July 19, 1999
Memorandum of Understanding
---------------------------
Both Parties Agree that:
1. XXX and ePhone become "Strategic Partners" and work together on a continuing
basis to the benefit of both companies.
2. As part of the partnership TEK commits to support the development and
delivery of TEKI agates as a first priority. The TEKI iGate will enable ePhone
to offer an IP telephony based fax and voice service. The specific product
specifications are to be mutually agreed defined between ePhone and TEK. XXX
agrees that the iGates to be delivered to ePhone will be branded as ePhone
iGates.
3. In addition to product specifications, TEK agrees to support ePhone with
specific commitments of technical support and assignment of personnel. These
commitments will be agreed between TEK and ePhone by July 16 and incorporated
into an implementation plan which will form an addendum to this agreement
(Addendum A). Addendum A will cover:
-- product development and delivery milestones
-- actions and deliverables by specified personnel within TEK specific
commitments in terms of time by specified individuals within TEK to
ePhone's program
-- technical support for ePhone in the field
-- specific schedule of TEK iGate deliveries to ePhone
4. xXxxxx has the right to name a replacement director for Xxxxxx Xxxxxx if he
resigns from the board of TEK. It is Xxxxxx'x intention to resign from the board
in the near future.
5. ePhone will be granted the same provisions for escrow and access to the
source code as Franklin Telecom and will also have the right to manufacture the
TEK iGate in case TEK is unable to manufacture the product for ePhone.
6. Joint Press Releases will de disseminated as agreed between the two
companies.
7. ePhone will continue to assist TEK in its efforts to raise additional
capital.
8. TEK agrees that it will make ePhone its first priority in terms of product
development and customer support.
TEK Undertakings
1. TEK will provide the TEK iGate product, as well as necessary technical
support, to ePhone as a hardware vendor. The existing two port V-Server
will be productized to facilitate the launch of the ePhone service by
August 2, 1999.
2. The initial launch of the service will be based on the existing 2 port unit
with minor modifications (modifications to be specified and agreed). This
will also form the basis of a mutually agreed upon acceptance plan (Gateway
with Billing Capability).
3. XXX agrees to ensure that the product passes CE for LAN (ie. non-ISDN &
Class A) by July 30, 1999. ePhone acknowledges that in order to obtain CE
Class A certification for ISDN by September 15, 1999 additional equipment,
estimated to cost $50,000 (specifications and details to be supplied by
TEK), will be required. ePhone further acknowledges that this additional
equipment must be ordered by August 1, 1999 by TEK in order to meet the
September 15, 1999 date. There will be penalty to TEK if it does not meet
the CE certification for ISDN by September 15, 1999. This penalty will be
calculated on the basis of the costs incurred by ePhone due to the missing
of the September 15th deadline, plus 50%.
4. For all units additional to the initial order of 500 units, TEK agrees to
provide ePhone with all new units at a maximum price of cost plus a maximum
markup of 30% for 3 years. Cost is defined to include all licensing,
royalties, manufacturing, and 3rd party warranty support costs. ePhone will
have the right to audit these costs. The first 500 units are priced at
$700, as previously agreed, but additional units will be priced in
accordance with a volume discount schedule supplied by TEK (Addendum B to
this agreement). For the same volume of iGates TEK will offer ePhone a
preferred volume discount schedule as compared to other purchasers of
iGates.
5. TEK agrees that the optional features of the TEK iGate product line will be
compatible with ePhone's service and will provide preferential access to
ePhone and further that TEK will provide access server directory records
including billing capability (tested and approved by ePhone) so that ePhone
can maintain a WEB based directory. This optional feature will be based on
cost-plus program for TEK to design and implement per ePhone's requirement.
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6. TEK will guarantee the best markup rate within same category to ePhone
comparing to all distributors & OEM accounts. The same products cannot be
sold by TEK to undercut pricing offered to ePhone and TEK cannot deal with
or sell to ePhone's distributors. TEK will bundle ePhone services to all
customers who need services and will not act as a carrier itself.
7. TEK agrees that Gateway solutions & Network Design developed and brought in
by ePhone shall be treated as confidential and proprietary information and
shall not be provided or disclosed to any other parties without prior
approval of ePhone. The same solution cannot be sold without going through
ePhone's worldwide channels.
8. XXX agrees to assist xXxxxx in developing exclusive territorial sales
territories in China, Vietnam and Taiwan, and other countries as may be
mutually agreed. In cases where TEK has authorized other sellers of TEK
iGates TEK will facilitate introductions of ePhone to those sellers, so
that ePhone will be able to coordinate sales efforts. The negotiations with
these other sellers and the development of those sales territories will be
ePhone's responsibilities.
ePhone Undertakings
1. As noted above, ePhone agrees to order and pre-pay for 500 units in advance
of delivery at a price $700 per unit. The first 20 units will be delivered
July 15, 1999, with additional units delivered as follows: 40 units by July
30, 1999 and 440 units commencing on August 3, 1999 and covering the 4
following weeks. Projected delivery requirements and conditions are
appended to this agreement as Addendum C.
2. Subject to ePhone's testing and approval of gateway compatibility, ePhone
agrees to place a open Purchase Order or Purchase Orders with TEK of up to
10,000 units for the first year and 75,000 units for the second year, once
this MOU has been signed. TEK will supply the documentation for these
Purchase Orders. These Purchase Orders will provide price protection to
ePhone and will allow ePhone to substitute other TEK products instead of
iGates in case the demand from ePhone's customers changes. ePhone agrees to
work closely with TEK to coordinate the specific requirements for parts and
materials and, as well, will assist TEK in obtaining third party financial
support, if financing is required to manufacture these products.
3. ePhone agrees to pay for the 500 units already ordered in accordance with
the following schedule:
Installment payments totaling $250,000 by July 23, 1999
First delivery payment $50,000 on delivery of 20 units (July 23)
Final delivery payment $50,000 on delivery of final units
Delivery Schedule:
7/23/99 20 units
7/30/99 40 units
lst week of Aug 110 units
2nd week of Aug 110 units
3rd week of Aug 110 units
4th week of Aug 110 units
4. At ePhone's option the payment can be made by e Phone directly or by
arrangement with a third party.
5. ePhone's remedies in case of non- performance by TEK or the production of
an unacceptable product will be specified in the implementation plan to be
agreed with TEK and will be specifically identified as TEK deliverables in
that plan (Addendum A). TEK is to supply ePhone with a list of features of
the TEK iGate by July 19, 1999.
6. ePhone agrees, on a best efforts basis only, to make available or arrange
through third parties financing of up to $500,000 to TEK at a price of
$0.40 per share, subject to terms to be mutually agreed within 14 days of
the date of this agreement. ePhone understands that TEK will make available
free trading shares for this placement, to the extend that TEK is able to
obtain possession of free trading shares.
7. ePhone agrees to place a Purchase Order for 10,000 units of the TEK iGate,
once this MOU been signed. XXX agrees that this initial Purchase Order can
be changed with 60 days of written notification to TEK based on the market
requirement of ePhone. ePhone will evaluate the demand from its customers
once it has had feed back from users of the first 500 units.
8. ePhone agrees to assist XXX to finance the Bill of Material (BOM) order for
the manufacture of ePhone's units through the use of ePhone's invoices with
a financial institution. If ePhone is unable to assist TEK in this matter
or if ePhone's credit is not acceptable for these transactions, ePhone
agrees prepay TEK's invoices 60 days in advance.
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Documentation to be drafted by legal counsel chosen by ePhone. (subject to
review by TEK legal counsel). This memorandum may be signed in counterpart.
TEK Digitel Corporation_______________ ePhone Telecom, Inc._______________
/s/ Xxxxxx Xxxx 7/19/99 /s/ Xxxxxx Xxxxxx
------------------ ------------------------
TEK, Xxxxxx Xxxx ePhone, Xxxxxx Xxxxxx
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Addendum A
----------
Implementation Plan
-------------------
Implementation Plan to include (but not be limited to):
1. product development/network operation delivery milestones:
a. TEK will provide engineering resource to ensure that TEK's products
are compatible to ePhone's Gateway/Gatekeeper.
b. The compatibility test will be completed prior to or by July 31, 1999.
c. ePhone will not be responsible for re-stocking or other costs if the
compatibility test fails. xXxxxx agrees that the compatibility test
will be based on H.323.
2. actions and deliverables by specified personnel within TEK
Xxxxxx Xxxx Program Manager
Xxxxx XxXxxxx and Xxxxx Xxxxxxxx / Marketing and Sales Support
K.O. Chao Software design and product interface Support
X. Xxxxx Engineer Support
3. specific commitments in terms of time by specified individuals within
Xxxxx XxXxxxx and Xxxxx Xxxxxxxx will have maximum of 50% of their time and
resource to work on ePhone marketing and sales support. The costs to be
incurred by ePhone for these resources will be determined on the basis of
TEK's full, actual costs for these individuals, with no mark-up.
4. technical support for ePhone in the field
TEK will provide two days training class in Germantown to train ePhone's
engineers.
5. specific schedule of TEK iGate deliveries to ePhone - to be agreed.
Addendum B
----------
Volume Discount Schedule
------------------------
ePhone iGate
Unit Price
Volume
Discount
Schedule
(in US$)
LAN Only ISDN S/T ISDN U
Bundle Bundle Bundle
Units PN#805112 PN#8052 PN#8053
Ordered FXS FXS/FXO 12 FXS FXS/FXO 12 FXS FXS/FXO % Discount
0 - 000 000 750 800 850 800 850 0
501 - 1000 679 727.5 776 824.5 776 824.5 3
1001 - 2000 658 705 752 799 752 799 6
2001 - 4000 637 682.5 728 773.5 728 773.5 9
4001 - 6000 616 660 704 748 704 748 12
6001 - 8000 588 630 672 714 672 714 16
8001 - 10000 560 600 640 680 640 680 20
10001 - 15000 532 570 608 646 608 646 24
15001 - 20000 504 540 576 612 576 612 28
1. Basic price ($700) is based on LAN Only, FXS Telephone Interface (for direct
phone connection)
2. For optional FXO (DAA) Connection, add $50 to the base price
3. For optional ISDN S/T or U, add $100 to the base price and functions
associated with each iGate product are specified according to "V-Server iGate
Part number"
Addendum C
----------
Projected Delivery of TEK agates
--------------------------------
ePhone is currently projecting the following shipments of the ePhone iGate 2
channel gateways.
July 13 - 20 units
July 30 - 40 units
Aug. 3 to Aug. 30 (four weeks) - 440 units
Sept. 30 to Oct. 30 (four weeks) - 1500 units
Oct. 30 to Nov. 30 (four weeks) - 2000 units
Nov. 30 to Dec. 30 (four weeks) - 2500 units
Dec. 30 to Jan. 30, 2000 (four weeks) - 3000 units
1. It is expected that ePhone will switch to the new platform beginning in
Jan 2000. ePhone forecasts requirements of 75,000 units in the year 2000.
2. ePhone understands that XXX must commit to component deliveries in order to
meet the above dates and volumes. ePhone agrees to pay all cancellation and
re-stocking charges for any long lead time components that are incurred by TEK
to meet the above forecasts.
3. TEK accepts that it has to provide an acceptable product for ePhone which
will be satisfactory for ePhone to carry out its business plan. If this is not
so done by TEK then TEK will be liable to ePhone for ePhone's costs and damages.
4. The volumes from August onwards can only be met with the ePhone private label
product. This includes: Front label, Sleeve, and documentation. ePhone will
provide TEK with the artwork by July 30. ePhone will provide TEK with the
appropriate number of sleeves.
Date: September 11, 1999
Amendment to Memorandum of Understanding dated July 19. 1999
Both Parties Acknowledge that:
The following is the amendment to the MOU which as been signed between both TEK
and ePHONE on July 19, 1999. Both parties agree to collaborate further by
abiding by the following undertakings by both parties.
X. XXX's Undertakings:
1. ePHONE has exclusive worldwide distribution rights to the
"ePHONE Solution" which is referred to in the MOU of July 19,
1999 and defined in the "Request for Proposal" (the
combination/integration/development between TEK's
vSERVER/iGATE and Array Telecom's Gateway/Gatekeeper). ePHONE
will also have the first right of refusal to incorporate new
products developed by TEK into the "ePHONE Solution", subject
to mutually agreed terms.
2. TEK agrees to provide ePHONE with the exclusive ITSP (Internet
Telephony Service Provider) rights in the following regions:
Europe, Mid-East and Africa, subject to the undertakings
agreed to by ePHONE as described in Section B. These rights
are to be non-cancelable by TEK for two years (provided ePHONE
fulfills its obligations under this agreement) and subject to
annual renewal under mutually agreed terms thereafter.
3. The "Exclusive ITSP Rights" are defined as: TEK will not sell
any products (with TEK's brand name and/or through any other
OEM brand names) to any "Telephony- Related Businesses" which
might be in direct/indirect competition with ePHONE's and/or
its partners' ITSP businesses in those regions defined in item
A.2 of TEK's Undertakings. In cases where TEK identifies new
business opportunities in the exclusive regions TEK will have
the right to bring these to ePHONE for mutual negotiation.
4. As agreed in the July 19th MOU TEK agrees to provide ePHONE
Telecom with he most favorite OEM pricing and/or licensing
fees. TEK agrees to offer ePHONE price protection in all
categories (including OEM) of customers that TEK shall not
offer lower selling pricing to its customers to compete with
ePHONE's customers. XXX agrees to ePHONE that a quarterly
audit can be performed anytime to verify the effects of price
protection.
Page 1 of 4 Date: 08/30/99
5. TEK agrees to respond xXXXXX's engineering requests, "Bug-List
Fixes" and/or modifications with first priority to avoid any
delays in operations, productions and/or worldwide deployment.
6. From time to time, ePHONE will contract TEK to
engineer/develop "unique software and/or hardware" for the
purpose of enhancing the "ePHONE Solution" and/or Worldwide
ITSP businesses. TEK agrees that ePHONE will maintain its
exclusive usage rights to this "unique software and/or
hardware".
7. In order to achieve prompt deployment in the exclusive ITSP
territories described in A.2, TEK grants to ePHONE the option
to manufacture vSERVER/iGATE itself or assign the
manufacturing rights to a manufacturer of its choosing. These
manufacturing rights cover the products listed in B.1 and are
subject to the conditions described in B.3 and B.4.
8. In the case of ePHONE exercising its option as described in
A.7, XXX agrees to promptly provide B.O.M. and/or any other
related material with ePHONE to ensure smooth operations,
production and/or deployment.
9. In recognition of ePHONE's market development work in Vietnam,
TEK grants to ePHONE exclusive ITSP (Internet Telephony
Service Provider) rights for this country. Specific sales
volumes of vSERVER/iGATE are to be agreed within 6 months of
the date of this agreement.
10. XXX agrees to negotiate with ePHONE exclusive agreements for
other Asian countries as may be identified by ePHONE. These
agreements are to be subject to mutually agreeable terms.
11. During the course of business development, TEK might become
known through ePHONE's introduction and/or ePHONE's
sales/marking efforts. TEK agrees not to circumvent or
approach ePHONE's prospects, contacts, financial resources
and/or customers including but not limited to: all the end
users/resellers/distribution channels, OEM/ODM and/or
potential investors. xXXXXX agrees to give TEK the same mutual
protection.
12. In cases where ePHONE successfully develops OEM/ODM customers
for ePHONE/TEK, TEK agrees to share its licensing fee with
ePHONE on a case by case basis.
Page 2 of 4 Date: 08/30/99
B. ePHONE's Undertakings:
1. For the exclusive ITSP territories and rights as defined in
items A.2 and A.3 ePHONE commits to minimum sales of
vSERVER/iGATE as follows:
Year 1: 55,000 units
Year 2: 105,000 units
These units can be a combination of the following:
a. The current model,
b. The end-user model with built-in, automatic
dial-up and wake-up modem.
c. Any special engineering designs, which is
requested by ePHONE and/or its customers and/or
to stay competitive in the ITSP markets.
ePHONE agrees that it must place and pay for a minimum volume
of 16,500 units within 6 months of the date of this agreement
or the agreement is cancelable by TEK. This payment will be
non-refundable.
2. If these units are supplied by TEK (either directly or by
sub-contractor) ePHONE agrees to provide TEK with a P.O. with
a 10% non-refundable deposit. Pricing is to be as per the MOU
or on more favorable terms in case of higher volumes that
20,000 units.
3. If ePHONE manufactures the products described in B.1 or
assigns these manufacturing rights then ePHONE agrees to pay a
one time "manufacturing rights fee" and per unit "product
royalties" to TEK. These are described in B.4 and B.5
respectively. TEK will supply manufacturing support to
ePHONE's designated manufacturer in return for "booking" the
transaction at no extra cost to ePHONE or the manufacturer,
subject to agreement by all parties.
4. The "manufacturing rights fee" will be a total of
$1,500,000 payable as follows:
$250,000 payable within 45 days of signing this
agreement or the date of ePHONE's signing of an
agreement with a third party for these rights,
whichever comes first - subject to completion and
verification of the "ePHONE Solution" as per the
Request for Proposal.
$250,000 payable within 45 days of the first payment
$100,000 payable every 30 days, commencing 30 days
after the date of the second payment, until a total
of $1,500,000 has been paid
5. The "product royalties" will be a payment of $160 per unit,
payable when the unit is shipped from the manufacturer. This
royalty will include all other royalties payable by TEK to
third parties. This royalty will be in accordance with item
A.4 and will be adjusted if ePHONE does not have the most
favorite OEM pricing and/or licensing fees.
Page 3 of 4 Date: 08/30/99
6. xXXXXX agrees that failure to meet any one of the undertakings
agreed to in items B.1 and/or B.4 will make this agreement
cancelable by TEK.
TEK DigiTel Corporation ePHONE Telecom. Inc.
----------------------- -------------------
/s/ Xxxxxx Xxxx /s/ Xxxxxx Xxxxxx
-------------------------- -------------------------
TEK, Xxxxxx Xxxx ePHONE, Xxxxxx Xxxxxx
Page 4 of 4 Date: 08/30/99
