable under the circumstances at the time such Projections were prepared and as of the date delivered to Lender and all such assumptions are disclosed in the Projections.

 

(b)          Each Corporate Credit Party shall keep adequate Books and Records with respect to the Collateral and its business activities in which proper entries, reflecting all financial transactions, and payments and credits received on, and all other dealings with, the Collateral, will be made in accordance with GAAP and all Requirements of Law and on a basis consistent with the Financial Statements.

 

7.5           Material Adverse Change. Between the date of each Credit Party’s most recent Financial Statements delivered to Lender and the Closing Date: (a) no Credit Party has incurred any obligations, contingent or non-contingent liabilities, or liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the Projections delivered on the Closing Date and which could, alone or in the aggregate, reasonably be expected to have a Material Adverse Effect; (b) there has been no material deviation from such Projections; and (c) no events have occurred which alone or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect. No Requirement of Law or Contractual Obligation of any Credit Party has or have had or could reasonably be expected to have a Material Adverse Effect. No Credit Party is in default, and to each Credit Party’s knowledge no third party is in default, under or with respect to any of its Contractual Obligations, which alone or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect.

 

7.6           Real Estate; Property. The real estate listed in Disclosure Schedule 7.6 constitutes all of the real property owned, leased, or used by each Credit Party in its business (the “Real Property”), and no Corporate Credit Party will execute any material agreement or contract in respect of such real estate after the date of this Agreement without giving Lender prompt prior written notice thereof. Each Corporate Credit Party holds and will continue to hold good and marketable fee simple title to all of its owned real estate, and good and marketable title to all of its other properties and assets, and valid and insurable leasehold interests in all of its leases (both as lessor and lessee, sublessee or assignee), and none of the properties and assets of any Corporate Credit Party are or will be subject to any Liens, except Permitted Liens.

 

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7.7           Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness. Except as set forth in Disclosure Schedule 7.7, as of the Closing Date, no Corporate Credit Party has any Subsidiaries, is not engaged in any joint venture or partnership with any other Person, or is an Affiliate of any other Person. All of the issued and outstanding Stock of each Corporate Credit Party (including all rights to purchase, options, warrants or similar rights or agreements pursuant to which any Corporate Credit Party may be required to issue, sell, repurchase or redeem any of its Stock) as of the Closing Date is owned by each of the Stockholders (and in the amounts) set forth on Disclosure Schedule 7.7. All outstanding Indebtedness of each Corporate Credit Party as of the Closing Date is described in Disclosure Schedule 9(b).

 

7.8           Government Regulation; Margin Regulations. No Credit Party is subject to or regulated under or any federal or state statute, rule or regulation that restricts or limits any Credit Party’s ability to incur Indebtedness, pledge its assets, or to perform its obligations under the Credit Documents. The making of a Loan, the application of the proceeds and repayment thereof, and the consummation of the transactions contemplated by the Credit Documents do not and will not violate any Requirement of Law. No Credit Party is engaged, nor will it engage in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin security” as such terms are defined in Regulation U of the Federal Reserve Board as now and hereafter in effect (such securities being referred to herein as “Margin Stock”). No Credit Party owns Margin Stock, and none of the proceeds of any Loan or other extensions of credit under any Credit Document will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock or reducing or retiring any Indebtedness which was originally incurred to purchase or carry any Margin Stock. No Credit Party will take or permit to be taken any action which might cause any Credit Document to violate any regulation of the Federal Reserve Board.

 

7.9           Taxes; Charges. Except as disclosed on Disclosure Schedule 7.9 all tax returns, reports and statements required by any Governmental Authority to be filed by each Credit Party have, as of the Closing Date, been filed and will, until the Termination Date, be filed with the appropriate Governmental Authority and no tax Lien has been filed against each Credit Party or any of each Credit Party’s property. Proper and accurate amounts have been and will be withheld by each Credit Party from its employees for all periods in complete compliance with all Requirements of Law and such withholdings have and will be timely paid to the appropriate Governmental Authorities. Disclosure Schedule 7.9 sets forth as of the Closing Date those taxable years for which each Credit Party’s tax returns are currently being audited by the IRS or any other applicable Governmental Authority and any assessments or threatened assessments in connection with such audit, or otherwise currently outstanding. Except as described on Disclosure Schedule 7.9, no Credit Party nor its respective predecessors are liable for any Charges: (a) under any agreement (including any tax sharing agreements or agreement extending the period of assessment of any Charges) or (b) to any Credit Party’s knowledge, as a transferee. As of the Closing Date, no Credit Party has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise, which could reasonably be expected to have a Material Adverse Effect.

 

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7.10         Payment of Obligations. Each Credit Party will pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all of its Charges and other obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of such Credit Party and none of the Collateral is or could reasonably be expected to become subject to any Lien or forfeiture or loss as a result of such contest.

 

7.11         ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other existing ERISA Events, could reasonably be expected to result in a liability of any Corporate Credit Party of more than the Minimum Actionable Amount. The present value of all accumulated benefit obligations of any Corporate Credit Party under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent Financial Statements reflecting such amounts, exceed the fair market value of the assets of such Plan by more than the Minimum Actionable Amount, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Account Standards No. 87) did not, as of the date of the most recent Financial Statements reflecting such amounts, exceed the fair market value of the assets of such underfunded Plans by more than the Minimum Actionable Amount. No Corporate Credit Party has incurred or reasonably expects to incur any Withdrawal Liability in excess of the Minimum Actionable Amount.

 

7.12         Litigation. No Litigation is pending or, to the knowledge of any Credit Party, threatened by or against any Credit Party or against any Credit Party’s properties or revenues (a) with respect to any of the Credit Documents or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect. Except as set forth on Disclosure Schedule 7.12, as of the Closing Date there is no Litigation pending or threatened against any Credit Party which seeks damages in excess of the Minimum Actionable Amount or injunctive relief or alleges criminal misconduct of any Credit Party. Each Credit Party shall notify Lender in writing within five (5) Business Days of learning of the existence, threat or commencement of any Litigation against any Credit Party or any Plan or any allegation of criminal misconduct against any Credit Party.

 

7.13         Intellectual Property. As of the Closing Date, all material Intellectual Property owned or used by each Corporate Credit Party is listed, together with application or registration numbers, where applicable, in Disclosure Schedule 7.13. Each Corporate Credit Party is the sole legal and beneficial owner, or is licensed on commercial terms to use, all Intellectual Property necessary to conduct its business as currently conducted except for such Intellectual Property the failure of which to own or license could not reasonably be expected to have a Material Adverse Effect. Each Corporate Credit Party will maintain the patenting and registration of all Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office, or other appropriate Governmental Authority and each Corporate Credit Party will promptly patent or register, as the case may be, all new Intellectual Property and notify Lender in writing five (5) Business Days prior to filing any such new patent or registration. With respect to Intellectual Property licensed by each Corporate Credit Party, an agreement acceptable to Lender from the licensor of such Intellectual Property has been obtained permitting Lender to use such Intellectual Property or sell the Goods containing such Intellectual Property following the occurrence of a Default. No Credit Party is aware of any infringement on the Intellectual Property of any third party in the carrying on of its business in the normal course.

 

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7.14         Full Disclosure. No information contained in any Credit Document, the Financial Statements or any written statement furnished by or on behalf of any Credit Party under any Credit Document, or to induce Lender to execute the Credit Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.

 

7.15         Hazardous Materials. Except as set forth on Disclosure Schedule 7.15, as of the Closing Date, (a) each Real Property is maintained free of contamination from any Hazardous Material, (b) no Credit Party is subject to any Environmental Liabilities or, to any Credit Party’s knowledge, potential Environmental Liabilities, in excess of the Minimum Actionable Amount in the aggregate, (c) no notice has been received by any Credit Party identifying it as a “potentially responsible party” or requesting information under CERCLA or analogous state statutes, and to the knowledge of any Credit Party, there are no facts, circumstances or conditions that may result in such Credit Party being identified as a “potentially responsible party” under CERCLA or analogous state statutes; and (d) each Credit Party has provided to Lender copies of all existing environmental reports, reviews and audits and all written information pertaining to actual or potential Environmental Liabilities, in each case relating to any Credit Party. Each Credit Party: (i) shall comply in all material respects with all applicable Environmental Laws and environmental permits; (ii) shall notify Lender in writing within seven days if and when it becomes aware of any Release, on, at, in, under, above, to, from or about any of its Real Property; and (iii) shall promptly forward to Lender a copy of any order, notice, permit, application, or any communication or report received by it or any Credit Party in connection with any such Release.

 

7.16         Insurance. As of the Closing Date, Disclosure Schedule 7.16 lists all insurance of any nature maintained for current occurrences by Borrowers, as well as a summary of the terms of such insurance. Each Corporate Credit Party shall deliver to Lender certified copies and endorsements to all of its (a) “All Risk” and business interruption insurance policies naming Lender loss payee, and (b) general liability and other liability policies naming Lender as an additional insured. All policies of insurance on real and personal property will contain an endorsement, in form and substance acceptable to Lender, showing loss payable to Lender (Form 438 BFU or equivalent) (or showing additional loss payee as Lender where Lender deems appropriate) and extra expense and business interruption endorsements. Such endorsement, or an independent instrument furnished to Lender, will provide that the insurance companies will give Lender at least thirty (30) days prior written notice before any such policy or policies of insurance shall be altered or canceled and that no act or default of any Corporate Credit Party or any other Person shall affect the right of Lender to recover under such policy or policies of insurance in case of loss or damage. Each Borrower shall direct all present and future insurers under its “All Risk” policies of insurance to pay all proceeds payable thereunder directly to Lender. If any insurance proceeds are paid by check, draft or other instrument payable to any Corporate Credit Party and Lender jointly, Lender may endorse each Corporate Credit Party’s name thereon and do such other things as Lender may deem advisable to reduce the same to cash. Lender reserves the right at any time, upon review of any Corporate Credit Party’s risk profile, to require additional forms and limits of insurance. Each Corporate Credit Party shall, on each anniversary of the Closing Date and from time to time at Lender’s request, deliver to Lender a report by a reputable insurance broker, satisfactory to Lender, with respect to such Person’s insurance policies.

 

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7.17         Deposit and Disbursement Accounts. Disclosure Schedule 7.17 lists all banks and other financial institutions at which each Corporate Credit Party, maintains deposits and/or other accounts and correctly identifies the name, address and telephone number of each such depository, the name in which the account is held, a description of the purpose of the account, and the complete account number.

 

7.18         Accounts. No Corporate Credit Party has made, nor will any Credit Party make, any agreement with any Account Debtor for any extension of time for the payment of any Account, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance for prompt or early payment allowed by a Corporate Credit Party and such other compromises or settlements in the ordinary course of its business consistent with historical practice and as previously disclosed to Lender in writing. With respect to the Accounts pledged as collateral pursuant to any Credit Document (a) the amounts shown on all invoices, statements and reports which may be delivered to the Lender with respect thereto are actually and absolutely owing to a Credit Party as indicated thereon and are not in any way contingent; (b) no payments have been or shall be made thereon except payments immediately delivered to Lender as required hereunder; and (c) to each Corporate Credit Party’s knowledge all Account Debtors have the capacity to contract. As of the date of each Borrowing Base Certificate delivered to Lender, each Account listed thereon as an Eligible Account shall be an Eligible Account and all Inventory listed thereon as Eligible Inventory shall be Eligible Inventory. Each Borrower shall notify Lender promptly and in any event within two (2) Business Days after obtaining knowledge thereof (i) of any event or circumstance that to any Borrower’s knowledge would cause Lender to consider any then existing Account or Inventory as no longer constituting an Eligible Account or Eligible Inventory, as the case may be; (ii) of any material delay in any Borrower’s performance of any of its obligations to any Account Debtor; (iii) of any assertion by an Account Debtor of any material claims, offsets or counterclaims; (iv) of any allowances, credits and/or monies granted by any Borrower to any Account Debtor; (v) of all material adverse information relating to the financial condition of an Account Debtor; (vi) of any material return of goods; and (vii) of any loss, damage or destruction of any of the Collateral.

 

7.19         Conduct of Business. Each Corporate Credit Party (a) shall conduct its business substantially as now conducted or as otherwise permitted hereunder, and (b) shall at all times maintain, preserve and protect all of the Collateral and each Corporate Credit Party’s other property, used or useful in the conduct of its business and keep the same in good repair, working order and condition and make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices.

 

7.20         Further Assurances. At any time and from time to time, upon the written request of Lender and at the sole expense of Credit Parties, each Credit Party shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Lender may reasonably deem desirable (a) to obtain the full benefits of this Agreement and the other Credit Documents, (b) to protect, preserve and maintain Lender’s rights in any Collateral, or (c) to enable Lender to exercise all or any of the rights and powers herein granted.

 

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VIII.       FINANCIAL REPORTS; FINANCIAL COVENANTS

 

8.1           Reports and Notices. From the Closing Date until the Termination Date, each Borrower shall deliver to Lender:

 

(a)          within fifteen (15) days following the end of each Fiscal Month, a Monthly Statement Report in the form of Exhibit B as of the last day of the previous Fiscal Month;

 

(b)          within fifteen (15) days following the end of each Fiscal Month, the Financial Statements for such Fiscal Month, which shall provide comparisons to budget and actual results for the corresponding period during the prior Fiscal Year, both on a monthly and year-to-date basis, and accompanied by a certification in the form of Exhibit D by the Chief Executive Officer or Chief Financial Officer of Borrowing Representative that such Financial Statements are complete and correct, that there was no Default (or specifying those Defaults of which he or she was aware), and showing in reasonable detail the calculations used in determining compliance with the financial covenants hereunder;

 

(c)          within ninety (90) days following the close of each Fiscal Year, the Financial Statements for such Fiscal Year reviewed [without variation from GAAP] by an independent certified accounting firm acceptable to Lender, which shall provide comparisons to the prior Fiscal Year, and shall be accompanied by (i) a statement in reasonable detail showing the calculations used in determining compliance with the financial covenants hereunder, (ii) a report from Borrowers’ accountants to the effect that in connection with their audit examination nothing has come to their attention to cause them to believe that a Default has occurred or specifying those Defaults of which they are aware, and (iii) any management letter that may be issued;

 

(d)          at least thirty (30) days before the beginning of each Fiscal Year of each Borrower, the Projections, each in reasonable detail, representing such Borrower’s good faith Projections and certified by such Borrower’s President or Chief Financial Officer as being the most accurate Projections available and identical to the Projections used by such Borrower for internal planning purposes, together with such supporting schedules and information as Lender may in its discretion require;

 

(e)          together with each request for a Loan (but in no event later than the third day of each month) and at such intervals as Lender may request a Borrowing Base Certificate as of the last day of the previous Borrowing Base Certificate detailing ineligible Accounts and Inventory of adjustment to the Formula Amount, certified as true and correct by the President or Chief Financial Officer of each Borrower;

 

(f)          together with each request for a Loan (but in no event later than the third day of each month) and at such other intervals as Lender may require: (i) copies of all entries to the sales journal and the cash receipt journal; (ii) copies of all credit memos; and (iii) copies of all invoices in excess of five thousand dollars ($5,000), together with proof of delivery, in each case as and for the immediately preceding week;

 

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(g)          promptly following Lender’s request, receivable schedules, copies of invoices to Account Debtors, shipping documents, delivery receipts and such other material, reports, records or information as Lender may request;

 

(h)          promptly upon their distribution, copies of all financial statements, reports and proxy statements which any Borrower shall have sent to its stockholders, promptly after the sending or filing thereof, copies of all regular and periodic reports which any Borrower shall file with the Securities and Exchange Commission or any national securities exchange; and

 

(i)          each Borrower will cause each Guarantor to comply with the financial reporting requirements set forth in their respective Guaranties.

 

8.2           Financial Covenants. No Borrower shall breach any of the financial covenants set forth in Schedule III.

 

8.3           Other Reports and Information. Each Credit Party shall advise Lender promptly, in reasonable detail, of: (a) any Lien, other than Permitted Liens, attaching to or asserted against any of the Collateral or any occurrence causing a material loss or decline in value of any Collateral and the estimated (or actual, if available) amount of such loss or decline; (b) any material change in the composition of the Collateral; and (c) the occurrence of any Default, Event of Default or other event which has had or could reasonably be expected to have a Material Adverse Effect. Each Corporate Credit Party shall, upon request of Lender, furnish to Lender such other reports and information in connection with the affairs, business, financial condition, operations, prospects or management of such Corporate Credit Party or the Collateral as Lender may request, all in reasonable detail. If any internally prepared financial information, including that required under Section 8.1 is unsatisfactory in any manner to Lender, Lender may request that the Borrower’s independent certified accountants review the same.

 

8.4           Good Standing Certificates. Together with the delivery of the Financial Statements referred to in Section 8.1(c), each Corporate Credit Party shall provide to Lender a certificate of good standing from its state of incorporation or organization.

 

IX.         NEGATIVE COVENANTS

 

Each Corporate Credit Party covenants and agrees that, without Lender’s prior written consent, from the Closing Date until the Termination Date, such Credit Party shall not, directly or indirectly, by operation of law or otherwise:

 

(a)          form any Subsidiary or merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with or make any investment in or, except as provided in clause 9(c) below, loan or advance to, any Person;

 

(b)          cancel any debt owing to it or create, incur, assume or permit to exist any Indebtedness, except: (i) the Obligations, (ii) Indebtedness existing as of the Closing Date set forth on Disclosure Schedule 9(b), (iii) deferred taxes, (iv) by endorsement of instruments or items of payment for deposit to the general account of Borrower, (v) for Guaranteed Indebtedness incurred for the benefit of a Borrower if the primary obligation is permitted by this Agreement; and (vi) additional Indebtedness (including Purchase Money Indebtedness) incurred after the Closing Date in an aggregate outstanding amount for Credit Parties not exceeding the Minimum Actionable Amount;

 

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(c)          enter into any lending, borrowing or other commercial transaction with any of its employees, directors or Affiliates (including upstreaming and downstreaming of cash and intercompany loan and advances) other than loans or advances to employees in the ordinary course of business in an aggregate outstanding amount not exceeding the Minimum Actionable Amount;

 

(d)          make any changes in any of its business objectives, purposes, or operations which could reasonably be expected to adversely affect repayment of the Obligations or could reasonably be expected to have a Material Adverse Effect or engage in any business other than that presently engaged in or proposed to be engaged in the Projections delivered to Lender on the Closing Date or amend its charter or by-laws or other organizational documents;

 

(e)          create or permit any Lien on any of its properties or assets, except for Permitted Liens;

 

(f)          sell, transfer, issue, convey, assign or otherwise dispose of any of its assets or properties, including its Accounts or any shares of its Stock or engage in any sale-leaseback, synthetic lease or similar transaction (provided, that the foregoing shall not prohibit the sale of Inventory or obsolete or unnecessary Equipment in the ordinary course of its business);

 

(g)          change its name, state of incorporation or organization, chief executive office, corporate offices, warehouses or other Collateral locations, or location of its records concerning the Collateral, or acquire, lease or use any real estate after the Closing Date without such Credit Party, in each instance, giving thirty (30) days prior written notice thereof to Lender and taking all actions deemed necessary or appropriate by Lender to continuously protect and perfect Lender’s Liens upon the Collateral or store or hold any assets of another Person;

 

(h)          establish any depository or other bank account of any kind with any financial institution (other than the accounts set forth on Disclosure Schedule 7.17) without Lender’s prior written consent and then only after such Credit Party has implemented agreements with such bank or other institution and Lender acceptable to Lender; or

 

(i)          make or permit any Restricted Payment other than (i) interest and principal, when due without acceleration or modification of the amortization as in effect on the Closing Date, under Indebtedness (not including Subordinated Debt, payments of which shall be permitted only in accordance with the terms of the relevant Subordination Agreement made in favor of Lender) described in Disclosure Schedule (9(b)) or otherwise permitted under Article X(b)(vi) and (ii) so long as (x) the tax status of such Credit Party is a pass thru or disregarded entity within the meaning of the Internal Revenue Code of 1986, as amended, (y) no Default or Event of Default shall have occurred and be continuing and (z) after first providing such supporting documentation as Lender may request (including the personal state and federal tax returns of each Stockholder), such Credit Party may pay Pass Thru Distributions not exceeding Pass Thru Tax Liabilities. Payments to Stockholders shall be made so as to be available when the tax is due, including in respect of estimated tax payments.

 

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(j)          Notwithstanding the above, Lender recognizes that Borrower’s Obligations will increase as a result of Borrower requesting Revolving Credit Advances the proceeds of which will be used to purchase inventory and materials in the normal course of business and to service normal operating costs.

 

X.           SECURITY INTEREST

 

10.1         Grant of Security Interest.

 

(a)          As collateral security for the prompt and complete payment and performance of all of the Obligations, each Corporate Credit Party executing this Agreement hereby grants to the Lender a security interest in and Lien upon all of its property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title, or interest, including all of the following property in which it now has or at any time in the future may acquire any right, title or interest: all Accounts; all Deposit Accounts and all funds on deposit therein; all cash and cash equivalents; all commodity contracts; all investments, Stock and Investment Property; all Inventory; all Equipment; all Goods; all Chattel Paper, all Documents; all Instruments; all Books and Records; all General Intangibles; all Supporting Obligations; all Letter-of-Credit Rights; and to the extent not otherwise included, all Proceeds and products of all and any of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing, but excluding in all events Hazardous Waste (all of the foregoing, together with any other collateral pledged to the Lender pursuant to any other Credit Document, collectively, the “Collateral”).

 

(b)          Each Corporate Credit Party executing this Agreement and Lender agree that this Agreement creates, and is intended to create, valid and continuing Liens upon the Collateral in favor of Lender. Each such Credit Party represents, warrants and promises to Lender that: (i) such Corporate Credit Party is the sole owner of each item of the Collateral upon which it purports to grant a Lien pursuant to the Credit Documents, and has good and marketable title thereto free and clear of any and all Liens or claims of others, other than Permitted Liens; (ii) the security interests granted pursuant to this Agreement will constitute valid perfected security interests in all of the Collateral in favor of Lender as security for the prompt and complete payment and performance of the Obligations, enforceable in accordance with the terms hereof against any and all creditors of and purchasers from such Corporate Credit Party (other than purchasers of Inventory in the ordinary course of business) and such security interests are prior to all other Liens on the Collateral in existence on the date hereof except for Permitted Liens which have priority by operation of law; and (iii) no effective security agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is or will be on file or of record in any public office, except those relating to Permitted Liens. Each Corporate Credit Party executing this Agreement promises to defend the right, title and interest of Lender in and to the Collateral against the claims and demands of all Persons whomsoever, and each Corporate Credit Party shall take such actions, including (x) the prompt delivery of all negotiable Documents, original Instruments, Chattel Paper and certificated Stock owned by such Corporate Credit Party to Lender, (y) notification of Lender’s interest in Collateral at Lender’s request, and (z) the institution of litigation against third parties as shall be prudent in order to protect and preserve such Credit Party’s and Lender’s respective and several interests in the Collateral. Each Corporate Credit Party executing this Agreement shall mark its Books and Records pertaining to the Collateral to evidence the Credit Documents and the Liens granted under the Credit Documents. All Chattel Paper shall be marked with the following legend: “This writing and the obligations evidenced or secured hereby are subject to the security interest of Gerber Finance Inc.”

 

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(c)          Each Corporate Credit Party executing this Agreement shall obtain or use its best efforts to obtain waivers or subordinations of Liens from landlords and mortgagees, and each Corporate Credit Party shall in all instances obtain signed acknowledgments of Lender’s Liens from bailees having possession of such Corporate Credit Party’s Goods that they hold for the benefit of Lender.

 

(d)          Each Corporate Credit Party executing this Agreement shall obtain authenticated control letters from each issuer of uncertificated securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or for such Credit Party.

 

(e)          Each Corporate Credit Party executing this Agreement shall establish and maintain the cash management system described in Schedule IV. All payments in respect of the Collateral, shall be made to or deposited in the blocked account or lockbox accounts described in Schedule IV in accordance with the terms thereof.

 

(f)          Each Corporate Credit Party executing this Agreement shall promptly, and in any event within two (2) Business Days after becoming a beneficiary under a letter of credit, notify Lender thereof and enter into a tri-party agreement with Lender and the issuer and/or confirmation bank with respect to Letter-of-Credit Rights assigning such Letter-of-Credit Rights to Lender and directing all payments thereunder to Lender, all in form and substance reasonably satisfactory to Lender.

 

(g)          Each Corporate Credit Party executing this Agreement shall take all steps necessary to grant Lender control of all electronic chattel paper in accordance with the UCC and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act.

 

(h)          Each Corporate Credit Party executing this Agreement hereby irrevocably authorizes Lender at any time and from time to time to file in any filing office in any Uniform Commercial UCC jurisdiction any initial financing statements and amendments thereto that (i) indicate the Collateral (x) as all assets of such Corporate Credit Party or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC or such jurisdiction, or (y) as being of an equal or lesser scope or with greater detail, and (ii) contain any other information required by Part 5 of Article 9 of the UCC or the filing office for acceptance of any financing statement or amendment, including whether each Corporate Credit Party is an organization, the type of organization and any organization identification number issued to each Corporate Credit Party, and in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. Each Corporate Credit Party agrees to furnish any such information to Lender promptly upon request. Each Corporate Credit Party also ratifies its authorization for Lender to have filed any initial financing statements or amendments thereto if filed prior to the date hereof.

 

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(i)          Each Corporate Credit Party shall promptly, and in any event within two (2) Business Days after the same is acquired by it, notify Lender of any commercial tort claim (as defined in the UCC) acquired by it and unless otherwise consented by Lender, each Corporate Credit Party shall enter into a supplement to this Agreement, granting to Lender a Lien in such commercial tort claim.

 

(j)          It is the intent of each Corporate Credit Party and Lender that none of the Collateral is or shall be regarded as Fixtures and each Corporate Credit Party represents and warrants that it has not made and is not bound by any lease or other agreement that is inconsistent with such intent. Nevertheless, if the Collateral or any part thereof is or is to become attached or affixed to any real estate, each Corporate Credit Party will, upon request, furnish Lender with a disclaimer or subordination in form satisfactory to Lender of their interests in the Collateral from all Persons having an interest in the real estate to which the Collateral is attached or affixed, together with the names and addresses of the record owners of, and all other persons having interest in, and a general description of, such real estate.

 

10.2         Lender’s Rights.

 

(a)          Lender may, (i) at any time in Lender’s own name or in the name of each Corporate Credit Party, communicate with Account Debtors, parties to Contracts, and obligors in respect of Instruments, Chattel Paper or other Collateral to verify to Lender’s satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper or other Collateral, and (ii) at any time and without prior notice to any Corporate Credit Party notify Account Debtors, parties to Contracts, and obligors in respect of Chattel Paper, Instruments, or other Collateral that the Collateral has been assigned to Lender and that payments shall be made directly to Lender. Upon the request of Lender, each Corporate Credit Party shall so notify such Account Debtors, parties to Contracts, and obligors in respect of Instruments, Chattel Paper or other Collateral. Each Corporate Credit Party hereby constitutes Lender or Lender’s designee such Corporate Credit Party’s attorney with power to endorse such Corporate Credit Party’s name upon any notes, acceptance drafts, money orders or other evidences of payment or Collateral.

 

(b)          Each Corporate Credit Party shall remain liable under each Contract, Instrument and License to observe and perform all the conditions and obligations to be observed and performed by it thereunder, and Lender shall have no obligation or liability whatsoever to any Person under any Contract, Instrument or License (between any Borrower and any Person other than Lender) by reason of or arising out of the execution, delivery or performance of this Agreement, and Lender shall not be required or obligated in any manner (i) to perform or fulfill any of the obligations of Borrower, (ii) to make any payment or inquiry, or (iii) to take any action of any kind to collect, compromise or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times under or pursuant to any Contract, Instrument or License.

 

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(c)          Each Credit Party shall, with respect to each owned, leased, or controlled property (including public warehouses), during normal business hours and upon reasonable advance notice (unless a Default or Event of Default shall have occurred and be continuing, in which event no notice shall be required and Lender shall have access at any and all times): (i) provide access to such property to Lender and any of its officers, employees and agents, as frequently as Lender determines to be appropriate; (ii) permit Lender and any of its officers, employees and agents to inspect, audit and make extracts and copies (or take originals if reasonably necessary) from all of such Credit Party’s Books and Records; and (iii) permit Lender to inspect, review, evaluate and make physical verifications and appraisals of the Inventory and other Collateral in any manner and through any medium that Lender considers advisable, and each Credit Party agrees to render to Lender, at Borrowers’ cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto.

 

(d)          After the occurrence and during the continuance of a Default or Event of Default, each Corporate Credit Party at its own expense, shall cause the certified public accountant then engaged by any Borrower to prepare and deliver to Lender at any time and from time to time, promptly upon Lender’s request, the following reports: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) test verifications of such Accounts as Lender may request. Each Corporate Credit Party at its own expense, shall cause its certified independent public accountants to deliver to Lender the results of any physical verifications of all or any portion of the Inventory made or observed by such accountants when and if such verification is conducted. Lender shall be permitted to observe and consult with such Corporate Credit Party’s accountants in the performance of these tasks.

 

10.3         Lender’s Appointment as Attorney-in-Fact. On the Closing Date, each Corporate Credit Party shall execute and deliver a Power of Attorney in the form attached as Exhibit E. The power of attorney granted pursuant to the Power of Attorney and all powers granted under any Credit Document are powers coupled with an interest and shall be irrevocable until the Termination Date. The powers conferred on Lender under the Power of Attorney are solely to protect Lender’s interests in the Collateral and shall not impose any duty upon it to exercise any such powers. Lender agrees, except for the powers granted in clause (h) of the Power of Attorney, not to exercise any power or authority granted under the Power of Attorney unless an Event of Default has occurred and is continuing. Each Corporate Credit Party authorizes Lender to file any financing or continuation statement without the signature of Borrowers to the extent permitted by applicable law. NONE OF LENDER OR ITS AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

 

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10.4         Grant of License to Use Intellectual Property Collateral. Each Corporate Credit Party hereby grants to Lender an irrevocable, non-exclusive license (exercisable upon the occurrence and during the continuance of an Event of Default) without payment of royalty or other compensation to any Corporate Credit Party to use, transfer, license or sublicense any Intellectual Property now owned, licensed to, or hereafter acquired by any Corporate Credit Party, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof, and represents, promises and agrees that any such license or sublicense is not and will not be in conflict with the contractual or commercial rights of any third Person; provided, that such license will terminate on the Termination Date.

 

10.5         Terminations; Amendments Not Authorized. Each Corporate Credit Party executing this Agreement acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the prior written consent of Lender and agrees that it will not do so without the prior written consent of Lender, subject to Borrower’s rights under Section 9-509(d)(2) of the UCC.

 

10.6         Inspections. At all times during normal business hours and absent the occurrence of a Default or an Event of Default upon reasonable notice to Borrowing Representative, Lender shall have the right to (a) have access to, visit, inspect, review, evaluate and make physical verification and appraisals of each Borrower’s properties and the Collateral, (b) inspect, examine and copy (or take originals if necessary) and make extracts from such Borrower’s Books and Records, including management letters prepared by independent accountants, and (c) discuss with each Borrower’s principal officers, and independent accountants, each Borrower’s business, assets, liabilities, financial condition, results of operations and business prospects. Each Borrower will deliver to Lender any instrument necessary for Lender to obtain records from any service bureau maintaining records for such Borrower.

 

XI.         TERM

 

11.1         Term of Agreement. Any obligation of Lender to make Loans and extend their financial accommodations under this Agreement or any Credit Document shall continue in full force and effect until the expiration of the Term. The termination of the Agreement shall not affect any of Lender’s rights hereunder or any Credit Document and the provisions hereof and thereof shall continue to be fully operative until all transactions entered into, rights or interests created and the Obligations have been disposed of, concluded or liquidated. The Maturity Date shall be automatically extended for successive periods of one (1) year each unless (a) Borrowing Representative shall have provided Lender with a written notice of termination, at least sixty (60) days prior to the expiration of the Maturity Date or any renewal of the Maturity Date or (b) Lender provides written notice of termination to Borrowing Representative at least sixty (60) days prior to the expiration of the Maturity Date or any renewal of the Maturity Date. Notwithstanding the foregoing, Lender shall release its security interests at any time after thirty (30) days notice upon payment to it of all Obligations if each Credit Party shall have (i) provided Lender with an executed release of any and all claims which Credit Parties may have or thereafter have under this Agreement and/or any Credit Document and (ii) paid to Lender an early payment fee in an amount equal to (A) the monthly interest on the Minimum Average Monthly Loan Amount calculated based on the interest rate in effect on the date of such payment multiplied by (B) the difference between (I) the number of full months from the Closing Date until the Maturity Date and (II) the number of full months which have elapsed from the Closing Date until the payment of the fee hereunder. Such early payment fee shall also be due and payable to Lender upon termination of this Agreement by Lender after the occurrence of an Event of Default.

 

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11.2         Termination of Lien. The Liens and rights granted to Lender hereunder and any Credit Documents and the financing statements filed in connection herewith or therewith shall continue in full force and effect, notwithstanding the termination of this Agreement or the fact that Borrowers’ account may from time to time be temporarily in a zero or credit position, until (a) all of the Obligations have been paid or performed in full after the termination of this Agreement or each Credit Party has furnished Lender with an indemnification satisfactory to Lender with respect thereto and (b) each Credit Party has an executed release of any and all claims which such Credit Party may have or thereafter have under this Agreement or any other Credit Document. Accordingly, each Credit Party waives any rights which it may have under the UCC to demand the filing of termination statements with respect to the Collateral, and Lender shall not be required to send such termination statements to any Credit Party, or to file them with any filing office, unless and until this Agreement and the Credit Documents shall have been terminated in accordance with their terms and all Obligations paid in full in immediately available funds.

 

XII.        EVENTS OF DEFAULT

 

12.1         Events of Default. If any one or more of the following events (each, an “Event of Default”) shall occur and be continuing:

 

(a)          any Borrower shall fail to pay the principal of or interest on any Loan or any fees or other Obligations when and as the same shall become due and payable (whether at maturity, by acceleration or otherwise); or

 

(b)          any representation or warranty made or deemed made in or in connection with this Agreement or any other Credit Document or as an inducement to enter into this Agreement or any other Credit Document or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument or agreement furnished in connection with or pursuant to this Agreement or any other Credit Document shall prove to have been false or misleading in any material respect when made, deemed to be made or furnished; or

 

(c)          (c) (i) Borrower or any other Credit Party shall fail or neglect to perform, keep or observe any of the covenants, promises, agreements, requirements, conditions or other terms or provisions contained in Article II, Sections 7.1, 7.3, 7.16, 7.17, 7.18, 7.19, 8.2 and Article IX of this Agreement; or (ii) Borrower or any other Credit Party shall fail or neglect to perform, keep or observe any of the other covenants, promises, agreements, requirements, conditions or other terms or provisions contained in this Agreement (other than those set forth in the Sections referred to in clause (i) immediately above) or any of the other Loan Documents, regardless of whether such breach involves a covenant, promise, agreement, condition, requirement, term or provision with respect to a Credit Party that has not signed this Agreement, and such breach is not remediable or, if remediable, continues unremedied for a period of ten (10) Business Days after the earlier to occur of (x) the date on which such breach is known or reasonably should have become known to any officer of any Borrower or such Credit Party and (y) the date on which Lender shall have notified any Borrower or such other Credit Party of such breach; or this Agreement or any other Credit Document shall not be for any reason, or shall be asserted by any Credit Party not to be, in full force and effect in all material respects in accordance with its terms or the Lien granted or intended to be granted to Lender pursuant to this Agreement or any other Credit Document shall cease to be a valid and perfected Lien having the first priority (or a lesser priority if expressly permitted in this Agreement or another Credit Document); or

 

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(d)          any judgment shall be rendered against any Credit Party or there shall be any attachment or execution against any of the assets or properties of any Credit Party, and such judgment, attachment or execution remains unpaid, unstayed or undismissed for a period of fourteen (14) days from the date of such judgment; or

 

(e)          any Credit Party shall be dissolved or shall generally not pay, or shall be generally unable to pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted or a petition shall be filed by or against any Credit Party seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property; or any Credit Party shall take any action to authorize any of the actions set forth above in this clause (f); or

 

(f)          any Credit Party shall (i) fail to pay any principal or interest, regardless of amount, due in respect of Indebtedness when and as the same shall become due and payable or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreements or instruments evidencing or governing any Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such indebtedness or a trustee on its or their behalf to cause, such indebtedness to become due prior to its stated maturity; or

 

(g)          Brian Kelly shall no longer be employed by Borrower as General Manager.

 

(h)          the occurrence of a Change of Control; or

 

(i)          there shall be commenced against any Credit Party any Litigation seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which remains unstayed or undismissed for thirty (30) consecutive days; or any Credit Party shall have concealed, removed or permitted to be concealed or removed, any part of its property with intent to hinder, delay or defraud any of its creditors or made or suffered a transfer of any of its property or the incurring of an obligation which may be fraudulent under any bankruptcy, fraudulent transfer or other similar law; or

 

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(j)          any other event shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect; or

 

(k)          an ERISA Event shall have occurred that, in the opinion of the Lender, when taken together with all other ERISA Events that have occurred and are then continuing, could reasonably be expected to result in liability of any Credit Party in an aggregate amount exceeding the Minimum Actionable Amount; the indictment or threatened indictment of Any Credit Party, any officer of Any Credit Party or any Guarantor under any criminal statute, or commencement or threatened commencement of criminal or civil proceeding against Any Credit Party, any officer of Any Credit Party or any Guarantor pursuant to which statute or proceeding penalties or remedies sought or available include forfeiture of any of the property of Any Credit Party; or

 

(l)          any Credit Party shall take or participate in any action which would be prohibited under the provisions of any Subordination Agreement or Intercreditor Agreement or make any payment on the Subordinated Debt that any Person was not entitled to receive under the provisions of the applicable Subordination Agreement or Intercreditor Agreement;

 

then, and in any such event and at any time thereafter, if such or any other Event of Default shall then be continuing, Lender in its sole discretion may declare any or all of the Obligations to be due and payable, and the same shall immediately become due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; provided, however, that if there shall occur an Event of Default under paragraph (f) above, then any and all of the Obligations shall be immediately due and payable without any necessary action or notice by Lender.

 

12.2         Lender Remedies.

 

(a)          In addition to the rights and remedies set forth in Section 12.1, if any Event of Default shall have occurred and be continuing, Lender may, without notice, take any one or more of the following actions: (i) require that all Letter of Credit Obligations be fully cash collateralized pursuant to Schedule I; or (ii) exercise any rights and remedies provided to Lender under the Credit Documents or at law or equity, including all remedies provided under the UCC.

 

(b)          Without limiting the generality of the foregoing, each Credit Party expressly agrees that upon the occurrence of any Event of Default, Lender may take any action necessary to collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, or appoint a third party to do so and may forthwith sell, lease, assign, give an option or options to purchase or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale, to the extent permitted by law, to purchase for the benefit of Lender the whole or any part of said Collateral so sold, free of any right of equity of redemption, which right each Credit Party hereby releases. Such sales may be adjourned or continued from time to time with or without notice. Lender shall have the right to conduct such sales on any Corporate Credit Party’s premises or elsewhere and shall have the right to use any Corporate Credit Party’s premises without rent or other charge for such sales or other action with respect to the Collateral for such time as Lender deems necessary or advisable.

 

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(c)          Upon the occurrence and during the continuance of an Event of Default and at Lender’s request, each Credit Party further agrees to assemble the Collateral and make it available to Lender at places which Lender shall reasonably select, whether at its premises or elsewhere. Until Lender is able to effect a sale, lease, or other disposition of the Collateral, Lender shall have the right to complete, assemble, use or operate the Collateral or any part thereof, to the extent that Lender deems appropriate, for the purpose of preserving such Collateral or its value or for any other purpose. Lender shall have no obligation to any Credit Party to maintain or preserve the rights of any Credit Party as against third parties with respect to any Collateral while such Collateral is in the possession of Lender. Lender may, if it so elects, seek the appointment of a receiver or keeper to take possession of any Collateral and to enforce any of Lender’s remedies with respect thereto without prior notice or hearing. To the maximum extent permitted by applicable law, each Credit Party waives all claims, damages, and demands against Lender, its Affiliates, agents, and the officers and employees of any of them arising out of the repossession, retention or sale of any Collateral except such as are determined in a final judgment by a court of competent jurisdiction to have arisen solely out of the gross negligence or willful misconduct of such Person. Each Credit Party agrees that ten (10) days prior notice by Lender to each Credit Party of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. Each Credit Party shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which Lender is entitled.

 

(d)          Lender’s rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Lender may have under any other Credit Document or at law or in equity. Recourse to the Collateral shall not be required. All provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited, to the extent necessary, so that they do not render this Agreement invalid or unenforceable, in whole or in part.

 

12.3         Waivers. Except as otherwise provided for in this Agreement and to the fullest extent permitted by applicable law, each Credit Party waives: (a) presentment, demand and protest, and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all Credit Documents, the Notes or any other notes, commercial paper, Accounts, Contracts, Documents, Instruments, Chattel Paper and guaranties at any time held by Lender on which any Credit Party may in any way be liable, and hereby ratifies and confirms whatever Lender may do in this regard; (b) all rights to notice and a hearing prior to Lender’s taking possession or control of, or to Lender’s replevy, attachment or levy upon, any Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies; and (c) the benefit of all valuation, appraisal and exemption laws. Each Credit Party acknowledges that it has been advised by counsel of its choices and decisions with respect to this Agreement, the other Credit Documents and the transactions evidenced hereby and thereby.

 

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12.4         Proceeds. The Proceeds of any sale, disposition or other realization upon any Collateral shall be applied by Lender upon receipt to the Obligations in such order as Lender may deem advisable in its sole discretion (including the cash collateralization of any Letter of Credit Obligations), and after the indefeasible payment and satisfaction in full in cash of all of the Obligations, and after the payment by Lender of any other amount required by any provision of law, including the UCC (but only after Lender has received what Lender considers reasonable proof of a subordinate party’s security interest), the surplus, if any, shall be paid to Borrowers or their representatives or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct.

 

XIII.       MISCELLANEOUS

 

13.1         No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of Lender, any right, remedy, power or privilege under this Agreement or any other Credit Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. No notice to or demand on any Credit Party in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

 

13.2         Amendments and Waivers. No amendment, modification or waiver of or with respect to any provision of this Agreement or any other Credit Document shall in any event be effective unless it shall be in writing and signed by Lender, and then such amendment, modification, waiver or consent shall be effective only in the specific instance and for the purpose for which given.

 

13.3         Expenses; Indemnity.

 

(a)          Each Credit Party agrees to, jointly and severally, pay or reimburse Lender for all costs and expenses (including, without limitation, the fees and expenses of all counsel, advisors, consultants and auditors) incurred by Lender in connection with: (i) the preparation, negotiation, execution, delivery, performance and enforcement of this Agreement and the other Credit Documents, any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated shall be consummated); (ii) the enforcement or protection of Lender’s rights in connection with this Agreement and the other Credit Documents or in connection with the Loans; (iii) any advice in connection with the administration of the Loans or the rights under this Agreement or the other Credit Documents; (iv) any litigation, dispute, suit, proceeding or action (whether instituted by or between any combination of Lender, any Credit Party or any other Person), and an appeal or review thereof, in any way relating to the Collateral, this Agreement, any other Credit Document, or any action taken or any other agreements to be executed or delivered in connection therewith, whether as a party, witness or otherwise; and (v) any effort (x) to monitor the Loans, (y) to evaluate, observe or assess any Borrower or any other Credit Party or the affairs of such Person, and (z) to verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the Collateral. In addition to the foregoing, each Credit Party agrees to pay Lender a fee of $1,000 for each amendment, modification, supplement or restatement of any Credit Document entered into by Lender and any Borrower. Each Corporate Credit Party further agrees, jointly and severally, to indemnify Lender from and agrees to hold it harmless against any documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Agreement or any of the other Credit Documents.

 

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(b)          Each Corporate Credit Party agrees to, jointly and severally, indemnify Lender, the LC Issuers, their correspondents and each of their respective directors, shareholders, officers, employees and agents (each, an “Indemnified Person”) against, and agrees to hold each Indemnified Person harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnified Person arising out of, in any way connected with or as a result of (i) the use of any of the proceeds of any Loan or the use of any Loan, (ii) the goods or transactions financed by the Loans, (iii) this Agreement, any other Credit Document or any other document contemplated hereby or thereby, the performance by the parties hereto or thereto of their respective obligations hereunder and thereunder or the consummation of the transactions contemplated hereby and thereby, or (iv) any claim, litigation, investigation or proceedings relating to any of the foregoing, whether or not any Indemnified Person Indemnity is a party thereto; provided, however, that such indemnity shall not, as to any Indemnified Person, apply to any such losses, claims, damages, liabilities or related expenses to the extent that they result from the gross negligence or willful misconduct of Lender.

 

(c)          The provisions of this Section 13.3 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement and the repayment of the Loans. All amounts due under this Section 13.3 shall be payable on written demand therefor.

 

13.4         Borrowing Agency Provisions. If and to the extent that at any time or from time to time there are multiple Borrowers, then.

 

(a)          Each Borrower acknowledges that, together with each other Borrower, it is part of an affiliated common enterprise in which any loans or other financial accommodations extended to any one Borrower will result in direct and substantial economic benefit to each other Borrower, and each Borrower will likewise benefit from the economies of scale associated with the Borrowers, as a group, applying for credit or other financial accommodations on a collective basis.

 

(b)          Each Borrower hereby irrevocably designates Borrowing Representative to be its attorney and agent and in such capacity to borrow, sign and endorse notes, and execute and deliver all instruments, documents, writings and further assurances now or hereafter required hereunder, on behalf of such Borrower or Borrowers, and hereby authorizes Lender to pay over or credit all loan proceeds hereunder in accordance with the request of Borrowing Representative.

 

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(c)          The handling of this credit facility as a co-borrowing facility with a Borrowing Representative in the manner set forth in this Agreement is solely as an accommodation to Borrowers and at their request. Lender shall not incur liability to Borrowers as a result thereof. To induce Lender to do so and in consideration thereof, each Borrower, jointly and severally, hereby indemnifies Lender and holds Lender harmless from and against any and all liabilities, expenses, losses, damages and claims of damage or injury asserted against Lender or any issuer by any Person arising from or incurred by reason of the handling of the financing arrangements of Borrowers as provided herein, reliance by Lender on any request or instruction from Borrowing Representative or any other action taken by Lender with respect to this Section except due to willful misconduct or gross negligence by the indemnified party.

 

(d)          All Obligations shall be joint and several, and each Borrower shall make payment upon the maturity of the Obligations by acceleration or otherwise, and such obligation and liability on the part of each Borrower shall in no way be affected by any extensions, renewals and forbearance granted by Lender to any Borrower, failure of Lender to give any Borrower notice of borrowing or any other notice, any failure of Lender to pursue or preserve its rights against any Borrower, the release by Lender of any Collateral now or thereafter acquired from any Borrower, and such agreement by each Borrower to pay upon any notice issued pursuant thereto is unconditional and unaffected by prior recourse by Lender to the other Borrowers or any Collateral for such Borrower’s Obligations or the lack thereof.

 

13.5         Guaranty. Each Corporate Credit Party hereby absolutely and unconditionally guarantees to Lender and its successors and assigns the full and prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of all Obligations owed or hereafter owing to Lender by each Corporate Credit Party. Each Corporate Credit Party agrees that its guaranty obligation hereunder is a continuing guaranty of payment and performance and not of collection, and that its obligations shall be absolute and unconditional, irrespective of, and unaffected by:

 

(a)          the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement, any other Credit Documents;

 

(b)          the absence of any action to enforce this Agreement (including this Section 13.5) or any other Credit Document or the waiver or consent by Lender with respect to any of the provisions hereof or thereof;

 

(c)          the existence, value or condition of, or failure to perfect its Lien against, any security for the Obligations or any action, or the absence of any action, by Lender in respect thereof (including the release of any such security);

 

(d)          the insolvency of any Credit Party; or

 

(e)          any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor,

 

it being agreed by each Credit Party that its obligations shall not be discharged until the payment and performance, in full, of the Obligations has occurred. Each Credit Party shall be regarded, and shall be in the same position, as principal debtor with respect to the Obligations guaranteed hereunder.

 

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13.6         Waivers. Each Corporate Credit Party expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Lender to marshal assets or to proceed in respect of the Obligations guaranteed hereunder against any other Corporate Credit Party, any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, such Credit Party. It is agreed among each Credit Party and Lender that the foregoing waivers are of the essence of the transactions contemplated by this Agreement and the other Credit Documents and that, but for the provisions of this Section 13.6 and such waivers, Lender would decline to enter into this Agreement.

 

13.7         Benefit of Guaranty. Each Credit Party agrees that the provisions of Section 13.5 are for the benefit of Lender and its successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any other Credit Party and Lender, the obligations of such other Credit Party under this Agreement or the other Credit Documents.

 

13.8         Subordination of Subrogation. Notwithstanding anything to the contrary in this Agreement or in any other Credit Documents, each Credit Party hereby expressly and irrevocably subordinates to payment of the Obligations any and all rights at law or in equity to subrogation, reimbursement, exoneration, contribution, indemnification or set off and any and all defenses available to a surety, guarantor or accommodation co-obligor until the Obligations are indefeasibly paid in full in cash. Each Credit Party acknowledges and agrees that this waiver is intended to benefit Lender and shall not limit or otherwise affect such Credit Party’s liability hereunder or the enforceability of Section 13.5.

 

13.9         Election of Remedies. If Lender may, under applicable law, proceed to realize its benefits under this Agreement or any other Credit Document giving Lender a Lien upon any Collateral, whether owned by any Borrower or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Lender may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under Section 13.5. If, in the exercise of any of its rights and remedies, Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Credit Party or any other Person, whether because of any applicable laws pertaining to “election of remedies” or the like, each Credit Party hereby consents to such action by Lender and waives any claim based upon such action, even if such action by Lender shall result in a full or partial loss of any rights of subrogation which such Credit Party might otherwise have had but for such action by Lender. Any election of remedies that results in the denial or impairment of the right of Lender to seek a deficiency judgment against any Credit Party shall not impair any other Credit Party’s obligation to pay the full amount of the Obligations. In the event Lender shall bid at any foreclosure or trustee’s sale or at any private sale permitted by law, this Agreement or any other Credit Document, Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Lender but may be credited against the Obligations. The amount of the successful bid at any such sale, whether Lender or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under Section 13.5 notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled but for such bidding at any such sale.

 

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13.10         Liability Cumulative. The liability of Credit Parties under Section 13.5 is in addition to and shall be cumulative with all liabilities of each Credit Party to Lender under this Agreement and the other Credit Documents or in respect of any Obligations or obligation of the other Credit Parties, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.

 

13.11         Waiver of Subrogation. Each Borrower expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution of any other claim which such Borrower may now or hereafter have against the other Borrowers or other Person directly or contingently liable for the Obligations hereunder, or against or with respect to the other Borrowers’ property (including, without limitation, any property which is Collateral for the Obligations), arising from the existence or performance of this Agreement, until termination of this Agreement and repayment in full of the Obligations.

 

13.12         Further Assurances. Each Credit Party will take, or cause to be taken, all such further actions and execute, or cause to be executed, all such further documents and instruments as Lender may at any time reasonably request or determine to be necessary or advisable to further carry out and consummate the transactions contemplated by this Agreement and the other Credit Documents.

 

13.13         Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of each Borrower and its successors and to the benefit of Lender and its successors and assigns. The rights and obligations of each Credit Party under this Agreement shall not be assigned or delegated without the prior written consent of Lender, and any purported assignment or delegation without such consent shall be null and void. Lender reserves the right at any time to create and sell participations in the Loans and the Credit Documents and to sell, transfer or assign any or all of its rights in the Loans and under the Credit Documents.

 

13.14         Descriptive Headings. The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

 

13.15         Rules of Construction. For purposes of this Agreement and the other Credit Documents, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural; (b) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; and (c) all references to any instruments or agreements, including references to any of the Credit Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof. The words “including”, “includes” and “include” shall be deemed to be followed by the words “without limitation” the word “or” is not exclusive; references to Persons include their respective successors and assigns (to the extent and only to the extent permitted by the Credit Documents) or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statues and related regulations shall include any amendments of the same and any successor statutes and regulations.

 

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13.16         Notices. Except as otherwise provided herein, whenever any notice, demand, request or other communication shall or may be given to or served upon any party by any other party, or whenever any party desires to give or serve upon any other party any communication with respect to this Agreement, each such communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three (3) days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 13.16, (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid or (d) when hand-delivered, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated in Schedule V or to such other address (or facsimile number) as may be substituted by notice given as herein provided. Failure or delay in delivering copies of any such communication to any Person (other than Borrowing Representative or Lender) designated in Schedule V to receive copies shall in no way adversely affect the effectiveness of communication.

 

13.17         Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

13.18         Entire Agreement; Counterparts. This Agreement and the other Credit Documents represent the agreement of Credit Parties and Lender with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by any Borrower or Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Credit Documents. Nothing in this Agreement or in the other Credit Documents, express or implied, is intended to confer upon any party, other than the parties hereto and thereto, any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Credit Documents. This Agreement may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. Any signature delivered by a party via facsimile or electronic transmission shall be deemed to be an original signature hereto.

 

13.19         SUBMISSION TO JURISDICTION. EACH CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY: (a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING, DIRECTLY OR INDIRECTLY, RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; (b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SCHEDULE V TO THIS AGREEMENT OR AT SUCH OTHER ADDRESS OF WHICH LENDER SHALL HAVE BEEN NOTIFIED PURSUANT TO SECTION 13.16; AND (d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

 

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13.20         WAIVER OF TRIAL BY JURY, CERTAIN DAMAGES AND SETOFFS. IN ANY LEGAL ACTION OR PROCEEDING, DIRECTLY OR INDIRECTLY, RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT DELIVERED PURSUANT HERETO OR THERETO, (A) EACH OF EACH CREDIT PARTY AND LENDER HEREBY, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, IRREVOCABLY AND UNCONDITIONALLY WAIVES THE RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY SUCH LEGAL ACTION OR PROCEEDING, (B) EACH OF EACH CREDIT PARTY AND LENDER HEREBY, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, ACTUAL DAMAGES AND (C) EACH CREDIT PARTY HEREBY, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, IRREVOCABLY AND UNCONDITIONALLY WAIVES THE RIGHT TO INTERPOSE ANY NON-COMPULSORY SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY SUCH LEGAL ACTION OR PROCEEDING. EACH BORROWER AGREES THAT THIS SECTION 13.20 IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT LENDER WOULD NOT EXTEND TO ANY BORROWER ANY LOANS HEREUNDER IF THIS SECTION 13.20 WERE NOT PART OF THIS AGREEMENT.

 

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13.21         GOVERNING LAW. THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF

 

13.22         Reinstatement. This Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time payment of all or any part of the Obligations is rescinded or must otherwise be returned or restored by Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Credit Party, or otherwise, all as though such payments had not been made.

 

IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written.

 

  MICROPHASE CORPORATION
     
  By:

/s/ Necdet Ergul

    Name: Necdet Ergul
    Title: President
     
  EDSON REALTY, INC.
     
  By: /s/ Ronald A. Durando
    Name: Ronald A. Durando
    Title: President
     
  GERBER FINANCE INC.
     
  By: /s/ Jennifer Pulma
    Name: Jennifer Pulma
    Title: Vice President

 

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SCHEDULE I

 

GENERAL TERMS FOR LETTERS OF CREDIT

 

1.          Lender may, subject to the terms and conditions hereinafter set forth, incur Letter of Credit Obligations in respect of the issuance of Letters of Credit issued on terms acceptable to Lender and supporting obligations of a Borrower incurred in the ordinary course of such Borrower’s business, in order to support the payment of such Borrower’s inventory purchase obligations, insurance premiums, or utility or other operating expenses and obligations, as Borrowing Representative, on behalf of such Borrower, shall request by written notice to Lender that is received by Lender not less than five (5) Business Days prior to the requested date of issuance of any such Letter of Credit; provided, that: (a) that the aggregate amount of all Letter of Credit Obligations at any one time outstanding (whether or not then due and payable) shall not exceed $500,000 and (b) no Letter of Credit shall have an expiry date which is later than the Termination Date or one year following the date of issuance thereof. The applicable Borrower will enter into an application and agreement for such Letter of Credit with the LC Issuer selected by Lender. The LC Issuer shall be determined by Lender in its sole discretion.

 

2.          The notice to be provided to Lender requesting that Lender incur Letter of Credit Obligations shall be in the form of a Letter of Credit application in the form customarily employed by the LC Issuer, together with a written request by a Borrower and the LC Issuer that Lender approve such Borrower’s application. Upon receipt of such notice Lender shall establish a reserve against the Borrowing Base in the amount of 100% of the face amount of the Letter of Credit Obligation to be incurred. Approval by Lender in the written form agreed upon between Lender and the LC Issuer (a) will authorize the LC Issuer to issue the requested Letter of Credit and (b) will conclusively establish the existence of the Letter of Credit Obligation as of the date of such approval.

 

3.          Each Letter of Credit shall be subject to the Uniform Commercial Customs and, to the extent not inconsistent therewith, the laws of the State of New York.

 

4.          Each payment by the LC Issuer or Lender pursuant to a Letter of Credit shall be deemed to be a Revolving Credit Advance on the date of such payment in a principal amount equal to the amount so paid. Each Borrower shall be obligated to reimburse Lender for each payment made under or in respect of any Letter of Credit (including, the payment of principal, fees and interest on any Revolving Credit Advance made pursuant to the immediately preceding sentence and any payment made by Lender in reimbursement of any payment made under a Letter of Credit by an LC Issuer together with such other amounts that become due pursuant to this Agreement or other instrument.

 

5.          The obligations of each Borrower under this Schedule shall be absolute, unconditional and irrevocable under any and all circumstances and shall be paid strictly in accordance with this Agreement irrespective of: (a) any lack of validity or enforceability of any Letter of Credit or of any demand, application, reimbursement agreement or other agreement or instrument relating thereto (collectively, the “Related Documents”); (b) the existence of any claim, setoff, defense or other right that any Borrower or any other Person may at any time have against the beneficiary under any Letter of Credit, Lender, the LC Issuer, any of their correspondents or any other Person; (c) any improper or erroneous or mistaken payment by any LC Issuer or Lender under any Letter of Credit; (d) any supplement or waiver of or any consent to depart from the terms of any Letter of Credit or Related Document; and (e) any other circumstance or event whatsoever, whether or not similar to any of the foregoing.

 

 
 

 

6.          In the event Lender or the LC Issuer receives some but not all of the documents against which a drawing under a Letter of Credit may be made and, at a Borrower’s request, Lender or the LC Issuer delivers such documents to a Borrower, against trust receipt or otherwise, prior to the presentation of the related draft, each Borrower agrees to pay to Lender on demand the amount of any claim made against Lender or the LC Issuer by reason thereof and authorizes Lender and the LC Issuer to pay or accept (as the case may be) such draft when it is presented regardless of whether such draft or any document which may accompany it complies with the terms of the relevant Letter of Credit.

 

7.          Except insofar as instructions may be given to Lender by each Borrower in writing expressly to the contrary with regard to, and prior to the opening of, any Letter of Credit, each Borrower agrees that Lender, the LC Issuer and any of their correspondents may: (a) receive and accept as “bills of lading” under any Letter of Credit any documents issued or purporting to be issued by or on behalf of any carrier which acknowledges receipt of goods for transportation or otherwise, whatever the specific provisions of such documents, for which purpose the “on board” date of each such document shall be deemed the date of shipment of the goods mentioned therein; (b) accept as documents of insurance either insurance policies or insurance certificates; (c) receive and accept as sufficient and controlling the description of the property contained in the invoice, and receive and accept bills of lading, insurance and other documents, however variant in description from that contained in the invoice; (d) receive and accept bills of lading containing stamped, written or typewritten provisions thereon, whether or not signed or initialed, and assume conclusively that the same were placed with authority on any bill of lading at the time of its signing and issuance by the steamship company or carrier or any agent thereof; (e) honor drafts, instruments or demands related to part shipments under any Letter of Credit; (f) accept or pay any draft dated on or before the expiration of any time limit expressed in any Letter of Credit, regardless of when drawn and whether or when negotiated, provided that the other required documents are dated on or prior to the expiration date of such Letter of Credit; and (g) accept documents of any character which comply with the provisions, definitions, interpretations and practices contained in the Uniform Customs or which comply with the laws or regulations in force in, or the customs or usages of, the place of shipment or negotiation.

 

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8.          Neither Lender nor any LC Issuer nor any of their correspondents shall be responsible for: (a) the use which may be made of any Letter of Credit, or any acts or omissions in connection therewith; (b) the existence, character, quality, quantity, condition, packing, value or delivery of the goods purporting to be represented by documents; (c) any difference in character, quality, quantity, condition or value of the goods from that expressed in the documents; (d) the validity, sufficiency or genuineness of documents, or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (e) the time, place, manner or order in which shipment is made; (f) any partial or incomplete shipment or failure or omission to ship any or all of the goods referred to in any Letter of Credit; (g) the character, adequacy, validity or genuineness of any insurance, the solvency or responsibility of any insurer or any other risk connected with insurance; (h) any deviation from instructions, delay, default or fraud by the shipper or anyone else in connection with goods or the shipping thereof; (i) the solvency, responsibility or relationship to the goods of any party issuing any documents in connection with the goods; (j) any delay in arrival or failure to arrive of either the goods or any of the documents relating thereto; (k) any delay in giving or failure to give notice of arrival or any other notice; (l) any breach of contract between the shippers or vendors and the consignees or buyers; (m) compliance with or circumstances resulting from any laws, customs and regulations which may be effective in countries of negotiation or payment of any Letter of Credit; (n) any failure of any draft, instrument or demand to bear any reference or adequate reference to the related Letter of Credit, any failure of documents to accompany any draft, instrument or demand at negotiation or any failure of any Person to note the amount of any draft, instrument or demand on the reverse of the related Letter of Credit or to surrender or take up such Letter of Credit or to send forward documents apart from drafts, in each case as required by the terms of the related Letter of Credit, any of which requirements, if contained in any Letter of Credit, may be waived by Lender or the LC Issuer; (o) any errors, omissions, interruptions or delays in transmission or delivery of any message, by mail, telex, cable, telegraph, wireless or otherwise, whether or not they be in cipher; (p) any failure of any document to conform to, or be presented under, the Letter of Credit in any instance where any Borrower or its agent, upon request, has received documents and/or goods represented thereby; or (q) any refusal by Lender, the LC Issuer or any of their correspondents to pay or honor drafts drawn or purportedly drawn under any Letter of Credit because of any applicable law, decree or edict, legal or illegal, of any governmental agency now or hereafter in force, or for any other matter beyond Lender’s control. Nor shall Lender be responsible for any act, error, omission, neglect or default under the terms of any Letter of Credit or any Related Documents or otherwise, or for any insolvency or failure in business, of the LC Issuer or any of the correspondents of Lender or the LC Issuer. None of the foregoing shall affect, impair, or prevent the vesting of any of Lender’s rights or powers hereunder, or any Borrower’s obligations hereunder. In furtherance of and extension of and not in limitation of the specific provisions hereinabove set forth, each Borrower agrees that any action taken, and any action or omission, by Lender, the LC Issuer or any of their correspondents, in the absence of bad faith on its part, under or in connection with any Letter of Credit or the related drafts, instruments or demands, documents or goods shall be binding on such Borrower and shall not put Lender, the LC Issuer or any of their correspondents under any resulting liability to Lender.

 

9.          Each Borrower agrees to procure promptly any necessary import and export and other licenses for the import or export or shipping of the goods or payment therefor, to comply with all foreign and domestic governmental regulations in regard to the shipment of the goods or the financing thereof, to furnish such certificates in that respect as Lender may at any time require, to keep the goods adequately covered by insurance satisfactory in all respects to Lender, with companies satisfactory to Lender, and to assign the policies and/or certificates of insurance to Lender, or to make the loss or adjustment, if any, payable to Lender, at Lender’s option, and to furnish Lender promptly on demand with evidence of acceptance by the insurers of such assignment.

 

10.         Each Borrower hereby certifies, covenants and agrees that no shipments will be made or other transactions undertaken under any Letter of Credit in violation of the laws of the United States, any applicable foreign law or the applicable regulations of any United States or foreign governmental agency or authority.

 

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11.         In furtherance of and not in limitation of the provisions of this Agreement, as security for the Obligations, each Borrower hereby grants to Lender a security interest in, and recognizes and admits Lender’s ownership in and unqualified right to the possession and disposal of, (a) all goods shipped under, pursuant to or in connection with each Letter of Credit or related in any way to any Letter of Credit, (b) any and all documents of title, bills of lading, shipping documents, warehouse receipts, securities, chattel paper, policies and/or certificates of insurance and other documents and instruments of any kind and nature in any way accompanying, related to or arising out of any credit and the goods related thereto and to any drafts, instruments, demands or acceptances drawn or made or purportedly drawn or made thereunder (whether or not such goods, documents or other items specified above be released to a Borrower, or upon a Borrower’s order, on trust or bailee receipt or otherwise), (c) any and all accounts, accounts receivable, contract rights, inventory, general intangibles, claims, credits, monies, demands and patent and trademark rights related to or arising out of any such Letter of Credit or the goods; (d) all monies on account with Lender or any party acting on Lender’s behalf, and (e) to the extent not otherwise included, all proceeds of any and all of the foregoing. Each Borrower represents, warrants, covenants and agrees that upon delivery of any goods financed by the Letter of Credits to a Borrower such goods shall be the exclusive property of such Borrower, subject only to a Lien in favor of Lender. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of an Event of Default, any deposit or other sums at any time properly credited by or due from Lender for the account of Borrowers may be applied by Lender by way of set-off to the payment of any of the Obligations without any notice to any Borrower.

 

12.         In the event that any Letter of Credit Obligations, whether or not then due or payable, shall for any reason be outstanding on the Termination Date, each Borrower will either (a) cause the underlying Letter of Credit to be returned and canceled and each corresponding Letter of Credit Obligation to be terminated, or (b) pay to Lender, in immediately available funds, an amount equal to 105% of the maximum amount then available to be drawn under all Letters of Credit in favor of Borrowers not so returned and canceled to be held by Lender as cash collateral in an account under the exclusive dominion and control of Lender (the “Cash Collateral Account”).

 

13.         In connection with all Letters of Credit, each Borrower, hereby appoints Lender, or its designee, as its attorney, with full power and authority (i) to sign and/or endorse such Borrower’s name upon any warehouse or other receipts, letter of credit applications and acceptances; (ii) to sign such Borrower’s name on bills of lading; (iii) to clear Inventory through the United States of America Customs Department (“Customs”) in the name of such Borrower or Lender or Lender’s designee, and to sign and deliver to Customs officials powers of attorney in the name of such Borrower for such purpose; (iv) to complete in the name of Lender, or Lender’s designee, any order, sale or transaction, obtain the necessary documents in connection therewith, and collect the proceeds thereof; (v) to clear and resolve any questions of non-compliance of documents; (vi) to give any instructions as to acceptance or rejection of any documents or goods; (vii) to execute any and all applications for steamship or airways guarantees, indemnities or delivery orders; (viii) to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents; and (ix) to agree to any amendments, renewals, extensions, modifications, changes or cancellation of any of the terms or conditions of any of the applications, Letters of Credit, drafts or acceptances; all in Lender’s sole name, and the LC Issuer shall be entitled to comply with and honor any and all such documents or instruments executed by or received solely from Lender; all without notice to or consent from Borrower. Neither Lender nor its attorneys will be liable for any acts or omissions nor for any error of judgment or mistakes of fact or law, except for Lender’s or its attorney’s gross (not mere) negligence or willful misconduct. This power, being coupled with an interest, is irrevocable as long as any Letters of Credit remain outstanding.

 

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14.         In the event Lender shall incur any Letter of Credit Obligation, Borrowers agree to pay Lender the fees, charges and commissions set for on Attachment A to this Schedule A and shall reimburse Lender for all fees and charges paid by lender on account of any Letter of Credit or Letter of Credit Obligations to the LC Issuer.

 

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ATTACHMENT A

 

LETTERS OF CREDIT

 

FEES, CHARGES AND COMMISSIONS

 

LC Issuer - Bank Charges:  
Wire Transfer $75
Issuance of Check $45
Letter of Credit:  
Issuance $125
Amendment/Discrepancy $150
Cable/Telex Notification $120
Courier $50
Air Freight Release:  
Steamship Guarantee $50
Payment Commission (Sight & Time) 0.3% or $150 min.
Processing Fee $40 per invoice
Cancellation Fee $125
Acceptance Time Payment 2.5% per annum or $175 min.
Stand-by Letter of Credit:  
Issuance $250
Commission Fee 1.5% per annum or $300 min.
Amendment/Discrepancy $175
Cable/Telex Notification $120
Courier $50
Lender Charges (per billing):  
Courier Service (if used) $50 for domestic / $75 min. for overseas
Petties $20 - $45
Telephone $17.50 - $35
Fax $25 - $50

 

 
 

 

SCHEDULE II

 

CONDITIONS PRECEDENT

 

The following items must be received by Lender in form and substance satisfactory to Lender on or prior to the date of the initial Loan Lender:

 

1.          this Agreement duly executed by each Credit Party;

 

2.          the Note duly executed by each Borrower;

 

3.          a Guaranty, duly executed by each of the following Persons:

 

Necdet Ergul;

 

Ronald Durando; and

 

Edson Realty, Inc.

 

4.          acknowledgement copies of proper financing statements (Form UCC-l) duly filed under the UCC in all jurisdictions as may be necessary or, in the opinion of Lender, desirable to perfect Lender’s Lien on the Collateral;

 

5.          certified copies of UCC, tax lien and judgment searches, or other evidence satisfactory to Lender, listing all effective financing statements which name each Credit Party (under present name, any previous name or any trade or doing business name) as debtor and covering all jurisdictions requested by Lender, together with copies of such other financing statements;

 

6.          duly executed Intellectual Property Security Agreement from each Credit Party which owns Intellectual Property;

 

7.          evidence of the completion of all other recordings and filings (including UCC-3 termination statements and other Lien release documentation) as may be necessary or, in the opinion of and at the request of Lender, desirable to perfect Lender’s Lien on the Collateral and ensure such Collateral is free and clear of other Liens;

 

8.          Powers of Attorney duly executed by each Credit Party;

 

9.          control letters from (i) all issuers of uncertificated securities and financial assets held by any Credit Party, (ii) all securities intermediaries with respect to all securities accounts and securities entitlements of each Credit Party, and (iii) all futures commission agents and clearing houses with respect to all commodities contracts and commodities accounts held by Borrower;

 

 
 

 

10.         copies of a duly executed payoff letter, in form and substance reasonably satisfactory to Lender, by and between all parties to the loan documents between any Borrower and Amerisource (“Prior Lender”) evidencing repayment in full of all Obligations to Prior Lender, together with (a) UCC-3 or other appropriate termination statements, manually signed by the Prior Lender releasing all liens of Prior Lender upon any of the personal property of each Credit Party, and (b) termination of all blocked account agreements, bank agency agreements or other similar agreements or arrangements or arrangements in favor of Prior Lender or relating to the Obligations to Prior Lender;

 

11.         duly executed originals of a Request for Loan, dated the Closing Date, with respect to the initial Revolving Credit Advance to be requested by Borrowing Representative on the Closing Date;

 

12.         duly executed originals of a letter of direction from Borrowing Representative addressed to Lender, with respect to the disbursement on the Closing Date of the proceeds of the initial Loan;

 

13.         for each Corporate Credit Party, such Person’s (a) charter and all amendments thereto, (b) good standing certificates (including verification of tax status) in its state of incorporation and (c) good standing certificates (including verification of tax status) and certificates of qualification to conduct business in each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, each dated a recent date prior to the Closing Date and certified by the applicable Secretary of State or other authorized Governmental Authority;

 

14.         a certificate of an officer of each Corporate Credit Party in the form of Exhibit G together with copies of: (a) such Person’s bylaws or operating agreement, together with all amendments thereto and (b) resolutions of such Person’s Board of Directors approving and authorizing the execution, delivery and performance of the Credit Documents to which such Person is a party and the transactions to be consummated in connection therewith, each certified as of the Closing Date by such Person’s corporate secretary or an assistant secretary as being in full force and effect without any modification or amendment;

 

15.         for each Corporate Credit Party, signature and incumbency certificates of the officers of each such Person executing any of the Credit Documents, certified as of the Closing Date by such Person’s corporate secretary or an assistant secretary as being true, accurate, correct and complete;

 

16.         evidence satisfactory to Lender that, as of the Closing Date, Cash Management Systems complying with Schedule IV the Agreement have been established and are currently being maintained in the manner set forth in such Schedule IV, together with copies of a duly executed blocked account and lock box agreements (as applicable), reasonably satisfactory to Lender, with the banks as required by Schedule IV

 

17.         duly executed originals of each of the Pledge Agreements accompanied by (as applicable) (a) share certificates representing all of the outstanding Stock being pledged pursuant to such Pledge Agreement and stock powers for such share certificates executed in blank and (b) the original intercompany notes and other instruments evidencing Indebtedness being pledged pursuant to such Pledge Agreement, duly endorsed in blank;

 

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18.         a letter from the Credit Parties to their independent auditors in the form of Exhibit F authorizing the independent certified public accountants of the Credit Parties to communicate with Lender;

 

19.         duly executed originals of account debtor notification letters in the form of Exhibit H executed in blank by each Corporate Credit Party;

 

20.         unless otherwise agreed to in writing by lender, warehouse waivers, landlord waivers and consents, bailee letters and mortgagee agreements of all Borrowers’ leased or owned locations where Collateral is held;

 

21.         Mortgages covering all of the Real Property (the “Mortgaged Properties”) together with: (a) title insurance policies, current as-built surveys, zoning letters and certificates of occupancy; (b) evidence that counterparts of the mortgages have been recorded in all places to the extent necessary or desirable, in the judgment of Lender, to create a valid and enforceable first priority lien (subject to Permitted Liens) on each Mortgaged Property in favor of Lender (or in favor of such other trustee as may be required or desired under local law); and (c) an opinion of counsel in each state in which any Mortgaged Property is located;

 

22.         any and all subordination and/or intercreditor agreements as Lender shall have deemed necessary or appropriate with respect to any Indebtedness of any Credit Party;

 

23.          Lender shall have received appraisals as to all Equipment and as to each parcel of Real Property owned by each Borrower, each of which shall be in form and substance reasonably satisfactory to Lender;

 

24.         the Financial Statements, Projections and other materials requested by Lender certified by each Borrower’s Chief Financial Officer;

 

25.         such other certificates, documents and agreements respecting any Credit Party as Lender may, in its sole discretion, request; and

 

26.         Lender shall have received an assignment of the Borrower’s credit balances from Amerisource, in a form and substance reasonably satisfactory to Lender.

 

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SCHEDULE III

 

FINANCIAL COVENANTS

 

1.          Tangible Net Worth. Borrowers and their Subsidiaries on a consolidated basis shall maintain: (a) a Tangible Net Worth of at least $100,000 for the Fiscal Year ending June 30, 2012, and (b) a Tangible Net Worth of at least $500,000 for the Fiscal Year ending June 30, 2013 and each Fiscal Year thereafter.

 

2.           Capital Expenditures. Borrowers and their Subsidiaries on a consolidated basis shall not make aggregate capital expenditures, other than capital expenditures financed through the incurrence of Indebtedness (excluding the Loans) in any Fiscal Year in excess of $50,000.

 

3.          Net Loss: Borrowers and their Subsidiaries on a consolidated basis shall not incur (a) a Net Loss greater than $600,000 for the Fiscal Year Ending June 30, 2012, and (b) a Net Loss for the Fiscal Year Ending June 30, 2013 or each Fiscal Year thereafter.

 

4.          Subordinated Debt. The Subordinated Debt shall be no less than $1,000,000 at the end of any Fiscal Quarter.

 

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SCHEDULE IV

 

CASH MANAGEMENT

 

Each Borrower agrees to establish, and to maintain, until the Termination Date, the cash management system described below:

 

1.          Commencing on the Closing Date and until the Termination Date, each Borrower will irrevocably direct all present and future Account Debtors and other Persons obligated to make payments constituting Collateral to make such payments directly to either the Collateral Account or to Borrower at 488 Madison Avenue, Suite 800, New York, NY 10022. All of Borrower’s invoices, account statements and other written or oral communications directing, instructing, demanding or requesting payment of any Account of Borrower or any other amount constituting Collateral shall conspicuously direct that all payments be made to the Collateral Account or to Borrower at 488 Madison Avenue, Suite 800, New York, NY 10022 and shall include the preceding address or the address for the Collateral Account. If, notwithstanding the instructions to Account Debtors to make payments to the Collateral Account or to Borrower at 488 Madison Avenue, Suite 800, New York, NY 10022, Borrower receives any payments, Borrower shall immediately deposit such payments into the Collateral Account or immediately forward to Lender. Until so deposited, Borrower shall hold all such payments in trust for and as the property of Lender and shall not commingle such payments with any of its other funds or property.

 

2.          Each Borrower may maintain, in its name, accounts (the “Disbursement Accounts”) at a bank or banks acceptable to Lender into which Lender shall, from time to time, deposit proceeds of Loans for use solely in accordance with the terms of this Agreement. All of the Disbursement Accounts are listed on Disclosure Schedule 7.17.

 

 
 

 

SCHEDULE V

 

ADDRESSES FOR NOTICES

 

Lender’s Address:

 

Name:   Gerber Finance Inc.
Address:   488 Madison Avenue, Suite 800
    New York, New York 10022
Attention:   Gerald L. Joseph
Telephone:   (212) 888-3833
Facsimile:   (212) 888-1637

 

Each Borrower’s, Credit Party’s and Borrowing Representative’s Address:

 

Name:   Microphase Corporation
Address:   587 Connecticut Avenue
    Norwalk, CT 06854
Attention:   Necdet Ergul
Telephone:    
Facsimile:    

 

 
 

 

EXHIBIT A

 

AMENDED AND RESTATED PROMISSORY NOTE

 

$1,500,000February 3, 2012

 

This Amended and Restated Promissory Note (this “Note”) is executed and delivered under and pursuant to the terms of that certain Amended and Restated Loan and Security Agreement dated as of February 3, 2012 (as amended, modified, supplemented or restated from time to time, the “Loan Agreement”) by and among Microphase Corporation, a Connecticut corporation (“Borrower”, individually, “Initial Borrower” and, collectively, if more than one, the “Initial Borrowers”), and together with each other Person which, on or subsequent to the Closing Date, agrees in writing to become a “Borrower” under the Loan Agreement, herein called, individually, a “Borrower” and, collectively, the “Borrowers,” and pending the inclusion by written agreement of any other such Person, besides each Initial Borrower, as a “Borrower” hereunder, all references herein to “Borrowers,” “each Borrower,” the “applicable Borrower,” “such Borrower” or any similar variations thereof (whether singular or plural) shall all mean and refer to the Initial Borrower or each one of them collectively) and Gerber Finance Inc. (“Lender”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Loan Agreement.

 

FOR VALUE RECEIVED, Borrowers, jointly and severally, promise to pay to the order of Lender at its offices located at 488 Madison Avenue, New York, New York 10022 or at such other place as the holder hereof may from time to time designate to Borrower in writing:

 

(i)          the principal sum of ONE MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($1,500,000), or if different from such amount, the unpaid principal balance of Loans as may be due and owing from time to time under the Loan Agreement, payable in accordance with the provisions of the Loan Agreement, subject to acceleration upon the occurrence of an Event of Default under the Loan Agreement, or earlier termination of the Loan Agreement pursuant to the terms thereof; and

 

(ii)         interest on the principal amount of this Note from time to time outstanding, payable at the applicable interest rate in accordance with the provisions of the Loan Agreement. Upon and after the occurrence of an Event of Default, and during the continuation thereof, interest shall be payable at the applicable Default Rate. In no event, however, shall interest hereunder exceed the maximum interest rate permitted by law.

 

This Note is the Note referred to in the Loan Agreement and is secured, inter alia, by the liens granted pursuant to the Loan Agreement and the other Credit Documents, is entitled to the benefits of the Loan Agreement and the other Credit Documents, and is subject to all of the agreements, terms and conditions therein contained.

 

This Note may be voluntarily prepaid, in whole or in part, on the terms and conditions set forth in the Loan Agreement.

 

 
 

 

If an Event of Default under Section 12.1(f) of the Loan Agreement shall occur, then this Note shall immediately become due and payable, without notice, together with attorneys’ fees if the collection hereof is placed in the hands of an attorney to obtain or enforce payment hereof. If any other Event of Default shall occur under the Loan Agreement or any of the other Credit Documents which is not cured within any applicable grace period, then this Note may, as provided in the Loan Agreement, be declared to be immediately due and payable, without notice, together with attorneys’ fees, if the collection hereof is placed in the hands of an attorney to obtain or enforce payment hereof.

 

This Note shall be governed by and construed in accordance with the laws of the State of New York.

 

To the fullest extent permitted by applicable law, each Borrower waives: (a) presentment, demand and protest, and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all of the Obligations, the Loan Agreement, this Note or any other Credit Documents; (b) all rights to notice and a hearing prior to Lender’s taking possession or control of, or to Lender’s replevy, attachment or levy upon, the Collateral or any bond or security that might be required by any court prior to allowing Lender to exercise any of its remedies; and (c) the benefit of all valuation, appraisal and exemption laws.

 

Each Borrower acknowledges that this Note is executed as part of a commercial transaction and that the proceeds of this Note will not be used for any personal or consumer purpose.

 

This Note amends and restates and is given in substitution for (but not in satisfaction of that certain $100,000 Promissory Note dated as of December 27, 2011 executed by Borrower in favor of Lender.

 

Each Borrower agrees to pay to Lender all fees and expenses described in the Loan Agreement and the other Credit Documents.

 

  MICROPHASE CORPORATION
     
  By: /s/ Necdet Ergul
    Name: Necdet Ergul
    Title: President

 

 
 

 

STATE OF )  
  ) :ss.:
COUNTY OF )  

 

On the ____ day of ___________, 2012, before me personally came ____________, to me known, who being by me duly sworn, did depose and say that s/he is the ____________ of Microphase Corporation the entity described in and which executed the foregoing instrument; and that s/he was authorized to sign her/his name thereto on behalf of said entity.

 

   
  Notary Public

 

 
 

 

Exhibit B

 

FORM OF MONTHLY STATEMENT REPORT

 

 
 

 

Exhibit C

 

FORM OF BORROWING BASE CERTIFICATE

 

Attached

 

2
 

 

Exhibit D

 

FORM OF CERTIFICATE OF COMPLIANCE

 

[Use Borrower Letterhead with this Form]

 

[Date]

 

To: Account Manager

 

This is to certify that in accordance with the Amended and Restated Loan and Security Agreement dated as of _____________, 2012 (the “Agreement”; capitalized terms are used herein as defined in the Agreement) that the attached Financial Statements are complete and true and have been prepared in conformance with GAAP. In addition there are no Defaults or Events of Default continuing as of such date [if there are acceptable exceptions, list them].

 

Also attached are the covenant calculations used in determining compliance with the financial covenants contained in Schedule III to the Agreement.

 

Very truly yours,

 

Chief Executive Officer or Chief Financial Officer

 

Microphase Corporation

 

 
 

 

Exhibit E

 

POWER OF ATTORNEY

 

This Power of Attorney is executed and delivered by Microphase Corporation, a Connecticut corporation (“Grantor”) to Gerber Finance Inc., a New York corporation (hereinafter referred to as “Attorney”), as Lender, under an Amended and Restated Loan and Security Agreement, dated as of February 3, 2012, and other related documents (the “Credit Documents”). No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocable waives any right to commence any suit or action, in law or equity, against any person or entity which acts in reliance upon or acknowledges the authority granted under this Power of Attorney. The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by Grantor without Attorney’s written consent.

 

Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as Grantor’s true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time in Attorney’s discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of the Credit Documents and, without limiting the generality of the foregoing, Grantor hereby grants to Attorney the power and right, on behalf of Grantor, without notice to or assent by Grantor, and at any time, to do the following: (a) change the mailing address of Grantor, open a post office box on behalf of Grantor, open mail for Grantor, and ask, demand, collect, give acquittances and receipts for, take possession of, endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any property of Grantor; (b) effect any repairs to any asset of Grantor, or continue or obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against Grantor or its property; (d) defend any suit, action or proceeding brought against Grantor if Grantor does not defend such suit, action or proceeding or if Attorney believes that Grantor is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Grantor whenever payable and to enforce any other right in respect of Grantor’s property; (f) cause the certified public accountants then engaged by Grantor to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney’s request, the following reports: (1) a reconciliation of all accounts, (2) an aging of all accounts, (3) trial balances, (4) test verifications of such accounts as Attorney may request, and (5) the results of each physical verification of inventory; (g) communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts and other matters relating thereto; (h) to file such financing statements with respect to the Credit Documents, with or without Grantor’s signature, or to file a photocopy of any Credit Document in substitution for a financing statement, as the Attorney may deem appropriate and to execute in Grantor’s name such financing statements and amendments thereto and continuation statements which may require the Grantor’s signature; (i) to endorse any notes, checks, drafts, money orders, or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral; and (j) execute, in connection with any sale provided for in any Credit Document, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral and to otherwise direct such sale or resale, all as though Attorney were the absolute owner of the property of Grantor for all purposes, and to do, at Attorney’s option and Grantor’s expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon Grantor’s property or assets and Attorney’s Liens thereon, all as fully and effectively as Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all that said Attorney shall lawfully do or cause to be done by virtue hereof.

 

 
 

 

IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor on ______________, 2012.

 

  MICROPHASE CORPORATION
     
  By:  
    Name:
    Title:

 

NOTARY PUBLIC CERTIFICATE

 

On this _____ day of ______________, 2012, _________who is personally known to me appeared before me in his/her capacity as the ____________ of Microphase Corporation (“Grantor”) and executed on behalf of Grantor the Power of Attorney in favor of Gerber Finance Inc. to which this Certificate is attached.

 

   
  Notary Public

 

2
 

 

Exhibit E

 

POWER OF ATTORNEY

 

This Power of Attorney is executed and delivered by EDSON REALTY, INC., a Connecticut corporation (“Grantor”) to Gerber Finance Inc., a New York corporation (hereinafter referred to as “Attorney”), as Lender, under an Amended and Restated Loan and Security Agreement, dated as of February 3, 2012, and other related documents (the “Credit Documents”). No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocable waives any right to commence any suit or action, in law or equity, against any person or entity which acts in reliance upon or acknowledges the authority granted under this Power of Attorney. The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by Grantor without Attorney’s written consent.

 

Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as Grantor’s true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time in Attorney’s discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of the Credit Documents and, without limiting the generality of the foregoing, Grantor hereby grants to Attorney the power and right, on behalf of Grantor, without notice to or assent by Grantor, and at any time, to do the following: (a) change the mailing address of Grantor, open a post office box on behalf of Grantor, open mail for Grantor, and ask, demand, collect, give acquittances and receipts for, take possession of, endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any property of Grantor; (b) effect any repairs to any asset of Grantor, or continue or obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against Grantor or its property; (d) defend any suit, action or proceeding brought against Grantor if Grantor does not defend such suit, action or proceeding or if Attorney believes that Grantor is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Grantor whenever payable and to enforce any other right in respect of Grantor’s property; (f) cause the certified public accountants then engaged by Grantor to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney’s request, the following reports: (1) a reconciliation of all accounts, (2) an aging of all accounts, (3) trial balances, (4) test verifications of such accounts as Attorney may request, and (5) the results of each physical verification of inventory; (g) communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts and other matters relating thereto; (h) to file such financing statements with respect to the Credit Documents, with or without Grantor’s signature, or to file a photocopy of any Credit Document in substitution for a financing statement, as the Attorney may deem appropriate and to execute in Grantor’s name such financing statements and amendments thereto and continuation statements which may require the Grantor’s signature; (i) to endorse any notes, checks, drafts, money orders, or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral; and (j) execute, in connection with any sale provided for in any Credit Document, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral and to otherwise direct such sale or resale, all as though Attorney were the absolute owner of the property of Grantor for all purposes, and to do, at Attorney’s option and Grantor’s expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon Grantor’s property or assets and Attorney’s Liens thereon, all as fully and effectively as Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all that said Attorney shall lawfully do or cause to be done by virtue hereof.

 

3
 

 

IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor on ______________, 2012.

 

  EDSON REALTY, INC.
     
  By:  
    Name:
    Title:

 

NOTARY PUBLIC CERTIFICATE

 

On this _____ day of ______________, 2012, _________who is personally known to me appeared before me in his/her capacity as the ____________ of Edson Realty, Inc. (“Grantor”) and executed on behalf of Grantor the Power of Attorney in favor of Gerber Finance Inc. to which this Certificate is attached.

 

   
  Notary Public

 

4
 

 

Exhibit F

 

FORM OF ACCOUNTANT’S LETTER

 

___________ __, 20__

 

Via Certified Mail
Return Receipt Requested

 

[Accountant’s name and address]
___________________________
___________________________

 

Ladies and Gentlemen:

 

Please be advised that in connection with an Amended and Restated Loan and Security Agreement and related agreements (as each may be amended, modified, restated or supplemented from time to time, collectively the “Agreements”) among the undersigned and Gerber Finance Inc. (“Lender”), we have agreed, among other things, that Lender may, from time to time, confer directly with you with respect to our business and financial affairs and that we would direct you, which we hereby do, to answer questions with respect to our business and financial affairs, directly as and when requested. If and when such requests are made, please advise us of the nature of the request and your response thereto.

 

The instructions given by this letter shall be irrevocable so long as we have any obligations to Lender under the Agreements.

 

  Very truly yours,
   
  MICROPHASE CORPORATION
     
  By:  
    Name:
    Title:

 

 
 

 

Exhibit G

 

FORM OF OFFICER’S CERTIFICATE

 

I, _______________, [____________] of Microphase Corporation, a Connecticut corporation, duly organized and existing under the laws of the State of Connecticut and having its chief executive office at 587 Connecticut Avenue, Norwalk, CT 06854 (this “Company”) HEREBY CERTIFY that the following is a true copy of a resolution duly adopted by the ]Board of Directors][Members/Managers] of this Company on _________ ____, 20___, that such resolution is now in full force and effect and is in accordance with the provisions of the charter and by-laws or operating agreement of this Company and the law of the jurisdiction of its formation, and that the undersigned is authorized to certify and furnish a copy of this resolution to Gerber Finance Inc.

 

RESOLVED:

 

1.          That the Chairman of the Board, President, any Vice President, Secretary and Treasurer are each hereby authorized from time to time on behalf of ___________________ (this “Company”):

 

a.           To borrow money and obtain credit and other financial accommodations for or on behalf of this Company at any time, and from time to time, from Gerber Finance Inc. (“Lender”);

 

b.           To apply for letters of credit or engage in acceptance financing;

 

c.           To pledge, mortgage, grant a security interest in, assign, endorse, negotiate, deliver or otherwise hypothecate or transfer to Lender any and all assets now or hereafter held, owned or controlled by this Company as security for any loan, credit or financial accommodation from Lender to this Company or any parent, affiliate or subsidiary of this Company;

 

d.           To execute and deliver in the name of this Company any agreement or agreements (the “Agreements”) with Lender with respect to financial or credit accommodations to this Company with such modifications thereof agreed to by any such officer, which execution and delivery shall be deemed conclusive evidence of the approval by this Company of the terms and agreements thereof;

 

e.           To make, execute and deliver to Lender any and all financing statements, consents, certificates, documents, instruments, assignments, including, but not limited to, assignments of insurance policies covering the assets of this Company, schedules, endorsements, guarantees, indemnities, agreements, waivers (including, without limitation, a waiver of jury trial), amendments, consents, notices or other instruments as may be required by Lender, from time to time, in connection with or in furtherance of the Agreements or of any other transactions; and

 

1
 

 

f.            To do and perform all other acts and things from time to time deemed by any officer or agent of Lender or other person designated by any of them, necessary, convenient or proper to carry out, modify or supplement the Agreements or to fully carry out the intent of this resolution, and the execution, delivery or performance thereof by such officer or officers of this Company shall be deemed conclusive evidence of the approval thereof by this Company.

 

2.          That the [Secretary or an Assistant Secretary][Manager/Members] of this Company be and hereby [is/are] authorized and directed to certify to Lender the names of the present officers of this Company and other persons authorized to sign for it, and the offices respectively held by them, together with specimens of their signatures and from time to time hereafter, as changes in such personnel are made, immediately to certify such changes to Lender.

 

3.          That the [Secretary or an Assistant Secretary][Manager/Members] of this Company be and hereby [is/are] authorized and directed to certify to Lender that this resolution has been duly adopted, is in full force and effect and is in accordance with the provisions of the charter and by-laws or operating agreement of this Company.

 

4.          That any other transactions heretofore made on behalf of this Company with Lender be and hereby are ratified, confirmed and approved, and that Lender is hereby authorized to rely upon the authority conferred by this resolution. In the event that Lender, for any reason, is uncertain as to the continuing effectiveness of the authority conferred by this resolution or any other resolution of this Company, Lender may refrain from taking any action until such time as Lender is satisfied as to the authority of this Company, and Lender shall be indemnified and held harmless, from any claims, demands, expenses (including attorneys’ fees), losses or damages resulting from or arising out of its refraining from taking any action.

 

I FURTHER CERTIFY that the following are the names and signatures of the duly elected officers of this Company now holding the respective offices referred to in the foregoing resolution:

 

Name:      
      Signature
Name:      
      Signature
Name:      
      Signature
Name:      
      Signature

 

2
 

 

I FURTHER CERTIFY that attached hereto are true and complete copies of this Company’s articles or certificate of incorporation or formation or other creating instrument and by-laws or operating agreement as in effect on the date hereof.

 

IN WITNESS WHEREOF, I have hereunto set my hand as [____________] of this Company and affixed its corporate seal by order of its [Board of Directors][Members/Managers] on this ____ day of ________, 20__.

 

   
  Name:
  Title: Secretary

 

The undersigned hereby certifies that the foregoing instrument has been signed by the [__________] of this Company (to be signed by an officer other than the [_____________]).

 

   
  Name:
  Title:

 

3
 

 

 

Exhibit H

 

FORM OF ACCOUNT DEBTOR NOTIFICATION LETTER

 

Re:          Assignment of Accounts Receivable

 

Dear Customer

 

Please be advised that Microphase Corporation (“Company”) has assigned all of its accounts receivable (including those owing by you to the Company) to Gerber Finance Inc. (“Lender”) and, as such, we hereby direct you to pay all invoices and amounts now and hereafter due to Company to the address/account set forth below. All checks shall be payable to the Company but remitted only to:

 

Gerber Finance Inc.

488 Madison Avenue, Suite 800

New York, New York 10022

 

If remitting payment via wire transfer, please wire transfer the monies to the following account:

 

Bank of America

One Bryant Park

New York, NY 10036

ABA No.: 026009593

Account No.: 004832043639

Account Name: Gerber Finance Inc.

 

Please notify your accounting department of the foregoing. If you remit payment to us or anyone other than Lender, such payment will not constitute settlement of the account and may subject you to double liability. These instructions may not be modified or supplemented without written notice from Lender.

 

 
 

 

If you have any questions, please direct any inquiries to Lender at the address and phone number listed below. Thank you for your cooperation.

 

Very truly yours,

 

  MICROPHASE CORPORATION
   
  By:  
    Name:
   

Title:

 

cc:Gerber Finance Inc.
488 Madison Avenue, Suite 800
New York, New York 10022
Attn:     Gerald L. Joseph
Telephone:       (212) 888-3833
Facsimile:         (212) 888-1637

 

2
 

 

Exhibit I

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT, dated as of February 3, 2012, is made by MICROPHASE CORPORATION, a Connecticut corporation (“Grantor”) with an address of 587 Connecticut Avenue, Norwalk, CT 06854, in favor of GERBER FINANCE INC., a New York corporation (“Lender”) with an address of 488 Madison Avenue, New York, NY 10022.

 

WITNESETH:

 

WHEREAS, pursuant to that certain Amended and Restated Loan and Security Agreement dated as of the date hereof by and between Microphase Corporation (“Borrower”) and Lender (as from time to time amended, restated, supplemented or otherwise modified, the “Loan Agreement”), Lender has agreed to make the Loans for the benefit of Borrower; and

 

WHEREAS, Lender is willing to make the Loans as provided for in the Loan Agreement, but only upon the condition, among others, that Grantor shall have executed and delivered to Lender this Intellectual Property Security Agreement;

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor hereby agrees as follows:

 

Section 1.          DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Loan Agreement.

 

(a)          When used in this Intellectual Property Security Agreement the following terms shall have the following meanings (such meanings being equally applicable to both the singular and plural forms of the terms defined):

 

Copyright License” means rights under any written agreement now owned or hereafter acquired by any Person granting the right to use any Copyright or Copyright registration.

 

Copyrights” means all of the following now owned or hereafter adopted or acquired by any Person: (i) all copyrights in any original work of authorship fixed in any tangible medium of expression, now known or later developed, all registrations and applications for registration of any such copyrights in the United States or any other country, including registrations, recordings and applications, and supplemental registrations, recordings, and applications in the United States Copyright Office; and (ii) all Proceeds of the foregoing, including license royalties and proceeds of infringement suits, the right to sue for past, present and future infringements, all rights corresponding thereto throughout the world and all renewals and extensions thereof.

 

 
 

 

Patents” means all of the following in which any Person now holds or hereafter acquires any interest: (i) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country; and (ii) all reissues, continuations, continuations-in-part or extensions thereof.

 

Patent License” means rights under any written agreement now owned or hereafter acquired by any Person granting any right with respect to any invention on which a Patent is in existence..

 

Trademark License” means rights under any written agreement now owned or hereafter acquired by any Person granting any right to use any Trademark or Trademark registration.

 

Trademarks” means all of the following now owned or hereafter adopted or acquired by any Person: (i) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or unregistered), all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country or any political subdivision thereof, (ii) all reissues, extensions or renewals thereof; and (iii) all goodwill associated with or symbolized by any of the foregoing.

 

Section 2.          GRANT OF SECURITY INTEREST IN INTELLECTUAL PROPERTY COLLATERAL. To secure the complete and timely payment of all the Obligations now or hereafter existing from time to time, Grantor hereby pledges and grants to Lender a continuing first priority security interest in all of Grantor’s right, title and interest in, to and under the following, whether presently existing or hereafter created or acquired (collectively, the “Intellectual Property Collateral”):

 

(a)          all of its Patents and Patent Licenses to which it is a party including those referred to on Schedule I hereto;

 

(b)          all of its Trademarks and Trademark Licenses to which it is a party including those referred to on Schedule II hereto;

 

(c)          all of its Copyrights and Copyright Licenses to which it is a party including those referred to on Schedule III hereto;

 

(d)          all reissues, continuations or extensions of the foregoing;

 

(e)          all goodwill of the business connected with the use of, and symbolized by, each Patent, each Patent License, each Trademark, each Trademark License, each Copyright and each Copyright License; and

 

2
 

 

(f)          all products and proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future (i) infringement or dilution of any Patent or Patent licensed under any Patent License, (ii) injury to the goodwill associated with any Patent or any Patent licensed under any Patent License, (iii) infringement or dilution of any Trademark or Trademark licensed under any Trademark License, (iv) injury to the goodwill associated with any Trademark or any Trademark licensed under any Trademark License, (v) infringement or dilution of any Copyright or Copyright licensed under any Copyright License, and (vi) injury to the goodwill associated with any Copyright or any Copyright licensed under any Copyright License.

 

Section 3.          REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants that Grantor does not have any interest in, or title to, any registered Patent, Trademark or Copyright except as set forth in Schedule I, Schedule II and Schedule III, respectively, hereto. This Intellectual Property Security Agreement is effective to create a valid and continuing Lien on and, upon the filing hereof with the United States Patent and Trademark Office and the United States Copyright Office, perfected security interests in favor of Lender in all of Grantor’s Patents, Trademarks and Copyrights and such perfected security interests are enforceable as such as against any and all creditors of, and purchasers from, Grantor. Upon filing of this Intellectual Property Security Agreement with the United States Patent and Trademark Office and the United States Copyright Office and the filing of appropriate financing statements in the applicable filing office in the state of formation of Grantor all action necessary or desirable to protect and perfect Lender’s Lien on Grantor’s Patents, Trademarks and Copyrights shall have been duly taken.

 

Section 4.          COVENANTS. Grantor covenants and agrees with Lender that from and after the date of this Intellectual Property Security Agreement and until the Termination Date:

 

(a)          Grantor shall notify Lender immediately if it knows or has reason to know that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) material to the operation of any Borrower’s business may become abandoned or dedicated, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding Grantor’s ownership of any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same.

 

(b)          In no event shall Grantor, either directly or through any agent, employee, licensee or designee, file an application for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving Lender prior written notice thereof, and, upon request of Lender, Grantor shall execute and deliver a supplement hereto (in form and substance satisfactory to Lender) to evidence Lender’s Lien on such Patent, Trademark or Copyright, and the General Intangibles of Grantor relating thereto or represented thereby.

 

(c)          Grantor shall take all actions necessary or reasonably requested by Lender to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of the Patents or Trademarks (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings.

 

3
 

 

(d)          In the event that any of the Intellectual Property Collateral material to the operation of any Borrower’s business is infringed upon, or misappropriated or diluted by a third party, Grantor shall notify Lender promptly after Grantor learns thereof. Grantor shall, unless it shall reasonably determine that such Intellectual Property Collateral is in no way material to the conduct of its business or operations, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as Lender shall deem appropriate under the circumstances to protect such Intellectual Property Collateral.

 

Section 5.          SECURITY AGREEMENT. The security interests granted pursuant to this Intellectual Property Security Agreement are granted in conjunction with the security interests granted to Lender pursuant to the Loan Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Lender with respect to the security interest in the Intellectual Property Collateral made and granted hereby are more fully set forth in the Loan Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

 

Section 6.          REINSTATEMENT. This Intellectual Property Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor for liquidation or reorganization, should Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

 

Section 7.          NOTICES. Whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give and serve upon any other party any communication with respect to this Intellectual Property Security Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Loan Agreement.

 

Section 8.          TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 6 hereof, this Intellectual Property Security Agreement shall terminate upon the Termination Date.

 

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IN WITNESS WHEREOF, Grantor has caused this Intellectual Property Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.

 

  MICROPHASE CORPORATION
     
  By: /s/ Necdet Ergul
    Name: Necdet Ergul
   

Title: President

 

ACCEPTED and ACKNOWLEDGED by:

 

GERBER FINANCE INC.  
     
By: /s/ Jennifer Pulma  
Name: Jennifer Pulma  
Title: Vice President  

 

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SCHEDULE I
to
INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

1.          PATENT REGISTRATIONS

 

Patent   Reg. No.   Date
         

 

2.          PATENT APPLICATIONS

 

Patent   Reg. No.   Date
         

 

3.          PATENT LICENSES

 

Name of Agreement   Date of Agreement   Parties
         
         

 

 
 

 

SCHEDULE II
to
INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

1.          TRADEMARK REGISTRATIONS

 

Mark   Reg. No.   Date
         

 

2.          TRADEMARK APPLICATIONS

 

Mark   Application No.   Date
         

 

3.          TRADEMARK LICENSES

 

Name of Agreement   Date of Agreement   Parties
         

 

 
 

 

SCHEDULE III
to
INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

1.          COPYRIGHT REGISTRATIONS

 

Copyright   Reg. No.   Date
         

 

2.          COPYRIGHT APPLICATIONS

 

Copyright   Application No.   Date
         

 

3.          COPYRIGHT LICENSES

 

Name of Agreement   Date of Agreement   Parties
         

 

 
 

 

DISCLOSURE SCHEDULE 7.2

 

NAMES, ORGANIZATIONAL INFORMATION, COLLATERAL LOCATIONS

 

Credit Party’s official name:

 

Type of entity (e.g. corporation, partnership, business trust, limited partnership, limited liability company):

 

State of Incorporation or Organization:

 

Organizational identification number issued by each Borrower’s state of incorporation or organization or a statement that no such number has been issued:

 

Chief Executive Office and principal place of business:

 

Corporate Offices:

 

Warehouses:

 

Other Premises at which Collateral is stored or Location:

 

Locations of Records Concerning Collateral:

 

 
 

 

DISCLOSURE SCHEDULE 7.6

 

REAL ESTATE

 

[Describe all real property owned or leased or used in business]

 

Address Type [owned, leased, warehouse] County

 

 
 

 

DISCLOSURE SCHEDULE 7.7

 

VENTURES, SUBSIDIARIES AND AFFILIATES

 

[List all subsidiaries, affiliates and joint ventures]

 

Name Type (subsidiary, affiliate, etc.) Percentage owned by
Credit Party (identify)

 

 
 

 

DISCLOSURE SCHEDULE 7.9

 

TAXES

 

[List all matters described in Section 7.9]

 

 
 

 

DISCLOSURE SCHEDULE 7.12

 

LITIGATION

 

[Describe all material Litigation and amount in controversy]

 

 
 

 

DISCLOSURE SCHEDULE 7.13

 

INTELLECTUAL PROPERTY

 

[Describe all Intellectual Property used or licensed]

 

Description Owner Registration # Licensee (if any) Type (Trademark,
Patent, Copyright, etc.)

 

 
 

 

DISCLOSURE SCHEDULE 7.15

 

ENVIRONMENTAL MATTERS

 

[Describe any Environmental Matters referenced to in Section 7.15]

 

 
 

 

DISCLOSURE SCHEDULE 7.16

 

INSURANCE

 

[List all Insurance Policies]

 

Type Insured Beneficiary Amount

 

 
 

 

DISCLOSURE SCHEDULE 7.17

 

DEPOSIT AND DISBURSEMENT ACCOUNTS

 

1.          Lock Box or Blocked Accounts

 

2.          Disbursement Accounts

 

3.          Payroll Account

 

4.          Petty Cash Account

 

5.          Other Accounts

 

 
 

 

DISCLOSURE SCHEDULE 9(b)

 

INDEBTEDNESS

 

[Give detailed description of Indebtedness existing as of Closing Date.]

 

 
 

 

DISCLOSURE SCHEDULE 9(e)

 

PERMITTED LIENS

 

[Give detailed description of Liens existing as of the closing Date.]

 

 

 

EX-10.2 5 v398941_ex10-2.htm EXHIBIT 10.2

 

Exhibit 10.2

 

 

BUSINESS AGREEMENT

Strategic Partnership between Microphase Corporation and Dynamac, Inc.

 

This Business Agreement (“Agreement”) is entered between Microphase Corporation (hereinafter “Microphase”) a Connecticut Corporation with offices at 587 Connecticut Avenue, Norwalk, Connecticut 06854 and Dynamac, Inc. (hereinafter “Dynamac”) an Illinois Corporation with offices at 1229 Capitol Drive, Addison, IL 60101. Microphase and Dynamac are also hereinafter referred to individually as “the Party” and together as “the Parties”.

 

1.Business Opportunity: Microphase and Dynamac believe that there are significant potential opportunities in the RF/Microwave Test and Measurement industry for low-cost high frequency calibrated test probe products and related test platforms and accessories. Microphase and Dynamac have agreed to form a strategic partnership that will let both companies use their core competencies, technologies, and resources to develop, manufacture, and market a unique portfolio of industry’s first low cost RF/Microwave and Millimeter-wave calibrated test probes and related universal test platforms as alternative commercial products to conventional expensive custom test solutions.

 

(a) Dynamac

 

Dynamac has a unique portfolio of proprietary high frequency calibrated test probes which has been successfully developed for testing a wide range of RF and Microwave passive and active components, devices, and circuits covering a frequency range from DC to 14 GHz. Dynamac is also currently developing test probe technology that will extend frequency range of its calibrated probes to 80 GHz covering Millimeter-wave market. Dynamac’s calibrated test probe technology and related accessories are protected by registered patents, patent applications in preparation, and trade secrets. Dynamac’s calibrated test probes and related accessories are intended for day to day use by thousands of RF and Microwave electronics and wireless design engineers worldwide across a multitude of diverse market sectors with a combined TAM exceeding $900 million. Dynamac proprietary calibrated test probes have not been released to market. Dynamac has been contemplating creation of a separate and independent business unit dedicated to test probe business. However, after initial discussions with Microphase Dynamac has indicated its desire to partner with Microphase for marketing and business development of its RF/Microwave calibrated test probe product line and related accessories. It is anticipated that an alliance with Microphase will be more efficient and most cost effective “go-to-market” strategy for Dynamac based upon which Microphase, through its established brand and long history in the RF/Microwave industry, can dominate the market and position both companies for substantial financial success.

 

Microphase Corporation 587 Connecticut Ave, Norwalk CT 06854 (203) 866-8000 www.microphase.com

 

 
 

 

(b) Microphase

 

Microphase is interested in expanding its market focus through broadening its product offering and diversifying its customer base to support its strategic plan and revenue growth objectives. Microphase has marketing, business development and engineering expertise and resources to support this new initiative for Dynamac’s calibrated test probe products and related accessories provided that Microphase is guaranteed to be the sole supplier of calibrated test probe solutions and all related test platforms and accessories worldwide. Microphase agrees to only use parts manufactured and supplied by Dynamac for final product assembly and test by Microphase, except for certain cable assemblies and laser engraved wood cases which Microphase will have the right to procure from independent sources.

 

2.Product Roadmap: Microphase and Dynamac agree to work together to develop a joint product roadmap based on currently finished products by Dynamac and those products that are currently in development, collectively the test and measurement product line (“the Product Line”) to address test and measurement market opportunities extending into Millimeter-wave range. All costs associated with development and completion of any new products will be covered by the Parties according to the responsibilities identified and assigned tasks between the Parties.

 

3.Private Labeling: Dynamac agrees to private label its proprietary RF/Microwave calibrated test probes, test platforms, and related accessories for Microphase. Microphase shall have the right to market private labeled calibrated test probes, test platforms, and related accessories under Microphase brand to North American and European customers as well as to end users in other parts of the world. If private labeled products are offered in China, South Korea, and Taiwan Dynamac agrees to file for patent protection in these countries. Microphase agrees to share the cost for filings. Dynamac agrees to private label its proprietary RF/Microwave test probes, test platforms, and related accessories listed in Appendix (A) for Microphase.

 

4.Manufacturing: Dynamac will be responsible for manufacturing all machined piece parts as well as anodizing, laser engraving, and gold plating for all products listed in the definitive agreement at its facilities in Addison, IL at an agreed standard cost. Products may be ordered by Microphase from Dynamac in agreed lot sizes and delivered to the Microphase facility in Connecticut. Dynamac will invoice Microphase for supply of finished private labeled piece parts and will grant Microphase a 60 day payment term.

 

2
 

 

5.Product Assembly and Test: Microphase will be responsible for final product assembly, test, and QC. Microphase may have to generate its own internal engineering and manufacturing drawings according to its own internal manufacturing standards and policies. Dynamac agrees to assist Microphase with preparation of documentation should need arise. All probe products will be assembled and tested by Microphase at Microphase facilities. Certain universal test platforms may be partially assembled by Dynamac with final assembly and test performed by Microphase. In principal, each party will pay its own engineering support costs.

 

6.Marketing: In all cases, Microphase shall be the primary marketing source for all test and measurement products listed in the definitive agreement and any other related products currently in development. Microphase and Dynamac agree to a branding strategy for all test and measurement products included in this Agreement to promote sales and maximize profitability. Microphase guarantees to advance and market the test and measurement product line as a high priority business initiative. A marketing strategy will be developed by Microphase and will be discussed with Dynamac.

 

7.Pricing strategy: The unit price for each product will be established based on market demand for the test probes and platforms and related accessories. However, based on extensive research by Dynamac and its previous teams involved in the development of the product line and discussions with Agilent Technologies and major RF/Microwave distributors including Arrow and RFMW manufacturer’s suggested retail price for each unit has been developed and is shown in Appendix (B) (Pricing Schedule). Unit prices may be adjusted from time to time if deemed necessary due to market conditions and customer demand.

 

8.Patents: Dynamac will apply, at its sole cost, for product patent protection for inventions in connection with Dynamac’s proprietary RF/Microwave calibrated test probes, test platforms and related accessories and provide Microphase with royalty free license to sell Dynamac’s calibrated RF/Microwave test probes, test platforms and related accessories.

 

9.Royalties: Microphase agrees to pay Dynamac a 25% royalty based on the list price of each private labeled product sold by Microphase. All royalty payments will paid by Microphase on a quarterly basis and will be made out to 24KG Capital, LLC 24KG Capital, LLC is the investment arm of Dynamac, Inc.

 

10.Licensing and Rights Fee: Microphase agrees to pay Dynamac a one-time fee of US$350,000. The fee will be paid to Dynamac according to the following schedule:

 

$ 25,000   September 3, 2014
$ 25,000   September 18, 2014
$ 150,000   October 18, 2014
$ 150,000   November 18, 2014

 

In exchange for licensing and rights fee Dynamac agrees to:

 

(i)Grant total exclusivity to Microphase to advertise, market, and sell the Product Line listed in Appendix (A) under Microphase brand.

 

3
 

 

(ii)Authorize Microphase to issue “new product” announcements and press releases.

 

(iii)Provide Microphase with one complete sample of each finished product (set).

 

(iv)Authorize Microphase to pursue and lead future product development and apply for Government R&D funding for development of Millimeter-wave calibrated test probes and test platforms, etc. provided that Dynamac receives 40% of all funding paid to Microphase by Government agency(ies). Dynamac agrees to manufacture all necessary parts for the development of Millimeter-wave test probes and test platforms.

 

(V)Grant Microphase “First Right of Refusal” in the event Dynamac decides to divest the Product Line.

 

11.First Right of Refusal: In the event Dynamac proposes to sell the Product Line Microphase shall have the right to purchase the Product Line listed herein. The sale price is set at $2,500,000. Dynamac agrees to deduct the $350,000 Licensing and Rights Fee from the sale price of $2,500,000 if and when Microphase decides to purchase the Product Line. The First Right of Refusal shall be limited to a 3 year term from the date of this Agreement between the Parties.

 

12.Solution Partnership with Agilent Technologies: Microphase shall have the right to become a Solution Partner with Keysight Technologies (formerly Agilent Technologies).

 

13.Partnership with Copper Mountain Technologies: Microphase shall have the right to enter partnership with Copper Mountain Technologies to offer total RF/Microwave test and measurement solutions to the end user market.

 

14.Confidentiality: The parties agree to use best efforts to maintain at all times as confidential information the fact that you or we have executed this Agreement, the terms of this Agreement, the existence and content of any negotiations between us except that the Parties may inform advisors, counsel, and employees with a need to know as each party deems necessary. Additionally, the Parties shall be bound by the terms and conditions of the Mutual Nondisclosure Agreement dated as of May 15, 2014 as previously executed by the Parties.

 

15.General Terms: This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and assigns. The waiver or failure of either Party to exercise in any respect any right provided for in this Agreement shall not be deemed a waiver of any further right under this Agreement. If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to law or otherwise unenforceable, it shall be enforced to the extent legally permissible and as necessary to reflect the intent of the Parties and shall not affect the remaining provisions of this Agreement, which shall remain in full force and effect. This Agreement is binding upon each Party and their respective affiliates. This Agreement shall be deemed to be a contract made under the laws of the State of Connecticut and shall be governed by the laws thereof without reference to its principles of conflicts of law. This Agreement represents the entire agreement between the Parties with respect to the subject matter herein.

 

4
 

 

IN WITNESS WHEREOF, the Parties have duly executed this document as of the date first written below:

 

Microphase Corporation  
   
Executed By: /s/ Ronald Durando  
     
Name: Ronald Durando  
     
Title: Chief Operating Officer  
     
Date: August 08, 2014  
     
Dynamac, Inc.  
 
Executed By: /s/ Kent Higgins  
     
Name: Kent Higgins  
     
Title: President  
     
Date: August 08, 2014  

 

5

 

EX-10.3 6 v398941_ex10-3.htm EXHIBIT 10.3

Exhibit 10.3

  

ASSUMPTION OF MORTGAGE DEBT

 

This Assumption of Mortgage Debt (this “Agreement”), is entered into as of January 22, 2015 and effective as of June 30, 2014 by and between Necdet Ergul, an individual residing in Connecticut (“Ergul”) and Microphase Corporation, a Connecticut corporation with offices at 587 Connecticut Avenue, Norwalk Connecticut 06856 (the “Company”).

 

RECITALS

 

Ergul is the founder of the Company and, for the past 50 years has been its President, a director and one of its principal stockholders. To provide working capital for the Company, Ergul through June 30, 2014, made advances of funds to the Company amounting to an aggregate of $131,545, net of any repayments, as of June 30, 2014 (the “Advanced Funds”).

 

Ergul initially borrowed the Advanced Funds from Wells Fargo Bank N.A. (the Bank”) under a line of credit secured by a first mortgage on Ergul’s residence (the “Mortgage Debt”). (See Appendix A) Ergul is the primary obligor of the Mortgage Debt; and the residence which serves as the collateral for the Mortgage Debt is owned by his daughters.

 

Ergul represents that there are no events of default under the Mortgage Debt which have not been satisfied or waived by the Bank.

 

Ergul further represents that all funds borrowed by him under the line of credit from the Bank and which are part of the Mortgage Debt have been delivered by him to the Company as advances to the Company for its use. In recognition of this fact, the parties now wish to have the Company assume and pay the Mortgage Debt in accordance with its terms

 

AGREEMENTS

 

1.    The Company hereby agrees to assume and become the primary obligor of the Mortgage Debt and to pay each and every charge owing to the Bank or any other holder of the Mortgage Debt when due. The Company will execute and deliver any documents that may be necessary to effect such assumption.

 

2.    In accordance with the Company's assumption of the Mortgage Debt the reduction in the amounts owed by the Company to Ergul shall be allocated as follows: (i) the debt owed by the Company to Ergul will be reduced by $100,000 and (ii) the unpaid compensation owed by the Company to Ergul will be reduced by by $31,545.

 

3.    The Company indemnifies Ergul and his heirs, legal representatives and assigns from and against any loss or expense which any of them may suffer arising out of demand by the Bank or any other holder of the Mortgage Debt that they or any of them pay all or any part of the Mortgage Debt, including interest or other fees or penalties.

 

 

 
 

 

4.    This Agreement shall be governed by the laws of the state of Connecticut. Any notices or other communications by one party to the other shall be in writing and delivered in person or by overnight express mail to the party to receive the same at his or its address set forth above or to such other address as shall be given to such party by notice give as provided herein. This Agreement shall represent the entire agreement of the parties with respect to its subject matter and shall be binding on the parties and their respective successors, heirs, executors and assigns. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument and fax or PDF copies of signatures shall be treated as originals for all purposes.

 

Dated as of January 22, 2015 and effective as of the June 30, 2014

 

MICROPHASE CORPORATION    
     
By: /s/ Ronald Durando,  

/s/ Necdet Ergul

  Ronald Durando,   NECDET ERGUL, an individual
  Chief Operating Officer    

 

 

 

 
 

 

 

Account Number: 4386542010625207

 

Wachovia Bank, National Association

Prime Equity Line of Credit Agreement & Disclosure Statement

 

Date of Agreement:  May 20, 2003 
      
Maximum Credit Limit:  $600000.00 
      
Borrower(s)     

 

NECDET ERGUL  
GONUL T ERGUL  
   
   

 

The Prime Equity Line of Credit Agreement & Disclosure Statement (“Agreement”) contains the terms which apply to the Prime Equity Line Account (“Account”) with Wachovia Bank, National Association. The words “I,” “me,” and “my,” which also mean “we,” “us,” and “our,” if more than one Borrower, mean the person or persons signing this Agreement. The words “you,” “your,” and “yours” mean Wachovia Bank, National Association (“Wachovia Bank, N.A.”).

 

ACCESSING THE PRIME EQUITY LINE

Wachovia Bank, N.A. will establish an Account and issue to me Prime Equity Line Checks and if applicable law permits, a Credit Card Access Device (“Card”). The Prime Equity Line Checks and Card can be used to obtain Advances from my Account during the Draw Period, up to the amount of the Maximum Credit Limit established in this Agreement. Wachovia Bank, N.A. will charge all Advances obtained under the terms of this Agreement to my Account. Advances made pursuant to Prime Equity Line Checks will be for the amount of the Prime Equity Line Check. Advances made pursuant to the use of a Card will be for the amount of the purchase or for the amount of the Advance obtained with the Card at any ATM or other outlet.

 

If I have a Demand Deposit Account with you and I request you to initiate an Advance from my Account, so that items presented against my Demand Deposit Account which would otherwise overdraw my Wachovia Bank, N.A. Demand Deposit Account are honored, I agree that Wachovia Bank, N.A. may charge such Advances to my Account and that such Advances shall be in increments of $100.00.

 

I agree that any Prime Equity Line Checks or Cards that you supply to me are your property and must be returned to you immediately upon demand if I am in Default of this Agreement or my Advance privileges are terminated or suspended in accordance with the terms of this Agreement.

 

MAXIMUM CREDIT LIMIT

My Maximum Credit Limit is indicated above. I agree never to allow the Outstanding Balance due on my Account to exceed the Maximum Credit Limit. I also agree that you are not obligated to pay any Advance or other charge against my Account that would make my Account Outstanding Balance exceed my Maximum Credit Limit. I agree to immediately repay, upon demand, any Outstanding Balance that exceeds the Maximum Credit Limit established hereunder. Any increases in my Maximum Credit Limit I request will require that a new application be approved in accordance with your then applicable underwriting standards and I must sign any additional agreements that in your opinion are necessary to secure your interest.

 

DRAW PERIOD

Except as provided herein and unless terminated earlier in accordance with the terms of this Agreement, I may obtain Advances under the terms of this Agreement for twenty (20) years from the Date of Agreement (“Draw Period”). For Accounts secured by property located in Connecticut, the Draw Period is ten (10) years from the Date of Agreement.

 

OBLIGATION TO LEND

You are absolutely obligated under the terms of this Agreement to make Advances not to exceed, at any one time in the aggregate, the amount indicated as the Maximum Credit Limit and I agree to repay any Advances under the terms of this Agreement. Your obligation to make Advances to me under this Agreement ends when the right to obtain Advances terminates at the end of the Draw Period or when such Advance privileges are suspended or terminated in accordance with the terms of this Agreement.

 

FINANCE CHARGE ON MY ACCOUNT BALANCE

 

(a) My Account has a monthly billing cycle. A Finance Charge computed on a monthly periodic rate will be imposed, if at the end of any day of the billing cycle, there is a balance owing on my Account. The monthly periodic rate for an initial Advance, if any, made by you will begin to accrue on the date of this Agreement. The monthly periodic rate for any Advance other than an initial Advance will begin to accrue on the Transaction Date as indicated on my billing statement.
(b) You will figure the Finance Charge on my Account by applying the monthly periodic rate to the “average daily balance” owing on my Account (including current transactions). To calculate the “average daily balance” you will take the beginning balance of my Account each day, add any new Advances and Fees charged to the Account pursuant to the terms of this Agreement, and subtract any payments or credits. This gives you the daily balance. Then, you will add up all the daily balances for the billing cycle and divide the total by the number of days in the billing cycle. This gives you the “average daily balance.”
(c) The Finance Charge imposed during a billing cycle will be determined by applying the monthly periodic rate that is 1/12 of the corresponding ANNUAL PERCENTAGE RATE to the average daily balance. The ANNUAL PERCENTAGE RATE and monthly periodic rate are variable rates and are subject to change on the first day of each billing cycle, if there was a prior change in the Index, which is the Prime Rate as regularly published in the Eastern edition of The Wall Street Journal (“Prime Rate”).

 

*0311503235*

(10/02) Multi-State Pel Agreement

 

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(d) If the Prime Rate becomes unavailable, you will select a new index which is based on a historical movement substantially similar to the original Index and the new index and margin will result in an ANNUAL PERCENTAGE RATE substantially similar to the rate in effect at the time the Prime Rate becomes unavailable. You will give me notice of this change.
(e) The corresponding ANNUAL PERCENTAGE RATE is effective as of the 1st day of the calendar month in which you receive your Statement and is based on the Prime Rate as published in the Eastern edition of The Wall Street Journal on the 25th day of the prior calendar month plus a Margin of -0.25 %. If more than one Prime Rate is published on the 25th day of the prior calendar month, you will use the higher rate as the Prime Rate. If the Prime Rate is not published on the 25th day of the prior calendar month, the Index will be the Prime Rate published on the last business day prior to the 25th.
(f) During the first twelve months of the Agreement, as measured from the date of the Agreement (“Initial Period”), if I take Advances totaling at least $5,000.00, the ANNUAL PERCENTAGE RATE will be discounted for the remaining months left in the Initial Period. During the Initial Period, the ANNUAL PERCENTAGE RATE will equal the Index (WSJ Prime Rate) plus the discounted Margin which is -0.25 %. The ANNUAL PERCENTAGE RATE for the Initial Period is not based on the Margin that is used to make later rate adjustments. After the Initial Period, the ANNUAL PERCENTAGE RATE for the remaining term of the Agreement will be determined in accordance with subsection (e) above.
(g) Assuming that the discounted ANNUAL PERCENTAGE RATE is not in effect, the initial monthly periodic rate of 0.333 % will apply to my average daily balance during my first billing cycle and the initial corresponding ANNUAL PERCENTAGE RATE will be 4.000 %. An increase in the ANNUAL PERCENTAGE RATE and monthly periodic rate will result in increased Finance Charges and minimum payment amounts. The corresponding ANNUAL PERCENTAGE RATE for each billing cycle will be shown on my billing statement for that cycle. The ANNUAL PERCENTAGE RATE includes only interest and no other costs.
(h) The maximum ANNUAL PERCENTAGE RATE will never exceed eighteen percent (18%). In North Carolina, the maximum ANNUAL PERCENTAGE RATE will never exceed sixteen percent (16%).

 

Other Charges. In addition to the FINANCE CHARGE which will be added to my Account each billing cycle, I will pay the following real estate closing and security filing fees:

 

“X” = Wachovia Bank, N.A. Pays Fee     “X” = Wachovia Bank, N.A. Pays Fee  
Survey   $       Georgia Mortgage Fee   $    
Title Examination   $ 65.00     Settlement Fee   $    
Title Insurance   $       Points   $    
Recording Fee   $ 38.00     Commitment Fee   $    
Appraisal Fee   $ 600.00 POC     Broker Fee   $    
Flood Certification Fee   $ 9.50     Additional Settlement Fee   $    
Intangible Tax   $           $    
Document Stamp Tax   $                
            TOTAL   $ 712.50  
                     
WACHOVIA BANK. N.A. FEES PAID   $       CUSTOMER FEES PAID   $ 712.50  

 

¨ Closing Cost Repayment Option. If checked, I request that you pay the Other Charges indicated with an “X” above for me. I will pay the remaining Other Charges not so indicated. In consideration of your payment of the Other Charges indicated above I agree to reimburse you for the Other Charges that you have paid on my behalf, in the event I pay the entire Outstanding Balance and close this Account on or before one calendar year after the opening date of this Account. If I pay the entire Outstanding Balance and close this Account after one year, but on or before two calendar years after the opening date of this Account, I agree to reimburse you fifty percent (50%) of the amount of closing costs you paid for me. I understand that I may pay my entire Outstanding Balance at any time without having to reimburse you for the closing costs as long as my Account remains open.

 

Statement. If I have an Outstanding Balance or a credit balance in excess of $1.00 or if there is any Finance Charge imposed during a billing cycle, you will send me a Statement. I promise to pay you in accordance with the terms of this Agreement in United States Dollars drawn on an institution located in the United States. I understand I am prohibited from using an Advance to make my payments on this Account. I agree to be responsible for any fees or costs associated with the processing of my payments on my Account should I use a method of payment that results in extra costs or fees being assessed to you.

 

Payment Schedule. During the Draw Period, I agree to pay the minimum monthly payment not later than the payment due date shown on my Statement as follows:

 

x Option A: I will make a minimum monthly payment equal to the greater of the Finance Charge on the outstanding Advances plus accrued but unpaid Fees or $50.00.

¨ Option B: I will make a minimum monthly payment of the greater of 1.5% of the Outstanding Balance shown on my Statement or $50.00.

 

Upon expiration of the Draw Period, I will make a minimum monthly payment of the greater of 2% of the Outstanding Balance shown on my Statement or $50.00 until the entire Outstanding Balance is paid in full.

 

If at any time, the Outstanding Balance is less than $50.00, the minimum monthly payment will be the Outstanding Balance.

 

For purposes of this Agreement, the term “Outstanding Balance” includes all unpaid Advances, accrued but unpaid Finance Charges and accrued but unpaid Fees permitted to be charged to my Account under the terms of this Agreement or the Security Instrument.

 

Application of Payments. Unless otherwise prohibited by applicable law, payments will be applied in the following order: First, to the accrued but unpaid promotional Finance Charges due; next to non-promotional Finance Charges due; next to any Fees that that have been charged in accordance with the terms of this Agreement. The remainder of any payment will be applied first to any unpaid promotional Advances and then to any non-promotional Advances. Promotional Advances and Finance Charges refer to offers to use my Account on special terms that you may make to me from time to time; you will provide the terms of any promotional Advance or promotional Finance Charge at the time that you make the offer available. I understand that making more than the minimum payment may not advance my next payment due date.

 

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(10/02) Multi-State Pel Agreement 

 

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Minimum Monthly Payment Change. Subject to your approval, during the Draw Period, I agree that I may change my minimum payment option to any option listed above upon written notice of my request to change my minimum payment option.

 

PAYMENT IN FULL. I AGREE THAT THE NOTE HOLDER MAY ACCEPT PAYMENTS MARKED “PAID IN FULL” WITHOUT ANY LOSS OF THE NOTE HOLDER'S RIGHTS UNDER THIS NOTE UNLESS I SEND THEM FOR SPECIAL HANDLING TO WACHOVIA BANK, N.A. EQUITY LINE SERVICES, VA 0343, PO BOX 13327, ROANOKE, VA 24040.

 

Late Fee. I agree that any Late Fee imposed by you will be charged to my Account.

 

If this Agreement is governed by New York law and all of a minimum monthly payment is not received within fifteen (15) days of the due date provided on my Statement, you will impose a Late Fee of two percent (2%) of the amount of the minimum monthly payment.

 

If this Agreement is governed by North Carolina law and all of a minimum monthly payment is not received within fifteen (15) days of the due date provided on my Statement, you will impose a Late Fee of four percent (4%) of the amount of the minimum monthly payment.

 

If this Agreement is governed by South Carolina law and is secured by a subordinate lien on real property and all of a minimum monthly payment is not received within ten (10) days of the due date provided on my Statement, you will impose a Late Fee of the lesser of $13.50 or five percent (5%) of the amount of the minimum monthly payment but not less than $5.40. Otherwise, if all of a minimum monthly payment is not received within ten (10) days of the due date provided on my Statement, you will impose a Late Fee of five percent (5%) of the amount of the minimum monthly payment.

 

If this Agreement is governed by a law other than those listed in this Section (above) and all of a minimum monthly payment is not received within ten (10) days of the due date provided on my Statement, you will impose a Late Fee of five percent (5%) of the amount of the minimum monthly payment.

 

Return items Fee. If I make a payment to my Account by check or draft and the check or draft is returned unpaid for any reason, I agree to pay a charge of $20.00 for each returned check or draft. If this Agreement is governed by Maryland law and I make a payment to my Account by check or draft and the check or draft is returned unpaid for any reason, I agree to pay a charge of $15.00 for each returned check or draft. I agree that this fee will be charged to my Account.

 

Stop Payment Fee. If I request you to stop payment on an Advance made with a Prime Equity Line Check, to the extent not prohibited by applicable law, I agree to pay your scheduled fee for such service. I will be notified of the amount of such fee at the time that such action is requested. I agree that this fee will be charged to my Account.

 

Administrative/Servicing Fees. I agree that, if after closing, I request other services related to servicing or administering my Account for which you have a scheduled charge, to the extent not prohibited by applicable law, I will pay you the then current fee for such services or request if you agree to perform such services or request. I will be notified of the amount of the fee at the time that such action is requested. I agree that any such fees will be charged to my Account.

 

Agreement Secured by Security Instrument. In addition to the protections given to you under this Agreement, a Security Instrument on real property (the “Property”) described in the Security Instrument and dated the same date as this Agreement, protects you from possible losses which might result if I do not keep the promises which I make in this Agreement. The Security Instrument describes how and under what conditions I may also be required to make immediate payment in full of all amounts I owe under this Agreement.

 

Change of Terms of This Agreement. In addition to other rights you may have under the terms of this Agreement, you may change the terms and conditions of this Agreement when any of the following events shall occur:

(1) if the index and margin used with this Account are no longer available;
(2) if you make a change that I specifically agree to in writing;
(3) if you make a change that will unequivocally benefit me throughout the remainder of the term of this Agreement; or
(4) if you make any insignificant change in the terms of this Agreement.

 

Suspension and/or Reduction of Credit Limit. I agree that you may prohibit additional Advances or reduce the Maximum Credit Limit when any of the following events shall occur:

(1) if the value of the Property that secures this Agreement declines significantly below the Property’s appraised value during the time of this Agreement;
(2) if you reasonably believe I will be unable to fulfill the repayment obligations under this Agreement due to a material change in my financial circumstances;
(3) if I am in default of any material obligations under this Agreement, such material obligations include, but are not limited to, all of my promises in this Agreement regarding the payment of money to you and the preservation of your rights in the Property;
(4) if action by a governmental body does not allow you to impose the ANNUAL PERCENTAGE RATE currently applicable to this Agreement;
(5) if action by a governmental body adversely affects the priority of your Security Instrument to the extent that the value of the security interest is less than 120 percent of the amount of my Maximum Credit Limit;
(6) if you are notified by a governmental agency that regulates your lending activities that continuing Advances constitutes an unsafe and unsound practice;
(7) if during any period in which the ANNUAL PERCENTAGE RATE corresponding to the monthly periodic rate reaches the maximum interest rate allowed under this Agreement. Provided I am in compliance with the other terms of this Agreement, I understand you will reinstate credit privileges if the ANNUAL PERCENTAGE RATE declines below the maximum ANNUAL PERCENTAGE RATE; or
(8) if I request that you suspend any Advance or reduce the Maximum Credit Limit.

 

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Reinstatement of Advance Privileges. Except as provided for in this Agreement, I understand that if my Advance privileges are suspended or my Maximum Credit Limit is reduced, it is my responsibility to request reinstatement of my Advance privileges that have been suspended. If I request reinstatement of my Advance Privileges, I further understand that I may be required to pay for an appraisal of the Property to determine if the value has changed.

 

If you suspend Advances or reduce the Maximum Credit Limit, I understand you will mail or deliver written notice of your action no later than three business days after the action and that such notice will contain the specific reason for the action.

 

Default/Termination. I will be in default if any of the following events shall occur:

(1) if I fail to make my payments when they are due;
(2) if I have engaged in fraud or material misrepresentation in connection with my Account;
(3) if my action or inaction adversely affects the Property or your rights in the Property or I am in breach of any term of the Security Instrument; or
(4) if I breach any term or, this Agreement.

 

If I am in Default under the terms of this Agreement, you may, at your option and in your sole discretion, take the following action:

(1) terminate my Advance privileges and demand the Outstanding Balance to be due and payable immediately in full in a single payment, with interest due on the Balance at the ANNUAL PERCENTAGE RATE as provided for in this Agreement until paid; or
(2) temporarily or permanently prohibit additional Advances or reduce the Maximum Credit Limit without demanding payment in full.

 

If you do not immediately terminate the Advance privileges and demand repayment of the Outstanding Balance, such action shall not constitute a waiver of your right to subsequently terminate the Account or demand repayment of the Outstanding Balance at a later time, if the event of Default still exists or another event of Default occurs at that time.

 

In the event of Default, if I do not immediately pay the Outstanding Balance and if this obligation is referred to an attorney-at-law for collection, who is not a salaried employee of you to the extent not prohibited by applicable law, you will have the right to collect attorney fees not exceeding fifteen percent (15%) of the Outstanding Balance along with court costs and expenses. Any default of this Agreement will also constitute an event of Default of the Security Instrument securing my performance of the obligations set forth in this Agreement. Upon Default, you may proceed to enforce the terms of this Agreement or enforce any rights that you may have under the Security Instrument.

 

“DEFAULT IN THE PAYMENT OF THE LOAN AGREEMENT MAY RESULT IN THE LOSS OF THE PROPERTY SECURING THIS LOAN. UNDER FEDERAL LAW, YOU MAY HAVE THE RIGHT TO CANCEL THIS LOAN. IF YOU HAVE THIS RIGHT, THE LENDER IS REQUIRED TO PROVIDE YOU WITH A SEPARATE WRITTEN NOTICE SPECIFYING THE CIRCUMSTANCES AND TIMES UNDER WHICH YOU CAN EXERCISE THIS RIGHT.”

 

Termination by Less than All Borrowers. If one or more persons are liable under the terms of this Agreement and less than all of said persons request in writing that future Advances be terminated or temporarily suspended hereunder, you will block and otherwise suspend further Advance privileges. Upon receipt of such notice from one or all of us, you will provide written notice to all Borrowers that the Advance privileges have been suspended. I understand that said Advance privileges will not be reinstated by you until you receive a written request from all persons liable on this Account requesting reinstatement of the Advance privileges. I further agree that any request to grant reinstatement will be made at the sole discretion of you and in accordance with your policies in effect at the time such request is made.

 

I understand that during the time of any such suspension or termination that I must continue to abide by the terms of the Agreement including, but not limited to the Payment Schedule.

 

Voluntary Termination. I can cancel my Account at any time by destroying all of my unused Prime Equity Line Checks and any Card Access Devices that may have been issued in connection with my Account and sending you a signed letter requesting that you cancel my Account. I understand that my obligations under this Agreement and any changes made under it prior to cancellation will continue to apply until I have completely paid the Outstanding Balance on the Account.

 

Required Property and Flood Insurance. I agree to purchase and to continue to maintain property insurance (and flood insurance if so required) on the secured Property in an amount not less than the entire Outstanding Balance for all prior and current obligations secured by my Property or in such an amount satisfactory to you. I understand I may purchase required property and flood insurance from anyone I choose who is acceptable to you. I agree that in the event I am required to purchase property and/or flood insurance and fail to do so that you may purchase said insurance on my behalf and add the amount of the premium to my then Outstanding Balance. I agree that you have an irrevocable power of attorney to file proofs of loss or other insurance claims and anything else to obtain insurance proceeds in my name.

 

Assignment/Transfer of Account. I cannot transfer or assign my Account or this Agreement to any other person, however, I agree you can assign or transfer this Agreement and the Security Instrument securing this Agreement.

 

Change of Address. I will advise you promptly if I change my mailing address or if I sell the Property securing this Account.

 

Notices. All written notices and statements from you to me will be considered given when placed in the United States mail, postage paid, and addressed to me at my current address as it appears in your records. If this is a joint Account, written notice to one person is notice to all persons.

 

Removal of Security Interest. At any time when the Outstanding Balance secured by the Security Instrument is zero, you shall, at my written request, execute a Satisfaction and provide me with a recorded copy. Absent my request, the Security Instrument will remain in full force and effect until the Draw Period has expired and the Outstanding Balance is paid in full.

 

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Governing Law. I agree that this Agreement shall be governed by and interpreted entirely under the law of the State where the Property securing this Agreement is located and applicable federal law. If the Property securing the Agreement is located in Maryland, this Agreement is governed by MD Code Ann., Commercial Law §12-1001 et. seq, and applicable federal law.

 

Other Provisions. Each of us who signed this Agreement is individually and jointly obligated for all payments due under this Agreement. If you request, I will give you any information needed to reevaluate my Account or my creditworthiness. You may, at any time, seek information about my financial condition from others including but not limited to obtaining a consumer report from a Consumer Reporting Agency. You may use the information obtained from a Consumer Reporting Agency to market additional products or services to me. In the event that the amount of interest on my Account exceeds the maximum permitted by law, you agree to repay me upon demand the amount paid which exceeds the maximum interest rate, or at your option, to reduce the then Outstanding Balance by the excess amount of interest. This Agreement constitutes the entire Agreement between the parties. If any part of this Agreement is not valid, all other parts will remain enforceable. I understand I should consult a tax advisor regarding the deductibility of interest and charges for my Account.

 

CAUTION - IT IS IMPORTANT THAT YOU READ ALL PAGES OF THIS AGREEMENT BEFORE YOU SIGN IT. DO NOT SIGN THIS AGREEMENT IF IT CONTAINS ANY BLANK SPACES.

 

By signing below, I agree to all of the above terms and certify that I received a completed copy of this Agreement.

 

/s/ Necdet Ergul  
Borrower  
NECDET ERGUL  
   
/s/ Gonul T Ergul  
Borrower  
GONUL T ERGUL  
   
   
Borrower  
   
   
Borrower  

 

*0311503235*

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MY BILLING RIGHTS

 

I SHOULD KEEP THIS NOTICE FOR FUTURE USE

 

This notice contains important information about my rights and your responsibilities under the Fair Credit Billing Act.

 

I SHOULD NOTIFY YOU IN CASE OF ERRORS OR QUESTIONS ABOUT MY STATEMENT.

 

If I think my Statement is wrong, or if I need more information about a transaction on my Statement, I should write you on a separate sheet at the address listed on my Statement. I should write you as soon as possible. You must hear from me no later than 60 days after you sent me the first statement on which the error or problem appeared. I can telephone you, but doing so will not preserve my rights.

 

In my letter, I must give you the following information:

 

My full name and PEL Account Number.
   
The dollar amount of the suspected error.
   
I must describe the error and explain, if I can, why I believe there is an error. If I need more information, I should describe the item I am not sure about.

 

MY RIGHTS AND YOUR RESPONSIBILITIES AFTER YOU RECEIVE MY WRITTEN NOTICE.

 

You must acknowledge my letter within 30 days, unless you have corrected the error by then. Within 90 days, you must either correct the error or explain why you believe the Statement was correct.

 

After you receive my letter, you cannot try to collect any amount I question, or report me as delinquent. You can continue to bill me for the amount I question, including finance charges, and you can apply any unpaid amount against my credit limit. I do not have to pay any questioned amount while you are investigating, but I am still obligated to pay the parts of my Statement that are not in question.

 

If you find that you made a mistake on my Statement, I will not have to pay any finance charges related to any questioned amount. If you didn't make a mistake, I may have to pay finance charges, and I will have to make up any missed payments on the questioned amount. In either case, you will send me a statement of the amount I owe and the date that it is due.

 

If I fail to pay the amount that you think I owe, you may report me as delinquent. However, if your explanation does not satisfy me and I write to you within ten days telling you that I still refuse to pay, you must tell anyone you report me to that I have a question about my Statement. And, you must tell me the name of anyone you reported me to. You must tell anyone you report me to that the matter has been settled between us when it finally is.

 

If you don’t follow these rules, you can't collect the first $50 of the questioned amount, even if my Statement was correct.

 

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EX-10.4 7 v398941_ex10-4.htm EXHIBIT 10.4

 

Exhibit 10.4

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of February 12, 2015, by and between Microphase Corporation, a Connecticut corporation with its principal place of business located at 587 Connecticut Ave., Norwalk, Connecticut 06854 (the “Company”), and Necdet Ergul, an individual and resident of the State of Connecticut with an address located at 88 Round Hill Road, Greenwich, Connecticut 06831 (“Executive” and together with the Company, the “Parties” and each, a “Party”).

 

RECITALS

 

A.           Executive is currently the Company’s Chief Executive Officer.

 

B.           Executive possesses certain knowledge and skills relating to the Company’s business, structure and operations that the Company wishes to retain for the development and success of the Company’s business.

 

C.            The Company wishes to employ Executive, and Executive wishes to be employed by the Company, on the terms and conditions contained herein.

 

NOW, THEREFORE, in consideration of the premises set forth above and for other good and valuable consideration mutually exchanged by the Parties, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

 

1.           Employment; Duties. The Company hereby employs Executive, and Executive hereby accepts employment, as Chairman, Chief Executive Officer and President of the Company, subject to the terms and conditions set forth in this Agreement. As Chairman, Chief Executive Officer and President, Executive shall have such duties, responsibilities and authority as are commensurate and consistent with his position and as may, from time to time, be assigned to him by the board of directors of the Company (the “Board”). Executive shall report directly to the Board. During the Term (as defined herein), Executive shall devote his full business time and efforts to the performance of his duties hereunder, unless otherwise explicitly authorized by the Board. Notwithstanding the foregoing, the expenditure of reasonable amounts of time by Executive for the making of passive personal investments, the conduct of private business affairs and charitable activities shall be allowed, provided that such activities do not materially interfere with the services required to be rendered to the Company hereunder and do not violate the restrictive covenants set forth herein.

 

2.           Employment Period. The term of Executive’s employment hereunder, unless sooner terminated as provided herein (the “Initial Term”), shall be for a period of thirty-six (36) months, having commenced on February 1, 2015 (the “Commencement Date”) and ending on February 1, 2018. The term of this Agreement shall automatically be extended for additional terms of one (1) year each (each a “Renewal Term”), unless either Party gives prior written notice of non-renewal (“Non-Renewal Notice”) to the other Party no later than sixty (60) days prior to the expiration of the then current Term (as defined herein). For purposes of this Agreement, the Initial Term and any Renewal Term are hereinafter collectively referred to as the “Term”.

 

 
 

 

3.           Compensation of Executive.

 

(a)          Fees for Services. In consideration of the services rendered by Executive (the “Services”) and Executive’s other obligations under this Agreement, the annual base compensation for this position will be $225,000. Such compensation shall be payable in such installments as the Company pays its other employees.

 

(b)          Expenses. Pursuant to the Company’s customary policies in force at the time of payment, Executive shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all expenses properly and reasonably incurred by Executive on behalf of the Company in the performance of Executive’s duties hereunder.

 

(c)          Benefits. Executive shall be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health (for Executive and his immediate family) and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior executives (the “Benefit Plans”).

 

(d)          Vacation Benefits. During the Employment Period, the Executive shall be entitled to receive vacation benefits in accordance with the Company’s applicable policies and procedures in effect as of the Effective Date of this Agreement, or which becomes effective during the Term of this Agreement and/or any renewal or extension period thereafter. Subject to said vacation policies and procedures, the Executive shall be entitled to receive four (4) weeks of Company paid vacation, per year.

 

(e)          Indemnification and D&O Insurance. The Company agrees to indemnify the Executive to the maximum extent permitted by the Company’s Articles of Incorporation or Bylaws, including, providing to the Executive, if applicable, any Directors or Officers Insurance Policy, in effect as of the Effective Date, or which becomes effective during the Term of this Agreement and/or any renewal or extension period thereafter, with such indemnification of the Executive to be on terms determined by the Board, or any of its authorized Committees, but on terms no less favorable than provided to any other Company executive, officer or director, and subject further to the terms of any separate written Indemnification Agreement.

 

4.           Termination and Forfeiture of Payments and Benefits.

 

(a)          Termination by Company for Cause. Executive’s employment with the Company may be terminated at any time by the Company for Cause. Upon such a termination, the Company shall have no obligation to Executive pursuant to this Agreement other than the payment of Executive’s earned and unpaid compensation, vested and accrued benefits under the Company’s ERISA-based plans and accrued but unreimbursed expenses pursuant to Section 3(d) (collectively, the “Accrued Obligations”) to the effective date of such termination.

 

For purposes of this Agreement, the term “Cause” shall mean any of the following:

 

(i)          Executive’s willful failure to perform his duties or Executive’s bad faith in connection with the performance of his duties, following written notice from the Board, or its designee, detailing the specific acts and a thirty (30) day period of time to remedy such failure;

 

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(ii)         Executive engaging in any misconduct, negligence, act of dishonesty, violence or threat of violence that is injurious to the Company;

 

(iii)        Executive’s material breach of a written policy of the Company, which policy has been provided to Executive, or the existence of which Executive should reasonably have known, in connection with his employment, which breach is not remedied (if susceptible to remedy) following written notice by the Board, or its designee, detailing the specific breach and a thirty (30) day period of time to remedy such breach;

 

(iv)        Any material breach by Executive of this Agreement, which breach is not remedied (if susceptible to remedy) following written notice by the Board, or its designee, detailing the specific breach and a thirty (30) day period of time to remedy such breach; or

 

(v)         Executive’s conviction of a felony or crime involving dishonesty or moral turpitude, or which reflects negatively upon the Company or impairs or impedes its operations.

 

(b)          Permanent Disability. If during his employment with the Company, (i) Executive becomes ill, mentally or physically disabled, or otherwise incapacitated so as to be unable regularly to perform the duties of his position for a period in excess of 90 consecutive days or more than 180 days in any consecutive 12-month period, or (ii) a qualified independent physician determines that Executive is mentally or physically disabled so as to be unable to regularly perform the duties of his position and such condition is expected to be of a permanent duration (a “Permanent Disability”), then the Company shall have the right to terminate Executive’s employment with the Company upon written notice to Executive. Upon such a termination, the Company shall have no obligation to Executive other than (i) the payment of the Accrued Obligations; (ii) all Options which have vested as of the date of termination; and (iii) Severance, as that term is defined in Paragraph 4(d).

 

(c)          Death. Executive’s employment with the Company shall be deemed terminated by the Company upon the death of the Executive, and the Company shall have no obligation to the Executive or the Executive’s estate other than (i) the payment of the Accrued Obligations; (ii) all Options which have vested as of the date of death; and (iii) Severance, as that term is defined in Paragraph 4(d) .

 

(d)          Termination by the Company without Cause. Executive’s employment with the Company may be terminated at any time by the Company without Cause, upon the Board’s approval, by a majority vote of the Board members in favor of such termination. In the event that Executive’s employment with the Company is terminated by the Company without Cause, the Company shall have no obligation to Executive other than (subject to Executive’s continued compliance with his obligations under this Agreement): (i) the payment of the Accrued Obligations (and any rights under the Stock Option Agreement that survive such termination, including the understanding that any portion of the Options that have not vested as of the date of termination, shall vest in full as of the date of such termination); and (ii) a continuation of the Executive’s Base Salary (at the rate in effect at the time of such termination) for a period of time commencing on the date of termination and ending on the date that is 12 months after such date of termination (“Severance”)

 

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(e)          Termination by Executive for Good Reason.

 

(i)          Executive’s employment with the Company may be terminated at any time by Executive for Good Reason. In the event that Executive terminates his employment with the Company for Good Reason, Executive shall be entitled to the same Accrued Obligations, Option vesting, and Severance that he would have been entitled to receive under Section 4(d) as if his employment were terminated by the Company without Cause.

 

(ii)         For purposes of this Agreement, the term “Good Reason” shall mean either any material breach of this Agreement by the Company which remains in effect thirty (30) days after written notice is provided by Executive to Company detailing such condition or event of breach, or a material change in Executive’s position, duties and responsibilities. The above notwithstanding, if Executive’s Compensation does not decrease resulting from such material change, then such material change shall not be deemed “Good Reason” for termination purposes.

 

(f)          Termination by Executive without Good Reason. The Executive may voluntarily resign from his employment with the Company without Good Reason, provided that Executive shall provide the Company with ninety (90) days’ advance written notice (which notice requirement may be waived, in whole or in part, by the Company in its sole discretion) of his intent to terminate. Upon such a termination, the Company shall have no obligation other than the payment of the Accrued Obligations to the effective date of such termination. Any Options which have not vested on the date of termination shall be deemed to be null and void.

 

(g)          Release of Claims. As a condition to receiving the payments set forth in Section 4(d) or Section 4(e) upon a termination by the Company without Cause or by Executive for Good Reason, Executive shall be required to execute and not revoke a waiver and release of claims, in a form provided by the Company.

 

5.           Covenants.

 

(a)          Confidentiality.

 

(i)          Proprietary Information. Executive understands and acknowledges that, during the course of his employment with the Company, Executive shall create and has created, as well as shall be granted and has been granted access to, certain valuable information relating to the business of the Company that provides the Company with a competitive advantage (or that which could be used to the disadvantage of the Company by a Competitive Business, as defined herein), which is not generally known by, nor easily learned or determined by, persons outside the Company (collectively referred to herein as “Proprietary Information”) including, but not limited to: Developments (as defined herein), the Company’s products, applications, methods, trade secrets and other intellectual property, the research, development, procedures, manuals, confidential reports, technical information, financial information, business plans, prospects of opportunities, purchasing, operating and other cost data, employee information (including, but not limited to, personnel, payroll, compensation and benefit data and plans), including all such information recorded in manuals, memoranda, projections, reports, minutes, plans, drawings, sketches, designs, formula books, data, specifications, software programs and records, whether or not legended or otherwise identified by the Company as Proprietary Information, as well as such information that is the subject of meetings and discussions and not recorded. Proprietary Information shall not include such information that Executive can demonstrate is generally available to the public (other than as a result of a disclosure by Executive).

 

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(ii)         Duty of Confidentiality. Executive agrees at all times, both during and after Executive’s employment with the Company, (i) to hold all Proprietary Information in a confidential manner for the benefit of the Company, to reasonably safeguard all such Proprietary Information; and (ii) to adhere to any non-disclosure, confidentiality or other similar agreements to which Executive or the Company is or becomes a party or subject thereto. Executive also agrees that he shall not, directly or indirectly, disclose any such Proprietary Information to, or use such Proprietary Information for the benefit of, any third person or entity outside the Company, except to persons identified in writing by the Company. Executive further agrees that, in addition to enforcing this restriction, the Company may have other rights and remedies under the common law or applicable statutory laws relating to the protection of trade secrets.

 

(iii)        Investors, Other Third-Parties, and Goodwill. Executive acknowledges that all Company Investors, together with all distributors, representatives, agents, licensees and third-parties (“Other Third Parties”) that the Executive interacts and works with while employed by Company, are doing business with the Company and not with the Executive, personally, and that in the course of dealing with such Investors and Other Third Parties, the Company has established goodwill with respect to each such Investor and Other Third Party that is created and maintained at the Company’s expense (“Third-Party Goodwill”). Executive also acknowledges that, by virtue of his employment with the Company, he has gained or will gain knowledge of the business needs of, and other information concerning, the Investors and Other Third Parties, and that Executive will inevitably have to draw on such information if Executive solicits or provides services to any Investor or Other Third Parties on his own behalf or on behalf of a Competitive Business. For purposes of this Agreement, “Competitive Business” shall mean any enterprise engaged in the RF and Microwave device business that is substantially similar to that which the Company is engaged, or plans to be engaged, so long as Executive is directly involved in such business or planned business on behalf of the Company.

 

(iv)        Nondisparagement. The Executive agrees that at no time during his employment by the Company or thereafter, shall he make, or cause or assist any other person to make, any statement or other communication to any third party which impugns or attacks, or is otherwise critical of, the reputation, business or character of the Company or any of its respective directors, officers or employees.

 

(b)          Restrictions on Solicitation. Executive shall not, directly or indirectly, without the prior written consent and approval of the Company, (i) interfere with or attempt to interfere with the relationship between any person who is, or was during the then most recent three (3) month period, an employee, agent, representative or independent contractor of the Company, or solicit, induce or attempt to solicit or induce any of them to leave the employ or service of the Company or to violate the terms of their respective contracts, agreements or any employment arrangements with the Company; or (ii) induce or attempt to induce any customer, client, supplier, distributor, licensee or other business relation of the Company to cease doing business with the Company, or in any way interfere with the contract or relationship between the Company and any customer, client, supplier, distributor, licensee or other business relation of the Company. As used herein, the term “indirectly” shall include, without limitation, Executive’s permitting the use of Executive’s name by any Competitive Business to induce or interfere with any employee or business relationship of the Company.

 

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(c)          Restrictions on Executive’s Competitive Employment. In order to protect the Company’s Proprietary Information and Third-Party Goodwill, Executive acknowledges and agrees that in the event this Agreement is terminated for any reason, then, from the date of such termination, or from the last date upon which Severance is paid to Executive, whichever is later, and for a period of one (1) year thereafter, the Executive shall not, without the Company’s express written consent, directly or indirectly, own, control, manage, operate, participate in, be employed by, permit the use of his name with, or act for or on behalf of, any Competitive Business which competes directly with the Company and its RF & Microwave devices and products. The Executive agrees that the restriction on competitive employment contemplated herein is necessary and reasonable in order to protect the Company in the conduct of its business.

 

(d)          Assignment of Developments.

 

(i)          Executive acknowledges and agrees that all developments, including, without limitation, the creation of new products, devices, inventions, discoveries, concepts, ideas, improvements, patents, trademarks, trade names, trade dress, service marks, copyrights, domain names, trade secrets, designs, works, reports, computer software or systems, flow charts, diagrams, procedures, data, documentation, and writings and applications thereof, including all results and proceeds of the foregoing, relating to the Business or future business of the Company that Executive, alone or jointly with others, has discovered, suggested, conceived, created, made, developed, reduced to practice, or acquired during Executive’s employment with or as a result of Executive’s employment with the Company (collectively, “Developments”) are being prepared by Executive as an employee of the Company within the scope of Executive’s employment and shall be considered as “works made for hire” and shall remain the sole and exclusive property of the Company, free of any reserved or other rights of any kind on Executive’s part. If and to the extent the fact that the Developments are works made for hire is not effective to place ownership of the Developments and all rights therein to the Company, then Executive hereby solely, exclusively and irrevocably assigns and transfers to the Company any and all of his right, title and interest in and to the Developments. Executive agrees to disclose to the Company promptly and fully all future Developments and, at any time upon request and at the expense of the Company, to execute, acknowledge and deliver to the Company all instruments that the Company shall prepare and to take any and all other actions that are necessary or desirable, in the reasonable opinion of the Company, to evidence or effectuate all or any of the Company’s rights hereunder, including executing and delivering patent, trademark or copyright applications and instruments of assignment to the Company and enabling the Company to file instruments of assignment for, to file and prosecute applications for, and to acquire, maintain, and enforce, all patents, trademarks or copyrights covering the Developments in all countries in which the same are deemed necessary by the Company. All data, memoranda, notes, lists, drawings, records, files, investor and client/customer lists, supplier lists, and other documentation (and all copies thereof) made or compiled by Executive or made available to Executive concerning the Developments or otherwise concerning the past, present, or planned business of the Company are the property of the Company, and shall be delivered to the Company immediately upon the termination of Executive’s employment with the Company.

 

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(ii)         If any patent, trademark or copyright application is filed by Executive or on Executive’s behalf during Executive’s employment with the Company or within one (1) year after Executive’s leaving the Company’s employ, describing a Development within the scope of Executive’s work for the Company or which otherwise relates to a portion of the business of the Company, of which the Executive had knowledge during Executive’s employment with the Company, it is to be conclusively presumed that the Development was conceived by Executive during the period of such employment.

 

(e)          Remedies. Executive acknowledges that the Company has a compelling business interest in preventing unfair competition stemming from the intentional or inadvertent use or disclosure of the Company’s Proprietary Information. Executive further acknowledges and agrees that damages for a breach or threatened breach of any of the covenants set forth in this Section 5 will be difficult to determine and will not afford a full and adequate remedy, and therefore agrees that the Company, in addition to seeking actual damages in connection therewith and the termination of the Company’s obligations in Section 4.4 and Section 4.5, may seek specific enforcement of any such covenant in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction without the necessity of showing any actual damages or posting any bond or furnishing any other security, and that the specific enforcement of the provisions of this Agreement will not diminish Executive’s ability to earn a livelihood or create or impose upon Executive any undue hardship. Executive also agrees that any request for such relief by the Company shall be in addition to, and without prejudice to, any claim for monetary damages that the Company may elect to assert.

 

(f)          Rights to Materials and Return of Materials. All papers, files, notes, correspondence, lists, software, software code, memoranda, e-mails, price lists, plans, sketches, documents, reports, records, data, research, proposals, specifications, technical information, models, flow charts, schematics, tapes, printouts, designs, graphics, drawings, photographs, abstracts, summaries, charts, graphs, notebooks, investor lists, customer/client lists, information on the use, development and integration of software, information relating to the research, development, preparation, maintenance and sale of RF & Microwave products or any other such Company created RF & Microwave products, and all other compilations of information, regardless of how such information may be recorded and whether in printed form or on a computer or magnetic disk or in any other medium (together with all copies of such documents and things) relating to the Business of the Company or containing Proprietary Information and/or Developments, which Executive shall use or prepare or come in contact with in the course of, or as a result of, Executive’s employment by the Company shall, as between the parties to this Agreement, remain the sole property of the Company. Laptop computers, other computers, software and related data, information and other property provided to Executive by the Company or obtained by Executive, directly or indirectly, from the Company, also shall remain the sole property of the Company. Upon the termination of Executive’s employment or upon the prior demand of the Company, Executive shall immediately return all such materials and things to the Company and shall not retain any copies or remove or participate in removing any such materials or things from the premises of the Company after termination or the Company’s request for return.

 

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6.           Notices. Any notice or communication given by either Party hereto to the other shall be in writing and personally delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to the following addresses:

 

  If to the Company: Microphase Corporation
    587 Connecticute Avenue
    Norwalk, CT 06856
    Attention:  Company CEO
    Facsimile: 203-853-3304
     
  With a copy to: Lucosky Brookman LLP
    101 Wood Avenue South, 5th Floor
    Woodbridge, New Jersey 08830
    Attn: Scott E. Linsky
    Facsimile: (732) 396-4401
     
  If to Executive: Necdet Ergul
    88 Round Hill Road,
    Greenwich, Connecticut 06831

 

Any notice shall be deemed given when actually delivered to such address, or two days after such notice has been mailed or sent by Federal Express, whichever comes earliest. Any person entitled to receive notice may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent.

 

7.           Miscellaneous.

 

(a)          Representations and Covenants. In order to induce the Company to enter into this Agreement, the Executive makes the following representations and covenants to the Company and acknowledges that Company is relying upon such representations and covenants:

 

(i)          No agreements or obligations exist to which the Executive is a party or otherwise bound, in writing or otherwise, that in any way interfere with, impede or preclude him from fulfilling any and all of the terms and conditions of this Agreement.

 

(ii)         Executive, during his employment, shall use his best efforts to disclose to the Board, in writing, or by other effective method, any bona fide information known by him, which he reasonably believes is not known to the Board, and which he reasonably believes would have any material negative impact on the Company.

 

(b)          Entire Agreement. This Agreement contains the entire understanding of the Parties with respect to the subject matter contained herein and supersedes the effectiveness all other prior agreements and understandings between the Parties or between Executive and the Company with respect to such subject matter.

 

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(c)          Amendment; Waiver. The Parties agree that this Agreement may not be amended, supplemented, canceled or discharged, except by written instrument executed by the Party against whom enforcement is sought. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision.

 

(d)          Binding Effect; Assignment. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor of the Company by reorganization, merger or consolidation, or any assignee of all or substantially all of the Company’s business. Executive’s rights or obligations under this Agreement may not be assigned by Executive.

 

(e)          Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

(f)          Governing Law; Jurisdiction; Interpretation. This Agreement shall be construed in accordance with and governed for all purposes, by the laws and public policy of the State of New York, except as it pertains to conflict of laws principles. Jurisdiction and venue shall be conferred upon the state and federal courts located in the City and State of New York.

 

(g)          Further Assurances. Each of the Parties agree to execute, acknowledge, deliver and perform, and cause to be executed, acknowledged, delivered and performed, at any time, and from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably necessary to carry out the provisions or intent of this Agreement.

 

(h)          Severability. The Parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable. However, in light of the possibility of differing interpretations of law and changes in circumstances, the Parties further agree that if any one or more of the provisions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions of this Agreement shall, to the extent permitted by law, remain in full force and effect and shall in no way be affected, impaired or invalidated. Moreover, if any of the provisions contained in this Agreement are determined by a court of competent jurisdiction to be excessively broad as to duration, activity or subject, it shall be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the maximum extent compatible with then applicable law.

 

(i)          Withholding Taxes. All payments hereunder shall be subject to any and all applicable federal, state, local and foreign withholding taxes.

 

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(j)          Compliance with Section 409A. Notwithstanding anything herein to the contrary, (i) if at the time of Executive’s termination of employment with the Company the Executive is a “specified employee” as defined in Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company shall defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to Executive) until the date that is six months following Executive’s termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Board, that does not cause such an accelerated or additional tax while, to the extent possible, preserving the overall economic benefit to the Executive of such payments or benefits. The Company shall consult with Executive in good faith regarding the implementation of the provisions of this Section 7.10; provided that neither the Company nor any of its officers, directors, shareholders, employees, agents or representatives shall have any liability to the Executive with respect thereto.

 

(k)          Survival. Notwithstanding the termination of the Executive’s employment hereunder, the terms, conditions and provisions contained herein shall survive such termination.

 

(l)          Counterparts. The Parties agree that this Agreement may be signed in two (2) or more counterparts, each of which shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same instrument.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties hereto have executed, or have caused to have executed, this Agreement as of the day and year first above written.

 

  MICROPHASE CORPORATION
   
     
  By: /s/ James Ashman
  Name:  James Ashman
  Title:    Chief Financial Officer
     
  EXECUTIVE
   
  /s/ Necdet Ergul
  NECDET ERGUL, an individual

 

 

EX-10.5 8 v398941_ex10-5.htm EXHIBIT 10.5

 

Exhibit 10.5

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of February 12, 2015, by and between Microphase Corporation, a Connecticut corporation with its principal place of business located at Microphase Corporation, 587 Connecticut Avenue, Norwalk, CT 06856 (the “Company”), and James Ashman, an individual and resident of the State of Connecticut, with an address located at 35 Wright St., Westport, CT 06880 (“Executive” and together with the Company, the “Parties” and each, a “Party”).

 

RECITALS

 

A.            Executive is currently the Company’s Chief Financial Officer.

 

B.            Executive possesses certain knowledge and skills relating to the Company’s business, structure and operations that the Company wishes to retain for the development and success of the Company’s business.

 

C.            The Company wishes to employ Executive, and Executive wishes to be employed by the Company, on the terms and conditions contained herein.

 

NOW, THEREFORE, in consideration of the premises set forth above and for other good and valuable consideration mutually exchanged by the Parties, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

 

1.           Employment; Duties. The Company hereby employs Executive, and Executive hereby accepts employment, as Chief Financial Officer of the Company, subject to the terms and conditions set forth in this Agreement. As Chief Financial Officer, Executive shall have such duties, responsibilities and authority as are commensurate and consistent with his position and as may, from time to time, be assigned to him by the board of directors of the Company (the “Board”) or the Company’s Chief Executive Officer. Executive shall report directly to the Board. During the Term (as defined herein), Executive shall devote his full business time and efforts to the performance of his duties hereunder, except as may be otherwise expressly approved by the Board. Notwithstanding the foregoing, the expenditure of reasonable amounts of time by Executive for the making of passive personal investments, the conduct of private business affairs, and charitable activities shall be allowed, provided that such activities do not materially interfere with the services required to be rendered to the Company hereunder and do not violate the restrictive covenants set forth herein.

 

2.           Term of Employment. The Executive’s employment hereunder shall be “at will” (such term of employment, the “Term”).

 

3.           Compensation of Executive.

 

(a)          Fees for Services. In consideration of the services rendered by Executive (the “Services”) and Executive’s other obligations under this Agreement, the annual base compensation for this position will be $135,000. Such compensation shall be payable in such installments as the Company pays its other employees.

 

 
 

 

(b)          Expenses. Pursuant to the Company’s customary policies in force at the time of payment, Executive shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all expenses properly and reasonably incurred by Executive on behalf of the Company in the performance of Executive’s duties hereunder.

 

(c)          Benefits. Executive shall be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health (for Executive and his immediate family) and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior executives (the “Benefit Plans”).

 

(d)          Vacation Benefits. During the Term, the Executive shall be entitled to receive vacation benefits in accordance with the Company’s applicable policies and procedures in effect as of the Effective Date of this Agreement, or which becomes effective during the Term of this Agreement and/or any renewal or extension period thereafter. Subject to said vacation policies and procedures, the Executive shall be entitled to receive four (4) weeks of Company paid vacation, per year.

 

(e)          Indemnification and D&O Insurance. The Company agrees to indemnify the Executive to the maximum extent permitted by the Company’s Articles of Incorporation or Bylaws, including, providing to the Executive, if applicable, any Directors or Officers Insurance Policy, in effect as of the Effective Date, or which becomes effective during the Term of this Agreement and/or any renewal or extension period thereafter, with such indemnification of the Executive to be on terms determined by the Board, or any of its authorized Committees, but on terms no less favorable than provided to any other Company executive, officer or director, and subject further to the terms of any separate written Indemnification Agreement.

 

4.           Termination and Forfeiture of Payments and Benefits. Executive’s employment with the Company may be terminated at any time by the Company for any reason or no reason, upon the Board’s approval, by a majority vote of the Board members in favor of such termination. In the event that Executive’s employment with the Company is terminated by the Company, the Company shall have no obligation to Executive other than (subject to Executive’s continued compliance with his obligations under this Agreement): (i) the payment of the Executive’s earned and unpaid compensation, vested and accrued benefits under the Company’s ERISA-based plans and accrued but unreimbursed expenses pursuant to Section 3(d) (collectively, the “Accrued Obligations”); and (ii) a continuation of the Executive’s Base Salary (at the rate in effect at the time of such termination) for a period of time commencing on the date of termination and ending on the date that is 6 months from the date of termination (“Severance”).

 

5.           Covenants.

 

(a)          Confidentiality.

 

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(i)          Proprietary Information. Executive understands and acknowledges that, during the course of his employment with the Company, Executive shall create and has created, as well as shall be granted and has been granted access to, certain valuable information relating to the business of the Company that provides the Company with a competitive advantage (or that which could be used to the disadvantage of the Company by a Competitive Business, as defined herein), which is not generally known by, nor easily learned or determined by, persons outside the Company (collectively referred to herein as “Proprietary Information”) including, but not limited to: Developments (as defined herein), the Company’s products, applications, methods, trade secrets and other intellectual property, the research, development, procedures, manuals, confidential reports, technical information, financial information, business plans, prospects of opportunities, purchasing, operating and other cost data, employee information (including, but not limited to, personnel, payroll, compensation and benefit data and plans), including all such information recorded in manuals, memoranda, projections, reports, minutes, plans, drawings, sketches, designs, formula books, data, specifications, software programs and records, whether or not legended or otherwise identified by the Company as Proprietary Information, as well as such information that is the subject of meetings and discussions and not recorded. Proprietary Information shall not include such information that Executive can demonstrate is generally available to the public (other than as a result of a disclosure by Executive).

 

(ii)         Duty of Confidentiality. Executive agrees at all times, both during and after Executive’s employment with the Company, (i) to hold all Proprietary Information in a confidential manner for the benefit of the Company, to reasonably safeguard all such Proprietary Information; and (ii) to adhere to any non-disclosure, confidentiality or other similar agreements to which Executive or the Company is or becomes a party or subject thereto. Executive also agrees that he shall not, directly or indirectly, disclose any such Proprietary Information to, or use such Proprietary Information for the benefit of, any third person or entity outside the Company, except to persons identified in writing by the Company. Executive further agrees that, in addition to enforcing this restriction, the Company may have other rights and remedies under the common law or applicable statutory laws relating to the protection of trade secrets.

 

(iii)        Investors, Other Third-Parties, and Goodwill. Executive acknowledges that all Company Investors, together with all distributors, representatives, agents, licensees and third-parties (“Other Third Parties”) that the Executive interacts and works with while employed by Company, are doing business with the Company and not with the Executive, personally, and that in the course of dealing with such Investors and Other Third Parties, the Company has established goodwill with respect to each such Investor and Other Third Party that is created and maintained at the Company’s expense (“Third-Party Goodwill”). Executive also acknowledges that, by virtue of his employment with the Company, he has gained or will gain knowledge of the business needs of, and other information concerning, the Investors and Other Third Parties, and that Executive will inevitably have to draw on such information if Executive solicits or provides services to any Investor or Other Third Parties on his own behalf or on behalf of a Competitive Business. For purposes of this Agreement, “Competitive Business” shall mean any enterprise engaged in the RF & Microwave products business that is substantially similar to that which the Company is engaged, or plans to be engaged, so long as Executive is directly involved in such business or planned business on behalf of the Company.

 

(iv)         Nondisparagement. The Executive agrees that at no time during his employment by the Company or thereafter, shall he make, or cause or assist any other person to make, any statement or other communication to any third party which impugns or attacks, or is otherwise critical of, the reputation, business or character of the Company or any of its respective directors, officers or employees.

 

3
 

 

(b)          Restrictions on Solicitation. Executive shall not, directly or indirectly, without the prior written consent and approval of the Company, (i) interfere with or attempt to interfere with the relationship between any person who is, or was during the then most recent three (3) month period, an employee, agent, representative or independent contractor of the Company, or solicit, induce or attempt to solicit or induce any of them to leave the employ or service of the Company or to violate the terms of their respective contracts, agreements or any employment arrangements with the Company; or (ii) induce or attempt to induce any customer, client, supplier, distributor, licensee or other business relation of the Company to cease doing business with the Company, or in any way interfere with the contract or relationship between the Company and any customer, client, supplier, distributor, licensee or other business relation of the Company. As used herein, the term “indirectly” shall include, without limitation, Executive’s permitting the use of Executive’s name by any Competitive Business to induce or interfere with any employee or business relationship of the Company.

 

(c)          Restrictions on Executive’s Competitive Employment. In order to protect the Company’s Proprietary Information and Third-Party Goodwill, Executive acknowledges and agrees that in the event this Agreement is terminated for any reason, then, from the date of such termination, or from the last date upon which Severance is paid to Executive, whichever is later, and for a period of one (1) year thereafter, the Executive shall not, without the Company’s express written consent, directly or indirectly, own, control, manage, operate, participate in, be employed by, permit the use of his name with, or act for or on behalf of, any Competitive Business which competes directly with the Company and its RF & Microwave products. The Executive agrees that the restriction on competitive employment contemplated herein is necessary and reasonable in order to protect the Company in the conduct of its business.

 

(d)          Assignment of Developments.

 

(i)          Executive acknowledges and agrees that all developments, including, without limitation, the creation of new products, devices, inventions, discoveries, concepts, ideas, improvements, patents, trademarks, trade names, trade dress, service marks, copyrights, domain names, trade secrets, designs, works, reports, computer software or systems, flow charts, diagrams, procedures, data, documentation, and writings and applications thereof, including all results and proceeds of the foregoing, relating to the Business or future business of the Company that Executive, alone or jointly with others, has discovered, suggested, conceived, created, made, developed, reduced to practice, or acquired during Executive’s employment with or as a result of Executive’s employment with the Company (collectively, “Developments”) are being prepared by Executive as an employee of the Company within the scope of Executive’s employment and shall be considered as “works made for hire” and shall remain the sole and exclusive property of the Company, free of any reserved or other rights of any kind on Executive’s part. If and to the extent the fact that the Developments are works made for hire is not effective to place ownership of the Developments and all rights therein to the Company, then Executive hereby solely, exclusively and irrevocably assigns and transfers to the Company any and all of his right, title and interest in and to the Developments. Executive agrees to disclose to the Company promptly and fully all future Developments and, at any time upon request and at the expense of the Company, to execute, acknowledge and deliver to the Company all instruments that the Company shall prepare and to take any and all other actions that are necessary or desirable, in the reasonable opinion of the Company, to evidence or effectuate all or any of the Company’s rights hereunder, including executing and delivering patent, trademark or copyright applications and instruments of assignment to the Company and enabling the Company to file instruments of assignment for, to file and prosecute applications for, and to acquire, maintain, and enforce, all patents, trademarks or copyrights covering the Developments in all countries in which the same are deemed necessary by the Company. All data, memoranda, notes, lists, drawings, records, files, investor and client/customer lists, supplier lists, and other documentation (and all copies thereof) made or compiled by Executive or made available to Executive concerning the Developments or otherwise concerning the past, present, or planned business of the Company are the property of the Company, and shall be delivered to the Company immediately upon the termination of Executive’s employment with the Company.

 

4
 

 

(ii)         If any patent, trademark or copyright application is filed by Executive or on Executive’s behalf during Executive’s employment with the Company or within one (1) year after Executive’s leaving the Company’s employ, describing a Development within the scope of Executive’s work for the Company or which otherwise relates to a portion of the business of the Company, of which the Executive had knowledge during Executive’s employment with the Company, it is to be conclusively presumed that the Development was conceived by Executive during the period of such employment.

 

(e)          Remedies. Executive acknowledges that the Company has a compelling business interest in preventing unfair competition stemming from the intentional or inadvertent use or disclosure of the Company’s Proprietary Information. Executive further acknowledges and agrees that damages for a breach or threatened breach of any of the covenants set forth in this Section 5 will be difficult to determine and will not afford a full and adequate remedy, and therefore agrees that the Company, in addition to seeking actual damages in connection therewith and the termination of the Company’s obligations in Section 4.4 and Section 4.5, may seek specific enforcement of any such covenant in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction without the necessity of showing any actual damages or posting any bond or furnishing any other security, and that the specific enforcement of the provisions of this Agreement will not diminish Executive’s ability to earn a livelihood or create or impose upon Executive any undue hardship. Executive also agrees that any request for such relief by the Company shall be in addition to, and without prejudice to, any claim for monetary damages that the Company may elect to assert.

 

(f)          Rights to Materials and Return of Materials. All papers, files, notes, correspondence, lists, software, software code, memoranda, e-mails, price lists, plans, sketches, documents, reports, records, data, research, proposals, specifications, technical information, models, flow charts, schematics, tapes, printouts, designs, graphics, drawings, photographs, abstracts, summaries, charts, graphs, notebooks, investor lists, customer/client lists, information on the use, development and integration of software, information relating to the research, development, preparation, maintenance and sale of RF & Microwave products or any other such Company created RF & Microwave products, and all other compilations of information, regardless of how such information may be recorded and whether in printed form or on a computer or magnetic disk or in any other medium (together with all copies of such documents and things) relating to the Business of the Company or containing Proprietary Information and/or Developments, which Executive shall use or prepare or come in contact with in the course of, or as a result of, Executive’s employment by the Company shall, as between the parties to this Agreement, remain the sole property of the Company. Laptop computers, other computers, software and related data, information and other property provided to Executive by the Company or obtained by Executive, directly or indirectly, from the Company, also shall remain the sole property of the Company. Upon the termination of Executive’s employment or upon the prior demand of the Company, Executive shall immediately return all such materials and things to the Company and shall not retain any copies or remove or participate in removing any such materials or things from the premises of the Company after termination or the Company’s request for return.

 

5
 

 

6.           Notices. Any notice or communication given by either Party hereto to the other shall be in writing and personally delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to the following addresses:

 

  If to the Company: Microphase Corporation
    587 Connecticut Avenue
    Norwalk, CT 06856
    Attention:  Company CEO
    Facsimile: (203) 853-3304
     
  With a copy to: Lucosky Brookman LLP
    101 Wood Avenue South, 5th Floor
    Woodbridge, New Jersey 08830
    Attn: Scott E. Linsky
    Facsimile: (732) 396-4401
     
  If to Executive: James Ashman
    35 Wright St.,
    Westport, CT 06880

 

Any notice shall be deemed given when actually delivered to such address, or two days after such notice has been mailed or sent by Federal Express, whichever comes earliest. Any person entitled to receive notice may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent.

 

7.           Miscellaneous.

 

(a)          Representations and Covenants. In order to induce the Company to enter into this Agreement, the Executive makes the following representations and covenants to the Company and acknowledges that Company is relying upon such representations and covenants:

 

(i)          No agreements or obligations exist to which the Executive is a party or otherwise bound, in writing or otherwise, that in any way interfere with, impede or preclude him from fulfilling any and all of the terms and conditions of this Agreement.

 

6
 

 

(ii)         Executive, during his employment, shall use his best efforts to disclose to the Board, in writing, or by other effective method, any bona fide information known by him, which he reasonably believes is not known to the Board, and which he reasonably believes would have any material negative impact on the Company.

 

(b)          Entire Agreement. This Agreement contains the entire understanding of the Parties with respect to the subject matter contained herein and supersedes the effectiveness all other prior agreements and understandings between the Parties or between Executive and the Company with respect to such subject matter.

 

(c)          Amendment; Waiver. The Parties agree that this Agreement may not be amended, supplemented, canceled or discharged, except by written instrument executed by the Party against whom enforcement is sought. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision.

 

(d)          Binding Effect; Assignment. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor of the Company by reorganization, merger or consolidation, or any assignee of all or substantially all of the Company’s business. Executive’s rights or obligations under this Agreement may not be assigned by Executive.

 

(e)          Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

(f)          Governing Law; Jurisdiction; Interpretation. This Agreement shall be construed in accordance with and governed for all purposes, by the laws and public policy of the State of New York, except as it pertains to conflict of laws principles. Jurisdiction and venue shall be conferred upon the state and federal courts located in the City and State of New York.

 

(g)          Further Assurances. Each of the Parties agree to execute, acknowledge, deliver and perform, and cause to be executed, acknowledged, delivered and performed, at any time, and from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably necessary to carry out the provisions or intent of this Agreement.

 

(h)          Severability. The Parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable. However, in light of the possibility of differing interpretations of law and changes in circumstances, the Parties further agree that if any one or more of the provisions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions of this Agreement shall, to the extent permitted by law, remain in full force and effect and shall in no way be affected, impaired or invalidated. Moreover, if any of the provisions contained in this Agreement are determined by a court of competent jurisdiction to be excessively broad as to duration, activity or subject, it shall be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the maximum extent compatible with then applicable law.

 

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(i)          Withholding Taxes. All payments hereunder shall be subject to any and all applicable federal, state, local and foreign withholding taxes.

 

(j)          Compliance with Section 409A. Notwithstanding anything herein to the contrary, (i) if at the time of Executive’s termination of employment with the Company the Executive is a “specified employee” as defined in Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company shall defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to Executive) until the date that is six months following Executive’s termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Board, that does not cause such an accelerated or additional tax while, to the extent possible, preserving the overall economic benefit to the Executive of such payments or benefits. The Company shall consult with Executive in good faith regarding the implementation of the provisions of this Section 7.10; provided that neither the Company nor any of its officers, directors, shareholders, employees, agents or representatives shall have any liability to the Executive with respect thereto.

 

(k)          Survival. Notwithstanding the termination of the Executive’s employment hereunder, the terms, conditions and provisions contained herein shall survive such termination.

 

(l)          Counterparts. The Parties agree that this Agreement may be signed in two (2) or more counterparts, each of which shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same instrument.

 

[Signature Page Follows]

 

8
 

 

IN WITNESS WHEREOF, the Parties hereto have executed, or have caused to have executed, this Agreement as of the day and year first above written.

 

  MICROPHASE CORPORATION
   
   
  By: /s/ Necdet Ergul
    Name:  Necdet Ergul
    Title:    Chief Executive Officer
   
  EXECUTIVE
   
  /s/ James Ashman
  JAMES ASHMAN, an individual

 

 

EX-10.6 9 v398941_ex10-6.htm EXHIBIT 10.6

 

Exhibit 10.6

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of February 12, 2015, by and between Microphase Corporation, a Connecticut corporation with its principal place of business located at Microphase Corporation, 587 Connecticut Avenue, Norwalk, CT 06856 (the “Company”), and Michael Ghadaksaz, an individual and resident of the State of Connecticut, with an address located at 90 Dirleton Lane, Inverness, IL 60067 (“Executive” and together with the Company, the “Parties” and each, a “Party”).

 

RECITALS

 

A.            Executive is currently the Company’s Chief Technology and Marketing Officer.

 

B.            Executive possesses certain knowledge and skills relating to the Company’s business, structure and operations that the Company wishes to retain for the development and success of the Company’s business.

 

C.            The Company wishes to employ Executive, and Executive wishes to be employed by the Company, on the terms and conditions contained herein.

 

NOW, THEREFORE, in consideration of the premises set forth above and for other good and valuable consideration mutually exchanged by the Parties, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

 

1.           Employment; Duties. The Company hereby employs Executive, and Executive hereby accepts employment, as Chief Technology and Marketing Officer of the Company, subject to the terms and conditions set forth in this Agreement. As Chief Technology and Marketing Officer, Executive shall have such duties, responsibilities and authority as are commensurate and consistent with his position and as may, from time to time, be assigned to him by the board of directors of the Company (the “Board”) or the Company’s Chief Executive Officer. Executive shall report directly to the Board. During the Term (as defined herein), Executive shall devote his full business time and efforts to the performance of his duties hereunder, unless otherwise explicitly authorized by the Board. Notwithstanding the foregoing, the expenditure of reasonable amounts of time by Executive for the making of passive personal investments, the conduct of private business affairs, and charitable activities shall be allowed, provided that such activities do not materially interfere with the services required to be rendered to the Company hereunder and do not violate the restrictive covenants set forth herein.

 

2.           Term of Employment. The Executive’s employment hereunder shall be “at will” (such term of employment, the “Term”).

 

3.           Compensation of Executive.

 

(a)          Fees for Services. In consideration of the services rendered by Executive (the “Services”) and Executive’s other obligations under this Agreement, the annual base compensation for this position will be $135,000. Such compensation shall be payable in such installments as the Company pays its other employees.

 

 
 

 

(b)          Expenses. Pursuant to the Company’s customary policies in force at the time of payment, Executive shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all expenses properly and reasonably incurred by Executive on behalf of the Company in the performance of Executive’s duties hereunder.

 

(c)          Benefits. Executive shall be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health (for Executive and his immediate family) and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior executives (the “Benefit Plans”).

 

(d)          Vacation Benefits. During the Term, the Executive shall be entitled to receive vacation benefits in accordance with the Company’s applicable policies and procedures in effect as of the Effective Date of this Agreement, or which becomes effective during the Term of this Agreement and/or any renewal or extension period thereafter. Subject to said vacation policies and procedures, the Executive shall be entitled to receive four (4) weeks of Company paid vacation, per year.

 

(e)          Indemnification and D&O Insurance. The Company agrees to indemnify the Executive to the maximum extent permitted by the Company’s Articles of Incorporation or Bylaws, including, providing to the Executive, if applicable, any Directors or Officers Insurance Policy, in effect as of the Effective Date, or which becomes effective during the Term of this Agreement and/or any renewal or extension period thereafter, with such indemnification of the Executive to be on terms determined by the Board, or any of its authorized Committees, but on terms no less favorable than provided to any other Company executive, officer or director, and subject further to the terms of any separate written Indemnification Agreement.

 

4.           Termination and Forfeiture of Payments and Benefits. Executive’s employment with the Company may be terminated at any time by the Company for any reason or no reason, upon the Board’s approval, by a majority vote of the Board members in favor of such termination. In the event that Executive’s employment with the Company is terminated by the Company, the Company shall have no obligation to Executive other than (subject to Executive’s continued compliance with his obligations under this Agreement): (i) the payment of the Executive’s earned and unpaid compensation, vested and accrued benefits under the Company’s ERISA-based plans and accrued but unreimbursed expenses pursuant to Section 3(d) (collectively, the “Accrued Obligations”); and (ii) a continuation of the Executive’s Base Salary (at the rate in effect at the time of such termination) for a period of time commencing on the date of termination and ending on the date that is 6 months from the date of termination (“Severance”).

 

5.           Covenants.

 

(a)          Confidentiality.

 

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(i)          Proprietary Information. Executive understands and acknowledges that, during the course of his employment with the Company, Executive shall create and has created, as well as shall be granted and has been granted access to, certain valuable information relating to the business of the Company that provides the Company with a competitive advantage (or that which could be used to the disadvantage of the Company by a Competitive Business, as defined herein), which is not generally known by, nor easily learned or determined by, persons outside the Company (collectively referred to herein as “Proprietary Information”) including, but not limited to: Developments (as defined herein), the Company’s products, applications, methods, trade secrets and other intellectual property, the research, development, procedures, manuals, confidential reports, technical information, financial information, business plans, prospects of opportunities, purchasing, operating and other cost data, employee information (including, but not limited to, personnel, payroll, compensation and benefit data and plans), including all such information recorded in manuals, memoranda, projections, reports, minutes, plans, drawings, sketches, designs, formula books, data, specifications, software programs and records, whether or not legended or otherwise identified by the Company as Proprietary Information, as well as such information that is the subject of meetings and discussions and not recorded. Proprietary Information shall not include such information that Executive can demonstrate is generally available to the public (other than as a result of a disclosure by Executive).

 

(ii)         Duty of Confidentiality. Executive agrees at all times, both during and after Executive’s employment with the Company, (i) to hold all Proprietary Information in a confidential manner for the benefit of the Company, to reasonably safeguard all such Proprietary Information; and (ii) to adhere to any non-disclosure, confidentiality or other similar agreements to which Executive or the Company is or becomes a party or subject thereto. Executive also agrees that he shall not, directly or indirectly, disclose any such Proprietary Information to, or use such Proprietary Information for the benefit of, any third person or entity outside the Company, except to persons identified in writing by the Company. Executive further agrees that, in addition to enforcing this restriction, the Company may have other rights and remedies under the common law or applicable statutory laws relating to the protection of trade secrets.

 

(iii)        Investors, Other Third-Parties, and Goodwill. Executive acknowledges that all Company Investors, together with all distributors, representatives, agents, licensees and third-parties (“Other Third Parties”) that the Executive interacts and works with while employed by Company, are doing business with the Company and not with the Executive, personally, and that in the course of dealing with such Investors and Other Third Parties, the Company has established goodwill with respect to each such Investor and Other Third Party that is created and maintained at the Company’s expense (“Third-Party Goodwill”). Executive also acknowledges that, by virtue of his employment with the Company, he has gained or will gain knowledge of the business needs of, and other information concerning, the Investors and Other Third Parties, and that Executive will inevitably have to draw on such information if Executive solicits or provides services to any Investor or Other Third Parties on his own behalf or on behalf of a Competitive Business. For purposes of this Agreement, “Competitive Business” shall mean any enterprise engaged in the RF & Microwave products business that is substantially similar to that which the Company is engaged, or plans to be engaged, so long as Executive is directly involved in such business or planned business on behalf of the Company.

 

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(iv)         Nondisparagement. The Executive agrees that at no time during his employment by the Company or thereafter, shall he make, or cause or assist any other person to make, any statement or other communication to any third party which impugns or attacks, or is otherwise critical of, the reputation, business or character of the Company or any of its respective directors, officers or employees.

 

(b)          Restrictions on Solicitation. Executive shall not, directly or indirectly, without the prior written consent and approval of the Company, (i) interfere with or attempt to interfere with the relationship between any person who is, or was during the then most recent three (3) month period, an employee, agent, representative or independent contractor of the Company, or solicit, induce or attempt to solicit or induce any of them to leave the employ or service of the Company or to violate the terms of their respective contracts, agreements or any employment arrangements with the Company; or (ii) induce or attempt to induce any customer, client, supplier, distributor, licensee or other business relation of the Company to cease doing business with the Company, or in any way interfere with the contract or relationship between the Company and any customer, client, supplier, distributor, licensee or other business relation of the Company. As used herein, the term “indirectly” shall include, without limitation, Executive’s permitting the use of Executive’s name by any Competitive Business to induce or interfere with any employee or business relationship of the Company.

 

(c)          Restrictions on Executive’s Competitive Employment. In order to protect the Company’s Proprietary Information and Third-Party Goodwill, Executive acknowledges and agrees that in the event this Agreement is terminated for any reason, then, from the date of such termination, or from the last date upon which Severance is paid to Executive, whichever is later, and for a period of one (1) year thereafter, the Executive shall not, without the Company’s express written consent, directly or indirectly, own, control, manage, operate, participate in, be employed by, permit the use of his name with, or act for or on behalf of, any Competitive Business which competes directly with the Company and its RF & Microwave products. The Executive agrees that the restriction on competitive employment contemplated herein is necessary and reasonable in order to protect the Company in the conduct of its business.

 

(d)          Assignment of Developments.

 

(i)          Executive acknowledges and agrees that all developments, including, without limitation, the creation of new products, devices, inventions, discoveries, concepts, ideas, improvements, patents, trademarks, trade names, trade dress, service marks, copyrights, domain names, trade secrets, designs, works, reports, computer software or systems, flow charts, diagrams, procedures, data, documentation, and writings and applications thereof, including all results and proceeds of the foregoing, relating to the Business or future business of the Company that Executive, alone or jointly with others, has discovered, suggested, conceived, created, made, developed, reduced to practice, or acquired during Executive’s employment with or as a result of Executive’s employment with the Company (collectively, “Developments”) are being prepared by Executive as an employee of the Company within the scope of Executive’s employment and shall be considered as “works made for hire” and shall remain the sole and exclusive property of the Company, free of any reserved or other rights of any kind on Executive’s part. If and to the extent the fact that the Developments are works made for hire is not effective to place ownership of the Developments and all rights therein to the Company, then Executive hereby solely, exclusively and irrevocably assigns and transfers to the Company any and all of his right, title and interest in and to the Developments. Executive agrees to disclose to the Company promptly and fully all future Developments and, at any time upon request and at the expense of the Company, to execute, acknowledge and deliver to the Company all instruments that the Company shall prepare and to take any and all other actions that are necessary or desirable, in the reasonable opinion of the Company, to evidence or effectuate all or any of the Company’s rights hereunder, including executing and delivering patent, trademark or copyright applications and instruments of assignment to the Company and enabling the Company to file instruments of assignment for, to file and prosecute applications for, and to acquire, maintain, and enforce, all patents, trademarks or copyrights covering the Developments in all countries in which the same are deemed necessary by the Company. All data, memoranda, notes, lists, drawings, records, files, investor and client/customer lists, supplier lists, and other documentation (and all copies thereof) made or compiled by Executive or made available to Executive concerning the Developments or otherwise concerning the past, present, or planned business of the Company are the property of the Company, and shall be delivered to the Company immediately upon the termination of Executive’s employment with the Company.

 

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(ii)         If any patent, trademark or copyright application is filed by Executive or on Executive’s behalf during Executive’s employment with the Company or within one (1) year after Executive’s leaving the Company’s employ, describing a Development within the scope of Executive’s work for the Company or which otherwise relates to a portion of the business of the Company, of which the Executive had knowledge during Executive’s employment with the Company, it is to be conclusively presumed that the Development was conceived by Executive during the period of such employment.

 

(e)          Remedies. Executive acknowledges that the Company has a compelling business interest in preventing unfair competition stemming from the intentional or inadvertent use or disclosure of the Company’s Proprietary Information. Executive further acknowledges and agrees that damages for a breach or threatened breach of any of the covenants set forth in this Section 5 will be difficult to determine and will not afford a full and adequate remedy, and therefore agrees that the Company, in addition to seeking actual damages in connection therewith and the termination of the Company’s obligations in Section 4.4 and Section 4.5, may seek specific enforcement of any such covenant in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction without the necessity of showing any actual damages or posting any bond or furnishing any other security, and that the specific enforcement of the provisions of this Agreement will not diminish Executive’s ability to earn a livelihood or create or impose upon Executive any undue hardship. Executive also agrees that any request for such relief by the Company shall be in addition to, and without prejudice to, any claim for monetary damages that the Company may elect to assert.

 

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(f)          Rights to Materials and Return of Materials. All papers, files, notes, correspondence, lists, software, software code, memoranda, e-mails, price lists, plans, sketches, documents, reports, records, data, research, proposals, specifications, technical information, models, flow charts, schematics, tapes, printouts, designs, graphics, drawings, photographs, abstracts, summaries, charts, graphs, notebooks, investor lists, customer/client lists, information on the use, development and integration of software, information relating to the research, development, preparation, maintenance and sale of RF & Microwave products or any other such Company created RF & Microwave products, and all other compilations of information, regardless of how such information may be recorded and whether in printed form or on a computer or magnetic disk or in any other medium (together with all copies of such documents and things) relating to the Business of the Company or containing Proprietary Information and/or Developments, which Executive shall use or prepare or come in contact with in the course of, or as a result of, Executive’s employment by the Company shall, as between the parties to this Agreement, remain the sole property of the Company. Laptop computers, other computers, software and related data, information and other property provided to Executive by the Company or obtained by Executive, directly or indirectly, from the Company, also shall remain the sole property of the Company. Upon the termination of Executive’s employment or upon the prior demand of the Company, Executive shall immediately return all such materials and things to the Company and shall not retain any copies or remove or participate in removing any such materials or things from the premises of the Company after termination or the Company’s request for return.

 

6.           Notices. Any notice or communication given by either Party hereto to the other shall be in writing and personally delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to the following addresses:

 

  If to the Company: Microphase Corporation
    587 Connecticut Avenue
    Norwalk, CT 06856
    Attention:  Company CEO
    Facsimile: (203) 853-3304
     
  With a copy to: Lucosky Brookman LLP
    101 Wood Avenue South, 5th Floor
    Woodbridge, New Jersey 08830
    Attn: Scott E. Linsky
    Facsimile: (732) 396-4401
     
  If to Executive: Michael Ghadaksaz
    90 Dirleton Lane
    Inverness, IL 60067

 

Any notice shall be deemed given when actually delivered to such address, or two days after such notice has been mailed or sent by Federal Express, whichever comes earliest. Any person entitled to receive notice may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent.

 

7.           Miscellaneous.

 

(a)          Representations and Covenants. In order to induce the Company to enter into this Agreement, the Executive makes the following representations and covenants to the Company and acknowledges that Company is relying upon such representations and covenants:

 

(i)          No agreements or obligations exist to which the Executive is a party or otherwise bound, in writing or otherwise, that in any way interfere with, impede or preclude him from fulfilling any and all of the terms and conditions of this Agreement.

 

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(ii)         Executive, during his employment, shall use his best efforts to disclose to the Board, in writing, or by other effective method, any bona fide information known by him, which he reasonably believes is not known to the Board, and which he reasonably believes would have any material negative impact on the Company.

 

(b)          Entire Agreement. This Agreement contains the entire understanding of the Parties with respect to the subject matter contained herein and supersedes the effectiveness all other prior agreements and understandings between the Parties or between Executive and the Company with respect to such subject matter.

 

(c)          Amendment; Waiver. The Parties agree that this Agreement may not be amended, supplemented, canceled or discharged, except by written instrument executed by the Party against whom enforcement is sought. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision.

 

(d)          Binding Effect; Assignment. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor of the Company by reorganization, merger or consolidation, or any assignee of all or substantially all of the Company’s business. Executive’s rights or obligations under this Agreement may not be assigned by Executive.

 

(e)          Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

(f)          Governing Law; Jurisdiction; Interpretation. This Agreement shall be construed in accordance with and governed for all purposes, by the laws and public policy of the State of New York, except as it pertains to conflict of laws principles. Jurisdiction and venue shall be conferred upon the state and federal courts located in the City and State of New York.

 

(g)          Further Assurances. Each of the Parties agree to execute, acknowledge, deliver and perform, and cause to be executed, acknowledged, delivered and performed, at any time, and from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably necessary to carry out the provisions or intent of this Agreement.

 

(h)          Severability. The Parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable. However, in light of the possibility of differing interpretations of law and changes in circumstances, the Parties further agree that if any one or more of the provisions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions of this Agreement shall, to the extent permitted by law, remain in full force and effect and shall in no way be affected, impaired or invalidated. Moreover, if any of the provisions contained in this Agreement are determined by a court of competent jurisdiction to be excessively broad as to duration, activity or subject, it shall be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the maximum extent compatible with then applicable law.

 

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(i)          Withholding Taxes. All payments hereunder shall be subject to any and all applicable federal, state, local and foreign withholding taxes.

 

(j)          Compliance with Section 409A. Notwithstanding anything herein to the contrary, (i) if at the time of Executive’s termination of employment with the Company the Executive is a “specified employee” as defined in Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company shall defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to Executive) until the date that is six months following Executive’s termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Board, that does not cause such an accelerated or additional tax while, to the extent possible, preserving the overall economic benefit to the Executive of such payments or benefits. The Company shall consult with Executive in good faith regarding the implementation of the provisions of this Section 7.10; provided that neither the Company nor any of its officers, directors, shareholders, employees, agents or representatives shall have any liability to the Executive with respect thereto.

 

(k)          Survival. Notwithstanding the termination of the Executive’s employment hereunder, the terms, conditions and provisions contained herein shall survive such termination.

 

(l)          Counterparts. The Parties agree that this Agreement may be signed in two (2) or more counterparts, each of which shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same instrument.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties hereto have executed, or have caused to have executed, this Agreement as of the day and year first above written.

 

  MICROPHASE CORPORATION
   
   
  By: /s/ Necdet Ergul
    Name:  Necdet Ergul
    Title:   Chief Executive Officer
   
  EXECUTIVE
   
 

/s/ Michael Ghadaksaz

  MICHAEL GHADAKSAZ, an individual

 

 

 

EX-10.7 10 v398941_ex10-7.htm EXHIBIT 10.7

 

Exhibit 10.7

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of February 12, 2015, by and between Microphase Corporation, a Connecticut corporation with its principal place of business located at 587 Connecticut Ave., Norwalk. Connecticut 06854 (the “Company”), and Ronald Durando , an individual and resident of the State of New Jersey with an address located at 43 Alexander Avenue, Nutley, New Jersey 07110 (“Strategic Advisor” and together with the Company, the “Parties” and each, a “Party”).

 

RECITALS

 

A.           Strategic Advisor was the Company’s Chief Operating Officer.

 

B.           Strategic Advisor possesses certain knowledge and skills relating to the Company's business, structure and operations that the Company wishes to retain for the development and success of the Company's business.

 

C.           The Company wishes to employ Strategic Advisor, and Strategic Advisor wishes to be employed by the Company, on the terms and conditions contained herein.

 

NOW, THEREFORE, in consideration of the premises set forth above and for other good and valuable consideration mutually exchanged by the Parties, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

 

1.          Employment; Duties. The Company hereby employs Strategic Advisor, and Strategic Advisor hereby accepts employment, as Strategic Advisor, subject to the terms and conditions set forth in this Agreement. As Strategic Advisor, Strategic Advisor shall devote adequate time and efforts to the performance of his duties hereunder, under his sole discretion. Notwithstanding the foregoing, the expenditure of reasonable amounts of time by Strategic Advisor for the making of passive personal investments, the conduct of private business affairs, including without limitation, acting as an executive officer or consultant of mPhase Technologies, Inc. and charitable activities shall be allowed, provided that such activities do not materially interfere with the services required to be rendered to the Company hereunder and do not violate the restrictive covenants set forth herein.

 

2.          Employment Period. The term of Strategic Advisors employment hereunder, unless sooner terminated as provided herein (the “Initial Term”), shall be for a period of thirty-six (36) months, having commenced on February 1, 2015 (the “Commencement Date”) and ending on February 1, 2018. The term of this Agreement shall automatically be extended for additional terms of one (1) year each (each a “Renewal Term”), unless either Party gives prior written notice of non-renewal (“Non-Renewal Notice”) to the other Party no later than sixty (60) days prior to the expiration of the then current Term (as defined herein). For purposes of this Agreement, the Initial Term and any Renewal Term are hereinafter collectively referred to as the “Term”.

 

 
 

 

3.          Compensation of Strategic Advisor.

 

(a)          Fees for Services. In consideration of the services rendered by the Strategic Advisor (the “Services”) and Strategic Advisor’s other obligations under this Agreement, the annual base compensation for this position will be $225,000. Such compensation shall be payable in such installments as the Company pays its other employees.

 

(b)          Expenses. Pursuant to the Company’s customary policies in force at the time of payment, Strategic Advisor shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all expenses properly and reasonably incurred by Strategic Advisor on behalf of the Company in the performance of Strategic Advisor’s duties hereunder.

 

(c)          Benefits. Strategic Advisor shall be entitled to participate in such pension, profit sharing, group insurance, hospitalization, and group health (for Strategic Advisor and his immediate family) and benefit plans and all other benefits and plans, including perquisites, if any, as the Company provides to its senior executives (the “Benefit Plans”).

 

(d)          Vacation Benefits. During the Employment Period, the Strategic Advisor shall be entitled to receive vacation benefits in accordance with the Company’s applicable policies and procedures in effect as of the Effective Date of this Agreement, or which becomes effective during the Term of this Agreement and/or any renewal or extension period thereafter. Subject to said vacation policies and procedures, the Strategic Advisor shall be entitled to receive four (4) weeks of Company paid vacation, per year.

 

4.          Indemnification. The Company agrees to indemnify the Strategic Advisor to the maximum extent permitted by the Company’s Articles of Incorporation or Bylaws. Indemnification of the Strategic Advisor to be on terms determined by the Board, or any of its authorized Committees, but on terms no less favorable than provided to any other Company executive, officer or director, and subject further to the terms of any separate written Indemnification Agreement. Termination and Forfeiture of Payments and Benefits.

 

(a)          Termination by Company for Cause. Strategic Advisor’s employment with the Company may be terminated at any time by the Company for Cause. Upon such a termination, the Company shall have no obligation to Strategic Advisor pursuant to this Agreement other than the payment of Strategic Advisor's earned and unpaid compensation, vested and accrued benefits under the Company's ERISA-based plans and accrued but unreimbursed expenses pursuant to Section 3(d) (collectively, the “Accrued Obligations”) to the effective date of such termination.

 

For purposes of this Agreement, the term “Cause” shall mean any of the following:

 

(i)          Strategic Advisor’s willful failure to perform his duties or Strategic Advisor’s bad faith in connection with the performance of his duties, following written notice from the Board, or its designee, detailing the specific acts and a thirty (30) day period of time to remedy such failure:

 

(ii)         Strategic Advisor engaging in any misconduct, negligence, act of dishonesty, violence or threat of violence that is injurious to the Company;

 

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(iii)        Strategic Advisor’s material breach of a written policy of the Company, which policy has been provided to Strategic Advisor, or the existence of which Strategic Advisor should reasonably have known, in connection with his employment, which breach is not remedied (if susceptible to remedy) following written notice by the Board, or its designee, detailing the specific breach and a thirty (30) day period of time to remedy such breach;

 

(iv)        Any material breach by Strategic Advisor of this Agreement, which breach is not remedied (if susceptible to remedy) following written notice by the Board, or its designee, detailing the specific breach and a thirty (30) day period of time to remedy such breach; or

 

(v)         Strategic Advisor’s conviction of a felony or crime involving dishonesty or moral turpitude, or which reflects negatively upon the Company or impairs or impedes its operations.

 

(b)          Permanent Disability. If during his employment with the Company, (i) Strategic Advisor becomes ill, mentally or physically disabled, or otherwise incapacitated so as to be unable regularly to perform the duties of his position for a period in excess of 90 consecutive days or more than 180 days in any consecutive 12-month period, or (ii) a qualified independent physician determines that Strategic Advisor is mentally or physically disabled so as to be unable to regularly perform the duties of his position and such condition is expected to be of a permanent duration (a “Permanent Disability”), then the Company shall have the right to terminate Strategic Advisor’s employment with the Company upon written notice to Strategic Advisor. Upon such a termination, the Company shall have no obligation to Strategic Advisor other than (i) the payment of the Accrued Obligations; (ii) all Options which have vested as of the date of termination; and (iii) Severance, as that term is defined in Paragraph 4(d).

 

(c)          Death. Strategic Advisor’s employment with the Company shall be deemed terminated by the Company upon the death of the Strategic Advisor, and the Company shall have no obligation to the Strategic Advisor or the Strategic Advisor's estate other than (i) the payment of the Accrued Obligations; (ii) all Options which have vested as of the date of death; and (iii) Severance, as that term is defined in Paragraph 4(d).

 

(d)          Termination by the Company without Cause. Strategic Advisor's employment with the Company may be terminated at any time by the Company without Cause, upon the Board's approval, by a majority vote of the Board members in favor of such termination. In the event that Strategic Advisor's employment with the Company is terminated by the Company without Cause, the Company shall have no obligation to Strategic Advisor other than (subject to Strategic Advisor’s continued compliance with his obligations under this Agreement): (i) the payment of the Accrued Obligations (and any rights under the Stock Option Agreement that survive such termination, including the understanding that any portion of the Options that have not vested as of the date of termination, shall vest in full as of the date of such termination); and (ii) a continuation of the Strategic Advisor’s Base Salary (at the rate in effect at the time of such termination) for a period of time commencing on the date of termination and ending on the date that is 12 months after such date of termination (“Severance”)

 

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(e)         Termination by Strategic Advisor for Good Reason.

 

(i)          Strategic Advisor's employment with the Company may be terminated at any time by Strategic Advisor for Good Reason. In the event that Strategic Advisor terminates his employment with the Company for Good Reason. Strategic Advisor shall be entitled to the same Accrued Obligations, Option vesting, and Severance that he would have been entitled to receive under Section 4(d) as if his employment were terminated by the Company without Cause.

 

(ii)         For purposes of this Agreement, the term “Good Reason” shall mean either any material breach of this Agreement by the Company which remains in effect thirty (30) days after written notice is provided by Strategic Advisor to Company detailing such condition or event of breach, or a material change in Strategic Advisor’s position, duties and responsibilities. The above notwithstanding, if Strategic Advisor’s Compensation does not decrease resulting from such material change, then such material change shall not be deemed “Good Reason” for termination purposes.

 

(f)          Termination by Strategic Advisor without Good Reason. The Strategic Advisor may voluntarily resign from his employment with the Company without Good Reason, provided that Strategic Advisor shall provide the Company with ninety (90) days’ advance written notice (which notice requirement may be waived, in whole or in part, by the Company in its sole discretion) of his intent to terminate. Upon such a termination, the Company shall have no obligation other than the payment of the Accrued Obligations to the effective date of such termination. Any Options which have not vested on the date of termination shall be deemed to be null and void.

 

(g)          Release of Claims. As a condition to receiving the payments set forth in Section 4(d) or Section 4(e) upon a termination by the Company without Cause or by Strategic Advisor for Good Reason, Strategic Advisor shall be required to execute and not revoke a waiver and release of claims, in a form provided by the Company.

 

5.          Covenants.

 

(a)          Confidentiality.

 

(i)          Proprietary Information. Strategic Advisor understands and acknowledges that, during the course of his employment with the Company. Strategic Advisor shall create and has created, as well as shall be granted and has been granted access to. certain valuable information relating to the business of the Company that provides the Company with a competitive advantage (or that which could be used to the disadvantage of the Company by a Competitive Business, as defined herein), which is not generally known by, nor easily learned or determined by, persons outside the Company (collectively referred to herein as “Proprietary Information”) including, but not limited to: Developments (as defined herein), the Company’s products, applications, methods, trade secrets and other intellectual property, the research, development, procedures, manuals, confidential reports, technical information, financial information, business plans, prospects of opportunities, purchasing, operating and other cost data, employee information (including, but not limited to, personnel, payroll, compensation and benefit data and plans), including all such information recorded in manuals, memoranda, projections, reports, minutes, plans, drawings, sketches, designs, formula books, data, specifications, software programs and records, whether or not legended or otherwise identified by the Company as Proprietary Information, as well as such information that is the subject of meetings and discussions and not recorded. Proprietary Information shall not include such information that Strategic Advisor can demonstrate is generally available to the public (other than as a result of a disclosure by Strategic Advisor).

 

4
 

 

(ii)         Duty of Confidentiality. Strategic Advisor agrees at all times, both during and after Strategic Advisor’s employment with the Company, (i) to hold all Proprietary Information in a confidential manner for the benefit of the Company, to reasonably safeguard all such Proprietary Information; and (ii) to adhere to any non-disclosure, confidentiality or other similar agreements to which Strategic advisor or the Company is or becomes a party or subject thereto. Strategic Advisor also agrees that he shall not, directly or indirectly, disclose any such Proprietary Information to. or use such Proprietary Information for the benefit of. any third person or entity outside the Company, except to persons identified in writing by the Company. Strategic Advisor further agrees that, in addition to enforcing this restriction, the Company may have other rights and remedies under the common law or applicable statutory laws relating to the protection of trade secrets.

 

(iii)        Third-Parties, and Goodwill. Strategic Advisor acknowledges that all Company distributors, representatives, agents, licensees and third-parties (“Other Third Parties”) that the Strategic Advisor interacts and works with while employed by Company, are doing business with the Company and not with the Strategic Advisor, personally, and that in the course of dealing with Third Parties, the Company has established goodwill with respect to each such Third Party that is created and maintained at the Company’s expense (“Third-Party Goodwill”). Strategic Advisor also acknowledges that, by virtue of his employment with the Company, he has gained or will gain knowledge of the business needs of. and other information concerning, the Third Parties, and that Strategic Advisor will inevitably have to draw on such information if Strategic Advisor solicits or provides services to any Third Parties on his own behalf or on behalf of a Competitive Business. For purposes of this Agreement, “Competitive Business” shall mean any enterprise engaged in the RF & Microwave business that is substantially similar to that which the Company is engaged, or plans to be engaged, so long as Strategic Advisor is directly involved in such business or planned business on behalf of the Company.

 

(iv)        Nondisparagement. The Strategic Advisor agrees that at no time during his employment by the Company or thereafter, shall he make, or cause or assist any other person to make, any statement or other communication to any third party which impugns or attacks, or is otherwise critical of, the reputation, business or character of the Company or any of its respective directors, officers or employees.

 

5
 

 

(b)          Restrictions on Solicitation. Strategic Advisor shall not, directly or indirectly, without the prior written consent and approval of the Company, (i) interfere with or attempt to interfere with the relationship between any person who is, or was during the then most recent three (3) month period, an employee, agent, representative or independent contractor of the Company, or solicit, induce or attempt to solicit or induce any of them to leave the employ or service of the Company or to violate the terms of their respective contracts, agreements or any employment arrangements with the Company; or (ii) induce or attempt to induce any customer, client, supplier, distributor, licensee or other business relation of the Company to cease doing business with the Company, or in any way interfere with the contract or relationship between the Company and any customer, client, supplier, distributor, licensee or other business relation of the Company. As used herein, the term “indirectly” shall include, without limitation. Strategic Advisor’s permitting the use of Strategic Advisor’s name by any Competitive Business to induce or interfere with any employee or business relationship of the Company.

 

(c)          Restrictions on Strategic Advisor’s Competitive Employment. In order to protect the Company’s Proprietary Information and Third-Party Goodwill, Strategic Advisor acknowledges and agrees that in the event this Agreement is terminated for any reason, then, from the date of such termination, or from the last date upon which Severance is paid to Strategic Advisor, whichever is later, and for a period of one (1) year thereafter, the Strategic Advisor shall not. without the Company’s express written consent, directly or indirectly, own, control, manage, operate, participate in, be employed by, permit the use of his name with, or act for or on behalf of, any Competitive Business which competes directly with the Company and its RF & Microwave devices and products. The Strategic Advisor agrees that the restriction on competitive employment contemplated herein is necessary and reasonable in order to protect the Company in the conduct of its business.

 

(d)          Assignment of Developments.

 

(i)          Strategic Advisor acknowledges and agrees that all developments, including, without limitation, the creation of new products, devices, inventions, discoveries, concepts, ideas, improvements, patents, trademarks, trade names, trade dress, service marks, copyrights, domain names, trade secrets, designs, works, reports, computer software or systems, flow charts, diagrams, procedures, data, documentation, and writings and applications thereof, including all results and proceeds of the foregoing, relating to the Business or future business of the Company that Strategic Advisor, alone or jointly with others, has discovered, suggested, conceived, created, made, developed, reduced to practice, or acquired during Strategic Advisor's employment with or as a result of Strategic Advisor's employment with the Company (collectively. “Developments”) are being prepared by Strategic Advisor as an employee of the Company within the scope of Strategic Advisor's employment and shall be considered as “works made for hire” and shall remain the sole and exclusive property of the Company, free of any reserved or other rights of any kind on Strategic Advisor's part. If and to the extent the fact that the Developments are works made for hire is not effective to place ownership of the Developments and all rights therein to the Company, then Strategic Advisor hereby solely, exclusively and irrevocably assigns and transfers to the Company any and all of his right, title and interest in and to the Developments. Strategic Advisor agrees to disclose to the Company promptly and fully all future Developments and, at any time upon request and at the expense of the Company, to execute, acknowledge and deliver to the Company all instruments that the Company shall prepare and to take any and all other actions that are necessary or desirable, in the reasonable opinion of the Company, to evidence or effectuate all or any of the Company’s rights hereunder, including executing and delivering patent, trademark or copyright applications and instruments of assignment to the Company and enabling the Company to file instruments of assignment for, to file and prosecute applications for, and to acquire, maintain, and enforce, all patents, trademarks or copyrights covering the Developments in all countries in which the same are deemed necessary by the Company. All data, memoranda, notes, lists, drawings, records, files, investor and client/customer lists, supplier lists, and other documentation (and all copies thereof) made or compiled by Strategic Advisor or made available to Strategic Advisor concerning the Developments or otherwise concerning the past, present, or planned business of the Company are the property of the Company, and shall be delivered to the Company immediately upon the termination of Strategic Advisor’s employment with the Company.

 

6
 

 

(ii)         If any patent, trademark or copyright application is filed by Strategic Advisoror on Strategic Advisor’s behalf during Strategic Advisor’s employment with the Company or within one (1) year after Strategic Advisor’s leaving the Company’s employ, describing a Development within the scope of Strategic Advisor’s work for the Company or which otherwise relates to a portion of the business of the Company, of which the Strategic Advisor had knowledge during Strategic Advisor’s employment with the Company, it is to be conclusively presumed that the Development was conceived by Strategic Advisor during the period of such employment.

 

(e)          Remedies. Strategic Advisor acknowledges that the Company has a compelling business interest in preventing unfair competition stemming from the intentional or inadvertent use or disclosure of the Company’s Proprietary Information. Strategic Advisor further acknowledges and agrees that damages for a breach or threatened breach of any of the covenants set forth in this Section 5 will be difficult to determine and will not afford a full and adequate remedy, and therefore agrees that the Company, in addition to seeking actual damages in connection therewith and the termination of the Company’s obligations in Section 4.4 and Section 4.5, may seek specific enforcement of any such covenant in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction without the necessity of showing any actual damages or posting any bond or furnishing any other security, and that the specific enforcement of the provisions of this Agreement will not diminish Strategic Advisor’s ability to earn a livelihood or create or impose upon Strategic Advisor any undue hardship. Strategic Advisor also agrees that any request for such relief by the Company shall be in addition to, and without prejudice to, any claim for monetary damages that the Company may elect to assert.

 

(f)          Rights to Materials and Return of Materials. All papers, files, notes, correspondence, lists, software, software code, memoranda, e-mails, price lists, plans, sketches, documents, reports, records, data, research, proposals, specifications, technical information, models, flow charts, schematics, tapes, printouts, designs, graphics, drawings, photographs, abstracts, summaries, charts, graphs, notebooks, investor lists, customer/client lists, information on the use, development and integration of software, information relating to the research, development, preparation, maintenance and sale of RF & Microwave products or any other such Company created RF & Microwave products and all other compilations of information, regardless of how such information may be recorded and whether in printed form or on a computer or magnetic disk or in any other medium (together with all copies of such documents and things) relating to the Business of the Company or containing Proprietary Information and/or Developments, which Strategic Advisor shall use or prepare or come in contact with in the course of, or as a result of Strategic Advisor’s employment by the Company shall, as between the parties to this Agreement, remain the sole property of the Company. Laptop computers, other computers, software and related data, information and other property provided to Strategic Advisor by the Company or obtained by Strategic Advisor, directly or indirectly, from the Company, also shall remain the sole property of the Company. Upon the termination of Strategic Advisor’s employment or upon the prior demand of the Company, Strategic Advisor shall immediately return all such materials and things to the Company and shall not retain any copies or remove or participate in removing any such materials or things from the premises of the Company after termination or the Company’s request for return.

 

7
 

 

6.          Notices. Any notice or communication given by either Party hereto to the other shall be in writing and personally delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to the following addresses:

 

If to the Company: Microphase Corporation
  587 Connecticute Avenue
  Norwalk, CT 06856
  Attention: Company CEO
  Facsimile: 203-853-3304
   
With a copy to: Lucosky Brookman LLP
  101 Wood Avenue South, 5th Floor
  Woodbridge, New Jersey 08830
  Attn: Scott E. Linsky
  Facsimile: (732) 396-4401
   
If to Strategic Advisor: Ronald Durando
  43 Alexander Avenue,
  Nutley, New Jersey 07110

 

Any notice shall be deemed given when actually delivered to such address, or two days after such notice has been mailed or sent by Federal Express, whichever comes earliest. Any person entitled to receive notice may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent.

 

7.          Miscellaneous.

 

(a)          Representations and Covenants. In order to induce the Company to enter into this Agreement, the Strategic Advisor makes the following representations and covenants to the Company and acknowledges that Company is relying upon such representations and covenants:

 

(i)          No agreements or obligations exist to which the Strategic Advisor is a party or otherwise bound, in writing or otherwise, that in any way interfere with, impede or preclude him from fulfilling any and all of the terms and conditions of this Agreement.

 

8
 

 

(ii)         Strategic Advisor, during his employment, shall use his best efforts to disclose to the Board, in writing, or by other effective method, any bona fide information known by him, which he reasonably believes is not known to the Board, and which he reasonably believes would have any material negative impact on the Company.

 

(b)          Entire Agreement. This Agreement contains the entire understanding of the Parties with respect to the subject matter contained herein and supersedes the effectiveness all other prior agreements and understandings between the Parties or between Strategic Advisor and the Company with respect to such subject matter.

 

(c)          Amendment; Waiver. The Parties agree that this Agreement may not be amended, supplemented, canceled or discharged, except by written instrument executed by the Party against whom enforcement is sought. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision.

 

(d)          Binding Effect; Assignment. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor of the Company by reorganization, merger or consolidation, or any assignee of all or substantially all of the Company’s business. Strategic Advisor's rights or obligations under this Agreement may not be assigned by Strategic Advisor.

 

(e)          Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

 

(f)          Governing Law; Jurisdiction; Interpretation. This Agreement shall be construed in accordance with and governed for all purposes, by the laws and public policy of the State of New York, except as it pertains to conflict of laws principles. Jurisdiction and venue shall be conferred upon the state and federal courts located in the City and State of New York.

 

(g)          Further Assurances. Each of the Parties agree to execute, acknowledge, deliver and perform, and cause to be executed, acknowledged, delivered and performed, at any time, and from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably necessary to carry out the provisions or intent of this Agreement.

 

(h)          Severability. The Parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable. However, in light of the possibility of differing interpretations of law and changes in circumstances, the Parties further agree that if any one or more of the provisions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions of this Agreement shall, to the extent permitted by law, remain in full force and effect and shall in no way be affected, impaired or invalidated. Moreover, if any of the provisions contained in this Agreement are determined by a court of competent jurisdiction to be excessively broad as to duration, activity or subject, it shall be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the maximum extent compatible with then applicable law.

 

9
 

 

(i)          Withholding Taxes. All payments hereunder shall be subject to any and all applicable federal, state, local and foreign withholding taxes.

 

(j)          Compliance with Section 409A. Notwithstanding anything herein to the contrary, (i) if at the time of Strategic Advisor's termination of employment with the Company the Strategic Advisor is a “specified employee” as defined in Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company shall defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to Strategic Advisor) until the date that is six months following Strategic Advisor’s termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code) and (ii) if any other payments of money or other benefits due to Strategic Advisor hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Board, that does not cause such an accelerated or additional tax while, to the extent possible, preserving the overall economic benefit to the Strategic Advisor of such payments or benefits. The Company shall consult with Strategic Advisor in good faith regarding the implementation of the provisions of this Section 7.10; provided that neither the Company nor any of its officers, directors, shareholders, employees, agents or representatives shall have any liability to the Strategic Advisor with respect thereto.

 

(k)          Survival. Notwithstanding the termination of the Strategic Advisor’s employment hereunder, the terms, conditions and provisions contained herein shall survive such termination.

 

(l)          Counterparts. The Parties agree that this Agreement may be signed in two (2) or more counterparts, each of which shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same instrument.

 

[Signature Page Follows]

 

10
 

 

IN WITNESS WHEREOF, the Parties hereto have executed, or have caused to have executed, this Agreement as of the day and year first above written.

 

  MICROPHASE CORPORATION
     
  By: /s/ Needet Ergul
    Name:    Needet Ergul
    Title:      Chief Executive Officer
     
  STRATEGIC ADVISOR
     
  /s/ Ronald Durando
  RONALD DURANDO. an individual

 

 

EX-10.8 11 v398941_ex10-8.htm EXHIBIT 10.8

 

Exhibit 10.8

 

CONSULTING AGREEMENT

 

THIS AGREEMENT is by and between Microphase Corporation. (Hereinafter the “Company”) and Mr. Brian Kelly (hereinafter “Mr. Kelly”). The effective date of this Agreement shall be the date on which Consultant signs it (hereinafter the “Effective Date”).

 

WHEREAS, Mr. Kelly has expertise in the area of General Management; and

 

WHEREAS, the Company wants Mr. Kelly to provide services to the Company in the area of General Management and has expressed a willingness to provide such services to the Company; and

 

WHEREAS, Mr. Kelly understands that while performing services for the Company, Mr. Kelly may be given access to or acquire confidential or other information from the Company; and as a result will be required to enter into a Non Disclosure Agreement

 

NOW, THEREFORE, in consideration of the terms and conditions contained herein, the parties hereto agree as follows:

 

1.          Services. Mr. Kelly agrees to provide consulting services to the Company beginning as of the date hereof. Pursuant to this Agreement, Mr. Kelly agrees to provide consulting services to the Company in the area of General Management including but not limited to the following tasks: Corporate Structure, Profitability (P&L and Budget), Recruiting, Hiring and Evaluating Talent and Establishing Corporate Processes and Procedures.

 

2.          Consideration. In consideration for the consulting services Mr. Kelly will provide under the terms of this Agreement, the Company agrees to compensate Mr. Kelly as follows:

 

(a)          Sixteen thousand dollars ($ 16,000.00) per month to be paid in two Eight Thousand ($8,000.00) semi monthly payments made on the 15th and 30th day of each month pursuant to an IRS Form 1099 for which Mr. Kelly provides the consulting services as set forth in this Agreement;

 

(b)          In the event of an early termination of this agreement during the initial term or any extensions thereof, Mr. Kelly’s consideration will be pro-rated to last day services are rendered.

 

3.          Term. The Company and Mr. Kelly agree that Mr. Kelly will provide consulting services to the Company from the date hereof through three months from the date hereof.

 

4.          Independent Contractor. Mr. Kelly shall at all times be an independent contractor and not an employee of agent of the Company. Mr. Kelly shall have no power or authority to act on behalf or in the name of or to bind the Company. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer-employee, or a joint venture relationship between Mr. Kelly and the Company. Mr. Kelly will be regarded as an independent contractor in all matters pertaining to services performed for the Company. Neither party shall incur any liabilities or any obligation of any kind (express or implied) for the other, except to the extent, if at all, specifically provided herein. Because Mr. Kelly is an independent contractor and not an employee of the Company, the following provisions shall apply to the parties’ relationship:

 

 
 

(a)          Mr. Kellys' Expenses. The Company shall reimburse Mr. Kelly only for reasonable out-of-pocket expenses, other than legal expenses, directly related to his services hereunder and which would not otherwise be incurred by Mr. Kelly if this Agreement did not exist, provided that any such expense in excess of Five Hundred Dollars ($500.00) must be preapproved by the Company in writing prior to its being incurred.

 

(b)          Company Expenses. Mr. Kelly shall not be required to incur any expenses for the Company under this Agreement, except as set forth in paragraph 4(a) above.

 

(c)          No Right to Retirement Benefits. Mr. Kelly is not entitled to participate in any profit sharing, pension retirement plan, vacation pay, sick pay, insurance coverage, or any other benefits provided to the Company’s other employees.

 

(d)          Non-Exclusivity. Mr. Kelly may engage in any other trade or business while consulting with the Company provided that such other trade or service not be performed for or on behalf of a company or entity that competes with the Company or provides the same or substantially similar services as the Company. In the event that Mr. Kelly wishes to perform services for another company that competes with the Company or provides the same or substantially similar services as the Company, he agrees not to do so without first receiving written permission from the Chief Operating Officer or President of the Company.

 

5.          Conduct During Consulting Period. In providing the services stated in Paragraph 1 of this Agreement, Mr. Kelly will cooperate with the Company’s personnel and use his best efforts and energies in good faith on the Company’s behalf. Mr. Kelly agrees that the services will be performed in a professional and workman-like manner and will be of professional quality conforming to generally accepted consulting practices. Mr. Kelly will comply with all applicable laws and regulations in the performance of the services. Mr. Kelly shall observe the Company’s rules and regulations with respect to his conduct and performance of the services.

 

6.          No Other Obligations. Mr. Kelly represents and warrants to the Company that Mr. Kelly has the right to enter into this Agreement without breaching or violating any fiduciary, contractual, or statutory obligations owed to another.

 

7.          Confidential Information. Mr. Kelly understands and acknowledges that the Company uses confidential and proprietary information (hereinafter collectively referred to as “Confidential Information”) in the course of its business. Mr. Kelly acknowledges that during his relationship with the Company, the Company may disclose to Mr. Kelly, or Mr. Kelly may be exposed to, Confidential Information of the Company. During the time that Mr. Kelly is an independent contractor of the Company, and for so long afterward as the data or information remains confidential, Mr. Kelly agrees that all such Confidential Information shall be treated as private, privileged and confidential, and Mr. Kelly agrees that except in the performance of Mr. Kelly ’ duties and for the benefit of the Company, Mr. Kelly will not use or disclose, disseminate, publish or otherwise divulge or make available, directly or indirectly, to any person or entity, any Confidential Information of the Company, unless Mr. Kelly obtains the prior express written consent of the Company and such consent is signed by the President or Chief Operating Officer of the Company. Mr. Kelly agrees that any unauthorized disclosure or use of the Company’s Confidential Information would be wrongful, would constitute unfair competition, and would result in immediate and irreparable injury to the Company.

 

-2-
 

8.          Company Property. Mr. Kelly agrees and understands that upon termination of this Agreement, Mr. Kelly shall immediately return all materials in his possession including but not limited to all Confidential Information set forth above, contracts, documents, products, sales, files, reports, copyrighted documents, resumes, and directories that were given to Mr. Kelly, created by Mr. Kelly, or in the possession of Mr. Kelly at any time during the existence of this Agreement.

 

9.          Company’s Remedies On Breach. Mr. Kelly acknowledges that any breach by Mr. Kelly of paragraphs 7 and 8 of this Agreement will cause immediate harm to the Company, and will cause damages that are irreparable and difficult, if not impossible, to quantify. Accordingly, to prevent and/or to rectify any such breach, the Company shall be entitled to an immediate injunction and other equitable relief in the event of an intentional disclosure of confidential information by Mr. Kelly. Nothing herein shall prevent the Company from pursuing any legal remedy available for breach of paragraphs 7 and 8 of this Agreement including but not limited to an action for damages which shall include but not be limited to, all losses sustained by the Company as a direct result of the breach, all compensation and other monies received by Mr. Kelly or any other person, business activity, corporation or other entity with which Mr. Kelly is acting or on whose behalf Mr. Kelly is acting, and punitive damages. Additionally, if the Company prevails in whole or in any part in any action to enforce any of the terms of paragraphs 7 and 8 of this Agreement, Mr. Kelly agrees to reimburse the Company for all costs and attorneys’ fees that it incurred in bringing such action that result from Mr. Kelly’s intentional disclosure of confidential information.

 

Mr. Kelly agrees that the covenants contained in this Agreement are reasonable in their scope and their duration and agrees not to raise any issue regarding the reasonableness of the scope or duration of the covenants in any proceeding to enforce them. If in any judicial or quasi- judicial proceeding a court or judge shall refuse to enforce any of the covenants set forth in this Agreement, then the parties intend for the unenforceable language or provisions of such covenant to be modified or eliminated to the extent necessary to permit enforcement of the remainder of the Agreement.

 

10.         Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Connecticut of the United States of America. The Company and Employee agree to be subject to the personal jurisdiction of the courts of Connecticut for any disputes arising from or in relation to this Agreement.

 

11.         Entire Agreement. This Agreement sets forth the entire agreement of the parties concerning the subject matters contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by the parties and by their officers, directors, principals, employees, agents and representatives. Any prior agreement of the parties hereto concerning the subject matter contained herein is hereby terminated and canceled. No agreements or representations, oral or otherwise, express or implied, concerning the subject matter hereof have been relied on by either party that are not set forth expressly in this Agreement.

 

-3-
 

Mr. Kelly acknowledges that Mr. Kelly has read and fully understands this Agreement, has been provided with an opportunity to consult an attorney regarding this Agreement, and has consulted such advisors as Mr. Kelly has deemed necessary. Mr. Kelly further acknowledges and agrees that Mr. Kelly has received good and sufficient consideration for signing this Agreement, which consideration Mr. Kelly was not otherwise entitled to and which Mr. Kelly otherwise would not have received.

 

12.         Amendment. This Agreement may not be modified, altered or changed except upon express written consent of both the Company and Mr. Kelly wherein specific reference is made to this Agreement.

 

13.         Severability. This Agreement is divisible and separable. If any provision of this Agreement is held to be or becomes invalid, illegal, or unenforceable, such provision or provisions shall be reformed to approximate as nearly as possible the intent of the parties, and the remainder of this Agreement shall not be affected thereby and shall remain valid and enforceable to the greatest extent permitted by law.

 

14.         Survivability. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, executors, administrators, successors, and permitted assigns, provided, however, that this Agreement and the obligations hereunder shall not be delegated or assigned by Mr. Kelly without prior written permission from the Company.

 

15.         Waiver. The terms of this Agreement may be waived only by a written instrument expressly waiving such term or terms and executed by the party waiving compliance. The waiver of any term or condition of this Agreement by either party hereto shall not constitute a modification of this Agreement, nor prevent a party hereto from enforcing such term or condition in the future with respect to any subsequent event, nor shall it act as a waiver of any other right accruing to such party hereunder.

 

16.         Modification. No change or modification of this Agreement shall be valid or binding unless it is in writing and signed by both the Company and Mr. Kelly. No waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party against whom the waiver is sought to be enforced.

 

-4-
 

 

IN WITNESS WHEREOF, the Company and Mr. Kelly hereby duly execute this Agreement to be effective as of the date set forth above on the first page of this Agreement

 

Signed    
     
/s/ Brian Kelly   Dated: 6/3/08
     
Brian Kelly    
     
Subscribed and sworn to before me on this    
3rd day of June, 2008    

 

  a    
Notary Public  
My Commission Expires: 5/31/2012  

 

THE COMPANY:      
       
MICROPHASE CORPORATION.,      
       
Necdet Ergul, President      
       
/s/ Necdet Ergul   Dated: 6/2/08

 

By:    

 

Subscribed and sworn to before me on this  
2nd day of June, 2008.  
   

/s/ Angela Bollettieri

 
Notary Public  
My Commission Expires: 5/31/2010  

 

-5-

EX-23.1 12 v398941_ex23-1.htm EXHIBIT 23.1

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the use in this Registration Statement on Form 10 of Microphase Corporation of our report dated February 19, 2015 relating to the financial statements of Microphase Corporation which appears in such Registration Statement.

 

/s/ Rosenberg Rich Baker Berman & Company

 

Somerset, New Jersey

February 23, 2015

 

 

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