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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended February 29, 1996
or
[_] Transition Report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] for the transition period
from to
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Commission File No. 2-74238-B
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LOJACK CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2664794
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
333 Elm Street
Dedham, Massachusetts 02026
(Address of Principal Executive Offices) (Zip Code)
(617) 326-4700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: Common Stock, $.01 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes[X] No[ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated in Part III of this Form 10-K or any amendments to this
Form 10-K.
[ ]
The aggregate market value of the Common Stock of the registrant held by non-
affiliates was approximately $248,953,016 as of May 17, 1996.
As of May 17, 1996, there were issued and outstanding 21,941,891 shares of the
registrant's Common Stock, $.01 par value.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended February 29, 1996 (Items 5, 6, 7, 8 and 14(a)(1))
(2) Portions of the definitive Proxy Statement for Registrant's Annual Meeting
of Stockholders to be held on July 17, 1996 (Items 1, 10, 11 and 12)
<PAGE>
LOJACK CORPORATION
Securities and Exchange Commission
Item Number and Description Page
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PART I
ITEM 1. Business..................................................... 1
ITEM 2. Properties................................................... 6
ITEM 3. Legal Proceedings............................................ 7
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 7
PART II
ITEM 5. Market for the Registrant's Common
Equity and Related Stockholder Matters....................... 7
ITEM 6. Selected Financial Data...................................... 7
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7
ITEM 8. Financial Statements and Supplementary Data.................. 7
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 7
PART III
ITEM 10. Directors and Executive Officers of the Registrant............ 7
ITEM 11. Executive Compensation........................................ 8
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management................................................ 8
ITEM 13. Certain Relationships and Related Transactions................ 8
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................................... 8
SIGNATURES................................................................. 12
INDEX TO AUDITORS' REPORT AND FINANCIAL STATEMENT SCHEDULE ................ 13
In as much as the calculation of shares of the registrant's voting stock held by
non-affiliates requires a calculation of the number of shares held by
affiliates, such figure, as shown on the cover page hereof, represents the
registrant's best good faith estimate for purposes of this annual report on
Form 10-K, and the registrant disclaims that such figure is binding for any
other purpose. The aggregate market value of Common Stock indicated is based
upon the last traded price of the Common Stock as reported by NASDAQ on
May 17, 1996. All outstanding shares beneficially owned by executive officers
and directors of the registrant or by any shareholder beneficially owning more
than 10% of registrant's Common Stock, as disclosed herein, were considered for
purposes of this disclosure to be held by affiliates.
<PAGE>
PART I
ITEM 1 - BUSINESS
GENERAL
LoJack Corporation ("LoJack" or the "Company") was organized as a Massachusetts
corporation in l978. Its telephone number is (6l7) 326-4700.
LoJack developed and markets the LoJack System, a unique, patented system
designed to assist law enforcement personnel in locating, tracking and
recovering stolen vehicles. In addition, LoJack developed and markets
CarSearch, a product line of its patented LoJack System, designated for use in
international markets where it may not be practicable or desirable to implement
the fully integrated LoJack System.
The LoJack System is comprised of a Registration System maintained and operated
by LoJack; a Sector Activation System and Police Tracking Computers operated by
law enforcement officials (the "Law Enforcement Components"); and the LoJack
Unit, a VHF (very high frequency) transponder sold to consumers. The LoJack
System is designed to be integrated into existing law enforcement computers and
telecommunication networks and procedures. If a car equipped with a LoJack Unit
is stolen, its owner reports the theft as usual to the local police department.
Existing law enforcement computer and communication networks and procedures
operate in the normal manner for a report of a stolen vehicle. If the theft
involves a vehicle equipped with a LoJack Unit, a unique radio signal will be
transmitted automatically to the LoJack Unit in the stolen vehicle activating
its tracking signal. The tracking signal emitted from the LoJack Unit can be
detected by the Police Tracking Computer installed in police patrol cars and
aircraft throughout the coverage areas and used to lead law enforcement officers
to the stolen vehicle. The Company also sells conventional vehicle security
devices, which may be purchased as options with the LoJack Unit, under the names
"LoJack Prevent" and "LoJack Alert."
OPERATION OF THE LOJACK SYSTEM IN THE UNITED STATES
Under agreements with state police agencies, LoJack generally furnishes the Law
Enforcement Components for distribution to state, county, and municipal law
enforcement agencies for a nominal rent. The installation, testing and
maintenance of the Law Enforcement Components are primarily the responsibility
of LoJack. The Law Enforcement Components are generally owned by LoJack or a
LoJack subsidiary; the respective state, county or city law enforcement agency
provides the necessary staff to operate the LoJack System as required during the
term of each such agreement. The agreements with the applicable law enforcement
agencies are generally for initial terms of up to five (5) years. To date, any
such agreements which have expired have been renewed or are in the process of
renewal. Renewal or extension of any such agreement may be subject to
competitive bidding.
The LoJack System has been implemented in the following domestic jurisdictions
pursuant to agreements with applicable law enforcement agencies:
Jurisdiction Date Operational
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Massachusetts July l986
Florida:
Dade, Broward,
Palm Beach and surrounding December l988
counties;
Tampa, St. Petersburg and July 1994
surrounding counties in
West Florida; and
Orlando April 1996
New Jersey March l990
Michigan April l990
California:
Los Angeles County; July l990
San Diego and Orange County June 1995
Illinois November l990
Georgia August l992
Virginia August l993
New York June l994
Rhode Island June l994
District of Columbia September 1994
Connecticut April 1995
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The Company is presently pursuing negotiation with several law enforcement
agencies in the United States regarding the implementation of the LoJack System
in jurisdictions in addition to those mentioned above. The Company's strategy
is to expand the LoJack System to those jurisdictions where the combination of
new vehicle sales, population density, and the incidence of vehicle theft is
high. To date, LoJack has expanded into 12 of 16 of its targeted States. The
Company also has plans to expand to additional domestic jurisdictions, beyond
the 16 targeted states, which do not presently fall within the guidelines of the
Company's targeted expansion profile. Certain improvements to the Company's
technology and interface with law enforcement systems make such additional
expansion economically feasible for the Company.
THE LOJACK SYSTEM
The LoJack System consists of four basic components:
1. LoJack Unit
2. Police Tracking Computer
3. Sector Activation System
4. Registration System
The LoJack Unit. The LoJack Unit is the consumer component of the LoJack
System and is installed in a purchaser's motor vehicle. The LoJack Unit consists
of a VHF transponder, a microprocessor based computer, and a modem. The
computer's memory contains a set of codes unique to the particular LoJack Unit
and the vehicle in which it is installed. The microprocessor activates the
Unit's transmitter upon receipt of its unique activation code from the Sector
Activation System. Since each LoJack Unit has its own unique activation code and
reply code, the microprocessor responds only upon receipt of the appropriate
code. An activated LoJack Unit will continue to broadcast its reply code until
it receives a properly coded message to stop. That message is sent after the
police have recovered the vehicle. All transmissions are made on a nationwide
radio frequency allocated by the Federal Communications Commission ("FCC") as a
law enforcement radio service.
Police Tracking Computer. The Police Tracking Computer ("PTC") is a
sophisticated radio direction finder. The PTC is used by police to locate and
track activated LoJack Units. The PTC consists of a radio receiver with a
directional antenna array, doppler signal processor, microprocessor based
computer and a controllable display. When the PTC detects a LoJack Unit
transmission from a stolen vehicle, it displays the reply code along with
graphic indications of signal strength and the direction toward the stolen
vehicle. The officer may then radio the reply code to the police dispatcher and
obtain a vehicle description.
The PTC is normally installed in police vehicles, but also can be mounted
in aircraft as well as at fixed locations such as toll booths, radio towers, or
police communication centers. Modified designs of the PTC have been developed
for use in helicopters. Effective tracking range varies under different
topographical and other conditions, from about one mile to approximately five
miles under ideal conditions.
Sector Activation System. The Sector Activation System ("SAS") is a
computerized system that controls and commands the LoJack System and activates
LoJack Units in stolen vehicles. It is designed to function with existing law
enforcement computer and telecommunication networks and procedures. Routine and
normal processing of a stolen vehicle report activates the SAS, even if the
person reporting the theft and the officer responding are unfamiliar with the
LoJack System.
A stand-alone Sector Activation Computer ("SAC") contains a file with
up-to-date information on vehicles equipped with LoJack Units. This computer
usually is installed in conjunction with pre-existing law enforcement computer
and communication systems. This file contains, for each LoJack equipped vehicle,
the vehicle identification number ("VIN") assigned by the vehicle's
manufacturer, and the activation and reply codes for the LoJack Unit installed
in that vehicle.
When the VIN of a stolen vehicle is entered into existing stolen vehicle
reporting systems, it is compared automatically to those contained in the LoJack
file. When a match occurs, the SAC automatically transmits the appropriate
activation code. Police officers who have detected the transmissions of an
activated LoJack Unit call into a dispatcher for a description of the
transmitting vehicle. After the vehicle is recovered, the VIN is again entered
into the SAC to generate the appropriate deactivation code and to reset the
LoJack Unit for future use.
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The SAS controls a network of radio transmitters positioned on sites
throughout the coverage area. The SAC accepts stolen vehicle reports from the
state law enforcement computer and initiates activations and deactivations of
LoJack Units.
Registration System. The Registration System is a proprietary method of
assigning digital codes to be transmitted and received by LoJack Units in such
manner that unique activation codes are permanently correlated with the unique
VIN assigned to the vehicle in which the LoJack Unit has been installed.
MARKETING AND DISTRIBUTION OF LOJACK UNITS - UNITED STATES
LoJack's marketing approach in each jurisdiction focuses on franchised new car
dealers who will offer the LoJack Unit as an option on both their new and used
car sales. LoJack also markets LoJack Units to major fleet accounts as well as
directly to consumers and the automotive aftermarket using selected retailers.
LoJack also markets conventional vehicle security devices sold under the names
"LoJack Prevent" and "LoJack Alert."
LoJack's sales force routinely visits franchised new car dealers to reemphasize
to dealership personnel the benefits of the LoJack System. LoJack's direct
marketing efforts emphasize the benefits to the dealers and their customers of
the LoJack Unit as a purchase option for new car buyers. Like other options, the
LoJack Unit may be financed conveniently as a part of the purchase price of the
vehicle. LoJack uses direct advertising to consumers to generate product
awareness.
LoJack maintains full responsibility for installation and warranty service of
LoJack Units sold by the Company both for the convenience of dealers through
whom the LoJack Units are marketed and for LoJack to maintain a high degree of
quality control and security over its technology.
In addition to distributing LoJack Units itself, through its subsidiaries or
licensees, LoJack may consider joint ventures or other cooperative arrangements
to expedite the expansion of the LoJack System. The actual method of
distribution will be determined on a market-by-market basis.
INTERNATIONAL OPERATIONS
The Company also licenses the use of its stolen vehicle recovery system
technology in selected international markets. In connection with its efforts to
expand outside of the United States, the Company has utilized its stolen
vehicle recovery technology to develop the CarSearch Stolen Vehicle Recovery
System ("CarSearch"). Unlike the LoJack System currently operational in the
United States, CarSearch has the flexibility of operating independent of
existing law enforcement communication networks.
The Company targets CarSearch for use by either law enforcement or private
security companies in selected international markets where the implementation of
a fully integrated LoJack System may not be feasible. This new application of
the LoJack technology allows stolen vehicles to be activated, tracked and
recovered without the direct involvement of local police.
Present international license agreements have thus far been denominated in U.S.
dollars and structured with up-front licensing fees, which may be substantial
and are non-recurring, and provide that the Company will subsequently either
supply components and products at prices to be determined from time to time
and/or receive royalties based upon the licensees' revenues. It is the
Company's intention to continue to license the use of either the LoJack System
or CarSearch in other selected international markets on the same basis as
described above. The Company does not anticipate making any direct investment
in the operations of foreign licensees in the foreseeable future. However, the
Company has been granted an option, exercisable through March 1998, to purchase
up to 5% of the outstanding common stock of its United Kingdom licensee. The
Company generally does not recognize revenues during the period immediately
after entering into an agreement with a licensee. Recognition of revenues does
not generally commence until after the licensee receives any required
governmental approvals, such as frequency allocation for the CarSearch or LoJack
System. The governmental approval process may be time-consuming.
As of February 29, 1996, the Company had Licensees operating stolen vehicle
recovery systems using LoJack's technology in the following countries: the
United Kingdom, Slovakia, the Czech Republic, Greece, Ecuador, Colombia,
Trinidad and Tobago, Hong Kong, Argentina, Russia and Venezuela. The Company
also has licensees which it expects to commence operating stolen vehicle
recovery systems during its fiscal year ending February 28, 1997 in South Africa
and Kenya. The
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<PAGE>
Company also has entered into agreements to license the use of LoJack's
technology in Israel, Taiwan, Panama, Germany, Italy, Jamaica, Nicaragua,
Guatemala, Belize, and Peru. The date for commencement of operations in these
countries has not been set, as their ability to operate may be subject to the
licensees obtaining certain governmental approval which may be time consuming or
may not be obtained. The Company is also pursuing similar agreements for other
countries.
Approximately 8% of the Company's revenues in fiscal l996 were derived from
export revenues. These revenues were comprised of product sales and licensing
revenues from unaffiliated customers in foreign countries. Approximately 95% of
the Company's foreign product sales are covered by letters of credit or require
payment in advance from the licensee. (See Note 9 to the Notes to Financial
Statements which are included in LoJack's 1996 Annual Report which is filed as
Exhibit 13 hereto.)
GOVERNMENT REGULATION AND APPROVAL
In 1989, the FCC put into effect a rule change to allocate frequency l73.075 MHz
for nationwide use by state and local law enforcement agencies for stolen
vehicle recovery systems. Law enforcement agencies in jurisdictions where the
Company operates have been granted authority by the FCC to use this frequency
for LoJack's stolen vehicle recovery system.
In connection with its domestic operations, the Company must obtain the approval
of law enforcement agencies, as well as executive or legislative bodies, for
implementation of the LoJack System before sales of LoJack Units can commence in
a given jurisdiction. The approval process may be time consuming and costly and
is subject to considerations generally affecting the process of governmental
decision making. In some jurisdictions, governmental approval may be terminable
at the convenience of the executive or legislative body. Any such termination
could have a material effect on future sales in any such jurisdiction.
To the extent that, beyond its initial base of operations, LoJack is able to
charge more than nominal prices for the Law Enforcement Components, governmental
appropriation of funds will be required. Most government agencies have
established, by policy, statute or regulation, a process requiring competitive
bidding for all acquisitions of products and equipment. This process may cause
delay and expense to the Company. To date, the Company has not sought to charge
law enforcement agencies more than nominal prices for the Law Enforcement
Components.
AUTOMOBILE INSURANCE BENEFITS
Management considers automobile insurance premium discounts to be an inducement
for the purchase of LoJack Units by vehicle owners. The application of insurance
premium discounts, which are generally applied to the vehicle owner's
comprehensive insurance, varies from state to state and, in some cases, from
insurance company to insurance company. For example, insurance regulations in
some states, such as Massachusetts, Rhode Island, New York and New Jersey,
provide for mandated insurance discounts for automobiles protected by automobile
security systems. In other states, such as California, where the granting of
such discounts is not regulated, the determination is made by individual
insurance carriers. Currently, insurance discounts, which vary from state to
state, and nationally by certain insurance carriers, provide for discounts of
up to 35% on comprehensive insurance premiums for vehicles equipped with a
vehicle recovery and anti-theft device. There is also pending legislation in
some states where the LoJack System is operational which would establish or
increase discounts available to vehicle owners who install the LoJack Unit.
Since the insurance industry is, in general, heavily regulated, the process of
seeking voluntary or mandatory discounts for vehicles may involve significant
time and effort by LoJack.
PRODUCT WARRANTY
LoJack warrants to consumers that the LoJack Unit will be free from defects in
material or workmanship for a period of two years, subject to extension at the
customer's option for an additional charge. LoJack also warrants to purchasers
of LoJack Units that if their LoJack equipped vehicle is stolen within two years
of installation and not recovered within 24 hours from the time that the report
of the theft is reported to the police, LoJack will refund the full purchase
price of the LoJack Unit up to a maximum of $595.
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PATENTS AND TRADEMARKS
LoJack holds United States Patent Nos. 4,8l8,998 and 4,908,629, which expire in
2006 and 2007, respectively, covering the LoJack System. The Company also holds
patents in various countries in Europe, Asia, South America and North
America. Patent protection has also been sought by LoJack in several other
countries. Although management believes the patents have value, there can be no
assurance such patents will effectively deter others from manufacturing and
marketing a stolen vehicle recovery system. LoJack's name and logo are
registered trademarks in the United States and many foreign countries.
COMPETITION
Several competitors or potential competitors are marketing or have announced the
development of stolen vehicle recovery products directly competitive with the
LoJack System. To the knowledge of management, none is compatible with the
LoJack System and none is proposed to be operated or actively monitored
exclusively by law enforcement agencies as is the LoJack System.
LoJack markets the LoJack System as a stolen vehicle recovery device.
Management believes, however, that makers of auto theft prevention devices view
the LoJack System as competitive, and, consequently, LoJack believes it faces
competition from companies that sell vehicle security devices.
Some of the competitors and potential entrants into the stolen vehicle recovery
industry may have greater resources than LoJack. In addition, there can be no
assurance that a competitor will not develop a system of theft detection or
recovery, including other stolen vehicle recovery systems that may or may not
require government approvals, that would compete with or be superior to the
LoJack System.
SUBCONTRACTORS
LoJack has subcontracted with Micrologic, Inc. ("Micrologic") of Waltham,
Massachusetts, to perform a substantial portion of the engineering, design and
implementation of the LoJack and CarSearch Systems in new jurisdictions as well
as to perform certain research and development. LoJack owns all rights in any
new developments created by Micrologic as a subcontractor of LoJack.
LoJack has granted to Micrologic, through April 2000, the exclusive rights to
assemble Police Tracking Computers. LoJack believes that other companies have
the same capabilities as Micrologic, but that changing to a new subcontractor
for these tasks could involve delays and additional cost to LoJack.
LoJack has subcontracted the manufacture of the LoJack Unit, which is designed
for automated production using surface mounted technology, to Motorola, Inc.
LoJack believes that several companies have the capability to manufacture LoJack
Units using this technology.
INVENTORY
LoJack seeks to maintain a 60-day supply of LoJack Units, which it believes is
in line with sales levels and sufficient to rapidly fulfill orders. The Company
maintains an inventory of certain Law Enforcement Components beyond its current
requirements in order to facilitate expansion into additional domestic markets.
RESEARCH AND DEVELOPMENT
During fiscal years l996, l995 and l994 the approximate amounts spent by LoJack
on company-sponsored research and development activities were $515,000,
$330,000, and $150,000, respectively.
In December 1995, LoJack Venture Corporation, a wholly owned subsidiary of
LoJack,and Micrologic entered into a joint venture for the purpose of developing
the next generation of the LoJack Unit and other related exploitable technology.
LoJack Venture Corporation and Micrologic have equal ownership interests in the
joint venture. The joint venture shall own all technology and other intellectual
property that is developed by the joint venture or by Micrologic under contract
to the joint venture, except that LoJack shall own and have all patent and other
rights to any improvements on United States Patents held by LoJack. The joint
venture has granted LoJack exclusive rights, with the right to sublicense, to
make, use and sell all products relating to the next generation of the LoJack
Unit in exchange for certain royalty payments based on the number of next
generation LoJack Units sold. The technology contemplated by the joint venture
has not yet been completed and the Company can not be certain of a successful
outcome.
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EMPLOYEES
As of May 17, l996, the Company and its subsidiaries had a total of 315
full-time employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated herein by reference the information concerning C. Michael
Daley, who is Chairman of the Board, Chief Executive Officer and Treasurer of
the Company, from the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 17, 1996, under the headings
"Proposal No. 1 - Election of Directors" and "Board of Directors." Information
concerning the Company's other executive officers is set forth below. <TABLE>
<CAPTION>
Name Age Title
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<S> <C> <C>
Joseph F. Abely 43 President and Chief Operating Officer
William R. Duvall 44 Senior Vice President (Operations and
Technical Development)
Kevin M. Mullins 41 Vice President (Sales and Marketing)
Peter J. Conner 55 Vice President (Government Relations)
</TABLE>
Mr. Abely joined LoJack in October 1988 as Senior Vice President and Chief
Financial Officer. He was named President and Chief Operating Officer in January
1996. From 1976 until October 1988, Mr. Abely was employed by the accounting
firm of Deloitte Haskins & Sells, where he served as a partner since 1985. Mr.
Abely is a Certified Public Accountant.
Mr. Duvall joined LoJack in 1985 and is Senior Vice President of Operations and
Technical Development. From 1984 to 1985, he was a part owner and manager of
Rich's Car Tunes, a company engaged in the sale and installation of consumer
electronic products in the automotive aftermarket. For six years prior to 1984,
Mr. Duvall was Vice President of Marketing and Sales for Analog and Digital
Systems, Inc., a manufacturer of consumer electronic products.
Mr. Mullins joined LoJack in February 1996 and was appointed Vice President of
Sales and Marketing as of March 1, 1996. From 1976 until joining LoJack Mr.
Mullins served in a variety of positions at Proctor & Gamble Company, Inc.,
including District Sales Manager, Customer Business Development Manager, and
most recently as Northeast Operation Manager.
Mr. Conner joined LoJack in 1985 and is Vice President of Government Relations.
From 1982 to 1985, he was a franchise director for Continental Cablevision of
Boston, Massachusetts. From 1980 to 1982, Mr. Conner was a franchise director
for American Television Communications of Denver, Colorado, a cable television
operator.
Each executive officer is elected for a term scheduled to expire at the meeting
of Directors following the annual meeting of Stockholders or until a successor
is duly chosen and qualified. There are no arrangements or understandings
pursuant to which any executive officer was or is to be selected for election or
reelection. There are no family relationships among any Directors or executive
officers, except that C. Michael Daley, a Director and executive officer, and
James A. Daley, a Director, are brothers.
ITEM 2 - PROPERTIES
The Company's executive offices are located at 333 Elm Street, Dedham,
Massachusetts, under a lease for such space expiring in May 2001. In addition,
the Company leases various facilities in Massachusetts, New Jersey, Michigan,
Los Angeles, California, Illinois, Georgia, Virginia and Florida under operating
leases whose terms expire from 1996 to 2001. The leases contain renewal options
ranging from two to five years. Because the Company's operations do not require
any special facilities, the Company does not anticipate any difficulty in
finding space adequate for its purposes at reasonable rates.
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ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference to the
section entitled "Market for Registrant's Common Equity and Related Stockholder
Matters" on the inside front cover of the Company's 1996 Annual Report, which is
filed herewith as Exhibit 13.
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference to the
section entitled "Selected Financial Data" on page 3 of the Company's 1996
Annual Report, which is filed herewith as Exhibit 13.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated herein by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations," pages 4 through 7 of the Company's 1996 Annual
Report, which is filed herewith as Exhibit 13.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference to the
consolidated financial statements of the Company (including the notes thereto)
and the auditors' report thereon appearing on pages 8 through 16 of the
Company's 1996 Annual Report, which is filed herewith as Exhibit 13.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to Item
401(b), the information required by this item concerning executive officers,
including certain information incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement concerning C.
Michael Daley, who is also Chairman of the Board, Chief Executive Officer and
Treasurer of the Company, is set forth in Part I, Item 1 under the heading
"Executive Officers of the Registrant" and information concerning Directors,
including Mr. Daley, is incorporated by reference to the sections entitled
"Proposal No. 1 - Election of Directors" and "Board of Directors" in the
Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders
to be held July 17, 1996.
There is incorporated herein by reference to the discussion under "Principal and
Management Stockholders - Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held July 17, 1996 the information with respect to
any delinquent filings of reports pursuant to Section 16(a) of the Securities
Exchange Act of 1934.
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ITEM 11 - EXECUTIVE COMPENSATION
Information required by this Item is incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 17, l996 under the heading "Executive
Compensation."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 17, 1996 under the heading "Principal
and Management Stockholders."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14 -EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are included as part of this report:
(1) Financial Statements
--------------------
The following financial statements of the Company and the report
of the independent certified public accountants are incorporated by
reference to the Company's 1996 Annual Report:
Independent Auditors' Report Relating to the Consolidated Financial
Statements (and notes thereto)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
----------------------------
The following report and financial statement schedule is filed
as part of this report and should be read in conjunction with the
consolidated financial statements (and notes thereto):
Independent Auditors' Report Relating to the Financial Statement
Schedule
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules have been omitted because
they are not required or not applicable or because the required
information is included in the consolidated financial statements
or notes thereto.
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(3) Exhibits
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Certain of the exhibits listed hereunder have been previously
filed with the Commission as exhibits to certain registration
statements and periodic reports as indicated in the footnotes below
and are incorporated herein by reference pursuant to Rule 411
promulgated under the Securities Act and Rule 24 of the Commission's
Rules of Practice. The location of each document so incorporated by
reference is indicated by footnote.
<TABLE>
<S> <C>
3A. Restated Articles of Organization (incorporated by reference to Exhibit 3A
filed with the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1994 (the "1994 Form 10-K"))
3B. Amended By-Laws (incorporated by reference to exhibit 3B filed with the
Company's Annual Report on Form 10-K for the fiscal year ended February
29, 1992 (the "1992 Form 10-K"))
4A. Specimen Share Certificate (incorporated by reference to exhibit 4A to
File No. 2-74238-B)
4A1. Amended Specimen Share Certificate (incorporated by reference to exhibit
4B to File No. 2-98609)
4B. Unit Purchase Agreement dated as of May 16, 1990 (incorporated by
reference to exhibit 4C to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1990 (the "1990 Form 10-K"))
4C. Amendment to Unit Purchase Agreement dated as of September 13, 1990
(incorporated by reference to exhibit 4G to File No. 33-35948)
4D. Indenture dated May 16, 1990 between LoJack Corporation and State Street
Bank and Trust Company, Trustee, and Supplemental Indentures No. 1-3 dated
August 8, 1991, November 15, 1991 and December 13, 1991, respectively
(incorporated by reference to exhibit 4E to 1992 Form 10-K)
4E. Form of Debenture (included in 4D)
4F. 1991 Unit Purchase Agreement dated as of November 15, 1991 (incorporated
by reference to exhibit 4A to the Company's Current Report on Form 8-K
dated December 23, 1991 (the "1991 Form 8-K"))
4G. Amendment Agreement dated as of December 13, 1991 (incorporated by
reference to exhibit 4C to the 1991 Form 8-K)
10A. Volume Assembly Contract with Micrologic, Inc. (incorporated by reference
to exhibit 10I to the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1986 (the "1986 Form 10-K"))
10B. Supply Agreement with Motorola (incorporated by reference to exhibit 10J
to the 1986 Form 10-K)
10C. Agreement with the City of Los Angeles dated March 9, 1989 (incorporated
by reference to exhibit 10K to File No. 33-27457)
10D. Contract between the State of Michigan and LoJack Corporation dated as of
April 24, 1989 (incorporated by reference to exhibit 10O to the 1990 Form 10-K)
10E. Agreement between LoJack Corporation and the Illinois State Police dated
as of August 23, 1990 (incorporated by reference to exhibit 10P to the
1990 Form 10-K)
10F.++ 1985 Non-Qualified Stock Option Plan, as amended (incorporated by
reference to exhibit 10F to 1992 Form 10-K)
10G.++ Directors' Compensation Plan (incorporated by reference to exhibit 10G
to 1992 Form 10-K)
10H.++ LoJack Corporation Restated and Amended Stock Incentive Plan
(incorporated by reference to Exhibit 10H to the 1994 Form 10-K)
10I. Form of Agreement with respect to options granted to certain officers and
employees (incorporated by reference to exhibit 10H to File No. 33-27457)
10J. Greece License, Trademark and Supply Agreement between LoJack Corporation
and EQQUS, Ltd., dated as of January 24, 1992 (incorporated by reference
to exhibit 10J to 1992 Form 10-K)
10K. Lease Agreement LoJack Sector Activation System dated February 23, 1988
between Recovery Systems, Inc. and the Florida Department of Motor
Vehicles (incorporated by reference to exhibit 10K to 1992 Form 10-K)
10L. Accepted Proposal by LoJack Corporation to the Massachusetts Department of
Public Safety (incorporated by reference to exhibit 10F to File No. 2-
74238-B)
10M. Lease Agreement between Auto Recovery Systems, Inc. and the State of New
Jersey dated July 31, 1989 (incorporated by reference to exhibit 10M to
1992 Form 10-K)
10N. Loan Agreement dated December 10, 1993 among The First National Bank of
Boston and LoJack Corporation, LoJack Midwest Corporation, LoJack of New
Jersey Corporation, Recovery Systems, Inc. and CarSearch Corporation
(incorporated by reference to Exhibit 10N to the 1994 Form 10-K)
10P. Security Agreement dated December 10, 1993 by LoJack Corporation and The
First National Bank of Boston (incorporated by reference to Exhibit 10P to
the 1994 Form 10-K)
</TABLE>
-9-
<PAGE>
<TABLE>
<S> <C>
10Q. Secured Demand Note dated December 10, 1993 in the amount of $872,000 made
by LoJack of New Jersey Corporation payable to the order of LoJack
Corporation and endorsed to the order of The First National Bank of Boston
(incorporated by reference to Exhibit 10Q to the 1994 Form 10-K)
10R. Lease Agreement Number VA-901212-LOJ between LoJack Corporation and the
Commonwealth of Virginia dated September 17, 1991 (incorporated by
reference to exhibit 10W to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1993 (the "1993 Form 10-K"))
10S. Lease Agreement between LoJack Corporation and the State of Georgia
Department of Public Safety dated June 6, 1991 (incorporated by reference
to exhibit 10X to 1993 Form 10-K)
10T.++ Form of Senior Management Option (incorporated by reference to exhibit
10Z to 1993 Form 10-K)
10U. License, Trademark and Supply Agreement dated July 16, 1992, by and
between Carsearch Corporation, a subsidiary of LoJack Corporation, and
Secar, Ltd. Kutuzovovn, Bratislava, Czechoslovakia (incorporated by
reference to exhibit 10aa to 1993 Form 10-K)
10V. Patent License and Ancillary Know-How Agreement dated December 30, 1991,
and Second Amendment (relating to the Patent, License and Know-How
Agreement of December 30, 1991), dated January 29, 1993, (the Second
Amendment incorporates by reference the First Amendment to the Patent,
License and Know-How Agreement dated April 27, 1992 which is superseded),
each by and between LoJack Corporation and Stolen Vehicle Recovery Systems
Limited, Aylesbury, Buckingham, UK (incorporated by reference to exhibit
10bb to 1993 Form 10-K)
10W. Stock Pledge Agreement dated as of December 10, 1993 by LoJack Corporation
and The First National Bank of Boston (incorporated by reference to
Exhibit 10W to the 1994 Form 10-K)
10X. Assignment for Security (Trademarks) dated December 10, 1993 by LoJack
Corporation (incorporated by reference to Exhibit 10X to the 1994 Form 10-K)
10Y. Patent Collateral Assignment and Security Agreement dated December 10,
1993 between LoJack Corporation, LoJack Midwest Corporation, LoJack of New
Jersey Corporation, CarSearch Corporation, Inc., Recovery Systems, Inc.
and The First National Bank of Boston (incorporated by reference to
Exhibit 10Y to the 1994 Form 10-K)
10Z. Trademark Collateral Assignment and Security Agreement dated as of
December 10, 1993 between LoJack Corporation, LoJack Midwest Corporation,
LoJack of New Jersey Corporation, CarSearch Corporation, Inc., Recovery
System, Inc. and The First National Bank of Boston (incorporated by
reference to Exhibit 10Z to the 1994 Form 10-K)
10aa. Agreement dated January 21, 1994 between the New York Division of State
Police and LoJack Corporation (incorporated by reference to Exhibit 10aa
to the 1994 Form 10-K)
10bb. Subsidiary Security Agreement dated December 10, 1993 between LoJack of
New Jersey Corporation and LoJack Corporation (incorporated by reference
to Exhibit 10bb to the 1994 Form 10-K)
10cc. Memorandum of Understanding dated July 29, 1993 with the District of
Columbia Metropolitan Police Department (incorporated by reference to
Exhibit 10cc to the 1995 Form 10-K)
10dd. Memorandum of Understanding dated February 28, 1994 with Rhode Island
State Police (incorporated by reference to Exhibit 10dd to the 1995 Form
10-K)
10ee. Contract dated July 15, 1993 with the State of Connecticut (incorporated
by reference to Exhibit 10ee to the 1995 Form 10-K)
10ff. Supply Agreement dated May 28, 1993 among CarSearch Corporation, Alrite
Holdings, Ltd, Nassau, Bahamas, and Carro Seguro Carseg S.A., Guayaquil,
Ecuador (incorporated by reference to Exhibit 10ff to the 1995 Form 10-K)
10gg. License and Trademark Agreement dated May 28, 1993 between CarSearch
Corporation and Carro Seguro Carseg S.A., Guayaquil, Ecuador (incorporated
by reference to Exhibit 10gg to the 1995 Form 10-K)
10hh. License, Trademark, and Supply Agreement dated July 27, 1993 between
CarSearch Corporation and PJV Ltd., Centraville, Nassau, Bahamas
(incorporated by reference to Exhibit 10hh to the 1995 Form 10-K)
10ii. License, Trademark, and Supply Agreement dated August 10, 1993 between
CarSearch Corporation and Vehicles Security Resources Limited, Nassau,
Bahamas (incorporated by reference to Exhibit 10ii to the 1995 Form 10-K)
10jj. License, Trademark, and Supply Agreement dated August 23, 1993 between
CarSearch Corporation and MaxRich Consultants, Ltd., Kowloon, Hong Kong
(incorporated by reference to Exhibit 10jj to the 1995 Form 10-K)
10kk. License, Trademark, and Supply Agreement dated August 31, 1993 between
CarSearch Corporation and Cartrack Ltd., Tel-Aviv, Israel (incorporated by
reference to Exhibit 10kk to the 1995 Form 10-K)
10ll. License, Trademark, and Supply Agreement dated April 15, 1994 between
CarSearch Corporation and Triones Taiwan Co., Ltd., Taichung, Taiwan,
R.O.C. (incorporated by reference to Exhibit 10ll to the 1995 Form 10-K)
</TABLE>
-10-
<PAGE>
<TABLE>
<S> <C>
10mm. Patent, License, Trademark, and Supply Agreement dated October 4, 1994
between LoJack International Corporation, a subsidiary of LoJack
Corporation, and Sucess Trading, S.A., Buenos Aires, Argentina
(incorporated by reference to Exhibit 10mm to the 1995 Form 10-K)
10nn. License, Trademark, and Supply Agreement dated October 13, 1994 between
LoJack International Corporation and Tracker Vehicle Location Systems
(PTY) Ltd., Cape Town, South Africa (incorporated by reference to
Exhibit 10nn to the 1995 Form 10-K)
10oo.* License and Ancillary Know-How Agreement dated October 1, 1995 between
LoJack International Corporation and Detektor, Bad Homburg, Germany
10pp. Patent License and Ancillary Know-How Agreement dated November 30, 1994
between LoJack International Corporation and LoJack Italia, Bologna,
Italy (incorporated by reference to Exhibit 10pp to the 1995 Form 10-K)
10qq. License and Supply Agreement dated April 25, 1995 between LoJack
International Corporation and United States Consolidated Technologies
Corporation (incorporated by reference to Exhibit 10qq to the 1995 Form
10-K)
10rr.* License and Supply Agreement dated September 5, 1995 between LoJack
International Corporation and GBSI, Inc. d/b/a Access 2000
10ss.*++ Amendment No. 1 to Restated and Amended Stock Incentive Plan
10tt.* Second Amendment to Loan Agreement dated as of February 20, 1996 among
The First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc. and LoJack Holdings Corporation
10uu.* Amended and Restated Revolving Credit and Term Note dated as of
February 20, 1996 in the amount of $7,500,000 made by LoJack
Corporation, LoJack International Corporation, LoJack of New Jersey
Corporation, Recovery Systems, Inc. and LoJack Holdings Corporation
payable to the order of The First National Bank of Boston
10vv.* Security Agreement dated as of February 20, 1996 by LoJack Holdings
Corporation and The First National Bank of Boston
10ww.* First Amendment to Trademark Collateral Assignment and Security
Agreement dated as of February 20, 1996 among LoJack Corporation,
LoJack International Corporation, LoJack of New Jersey Corporation,
Recovery Systems, Inc., LoJack Holdings Corporation and The First
National Bank of Boston
10xx.* Second Assignment for Security (Trademarks) dated February 20, 1996 by
LoJack Corporation
10yy.* Trademark and Supply Agreement dated August 15, 1995 between LoJack
International and CarTrack Kenya Limited, Nairobi, Kenya
11.* Statement re: Computation of per share earnings
13.* 1996 Annual Report to Stockholders
21.* Subsidiaries of the Registrant
23.* Consent of Deloitte & Touche LLP
27.* Financial Data Schedule
99.* "Safe Harbor" Statement under Private Securities Litigation Reform Act
of 1995
</TABLE>
- ---------------
* Indicates an exhibit which is filed herewith.
++ Indicates an exhibit which constitutes an executive compensation plan.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this report.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Dedham,
Commonwealth of Massachusetts, on the 20th day of May l996.
LOJACK CORPORATION
(Registrant)
BY: /s/ C. Michael Daley
-----------------------------------------
C. Michael Daley
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of l934, this report
has been signed below by the following persons on behalf of the registrant and
in their capacities and on the date indicated.
Signature Capacity Date
- --------- -------- ----
/s/ C. Michael Daley Director, Chairman, Chief May 20, l996
- -------------------- Executive Officer,
C. Michael Daley and Treasurer (Principal
Executive Officer)
/s/ Robert J. Murray Director May 20, l996
- --------------------
Robert J. Murray
/s/ James A. Daley Director May 20, l996
- ------------------
James A. Daley
/s/ Harold W. Shad, III Director May 20, l996
- -----------------------
Harold W. Shad, III
/s/ Lee T. Sprague Director May 20, l996
- ------------------
Lee T. Sprague
/s/ Larry C. Renfro Director May 20, l996
- -------------------
Larry C. Renfro
/s/ Joseph F. Abely President and Chief Operating May 20, l996
- ------------------- Officer (Principal
Joseph F. Abely Financial and Accounting
Officer)
-12-
<PAGE>
INDEX TO INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENT SCHEDULE
PAGE
Independent Auditors' Report Relating to the Financial Statement Schedule.. F-1
Schedule II - Valuation and Qualifying Accounts............................ F-2
-13-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
LoJack Corporation:
We have audited the consolidated financial statements of LoJack Corporation and
subsidiaries as of February 29, 1996 and February 28, 1995, and for each of the
three years in the period ended February 29, 1996, and have issued our report
thereon dated April 12, 1996; such consolidated financial statements and report
are included in your 1996 Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the consolidated financial
statement schedule of LoJack Corporation, listed in Item 14. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
Boston, Massachusetts
April 12, 1996
F-1
<PAGE>
SCHEDULE II
LOJACK CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column C
Column B Additions Column E
Balance at Charged to Balance
Column A Beginning Costs and Column D at End
Description of Period Expenses Deductions of Period
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
For the year ended:
February 29, 1996 $193,381 $230,942 $ (29,121) (1) $395,202
======== ======== ========= ========
February 28, 1995 $109,097 $117,831 $ (33,547) (1) $193,381
======== ======== ========= ========
February 28, 1994 $122,723 $ 721 $ (14,347) (1) $109,097
======== ======== ========= ========
WARRANTY RESERVE:
For the year ended:
February 29, 1996 $223,509 $267,036 $(165,732) $324,813
======== ======== ========= ========
February 28, 1995 $191,479 $134,732 $(102,702) $223,509
======== ======== ========= ========
February 28, 1994 $174,655 $104,107 $ (87,283) $191,479
======== ======== ========= ========
</TABLE>
(1) Net accounts written off.
F-2
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
3A. Restated Articles of Organization (incorporated by reference to
Exhibit 3A filed with the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1994 (the "1994 Form 10-K"))
3B. Amended By-Laws (incorporated by reference to exhibit 3B filed with
the Company's Annual Report on Form 10-K for the fiscal year ended
February 29, 1992 (the "1992 Form 10-K"))
4A. Specimen Share Certificate (incorporated by reference to exhibit 4A to
File No. 2-74238-B)
4A1. Amended Specimen Share Certificate (incorporated by reference to
exhibit 4B to File No. 2-98609)
4B. Unit Purchase Agreement dated as of May 16, 1990 (incorporated by
reference to exhibit 4C to the Company's Annual Report on Form 10-K
for the fiscal year ended February 28, 1990 (the "1990 Form 10-K"))
4C. Amendment to Unit Purchase Agreement dated as of September 13, 1990
(incorporated by reference to exhibit 4G to File No. 33-35948)
4D. Indenture dated May 16, 1990 between LoJack Corporation and State
Street Bank and Trust Company, Trustee, and Supplemental Indentures
No. 1-3 dated August 8, 1991, November 15, 1991 and December 13, 1991,
respectively (incorporated by reference to exhibit 4E to 1992 Form
10-K)
4E. Form of Debenture (included in 4D)
4F. 1991 Unit Purchase Agreement dated as of November 15, 1991
(incorporated by reference to exhibit 4A to the Company's Current
Report on Form 8-K dated December 23, 1991 (the "1991 Form 8-K"))
4G. Amendment Agreement dated as of December 13, 1991 (incorporated by
reference to exhibit 4C to the 1991 Form 8-K)
10A. Volume Assembly Contract with Micrologic, Inc. (incorporated by
reference to exhibit 10I to the Company's Annual Report on Form 10-K
for the fiscal year ended February 28, 1986 (the "1986 Form 10-K"))
10B. Supply Agreement with Motorola (incorporated by reference to exhibit
10J to the 1986 Form 10-K)
10C. Agreement with the City of Los Angeles dated March 9, 1989
(incorporated by reference to exhibit 10K to File No. 33-27457)
10D. Contract between the State of Michigan and LoJack Corporation dated as
of April 24, 1989 (incorporated by reference to exhibit 10O to the
1990 Form 10-K)
10E. Agreement between LoJack Corporation and the Illinois State Police
dated as of August 23, 1990 (incorporated by reference to exhibit 10P
to the 1990 Form 10-K)
10F.++ 1985 Non-Qualified Stock Option Plan, as amended (incorporated by
reference to exhibit 10F to 1992 Form 10-K)
10G.++ Directors' Compensation Plan (incorporated by reference to exhibit 10G
to 1992 Form 10-K)
<PAGE>
10H.++ LoJack Corporation Restated and Amended Stock Incentive Plan
(incorporated by reference to Exhibit 10H to the 1994 Form 10-K)
10I. Form of Agreement with respect to options granted to certain officers
and employees (incorporated by reference to exhibit 10H to File No.
33-27457)
10J. Greece License, Trademark and Supply Agreement between LoJack
Corporation and EQQUS, Ltd., dated as of January 24, 1992
(incorporated by reference to exhibit 10J to 1992 Form 10-K)
10K. Lease Agreement LoJack Sector Activation System dated February 23,
1988 between Recovery Systems, Inc. and the Florida Department of
Motor Vehicles (incorporated by reference to exhibit 10K to 1992 Form
10-K)
10L. Accepted Proposal by LoJack Corporation to the Massachusetts
Department of Public Safety (incorporated by reference to exhibit 10F
to File No. 2-74238-B)
10M. Lease Agreement between Auto Recovery Systems, Inc. and the State of
New Jersey dated July 31, 1989 (incorporated by reference to exhibit
10M to 1992 Form 10-K)
10N. Loan Agreement dated December 10, 1993 among The First National Bank
of Boston and LoJack Corporation, LoJack Midwest Corporation, LoJack
of New Jersey Corporation, Recovery Systems, Inc. and CarSearch
Corporation (incorporated by reference to Exhibit 10N to the 1994 Form
10-K)
10P. Security Agreement dated December 10, 1993 by LoJack Corporation and
The First National Bank of Boston (incorporated by reference to
Exhibit 10P to the 1994 Form 10-K)
10Q. Secured Demand Note dated December 10, 1993 in the amount of $872,000
made by LoJack of New Jersey Corporation payable to the order of
LoJack Corporation and endorsed to the order of The First National
Bank of Boston (incorporated by reference to Exhibit 10Q to the 1994
Form 10-K)
10R. Lease Agreement Number VA-901212-LOJ between LoJack Corporation and
the Commonwealth of Virginia dated September 17, 1991 (incorporated by
reference to exhibit 10W to the Company's Annual Report on Form 10-K
for the fiscal year ended February 28, 1993 (the "1993 Form 10-K"))
10S. Lease Agreement between LoJack Corporation and the State of Georgia
Department of Public Safety dated June 6, 1991 (incorporated by
reference to exhibit 10X to 1993 Form 10-K)
10T.++ Form of Senior Management Option (incorporated by reference to exhibit
10Z to 1993 Form 10-K)
10U. License, Trademark and Supply Agreement dated July 16, 1992, by and
between Carsearch Corporation, a subsidiary of LoJack Corporation, and
Secar, Ltd. Kutuzovovn, Bratislava, Czechoslovakia (incorporated by
reference to exhibit 10aa to 1993 Form 10-K)
<PAGE>
10V. Patent License and Ancillary Know-How Agreement dated December 30,
1991, and Second Amendment (relating to the Patent, License and Know-
How Agreement of December 30, 1991), dated January 29, 1993, (the
Second Amendment incorporates by reference the First Amendment to the
Patent, License and Know-How Agreement dated April 27, 1992 which is
superseded), each by and between LoJack Corporation and Stolen Vehicle
Recovery Systems Limited, Aylesbury, Buckingham, UK (incorporated by
reference to exhibit 10bb to 1993 Form 10-K)
10W. Stock Pledge Agreement dated as of December 10, 1993 by LoJack
Corporation and The First National Bank of Boston (incorporated by
reference to Exhibit 10W to the 1994 Form 10-K)
10X. Assignment for Security (Trademarks) dated December 10, 1993 by LoJack
Corporation (incorporated by reference to Exhibit 10X to the 1994 Form
10-K)
10Y. Patent Collateral Assignment and Security Agreement dated December 10,
1993 between LoJack Corporation, LoJack Midwest Corporation, LoJack of
New Jersey Corporation, CarSearch Corporation, Inc., Recovery Systems,
Inc. and The First National Bank of Boston (incorporated by reference
to Exhibit 10Y to the 1994 Form 10-K)
10Z. Trademark Collateral Assignment and Security Agreement dated as of
December 10, 1993 between LoJack Corporation, LoJack Midwest
Corporation, LoJack of New Jersey Corporation, CarSearch Corporation,
Inc., Recovery System, Inc. and The First National Bank of Boston
(incorporated by reference to Exhibit 10Z to the 1994 Form 10-K)
10aa. Agreement dated January 21, 1994 between the New York Division of
State Police and LoJack Corporation (incorporated by reference to
Exhibit 10aa to the 1994 Form 10-K)
10bb. Subsidiary Security Agreement dated December 10, 1993 between LoJack
of New Jersey Corporation and LoJack Corporation (incorporated by
reference to Exhibit 10bb to the 1994 Form 10-K)
10cc. Memorandum of Understanding dated July 29, 1993 with the District of
Columbia Metropolitan Police Department (incorporated by reference to
Exhibit 10cc to the 1995 Form 10-K)
10dd. Memorandum of Understanding dated February 28, 1994 with Rhode Island
State Police (incorporated by reference to Exhibit 10dd to the 1995
Form 10-K)
10ee. Contract dated July 15, 1993 with the State of Connecticut
(incorporated by reference to Exhibit 10ee to the 1995 Form 10-K)
10ff. Supply Agreement dated May 28, 1993 among CarSearch Corporation,
Alrite Holdings, Ltd, Nassau, Bahamas, and Carro Seguro Carseg S.A.,
Guayaquil, Ecuador (incorporated by reference to Exhibit 10ff to the
1995 Form 10-K)
10gg. License and Trademark Agreement dated May 28, 1993 between CarSearch
Corporation and Carro Seguro Carseg S.A., Guayaquil, Ecuador
(incorporated by reference to Exhibit 10gg to the 1995 Form 10-K)
10hh. License, Trademark, and Supply Agreement dated July 27, 1993 between
CarSearch Corporation and PJV Ltd., Centraville, Nassau, Bahamas
(incorporated by reference to Exhibit 10hh to the 1995 Form 10-K)
<PAGE>
10ii. License, Trademark, and Supply Agreement dated August 10, 1993 between
CarSearch Corporation and Vehicles Security Resources Limited, Nassau,
Bahamas (incorporated by reference to Exhibit 10ii to the 1995 Form
10-K)
10jj. License, Trademark, and Supply Agreement dated August 23, 1993 between
CarSearch Corporation and MaxRich Consultants, Ltd., Kowloon, Hong
Kong (incorporated by reference to Exhibit 10jj to the 1995 Form 10-K)
10kk. License, Trademark, and Supply Agreement dated August 31, 1993 between
CarSearch Corporation and Cartrack Ltd., Tel-Aviv, Israel
(incorporated by reference to Exhibit 10kk to the 1995 Form 10-K)
10ll. License, Trademark, and Supply Agreement dated April 15, 1994 between
CarSearch Corporation and Triones Taiwan Co., Ltd., Taichung, Taiwan,
R.O.C. (incorporated by reference to Exhibit 10ll to the 1995 Form
10-K)
10mm. Patent, License, Trademark, and Supply Agreement dated October 4, 1994
between LoJack International Corporation, a subsidiary of LoJack
Corporation, and Sucess Trading, S.A., Buenos Aires, Argentina
(incorporated by reference to Exhibit 10mm to the 1995 Form 10-K)
10nn. License, Trademark, and Supply Agreement dated October 13, 1994
between LoJack International Corporation and Tracker Vehicle Location
Systems (PTY) Ltd., Cape Town, South Africa (incorporated by reference
to Exhibit 10nn to the 1995 Form 10-K)
10oo.* License and Ancillary Know-How Agreement dated October 1, 1995 between
LoJack International Corporation and Detektor, Bad Homburg, Germany
10pp. Patent License and Ancillary Know-How Agreement dated November 30,
1994 between LoJack International Corporation and LoJack Italia,
Bologna, Italy (incorporated by reference to Exhibit 10pp to the 1995
Form 10-K)
10qq. License and Supply Agreement dated April 25, 1995 between LoJack
International Corporation and United States Consolidated Technologies
Corporation (incorporated by reference to Exhibit 10qq to the 1995
Form 10-K)
10rr.* License and Supply Agreement dated September 5, 1995 between LoJack
International Corporation and GBSI, Inc. d/b/a Access 2000
10ss.*++ Amendment No. 1 to Restated and Amended Stock Incentive Plan
10tt.* Second Amendment to Loan Agreement dated as of February 20, 1996 among
The First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc. and LoJack Holdings Corporation
10uu.* Amended and Restated Revolving Credit and Term Note dated as of
February 20, 1996 in the amount of $7,500,000 made by LoJack
Corporation, LoJack International Corporation, LoJack of New Jersey
Corporation, Recovery Systems, Inc. and LoJack Holdings Corporation
payable to the order of The First National Bank of Boston
10vv.* Security Agreement dated as of February 20, 1996 by LoJack Holdings
Corporation and The First National Bank of Boston
<PAGE>
10ww.* First Amendment to Trademark Collateral Assignment and Security
Agreement dated as of February 20, 1996 among LoJack Corporation,
LoJack International Corporation, LoJack of New Jersey Corporation,
Recovery Systems, Inc., LoJack Holdings Corporation and The First
National Bank of Boston
10xx.* Second Assignment for Security (Trademarks) dated February 20, 1996 by
LoJack Corporation
10yy.* Trademark and Supply Agreement dated August 15, 1995 between LoJack
International and CarTrack Kenya Limited, Nairobi, Kenya
11.* Statement re: Computation of per share earnings
13.* 1996 Annual Report to Stockholders
21.* Subsidiaries of the Registrant
23.* Consent of Deloitte & Touche LLP
27.* Financial Data Schedule
99.* "Safe Harbor" Statement under Private Securities Litigation Reform Act
of 1995
- ---------------------------------
* Indicates an exhibit which is filed herewith.
++ Indicates an exhibit which constitutes an executive compensation plan.
<PAGE>
EXHIBIT 10oo
SUBJECT TO REVIEW OF COUNSEL AND APPROVAL OF THE BOARD OF DIRECTORS
DATED October l, l995
---------------
FEDERAL REPUBLIC OF GERMANY
---------------------------
LOJACK INTERNATIONAL CORPORATION (1)
and
DETEKTOR TRACKING SYSTEMS LTD. (2)
- --------------------------------------------------------------------------------
PATENT LICENSE AND ANCILLARY KNOW-HOW AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
Index to Clauses
- ----------------
l. Interpretation and Definitions
2. Option Period
3. Conditions Precedent
4. Improvements
5. Technical Information and LoJack Manufacturing Specifications
6. Grant of Rights
7. Manufacture
8. Deliverables, User of the System Software and Technical Assistance
9. Payments
10. Royalty Statements and Financial Information
11. Performance Conditions
12. Performance Undertakings
13. Infringement
14. Warranties, Limitation of Liability and Patent Protection
15. Promotion and Advertising
16. Insurance
17. Trademarks
18. Competing Products
19. Confidentiality
20. Termination
21. Transfer
22. Force Majeure
23. Notices
<PAGE>
24. General
Schedule l
Part I - The Patent
Part II - Trademarks
Exhibit A - Royalty Statement Pro Forma
Exhibit 2 - Technical Specifications
Schedule 2
Form of Deed of Undertaking
<PAGE>
PATENT LICENSE AND ANCILLARY KNOW-HOW AGREEMENT
Dated: October l, l995
---------------
PARTIES:
- -------
(1) LOJACK INTERNATIONAL CORPORATION ("LIC"), a corporation organized under the
--------------------------------
laws of the State of Delaware with its principal place of business is 333
Elm Street, Dedham, Massachusetts 02026, United States of America ("the
Licensor", or "LoJack International Corporation"). LoJack International
Corporation is a wholly owned subsidiary of the LoJack Corporation
("LoJack")
(2) DETEKTOR TRACKING SYSTEMS, Ltd. ("Licensee"), Hessenring 21, D-6l348 Bad
Homburg, Germany, whose registered office is 7 Surrey Street, London WC2R
2NN, United Kingdom.
RECITALS:
- --------
(A) LoJack is the beneficial owner of the Rights as defined below relating to
the manufacture, assembly, and commercial operation of a system for the
recovery of stolen vehicles. LoJack International Corporation has been
licensed such Rights by LoJack for the purpose of entering into this
Agreement.
(B) The Licensee wishes to receive and the Licensor is willing to grant a
license on the terms and conditions hereinafter set forth to work with the
Patent Rights, Trademark Rights, Intellectual Property and to use the
Technical Information.
OPERATIVE PROVISIONS:
- --------------------
l. INTERPRETATION AND DEFINITIONS
------------------------------
1.1 In this Agreement headings are inserted for ease of reference only and
shall not affect the interpretation of the terms and provisions herein and,
unless the context otherwise requires, the following words and expressions
shall have the following meanings:
"Approved Applications"
---------------------
motor vehicles registered (including trucks and buses) and used in the
Territory and such other applications in the Territory as the Licensor and
Licensee may from time to time agree.
"Business Day"
------------
any day other than a Saturday and Sunday on which banks in the Federal
Republic of Germany are open for business.
-4-
<PAGE>
"Default Interest Rate"
---------------------
on any date the rate of interest per year equal to the prime rate of Bank of
Boston (or its successor), in effect on that date plus two percent (2%)
"Designated Equipment"
--------------------
the Sector Activation Computer, the communications network to the Radio
Broadcast Towers and the Radio Broadcast Towers
"Dollars or $"
------------
the lawful currency of the United States of America
"Effective Date"
--------------
the date on which the First Condition Precedent is satisfied
"European Community"
------------------
the member states of the European Community as amended from time to time
"First Condition Precedent"
-------------------------
The signing of agreements with State Police authorities of not less than
three (3) of the sixteen (l6) States of the Federal Republic of Germany, to
operate the System;
"Gross Sales Price"
-----------------
a sum equal to the gross price (exclusive of Valued Added Tax) invoiced by
the Licensee on all its sales of Royalty Products including, where
installation is performed by or on behalf of the Licensee, the costs of the
installation, service and all related parts and accessories, but without any
discounts or allowances from such gross price for prompt payment or similar
discounts or allowances and excluding interest paid by customers for
deferred or installment payments and excluding from any sales any Royalty
Products provided free of charge or at a nominal charge to the police. Gross
Sales Price shall also include any additional monthly, annual or other
periodic fees charged to customers by Licensee or affiliated entities
related to the continued operation of the Vehicle Location Unit as part of
the System.
-5-
<PAGE>
"Improvements"
------------
all improvements, modifications, or adaptations to any part of the Patent,
System Software and the Technical Information which might reasonably be of
commercial interest to either party in the design, manufacture, or supply of
any component of the System or in the operation of the System and which may
be made or acquired by either party during the period beginning on the
Effective Date and expiring on the last day of the Term
"Intellectual Property"
---------------------
all inventions, registered and unregistered designs and design rights,
copyright and rights in the nature of copyright, know-how, trade secrets and
confidential information and any applications and rights to apply for any of
the foregoing in any part of the world with respect to all drawings and
other documents, recordings in any form and all other articles bearing or
embodying any part of the Technical Information
"Licensee Software"
-----------------
the software which may be developed by the Licensee at its sole cost and
expense from adaptation, modification and/or incorporation of the System
Software in order to meet the Local Requirements
"Licensor Manufacturing Specifications"
-------------------------------------
the specifications of the minimum quality control requirements considered by
the Licensor from time to time to be necessary in its own manufacture of the
Products (whether directly or by sub-contract) for the technically
satisfactory exploitation of the Products
"Local Requirements"
------------------
the technical and operational requirements of the System to be designed by
the Licensee, at its costs and expense, for the installation and operation
of the System in the Territory
"Vehicle Location Units"
----------------------
VHF (very high frequency) transponders designed to be installed in motor
vehicles and used in conjunction with Vehicle Tracking Computers as part of
the System. May also be referred to as "LoJack Units"
-6-
<PAGE>
"Patent"
------
the patent application short particulars whereof are set out in Part I of
Schedule I hereto in respect of each component of the System other than the
Sector Activation Computer
"Patent Rights"
-------------
(i) the Patent
(ii) all patent applications that may hereafter be filed by or on behalf of
the Licensor or LoJack for the Territory; and
(iii) all patents which may be granted pursuant to any of the foregoing
applications
"Performance Conditions"
----------------------
the performance conditions set out in Clause 11
"Vehicle Tracking Computers"
--------------------------
a radio direction finder designed to be used to locate and track activated
Vehicle Location Units
"Products"
--------
the Vehicle Location Units ("VLUs"), the Vehicle Tracking Computers, Sector
Activation Computer, Radio Broadcast Towers, all subcomponents of the
System, the installation test units and the police training units
"Quarter"
-------
the period from the Effective Date to the first Quarter Day and each
successive period of three months ending on a Quarter Day
"Quarter Day"
-----------
3lst March, 30th June, 30th September, and 3lst of December in each year
"Radio Broadcast Towers"
----------------------
radio broadcast towers available to the Licensee for the operation of the
System in the Territory and equipped to receive from the Sector Activation
Computer a command to transmit a signal to activate, accelerate and
deactivate Vehicle Location Units ("VLUs")
-7-
<PAGE>
"Registration System"
-------------------
a method proprietary to the Licensor and LoJack of assigning digital codes
to be transmitted and received by VLUs in such manner that unique activation
codes are permanently correlated with the unique vehicle identification
number or vehicle registration number assigned to the vehicle in which the
VLUs has been installed. The Registration System maintains a data base for
the Sector Activation System that is consistently updated
"Rights"
-------
the rights granted to the Licensee by Clause 6 of this Agreement
"Royalty Period"
--------------
the period from the Effective Date to the date of expiry of the Term
"Royalty Products"
----------------
Products
"Royalty Statement"
-----------------
the royalty statements, substantially in the form attached as Exhibit A, for
the royalties payable by the Licensee to the Licensor pursuant to Clause 9.4
of this Agreement
"Second Condition Precedent"
--------------------------
First, the Licensee to have obtained written approval from the Licensor of
-----
the Licensee's statement of its envisaged funding requirements (including
working capital and reserves) with particular reference to ongoing
engineering studies as envisaged by the Licensee's five year business plan
in effect as at the Effective Date, such approval by the Licensor not be
unreasonably withheld or delayed;
Second, the Licensee to have obtained legally binding written commitments
------
from one or more investors or underwriters to subscribe for ordinary and/or
preference shares in the capital of the Licensee and/or to provide
subordinated loan capital to the Licensee and legally binding written
commitments from one or more bank lenders in Germany to make working capital
facilities available to the Licensee, the aggregate total of all such
commitments to be not less than the total funding requirements of the
Licensee as set forth in the statement of its funding requirements as
referred to above;
-8-
<PAGE>
Third, the Licensee to have secured the Letters of Credit referred to in
-----
Clause 9.2 and 9.3.2
Fourth, Licensee shall have paid the First Installment.
-------
"Sector Activation System"
------------------------
a computerized system owned by LoJack and licensed to the LICENSOR that
controls and commands the System and activates, accelerates and deactivates
Vehicle Location Units
"Sector Activation Computer"
--------------------------
the stand-alone computer to be operated by the Licensee at its cost and
expense which:-
(a) contains a file with up-to-date information on vehicles equipped with
VLUs including the vehicle identification number or vehicle registration
number assigned to the vehicle, and the activation and reply codes for the
VLU installed in that vehicle;
(b) accepts stolen vehicle reports and accepts requests that a VLU be
activated accelerated, or deactivated; and
(c) runs the Licensee Software
"System"
------
the Vehicle Location Unit, the Sector Activation System, the Vehicle
Tracking Computers and the Registration System
"System Software"
---------------
the system software and related technical information and documentation
owned or used by the LoJack for the purpose of operating the System in the
United States at the date hereof
"Technical Information"
---------------------
all documentation embodying know-how and experience, drawings, designs,
circuit diagrams and all other technical information and data in written or
machine-readable form relating to the System in the possession or control of
the Licensor or LoJack concerning the design, manufacture, use, supply, and
marketing of the System but expressly excluding the System Software
"Terms"
-----
the period from the Effective Date to the date of the expiry of the last of
the patents the subject of the Patent Rights unless such period is
terminated earlier in accordance with this Agreement
-9-
<PAGE>
"Territory"
---------
Federal Republic of Germany ("Germany")
"Trademarks"
----------
the German registered trademarks and applications for registrations, German
unregistered trademarks and trade names short particulars of which are set
out in Part II of Schedule l
"User"
----
the adaptation and modification of the System Software to develop the
Licensee Software, the incorporation with or without adaptation or
modification of the System Software into the Licensee Software, the copying
or transmission of the System Software as so adapted, modified or
incorporated into the Sector Activation Computer, and the use of the System
Software as so adapted, modified, or incorporated on the Designated
Equipment
2. OPTION PERIOD
-------------
In consideration of the payment to LoJack International Corporation of $400,000
(Four Hundred Thousand dollars) U.S. Dollars as a security deposit ("Deposit"),
LoJack International Corporation confirms their agreement with Licensee in
relation to the proposed licensing of the Rights set forth in Clause 6 for the
Territory:
2.1 LoJack International Corporation Obligations
2.l.l LoJack International Corporation grants to Detektor for a period of 9
(nine) months from the date of this Agreement ("Exclusivity Period") with
respect to Territory the exclusive right to carryout all necessary due
diligence for the purposes of investigating and determining the
feasibility of implementing the System in the Territory ("Project").
2.l.2 LoJack International Corporation agrees that it will not, during the
Exclusivity Period, grant to any third party any rights in relation to
the granting of Rights in the Territory.
2.l.3 LoJack International Corporation will give to Detektor Tracking Systems
Ltd such assistance as LoJack International Corporation shall in its
reasonable discretion consider necessary and appropriate to assist
Detektor Tracking Systems Ltd. in its feasibility study.
-10-
<PAGE>
2.l.4 LoJack International Corporation will extend the Exclusivity Period for a
further consecutive period of not more than 90 (ninety) days ("First
Extension") at no further cost to Detektor Tracking Systems Ltd. upon
written request to LoJack International Corporation to enable Detektor
Tracking Systems Ltd. to confirm that it has available all necessary
government authorizations for the establishment and operation of the
System in the Territory and on condition that Detektor Tracking Systems
Ltd. have in our reasonable judgment complied with its obligations in
Clause 2. Further, LoJack International Corporation will extend the
Exclusivity Period for a further consecutive period of not more than 90
(ninety) days ("Second Extension") upon expiration at no further cost to
Detektor Tracking Systems Ltd. upon written request to LoJack
International Corporation to enable Detektor Tracking Systems Ltd. to
confirm that it has available all necessary government authorizations for
the establishment and operation of the System in the Territory and on
condition that Detektor Tracking Systems Ltd. have in our reasonable
judgment complied with its obligations in Clause 2. Further extensions of
Exclusivity Period will provide that the Deposit will become non-
refundable, and that Detektor Tracking Systems Ltd. will reimburse LoJack
International Corporation (as set forth in Clause 2.3.2) for any out-of-
pocket expenses incurred by LoJack International Corporation during the
Exclusivity Period within l0 days of invoice.
2.l.5 LoJack International Corporation will at the request of Detektor Tracking
Systems Ltd. refund the Deposit to Detektor Systems Ltd. within 14
working days after the expiry of the Exclusivity Period and the First and
Second Extension net of our costs in paragraph 2.3.2 if Detektor Tracking
Systems decides in good faith that the implementation of the System in
the Territory would not be feasible, or Detektor Tracking Systems Ltd.
has in good faith failed fulfil the Conditions Precedent outlined in
Clause 3.
2.2 General
2.2.1 Detektor Tracking Systems Ltd. understands and agrees with LoJack
International Corporation until such time as fulfills the Conditions
Precedent described in Clause 3 that Detektor Tracking Systems Ltd. is
granted no proprietary or other Rights of any nature in the System and
shall not hold itself out as an agent or other representative of LoJack
International Corporation, LoJack, or of the System. LoJack International
Corporation shall have no obligation to disclose to Detektor Tracking
Systems Ltd. any confidential
-11-
<PAGE>
information to trade secrets nor to lend, give or otherwise part with
possession of any proprietary item or right in connection with the System
that is not in our sole opinion freely available at no cost to us in the
public domain. Your undertaking in paragraph 2.3.3 will continue
notwithstanding termination under paragraph 2.4.
2.2.2 If Detektor Tracking Systems Ltd. breaches the confidentiality
undertaking in paragraph 2.3.3 Detektor Tracking Systems Ltd. will on a
full indemnity basis indemnify and hold LoJack International Corporation,
LoJack, and any of its affiliates harmless from the direct or indirect
consequences of such breach and howsoever and whensoever caused.
2.3 Obligations
2.3.1 Detektor Tracking Systems Ltd. will use its best endeavors to ensure the
success of the Project.
2.3.2 Detektor Tracking Systems Ltd. grants LoJack International Corporation an
express right to set off and deduct from the Deposit any out of pocket
costs incurred by LoJack International Corporation in connection with the
Project, including but not limited to travel, payroll, subcontractors,
etc. The fees related to payroll shall be charged by the Licensor for the
services of its full-time employees in providing assistance to Detektor
Tracking Systems Ltd. under this Clause 2, shall be at a rate equal to
175% (one hundred seventy five percent) of the salary and benefits of the
Licensor's personnel involved pro-rated on a daily basis for the number
of days spent by such personnel in rendering such assistance. During the
Exclusivity Period, LoJack International Corporation shall provide 50
hours of time of its executive officers at no charge to assist Detektor
Tracking Systems Ltd. in planning the System. It is understood the LoJack
International Corporation will not expend any time or expenses on behalf
of Detektor Tracking Systems Ltd. without express written authorization.
2.3.3 Detektor Tracking Systems Ltd. agrees and undertakes with LoJack
International Corporation that this Agreement and its terms and all
information disclosed to Detektor Tracking Systems Ltd. by LoJack
International Corporation or discovered by Detektor Tracking Systems Ltd.
during the Exclusivity Period and any extension ("Information") will be
kept secret and in strict confidence and that Detektor Tracking Systems
Ltd. will not, (except where such disclosure is required by applicable
law or regulation) and without the prior written consent of LoJack
International
-12-
<PAGE>
Corporation, disclose, use, or permit the use or disclosure of the
Information in whole or in part to any person other than the designated
advisers to Detektor Tracking Systems Ltd. or to any third parties, such
as the authorities in the Territory who require disclosure of the
Information solely for the purposes of the Project. Detektor Tracking
Systems Ltd. will require any authorized third parties including
employees and contractors of Detektor Tracking Systems Ltd. to observe
this confidentiality as a condition of disclosure.
2.3.4 Throughout the Exclusivity Period and any extension, Detektor Tracking
Systems Ltd. will keep LoJack International Corporation informed on a
regular basis and whenever requested with detailed reports of the
progress Detektor Tracking Systems Ltd. is making and the professional
advice Detektor Tracking Systems Ltd. is receiving on any feasibility
study, particularly concerning the financial, technical, regulatory and
legal aspects of the Project.
2.3.5 As consideration for the return to of the Deposit under Clause 2.l.5 (net
of costs described in Clause 2.3.2), Detektor Tracking Systems Ltd. will
at the request of LoJack International Corporation and forthwith make
available to LoJack International Corporation the results of the due
diligence on the Project performed during the Exclusivity Period and will
return to LoJack International Corporation forthwith anything lent or
given during the Project.
2.4 Termination
2.4.1 LoJack International Corporation shall have the right to terminate the
rights under this Clause 2 forthwith by written notice in the event that,
Detektor Tracking Systems Ltd. is in material breach of any of its duties
to LoJack International Corporation, cease to trade, becomes insolvent,
unable to pay its debts or liquidated or are in receivership. If Yoram
Tamari is for any reason no longer affiliated with Detektor Tracking
Systems Ltd. for a period of ninety (90) days, Detektor shall appoint a
substitute, which shall not be unreasonably rejected by LoJack
International Corporation. If LoJack International Corporation has
reasonable cause to reject the appointed substitute, or Detektor brings
LoJack International Corporation, LoJack or the System into disrepute or
damage the name or goodwill of LoJack International Corporation or LoJack
whereupon LoJack International Corporation shall be entitled to forfeit
the Deposit in and towards the liability in an amount not to exceed such
liability to LoJack International Corporation as a result of such
termination and without prejudice to LoJack International Corporation's
rights at that time.
-13-
<PAGE>
3. CONDITIONS PRECEDENT
--------------------
3.1 It is a condition precedent to the grant of the Rights by the Licensor to
-----
the Licensee that the First Condition Precedent shall be fulfilled on or
before the expiration of the Option Period (or any extension thereto).
3.2 It is a condition precedent to the exercise of the Rights by the Licensee
--------
first that the Second Condition Precedent shall be fulfilled within ninety
(90) days of the fulfillment of the First Condition Precedent and the
second that the First Installment (as defined in Clause 9.2 below) shall
be paid, for which purpose time is of the essence.
3.3 This Agreement shall terminate immediately and without any formality and
any rights granted shall fall away and entirely revert to the Licensor and
the parties shall have no further rights and obligations the one to the
other if:-
3.3.l the First Condition Precedent has not been fulfilled on or before the
date specified in Clause 3.l; or
3.3.2 the Second Condition Precedent has not been fulfilled within ninety (90)
days of the fulfillment of the First Condition Precedent.
4. IMPROVEMENTS
------------
4.1 Each party shall forthwith disclose to the other in confidence and in such
detail as the other may reasonably require all Improvements that it may
independently of the other develop or acquire ownership of during the Term
4.2 The Licensor shall have a non-exclusive, irrevocable and royalty-free
license without limit of time and regardless of termination of this
Agreement to use worldwide, except in the Territory during the Term, all
Improvements (and to sub-license the same) that the Licensee is required
to disclose to the Licensor under Clause 4.l.
4.3 The Licensee shall have a non-exclusive irrevocable and royalty free
license to use only in the Territory during the Term all Improvements that
the Licensor is required to disclose to the Licensee under Clause 4.l.
4.4 A party to whom an Improvement is disclosed under Clause 4.l shall bear
all costs incurred in (i) ensuring that the use of such Improvement
complies with all regulatory requirements in the jurisdiction(s), and (ii)
adapting such Improvements to Local Requirements where such Improvement is
to be used by such party.
-14-
<PAGE>
4.5 Improvements arising from work agreed to be carried out by the parties
jointly shall belong to the parties equally unless they shall otherwise
agree and shall be financed equally unless they shall otherwise agree.
Each party shall have the irrevocable right to use such joint Improvements
independently of the other, and to the extent necessary for such use each
party shall be deemed to have a non-exclusive, irrevocable and royalty-
free license from the other without limit of time with respect to the user
of such joint Improvements, including the right to grant sub-licenses
thereunder, provided that nothing in this Clause 4.5 shall be deemed to
grant a license to the Licensor to use or sub-license use of such joint
Improvements in the Territory during the Term nor shall be deemed to grant
a license to the Licensee to use or sub-license use of such joint
Improvements otherwise than in the Territory during the Term. Each party
hereby undertakes that on request it will confirm to any prospective sub-
licensee of the other the right of that other to grant a sub-license
pursuant to this Clause 4.5.
5. TECHNICAL INFORMATION AND LOJACK MANUFACTURING SPECIFICATIONS
-------------------------------------------------------------
After the satisfaction of the First and Second Conditions Precedent and
throughout the Term the Licensor will supply to the Licensee all Technical
Information in the possession or control of the Licensor and with the
Licensor Manufacturing Specifications from time to time and that are
reasonably necessary or desirable to enable the Licensee to install, use,
service and operate the System in the Territory and to manufacture and
sell the Products on a commercial scale.
6. GRANT OF RIGHTS
---------------
6.1 The Licensor for the purposes only of the Approved Applications grants to
the Licensee for the Term, subject to Clause 3 (Conditions Precedent) and
Clause 11 (Performance Conditions):-
6.1.1 an exclusive license to install, use, service and operate the System in
the Territory;
6.1.2 an exclusive license to use in the Territory the Technical Information
and Intellectual Property of the Licensor;
6.1.3 under the Patent Rights, Technical Information and the Intellectual
Property of the Licensor, a non-exclusive license to manufacture or
procure the manufacture of Products in the Territory or elsewhere to the
extent required for the Licensee's own sales or use of the Products in the
Territory, any such manufacture to be subject to the provisions of Clause
7 below;
-15-
<PAGE>
6.1.4 an exclusive license to install, use, service, sell and otherwise deal in
the Territory in the Products manufactured under the license of Clause
6.1.3 above; and
6.1.5 an exclusive license to use the Trademarks in the Territory in connection
with the use by the Licensee of any of the other rights granted by the
foregoing provisions of this Clause 6, including all advertising,
marketing, and promotion in connection therewith in accordance with
Clause l7 below ; and
6.1.6 an exclusive license for User in the Territory of the System Software.
7. MANUFACTURE
-----------
7.1 The license with respect to the manufacture of the Products granted by
Clause 6.l.3 above shall extend to manufacture of VLUs and to manufacture
of Vehicle Tracking Computers and to manufacture of any of the Products
by any other manufacturer chosen by the Licensee after consultation with
the Licensor but for this purpose the Licensor shall be entitled to
review the manufacturing specifications proposed to be used by any such
other manufacturer (the "proposed specifications") and shall advise the
Licensee whether or not the Licensor approves such proposed
specifications as being in strict conformance to the then current LoJack
Manufacturing Specifications, such approval by the Licensor not to be
unreasonably withheld or delayed.
7.2 If the Licensor advises that the proposed specifications are not in
strict conformance to the then current LoJack Manufacturing
Specifications, the Licensee agrees to use all its efforts to bring the
proposed specifications up to the standard of the then current LoJack
Manufacturing Specifications. The Licensor will grant its consent to
manufacture by such other manufacturer where, pursuant to Clause 7.1
above and of this Clause 7.2, the proposed specifications are or are
brought up to being in strict conformance to the then current LoJack
Manufacturing Specifications.
7.3 With respect to all manufacture of the Products under the license granted
to Clause 6.1.3 above, the Licensor shall be entitled to take, examine,
and test random samples from the production line of the manufacturer and
from the Licensee's inventories of such Products and if such random
sampling indicates a failure rate of 5% or more in any of the Products
from either a particular batch or in aggregate from random sampling in
any period of two (2) months, the Licensor and Licensee shall meet with
the manufacturer and, at the Licensor's sole discretion may give the
manufacturer
-16-
<PAGE>
an opportunity to correct the defects in manufacture within 30 day period.
At the Licensor's sole discretion the Licensee shall change manufacturer
from that manufacturer to another manufacturer as soon as practicable, and
the provisions of Clauses 7.l and 7.2 above and this Clause 7.3 shall apply
with respect to manufacture by any such other manufacturer.
8. USE OF THE SYSTEM SOFTWARE AND TECHNICAL ASSISTANCE
---------------------------------------------------
8.1 The Licensee shall not make nor permit to be made any use of the System
Software other than the User thereof in accordance with this Agreement and
shall not assign, sublicense, transfer, lease, rent, charge or otherwise
encumber or deal or permit any dealing with the System, its components,
Intellectual Property, Licensee Software, Licensor Manufacuturing
Specifications, System Software or any part thereof.
8.2 The Licensor undertakes that it shall to the extent of its reasonable
capabilities and at the reasonable request of the Licensee from time to
time and insofar as such services are necessary for the technically
satisfactory exploitation of the System, render such technical assistance
to the Licensee as the Licensee may reasonably require in connection with
the installation, use, servicing, and commercial operation of the System in
the Territory, such technical assistance to include technical, marketing,
sales, operational, and administrative assistance with the development and
use of the Licensee Software. The Licensor may at its discretion render
such technical assistance either directly or through subcontracting with
third parties reasonably acceptable to the Licensee. Nothing in this Clause
8.2 shall require the Licensor to render any such technical assistance with
respect to the System Software if the System Software has been adapted or
modified otherwise than by or on behalf of the Licensor.
8.3 The Licensor and Licensee acknowledge and agree that the System Software
may need to be adapted and modified solely for Local Requirements and that
the Licensor and the Licensee will work together to identify which modules
of the System Software are viable for incorporation with or without
modification and adaptation for the purposes of developing the Licensee
Software at the sole cost and expense of the Licensee.
8.4 The Licensee shall, in the first instance, request maintenance and
technical support from the Licensor with respect to the System Software as
incorporated in, merged, or combined with the Licensee Software.
-17-
<PAGE>
8.5 The Licensee shall pay the Licensor's fees, costs, and expenses for all
technical assistance rendered by the Licensor to the Licensee pursuant to
this Clause 8.
8.6 The fees charged by the Licensor for the services of its full-time
employees in providing technical assistance to the Licensee under this
Clause 8, shall be at a rate equal to 175% (one hundred seventy five
percent) of the salary and benefits of the Licensor's personnel involved
pro-rated on a daily basis for the number of days spent by such personnel
in rendering such assistance.
8.7 All fees and expenses required to be paid by the Licensee pursuant to this
Clause 8, including all out-of-pocket expenses reasonably incurred by the
Licensor in rendering technical assistance to the Licensee and including,
without limitation, travel expenses and fees of third party contractors or
consultants retained by the Licensor, shall be payable by the Licensee in
full not later than 10 business days after the presentation by the Licensor
to the Licensee from time to time of a statement of such fees, costs and
expenses accompanied by evidence of such individual expense items as the
Licensee may reasonably require (and of which it has first advised the
Licensor).
9. PAYMENTS
--------
9.1 In consideration of the right to exercise the Rights and as a continuing
condition of such exercise the Licensee shall pay to the Licensor in the
amounts and in the manner set out in this Clause 9 as follows:-
9.2 The Licensee shall pay to the Licensor a royalty in the sum of $1,250,000
(United States Dollars ("USDs")) (One Million Two Hundred Fifty Thousand
Dollars) which accrues due and is earned entirely on the Effective Date.
Such Royalty shall be "grossed up" to reflect any withholding taxes
required to be paid to the Government in the Territory. The Royalty is
payable as follows: a first installment of $400,000 USD (Four Hundred
Thousand dollars) to be paid on the Effective Date (the "First Installment)
and the second and third installments of $300,000 USD each (Three Hundred
Thousand dollars) to be paid, respectively, 90 days and l80 days after the
Effective Date. The remaining $250,000 USD (Two Hundred Fifty Thousand
Dollars) shall be paid at a rate of $l USD (One Dollar) for each VLU
purchased from Licensor or manufactured by Licensee, until the full amount
has been paid. The First Installment shall be adjusted to (i) subtract the
Deposit paid pursuant to Clause 2, and (ii) add any out-of-pocket expenses
incurred by LoJack International Corporation pursuant to Clause 2.3.2. The
Licensee shall cause to be issued in favor of the Licensor an irrevocable
letter of credit valid for l80 (one hundred eighty) days,
-18-
<PAGE>
either (i) issued by a bank satisfactory to the Licensor having an office
in Boston and which is a member of the United States Federal Reserve
System, or (ii) if such bank is not a member of the United States Federal
Reserve System, the letter of credit must be confirmed (at the sole cost
of the Licensee) by a bank which is a member of the United States Federal
Reserve System. The letter of credit shall be in an amount equal to the
unpaid portion of the Royalty set forth in this Clause 9.2. Such letter
of credit shall provide for payment to the Licensor upon dates set forth
in Clause 9.2. Such letter of credit shall be in such form and content
acceptable by the Licensor and its bank.
No part of the royalty payable under this Clause 9.2 shall be refundable
and any outstanding balance thereof shall be immediately due and payable
by the Licensee upon any transaction of this Agreement by the Licensee
after the Effective Date or any termination by the Licensor after the
Effective Date pursuant to Clause 20.1.3.
9.3 Payment for Products
9.3.1 Products purchased from the Licensor by the Licensee shall be delivered
ex-factory at the point of manufacture and date to be advised by the
Licensor. Risk and title in the Products shall pass to the Licensee at
that time. The Licensee shall be entitled only to such benefits as the
Licensor may receive under any warranty or guarantee given to the
Licensor in respect of all Products purchased under this Agreement and
the Licensor without prejudice to the provisions of Clause l4.l0, makes
no other representation or warranty in respect of the Licensee's
purchases under this Agreement.
The Licensee and Licensor have agreed that an initial Purchase Order will
be placed not later than the Effective Date by the Licensee for a minimum
purchase as follows:
(1) Sector Activation Computer
(5) Sector Activation Transmitters
(500) Vehicle Tracking Computers
(6,000) Vehicle Location Units
The shipping schedule of the Sector Activation Computer, Sector
Activation Transmitters and Vehicle Tracking Computers shall provide for
delivery of all hardware within six (6) months of the exercise of the
rights described in this Agreement. The shipping schedule for the Vehicle
Location Units shall provide delivery for all units within eight (8)
months of the exercise of the rights described in this Agreement. VLU
delivery quantities may be increased or decreased by twenty-five (25%)
percent with ninety (90) days written notice to Licensor, prior to
scheduled shipments.
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Subsequent orders for Products shall be authorized in writing by the
Licensee and shall specify requested release dates, but in no instance
should such orders specify release dates sooner than 90 days of receipt
of order by Licensor. Licensor will use its best efforts to comply with
requested release dates.
The Licensor shall make reasonable efforts to fill each order of the
Licensee that is accepted by the Licensor, but shall not be liable in any
respect for failure or delay in shipping any accepted orders that is due
wholly or in part to any shortage of material, labor, transportation, or
utility service, or to any labor or production difficulty of the
Licensor, any source supplying to the Licensor, or their suppliers, or to
any cause beyond the Licensor's control or without the Licensor's fault
or negligence. The Licensor shall not be liable for shipping over routes
or by means of transportation not specified by the Licensee. If Licensee
does not specify shipping routes, Licensor shall select routes and shall
have no liability to Licensee by reason of such selection.
9.3.2 All Products are priced in USD's and payment, therefore, shall be made in
USD's. Upon a placement of a purchase order for Products, the Licensee
shall cause to be issued in favor of the Licensor an irrevocable letter
of credit valid for one year, either (i) issued by a bank satisfactory to
the Licensor having an office in Boston and which is a member of the
United States Federal Reserve System, in an amount equal to the full
amount of the order or (ii) if such bank is not a member of the United
States Federal Reserve System, the letter of credit must be confirmed at
(the sole cost of the Licensee) by a bank which is a member of the United
States Federal Reserve System. The letter of credit shall be in the an
amount equal to the full amount of order. Such letter of credit shall
provide for payment to the Licensor upon receipt of an Airway Bill of
Lading and a copy of the Licensor's invoice by the Licensee. Such letter
of credit shall provide for payment for partial shipments and shall be in
such form and content acceptable by the Licensor and its bank. As an
alternative to a Letter of Credit, the Licensee may, upon placement of a
purchase order, make a cash deposit by wire transfer equal to 65% (sixty-
five percent) of the amount of such purchase order, with the remaining
35% (thirty-five percent) to be paid prior to shipment by wire transfer.
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9.3.3 For each Quarter commencing not later than 9 months from the Effective
Date, Licensee shall purchase from the Licensor a minimum VLUs as
follows:
Minimum Order Relevant Quarter
------------- ----------------
6,000 Initial Order
12,000 per annum Quarters l through 4
16,000 per annum Quarters 5 through 8
30,500 per annum Quarters 9 through l2
40,000 per annum Quarters l3 through end
of term
This Clause 9.3.3 does not apply for any Quarter where the Licensee
manufactures VLUs for its own use within the Territory. However, if at
any time the Licensee purchases VLUs from Licensor, the minimum purchase
for which the Licensee would be liable will be that which would be
applicable if Licensor manufactured VLUs for since the Effective Date.
9.4 Royalties
9.4.1 Subject to Clause 9.5 below, the Licensee shall in respect of each
Quarter during the rest of the Royalty Period pay to the Licensor a
Royalty on any Product it manufactures of a sum equal to that percentage
shown in the first column of the Gross Sales Price actually invoiced by
the Licensee during each such Quarter in respect to each sale of the
aggregate numbers of Royalty Products manufactured by the Licensee shown
in the second column below:
Column l Column 2
-------- --------
5 percent 1 to 50,000 per annum;
4 percent 50,001 to 75,000 per annum;
3 percent 75,00l and over per annum
9.4.2 If the Royalty payable by the Licensee with respect to any Quarter
pursuant to Clause 9.4.l above (the "Actual Royalty") is less than the
non-returnable minimum royalty for the same Quarter as determined by this
Clause 9.4.2 (the "Minimum Royalty"), the Licensee shall in lieu of the
Actual Royalty pay to the Licensor the Minimum Royalty for that Quarter.
The Minimum Royalty for each Quarter in which the Licensee sells Royalty
Products which it has manufactured shall be determined as set forth
below:-
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Minimum Royalty Relevant Quarters
- --------------- -----------------
$ 50,000 per Quarter Quarters l through 4
$ 75,000 per Quarter Quarters 5 through 8
$l25,000 per Quarter Quarters 9 through l2
$l50,000 per Quarter Quarters l3 through l6
Thereafter, the Minimum Royalty in respect of each successive Quarter in which
the Licensee sells Royalty Products which it has manufactured shall be $150,000
increased by a sum equal to the percentage increase in the cost of living index
in the United States with respect to the previous period of four consecutive
Quarters applied at a rate of one-fourth of such sum per Quarter.
The Minimum Royalty shall only apply in those Quarters where the Licensee sells
Royalty Products which it has manufactured pursuant to the rights granted under
Clause 6.l.3.
9.4.3 All Royalties payable by the Licensee with respect to each Quarter
pursuant to Clause 9.4 shall be paid within fourteen (14) days after the
end of such Quarter. In calculating such royalties, all amounts of Gross
Sales Price in German currency shall be converted into U.S. Dollars at
the rate of exchange reported by the Wall Street Journal on the last
business day of each month during such Quarter.
9.5 Time is of the essence for all payments under this Clause 9.
9.6 All Royalties and other amounts payable by the Licensee to the Licensor
under this Agreement are exclusive of any Value Added Tax (which shall be
payable in addition upon the rendering by the Licensor to the Licensee of
any appropriate Value Added Tax invoice) and shall be paid in U.S.
Dollars to a bank account designated by the Licensor, same date value.
9.7 All Royalties and other amounts payable by the Licensee to the Licensor
under this Agreement which are not paid when due shall bear and be
payable with interest at the Default Interest Rate, determined as at such
due date, and calculated from such due date to the date of actual payment
by the Licensee (whether after judgment or before).
9.8 All Royalties and other amounts payable by the Licensee to the Licensor
under this Agreement shall be paid in full without any deduction or
withholding whatsoever provided that in the event the Licensee is
required by the laws of United States or the regulations of any competent
authority thereof to deduct or withhold any taxes, charges or duties from
any royalties or other amounts payable to the Licensor
-22-
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under this Agreement, the Licensee shall deduct or withhold such taxes,
charges, or duties and pay over to the relevant authority the full amount
thereof within the time allowed under applicable law or regulation, and
shall deliver to the Licensor a certificate of deduction or withholding
in such form as the Licensor may reasonably require or a receipt issued
by the relevant authority to evidence such payment. The Licensee shall,
at the cost and expense of the Licensor, cooperate with the Licensor in
such manner as may be reasonably requested by the Licensor to obtain a
credit or deduction in the United States for any such taxes, charges, or
duties so deducted or withheld and paid.
9.9 The parties agree to cooperate in all such respects as may be reasonably
necessary or desirable in order to obtain such relief from double
taxation as may be available under the double taxation treaty between
Germany and the United States.
10. ROYALTY STATEMENTS AND FINANCIAL INFORMATION
--------------------------------------------
10.1 In respect of the royalties payable by the Licensee pursuant to Clause 9
above, the Licensee shall prepare and submit to the Licensor not later
than fourteen (14) days after the end of each Quarter (time of the
essence) the Royalty Statement for that Quarter.
10.2 All Royalty Statements shall be certified annually at the Licensee's cost
by an independent firm of chartered or certified public accountants
approved by the Licensor, such approval not to be unreasonably withheld
or delayed.
10.3 The Licensee shall prepare and submit to the Licensor not later than
thirty (30) days after the end of each Quarter the quarterly management
accounts of the Licensee.
10.4 The Licensor shall be entitled, on giving not less than five (5) business
days prior written notice, to enter and/or to have its own certified or
chartered accountants enter upon the premises of the Licensee during
normal business hours to examine, take copies of and inspect the books of
account of the Licensee and, where necessary, to run any accounting
computer and to copy the results of such run. Without prejudice to the
provisions of Clause 20.l.2(d) below the Licensee shall pay the
Licensor's reasonable out-of-pocket expenses of such inspection and
copying if, as a result of any such inspections, it is determined by such
accountants or the Licensor's Chief Financial Officer and certified by
them or by him as appropriate to the Licensee that the royalties due to
the Licensor in respect of any Quarter have been underpaid by 5 percent
or more.
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<PAGE>
10.5 The Licensor agrees to maintain the confidentiality of and not to make
any unauthorized use of any financial information received with respect
to the Licensee's operations pursuant to this Clause 10.
11. PERFORMANCE CONDITIONS
----------------------
11.1 During the Term, the Licensee shall, as conditions subsequent to the
continued grant of the Rights and the continued exercise of the Rights by
the Licensee:-
11.1.1 pay to the Licensor on the due dates thereof all installments of the
royalty payable by the Licensee pursuant to Clause 9.2 above;
11.1.2 pay to the Licensor on the due dates thereof all royalties shown to be
payable in the Royalty Statements';
11.1.3 pay to the Licensor on the due dates thereof for all purchases pursuant
to Clause 9.3 above;
11.1.4 comply with the minimum purchase requirements pursuant to Clause 9.3.3
above;
11.1.5 permit the Licensor and/or the chartered or certified accountants of the
Licensor to examine, take copies of and inspect the books of account of
the Licensee and to run any accounting computer and to copy the results
of such run, in accordance with Clause 10.4 above;
11.l.6 comply with the manufacturing requirements pursuant to Clause 7 above.
11.1.7 comply with all material respects with the guidelines approved by the
Licensor governing the installations, use, servicing, and operation of
the System in the Territory, as such guidelines may be amended, modified,
supplemented and in effect from time to time;
11.1.8 comply with all material respects with the requirements of the
regulatory agencies from time to time with regard to the use by the
Licensee of the frequency channel assigned or allocated for use with
stolen vehicle systems generally as well with the requirements of any
regulatory agency with jurisdiction over the operation of the System in
the Territory; and
11.1.9 use all reasonable efforts to promote and fulfill a demand in the
Territory for Vehicle Location Units and use all reasonable efforts to
distribute and sell Vehicle Location Units in the Territory.
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<PAGE>
12. PERFORMANCE UNDERTAKINGS
------------------------
12.1 The Licensee undertakes to the Licensor that during the Term the
Licensee shall:
12.1.1 bear the sole responsibility for and the cost of establishing and
maintaining the System in the Territory, implement the Local
Requirements at its sole cost and expense and advise the Licensor in
writing of those modules of the System Software which are incorporated
in whole or in part into the Licensee Software;
12.1.2 take all steps necessary, including but not limited to compliance with
the provisions of Clause 7 above, to ensure that all Products
manufactured or procured to be manufactured by the Licensee will meet
the LoJack Manufacturing Specifications;
12.1.3 take all steps necessary to ensure that all Vehicle Location Units sold
by the Licensee are installed in a careful and workmanlike manner;
12.1.4 provide or procure the provision in the Territory of sufficient trained
and qualified personnel and facilities for the proper servicing of any
components of the System manufactured by or on behalf of and/or supplied
by the Licensee'
12.1.5 not hold itself out as agent of the Licensor for any purpose and not
make or give any representation or warranty on behalf of the Licensor;
12.1.6 attach or affix to all Products manufactured by Licensee or procured to
be manufactured by the Licensee a label quoting the relevant patent or
patent application numbers of such Products and stating that such
Products are manufactured under license from the Licensor;
12.1.7 permit or procure permission for the authorized representatives of the
Licensor, upon at least five (5) business days prior written notice, to
have during normal business hours such access to the premises of the
Licensee and to the premises of such other persons as may be reasonably
required by the Licensor for the purpose of verifying the Licensee's
compliance with the provisions of this Clause 12;
12.1.8 inform the Licensor if for any reason the Licensee is not able to meet
reasonable market demand for Vehicle Location Units in the Territory,
and provide the Licensor with sufficient information and cooperation to
enable the Licensor in its discretion to meet such demand;
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<PAGE>
12.1.9 take all steps necessary to ensure that, once the Licensee Software has
been developed, the System as operated by the Licensee in the Territory
shall have the ability to activate, locate, track and recover stolen
vehicles equipped with VLUs;
12.1.l0 ensure that all sales of Royalty Products by the Licensee to any
person, firm, or company shall be made at an arm's length commercial
price (and Gross Sales Price shall be construed accordingly).
13. INFRINGEMENT
------------
13.1 In the event of any claim by a third party that the exercise of the
Rights by or on behalf of the Licensee infringes the rights of that
third party, the Licensor will defend against such claim and indemnify
and hold harmless the Licensee against all damages, liabilities, costs
and expenses that may be suffered or incurred by the Licensee in
connection with such claim and any legal proceedings in respect thereof
("Defensive Litigation") provided that the Licensee:-
--------------------------
l3.l.l gives written notice to the Licensor of any such claim forthwith upon
becoming aware of it;
l3.l.2 gives the Licensor the sole conduct of the Defensive Litigation and does
not at any time admit liability or otherwise attempt to settle or
compromise the said claim or any legal action or proceeding in respect
thereof except upon the express written instructions of the Licensor;
and
l3.l.3 acts in accordance with the reasonable instructions of the Licensor as
notified to the Licensee and gives the Licensor such assistance as it
shall reasonably require and instruct the Licensee in writing to provide
in connection with the conduct of the Defensive Litigation including,
without prejudice to the generality of the foregoing, the filing of all
pleadings and other court process and the provision of all relevant
documents, and the right to use the Licensee's name in or to join the
Licensee as a party to the proceedings.
l3.2 in the event of any infringement or claimed infringement of the Rights
by a third party, the Licensor shall promptly notify the Licensee what
action, if any, the Licensor in its sole discretion elects to take in
respect of such matter. The Licensor shall have sole conduct of any
action it elects to take in such matter ("Offensive Litigation") and
either:
l3.2.l the Licensor shall pay all costs in connection with such Offensive
Litigation and shall be entitled to all damages and other sums which may
be paid or awarded as a result thereof, or
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<PAGE>
l3.2.2 if within ten (10) business days after its receipt of such notice the
Licensee agrees to share equally the costs of such Offensive Litigation,
the costs of an such Offensive Litigation shall be borne and all damages
and other sums which may be paid or awarded as a result thereof shall be
shared equally by the Licensor and the Licensee.
l3.3 In the event that the Licensor fails to accept the conduct of any
Offensive Litigation within a reasonable period after notice from the
Licensee requesting the Licensor to do so, the Licensee shall be
entitled at its cost and expense to take all such actions as it deems
necessary or desirable in connection with such infringement or claimed
infringement and the Licensee shall be entitled to all damages and other
sums which may be recovered by or awarded to it as a result thereof.
l3.4 The Licensor shall reimburse the Licensee its reasonable costs and
expenses incurred in complying with the provisions of Clause l3.l.3
above (assistance for Defensive Litigation).
l3.5 The Licensor shall have no liability to the Licensee in respect to any
Defensive Litigation or Offensive Litigation if the same results from
any breach of the Licensee's obligations under this Agreement.
l3.6 In the event of Defensive Litigation concerning the System Software, the
Licensor shall be entitled at its own expense and option either to:
l3.6.l procure the rights for the Licensee to continue using the System
Software, or the Licensor shall make such alterations, modifications, or
adjustments to the System Software as may be necessary to make it non-
infringing without incurring any material diminution in the performance
or function of either the System Software or the Licensee Software; or
l3.6.2 replace the Software System with non-infringing substitutes provided
that such substitutes do not entail a material diminution in the
performance or function of the System Software or the Licensee Software.
13.6.3 in the event that LICENSOR, despite the use of best efforts, cannot
reasonably accomplish either the results described in Clauses l3.6.l or
l3.6.2, above, at reasonable expense, than LICENSOR shall refund a
proportionate part of the LICENSEE fee provided in Clause 9.2
proportionate to the degree of which LICENSEE is prohibited from
exercising the Licensed Rights.
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<PAGE>
l3.7 In the event of any alterations, modifications, or adjustments to the
System Software or its replacement with non-infringement substitutes
pursuant to Clause l3.6.2 above, the Licensor shall reimburse the
Licensee the reasonable costs and expenses incurred by the Licensee in
making such adaptations to the Licensee Software and the Designated
Equipment as may be necessary as a result thereof.
l4. WARRANTIES, LIMITATION OF LIABILITY AND PATENT PROTECTION
---------------------------------------------------------
14.1 The Licensor and LoJack warrant that LoJack's title to and property in
the Patent, and Patent Rights, and Trademarks and the Intellectual
Property of the Licensor are free and unencumbered (other than to the
extent pledged as security interest under LoJack's financing
arrangements) and that it is the legal and beneficial owner thereof,
that it has the right power and authority to license the Rights to the
Licensee upon and subject to the terms and conditions of this Agreement,
and that the Patent, and Patent Rights, the Trademarks, the Intellectual
Property of the Licensor and the license of the Rights to the Licensee
hereunder do not conflict with or infringe the rights of any third
party.
l4.2 The Licensor warrants that it will perform any technical assistance and
other services undertaken to be provided by it pursuant to this
Agreement with reasonable care and skill.
l4.3 The Licensee will give notice to the Licensor as soon as the Licensee
becomes aware of any breach of the Licensor's warranties hereunder.
l4.4 If at any time during the Term of this Agreement, the Licensee opposes or
disputes in any legal or administrative action or proceeding instituted by
the Licensee, or voluntarily joins in any legal or administrative action or
proceeding instituted by any third party to oppose or dispute the grant of
letters, patent or any patent application within the Patent Rights or the
validity of any patent within the Patent Rights, the Licensor shall be
entitled at any time thereafter to terminate all or any of the Rights
granted to the Licensee under this Agreement forthwith by notice to the
Licensee.
l4.5 Where either party has developed or acquired an Improvement to which Clause
4 above applied, it shall either prepare and file an application for patent
or other relevant protection with respect to such Improvements as soon as
practicable or promptly notify the other party of its decision not to seek
such protection and disclose in
-28-
<PAGE>
writing with such notice all information relating to such Improvement. The
party receiving such disclosure may seek such protection if it decides to
do so and will notify the other party of its receipt of such disclosure.
If the party receiving such disclosure decides to seek such protection, it
will prepare and file an application for such protection as soon as
practicable after the end of such period of fifteen (15) business days.
Until such time as an application for such protection is filed by either
party or the parties have each notified a decision pursuant to this clause
l4.5 not to seek such protection, neither party shall publish such
Improvement or take any other action which might prejudice the validity of
any patent or other relevant protection that might be granted with respect
to such Improvement. For Improvements which are jointly developed or
acquired, unless both parties agree otherwise, patent protection will be
sought. Any dissenting party shall give all such assistance at the
dissenter's cost as the other party may require to obtain such patent
protection.
l4.6 Either party may at any time with respect to any Improvement elect not to
pursue further an application for patent or other relevant protection
either jointly or on its own behalf or to maintain any such protection as
it may have obtained and the party so electing shall promptly notify the
other party and shall if so requested assign all rights it may have therein
to that other party, provided that nothing in Clause l4.5 above or this
--------
Clause l4.6 shall prejudice the rights of the parties with respect to the
grant of the licenses provided for by Clause 4.
14.7 Subject to Clause l4.5 and Clause l4.6 above, each party shall be free to
apply for patent protection for any invention not made in whole or in part
by an employee of the other party provided that the specification and
--------
supporting information for such invention and the application for patent
protection in respect thereof does not disclose any technical information,
intellectual property or any confidential information of the other party.
l4.8 Subject to the provisions of Clause l4.6 above the Licensor and the
Licensee shall share equally the costs of filing and prosecuting any future
patent applications agreed by them to be made jointly and the costs of
obtaining the grant and of maintaining such grant of patent in all
countries.
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<PAGE>
14.9 The Licensor warrants to Licensee that the Products when purchased from the
Licensor, under normal use and service, will be free from defect in
materials and workmanship. This warranty shall be in effect for a period
of six (6) months from the date of receipt of the Products at the Port of
Entry of said VLUs and Vehicle Tracking Computers to the Licensee (the
"Warranty Period"). The Licensor's liability for honoring the warranty
claims is subject to Licensee making claims for defective Products within
the applicable Warranty Period, and any claims not made within the Warranty
Period shall be conclusively deemed waived and released.
During the Warranty Period for respective Products, the Licensor shall, at
its option, replace or repair, at any authorized facility designated by the
Licensor, any Products which the Licensor determines to be defective.
The foregoing warranty does not apply to any Products which have been
damaged as a result of force majeure, accident, shipping and handling,
improper power supply, misuse, abuse, improper storage, improper
maintenance, improper installation, improper operation, unauthorized
modification, or which has been installed, serviced, modified, or repaired
by anyone other than a person designated in writing by the Licensor as an
authorized Licensor service representative.
l4.10 EXCEPT AS EXPRESSLY SET FORTH IN THIS CLAUSE 14 OR ELSEWHERE IN THIS
AGREEMENT ALL REPRESENTATIONS, WARRANTIES OR CONDITIONS WHETHER EXPRESSED
OR WHETHER IMPLIED BY STATUTE OR COMMON LAW OR BY ANY PARTY ARE EXCLUDED
TO THE FULLEST EXTENT PERMITTED BY LAW. UNDER NO CIRCUMSTANCES WILL THE
LICENSOR BE LIABLE TO THE LICENSEE OR TO ANY OTHER PERSON FOR ANY
CONSEQUENTIAL DAMAGES OR FOR ANY LOSS OF PROFIT, REVENUE, GOODWILL, OR
ANY OTHER ECONOMIC LOSS INCLUDING PHYSICAL DAMAGE WHICH IT MAY SUFFER.
15. PROMOTION AND ADVERTISING
-------------------------
15.1 Subject to Clause l5.2 below, the Licensee shall be entitled to use the
Trademarks in connection with the installation, use, servicing and
operation of the System in the Territory and in connection with all
sales, sales promotions, marketing and advertising activities associated
therewith and/or associated with sales of Products in the Territory. The
Licensee undertakes that all sales promotions, marketing, and advertising
materials shall bear the legend "Under license from the LoJack
International Corporation".
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<PAGE>
l5.2 All sales promotion, marketing, and advertising materials which use the
Trademarks (or mock-ups or such materials) and which the Licensee intends
to use for its initial launch of the System in the Territory shall be
submitted to the Licensor (translated into English) no later than thirty
(30) business days before the proposed date of such launch. The use of
such materials for such initial launch shall be subject to the prior
written approval of the Licensor, provided that if any such materials are
--------
not approved in writing by the Licensor within fifteen (15) business days
after such submission the Licensor shall be deemed to have approved the
materials.
16. INSURANCE
---------
the Licensee shall keep and maintain insurances with an insurer of repute
in such amounts against such risks as are customarily maintained by
companies operating business similar to the business of the Licensee.
l7. TRADEMARKS
----------
17.1 The Licensee recognizes and acknowledges that LoJack is the sole and
exclusive owner of the Trademarks and agrees that it will not register
any of such marks in its own name or that of any other firm, person,
company or corporation.
l7.2 The Licensee shall be permitted to identify itself as the manufacturer of
any part of any component of the System which it does so manufacture or
procure to be manufactured under the Rights.
l7.3 The Licensor will use all reasonable efforts to prevent the Trademarks
from being used in the Territory by any person other than the Licensee.
The Licensee agrees to enter into any agreements reasonably required by
the Licensor for the protection of the Trademarks in the Territory
including, but not limited to, any simultaneous registered user
agreements, all costs and expenses thereof to be shared equally by the
Licensor and the Licensee.
l7.4 Upon the termination of this Agreement for any reason the Licensee shall
cease and forever abstain from using the Trademarks and shall deliver to
the Licensor within fourteen (14) days after the date of such termination
all documents, instructions, display items, and the like bearing any of
the Trademarks, to the extent that such items were originally purchased
from the Licensor, are in original packaging and are usable by the
Licensor. All such items shall be returned subject to payment by the
Licensor within fourteen (14) days after the date of such termination of
(a) the costs of returning the items and (b) their net book value taking
into account depreciation for the period of use in respect of each item,
less a l5% restocking charge.
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l8. COMPETING PRODUCTS
------------------
18.1 LoJack and the Licensor hereby expressly reserve to themselves all member
states of the European Community other than the Territory ("the Reserved
Territories") and for the purposes of this Clause l8, the phrase
"Parallel Patent" shall mean subsisting patent rights for the Reserved
Territories licensed by the Licensor to any other licensee parallel to
those licensed to the Licensee under this Agreement, and the phrase
"System" shall be deemed to include the System Software. The Licensee
shall not:-
l8.l.l exploit any component of the System in the Reserved Territories so far
and so long as those components of the System are protected in the
Reserved Territories by Parallel Patents;
l8.l.2 except for manufacture under the license granted by Clause 6.l.3 above,
manufacture or use any components of the System or use the Patent Rights
or the Technical Information in the Reserved Territories so far and so
long as the System is protected in the Reserved Territories by Parallel
Patents;
l8.l.3 pursue an active policy of putting any components of the System on the
market in the Reserved Territories and in particular shall not engage in
advertising specifically aimed at the Reserved Territories or establish
any branch or maintain any distribution depot in the Reserved Territories
in so far and so long as those components of the System are protected in
the Reserved Territories by Parallel Patents; or
l8.l.4 put any components of the System on the market in the Reserved
Territories for a period not exceeding five (5) years from the date when
they are first put on the market within the European Community by the
Licensor or one of its licensees in so far as those components are
protected in the Reserved Territories by Parallel Patents.
18.2 The parties hereto agree to give each other on request all information in
their possession necessary to determine the dates of the period of five
(5) years referred to in Clause l8.l.4.
l9. CONFIDENTIALITY
---------------
19.1 The Licensee agrees to maintain secret and confidential all Technical
Information, LoJack Manufacturing Specifications, and Intellectual
Property of the Licensor (all of which are expressly agreed by the
parties to constitute the know-how disclosed or to be disclosed by the
Licensor to the Licensee or obtained by the Licensee from the Licensor
-32-
<PAGE>
pursuant to this Agreement) and all other information that the Licensor
designates as confidential and discloses to the Licensee pursuant to the
Agreement including the design details and operating characteristics of
the System, information relating to installation of VLUs in motor
vehicles and all other aspects of the System treated as confidential by
Licensor and LoJack or not generally known, including the System
Software, the Sector Activation System and the Registration System and
all related file structures, documentation, algorithms and software
concepts (all of the foregoing being referred to collectively as the
"Confidential Information"), to respect the Licensor's proprietary rights
in the Confidential Information, to use the Confidential Information
exclusively for the purposes of the exercise of the Rights and the
installation, use, servicing and operation of the System in the Territory
in accordance with this Agreement, and to disclose the Confidential
Information only to those persons to whom and to the extent such
disclosure is reasonably necessary for the aforesaid purposes.
l9.2 The Licensee shall procure that all of its employees and all of its
contractors who manufacture Products or any component of any of the
Products who have access to any of the Confidential Information shall be
made aware of the confidentiality thereof. The Licensee shall further
procure that all of its employees and all of such contractors shall enter
into a Deed of Undertaking substantially in the form set forth in
Schedule 2.
19.3 The Licensor agrees to maintain secret and confidential all business and
operating information of the Licensee that the Licensee designates as
confidential and is not generally known. The Licensor's obligation
pursuant to this Clause l9.3 specifically excludes Improvements or any
modifications made by the Licensee to the System, its components,
Intellectual Property, Licensee Software, Licensor Manufacturing
Specifications, or System Software.
20. TERMINATION
-----------
20.1 This Agreement may be terminated:-
20.l.l by the Licensee at any time by the giving of l20 days prior written
notice to the Licensor;
20.l.2 by the Licensor forthwith by giving notice in writing:-
(a) for any material breach of the Performance Conditions which is
capable of being remedied and shall not have been remedied within
2l days after a written request to remedy the same, provided that
--------
any breach of the Performance Conditions set out in Clause 11.1.1,
Clause 11.1.2, ll.l.3 and ll.l.4 above shall be deemed not capable
of remedy; if not remedied within l5 days of such notice
-33-
<PAGE>
(b) for any breach by the Licensee of its obligations under Clause
2l.2 or 2l.3 below;
(c) if within the meaning of Part I of the Insolvency Act l986 a
proposal shall be made or a meeting of creditors of the Licensee
convened for a voluntary arrangement, or if an order is made or
effective resolution passed for the dissolution, liquidation,
reorganization, administration, or winding-up for the purpose of a
reconstruction, amalgamation or other reorganization in such
manner that the company resulting from the same is bound by or
agrees to assume the obligations of the Licensee under this
Agreement), or if a trustee, receiver, administrative receiver or
similar officer is appointed for the Licensee or in respect of the
whole or any part of its assets, or if the Licensee makes any
general assignment for the benefit of its creditors or is deemed
unable to pay its debts within the meaning of Section l23 of the
Insolvency Act l986 (unless the Licensee pays within three weeks
or disputes in good faith any demand served under Section l23(a)
of the said Act);
(d) if it is determined and certified pursuant to Clause 10.4 that the
royalties due to the Licensor have been unpaid and the Licensee
shall fail to pay to the Licensor, within 14 days after the date
such determination has been notified by the Licensor to the
License, a sum equal to the amount of such underpayment together
with interest thereon at the Default Interest Rate in effect on
the date when the amount of such underpayment was due for payment
and calculated from that date to the date of actual payment by the
License, whether before or after judgment;
(e) if the Licensee shall fail to pay when due any other sums payable
by it to the Licensor under this Agreement within 14 (fourteen)
days of notice from the Licensor; or
(f) if the Licensee shall remain in breach of any of its other
obligations under this Agreement 30 (thirty) days after it shall
have been advised by the Licensor of such breach.
20.2 Upon termination of this Agreement for any reason other than termination
pursuant to Clause 20.1.2 above, the Licensee shall continue to have the
right to complete the delivery, sale, and installation of all Products
contracted for sale at the date of such termination and to purchase
-34-
<PAGE>
and take delivery of Products already manufactured and required for such
purpose, subject to payment to the Licensor of royalties for such sales
in accordance with Clause 9 above.
20.3 Upon the termination of this Agreement for any reason the Licensee
shall:-
20.3.l at its cost and expense within l4 days after the date of such
termination deliver up to the Licensor all Technical Information, all
documents constituting the LoJack Manufacturing Specifications and the
Intellectual Property of the Licensor, the System Software and all other
Confidential Information in the possession or control of the Licensee,
and to the extent not physically capable of redelivery the Licensee shall
not use the same and shall keep it confidential;
20.3.2 subject to the Clause 20.2 above, make available to the Licensor, at
Licensor's sole option, for purchase at cost price, less a l5% restocking
charge, to the Licensee all remaining Products and will permit the
Licensor the right to verify and inspect the same;
20.3.3 subject to being indemnified by the Licensor in form and substance
reasonably satisfactory to the Licensee against all costs, expenses and
liabilities which may be incurred by the Licensee, use all reasonable
efforts as directed by the Licensor to ensure (for the benefit of
existing purchasers and for the protection of the goodwill of the
Licensor in the System and the Trademarks) the continuing operation and
maintenance of the System in the Territory until the establishment of a
successor to the Licensee reasonably satisfactory to the Licensor.
20.4 The Licensor, having regard to its good name, its goodwill and the
expectancy of existing purchasers of the Products at termination of a
continuity of service may, in its absolute discretion using its best
business judgement, either take over the service to those of the existing
purchasers of the Products that are prepared to enter into a novation
with the Licensor or find a new Licensee of the Rights.
20.5 Termination of this Agreement for any reason shall not bring to an end:-
20.5.l the confidentiality obligations of the parties hereto;
20.5.2 the Licensee's obligations to pay royalties which have accrued due or
which will become due in respect of sales under Clause 20.2;
-35-
<PAGE>
20.5.3 the delivery-up obligations of the Licensee under Clause 20.3; and
20.5.4 the licences (if any) under Clause 4 above.
2l. TRANSFER
--------
2l.l This Agreement shall be binding upon and enure to the benefit of the
parties and their respective legal successors and permitted assigns. The
Licensor shall have the right to assign its rights and obligations under
this Agreement to any subsidiary or to any other person, persons,
partnership, association, or corporation provided that:-
2l.l.l each such transferee agrees in writing to assume all rights of and
obligations undertaken by the Licensor herein;
2l.l.2 the Licensee receives an assignment and assumption agreement executed by
the Licensor and each such transferee to that effect;
2l.l.3 each transferee has the financial capacity and technical expertise
necessary to discharge the obligations of the Licensor under this
Agreement; and
2l.l.5 upon such assignment and assumption the Licensor shall thereafter have
no further rights or obligations hereunder, without prejudice, however,
to the accrued rights of the Licensor to such date.
2l.2 The Licensee shall not assign, sell, transfers, sublease, license (other
than for the purpose of manufacture of Products), convey, give away,
transfer part with possession of the whole or any part of the Rights of
its other rights and/or obligations under this Agreement. Licensee
intends to become a UK PLC solely for purposes of obtaining financing
through an undertaking in the United Kingdom in which current owners of
Licensee will retain a minimum of own 20% (twenty percent) equity
ownership of the UK PLC. Licensee shall provide Licensor with all
documents relative to such underwriting as such documents become
available.
2l.3 The Licensee shall not, without the Licensor's prior written consent
(such consent not to be unreasonably withheld or delayed) pledge,
mortgage, charge or otherwise encumber all or any part of the Rights of
its other rights and obligations under this Agreement, except that the
Licensee may grant a security interest for bank obligations in a maximum
amount of $3 million (USD).
-36-
<PAGE>
22. FORCE MAJEURE
-------------
22.1 If either party is affected by an Event of Force Majeure it shall
promptly notify the other party of the nature and extent of the
circumstances in question.
22.2 Notwithstanding any other provisions of this Agreement, neither party
shall be deemed to be in breach of this Agreement, or otherwise be liable
to the other, for any delay in performance or the non-performance of any
of its obligations under this Agreement, to the extent that the delay or
non-performance is due to any Event or Force Majeure, and the time for
performance of that obligation shall be extended accordingly.
23. NOTICES
-------
23.1 All notices, requests, consents, demands, or similar communications under
this Agreement shall be given in writing by pre-paid registered post
(airmail) to the address of the addressee as set out at the head of this
Agreement, or to such other address as the addressee may from time to
time have notified for the purpose of this Clause 23, or sent by
facsimile transmission or via a reputable private courier company.
23.2 All notices, requests, consents, demands or similar communications given
and sent in the manner prescribed by Clause 23.l above shall be deemed to
have been received five (5) business days after delivery to the post
office or three (3) business days after delivery to recognized
international overnight courier service, or at the time of transmission
if sent by facsimile transmission, provided sender receives electronic
confirmation of delivery.
23.3 All such notices, requests, consents, demands or similar communications
addressed to the Licensee shall be marked for the attention of the
managing director and if addressed to the Licensor shall be marked for
the attention of the Chief Financial Officer.
24. GENERAL
-------
24.1 The provisions of this Agreement may be varied or amended by mutual
consent of the parties but no such variation or amendment shall be
effective unless made in writing and signed by the Licensor and the
Licensee.
24.2 This Agreement contains the whole agreement between the parties with
respect to the subject matter hereof and supersedes all previous
agreements and understandings between the parties, whether written or
oral, with respect to the subject matter hereof.
-37-
<PAGE>
24.3 If any provisions of this Agreement shall be found by an court or
administrative body of competent jurisdiction to be invalid or
unenforceable the invalidity or unenforceability of such provision shall
not affect the other provisions of this Agreement and all provisions not
affected by such invalidity or unenforceability shall remain in full
force and effect. The parties hereby agree to attempt to substitute for
any invalid or unenforceable provision a valid or enforceable provision
which achieves to the greatest extent possible the economic legal and
commercial objectives of the invalid or unenforceable provision.
24.4 This Agreement shall be governed by and be construed in accordance with
the laws of Germany and the Commonwealth of Massachusetts and the parties
agree to submit to the non-exclusive jurisdiction of the courts in
Germany.
24.5 Each party to this Agreement shall execute and deliver such other
documents and do such other acts and things as they deem necessary or
desirable to carry out the terms, provisions, and purpose of this
Agreement.
25.6 The failure to enforce or to require the performance at any time of any
of the provisions of this Agreement shall in no way be construed to be a
waiver of such provisions and shall not affect the rights of any party
thereafter to enforce and to require performance of each and every
provision in accordance with the terms of this Agreement.
24.7 The headings of the clauses of this Agreement are used for convenience
only shall not affect the meaning of interpretation of the content of
this Agreement.
24.8 Nothing in this Agreement shall be deemed to constitute a partnership or
joint venture between the parties. Nothing contained in this Agreement
shall be deemed to authorize any party to act as agent for the other
party or to assume or create any obligations on behalf of the other
party.
-38-
<PAGE>
SIGNATURES
This Agreement may be executed in one or more counterparts having the signatures
of the parties and each such counterpart shall, for all purposes, be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.
LoJack Corporation & LoJack International Corporation
BY:
---------------------------
C. Michael Daley, President
- ---------------------------------
Detektor Tracking Systems Ltd.
BY:
-----------------------------
Yoram Tamari
- ----------------------------------
-39-
<PAGE>
Schedule 1
Part I
The Patent
Country Number Date of Issue Owner
- ------- ------ ------------- -----
Europe (l) 0245555 May l992 LoJack Corporation
U.K.
Germany
France
Italy
Belgium
Switzerland
Austria
Sweden
Holland
Part II
A: Registered Trademarks
Reg. Date of Goods/
The Mark No. Class as of Renewal Services
- -------- ------ ----- ----- ------- --------
LoJack l,388,l52 9 22.6.89 22.6.96 Transponder units;
computers for use
by police tracking
purposes;
all included in
Class 9
B: Unregistered Trademarks
Mark or Representation or
Description of Get-Up Goods
- --------------------- -----
LoJack All components of the LoJack
System
<PAGE>
SCHEDULE 2
DEED OF UNDERTAKING
The undersigned hereby undertakes to Detektor ("Detektor") and to LoJack
International Corporation ("LIC") jointly and severally to maintain in
confidence at all time, and not to make any unauthorized disclosure or use, of
any Technical Information (defined below) or any Confidential Information
(defined below) received by the undersigned from Detektor or LoJack
International Corporation. The undersigned also hereby undertakes itself and to
require its officers, employees, and subcontractors to assign the rights to any
Improvements to Detektor.
"Confidential Information" means any trade secrets and other proprietary
information in any form concerning the business or operations of Detektor and/or
LoJack International Corporation including but not limited to sales, marketing,
manufacturing and employee information.
"Technical Information" means any know-how, experience, specifications,
drawings, designs, photographs, methods of operation, circuit diagrams,
processes, formulae, data, computer programs, samples, literature, and all other
technical information relating to the stolen vehicle recovery system operated by
Detektor under license from LoJack International Corporation.
EXECUTED AND DELIVERED as a deed on the date below.
EXECUTED by: ( )
( )
------------------------
Date: ( )
<PAGE>
EXHIBIT 10rr
RUSSIA
LICENSE AND SUPPLY AGREEMENT
This Agreement, made this 5th day of September, 1995, is entered into by
and between LOJACK INTERNATIONAL CORPORATION ("LIC") ("LICENSOR"), (a subsidiary
of LoJack Corporation ("LOJACK"), a Delaware corporation having its principal
place of business at 333 Elm Street, Dedham, Massachusetts 02026 USA and GBSI,
Inc. ta Access 2000, 2217 Lovedale Lane, Reston, VA 2209l, (hereinafter referred
to as "LICENSEE").
W I T N E S S E T H
-------------------
WHEREAS, LOJACK has developed a system for the recovery of stolen vehicles;
and
WHEREAS, LOJACK has developed Software and Software Programs relative to
the system for the recovery of stolen vehicles; and
WHEREAS, LOJACK has licensed to LICENSOR its Software Programs, Trademarks
and related documentation in order for LICENSOR to develop and license its own
system for the activation and recovery of stolen vehicles;
WHEREAS, the LICENSOR has agreed to grant the LICENSEE an exclusive license
to use the LICENSOR Licensed Software Programs, and associated documentation;
sell LICENSOR VLUs; and use Products in the Territory as hereunder defined and
to provide certain services to the LICENSEE including technical support, supply
of Products, and training upon the terms and conditions of this Agreement; and
WHEREAS, LICENSEE, recognizes the benefits to be derived from being
identified with the license by LICENSOR, and being entitled to utilize
LICENSOR'S Systems which the LICENSOR makes available to its licensees; pursuant
to agreement; and
WHEREAS, LICENSEE desires to receive and the LICENSOR is willing to grant a
License for the LICENSOR'S Licensed Software Program in the Territory subject to
the provisions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and
for other good and valuable consideration, receipt whereof is respectively
acknowledged, the undersigned parties hereby agree as follows:
DEFINITIONS
- -----------
Unless context otherwise requires, the following terms, shall have the meanings
set forth below:
-1-
<PAGE>
CONFIDENTIAL INFORMATION
- ------------------------
The design details and operating characteristics of the System, information
relating to the installation of Vehicle Location Units in motor vehicles,
and all other aspects of the System treated as confidential by LICENSOR or
not generally known, including all related software, file structures,
documentation, algorithms and related software concepts, except as otherwise
provided herein.
LICENSEE:
- --------
The LICENSEE shall mean the GBSI, Inc. ta Access 2000, and any subsidiary
which is owned by LICENSEE in an amount of at least 5l%.
LICENSED SOFTWARE PROGRAM
- -------------------------
The software programs in object code form which are required to operate the
System, including all updates, revisions and any new release of the same
which may be issued from time to time within the term of this Agreement.
PRODUCTS
- --------
All products purchased by LICENSEE from the LICENSOR, including Vehicle
Location Units (or "VLUs"), Vehicle Tracking Computers, (or "VTCs") the
Vehicle Activation Computer (VAC), Vehicle Activation Transmitter (VATs) and
all other subcomponents of the System.
SYSTEM
- ------
A system for locating and recovering stolen motor vehicles, utilizing a
computerized transceiver in the vehicle (the "VLU", in the singular, and
"VLUs" in the plural); a system for activating and deactivating the VLU
(the "Vehicle Activation Computer and Vehicle Activation Transmitter(s)");
and a directional tracking unit designed for installation in vehicles (the
"Vehicle Tracking Computers"); and all enhancements and improvements
thereto, as outlined in the definition document appended as Attachment I.
LICENSED RIGHTS
- ---------------
The use of the Licensed Software Program, the Confidential Information, and
Proprietary Information.
-2-
<PAGE>
PROPRIETARY INFORMATION
- -----------------------
All inventions, registered and unregistered and design rights, copyrights in
the nature of copyright, know-how, trade secrets, and Confidential
Information and any applications and rights to apply for any of the
foregoing in any part of the world in respect of all drawings and other
documents, recordings in any form and all other articles bearing or
embodying any part of the System.
TERRITORY
- ---------
As defined in Section 11 of this Agreement.
EFFECTIVE DATE
- --------------
The Effective Date for the grant of rights described in Section l of this
-----
Agreement shall be the date of this Agreement (the "First Condition
Precedent") and the LICENSEE pays the First Installment described in Section
2.l. The Effective Date for the exercise of rights described in Section l
--------
of this Agreement shall be the date that LICENSEE provides LICENSOR with (i)
the Irrevocable Letter of Credit referred to in Paragraphs 2.1 and 2.4, (the
"Second Condition Precedent") and (ii) the information required in Section
3.4.
This Agreement shall terminate immediately and without any formality and any
rights granted shall fall away and entirely revert to the LICENSOR and the
parties shall have no further rights and obligations the one to the other if
the Second Condition Precedent has not been fulfilled within 30 (thirty)
days of the First Condition Precedent. This 30 (thirty) day period is
referred to as the "Exclusivity Period").
LICENSOR may extend the Exclusivity Period for a further consecutive period
of not more than 30 (thirty) days ("First Extension") at no further cost to
LICENSEE upon written request to LICENSOR to enable LICENSEE to confirm to
LICENSOR that LICENSEE has available all necessary government authorizations
for the establishment and operation of the System in the Territory and on
condition that LICENSEE has in LICENSOR'S sole judgment complied with its
obligations under this Agreement.
-3-
<PAGE>
1. SOFTWARE LICENSE, EXCLUSIVE DISTRIBUTION RIGHTS, and INFRINGEMENT
-----------------------------------------------------------------
1.1 The LICENSOR hereby grants to the LICENSEE for the term described in
Section l.6 subject to the fulfillment of the Conditions Precedent
above and the Performance Standards (Section l6) an exclusive license
to use, in the Territory, the Licensed Rights.
1.2 During the term of this Agreement, and within the Territory, the
LICENSOR grants to LICENSEE, subject to all terms and conditions set
forth in this Agreement, the exclusive right to sell or to distribute
for resale VLU's, either to vendors selling VLU's to motor vehicles
owners or operators in the usual course of business, or directly to
such motor vehicles owners or operators.
1.3 The LICENSOR, in consideration of the payment by the LICENSEE of the
amounts setforth in Section 2.1, hereby grants to the LICENSEE an
exclusive license to use, in the Territory, the Licensed Software
Programs, solely in the operation of the System in the Territory for
the purposes described in Sections l.2 and l.7. Updates, revisions, and
new releases to the Licensed Software Programs will be made available
to LICENSEE at no cost.
1.4 In consideration of the payment by the LICENSEE of the amount set
forth in Section 2.1, LICENSOR hereby grants to the LICENSEE an
exclusive license to use, in the Territory for the purpose described in
Sections l.2 and l.7, the rights granted under this Agreement in
connection with the operation of the System, during the term of this
Agreement.
1.5 The term of this Agreement shall commence on the exercise of the
rights described in Section l, and shall continue for a term of ten
(10) years, with automatic renewals for successive five (5) year
periods thereafter subject to earlier termination as provided in
Article 14 of this Agreement, and other provisions of this Agreement.
Notwithstanding the foregoing, the automatic term renewal provided
above shall not take effect if LICENSEE shall be in default beyond
grace of its obligations hereunder, or in the event of the occurrence
of any other event of default under Article 14 of this Agreement.
-4-
<PAGE>
1.6 The rights herein granted are limited to sales of Products for
ultimate use in registered motor vehicles, which includes trucks.
LICENSEE agrees not to use the System or technology utilized therein
for any other or additional applications without the written approval
of the LICENSOR in each instance, which approval shall be at the
LICENSOR's sole discretion and may require payment of an additional
fee. In no event shall LICENSEE be allowed to use or sell Products for
any purpose outside the Territory, and LICENSEE specifically consents
to this restriction and limitation.
1.7 (a) LICENSEE promptly shall notify LICENSOR of any claim by a third
party that any activities of LICENSEE pursuant to this Agreement
infringe Licensed Rights or proprietary rights of that third party. In
the Event that any such claim, if successful, would affect LICENSEE's
exercise of rights granted hereunder in such a way as to have a
material adverse effect on the business of LICENSEE, LICENSOR shall at
its sole expense without cost to LICENSEE:
(i) defend against such claim and indemnify and hold harmless
LICENSEE against all damages, liabilities, costs and expenses that may
be suffered or incurred by the LICENSEE in connection with such claim
and any legal proceedings in respect thereof ("Defensive Litigation"),
provided that LICENSEE shall have given notice as provided above of any
such claim forthwith upon becoming aware of it, gives LICENSOR the sole
conduct of the defense of litigation and does not at any time admit
liability or otherwise attempt to settle or compromise the said claim
or any legal action or proceedings in respect thereof except upon the
express written instructions of LICENSOR, and acts in accordance with
the reasonable instructions of the LICENSOR as notified to the LICENSEE
and gives the LICENSOR such assistance as it shall reasonably require
and instruct the LICENSEE in writing to provide in connection with the
conduct of the Defensive Litigation including, without prejudice to the
generality of the foregoing, the filing of all pleadings and other
court process and the provision of all relevant documents and the right
to use the LICENSEE's name or to join the LICENSEE as a party to the
proceedings, or
(ii) procure the right for the LICENSEE to continue exercising
the Licensed Rights granted hereunder, or LICENSOR shall make such
alterations, modifications and adjustments to the Licensed Rights as
-5-
<PAGE>
may be necessary to make the exercise thereof non-infringing, without
incurring any material diminution of the performance of function of the
System, or replace all or any part of the Licensed Rights with non-
infringing substitutes provided that such substitutes do not entail a
material diminution in performance; or
(iii) in the event that LICENSOR, despite the use of best
efforts, cannot reasonably accomplish either (i) or (ii) above, at
reasonable expense, than LICENSOR shall refund a proportionate part of
the LICENSEE fee provided in Section 2.1, proportionate to the degree
to which LICENSEE is prohibited from exercising the Licensed Rights.
(b) In the event of any infringement or claimed infringement of the
rights by a third party, the LICENSEE shall promptly notify the
LICENSOR of said infringement or claimed infringement. In such a case,
the LICENSOR shall promptly notify the LICENSEE what action, if any,
the LICENSOR in it sole discretion elects to take in respect of such
matter. The LICENSOR shall have sole conduct of any action it elects to
take in such matter ("Offensive Litigation") and either: the LICENSOR
shall pay all costs in connection with such Offensive Litigation and
shall be entitled to all damages and other sums which may be paid or
awarded as a result thereof; or if within ten (10) business days after
its receipt of such notice the LICENSEE agrees to share equally the
costs of such Offensive Litigation, the costs of any such Offensive
Litigation shall be borne and all damages and other sums which may be
paid or awarded as a result thereof shall be shared equally by the
LICENSOR an the LICENSEE.
(c) In the event that the LICENSOR fails to accept the conduct of any
Offensive Litigation within a reasonable period after notice from the
LICENSEE requesting the LICENSOR to do so, the LICENSEE shall be
entitled at its cost and expense to take all such actions as it deems
necessary or desirable in connection with such infringement or claimed
infringement and the LICENSEE shall be entitled to all damages and
other sums which may be recovered by or awarded to it as a result
thereof. LICENSOR shall give the LICENSEE such assistance as it shall
reasonably require in connection with the conduct of the Offensive
Litigation including, without prejudice of the generality of the
foregoing, the filing of all pleadings and other court process and the
provisions of all relevant documents, and the rights to use the
LICENSOR'S name in or to join the LICENSOR as a party to the
proceedings.
-6-
<PAGE>
(d) The LICENSOR shall reimburse the LICENSEE its reasonable costs and
expenses incurred in complying with the provisions of clause 1.7 (a)
above (assistance for Defensive Litigation). The LICENSOR shall have no
liability to the LICENSEE in respect of any Defensive Litigation or
Offensive Litigation if the same results from any breach of the
LICENSEE's obligations under this Agreement.
2. PAYMENT,PRICING AND TERMS
-------------------------
2.1 The License fee shall be U.S. $342,000 (Three Hundred Forty Two
Thousands dollars). The fee shall be paid as follows: $l7l,000 (One
Hundred Seventy One Thousand dollars) upon execution of this Agreement
("First Installment"), $l7l,000 (One Hundred Seventy One Thousand
dollars upon delivery of the initial order of hardware and software.
2.2 Hardware and software costs for the components of the System are as
listed in Attachment II. (Specific Equipment Requirements to be
determined.) Costs are for Hardware and Resident Software only, and do
not include additional costs which may be incurred for insurance,
installation, testing, modification, or approvals of any kind from
local agencies. Payment for all products and services under this
Agreement shall be billed and paid as shipped F.O.B. Dedham,
Massachusetts, Seguin, Texas, U.S.A. or such other place determined by
LICENSOR.
2.3 An initial Purchase Order will be placed no later than the exercise of
the rights described in Section l of the Agreement by the LICENSEE for
the minimum purchase as follows:
(1) Vehicle Activation Computer (VAC)
(4) Vehicle Activation Transmitters (VAT)
(50) Vehicle Tracking Computers (VTC)
(5,000) Vehicle Location Units (VLUs)
-7-
<PAGE>
The shipping schedule for the VAC, VAT's and VTC's shall provide for
delivery of all hardware within one hundred and twenty days (120) of the
acceptance by the LICENSOR of the Purchase Order. The shipping schedule for
the VLUs shall provide for delivery of all units within one hundred and
twenty days (120) of the acceptance by the LICENSOR of the Purchase Order.
VLU delivery quantities may be increased or decreased (in no case shall
quantities be reduced below the minimum specified in Section 16) by twenty-
five (25%) percent within ninety (90) days of the acceptance by the
LICENSOR of a Purchase Order by the LICENSEE, provided that any increases
or decreases must be made in multiples of 480 VLUs.
Subsequent orders for Products shall be authorized in writing by delivery
to the LICENSOR of a Purchase Order by the LICENSEE and shall specify
requested release dates, but in no instance should such orders specify
release dates sooner than ninety (90) days of receipt and acceptance of
order by LICENSOR, provided that Purchase Order for VLUs must be in
multiples of 480 units. LICENSOR will use its best efforts to comply with
requested release dates.
Each Purchase Order will be accepted by LICENSOR if it meets all of the
requirements set forth in this Section 2. The LICENSOR shall use its best
efforts to fill each order of the LICENSEE that is accepted by the
LICENSOR, but shall not be liable in any respect for failure or delay in
shipping any accepted orders that is due wholly or in part to any shortage
of material, labor, transportation, or utility service, or to any labor or
production difficulty of the LICENSOR, any source supplying to the
LICENSOR, or their suppliers, or to any cause beyond the LICENSOR's
reasonable control or without the LICENSOR's fault or negligence. The
LICENSOR shall not be liable for shipping over routes or by means of
transportation not specified by the LICENSEE. If LICENSEE does not specify
shipping routes, LICENSOR shall select routes and shall have no liability
to LICENSEE by reason of such selection.
-8-
<PAGE>
2.4 All Products are priced in United States dollars and payment,
therefore, shall be made by LICENSEE in United States dollars. Upon
placement of a Purchase Order for Products, LICENSEE shall cause to be
issued, in favor of LICENSOR, an Irrevocable Standby Letter of Credit
valid for the period covering the shipping schedule of the Products
either (i) issued by a bank satisfactory to LICENSOR having an office
in Boston and which is a member of the United States Federal Reserve
System, (ii) if such issuing bank is not a member of the United States
Federal Reserve System, the letter of credit must be confirmed (at the
sole cost to the LICENSEE) by a bank which is a member of the United
States Federal Reserve System. Such letter of credit shall be in an
amount equal to the full amount of the order, and payable against
receipt of an Airway Bill of Lading and a copy of LICENSOR's invoice
to LICENSEE. In the case of the initial purchase order the letter of
credit shall be in the amount of no less than the total of items on
Attachment IV. Delivery of equipment and costs shall be determined and
made a part of this Agreement as Attachment IV.
2.5 The prices payable by LICENSEE for the Vehicle Tracking Computer and
VLUs will be fixed for one (1) year from the date of this Agreement.
Prices shall not increase in excess of 2.5% per year in subsequent
years, unless LICENSOR presents evidence to LICENSEE to support such
increase in excess of 2.5%, provided however, if LICENSOR sells VLUs
in any other territory which is of similar size and similar purchase
volumes of VLUs as in the Territory for a price which is lower than
the purchase price then in effect hereunder, then the purchase price
shall be reduced to such lower price for all unshipped orders of
LICENSEE and under orders thereafter placed by LICENSEE.
2.6 All Royalties and other amounts payable by the LICENSEE to the
LICENSOR under this Agreement are exclusive of any Value Added or
other Tax (which shall be payable in addition upon the rendering by
the LICENSOR to the LICENSEE of any appropriate Value Added Tax
invoice).
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<PAGE>
2.7 All amounts payable by the LICENSEE to the LICENSOR under this
Agreement which are not paid when due shall bear and be payable with
interest at 3% (three percent) over the Prime Rate as reported by the
Bank of Boston, determined as at such date, and calculated from such
due date to the date of actual payment by the LICENSEE (whether after
judgment or before).
2.8 All amounts payable by the LICENSEE to the LICENSOR under this
Agreement shall be paid in full without any deduction or withholding
whatsoever provided that in the event the LICENSEE is required by the
Laws of the United States or the regulations of any competent
authority thereof to deduct or withhold any taxes, charges, or duties
from any amounts payable to the LICENSOR under this Agreement, the
LICENSEE shall deduct or withhold such taxes, charges, or duties and
pay over to the relevant authority the full amount thereof within the
time allowed under applicable law or regulation, and shall deliver to
the LICENSOR a certificate of deduction or withholding in receipt
issued by the relevant authority to evidence such payment. The
LICENSEE shall, at the cost and expense of the LICENSOR, cooperate
with the LICENSOR in such a manner as may be reasonably requested by
the LICENSOR to obtain a credit or deduction in the United States or
any such taxes, charges, or duties so deducted or withheld and paid.
2.9 The parties agree to cooperate in all such respects as may be
reasonably necessary or desirable in order to obtain such relief from
double taxation as may be available under any double taxation treaty
between Russia and the United States.
2.10 All payments by LICENSEE to LICENSOR shall be made in U.S. Dollars and
either i) drawn on the bank of a designated lending institution which
is a member of the U.S. Federal Reserve System and approved in writing
by the LICENSOR or ii) by wire transfer to LICENSOR'S bank.
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<PAGE>
3. ESTABLISHMENT OF SYSTEM; TECHNICAL ASSISTANCE;
----------------------------------------------
FEES AND EXPENSES; FINANCIAL INFORMATION
----------------------------------------
3.1 LICENSEE shall bear the sole responsibility for establishing the
System in the Territory in accordance with specifications provided by
the LICENSOR. Any and all modifications to the functionality and
operation of the System beyond that defined in the system
specifications (Attachment I) must receive prior written approval from
LICENSOR. Such alteration, if approved by LICENSOR, shall be completed
at the sole expense of the LICENSEE, and may, at LICENSOR's sole
discretion, affect the system warranty. The responsibilities of the
LICENSEE shall include, without limitation, promptly and diligently
upon execution of this Agreement, to obtain financing for, and to
construct, install, test and make operational the System in the
Territory, to obtain all governmental and other licenses, authority
and approval necessary for the operation of the System in the
Territory, and to abide by all the provisions of this Agreement.
3.2 The sole obligations of the LICENSOR in connection with the
establishment of the System in the Territory and the operation of the
System in the Territory during the term of this Agreement shall be for
the LICENSOR: (a) to render technical operating and marketing
assistance to the LICENSEE upon the reasonable request of the LICENSEE
on a fee for service basis; (See Attachment III) (b) to honor
LICENSEE's claims for warranty repairs made in accordance with this
Agreement; (c) to supply Products at agreed terms and prices subject
to Purchase Orders executed by LICENSEE and the LICENSOR; (d) to sell
or to license Products to no person or entity (other than the
LICENSEE) for use in the Territory; and (e) to abide by all of the
provisions of this Agreement. The LICENSOR shall also provide, at
LICENSEE's reasonable request, assistance in training LICENSEE's
properly qualified personnel with respect to the installation of VLUs
and other operational aspects of LICENSEE's business on a fee for
service basis. The LICENSOR may, at its option, provide such technical
assistance directly or by subcontracting with third parties.
-11-
<PAGE>
3.3 LICENSEE shall pay the LICENSOR fees for all technical, operating,
administrative and marketing assistance, and services rendered by the
LICENSOR to LICENSEE, at LICENSEE's request. The amount of the fee for
any services rendered by the LICENSOR will be determined at the time
that such services are rendered using rates not in excess of the rates
which the LICENSOR used at that time to determine it fees for similar
services to other LICENSEE'S or in the absence of other LICENSEE'S to
unrelated third parties. (See Attachment III). Such fees shall be
payable immediately upon receipt of invoices for such services.
LICENSEE shall reimburse the LICENSOR for all incidental expenses
reasonably incurred by the LICENSOR in rendering such requested
services to the LICENSEE. Pre-approved travel, hotel and out-of-pocket
expenses of the LICENSOR also, fees of independent contractors
retained by the LICENSOR shall either be paid directly by the LICENSEE
of shall be reimbursed to LICENSOR by LICENSEE, at the discretion of
the LICENSEE. LICENSEE shall reimburse the LICENSOR for such expenses
promptly upon receipt from the LICENSOR of reasonable written evidence
of such expenses.
3.4 Within ninety (90) days of the exercise of the rights described in
Section 1, LICENSEE shall have provided to the LICENSOR: (i) current
financial statements and other information prepared by outside
auditors prepared in accordance with generally accepted accounting
principles in the United States, consistently applied and reasonably
acceptable to LICENSOR in order to evaluate LICENSEE's ability to meet
its financial obligations in connection with the establishment and
operation of the System in the Territory, (ii) a business plan
acceptable to LICENSOR for a period of no less than three (3) years
detailing the LICENSEE's proposed operation of the System in the
Territory. Within thirty (30) days after receipt of written request
made by the LICENSOR, LICENSEE shall deliver to the LICENSOR such
other financial information or materials as the LICENSOR shall
reasonably require for purposes of preparing its own financial
statements, or which may be requested by its Lenders or governmental
authorities having jurisdiction over the LICENSOR or any of its
business activities. By its execution and delivery of this Agreement,
LICENSEE hereby warrants that any financial statements, business plan
and other information and materials provided to the LICENSOR shall be
true and correct in all material respects and shall fairly reflect the
LICENSEE's financial circumstances as of the date thereof.
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3.5 The LICENSEE shall have a non-exclusive royalty free license to use
only in the Territory during the term of this Agreement any
improvements, modifications, or adaptations (collectively
"Improvements") to any part of the Licensed Software Program or
components of the System made by the LICENSOR or LoJack, provided the
LICENSEE shall bear sole cost of adapting such Improvements for use
within the Territory.
4. PURCHASE OF SUPPLIES; COMPETING PRODUCTS; INSTALLATION
------------------------------------------------------
4.1 Recognizing that the LICENSOR has developed a unique System, and in
order to safeguard the integrity of the CARSEARCH by LoJack Name and
to protect proprietary information of the LICENSOR and assure uniform
product quality and specification compliance and control, LICENSEE
shall purchase from the LICENSOR all Products which it uses or sells,
except standard off-the-shelf items ordinarily purchased by the
LICENSOR from third parties. In addition, the LICENSEE will not sell
any products which are in competition with the Products.
4.2 LICENSEE assures that installation of VLUs shall be in compliance and
conformity with all procedures and standards reasonably established by
the LICENSOR for the Territory and in compliance with all applicable
laws and regulations. The LICENSOR shall provide LICENSEE with written
notice of any failure to so conform of which the LICENSOR has actual
notice, and LICENSEE shall thereupon, and within thirty (30) days
thereafter, evidence to the LICENSOR that any such non-conformity has
been fully rectified. LICENSEE hereby grants the LICENSOR the right,
at reasonable times, from time-to-time and at any time, and with or
without notice to LICENSEE, as the LICENSOR elects, to audit and
inspect installations and installation facilities to ascertain
LICENSEE's compliance with this Section. All such audits and
inspections shall be at the LICENSOR's expense.
5. RESALE PRICING
--------------
LICENSEE shall have the right to establish its own price levels for sale of
all Products sold or installed in the Territory.
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<PAGE>
6. GOVERNMENTAL LICENSING
----------------------
6.1 LICENSEE acknowledges that certain permits, approvals, authorizations
and licenses necessary to operate the System in the Territory (herein
collectively called the "Required Permits") may be required by
governmental or other authorities prior to operation of the System in
the Territory and for the continued operation thereof. LICENSEE hereby
warrants to the LICENSOR that it has undertaken sole responsibility at
its sole expense to procure and prior to commencement of operations of
the System in the Territory shall have procured all such Required
Permits necessary to commence the operation of the System. LICENSEE
specifically represents and warrants that it shall make information
regarding all such Required Permits available to the LICENSOR from
time-to-time within fifteen (15) days after receipt of the LICENSOR's
written request, therefore, and that LICENSEE shall make all payments,
submit all filings and applications, and do all things necessary to
keep all such Required Permits at all times current and in full force
and effect at its sole expense. LICENSEE further warrants that it
shall procure any and all other permits, permissions, licenses and
approvals (from all governmental and other authorities and others),
hereafter required or otherwise necessary for the operation or use of
the System in the Territory (all of which shall be deemed to be
"Required Permits" hereunder). It is specifically agreed that the
LICENSOR shall have no obligations or liability to LICENSEE for any
loss, cost or damage arising from LICENSEE's failure to procure or to
maintain any Required Permits.
6.2 LICENSEE at all times shall comply with all limitations regulations,
rules, guidelines and requirements of any governmental authorities
("Regulatory Body") having jurisdiction in the Territory granting any
of Required Permits, including, without limitation, those issued by
authorities having jurisdiction over radio transmissions licenses,
permits or approvals, or otherwise and in any way regulating or
affecting the System, or its operation or use in the Territory. The
LICENSOR will provide to LICENSEE, at no cost to LICENSEE, all
documents, information or data in the LICENSOR's control or possession
which LICENSEE
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<PAGE>
reasonably determines to be necessary for LICENSEE to obtain or
maintain any Required Permit or to comply with any requirement of any
Regulatory Body, and the LICENSOR will provide same with all due
diligence and dispatch upon receipt of a written request for same from
LICENSEE.
6.3 The LICENSOR and LICENSEE, upon request of the other, will cooperate
with the other with respect to the filing and/or recording, if
applicable, by the LICENSOR of this Agreement (and any amendments
thereto from time-to-time in effect), or notice thereof, as
applicable, with all governmental authorities and other regulatory
bodies in the Territory necessary for the effectuation and/or
enforcement thereof, and the delivery to the LICENSOR of an opinion
from country counsel, reasonably approved by the LICENSOR, stating
that this Agreement (or amendment, if applicable) has been
appropriately filed and/or recorded and is in all events valid and
enforceable in the Territory.
6.4 The LICENSOR's obligations under this Agreement may be subject to the
filing and/or recording of this Agreement (and any amendments thereto
from time-to-time in effect), or notice thereof, as applicable, with
certain governmental authorities or other regulatory bodies in the
Territory. LICENSEE will use its best efforts to inform LICENSOR of
its obligations described in 6.4, and will assist LICENSOR in making
any required filings.
6.5 LICENSEE hereby grants, to the extent permitted by law, and assigns to
the LICENSOR all of its rights, title, and interest in and to the
Required Permits, which assignment shall take effect and become
operable only upon the expiration of the term of this Agreement, or
upon the earlier termination of this Agreement pursuant to Article 14,
or as otherwise provided in this Agreement. LICENSEE expressly makes
no representations that any such assignment will be valid or
enforceable pursuant to the laws of the Territory.
7. INSURANCE
---------
The LICENSEE shall keep and maintain insurance with an insurer of repute in
such amounts and against such risks as are customarily maintained by
companies operating businesses similar to the business of the LICENSEE in
the Territory.
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<PAGE>
8. INDEMNIFICATION
---------------
8.1 The LICENSOR agrees to indemnify and hold harmless
LICENSEE and, if applicable, each of LICENSEE's officers, directors,
agents, employees and controlling persons against any and all loss,
liability, claim, damage and expense arising solely from a defect in
the design or manufacture of Products purchased by LICENSEE from the
LICENSOR except that this indemnification shall not extend to any
loss, liability, claim, damage or expense attributed solely to those
matters for which LICENSEE has indemnified the LICENSOR pursuant to
section 8.2. below.
8.2 LICENSEE agrees to indemnify and hold harmless the LICENSOR and each
of the LICENSOR's officers, directors, agents, employees and
controlling persons against any and all loss, liability, claim, damage
and expense arising solely in connection with either (a) the
LICENSEE's establishment and operation of System, or (b) the sale and
installation by LICENSEE of Products, or (c) the conduct of business
by the LICENSEE pursuant to, or as contemplated by, this Agreement,
except that this indemnification shall not extend to any loss,
liability, claim, damage or expense attributable solely to those
matters for which the LICENSOR has indemnified LICENSEE pursuant to
Section 8.1 above. For purposes of Section 8.2, the term LICENSEE
shall include the LICENSEE and any of its licensees or distributors in
the Territory. Any liability shall be joint and several.
8.3 Promptly after receipt by an indemnified party pursuant to Section 8.1
above or Section 8.2 above of actual notice of the commencement of any
action giving rise to indemnification rights under Section 8.1 above
or Section 8.2 above, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under the
applicable section, notify the indemnifying party in writing of the
commencement thereof. The failure to so notify the indemnifying party
shall relieve it from any liability which it may have to any
indemnified party under such section, but shall not relieve it from
any liability which it may have to any indemnified party otherwise
than under such section. Upon receipt of notice from the indemnified
party as aforesaid , the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, to assume the
defense of, the action, with counsel selected and paid for by the
indemnifying party but reasonably satisfactory to the indemnified
party. After the indemnified party shall have received notice from the
agreed upon counsel that the defense has been
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<PAGE>
assumed, the indemnifying party shall not be responsible for any legal
or other expense subsequently incurred by such indemnified party in
connection with the defense thereof, other than reasonable costs of
investigation, unless incurred at the written request of the
indemnifying party or the indemnifying party shall not have employed
counsel to have charge of the defense of such action or the
indemnified party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to
those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of
such action on behalf of the indemnified party) in any of which events
such legal or other expenses shall be borne by the indemnifying party.
In no event shall the indemnifying party be liable for the fees and
expenses of more than one counsel for all indemnified parties, in
connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general
obligations or circumstances, unless the indemnified party shall have
reasonably concluded and been advised by indemnifying party that there
may be defenses available to it which are different from or additional
to those available to other indemnified parties, in which case the
indemnifying party shall be responsible for the fees and expenses of
such additional counsel as is reasonably required. The indemnifying
party shall not be liable under the indemnity provisions set forth
above for any amount paid in settlement of any claim unless such
indemnifying party consented in writing to any such settlement .
9. CONFIDENTIALITY
---------------
9.1 The LICENSEE agrees to maintain secret and confidential all Technical
Information, Specifications, and Proprietary Information the LICENSOR
(all of which are expressly agreed by the parties to constitute the
know-how disclosed or to be disclosed by the LICENSOR to the LICENSEE
or obtained by the LICENSEE from the LICENSOR pursuant to this
Agreement) and all other information that the LICENSOR designates as
confidential and discloses to the LICENSEE pursuant to this Agreement
including the design details and operating characteristics of the
System, information relating to installation of Vehicle
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Location Units in motor vehicles and trucks, and all other aspects of
the System treated as confidential by the LICENSOR or not generally
known, including the System Software, the Vehicle Activation Computer
and the Vehicle Activation Transmitters and all related file
structures, documentation, algorithms and software concepts (all of
the foregoing being referred to collectively as the "Confidential
Information"), to respect the LICENSOR's proprietary rights in the
Confidential Information, to use the Confidential Information
exclusively for the purposes of the exercise of the Licensed Rights
and the installation, use, User, servicing and operation of the System
in the Territory in accordance with this Agreement, and to disclose
the Confidential Information only to those persons to whom and to the
extent such disclosure is absolutely necessary for the aforesaid
purposes.
9.2 The LICENSEE shall require that all of its employees, sub-contractors,
and agents, who will have access to any of the Confidential
Information shall be made aware of the confidentiality thereof. The
LICENSEE shall further procure that all of its employees and all of
such sub-contractors shall enter into a non-disclosure agreement
substantially in the form set forth in Attachment IV.
10. WARRANTY
--------
The LICENSOR warrants to LICENSEE that the Products when purchased from the
LICENSOR, under normal use and service, will be free from defect in
materials and workmanship. This warranty shall be in effect for a period
the greater of: i) of ninety (90) days from the date of receipt of the
Products at the Port of Entry of said VLUs and VTCs to the LICENSEE and ii)
or the same warranty LICENSOR receives from its manufacturers from time-to-
time (the "Warranty Period"). The LICENSOR's liability for honoring the
warranty claims is subject to LICENSEE making claims for defective Products
within the applicable Warranty Period, and any claims not made within the
Warranty Period shall be conclusively deemed waived and released.
The LICENSOR further warrants to LICENSEE that the VACs, VTCs, and VATs,
which are purchased from the LICENSOR, under normal use and service, will be
free from defects in materials and workmanship. This warranty shall be in
effect for a period of one hundred (l80) days from the date of
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receipt of the VACs, VTCs, and VATs at the Point of Entry, ("Warranty
Period"). The LICENSOR'S liability, for honoring the warranty claims is
subject to LICENSEE making claims for defective Products within the
applicable Warranty Period, and any claims not made within the Warranty
Period shall be conclusively deemed waived and released.
During the Warranty Period for respective Products, the LICENSOR shall, at
its option, replace or repair, at any authorized repair facility designated
by the LICENSOR, any Products which the LICENSOR determines to be defective.
LICENSOR will grant a 3.5% discount on VAT purchased only, subsequent to the
initial purchase as a credit towards the purchase of spare parts.
The foregoing warranty does not apply to any Products which have been
damaged as a result of force majeure, accident, shipping and handling,
improper power supply, misuse, abuse, improper storage, improper
maintenance, improper installation, improper operation, unauthorized
modification, or which has been installed, serviced, modified or repaired by
anyone other than a person designated, in writing by the LICENSOR, as an
authorized service representative.
EXCEPT AS EXPRESSLY SET FORTH ABOVE, NO OTHER WARRANTIES ARE EXPRESSED OR
IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, AND THE LICENSOR EXPRESSLY DISCLAIMS ALL
WARRANTIES NOT STATED HEREIN. THE LICENSOR'S SOLE OBLIGATION FOR VALID WARRANTY
CLAIMS AND LICENSEE'S SOLE REMEDY ON ACCOUNT OF WARRANTY CLAIMS SHALL BE FOR
REPAIR OR REPLACEMENT AS PROVIDED ABOVE. UNDER NO CIRCUMSTANCES WILL THE
LICENSOR BE LIABLE TO THE LICENSEE OR ANY OTHER PERSON FOR ANY DAMAGES OF ANY
KIND WHATSOEVER, INCLUDING WITHOUT LIMITATION ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
11. TERRITORY
---------
This Agreement shall apply to the Country of Russia (the "Territory") with
no rights for any other Territory or area outside of the Territory.
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12. PROMOTION AND ADVERTISING
-------------------------
12.1 LICENSEE agrees that all signs and advertising shall prominently
disclose that it is a LICENSEE of Products.
12.2 LICENSEE agrees that it shall be solely responsible for sales
promotions and advertising of Products in the Territory, and that no
portion of the cost thereof shall be borne by the LICENSOR. The
LICENSOR reserves the right to review and approve all promotional
material and literature used by LICENSEE in the sale of LICENSOR'S
products with such approval not unreasonably withheld or delayed.
12.3 LICENSEE agrees that it shall be solely responsible at its expense for
the translation of LICENSOR'S sales literature and technical and other
documentation. Upon the expiration or earlier termination of this
Agreement, the LICENSEE agrees to promptly (within fifteen (15)
business days) deliver to the LICENSOR literature and documentation of
every kind relating to the System and/or any components thereof, and
all translations, and all promotional materials, in its possession or
within its control, in the manner directed by the LICENSOR.
13. TRANSFER
--------
13.l This Agreement shall be binding upon and enure to the benefit of the
parties and their respective legal successors and permitted assigns.
The LICENSOR shall have the right to assign or otherwise transfer its
rights and obligations under this Agreement to any subsidiary or to
any other person, persons, partnership, association, or corporation
provided that:-
13.l(a) each such transferee agrees in writing to assume all rights
of and obligations undertaken by the LICENSOR herein;
13.l(b) the LICENSEE receives an assignment and assumption agreement
executed by the LICENSOR and each such transferee to that effect;
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<PAGE>
13.l(c) each transferee has the financial capacity and technical
expertise necessary to discharge the obligations of the LICENSOR
under this Agreement; and
13.l(d) upon such assignment and assumption the LICENSOR shall
thereafter, have no further rights or obligations hereunder, without
prejudice, however, to the accrued rights of the LICENSOR to such
date.
13.2 The LICENSEE shall not assign, sell, transfer, sublease, license,
convey, give away, transfer or part with possession of the whole or
any part of the Licensed Rights or its other rights and/or
obligations under this Agreement.
13.3 The LICENSEE shall not, without the LICENSOR'S prior written consent
(such consent not to be unreasonably withheld or delayed) pledge,
mortgage, charge or otherwise encumber all or any part of its other
rights and obligations under this Agreement, except that the LICENSEE
may grant a security interest for bank obligations in a maximum
amount of $l million (USD).
14. TERMINATION
-----------
14.1 LICENSEE shall have the right to terminate this Agreement with or
without cause, upon the giving of sixty (60) days' written notice to
the LICENSOR, provided, however, that such sixty (60) day notice
period may be waived or shortened by the LICENSOR in writing after its
receipt of the notice of termination given by LICENSEE.
14.2 The following occurrences shall be events of defaults entitling the
LICENSOR, at its option, to terminate this Agreement immediately upon
the giving of written notice by the LICENSOR:
(a) If LICENSEE shall fail to make payment of any sum due from
LICENSEE to the LICENSOR within ten (10) days following the receipt of
written notice by the LICENSOR stating with particularity the amount
and nature of any such unpaid amount;
(b) if LICENSEE shall fail to comply with, observe or perform any
other material covenant or material agreement set forth in this
Agreement, other than those relating to the payment of monies from
LICENSEE to the LICENSOR, within thirty (30) days following the
receipt
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of written notice by the LICENSOR stating with particularity the
default claimed, provided that the LICENSEE shall not be in default if
such default is cured within such thirty (30) day period, or, with
respect to breaches that are not curable within such thirty (30) day
period, shall have commenced to cure such default and, thereafter,
shall have prosecuted to completion the cure of the same with due
diligence, provided, however, a default shall occur in all events if
any such cure is not effectuated, notwithstanding LICENSEE's due
diligence, within sixty (60) days after the giving of the LICENSOR's
default notice, provided such cure is within LICENSEE'S control;
(c) if a receiver, liquidator or trustee of the LICENSEE shall be
appointed for LICENSEE by court order, or if judicial or other
proceedings are initiated against LICENSEE for the protection of
creditors or if any other action is taken by order of court or other
governmental authority wresting control of LICENSEE or its assets, or
if a petition to reorganize or its equivalent shall be filed against
either party by a third party creditor under any bankruptcy,
reorganization or insolvency law, and shall not be dismissed within
thirty (30) days, or if LICENSEE shall file a petition in voluntary
liquidation or make an assignment for the benefit of creditors or its
equivalent under local law, any of the foregoing shall be default
entitling the LICENSOR to, thereupon, or thereafter, at any time,
terminate this Agreement.
15. RIGHTS AFTER TERMINATION
------------------------
15.1 Upon the termination of this Agreement, each party shall continue to
observe its respective obligations which shall survive the termination
of the Agreement, including the obligations in Section 1; LICENSEE
shall continue to observe its obligations with respect to Products
owned or possessed by LICENSEE; and the LICENSOR shall continue to
observe the obligation set forth in section 15.2.
15.2 Except in cases where LICENSEE terminates this Agreement without
cause, in the event that following the termination of this Agreement
the LICENSOR either (a) permits Products to be sold or distributed in
the Territory by a party other than the LICENSEE, or (b) permits a
party other than the LICENSEE to provide service in the Territory with
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respect to any Products distributed, sold, or sublicensed by the
LICENSEE, then in either event the LICENSOR or its Designee (the
"Purchaser") shall purchase those assets of LICENSEE, including
Transferable Intangible Assets, in good and marketable condition, as
agreed by both parties which are part of or relate to the System within
the Territory, and are useful to the purchaser including, items such
as: Vehicle Tracking Computers, the Vehicle Activation Computers,
Vehicle Activation Transmitters, VLUs (the "Designated Assets"). The
price which Purchaser shall pay for such Designated Assets shall be
equal to the lower of cost or fair market value for tangible assets and
fair market value for Transferable Intangible Assets. If the parties
cannot agree, Fair Market Value shall be calculated by an impartial
international auditing firm (the "Auditor") and, if requested by either
party, shall be subject to arbitration as provided in Section l7. In
calculating the Fair Market Value of Transferable Intangible Assets,
the Auditor in addition to taking into account other relevant factors
(a) shall make such calculations as of the date of the termination of
the Agreement (the "Valuation Date"), (b) shall take into account the
present value of both future payments and future costs associated
therewith (c) shall assume that LICENSOR had provided to LICENSEE the
consent and reasonable assistance necessary to enable the Purchaser to
enjoy the benefits of the Transferable Intangible Assets (d) shall
assume that as of the Valuation Date the LICENSEE has an unqualified
right to continue to operate pursuant to this Agreement for a period
equal to (i) ten (l0) years, minus (ii) the number of full calendar
years which has elapsed during the period commencing with the Effective
Date of the exercise of the rights under this Agreement and ending on
the Valuation Date. The closing shall occur in Boston, Massachusetts.
At such closing, the Purchaser shall pay in cash to the LICENSEE the
price set forth above for all of the Designated Assets and Transferable
Intangible Assets. LICENSEE shall execute and deliver such agreements
(including without limitation an Asset Purchase Agreement containing
such reasonable representations and warranties and other terms and
conditions as the Purchaser may require), instruments and other
documents as are necessary to transfer to the Purchaser the Assets
which the Purchaser is acquiring, free and clear of all liens,
encumbrances and restrictions (unless otherwise agreed to by the
Purchaser).
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15.3 Immediately upon the expiration or earlier termination of this
Agreement, the LICENSEE shall cease and forever abstain from using the
CARSEARCH by LoJack Name and to deliver to the LICENSOR all documents,
instructions, display items, and the like bearing any of the CARSEARCH
by LoJack Name. To the extent that such items were originally
purchased from the LICENSOR, are in original packaging and can be used
by LICENSOR, upon any such termination by the LICENSOR, the LICENSOR
may pay LICENSEE a price for such items equal to cost less a fifteen
(15%) percent restocking charge.
15.4 Immediately upon the expiration or earlier termination of this
Agreement, LICENSEE shall assign to LICENSOR, free and clear of all
liens, encumbrances, and restrictions, permits to operate the System
by any governmental authority or other regulatory bodies.
16. PERFORMANCE STANDARDS
---------------------
16.1 Within two (2) months after the exercise of the Rights described in
Section l of this Agreement, all approvals required by governmental
authority or other regulatory bodies within the Territory for the
installations and operations of the System and all other aspects of
the System within the Territory shall have been obtained.
16.2 Within five (5) months of receipt of the approvals described in
Section 16.l of this Agreement, the Vehicle Activation System shall be
fully operational with coverage effective throughout the Greater
Moscow area.
16.3 Commencing by the (6th) sixth month of the receipt of the approvals
described in Section 16.l of this Agreement, LICENSEE shall have
purchased a minimum of Five Thousand (5,000) VLUs ("Minimum Unit
Purchase").
16.4 For each calendar quarter commencing nine months after the initial
receipt of VLUs (as described in Section 2.3) LICENSEE shall purchase
from the LICENSOR a minimum of One Thousand Five Hundred (l,500) VLUs,
plus an annual increase of 10% (ten percent) over the quantity in
Section 16.3 calculated on a quarterly basis thereafter during the
term of this Agreement.
-24-
<PAGE>
16.5 In addition to the LICENSOR's Rights of Termination as described in
Section l5, in the event that the LICENSEE is not in compliance with
any of the terms of Sections 2.l, 2.3, 2.4, 2.5, 2.ll, 3.2, 4.2, 13.2,
13.3, l6.l, l6.2, l6.3, and l6.4 of this Agreement, the LICENSOR shall
have the right, at the LICENSEE'S expense, to visit LICENSEE's
operation in order to review and inspect such operations with five (5)
day written notice.
17. DISPUTE RESOLUTION
------------------
The parties agree that all controversies and disputes arising under this
Agreement or in connection with the transactions hereunder shall be
determined by arbitration conducted in accordance with the rules for
commercial disputes of the American Arbitration Association in Boston,
Massachusetts, and all matters submitted to arbitration shall be binding
upon the parties and fully enforceable.
18. GOVERNING LAW
-------------
This Agreement shall be deemed made in the Commonwealth of Massachusetts and
all rights and obligations of the parties hereunder shall be governed as to
validity, construction and in all other respects by the Laws of United
States and the Commonwealth of Massachusetts.
19. NOTICE
------
All notices hereunder shall be in writing and shall be deemed to be given
and effective upon delivery by a recognized international delivery service
such as Federal Express or DHL, delivery charges prepaid or facsimile, and
addressed to the parties at their respective addresses set forth above, or
at such other addresses as may be designated from time-to-time by a party by
the giving of notice thereof in the manner herein provided for the giving of
notices.
20. GENERAL
-------
20.1 The provisions of this Agreement may be varied or amended by mutual
consent of the parties but no such variation or amendment shall be
effective unless made in writing and signed by the LICENSOR and the
LICENSEE.
-25-
<PAGE>
20.2 This Agreement contains the whole agreement between the parties with
respect to the subject matter hereof and supercedes all previous
agreements and understandings between the parties, whether written or
oral, with respect to the subject matter hereof.
20.3 If any provision of this Agreement shall be found by any court or
administrative body of competent jurisdiction to be invalid or
unenforceable the invalidity or unenforceability of such provision
shall not affect the other provisions of this Agreement and all
provisions not affected by such invalidity or unenforceability shall
remain in full force and effect. The parties hereby agree to attempt
to substitute for any invalid or unenforceable provision a valid or
enforceable provision which achieves to the greatest extent possible
the economic, legal and commercial objectives of the invalid or
unenforceable provision.
20.4 Each party to this Agreement shall execute and deliver such other
documents and do such other acts and things as may be necessary or
desirable to carry out the terms provisions and purpose of this
Agreement.
20.5 The failure to enforce or to require the performance at any time of
any of the provisions of this Agreement shall in no way be construed
to be a waiver of such provisions and shall not affect the right of
any party thereafter to enforce and to require performance of each
and every provision in accordance with the terms of this Agreement.
20.6 The headings of the clauses of this Agreement are used for convenience
only and shall not affect the meaning or interpretation of the
contents of this Agreement.
20.7 The relationship between LICENSOR and LICENSEE is that of independent
contractors, and that LICENSEE is not authorized to undertake any
obligation or commitment on behalf of LICENSOR, including any
warranty given by LICENSOR under this Agreement, and that such
purported action by LICENSEE shall be of no effect.
20.8 If in the opinion of LICENSOR'S counsel any portion of this Agreement
may not be enforceable in the Territory, LICENSOR and LICENSEE each
agree that it will be amended, in a manner acceptable to LICENSOR, so
that such portion is enforceable under the laws of the Territory.
-26-
<PAGE>
21. FORCE MAJEURE
-------------
Neither party shall be liable or deemed to be in default for delay or
failure in performance under this Agreement or interruption of service
resulting directly or indirectly from acts of God, political, civil or
military authority, acts of public enemy, war, riots, civil disturbances,
insurrections, accidents, fire, explosions, earthquakes, floods, the
elements, strikes, labor disputes, fuel shortages, or from failure to
receive on a timely basis suitable parts, labor materials or transportation,
or other causes beyond reasonable control of such party; and the time for
performance so delayed shall be deemed extended for the period of such
delay.
22. SIGNATURES
----------
This Agreement may be executed in one or more counterparts having the
signatures of the parties and each such counterpart shall, for all purposes,
be deemed an original, but all such counterparts shall together constitute
but one and the same instrument.
LOJACK INTERNATIONAL CORPORATION
By:
----------------------------
- ----------------------------
GBSI, Inc. ta Access 2000
By:
----------------------------
Michael Turner
Date
---------------
-27-
<PAGE>
EXHIBIT 10ss
LOJACK CORPORATION
Amendment Number One to Restated and Amended Stock Incentive Plan
-----------------------------------------------------------------
On May 26, 1995, the Board of Directors of LoJack Corporation approved the
following Amendment Number One to the Restated and Amended Stock Incentive Plan:
RESOLVED: That the following amendments to the Restated and Amended Stock
- --------
Incentive Plan (the "Plan") are hereby adopted:
Section 2(u) of the Plan shall be deleted and the following language
shall be inserted:
(u) "Senior Management Option": An Option which is a NQSO, an
ISO or a combination thereof, as determined by the Committee,
granted to a person determined by the Committee to be a member of
senior management and designated a Senior Management Option by the
Committee.
Section 4(a) of the Plan shall be deleted and the following language
shall be inserted:
(a) Maximum Shares. Subject to adjustment by the operation of
Section 4(b) hereof, the maximum number of Shares with respect to
which Options may be granted under the Plan is 4,124,135 shares,
comprised of 3,414,135 shares available for the Award of Senior
Management Options, 500,000 shares available for the Award of other
Options, and 210,000 shares available for Non-Employee Director
Options. The Shares with respect to which Options may be granted
under the Plan may be either authorized and unissued shares or
issued shares heretofore or hereafter reacquired and held as
treasury shares. An Award shall not be considered to have been made
under the Plan with respect to any Option to the extent that it
terminates without being exercised, and new Awards may be granted
under the Plan with respect to the number of Shares as to which such
termination has occurred.
RESOLVED: Except as expressly amended hereby, all of the terms and provisions of
- --------
the Plan shall and do remain in full force and effect, all without
change, and all of the terms and provisions contained therein, as
amended by the prior resolution, are hereby expressly ratified and
confirmed.
<PAGE>
EXHIBIT 10tt
SECOND AMENDMENT TO LOAN AGREEMENT
----------------------------------
THIS AMENDMENT is made as of February 20, 1996 by and among LOJACK
CORPORATION, a Massachusetts corporation (the "Parent"), and its wholly-owned
------
subsidiaries, LOJACK INTERNATIONAL CORPORATION, a Delaware corporation ("LIC")
---
formerly known as LoJack Midwest Corporation (and the successor by merger to
CarSearch Corporation, which was formerly a party to the Loan Agreement referred
to below), LOJACK OF NEW JERSEY CORPORATION, a Delaware corporation ("LONJ"),
----
and RECOVERY SYSTEMS, INC., a Florida corporation ("RSI", with the Parent, LIC
---
and LONJ being collectively referred to herein as the "Original Borrowers"); by
------------------
execution of the Joinder attached hereto, LOJACK HOLDINGS CORPORATION, a
Massachusetts corporation ("Holdings" and, together with the Original Borrowers,
--------
the "Borrowers") and THE FIRST NATIONAL BANK OF BOSTON (the "Lender").
--------- ------
RECITALS
--------
A. The Lender and the Original Borrowers are parties to a Loan Agreement
dated as of December 10, 1993, as amended as of October 11, 1994 (as so amended,
the "Loan Agreement"). Capitalized terms used herein without definition have
--------------
the meanings assigned to them in the Loan Agreement.
B. Since the execution of the Loan Agreement, the Parent has formed a new
subsidiary, LoJack Holdings Corporation, for the purpose of dealing in and
holding marketable securities and cash. Simultaneously with the execution of
this Amendment, the Parent is causing Holdings to enter into a Security
Agreement with the Lender, and the Parent is pledging all of the issued and
outstanding shares of capital stock of Holdings to the Lender, all as required
under Section 2.7 of the Loan Agreement.
C. The Original Borrowers wish to amend the Loan Agreement (1) to increase
the maximum Revolving Loans available under the Note from $4,500,000 to
$7,500,000, with the outstanding principal amount thereof to convert to a five
year term loan on March 1, 1997, (2) to add Holdings as a "Borrower" thereunder
and (3) to amend certain financial and other covenants, all as hereinafter set
forth.
D. Subject to certain terms and conditions, the Lender is willing to agree
to such amendments, as hereinafter set forth.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
I. Amendment to Definitions in Loan Agreement.
-------------------------------------------
-1-
<PAGE>
A. The definitions of "Borrowers", "Commitment", "EBITDA", "New Markets"
and "Operating Cash Flow" in Section 1 of the Loan Agreement are amended to read
as follows:
Borrowers: LoJack Corporation, LoJack International Corporation, LoJack of
---------
New Jersey Corporation, Recovery Systems, Inc. and LoJack Holdings Corporation.
Commitment: $7,500,000.
----------
EBITDA: For any period, an amount equal to Net Income of the Borrowers for
------
such period plus (a) taxes in respect of income and profits, (b) Interest
Expense, (c) depreciation and (d) amortization, in each case to the extent
deducted in computing Net Income for such period.
New Markets: Any and all new markets located in the United States, as
-----------
specified in the Parent's business plan delivered from time to time to the
Lender.
Operating Cash Flow: For any period, an amount equal to Net Income for
-------------------
such period plus (a) taxes in respect of income and profits, (b) Interest
----
Expense, (c) depreciation and amortization and (d) other non-cash charges taken
in accordance with GAAP, in each case to the extent deducted in computing Net
Income for such period, minus (i) taxes in respect of income and profits
-----
actually paid during such period, (ii) Capital Expenditures made during such
period, (iii) Equity Distributions made during such period, to the extent made
concurrently with or following the initial Revolving Loan, and (iv) Permitted
Investments described in clause (c) of the definition thereof made during such
period, to the extent made concurrently with or following the initial Revolving
Loan.
B. In addition, the following new definitions are added to Section 1,
alphabetically, as follows:
Bank Charges: See Section 2.1.
------------
Conversion Date: See Section 2.1.
---------------
Equity Distribution: Any distribution or payment of cash or property, or
-------------------
both, directly or indirectly, in respect of any class of the stock of any
Borrower or any other equity securities in any Borrower, including without
limitation any dividends and any other distributions paid for the purchase,
redemption, retirement or acquisition of any class of stock or other equity
securities of any Borrower.
Holdings: LoJack Holdings Corporation, a Massachusetts corporation and the
--------
Parent's wholly owned subsidiary.
Permitted Investment: (a) Any equity investment in an existing Subsidiary
--------------------
made by a Borrower after the date of this Agreement, (b) any stock or asset
acquisition made by a Borrower (directly or indirectly by a Subsidiary formed
for such purpose), in each case, however, only to the extent consented to in
advance by the Lender, which consent shall not be unreasonably withheld or
delayed, and (c) any investment by a Borrower in a joint venture,
-2-
<PAGE>
corporation, partnership or other similar business, provided that (i) such
investment involves the purchase of no more than 49% of the equity and/or debt
securities issued by such entity, on a fully diluted basis, and (ii) the
aggregate amount of such investments shall not exceed $5,000,000 for any fiscal
year.
Term Loan Principal: See Section 2.4(a).
-------------------
C. The definitions of "Excluded Expenditures" and "Maturity Date" are
deleted from Section 1.1.
II. Revolving Credit and Term Loans. Section 2.1 is deleted and the
-------------------------------
following substituted therefor:
Section 2.1. Revolving Credit and Term Loans.
---------------------------------------------
(a) Subject to the terms and conditions contained in this Agreement, the
Lender agrees to make loans (the "Revolving Loans') to the Parent from time to
---------------
time from the date hereof until March 1, 1997 (the "Conversion Date"), in the
---------------
maximum principal amount at any one time outstanding of $7,500,000, provided
that the principal amount of Revolving Loans outstanding at any time shall not
exceed the Borrowing Base at such time. Subject to the provisions of this
Agreement, from the date hereof until the Conversion Date and within the limits
of the Commitment, the Parent may borrow, repay and re-borrow under this
Section.
(b) The Revolving Loans shall be evidenced by, and be payable as provided
in, the Borrowers' joint and several Amended and Restated Revolving Credit and
Term Note in the form attached as Exhibit 2.1 hereto (with all substitutions
-----------
therefor, the "Note"), payable to the order of the Lender, which Note is hereby
----
incorporated herein by reference and made a part hereof.
(c) Until the Conversion Date, the Lender shall record in the Revolving Loan
Account (i) all Revolving Loans, (ii) all payments made by any of the Borrowers
and (c) other debits and credits, in accordance with customary accounting
practices, including all interest, fees, charges, taxes and expenses chargeable
to the Borrowers under this Agreement (collectively, the "Bank Charges"). The
------------
debit balance of the Revolving Loan Account prior to the Conversion Date shall
reflect the amount of the Borrowers' Obligations to the Lender from time to time
in respect of Revolving Loans and other Bank Charges hereunder. At least once
each month the Lender may render a statement of account showing as of its date
the debit balance(s) of the Loan Account which, unless within thirty (30) days
of such date notice to the contrary is received by the Lender from the
Borrowers, shall be considered correct and accepted by the Borrowers and
conclusively binding upon it.
III. Pricing. Section 2.3(a) is amended by deleting the words and
-------
characters "plus .625%" where they appear in the first sentence thereof, with
the effect that the principal amount outstanding under the Note shall bear
interest at a rate per annum equal to the Base Rate.
-3-
<PAGE>
IV. Amortization. Section 2.4(a) is deleted and the following inserted
------------
in substitution therefor:
(a) In addition to payments required under the third sentence of this
Section 2.4(a), the Borrowers may prepay the principal amount of the Note, in
whole or in part, at any time without premium or penalty. Amounts so paid may,
prior to the Conversion Date and within the limits of the Borrowing Base, be
borrowed and reborrowed as provided in Section 2.1. The Borrowers shall repay
the principal amount outstanding under the Note on the Conversion Date (the
"Term Loan Principal"), without setoff, deduction or counterclaim, in quarterly
-------------------
installments of principal on each Quarterly Date, commencing on May 31, 1997 and
ending on February 28, 2002, when all outstanding principal, interest and other
expenses and charges payable under this Agreement, the Note and the Security
Documents shall be due and payable in full. The amount of each such quarterly
installment shall be the percentage of the Term Loan Principal set forth
opposite the respective Quarterly Date in the following table:
<TABLE>
<CAPTION>
Percentage of Term Loan Principal
---------------------------------
Quarterly Date Payable during Each Fiscal Quarter
-------------- ----------------------------------
<S> <C>
May 31, 1997 through February 28, 1998 3.00%
May 31, 1998 through February 28, 1999 4.00%
May 31, 1999 through February 28, 2000 5.00%
May 31, 2000 through February 28, 2001 6.00%
May 31, 2001 through February 28, 2002 7.00%
</TABLE>
V. Fees. Section 2.5(a) is amended to read in its entirety as follows:
----
(a) The Borrowers shall pay to the Lender a commitment fee, computed on
the daily debit balance in the Revolving Loan Account through the Conversion
Date and payable in arrears on each Quarterly Date and on the earlier of the
Conversion Date or the maturity of the Note. whether by payment, prepayment ,
acceleration or otherwise, equal to 0.25% per annum of the average daily unused
portion of the Commitment.
VI. Security. Section 2.7(a) is amended by adding after the word "Parent"
--------
at the end of the parenthetical included therein the words and character "and of
any and all equity securities issued to any Borrower, including equity
securities constituting Permitted Investments".
-4-
<PAGE>
VII. Use of Proceeds. Section 2.8(a) is deleted and the following
---------------
substituted therefor:
(a) The proceeds of the Revolving Loans shall be used (i) for working
capital purposes of the Borrowers, including without limitation Capital
Expenditures, including costs and expenses incurred in connection with start-up
businesses in New Markets, (ii) for Permitted Investments and (iii) to make
Equity Distributions in respect of the Parent's capital stock.
VIII. Conditions to Loans. Section 3.2(b)(ii) is deleted and the
-------------------
following substituted therefor:
(ii) (A) after giving effect to such Loan, both as of the proposed date
thereof and as if made on the most recent Quarterly Date, no event shall
have occurred and be continuing and no condition shall exist, or would
result from such Loan or the transactions contemplated hereby, which would
constitute, a Default, and (B) the Borrowers shall have delivered to the
Lender the certificate of a senior officer of the Parent, in form and
substance satisfactory to the Lender, certifying to such effect and
including detailed calculations showing compliance with the financial
covenants set forth in Section 5 as of such prior Quarterly Date and
certifying as to such senior officer's belief that the Borrowers are also
in compliance therewith as of the proposed date of such Loan;
IX. Financial Covenants.
-------------------
A. Section 5.1 is amended to read in its entirety as follows:
5.1 Debt Service Coverage. The Borrowers will maintain a ratio of
---------------------
Operating Cash Flow to Total Debt Service for each period of twelve consecutive
months of at least (a) 1.50:1.00, through and including the twelve month period
ending February 28, 1998, and (b) 1.75:1.00, for each twelve month period ending
on or after March 31, 1998.
B. Section 5.2 is amended to read in its entirety as follows:
5.2 Minimum Tangible Capital Funds.
------------------------------
(a) The Borrowers will cause Tangible Capital Funds to equal or exceed, at
all times, $33,000,000 minus the aggregate amount of any Equity Distributions
-----
made after November 30, 1995.
(b) In addition, the Borrowers will cause Tangible Capital Funds as of
each Quarterly Date specified below to equal or exceed the following respective
amounts:
<TABLE>
<CAPTION>
Quarterly Date(s) Minimum Tangible Capital Funds
----------------- ------------------------------
<S> <C>
November 30, 1995 and February 28, 1996 $4,000,000
May 31, 1996 through February 28, 1997 $6,000,000
May 31, 1997 and thereafter $8,000,000
</TABLE>
-5-
<PAGE>
C. Section 5.3 is amended to read in its entirety as follows:
5.3 Leverage. The Borrowers will not permit the ratio of Total
--------
Liabilities to Tangible Capital Funds as of any Quarterly Date to exceed the
respective amount indicated below:
<TABLE>
<CAPTION>
Quarterly Date(s) Maximum Ratio of Total
----------------- ----------------------
Liabilities to Tangible Capital
-------------------------------
Funds
-----
<S> <C>
November 30, 1995 through February 28, 3.00:1.00
1997
May 31, 1997 through February 28, 1998 2.00:1.00
May 31, 1998 and thereafter 1.00:1.00
</TABLE>
D. Section 5.5 is deleted and the following substituted therefor:
5.5 Minimum Profitability. The Borrowers will not permit their
---------------------
consolidated after-tax profit, determined in accordance with GAAP, to be less
than $500,000 for any fiscal quarter.
X. Other Covenants.
---------------
A. Section 6.1(c) is amended to provide that the Borrowing Base
Certificate required to be delivered thereunder shall be delivered on a
quarterly rather than monthly basis so long as there is no outstanding balance
under the Note, within 35 days after the end of each fiscal quarter.
B. Section 7.1(c) is amended by increasing the maximum permitted amount of
indebtedness for Capitalized Leases and purchase money Indebtedness set forth in
clause (i) (B) thereof from $5,000,000 to $7,000,000.
C. Section 7.7(a) is deleted and the following substituted therefor:
7.7 Investments, Loans and Acquisitions.
-----------------------------------
(a) None of the Borrowers will (i) purchase or acquire any share of
capital stock, partnership interest, evidence of indebtedness or other
equity security of any other Person, (ii) acquire all or substantially all
of the assets of any entity, (iii) make any loan, advance or extension of
credit to, or contribution to the capital of, any other Person, (iv)
purchase any real estate for sale or investment, (v) purchase any
commodities futures contracts other than in connection with bona fide
hedging transactions in the ordinary course of business, (vi) make any
other investment in any other Person, (vii) form any Subsidiary or (viii)
make any commitment or acquisition of any option or enter into any other
arrangement for the purpose of making any of the foregoing investments,
loans or acquisitions (all of the foregoing being referred to collectively
as "Investments"); except for (A) Qualified Investments, (B) the Parent's
-6-
<PAGE>
equity investments in Subsidiaries as of the date hereof, (C) Intercompany
Loans by the Parent to Subsidiaries existing as of the date hereof, (D)
subject to the requirements of Section 7.7(b), the formation and
capitalization of Subsidiaries (1) to install the Lojack System in one or
more of the New Markets or (2) with the Lender's consent, in connection
with acquisitions constituting Permitted Investments and subject to the
following clause (E), and (E) Permitted Investments, provided that any
required consents of the Lender have been obtained, all conditions to such
consents have been satisfied and, after giving effect to any such Permitted
Investment, the Borrowers are in compliance with Sections 2.7, 6.8, 7.1 and
7.7(b) and all other applicable provisions of this Agreement and no Default
exists and is continuing.
(b) Notwithstanding the foregoing, no new Subsidiary may be formed by
the Companies unless (i) such Subsidiary is majority owned by the Parent,
(ii) the Parent shall have notified the Lender at least five (5) days prior
to the formation of any such Subsidiary and (iii) as of the date of the
formation of any such Subsidiary and the Parent's investment therein, and
after giving effect thereto, (A) this Agreement shall have been amended and
restated to add such Subsidiary as a Borrower and to reflect all other
related changes in the Parent's capital structure, to the reasonable
satisfaction of the Lender, (B) such new Subsidiary shall have entered into
any and all Security Documents (in form and substance satisfactory to the
Lender) necessary to comply with the provisions of Section 2.7 and the
Lender shall be satisfied that all liens and security interests required to
be granted in the assets and ownership interests of such new Subsidiary
under such Section 2.7 have been granted or pledged and have been
perfected, and (C) without limiting the generality of the foregoing, no
Default shall exist and be continuing.
D. Section 7.8 is deleted and the following substituted therefor:
7.8 [Intentionally Deleted.]
XI. Notices. Section 9.1 is amended by deleting the reference to Roy F.
-------
Bates, Vice President, with a Mail-Stop of 01-09-12, and substituting therefor a
reference to Michael E. Hjerpe, with a Mail-Stop of 01-07-07.
XII. Exhibits.
--------
A. Exhibit 2.1 to the Loan Agreement is deleted and the attached Exhibit
----------- -------
2.1 substituted therefor.
- ---
B. The following Disclosure Exhibits to the Loan Agreement are amended to
reflect changes arising in connection with the Borrowers' expansion into the New
Markets since the date of execution of the Loan Agreement, as provided in the
Loan Agreement Disclosure Exhibit Supplement attached hereto:
-7-
<PAGE>
a) Exhibit 4.1 Borrowers' Jurisdictions
-----------
b) Exhibit 4.5 Real Property; Liens
-----------
c) Exhibit 4.8 Material Agreements
-----------
d) Exhibit 4.17 Capitalization
------------
e) Exhibit 4.20 Mergers and Acquisitions
------------
C. The Officer's Certificates delivered in connection with the execution
and delivery of each of the Security Agreements dated as of December 10, 1993
executed by the Borrowers and the Lenders are amended to reflect changes arising
in connection with the Borrowers' expansion into the New Markets since such
date, as provided on the Security Agreement Exhibit Supplement attached hereto.
XIII. No Further Amendments. Except as specifically amended hereby, the
---------------------
Loan Agreement and the Security Documents shall remain unmodified and in full
force and effect and are hereby ratified and affirmed in all respects, and the
indebtedness of the Borrowers to the Lender evidenced thereby and by the Note is
hereby reaffirmed in all respects.
XIV. Confirmation of Security. The Borrower's obligations under the Loan
------------------------
Agreement, as amended hereby, the Amended and Restated Revolving Credit and Term
Note issued on the date hereof in substitution for the Borrower's Revolving
Credit Note dated December 10, 1993 (the "New Note") (collectively, the "New
-------- ---
Obligations") and all other obligations constitute "Obligations" for all
- -----------
purposes of (i) the Loan Agreement and (ii) the Security Documents executed by
the Borrowers (the "Original Security Documents") and, howsoever defined, shall
---------------------------
be secured by, and entitled to all of the benefits of, the Original Security
Documents and any other Security Documents executed from time to time under the
Loan Agreement, as amended hereby.
XV. Certain Representations of the Borrowers. As a material inducement to
----------------------------------------
the Lender to enter into this Amendment, the Borrowers hereby jointly and
severally represent and warrant to the Lender (which representations and
warranties shall survive the delivery of this Amendment), after giving effect to
this Amendment, as follows:
- ---------------------------
A. The execution and delivery of this Amendment and the additional
Security Documents executed and delivered by the Parent and Holdings on the date
hereof have been duly authorized by all requisite corporate action on the part
of the Borrowers.
B. The representations and warranties contained in Section 4 of the Loan
Agreement, as amended by this Amendment, are true and correct in all material
respects on and as of the date of this Amendment as though made at and as of
such date (except to the extent that such representations and warranties
expressly relate to an earlier date or except to the extent variations therefrom
have been permitted under the terms of the Loan Agreement or
-8-
<PAGE>
otherwise in writing by the Lender). No material adverse change has occurred in
the assets, liabilities, financial condition, business or prospects of any
Borrower from that disclosed in the financial statements most recently furnished
to the Lender or otherwise by written notice from the Borrowers to the Lender.
C. This Amendment and the additional Security Documents executed and
delivered by the Parent and Holdings on the date hereof constitute the legal,
valid and binding obligation of the Borrowers, enforceable against each of them
in accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the rights and remedies of
creditors generally or the application of principles of equity, whether in any
action at law or proceeding in equity, and subject to the availability of the
remedy of specific performance or of any other equitable remedy or relief to
enforce any right thereunder.
XVI. Conditions. The willingness of the Lender to agree to the foregoing
----------
is subject to the following conditions:
A. The Borrowers shall have executed and delivered to the Lender (or shall
have caused to be executed and delivered to the Lender by the appropriate
persons) the following:
1. This Amendment.
2. The New Note, in the form of new Exhibit 2.1 to the Loan Agreement (in
exchange for cancellation of the Revolving Credit Note dated December 10,1995).
3. A Security Agreement between Holdings and Lender, together with the
related Officer's Certificate.
4. Stock certificates evidencing all of the issued and outstanding
shares of capital stock of Holdings, which are owned in full by the Parent, as
required under Section 1(b) of the Stock Pledge Agreement dated as of December
10, 1993 between the Parent and the Lender, together with appropriate stock
powers, executed in blank, and a revised Exhibit A showing an updated list of
---------
the shares of capital stock pledged with the Secured Party under such Stock
Pledge Agreement.
5. An Assignment for Security (Trademarks) and a Trademark Collateral
Assignment and Security Agreement, substantially in the form of the comparable
documents previously executed by the Parent as of December 10, 1993, in
connection with certain additional registered trademarks obtained, and trademark
applications made, by the Parent, together with evidence satisfactory to the
Lender of the proper filing of such Assignment for Security (Trademarks) with
the U.S. Patent and Trademark Office by Robert H. Rines, Esq., the Borrowers
special patent and trademark counsel.
6. True and complete copies of any required directors' consents and/or
resolutions, authorizing the execution and delivery of the Amendment and the
additional Security Documents executed and delivered on the date hereof by the
Parent and Holdings, certified by the Clerk of each Borrower.
-9-
<PAGE>
7. UCC, tax lien and judgment searches of recent date as to each of the
Borrowers, to the extent required by the Lender and evidence satisfactory to the
Lender of the proper filing of any and all additional UCC financing statements,
or amendments thereto, necessary to ensure full compliance by the Borrowers with
the provisions of Section 2.7 of the Loan Agreement with respect to assets and
properties acquired or leased in the New Markets and otherwise since the date of
execution of the Loan Agreement, including the additional registered trademarks
obtained, and trademark applications made, by the Parent, as described on
Exhibit 4.6 to the Loan Agreement, as amended on the date hereof.
8. Such other supporting documents and certificates as the Lender or its
counsel may reasonably request.
B. The Borrowers shall have paid to the Lender all outstanding legal fees
and disbursements of the Lender's counsel.
C. All legal matters relating to this Amendment shall be satisfactory to
the Lender and its counsel.
XVII. Miscellaneous.
-------------
A. As provided in the Loan Agreement, the Borrowers jointly and severally
agree to reimburse the Lender upon demand for all out-of-pocket costs and
expenses of the Lender (including reasonable fees and disbursements of counsel
to the Lender) in connection with its Amendment and the other agreements and
instruments and documents executed pursuant hereto.
B. This Amendment shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
C. This Amendment may be executed by the parties hereto in several
counterparts hereof and by the different parties hereto on separate counterparts
hereof, all of which counterparts shall together constitute one and the same
agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, the Lender and the Original Borrowers have caused this
Amendment to be duly executed by their duly authorized representatives, in each
case as a sealed instrument and as of the day and year first above written.
LOJACK CORPORATION
By
---------------------------------
Joseph F. Abely, President
LOJACK INTERNATIONAL CORPORATION
By
---------------------------------
Joseph F. Abely, President
LOJACK OF NEW JERSEY CORPORATION
By
---------------------------------
Joseph F. Abely, President
RECOVERY SYSTEMS, INC.
By
---------------------------------
Joseph F. Abely, President
THE FIRST NATIONAL BANK OF BOSTON
By:
---------------------------------
Michael E. Hjerpe, Vice President
-11-
<PAGE>
JOINDER TO LOAN AGREEMENT
-------------------------
The undersigned, by its execution hereof, hereby becomes a party to, and
agrees to be bound by, the Loan Agreement dated as of December 10, 1993, as
amended as of October 11, 1994 and February 20, 1996 (the "Loan Agreement"),
among The First National Bank of Boston, LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation and Recovery
Systems, Inc., and shall have all of the rights and obligations of a "Borrower"
under the Loan Agreement.
Executed as a sealed instrument as of February 20, 1996.
LOJACK HOLDINGS CORPORATION
By
---------------------------------
Joseph F. Abely, President
-12-
<PAGE>
LOJACK CORPORATION
EXHIBIT 4.1
Description of Incorporation and Foreign Qualification of Borrowers
<TABLE>
<CAPTION>
NAME OF BORROWER STATE OF INCORPORATION FOREIGN QUALIFICATION
<S> <C> <C>
LoJack Corporation Massachusetts Georgia, California*
Virginia, Rhode Island
New York, Connecticut,
District of Colombia
LoJack of New Jersey
Corporation Delaware New Jersey
LoJack International** Delaware Michigan,Illinois
Recovery Systems Inc.*** Florida Florida
LoJack Holdings
Corporation Massachusetts None
</TABLE>
Each of LoJack of New Jersey, LoJack International, Recovery Systems Inc., and
LoJack Holdings Corporation is a wholly-owned subsidiary of LoJack Corporation.
*In California, LoJack Corporation is qualified to do business under the name
"LoJack Auto Recovery Systems."
**Formerly known as LoJack Midwest Corporation (and the successor by merger to
CarSearch Corporation), which does business in Illinois under the tradename
"LoJack of Illinois," and in Michigan under the tradename "LoJack of Michigan."
***In Florida, Recovery Systems, Inc. does business under its tradename "LoJack
of Florida".
<PAGE>
EXHIBIT 4.17
CAPITALIZATION
LoJack Corporation
LoJack of New LoJack International Recovery LoJack
Jersey Corporation Corporation Systems, Inc. Holdings
Corporation
LoJack Corporation is the legal and record owner of:
1. 650 shares of Common Stock, without par value, of LoJack of New Jersey
Corporation, a Delaware corporation (LONJ"), and 15150 shares of Non-Voting
Cumulative Preferred Stock, without par value, of LONJ.
2. 1,000 shares of Common Stock, without par value, of LoJack International
Corporation (formerly LoJack Midwest Corporation), a Delaware corporation.
3. 100 shares of Common Stock, with $.01 par value, of Recovery Systems, Inc., a
Florida corporation.
4.100 shares of Common Stock without par value, of LoJack Holdings Corporation,
a Massachusetts corporation.
For further description of the other information required in this Exhibit,
please see LoJack Corporation's most recent financial statement.
<PAGE>
EXHIBIT 4.20
NAME CHANGES, MERGERS AND ACQUISITION
As of November 3, 1989 LoJack Corporation ("LoJack"), through its subsidiary,
LoJack of New Jersey Corporation, acquired substantially all of the assets of
Auto Recovery Systems, Inc. a distributor of LoJack's products, and the
resulting corporation, known as LoJack of New Jersey Corporation, remains a
subsidiary of LoJack. Subsequently, LoJack acquired all of the securities of
LoJack of New Jersey Corporation, which were not previously held by it. The
stockholders of Auto Recovery Systems, Inc. and the former minority stockholders
of LoJack of New Jersey Corporation, received LoJack shares in these
acquisitions.
Effective May 30, 1990, LoJack of Florida Corporation, a wholly-owned
subsidiary of LoJack, was merged with and into Recovery Systems, Inc., a Florida
corporation and a former distributor of LoJack's products. Recovery Systems,
Inc. was the surviving corporation in the merger and does business under the
name of LoJack of Florida. The former stockholders of Recovery Systems, Inc.
received shares of LoJack's common stock as consideration for the surrender of
their shares in the merger.
In July of 1990, the stockholders of LoJack at their annual stockholders
meeting, voted to remove the hyphen from the former name "Lo-Jack" so that the
corporate name of the company is now "LoJack Corporation."
Effective October 5, 1994 CarSearch Corporation and LoJack Midwest
Corporation merged, at which time CarSearch Corporation ceased to exist, and
LoJack Midwest became the surviving corporation. Subsequent to this merger,
LoJack Midwest Corporation changed its name to LoJack International Corporation.
<PAGE>
EXHIBIT 4.5
LIST OF LEASES
1. A certain Lease between Recovery Systems, Inc. and Hutton/GSH Commercial
Properties, which relates to the premises (or portion thereof) located at 5371
N.W. 33rd Avenue, Fort Lauderdale, Florida.
2. A certain Lease between LoJack Corporation and Kurt-Saracen Associates, which
relates to the premises (or portion thereof) located at 333 Elm Street, Dedham,
Massachusetts.
3. A certain Lease between LoJack Corporation and Brannen/Goodard Company, which
relates to the premises (or portion thereof) located at 8601 Dunwoody Place,
Atlanta, Georgia.
4. A certain Lease between LoJack Midwest Corporation and Korman/Lederer
Management Co. which relates to the premises (or portion thereof) located at 655
West Grand Ave, Elmhurst, Illinois.
5. A certain Lease between LoJack Midwest Corporation and Southfield
Technecenters Properties, which relates to the premises (or portion thereof)
located at 21455 Melrose Ave., Southfield, Michigan.
6. A certain Lease between LoJack Corporation and Century Center Associates,
L.P. which relates to the premises (or portion thereof) located at 9911 West
Pico Blvd., Los Angeles, California.
7. A certain Lease between LoJack Corporation and TCW Realty Fund III Holding
Co. which relates to the premises (or portion thereof) located at 485 Spring
Park Place, Herdon, Virginia.
8. A certain Lease between LoJack of New Jersey and Paramus Plaza IV Associates
which relates to the premises (or portion thereof) located at 12 Route 17 North,
Paramus, New Jersey.
9. A certain Lease between LoJack Corporation and Al-Ron Associates which
relates to the premises (or portion thereof) located at 15 Commercial Circle,
Dedham, Massachusetts.
<PAGE>
EXHIBIT 4.6
LIST OF LICENSEE, PATENTS AND TRADEMARKS
----------------------------------------
l. Patents
-------
United States U.S. Patent 4,l77,466
United States U.S. Patent 4,8l8,998
United States U.S. Patent 4,098,629
Argentina Patent No. 243285
European* Patent No. 0245555
Canada Patent No. l,286,390
Venezuela Patent No. 252-88
Mexico Patent No. l66803
Spain Patent No. P-8700923/4
Brazil Patent No. 870l433
Japan Patent No. 73944/87
2. Trademarks
----------
2.l Registered U.S. Trademarks:
--------------------------
For the tradename "LoJack", LoJack Corporation has U.S. Trademark
Registration No. l,482,2ll.
CarSearch by LoJack
#l,766,622
LoJack Retrieve
#l,650,079
LoJack Prevent
#l,653,600
Voice Guard by LoJack
#l582332
2.2 Registered Non-U.S. Trademarks:
------------------------------
For the tradename "LoJack" LoJack Corporation has Registered Non-U.S.
Trademarks in the following countries:
Argentina Registration No. l,521,255
Australia Registration No. 5l0900
Brazil Registration No. 8l4990878
Canada Registration No. 377,587
Czecholslovakia Registration No. 73l95
Ecuador Registration No. 37464/94
Great Britain Registration No. l388l52
France Registration No. l,539,703
Germany Registration No. ll633l3
Greece Registration No. 108,07l
Israel Registration No. 852l9
Italy Registration No. l98l85
<PAGE>
Page 3
Japan Registration No. 5999l/89
Mexico Registration No. 368782
South Africa Registration No. 94/14386
South Korea Registration No. 198185
Spain Registration No. l,5l9,948
Taiwan Registration No. 505697
Trinidad & Tobago Registration No. 22047
Venezuela Registration Nos. 999889 & 979789
For the tradename "CarSearch" LoJack Corporation has Registered Non-U.S.
Trademarks in the following countries:
Colombia Registration No. 408037
Czecholslovakia Registration No. 73l97
Greece Registration No. 108,072
Israel Registration No. 85220
Mexico Registration No. 470267
Trinidad Tobago Registration No. 2236l
2.3 Pending U.S. Trademark Registration Applications: None
------------------------------------------------
2.4 Pending Non-U.S. Trademark Registration Applications:
----------------------------------------------------
None
For the tradename "LoJack" LoJack Corporation has pending Non-U.S.
Trademark Registration Applications in the following countries:
Hong Kong
Panama
Russia
Saudi Arabia
For the tradename "CarSearch" LoJack Corporation has pending Non-U.S.
Trademark Registration Applications in the following countries:
Greece
Hong Kong
Panama
Saudi Arabia
2.5 Unregistered Trademarks: None
-----------------------
3. Licenses
--------
3.l Agreement with the City of Los Angeles dated March 9, l989.
<PAGE>
Page 3
3.2 Contract between the State of Michigan and LoJack Corporation dated
as of April 24, l989.
3.3 Lease Agreement LoJack Sector Activation System, dated February 23,
l988, between Recovery Systems, Inc. and the Florida Department of
Motor Vehicles.
3.4 Accepted Proposal by LoJack Corporation to the Massachusetts
Department of Public Safety.
3.5 Lease Agreement between Auto Recovery Systems, Inc. and the State of
New Jersey, dated July 3l, l989.
3.6 Lease Agreement Number VA-90l2l2-LOJ between LoJack Corporation and
the Commonwealth of Virginia, dated September l7, l99l.
3.7 Lease Agreement between LoJack Corporation and the State of Georgia
Department of Public Safety, dated June 6, l99l.
3.8 Lease Agreement between the New York Division of State Police and
LoJack Corporation dated January 2l, l994.
3.9 Memorandum of Understanding dated July 23, l993 withe the District
of Columbia Metropolitan Police Department.
3.l0 Memorandum of Understanding dated February 29, l994 with the Rhode
Island State Police.
3.ll Lease Agreement with the State of Connecticut dated July l5, l993.
3.12 Lease Agreement between LoJack Corporation and the Illinois State
Police dated August 23, l990.
* European Patent covers the following countries: United Kingdom, West
Germany, France, Italy, Belgium, Switzerland, Austria, Sweden and Holland.
<PAGE>
EXHIBIT 10uu
AMENDED AND RESTATED REVOLVING CREDIT AND TERM NOTE
---------------------------------------------------
$7,500,000 Boston, Massachusetts
December 10, 1993
as Amended and Restated
as of February 20, 1996
FOR VALUE RECEIVED, LOJACK CORPORATION, LOJACK INTERNATIONAL CORPORATION,
LOJACK OF NEW JERSEY CORPORATION, RECOVERY SYSTEMS, INC. and LOJACK HOLDINGS
CORPORATION (the "Borrowers"), hereby jointly and severally promise to pay to
---------
THE FIRST NATIONAL BANK OF BOSTON (the "Lender"), or order, at the head office
------
of the Lender at 100 Federal Street, Boston, Massachusetts 02110, the principal
amount of Seven Million Five Hundred Thousand Dollars ($7,500,000) or such
lesser amount as shall equal the aggregate unpaid principal amount of Revolving
Loans (as defined in the Loan Agreement referred to below) made by the Lender to
the Borrower pursuant to the Loan Agreement dated as of December 10, 1993 by and
between the Borrowers and the Lender, as amended as of October 11, 1994 and
February 20, 1996 and as hereafter amended or extended from time to time, (the
"Loan Agreement"), together with interest thereon at the rate or rates provided
- ---------------
in the Loan Agreement, payable monthly in arrears, without set-off, deduction or
counterclaim, on the first Business Day of each month, and at the maturity of
this Note, whether by payment or prepayment, acceleration or otherwise.
Prior to the Conversion Date (as defined in the Loan Agreement) the
principal amount hereof may be advanced, repaid and readvanced in accordance
with the terms of the Loan Agreement. The principal amount outstanding
hereunder on the Conversion Date shall be payable as provided in the Loan
Agreement.
Overdue principal (whether at maturity, by reason of acceleration or
otherwise) and, to the extent permitted by applicable law, overdue interest and
fees or any other amounts payable under the Loan Agreement (including without
limitation overadvances) due to the Borrowers' failure to pay the same in full
shall bear interest from and including the due date thereof until paid, at a
rate per annum equal to 4% above the rate which then applies to this Note, which
interest shall be compounded daily and payable on demand.
In addition, if a payment of principal or interest hereunder is not made,
due to the Borrowers' failure to pay the same in full on its due date, the
Borrowers will also pay on demand a late payment charge equal to 5% of the
amount of such payment. The foregoing shall in no way affect the Lender's right
to exercise any of its rights or remedies, including those provided in Section
8.2 of the Loan Agreement or in the Security Documents referred to therein,
arising upon the occurrence of an Event of Default (as defined in the Loan
Agreement).
<PAGE>
All payments under this Note shall be made at the head office of the Lender
at 100 Federal Street, Boston, Massachusetts 02110 (or at such other place as
the Lender may designate from time to time in writing) in lawful money of the
United States of America in federal or other immediately available funds.
This Note is the "Note" referred to in, and is entitled to the benefits
of, the Loan Agreement (including Exhibits thereto) and all Security Documents
and other agreements and instruments evidencing and/or securing the indebtedness
hereunder (the "Loan Documents"), which Loan Documents are hereby incorporated
--------------
herein by reference; but neither this reference to the Loan Documents nor any
provision thereof shall affect or impair the absolute and unconditional
obligation of the Borrowers to pay the principal of and interest on this Note as
herein provided.
This Note supersedes and replaces the Revolving Credit Note in the
principal amount of $4,500,000 issued to the Lender by the Borrowers on December
10, 1993 under the Loan Agreement.
In case an Event of Default (as defined in the Loan Agreement) shall occur,
the aggregate unpaid principal of and accrued interest on this Note shall become
or may be declared to be due and payable in the manner and with the effect
provided in the Loan Agreement.
The Borrowers hereby waive presentment, demand, notice of dishonor, protest
and all other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note.
THIS INSTRUMENT SHALL HAVE THE EFFECT OF AN INSTRUMENT EXECUTED UNDER SEAL
AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS
PROVISIONS CONTAINED THEREIN).
WITNESS AS TO ALL: LOJACK CORPORATION
By ________________________________
Joseph F. Abely, President
________________________
LOJACK INTERNATIONAL CORPORATION
By _______________________________
Joseph F. Abely, President
<PAGE>
LOJACK OF NEW JERSEY CORPORATION
By _______________________________
Joseph F. Abely, President
RECOVERY SYSTEMS, INC.
By _______________________________
Joseph F. Abely, President
LOJACK HOLDINGS CORPORATION
By _________________________________
Joseph F. Abely, President
<PAGE>
EXHIBIT 10vv
THE FIRST NATIONAL BANK OF BOSTON
SECURITY AGREEMENT
AGREEMENT made as of February 20, 1996 by LOJACK HOLDINGS CORPORATION,
a Massachusetts corporation with its principal place of business at 333 Elm
Street, Dedham, Massachusetts 02026 (the "Debtor"), in favor of THE FIRST
NATIONAL BANK OF BOSTON, a national banking association with its head office at
100 Federal Street, Boston, Massachusetts 02110 (the "Secured Party").
FOR VALUE RECEIVED, the receipt of which is hereby acknowledged,
including without limitation, enabling the Debtor to obtain credit or other
financial accommodations from the Secured Party, the Debtor hereby agrees as
follows:
Section 1. Definitions. All capitalized terms used herein or in any
-----------
certificate, report or other document delivered pursuant hereto shall have the
meanings assigned to them below (unless otherwise defined). Except as otherwise
defined, terms defined in the Uniform Commercial Code shall have the meanings
set forth herein:
Accounts. All rights of the Debtor to payment for goods sold or leased
--------
or for services rendered, all sums of money or other proceeds due or becoming
due thereon, all instruments pertaining thereto, all guarantees and security
therefor, and the Debtor's rights pertaining to and interest in such goods,
including the right of stoppage in transit, replevin or reclamation; all chattel
paper; all amounts due from affiliates of the Debtor, including without
limitation all indebtedness due from its subsidiaries; all other rights and
claims to the payment of money, under contracts or otherwise, including amounts
due from affiliates, tax refunds and insurance proceeds; and all other property
constituting "accounts" as such term is defined in the Uniform Commercial.
Affiliates. LoJack Corporation, LoJack of New Jersey Corporation,
----------
Recovery Systems, Inc. and LoJack International Corporation.
Business Day. The meaning specified for such term in the Loan
------------
Agreement.
Collateral. See Section 2.
----------
Encumbrance. Any mortgage, pledge, security interest, lien or other
-----------
charge or encumbrance of any kind or nature upon or with respect to any
property.
Equipment. All machinery, equipment and fixtures, office furniture,
---------
furnishings and trade fixtures, specialty tools and parts, motor vehicles and
materials handling equipment of the
<PAGE>
Debtor, together with the Debtor's interest in, and right to, any and all
manuals, computer programs, data bases and other materials relating to the use,
operation or structure of any of the foregoing; and all other property
constituting "equipment" as such term is defined in the Uniform Commercial Code.
Event of Default. An "Event of Default", as defined in the Loan
----------------
Agreement (which includes any default or misrepresentation by the Debtor under
this Agreement, after the expiration of any applicable grace period).
General Intangibles. All rights with respect to all patents, together
-------------------
with any reissue, extension or renewal thereof, all patents, patent applications
and patent licenses, all trademarks, trademark applications, trademark licenses,
service marks, service mark applications, trade names, trade styles, copyrights,
copyright applications, mask works and trade-secrets information and all other
proprietary rights and rights to prevent others from doing acts that constitute
unfair competition with the Debtor or misappropriation of its property,
including without limitation any sums (net of expenses) that the Debtor may
receive arising out of any claim for infringement of its rights in any of the
foregoing, and all rights of the Debtor under contracts to enjoy performance by
others or to be entitled to enjoy rights granted by others, including without
limitation any licenses; all tax refunds; all rights, title and interest of the
Debtor in and to all documents, books, records and other information (on
whatever medium recorded, and including without limitation computer programs,
tapes, discs, punch cards, data processing software and related property and
rights) maintained by the Debtor that reflect the conduct of the Debtor's
business, such as financial records, marketing and sales records, research and
development records, and design, engineering and manufacturing records; all
rights under service bureau service contracts; all computer data and the
concepts and ideas on which said data is based; all developmental ideas and
concepts, papers, plans, schematics, drawings, blueprints, sketches and
documents; all data bases; all customer lists; and all other property
constituting "general intangibles" as such term is defined in the Uniform
Commercial Code.
Inventory. All goods, merchandise and other personal property
---------
(including warehouse receipts and other negotiable and non-negotiable documents
of title covering any such property) of the Debtor that are held for sale, lease
or other disposition, or for display or demonstration, or leased or consigned,
or that are raw materials, piece goods, work-in-process or materials used or
consumed or to be used or consumed in the Debtor's business, whether in transit
or in the possession of the Debtor or another, including without limitation all
goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and goods located on the premises of any carriers,
forwarding agents, truckers, warehousemen, vendors, selling agents or other
third parties; all proprietary rights, patents, plans, drawings, diagrams,
schematics, assembly and display materials relating to any of the foregoing; and
all other property constituting "inventory" as such term is defined in the
Uniform Commercial Code.
Loan Agreement. The Loan Agreement dated as of December 10, 1993 among
--------------
the Debtor, the Affiliates and the Secured Party, as amended as of October 11,
1994 and the date hereof and as hereafter amended or extended from time to time.
2
<PAGE>
Obligations. All obligations of the Debtor or any of the Subsidiaries
-----------
to the Secured Party of every kind and description, whether direct or indirect,
absolute or contingent, primary or secondary, joint or several, due or to become
due, or now existing or hereafter arising or acquired and whether by way of
loan, discount, letter of credit, lease, or otherwise.
Officer's Certificate. A certificate signed by a responsible officer
---------------------
of the Debtor in the form attached hereto and delivered concurrently herewith.
Permitted Encumbrance. The meaning specified for such term in the Loan
---------------------
Agreement.
Revolving Loan Account. The meaning specified for such term in the
----------------------
Loan Agreement.
Securities. All of the securities and instruments of the Debtor,
----------
including without limitation all stocks, bonds, U.S. Treasury bills,
certificates of deposit and mutual or money market fund shares; and all sums due
or to become due on any of the foregoing, and all securities, instruments or
other property purchased or acquired as a result of the investment and
reinvestment thereof as hereinafter provided.
Uniform Commercial Code. The Uniform Commercial Code as in effect in
-----------------------
The Commonwealth of Massachusetts.
Section 2. Grant. To secure the payment and performance of the
-----
Obligations, the Debtor hereby assigns and pledges to the Secured Party all of
its rights, title and interest in, and grants to the Secured Party a continuing
security interest in, the following described property: Accounts, Equipment,
Inventory, General Intangibles and Securities; whether now owned or existing or
hereafter arising or acquired, together with all goods, instruments, documents
of title, policies and certificates of insurance, securities, chattel paper,
deposit accounts, cash or other property owned by the Debtor or in which the
Debtor has an interest that are now or may hereafter be in the possession,
custody or control of the Secured Party or its participants or assigns for any
purpose any and all additions, substitutions, replacements and accessions
thereto; and all proceeds and products of any of the foregoing (collectively,
the "Collateral").
Section 3. Representations, Warranties and Covenants. The Debtor
-----------------------------------------
hereby (a) confirms the representations, warranties and covenants set forth in
the Loan Agreement, which are incorporated by reference herein, (b) makes the
following representations and warranties and (c) agrees to the following
covenants, each of which representations, warranties and covenants shall be
continuing and in force so long as this Agreement is in effect:
3.1 Name: Debtor/Collateral Location; Changes.
-----------------------------------------
(a) The name of the Debtor set forth on the first page hereof is the
true and correct legal name of the Debtor, and except as otherwise disclosed to
the Secured Party in the Officer's Certificate, the Debtor has not done business
as or used any other name.
(b) The address of the Debtor set forth on the first page hereof is
the Debtor's chief executive office and the place where its business records are
kept. Except as disclosed on the
3
<PAGE>
Officer's Certificate, all tangible Collateral other than Securities is located
at such chief executive office.
(c) The Debtor will not change its name, identity or organizational
structure or chief executive office or place where its business records are
kept, or move any tangible Collateral (other than Securities) to a location
other than those set forth in the officer's Certificate, or merge into or
consolidate with any other entity, unless the Debtor shall have given the
Secured Party at least 30 days prior written notice thereof and shall have
delivered to the Secured Party such new Uniform Commercial Code financing
statements or other documentation as may be necessary or required by the Secured
Party to ensure the continued perfection and priority of the security interests
granted by this Agreement.
3.2 Ownership of Collateral: Absence of Liens and Restrictions. The
----------------------------------------------------------
Debtor is, and in the case of property acquired after the date hereof, will be,
the sole legal and equitable owner of the Collateral, holding good and
marketable title to the same free and clear of all Encumbrances except for
Permitted Encumbrances, and has all right and legal authority to assign,
deliver, and create a security interest in the Collateral in the manner herein
contemplated. The Collateral is genuine and is what it is purported to be. The
Collateral is not subject to any restriction that would prohibit or restrict the
assignment, delivery or creation of the security interests contemplated
hereunder.
3.3 First Priority Security Interest. This Agreement, together with
--------------------------------
the filing of Uniform Commercial Code financing statements in the appropriate
offices for the locations of Collateral listed in the Officer's Certificate,
create a valid and continuing first lien on and perfected security interest in
the Collateral (except for property located in the United States in which a
security interest may not be perfected by filing under the Uniform Commercial
Code), prior to all other Encumbrances, and is enforceable as such against
creditors of the Debtor, any owner of the real property where any of the
Collateral is located, any purchaser of such real property and any present or
future creditor obtaining a lien on such real property. Other than as disclosed
in the Officer's Certificate and to the best knowledge of the Debtor, no
financing statement under the Uniform Commercial Code of any state or other
instrument evidencing a lien that names the Debtor as debtor is on file in any
jurisdiction. The Debtor has not signed any such document or any agreement
authorizing the filing of any such financing statement or instrument, other than
those disclosed in the Officer's Certificate.
3.4 Maintenance; Taxes: Sales: Encumbrances: Insurance. The Debtor
--------------------------------------------------
will: (a) keep the Collateral in good order and repair; (b) not use the
Collateral in violation of law or any policy of insurance thereon; (c) pay
promptly when due all taxes and assessments on the Collateral or on its use or
operation; (d) not sell, grant, assign or transfer any interest in, or permit to
exist any Encumbrance on, any of the Collateral other than Permitted
Encumbrances and Encumbrances on, and sale of, Inventory in the ordinary course
of the Debtor's business; (e) defend its title to, and the Secured Party's
interest in, the Collateral against all claims and take any action necessary to
remove any Encumbrances other than those permitted hereunder and defend the
right, title and interest of the Secured Party in and to any of the Debtor's
rights in the Collateral; and (f) keep the Collateral insured at all times as
required in the Loan Agreement.
4
<PAGE>
3.5 Validity of Accounts. Each Account constituting Collateral is and
--------------------
shall be a valid, legal and binding obligation of the party purported to be
obligated thereon, enforceable in accordance with its terms and free of material
setoffs, defenses or counterclaims. Each such Account shall be a valid Account
representing indebtedness incurred by the account debtor for goods held subject
to delivery instructions or theretofore shipped or delivered pursuant to a
contract of sale or for services theretofore performed by the Debtor in the
ordinary course of the Debtor business; there shall be no setoffs or
counterclaims against the Account; no agreement under which any goods may be
returned shall have been made with the account debtor except in the ordinary
course of business and consistent with the Debtor's past practices; and no
agreement under which any discount may be claimed shall have been made with the
account debtor unless written notice has theretofore been or is concurrently
given to the Secured Party.
3.6 Fixture Conflicts; Required Waivers. The Debtor intends, to the
-----------------------------------
extent not inconsistent with applicable law, that the Collateral shall remain
personal property of the Debtor and shall not be deemed to be a fixture
irrespective of the manner of its attachment to any real estate. The Debtor will
deliver to the Secured Party such disclaimer, waiver, or other document as the
Secured Party may request, executed by each person having an interest in such
real estate.
3.7 Accounts: Collection and Delivery of Proceeds. Until the Secured
---------------------------------------------
Party exercises its rights to collect the Accounts pursuant to this Agreement,
the Debtor will diligently collect all of its Accounts constituting Collateral.
The Debtor shall, at the request of the Secured Party following the occurrence
of an Event of Default and during the continuance thereof, notify account
debtors of the security interest of the Secured Party in any Account and that
payment thereof is to be made directly to the Secured Party. Upon request of the
Secured Party, following the occurrence of an Event of Default and during the
continuance thereof, any proceeds of Accounts or Inventory constituting
Collateral received by the Debtor, whether in the form of cash, checks, notes or
other instruments, shall be held in trust for the Secured Party and the Debtor
shall deliver said proceeds daily to the Secured Party, without commingling, in
the identical form received (properly endorsed or assigned where required to
enable the Secured Party to collect same). The Secured Party shall credit the
proceeds of collection of Accounts Receivable received by the Secured Party to
the Revolving Loan Account in respect of outstanding loans and other amounts
due, such credits to be entered as of the second Business Day after receipt
thereof by the Secured Party. Such credits shall be conditional upon final
payment in cash or solvent credits of the items giving rise to them. If any item
is not so paid, the Secured Party, in its discretion, whether or not the item is
returned, may either reverse any credit given for the item or charge the amount
of the item against the deposits or other sums which may be due to the Debtor
from the Secured Party. Upon elimination of any debit balance of the Credit Loan
Account, proceeds of collection and other receipts may then, except as otherwise
provided in Section 6 or elsewhere in this Agreement, be credited to any deposit
account which the Debtor may maintain with the Secured Party or, if there is no
such account, held pending instructions from the Debtor.
3.8 General Intangibles; Registration. Maintenance of Copies. The
--------------------------------------------------------
Debtor will apply for, and pursue diligently applications for, registration of
its ownership of the General Intangibles constituting Collateral and for which
registration is appropriate, and will use such other measures
5
<PAGE>
as are appropriate to preserve its rights in its other General Intangibles
constituting Collateral. The Debtor will, at the request of the Secured Party,
retain off-site current copies of all materials created by or furnished to the
Debtor on which is recorded then-current information about any computer programs
or data bases that the Debtor has developed or otherwise has the right to use
from time to time. Such materials include, without limitation, magnetic or other
computer media on which object source or other code is recorded or that are
documentation of those computer programs or data bases, in the nature of listing
printouts, narrative descriptions, flow diagrams and similar things. The Debtor
will, at the request of the Secured Party, deliver a set of such copies to the
Secured Party for safekeeping and retention or transfer in the event of
foreclosure.
3.9 Securities: Voting, Dividends. Certificates, Options, etc. Until
---------------------------------------------------------
the occurrence of an Event of Default hereunder, the Debtor shall retain the
right to vote any of the Securities constituting Collateral in a manner not
inconsistent with the terms of this Agreement. If, during the existence of an
Event of Default, the Debtor, as registered holder of such Securities, receives
(a) any dividend or other distribution in cash or other property in connection
with the liquidation or dissolution of the issuer of such Securities, or in
connection with the redemption or payment of such Securities, or (b) any stock
certificate, option or right, or other distribution, whether as an addition to,
in substitution of, or in exchange for, such Securities, or otherwise, the
Debtor agrees to accept same in trust for the Secured Party and to deliver same
forthwith to the Secured Party or its designee, in the exact form received, with
the Debtor's endorsement or reassignment when necessary, to be held by the
Secured Party as Collateral.
3.10 Securities: Delivery or Registration. Upon request of the Secured
------------------------------------
Party after an Event of Default, the Debtor will (a) deliver all of its
Securities constituting Collateral and represented by certificates to the
Secured Party to hold pursuant to the terms of this Agreement, and (b) to
register in the name of the Secured Party or its designee any uncertificated
Security constituting Collateral or the Secured Party's security interest
therein on the books maintained by or on behalf of the issuer thereof or the
depository therefor.
3.11 Further Assurances. Upon the reasonable written request of the
------------------
Secured Party, and at the sole expense of the Debtor, the Debtor will promptly
execute and deliver such further instruments and documents and take such further
actions as the Secured Party may deem reasonably desirable to obtain the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, filing of any financing statement under the
Uniform Commercial Code; execution of collateral assignments of General
Intangibles, pledges or designations of Inventory and, following the occurrence
of an Event of Default, assignments of accounts receivable (giving the Secured
Party full power to collect, compromise or otherwise deal with the assigned
accounts receivable as the sole owner thereof), all in form and substance
satisfactory to the Secured Party; delivery of appropriate stock or bond powers;
and transfer of Collateral (other than Inventory, Accounts and Equipment) to the
Secured Party's possession. The Debtor authorizes the Secured Party to file any
such financing statement without the signature of the Debtor to the extent
permitted by applicable law, and to file a copy of this Agreement in lieu of a
financing statement. If any amount payable under or in connection with any of
the Collateral shall be or become evidenced by any promissory note or other
instrument,
6
<PAGE>
such note or instrument shall be immediately delivered to the Secured Party,
duly endorsed in a manner satisfactory to it.
Section 4. Notices and Reports Pertaining to Collateral. The Debtor
-------------------------------------------------------
will, with respect to the Collateral:
- ----------
(a) promptly furnish to the Secured Party, from time to time upon
reasonable request, reports in form and detail reasonably satisfactory to the
Secured Party, including those required in the Loan Agreement;
(b) promptly notify the Secured Party of any Encumbrance asserted
against the Collateral, including any attachment, levy, execution or other legal
process levied against any of the Collateral, and of any information received by
the Debtor relating to the Collateral, including the Accounts, the account
debtors, or other persons obligated in connection therewith, that may in any way
adversely affect the value of the Collateral or the rights and remedies of the
Secured Party with respect thereto;
(c) promptly notify the Secured Party when it obtains knowledge of
actual or imminent bankruptcy or other insolvency proceeding of any account
debtor owing more than $100,000 in the aggregate for all the Subsidiaries and
the Parent;
(d) deliver to the Secured Party, if and as the Secured Party may from
time to time reasonably request after the occurrence of an Event of Default,
delivery receipts, customers' purchase orders, shipping instructions, bills of
lading and any other evidence of shipping arrangements; and
(e) promptly after the application by the Debtor for registration of
any General Intangibles, as contemplated in Section 3.8, notify the Secured
Party thereof. The Debtor authorizes the Secured Party to destroy all invoices,
delivery receipts, reports and other types of documents and records submitted to
the Secured Party in connection with the transactions contemplated herein at any
time subsequent to 12 months from the time such items are delivered to the
Secured Party.
Section 5. Secured Party's Rights with Respect to Collateral. The
-------------------------------------------------
Debtor hereby appoints the Secured Party the Debtor's lawful attorney, with full
power of substitution, in the name of the Debtor, for the sole use and benefit
of the Secured Party, but at the Debtor's expense, at the Secured Party's option
and at any time following the occurrence of an Event of Default and during the
continuance thereof, whether or not the Obligations are due, without notice or
demand on the Debtor, to exercise all or any of the following powers with
respect to the Collateral:
(a) with respect to any Accounts: (i) notify account debtors of the
security interest of the Secured Party in such Accounts and that payment thereof
is to be made directly to the Secured Party (which notice shall not affect the
duties of the Debtor described in Section 3.7); (ii) demand, collect, and
receive for any amounts relating thereto, as the Secured Party may determine;
(iii) commence and prosecute any actions in any court for the purposes of
collecting any such Accounts and enforcing any other rights in respect thereof;
(iv) defend, settle or
7
<PAGE>
compromise any action brought and, in connection therewith, give such discharges
or releases as the Secured Party may deem appropriate; (v) receive, open and
dispose of mail addressed to the Debtor and endorse checks, notes, drafts,
acceptances, money orders, bills of lading, warehouse receipts or other
instruments or documents evidencing payment, shipment or storage of the goods
giving rise to such Accounts or securing or relating to such Accounts, on behalf
of and in the name of the Debtor; and (vi) sell, assign, transfer, make any
agreement in respect of, or otherwise deal with or exercise rights in respect
of, any such Accounts or the goods or services which have given rise thereto, as
fully and completely as though the Secured Party were the absolute owner thereof
for all purposes;
(b) with respect to any Equipment and Inventory: (i) make, adjust and
settle claims under any insurance policy related thereto and place and pay for
appropriate insurance thereon; (ii) discharge taxes and other Encumbrances at
any time levied or placed thereon; (iii) make repairs or provide maintenance
with respect thereto; and (iv) pay any necessary filing fees and any taxes
arising as a consequence of any such filing (it being understood and agreed that
the Secured Party shall have no obligation to make any such expenditures nor
shall the making thereof relieve the Debtor of its obligation to make such
expenditures);
(c) with respect to any Securities, (i) transfer them at any time to
itself, or to its nominee, and receive the income thereon and hold the same as
Collateral hereunder or apply it to any matured Obligations; and (ii) demand,
sue for, collect or make any compromise or settlement it deems desirable; and
(d) with respect to any General Intangibles, take any actions provided
in the Trademark and Patent Assignments (as defined in the Loan Agreement).
Except as otherwise provided herein, the Secured Party shall have no duty as to
the collection or protection of the Collateral nor as to the preservation of any
rights pertaining thereto, beyond the safe custody of any Collateral in its
Possession.
Section 6. Secured Party's Rights and Remedies.
----------------------------------------------
(a) So long as any Event of Default shall have occurred and is
continuing, the Secured Party shall have all of the following rights and
remedies:
(i) The Secured Party may, at its option, without notice or demand,
cause all of the Obligations to become immediately due and payable and take
immediate possession of the Collateral, and for that purpose the Secured
Party may, so far as the Debtor can give authority therefor, enter upon any
premises on which any of the Collateral is situated and remove the same
therefrom or remain on such premises and in possession of such Collateral
for purposes of conducting a sale or enforcing the rights of the Secured
Party.
(ii) The Debtor will, upon demand, assemble the Collateral and make
it available to the Secured Party at a place and time designated by the
Secured Party that is reasonably convenient to both parties.
8
<PAGE>
(iii) The Secured Party may collect and receive all income and
proceeds in respect of the Collateral and exercise all rights of the Debtor
with respect thereto, including without limitation the right to exercise
all voting and corporate rights at any meeting of the shareholders of the
issuer of any Securities and to exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options
pertaining to any Securities as if the Secured Party were the absolute
owner thereof, including the right to exchange, at its discretion, any and
all of any Securities upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof, all without
liability except to account for property actually received (but the Secured
Party shall have no duty to exercise any of the aforesaid rights,
privileges or options and shall not be responsible for any failure to do so
or delay in so doing).
(iv) The Secured Party may sell, lease or otherwise dispose of the
Collateral at a public or private sale, with or without having the
Collateral at the place of sale, and upon such terms and in such manner as
the Secured Party may determine, and the Secured Party may purchase any
Collateral at any such sale. Unless the Collateral threatens to decline
rapidly in value or is of the type customarily sold on a recognized market,
the Secured Party shall send to the Debtor prior written notice (which, if
given within five days of any sale, shall be deemed to be reasonable) of
the time and place of any public sale of the Collateral or of the time
after which any private sale or other disposition thereof is to be made.
The Debtor agrees that upon any such sale the Collateral shall be held by
the purchaser free from all claims or rights of every kind and nature,
including any equity of redemption or similar rights, and all such equity
of redemption and similar rights are hereby expressly waived and released
by the Debtor. In the event any consent, approval or authorization of any
governmental agency is necessary to effectuate any such sale, the Debtor
shall execute all applications or other instruments as may be required.
(v) In any jurisdiction where the enforcement of its rights
hereunder is sought, the Secured Party shall have, in addition to all other
rights and remedies, the rights and remedies of a secured party under the
Uniform Commercial Code.
(b) Prior to any disposition of Collateral pursuant to this Agreement the
Secured Party may, at its option, cause any of the Collateral to be repaired or
reconditioned (but not upgraded unless mutually agreed) in such manner and to
such extent as to make it salable.
(c) The Secured Party is hereby granted a license or other right to use,
without charge, the Debtor's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature, relating to the Collateral, in completing
production of, advertising for sale and selling any Collateral; and the Debtor's
rights under all licenses and all franchise agreements shall inure to the
Secured Party's benefit.
(d) The Debtor recognizes that the Secured Party may be unable to effect a
public sale of all or a part of the Securities by reason of certain prohibitions
contained in the Securities Act of 1933 (as amended from time to time, the
"Securities Act") or the securities laws of various states (the "Blue Sky
Laws"), but may be compelled to resort to one or more private sales to a
restricted
9
<PAGE>
group of purchasers who will be obliged to agree, among other things, to acquire
the Securities for their own account, for investment and not with a view to the
distribution or resale thereof. The Debtor acknowledges that private sales so
made may be at prices upon other terms less favorable to the seller than if the
Securities were sold at public sales. The Debtor agrees that the Secured Party
has no obligation to delay sale of any of the Securities for the period of time
necessary to permit the Securities to be registered for public sale under the
Securities Act or the Blue Sky Laws, and that private sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner.
(e) The Secured Party shall be entitled to retain and to apply the proceeds
of any disposition of the Collateral, first, to its reasonable expenses of
retaking, holding, protecting and maintaining, and preparing for disposition and
disposing of, the Collateral, including attorneys' fees and other legal expenses
incurred by it in connection therewith; and second, to the payment of the
Obligations in such order of priority as the Secured Party shall determine. Any
surplus remaining after such application shall be paid to the Debtor or to
whomever may be legally entitled thereto, provided that in no event shall the
Debtor be credited with any part of the proceeds of the disposition of the
Collateral until such proceeds shall have been received in cash by the Secured
Party. The Debtor shall remain liable for any deficiency.
Section 7. Waivers. The Debtor waives presentment, demand, notice, protest,
-------
notice of acceptance of this Agreement, notice of any loans made, credit or
other extensions granted, collateral received or delivered or any other action
taken in reliance hereon and all other demands and notices of any description,
except for such demands and notices as are expressly required to be provided to
the Debtor under this Agreement or any other document evidencing the
Obligations. With respect to both the Obligations and the Collateral, the Debtor
assents to any extension or postponement of the time of payment or any other
forgiveness or indulgence, to any substitution, exchange or release of
Collateral, to the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromise or adjustment of any thereof, all in such manner and at
such time or times as the Secured Party may deem advisable. The Secured Party
may exercise its rights with respect to the Collateral without resorting, or
regard, to other collateral or sources of reimbursement for Obligations. The
Secured Party shall not be deemed to have waived any of its rights with respect
to the Obligations or the Collateral unless such waiver is in writing and signed
by the Secured Party. No delay or omission on the part of the Secured Party in
exercising any right shall operate as a waiver of such right or any other right.
A waiver on any one occasion shall not bar or waive the exercise of any right on
any future occasion. All rights and remedies of the Secured Party in the
Obligations or the Collateral, whether evidenced hereby or by any other
instrument or papers, are cumulative and not exclusive of any remedies provided
by law or any other agreement, and may be exercised separately or concurrently.
Section 8. Expenses. The Debtor shall, on demand, pay or reimburse the
--------
Secured Party for all reasonable expenses incurred or paid by the Secured Party
in connection with this Agreement, as provided in the Loan Agreement, including,
without limitation, such expenses as are incurred to preserve the value of the
Collateral and the validity, perfection, priority and value of any security
interest created hereby, the collection, sale or other disposition of any of the
10
<PAGE>
Collateral or the exercise by the Secured Party of any of the rights conferred
upon it hereunder. The obligation to pay any such amount, and any interest
thereon, shall be an additional Obligation secured hereby.
Section 9. Notices. Any demand upon or notice to the Debtor that the
-------
Secured Party may give shall be effective when delivered in accordance with the
Loan Agreement.
Section 10. General. This Agreement may not be amended or modified except
-------
by a writing signed by the Debtor and the Secured Party, nor may the Debtor
assign any of its rights hereunder. This Agreement and the terms, covenants and
conditions hereof shall be construed in accordance with, and governed by, the
laws of The Commonwealth of Massachusetts (without giving effect to any
conflicts of law provisions contained therein). In the event that any Collateral
or any deposit or other sum due from or credited by the Secured Party is held or
stands in the name of the Debtor and another or others jointly, the Secured
Party may deal with the same for all purposes as if it belonged to or stood in
the name of the Debtor alone. Section headings are for convenience of reference
only and are not a part of this Agreement. This Agreement shall be binding upon
the Debtor, its successors and assigns, and shall inure to the benefit of and be
enforceable by the Secured Party and its successors and assigns.
IN WITNESS WHEREOF, the Debtor has caused this Agreement to be duly
executed as an instrument under seal as of the date first written above.
LOJACK HOLDINGS CORPORATION
By:________________________________
Joseph F. Abely, President
11
<PAGE>
OFFICER'S CERTIFICATE
to
SECURITY AGREEMENT
dated February 20, 1996
of
LOJACK HOLDINGS CORPORATION
The undersigned, as Vice President of LOJACK HOLDINGS CORPORATION, a
Massachusetts corporation (the "Debtor"), hereby certifies, with reference to a
certain Security Agreement dated February 20, 1996 (terms defined in such
Security Agreement having the same meanings herein as specified therein), by and
between the Debtor and THE FIRST NATIONAL BANK OF BOSTON (the "Secured Party"),
to the Secured Party as follows:
1. Names:
------
(a) The exact corporate name of the Debtor as it appears on its
organizational documents and its taxpayer identification number is as follows:
LoJack Holdings Corporation
Federal Identification No: 04-3270032
(b) The following is a list of all other names (including trade names
or similar appellations) used by the Debtor, or any other business or
organization to which the Debtor became the successor by merger, consolidation,
acquisition, change in form, nature or jurisdiction of organization or
otherwise, now or at any previous time:
None
2. Locations.
---------
(a) The chief executive office of the Debtor is located at the
following address:
c/o LoJack Corporation
Norfolk Place
333 Elm Street
Dedham. MA 02026
(b) The following is a list of all other locations in the United
States of America in which the Debtor maintains any books or records relating to
any of the Collateral consisting of Accounts, chattel paper, General Intangibles
or mobile goods:
12
<PAGE>
Norfolk Place
333 Elm Street
Dedham, MA 02026
(c) The following are all the other places of business of the Debtor
in the United States of America:
None
(d) The following are all the other locations in the United States of
America where any of the Collateral (other than Securities and any deposit
accounts) is located:
None
(e) The following are the names and addresses of all persons or
entities other than the Debtor, such as lessees, consignees, warehousemen or
purchasers of chattel paper, that have possession or are intended to have
possession of any of the Collateral consisting of chattel paper, Inventory or
Equipment:
None
3. Other UCC Filings. Financing Statements in favor of secured parties other
than the Secured Party have been filed in the Uniform Commercial Code filing
offices in the jurisdictions and real estate recording offices identified below:
None
IN WITNESS WHEREOF, the undersigned has hereunto executed this
Certificate as of this 20th day of February, 1996.
LOJACK HOLDINGS CORPORATION
By:_______________________________________
Joseph F. Abely, President
13
<PAGE>
EXHIBIT 10ww
FIRST AMENDMENT TO TRADEMARK COLLATERAL ASSIGNMENT
--------------------------------------------------
AND SECURITY AGREEMENT
----------------------
This AMENDMENT is made as of February __.1996, between LOJACK CORPORATION,
a Massachusetts corporation, LOJACK INTERNATIONAL CORPORATION and LOJACK OF NEW
JERSEY CORPORATION, each a Delaware corporation, and RECOVERY SYSTEMS, INC., a
Florida corporation (collectively, the " Original Borrowers"); by execution of
the Joinder attached hereto, LOJACK HOLDINGS CORPORATION, a Massachusetts
corporation ("Holdings" and, together with the Original Borrowers, the
"Borrowers"); and THE FIRST NATIONAL BANK OF BOSTON, a national banking
association (the "Secured Party"");
RECITALS
--------
A. The Secured Party and the Original Borrowers are parties to a Loan
Agreement dated as of December 10, 1993, as amended as of October 11, 1994 (as
so amended, the "Loan Agreement"). Capitalized terms used herein without
definition have the meanings assigned to them in the Loan Agreement.
B. In connection with the Loan Agreement, the Original Borrowers entered
into a Trademark Collateral Assignment and Security Agreement dated as of
December 10, 1993 (as amended from time to time, the "Original Agreement").
C. Since the execution of the Loan Agreement, the Parent (as defined
therein) has (1) formed a new subsidiary, LoJack Holdings Corporation, for the
purpose of dealing in and holding marketable securities and cash and (2)
obtained certain additional registered trademarks and related intellectual
property (the "new Trademark Collateral").
D. The Original Borrowers wish to amend the Original Agreement (1) to add
LoJack Holdings Corporation as a "Borrower" thereunder and (2) to amend
Schedules 2(a) (i) and Schedule 2(a) (ii) to reflect the New Trademark
- ------------------ -----------------
Collateral, in accordance with the terms of Section 6 of the Original
Agreement.
E. It is a condition precedent to the Secured Party's willingness to
amend the Loan Agreement on the date hereof and make any loans to the Borrowers
under the Loan Agreement that the Borrowers execute and deliver this Amendment
the Secured Party.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Borrowers hereby jointly and severally agree with the
Secured Party as follows:
1. Schedules 2(a)(i) and 2(a)(ii) are hereby deleted and the attached
Schedules 2(a)(i) and 2(a)(ii) are substituted therefor. The amendment of such
Schedules pursuant to this Amendment
<PAGE>
shall not be deemed to limit or modify in any way the Secured Party's right to
effect any such amendment to reflect additional Trademark Collateral, without
the necessity of any Borrower's approval or signature, as provided in Section 6
of the Original Agreement.
2. All of the additional Trademarks, Trademark Registrations and Trademark
Rights referred to in such amended Schedules shall be automatically deemed
"Trademarks", "Trademark Registrations" and "Trademark Rights", as defined in
the Original Agreement, and all representations and warranties of the Borrowers
set forth in the Original Agreement and in the Security Agreements shall be
deemed to be restated by the Borrowers as of the date hereof with the full force
and effect as though made on this date.
3. This Amendment may be executed by the parties hereto in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together but one and the same agreement. This Amendment and
all rights and obligations hereunder shall be binding upon each Borrower and its
respective successors and assigns, and shall inure to the benefit of the Secured
Party and its successors and assigns. Each Borrower acknowledges receipt of a
copy of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers thereunto as of
the date first above written.
LOJACK CORPORATION
By:____________________________________
Joseph F. Abely, President
LOJACK INTERNATIONAL CORPORATION
By:____________________________________
Joseph F. Abely, Vice President
LOJACK OF NEW JERSEY CORPORATION
By:____________________________________
Joseph F. Abely, Vice President
<PAGE>
RECOVERY SYSTEMS, INC.
By:____________________________________
Joseph F. Abely, Vice President
THE FIRST NATIONAL BANK OF BOSTON
By:____________________________________
Michael E. Hjerpe, Vice President
JOINDER TO LOAN AGREEMENT
-------------------------
The undersigned, by its execution hereof, hereby becomes a party to, and
agrees to be bound by, the Trademark Collateral Assignment and Security
Agreement dated as of December 10, 1993, as amended as of October 11, 1994 and
February ___, 1996 (the "Agreement"), among The First National Bank of Boston,
LoJack Corporation, LoJack International Corporation, LoJack of New Jersey
Corporation and Recovery Systems, Inc., and shall have all of the rights and
obligations of a "Borrower" under the Agreement.
Executed as a sealed instrument as of February ___, 1996.
LOJACK HOLDINGS CORPORATION
By _______________________________
Joseph F. Abely, Vice President
3
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
On this _____ of February, 1996, before me personally appeared Joseph F. Abely,
to me known, who, being by me duly sworn, declared that he is the President of
LOJACK CORPORATION and the Vice President of each of LOJACK INTERNATIONAL
CORPORATION and LOJACK OF NEW JERSEY CORPORATION, each a Delaware corporation,
and RECOVERY SYSTEMS, INC., a Florida corporation, and LOJACK HOLDINGS
CORPORATION, a Massachusetts corporation (all of such corporations being
referred to collectively as the "Corporations"), all as described in and which
executed the foregoing FIRST AMENDMENT TO TRADEMARK COLLATERAL ASSIGNMENT AND
SECURITY AGREEMENT; that, being duly authorized, he did execute the foregoing
FIRST AMENDMENT TO TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT on
behalf of each of the Corporations; and that the foregoing constitutes the free
act and deed of each of the Corporations.
___________________________________
Notary Public
My commission expires:__________________
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
On this ____ day of February, 1996 before me personally appeared Michael E.
Hjerpe, to me known, who, being by me duly sworn, declared that he is the Vice
President of THE FIRST NATIONAL BANK OF BOSTON (the "Secured Party"), the
Secured Party described in and which executed the foregoing FIRST AMENDMENT TO
TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT; that, being duly
authorized, he did execute the foregoing FIRST AMENDMENT TO TRADEMARK COLLATERAL
ASSIGNMENT AND SECURITY AGREEMENT on behalf of the Secured Party; and that the
foregoing constitutes the free act and deed of the Secured Party.
___________________________________
Notary Public
My commission expires:__________________
<PAGE>
Section 2(a)(i)
TRADEMARKS
----------
I. Registered U.S, Trademarks:
--------------------------
For the tradename "LoJack," LoJack Corporation has U.S. Trademark
Registration No. 1,482,211.
[]
[]
[]
II. Registered Non-U.S. Trademarks:
For the tradename "LoJack," LoJack Corporation has Registered Non-U.S.
Trademarks in the following countries:
Argentina Registration No. 1,838,242
Australia Registration No. 510900
Brazil Registration No. 814990878
Canada Registration No. 377,587
Czechoslovakia Registration No. 73195
Ecuador Registration No. 37464/93
Great Britain Registration No. 1388152
France Registration No. 1,539,703
Germany Registration No. 1163313
Israel Registration No. 85219
Italy Registration No. 198185
Mexico Registration No. 368782
For the tradename "CarSearch," LoJack Corporation has Registered Non-U.S.
Trademarks in the following countries:
Argentina Registration No. 1,838,241
Colombia Registration No. 408037
Czechoslovakia Registration No. 73197
Israel Registration No. 85220
Mexico Registration No. 171479
III. Pending U.S. Trademark Registration Applications: None
IV. Pending Non-U.S. Trademark Registration Applications: None
<PAGE>
For the tradename "LoJack," LoJack Corporation has pending Non-U.S.
Trademark Registration Applications in the following countries:
Greece
Hong Kong
Japan
Panama
For the tradename "CarSearch," LoJack Corporation has pending Non-U.S.
Trademark Registration Applications in the following countries:
Greece
Hong Kong
Panama
V. Unregistered Trademarks: None
-6-
<PAGE>
Schedule 2(a)(ii)
TRADEMARK LICENSES
------------------
Greece License, Trademark and Supply Agreement between LoJack
Corporation and EQQUS, Ltd., dated as of January 24, 1992.
License, Trademark and Supply Agreement dated July 16, 1992, by and
between CarSearch Corporation, a subsidiary of LoJack Corporation, and Secar,
Ltd. Kutuzovovn, Bratislava, Czechoslovakia.
Patent License and Ancillary Know-How Agreement dated December 30,
1991, and Second Amendment (relating to the Patent, License and Know-How
Agreement of December 30, 1991), dated January 29, 1993, (the Second Amendment
incorporates by reference the First Amendment to the Patent, License and Know-
How Agreement dated April 27, 1992 which is superseded), each by and between
LoJack Corporation and Stolen Vehicle Recovery Systems Limited, Sylesbury,
Buckingham, UK.
License and Trademark Agreement dated May 28, 1993 by and between CarSearch
Corporation, a subsidiary of LoJack Corporation, and Carro Seguro Carseg S.A.,
Guayaquil, Ecuador.
Colombia License, Trademark and Supply Agreement dated August 10, 1993 by
and between CarSearch Corporation, a subsidiary of LoJack Corporation, and
Vehicle Security Resources Ltd. (a Bahamian Corporation) located in Nassau,
Bahamas.
Trinidad and Tobago License, Trademark and Supply Agreement dated July 27,
1993 by and between CarSearch Corporation, a subsidiary of LoJack Corporation
and PJV LTD., Nassau, Bahamas.
License, Trademark and Supply Agreement dated August 23, 1993 by and
between CarSearch Corporation, a subsidiary of LoJack Corporation MaxRich
Consultants, Ltd., a Hong Kong corporation having business at B2 Energy Plaza,
92 Granville Road, T.S.T. East, Kowloon, Hong Kong.
Patent, License, Trademark and Supply Agreement dated October 4, 1994 by
and between LOJACK INTERNATIONAL CORPORATION, a subsidiary of LoJack Corporation
and Sucess Trading, S.A., Sarmiente 517 3 A- (1041) Buenos Aires, Argentina.
Russian License, Trademark and Supply Agreement dated September 5, 1995 by
and between LOJACK INTERNATIONAL CORPORATION and GBSI, Inc. ta Access 2000, 2217
Lovedale Lane, Reston, VA 22091.
License, Trademark and Supply Agreement dated 31st day of August, 1993, is
entered into by and between CARSEARCH CORPORATION, a subsidiary of LoJack
Corporation and Cartrack, Ltd., an Israeli corporation having business at P.O.
Box 39282, 45 Kibbutz Galuyot Street, Tel-Aviv, Israel, 61392.
License, Trademark and Supply Agreement dated 13th day of October, 1994, by
and between LOJACK INTERNATIONAL CORPORATION and Tracker Vehicle Location
Systems (PTY) Ltd. P.O. Box 2202, Cape Town 8000, Cape Town, South Africa.
German Patent, License and Ancillary Know-How Agreement dated October 1,
1995 by and between LOJACK INTERNATIONAL CORPORATION and Detektor, Bad Homburg,
Germany.
Kenya License, Trademark and Supply Agreement dated 15th day of August,
1995, by and between LOJACK INTERNATIONAL CORPORATION, a subsidiary of LoJack
Corporation, and CarTrack Kenya Limited, P.O. Box 51990, Nairobi, Kenya.
Taiwan License, Trademark and Supply Agreement dated August 15, 1995 by and
between CARSEARCH CORPORATION, a subsidiary of LoJack Corporation and Triones
Taiwan Co., Ltd., Taichung, Taiwan, R.O.C.
Poland License, Trademark and Supply Agreement dated May 1, 1996 by and
between LOJACK INTERNATIONAL CORPORATION, a subsidiary of LoJack Corporation and
LoJack Polska Warszawa, Poland.
-7-
<PAGE>
EXHIBIT 10xx
SECOND ASSIGNMENT FOR SECURITY (TRADEMARKS)
-------------------------------------------
WHEREAS, LOJACK CORPORATION, a Massachusetts corporation with its principal
office at 333 Elm Street, Dedham, Massachusetts 02026 (the "Company"), has
-------
adopted, used and is using the mark or marks shown on Schedule A attached hereto
--------
(the "New Marks"), which are registered in the United States Patent and
---------
Trademark Office under the registration numbers shown on such Schedule A next to
--------
each of the New Marks; and
WHEREAS, the Company is obligated to THE FIRST NATIONAL BANK OF BOSTON, a
national bank having its head office at 100 Federal Street, Boston,
Massachusetts 02110 (the "Lender"), pursuant to (i) a certain Loan Agreement
------
dated as of December 10, 1993, as amended as of October 11, 1994 and the date
hereof, among the Lender, the Company and the Company's Subsidiaries (the "Loan
----
Agreement"); (ii) an Amended Revolving and Restated Credit Note of even date
- ---------
herewith in the principal amount of $7,500,000 made payable to the Lender by the
Company and its subsidiaries; (iii) a Trademark Collateral Assignment and
Security Agreement dated as of December 10, 1993 (the "Original Trademark
------------------
Agreement") between the Company, its Subsidiaries and the Lender with respect to
- ---------
certain trademarks and other collateral owned by the Company on such date (the
"Original Marks"), as amended by a First Amendment to Trademark Collateral
- ---------------
Assignment and Security Agreement of even date herewith between the Company, its
Subsidiaries and the Lender with respect to the New Marks, which were obtained
by the Company subsequent to the execution of the Original Trademark Agreement;
(iv) an Assignment for Security (Trademarks) filed with the U.S. Copyright and
Trademark Office on or about December 20, 1993 with respect to the Original
Marks; and (v) a Security Agreement dated as of December 10, 1993 between the
Company and the Lender; and (vi) certain other agreements and instruments
executed in connection with the foregoing (all of the foregoing being referred
to collectively as the "Agreements"); and
----------
WHEREAS, pursuant to the Agreements, the Company has granted or is granting
to the Lender a security interest in and to the New Marks, the good will of the
business symbolized by the New Marks, and the registrations thereof, all in
collaboration to the Lender's security interest in the Original Marks;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company does hereby assign and
grant to the Lender a security interest in and to the New Marks, together with
the good will of the businesses symbolized by each of the New Marks, and the
registrations thereof, which assignment and security interest shall secure all
the Obligations (as defined in the Agreements) in accordance with the terms and
provisions thereof.
<PAGE>
The Lender expressly acknowledges and affirms that its rights and remedies
with respect to the assignment and security interest granted hereby are more
fully set forth in the Agreements.
Dated: February 20, 1996
LOJACK CORPORATION
By ____________________________________
Joseph F. Abely, President
<PAGE>
COMMONWEALTH OF MASSACHUSETTS)
)
COUNTY OF SUFFOLK )
The foregoing Assignment for Security (Trademarks) was executed and
acknowledged before me this ____ day of February, 1996, by Joseph F. Abely,
personally known to me to be the President of LOJACK CORPORATION, a
Massachusetts corporation, on behalf of such corporation.
________________________________________
Notary Public
My Commission Expires. __
<PAGE>
SCHEDULE A
TRADEMARKS
I. New Registered U.S. Trademarks:
-------------------------------
Carsearch by LoJack: U.S. Trademark Registration No. 1,766,622
LoJack Retrieve: U.S. Trademark Registration No. 1,650,079
LoJack Prevent: U.S. Trademark Registration No. 1,653,600
Voice Guard by LoJack: U.S. Trademark Registration No. 1,582,332
<PAGE>
EXHIBIT 10yy
REPUBLIC OF KENYA
LICENSE, TRADEMARK, AND SUPPLY AGREEMENT
This Agreement, made this 15th day of August, 1995, is entered into by and
between LOJACK INTERNATIONAL CORPORATION ("LIC") ("LICENSOR"), (a subsidiary of
LoJack Corporation ("LOJACK"), a Delaware corporation having its principal place
of business at 333 Elm Street, Dedham, Massachusetts 02026 USA and CarTrack
Kenya Limited, P.O. Box 5l990, Nairobi, Kenya (hereinafter referred to as
"LICENSEE").
W I T N E S S E T H
-------------------
WHEREAS, LOJACK has developed a system for the recovery of stolen vehicles;
and
WHEREAS, LOJACK has developed Software and Software Programs and products
relative to the system for the recovery of stolen vehicles ("LoJack System");
and
WHEREAS, LOJACK has licensed to LICENSOR its Software Programs, Trademarks
and related documentation in order for LICENSOR to develop and license a system
for the activation and recovery of stolen vehicles for use in countries outside
of the United States ("System");
WHEREAS, the LICENSOR has agreed to grant the LICENSEE an exclusive license
to use the LICENSOR Licensed Software Programs, associated documentation, and
Trademarks (to the extent registered in the Territory); sell LICENSOR VLUs; and
use Products in the Territory as hereunder defined and to provide certain
services to the LICENSEE including technical support, supply of Products, and
training upon the terms and conditions of this Agreement; and
WHEREAS, LICENSEE, recognizes the benefits to be derived from being
identified with the license by LICENSOR, and being entitled to utilize
LICENSOR'S Systems, Tradenames and Trademarks (to the extent registered in the
Territory) which the LICENSOR makes available to its licensees; pursuant to
agreement; and
WHEREAS, LICENSEE desires to receive and the LICENSOR is willing to grant a
License for the LICENSOR'S System and the LICENSOR'S Trademark in the Territory
subject to the provisions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and
for other good and valuable consideration, receipt whereof is respectively
acknowledged, the undersigned parties hereby agree as follows:
DEFINITIONS
- -----------
Unless context otherwise requires, the following terms, shall have the meanings
set forth below:
-1-
<PAGE>
CONFIDENTIAL INFORMATION
- ------------------------
The design details and operating characteristics of the System, information
relating to the installation of VLUs in motor vehicles, and all other
aspects of the LOJACK System treated as confidential by LICENSOR or not
generally known, including all related software, file structures,
documentation, algorithms and related software concepts, except as otherwise
provided herein.
LICENSEE
- --------
The LICENSEE shall mean CarTrack Kenya Limited, and any subsidiary which is
owned by LICENSEE in an amount of at least 5l%.
LICENSED SOFTWARE PROGRAM
- -------------------------
The software programs in object code form which are required to operate the
LOJACK System, including all updates, revisions and any new release of the
same which may be issued from time to time within the term of this
Agreement.
TRADEMARKS
- ----------
All trademarks and trade names and logos now or hereafter during the term of
this Agreement owned by LOJACK and Licensed to the LICENSOR and used by the
LICENSOR in connection with the sale of Products or the operation of the
System. The LICENSOR undertakes to use its best efforts to obtain
trademarks in Kenya for "CarSearch by LoJack".
PRODUCTS
- --------
All products purchased by LICENSEE from the LICENSOR, including Vehicle
Location Units (or "VLUs"), Vehicle Tracking Computers, (or "VTCs") the
Vehicle Activation Computer ("VAC"), Vehicle Activation Transmitter ("VATs")
and all other subcomponents of the System.
SYSTEM
- ------
A system for locating and recovering stolen motor vehicles based upon the
LoJack System, utilizing a computerized transceiver in the vehicle (the
"VLU", in the singular, and "VLUs" in the plural); a system for activating
the VLU after report of a theft (the "Vehicle Activation Computer and
Vehicle Activation Transmitter(s)"); and a directional
-2-
<PAGE>
tracking unit designed for installation in vehicles (the "Vehicle Tracking
Computers"); and all enhancements and improvements thereto, as outlined in
the definition document appended as Attachment I.
LICENSED RIGHTS
- ---------------
The Licensed Software Program, the Trademarks only if such Trademarks are
registered in the Territory), the Confidential Information, and Proprietary
Information.
PROPRIETARY INFORMATION
- -----------------------
All inventions, registered and unregistered and design rights, copyrights in
the nature of copyright, know-how, trade secrets, and Confidential
Information and any applications and rights to apply for any of the
foregoing in any part of the world in respect of all drawings and other
documents, recordings in any form and all other articles bearing or
embodying any part of the System.
TERRITORY
- ---------
As defined in Section 11 of this Agreement.
EFFECTIVE DATE
- --------------
The Effective Date for the grant of rights described in Section l of this
-----
Agreement shall be the date of this Agreement (the "First Condition
Precedent") and the LICENSEE pays the First Installment described in Section
2.l. The Effective Date for the exercise of rights described in Section l
--------
of this Agreement shall be the date that LICENSEE pays the First Installment
and provides LICENSOR with (i) the Irrevocable Letter of Credit referred to
in Paragraphs 2.1 and 2.4, (the "Second Condition Precedent") and (ii) the
information required in Section 3.4.
This Agreement shall terminate immediately and without any formality and any
rights granted shall fall away and entirely revert to the LICENSOR and the
parties shall have no further rights and obligations the one to the other
should: if the Second Condition Precedent has not been fulfilled within 90
(ninety) days of the First Condition Precedent. This 90 (ninety) day period
is referred to as the "Exclusivity Period").
LICENSOR may extend the Exclusivity Period for a further consecutive period
of not more than 30 (thirty) days ("First Extension") at no further cost to
LICENSEE upon written
-3-
<PAGE>
request to LICENSOR to enable LICENSEE to confirm to LICENSOR that LICENSEE
has available all necessary government authorizations for the establishment
and operation of the System in the Territory and on condition that LICENSEE
has in the sole judgment of the LICENSOR complied with its obligations under
this Agreement. Further extensions of Exclusivity Period will provide that
the First Installment will become non-refundable, and that LICENSEE will
reimburse LICENSOR (as set forth in Sections 3.2 and 3.3) for any out-of-
pocket expenses incurred by LICENSOR during the Exclusivity Period within l0
days of invoice.
LICENSOR will at the request of LICENSEE refund the First Installment to
LICENSEE within 14 working days after the expiry of the Exclusivity Period
and the First Extension net of LICENSOR'S costs pursuant to Sections 3.2 and
3.3 if LICENSEE decides in good faith that the implementation of the System
in the Territory would not be feasible.
1. TRADEMARK LICENSE, SOFTWARE LICENSE,
------------------------------------
EXCLUSIVE DISTRIBUTION RIGHTS, and INFRINGEMENT
-----------------------------------------------
1.1 The LICENSOR hereby grants to the LICENSEE for the term described in
Section l.6 subject to the fulfillment of the Conditions Precedent
above and the Performance Standards (Section l6) hereby grants to the
LICENSEE an exclusive license to use, in the Territory, the Licensed
Rights.
1.2 During the term of this Agreement, and within the Territory, the
LICENSOR grants to LICENSEE, subject to all terms and conditions set
forth in this Agreement, the exclusive right to sell, lease, or rent to
distribute for resale VLU's, either to vendors or insurance companies
selling VLU's to motor vehicles owners or operators in the usual course
of business, or directly to such motor vehicles owners or operators.
1.3 The LICENSOR, in consideration of the payment by the LICENSEE of the
amounts set forth in Section 2.1, hereby grants to the LICENSEE an
exclusive license to use, in the Territory, the Licensed Software
Programs, solely in the operation of the System in the Territory for
the purposes described in Sections l.2 and l.7. Updates, revisions, and
new releases to the CARSEARCH Licensed Software Programs will be made
available to LICENSEE at no cost.
-4-
<PAGE>
1.4 In consideration of the payment by the LICENSEE of the amount set forth
in Section 2.1, LICENSOR hereby grants to the LICENSEE an exclusive
license to use, in the Territory for the purpose described in Sections
l.2 and l.7, the rights granted under this Agreement in connection with
the operation of the System, during the term of this Agreement.
1.5 During the term of this Agreement and within the Territory, the
LICENSOR grants to LICENSEE, subject to all terms and conditions set
forth in this Agreement, an exclusive license to use the trade names
and Trademarks (to the extent registered in the Territory), solely and
exclusively in connection with the sale, lease, or rent of Products in
the ordinary course of business, and for no other use or purpose. The
LICENSEE recognizes and acknowledges that the LICENSOR is the sole and
exclusive LICENSEE of the Trademarks and agrees not to register any of
the Trademarks of the LICENSOR or of LOJACK in its own name or that of
any other firm, person, or corporation and further agrees not to use
the LOJACK or CARSEARCH names nor any of its Trademarks as any part of
its corporate name.
1.6 The term of this Agreement shall commence on the exercise of the rights
described in Section l, and shall continue for a term of ten (10)
years, with automatic renewals for successive five (5) year periods
thereafter subject to earlier termination as provided in Article 14 of
this Agreement, and other provisions of this Agreement. Notwithstanding
the foregoing, the automatic term renewal provided above shall not take
effect if LICENSEE shall be in default beyond grace of its obligations
hereunder, or in the event of the occurrence of any other event of
default under Article 14 of this Agreement.
1.7 The rights herein granted are limited to sale, lease or rent of
Products for ultimate use in registered motor vehicles, which includes
trucks. LICENSEE agrees not to use the System or technology utilized
therein for any other or additional applications without the written
approval of the LICENSOR in each instance, which approval shall be at
the LICENSOR's sole discretion and may require payment of an additional
fee. In no event shall LICENSEE be allowed to use or sell Products for
any purpose outside the Territory, and LICENSEE specifically consents
to this restriction and limitation.
-5-
<PAGE>
1.8 (a) LICENSEE promptly shall notify LICENSOR of any claim by a third
party that any activities of LICENSEE pursuant to this Agreement
infringe Trademark or proprietary rights of that third party. In the
Event that any such claim, if successful, would affect LICENSEE's
exercise of rights granted hereunder in such a way as to have a
material adverse effect on the business of LICENSEE, LICENSOR shall at
its sole expense without cost to LICENSEE:
(i) defend against such claim and indemnify and hold harmless
LICENSEE against all damages, liabilities, costs and expenses that may
be suffered or incurred by the LICENSEE in connection with such claim
and any legal proceedings in respect thereof ("Defensive Litigation"),
provided that LICENSEE shall have given notice as provided above of any
such claim forthwith upon becoming aware of it, gives LICENSOR the sole
conduct of the defense of litigation and does not at any time admit
liability or otherwise attempt to settle or compromise the said claim
or any legal action or proceedings in respect thereof except upon the
express written instructions of LICENSOR, and acts in accordance with
the reasonable instructions of the LICENSOR as notified to the LICENSEE
and gives the LICENSOR such assistance as it shall reasonably require
and instruct the LICENSEE in writing to provide in connection with the
conduct of the Defensive Litigation including, without prejudice to the
generality of the foregoing, the filing of all pleadings and other
court process and the provision of all relevant documents and the right
to use the LICENSEE's name or to join the LICENSEE as a party to the
proceedings, or
(ii) procure the right for the LICENSEE to continue exercising the
licensed rights granted hereunder, or LICENSOR shall make such
alterations, modifications and adjustments to the Licensed Rights as
may be necessary to make the exercise thereof non-infringing, without
incurring any material diminution of the performance of function of the
System, or replace all or any part of the Licensed Rights with non-
infringing substitutes provided that such substitutes do not entail a
material diminution in performance; or
-6-
<PAGE>
(iii) in the event that LICENSOR, despite the use of best efforts,
cannot reasonably accomplish either (i) or (ii) above, at reasonable
expense, than LICENSOR shall refund a proportionate part of the
LICENSEE fee provided in Section 2.1, proportionate to the degree to
which LICENSEE is prohibited from exercising the Licensed Rights.
(b) In the event of any infringement or claimed infringement of the
rights by a third party, the LICENSEE shall promptly notify the
LICENSOR of said infringement or claimed infringement. In such a case,
the LICENSOR shall promptly notify the LICENSEE what action, if any,
the LICENSOR in it sole discretion elects to take in respect of such
matter. The LICENSOR shall have sole conduct of any action it elects to
take in such matter ("Offensive Litigation") and either the LICENSOR
shall pay all costs in connection with such Offensive Litigation and
shall be entitled to all damages and other sums which may be paid or
awarded as a result thereof; or if within ten (10) business days after
its receipt of such notice the LICENSEE agrees to share equally the
costs of such Offensive Litigation, the costs of any such Offensive
Litigation shall be borne and all damages and other sums which may be
paid or awarded as a result thereof shall be shared equally by the
LICENSOR an the LICENSEE.
(c) In the event that the LICENSOR fails to accept the conduct of any
Offensive Litigation within a reasonable period after notice from the
LICENSEE requesting the LICENSOR to do so, the LICENSEE shall be
entitled at its cost and expense to take all such actions as it deems
necessary or desirable in connection with such infringement or claimed
infringement and the LICENSEE shall be entitled to all damages and
other sums which may be recovered by or awarded to it as a result
thereof.
(d) The LICENSOR shall reimburse the LICENSEE its reasonable costs and
expenses incurred in complying with the provisions of clause 1.8 (a)
above (assistance for Defensive Litigation). The LICENSOR shall have no
liability to the LICENSEE in respect of any Defensive Litigation or
Offensive Litigation if the same results from any breach of the
LICENSEE's obligations under this Agreement.
-7-
<PAGE>
2. PAYMENT,PRICING AND TERMS
-------------------------
2.1 The License fee shall be U.S. $60,000.00 (Sixty Thousand dollars).
The fee shall be paid as follows: $20,000.00 (Twenty Thousand dollars)
upon execution of this Agreement. The receipt of the said $20,000 was
sent by LICENSEE and received by the LICENSOR on October 23, l995 and
is hereby acknowledged by the LICENSOR as the ("First Installment");
$20,000.00 (Twenty Thousand dollars) upon delivery to the LICENSEE of
the initial order of hardware and software; and $20,000 (Twenty
Thousand dollars) upon activation of the System (in no case later than
l80 days from date of this Agreement). The License Fee shall be
secured by an Irrevocable Letter of Credit valid for l80 (one hundred
eighty) days after the fulfillment of the Second Condition Precedent
either (i) issued by a bank satisfactory to the LICENSOR having an
office in Boston and which is a member of the United States Federal
Reserve system, or (ii) if such issuing bank is not a member of the
United States Federal Reserve System, the letter of credit must be
confirmed (at the sole cost to the LICENSEE) by a bank which is a
member of the United States Federal Reserve System. The License Fee
is due as designated concurrent with the exercise of the rights
described in Section l and is non-refundable.
2.2 Estimated hardware and software costs for the components of the System
are as listed in Attachment II. (Specific Equipment Requirements to be
determined.) Costs are for Hardware and Resident Software only, and do
not include additional costs which may be incurred for insurance,
installation, testing, modification, or approvals of any kind from
local agencies. Payment for all products and services under this
Agreement shall be billed and paid as shipped F.O.B. Dedham,
Massachusetts, Seguin, Texas, U.S.A. or such other place determined by
LICENSOR.
2.3 An initial Purchase Order will be placed no later than the exercise of
the rights described in Section l of the Agreement by the LICENSEE for
the minimum purchase as follows:
(1) Vehicle Activation Computer (VAC)*
(2) Vehicle Activation Transmitters (VAT)
(20) Vehicle Tracking Computers (VTC)
(960) Vehicle Location Units (VLUs)
* Plus any required software development or interface
software necessary to operate the system.
-8-
<PAGE>
The shipping schedule for the VAC, VAT's and VTC's shall provide for delivery of
all hardware within six (6) months* of the exercise of the rights described in
Section l of this Agreement. The shipping schedule for the VLUs shall provide
for delivery of all units within eight (8) months of the exercise of the rights
described in Section l of this Agreement. VLU delivery quantities may be
increased or decreased (in no case shall quantities be reduced below the minimum
specified in Section 16) by twenty-five (25%) percent with ninety (90) days
written notice to LICENSOR, prior to scheduled shipments.
* Subject to review of timetable for any necessary
software required for implementation of system.
Subsequent orders for Products shall be authorized in writing by the LICENSEE
and shall specify requested release dates, but in no instance should such orders
specify release dates sooner than ninety (90) days of receipt of order and
Irrevocable Letter of Credit by LICENSOR. LICENSOR will use its best efforts to
comply with requested release dates.
The LICENSOR shall make reasonable efforts to fill each order of the LICENSEE
that is accepted by the LICENSOR, but shall not be liable in any respect for
failure or delay in shipping any accepted orders that is due wholly or in part
to any shortage of material, labor, transportation, or utility service, or to
any labor or production difficulty of the LICENSOR, any source supplying to the
LICENSOR, or their suppliers, or to any cause beyond the LICENSOR's reasonable
control or without the LICENSOR's fault or negligence. The LICENSOR shall not be
liable for shipping over routes or by means of transportation not specified by
the LICENSEE. If LICENSEE does not specify shipping routes, LICENSOR shall
select routes and shall have no liability to LICENSEE by reason of such
selection.
2.4 All Products are priced in United States dollars and payment,
therefore, shall be made by LICENSEE in United States dollars. Upon
placement of a purchase order for Products, LICENSEE shall cause to be
issued, in favor of LICENSOR, an Irrevocable Letter of Credit valid for
the greater of six (6) months, or the period covering the shipping
schedule of the Products either (i) issued by a bank satisfactory to
LICENSOR having an office in Boston and which is a member of the United
States Federal Reserve System, (ii) if such issuing bank is not a
member of the United States Federal Reserve System, the letter of
credit must be confirmed (at the
-9-
<PAGE>
sole cost to the LICENSEE) by a bank which is a member of the United
States Federal Reserve System. Such letter of credit shall be in an
amount equal to the full amount of the order, and payable against
receipt of an Airway Bill of Lading and a copy of LICENSOR's invoice to
LICENSEE. In the case of the initial purchase order the letter of
credit shall be in the amount of no less than the total of items on
Attached IV.
2.5 Subsequent Purchase Orders shall be signed by the LICENSEE and shall
have release dates for Vehicle Tracking Computers and VLU's. All
shipments shall be accompanied by a Irrevocable Letter of Credit valid
for the period covering the shipping schedule plus 30 (thirty) days
either (i) issued by a bank satisfactory to LICENSOR having an office
in Boston and which is a member of the United States Federal Reserve
System, (ii) if such issuing bank is not a member of the United States
Federal Reserve System, the letter of credit must be confirmed (at the
sole cost to the LICENSEE) by a bank which is a member of the United
States Federal Reserve System. Such letter of credit shall be in an
amount equal to the full amount of the purchase order, and payable
against receipt of an Airway Bill of Lading and a copy of LICENSOR'S
invoice to LICENSEE. All Letters of Credit shall be in a form
acceptable to the LICENSOR.
2.6 The prices payable by LICENSEE for the Vehicle Tracking Computer and
VLUs will be fixed for one (1) year from the date of this Agreement.
2.7 All amounts payable by the LICENSEE to the LICENSOR under this
Agreement as reflected on LICENSOR invoices and are exclusive of any
Value Added or other Tax (which shall be payable in addition upon the
rendering by the LICENSOR to the LICENSEE of any appropriate Value
Added Tax invoice).
2.8 All amounts payable by the LICENSEE to the LICENSOR under this
Agreement which are not paid when due shall bear and be payable with
interest at 3% (three percent) over the Prime Rate as reported by the
Bank of Boston, determined as at such date, and calculated from such
due date to the date of actual payment by the LICENSEE (whether after
judgment or before).
-10-
<PAGE>
2.9 All amounts payable by the LICENSEE to the LICENSOR under this
Agreement shall be paid in full without any deduction or withholding
whatsoever provided that in the event the LICENSEE is required by the
Laws of the United States or the regulations of any competent authority
thereof to deduct or withhold any taxes, charges, or duties from any
amounts payable to the LICENSOR under this Agreement, the LICENSEE
shall deduct or withhold such taxes, charges, or duties and pay over to
the relevant authority the full amount thereof within the time allowed
under applicable law or regulation, and shall deliver to the LICENSOR a
certificate of deduction or withholding in receipt issued by the
relevant authority to evidence such payment. The LICENSEE shall, at the
cost and expense of the LICENSOR, cooperate with the LICENSOR in such a
manner as may be reasonably requested by the LICENSOR to obtain a
credit or deduction in the United States for any such taxes, charges,
or duties so deducted or withheld and paid.
2.10 The parties agree to cooperate in all such respects as may be
reasonably necessary or desirable in order to obtain such relief from
double taxation as may be available under any double taxation treaties
between the governments in the Territory and the United States.
2.ll All payments by LICENSEE to LICENSOR shall be made in U.S. Dollars and
either i) drawn on the bank of a designated lending institution which
is a member of the U.S. Federal Reserve System and approved in writing
by the LICENSOR or ii) by wire transfer to LICENSOR'S bank.
3. ESTABLISHMENT OF SYSTEM; TECHNICAL ASSISTANCE;
----------------------------------------------
FEES AND EXPENSES; FINANCIAL INFORMATION
----------------------------------------
3.1 LICENSEE shall bear the sole responsibility for establishing the
System in the Territory in accordance with specifications provided by
the LICENSOR. Any and all modifications to the functionality and
operation of the System beyond that defined in the system
specifications (Attachment I) must receive prior written approval from
LICENSOR. Such alteration, if approved by LICENSOR, shall be completed
at the sole expense of the LICENSEE, and may, at LICENSOR'S sole
discretion, affect the system warranty. The responsibilities of the
LICENSEE shall include, without limitation, promptly and diligently
upon execution of this Agreement, to obtain financing for, and to
construct, install, test and make operational the System in the
Territory, to obtain all governmental and other licenses, authority and
approval necessary for the operation of the System in the Territory,
and to abide by all the provisions of this Agreement.
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3.2 The sole obligations of the LICENSOR in connection with the
establishment of the System in the Territory and the operation of the
System in the Territory during the term of this Agreement shall be for
the LICENSOR: (a) to render technical operating and marketing
assistance to the LICENSEE upon the reasonable request of the LICENSEE
on a fee for service basis (See Attachment III); (b) to honor
LICENSEE's claims for warranty repairs made in accordance with this
Agreement; (c) to supply Products at agreed terms and prices subject to
Purchase Orders executed by LICENSEE and the LICENSOR; (d) to sell,
lease or rent Products to no person or entity (other than the LICENSEE)
for use in the Territory; and (e) to abide by all of the provisions of
this Agreement. The LICENSOR shall also provide, at LICENSEE's
reasonable request, assistance in training LICENSEE's properly
qualified personnel with respect to the installation of VLUs and other
operational aspects of LICENSEE's business on a fee for service basis.
The LICENSOR may, at its option, provide such technical assistance
directly or by subcontracting with third parties. LICENSOR shall have
no obligations to the LICENSEE other than those stated herein.
3.3 Nothing in this Agreement shall require the LICENSOR to render any
technical assistance with respect to the System or the System Software
if the System Software has been adapted or modified otherwise than by
or on behalf of the LICENSOR. LICENSEE shall pay the LICENSOR fees for
all technical, operating, administrative and marketing assistance, and
services rendered by the LICENSOR to LICENSEE (including assistance
described in Section 3.2 above), at LICENSEE's request. Such fees shall
be payable in full when the services are rendered. LICENSEE shall
reimburse the LICENSOR for all expenses reasonably incurred by the
LICENSOR in rendering such requested services to the LICENSEE,
including, travel, hotel and out-of-pocket expenses of the LICENSOR and
fees of independent contractors retained by the LICENSOR. LICENSEE
shall reimburse the LICENSOR for such expenses promptly upon receipt
from the LICENSOR of reasonable written evidence of such expenses.
3.4 Prior to the execution of the rights described in Section 1, LICENSEE
shall have provided to the LICENSOR: (i) current financial statements
and other information prepared by outside auditors prepared in
accordance with generally accepted accounting principles of the
Territory, consistently applied and reasonably acceptable to LICENSOR
in order to evaluate
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LICENSEE's ability to meet its financial obligations in connection with
the establishment and operation of the System in the Territory, (ii) a
business plan acceptable to LICENSOR for a period of no less than three
(3) years detailing the LICENSEE's proposed operation of the System in
the Territory. Within thirty (30) days after receipt of written
request made by the LICENSOR, LICENSEE shall deliver to the LICENSOR
such other financial information or materials as the LICENSOR shall
reasonably require in order to evaluate LICENSEE'S ability to continue
to meet its financial obligations under this Agreement, for purposes of
preparing its own financial statements, or which may be requested by
its Lenders or governmental authorities having jurisdiction over the
LICENSOR or any of its business activities. By its execution and
delivery of this Agreement, LICENSEE hereby warrants that any financial
statements, business plan and other information and materials provided
to the LICENSOR shall be true and correct in all material respects and
shall fairly reflect the LICENSEE's financial circumstances as of the
date thereof.
3.5 The LICENSEE shall have a non-exclusive royalty free license to use
only in the Territory during the term any improvements, modifications,
or adaptations (collectively "Improvements") to any part of the
Licensed Software Program or components of the System made by the
LICENSOR, provided the LICENSEE shall bear sole cost of adapting such
Improvements for use within the Territory.
4. PURCHASE OF SUPPLIES; COMPETING PRODUCTS; INSTALLATION
------------------------------------------------------
4.1 Recognizing that the LOJACK has developed a unique System, and in
order to safeguard the integrity of the Trademarks and to protect
Proprietary Information and Confidential Information of the LICENSOR
and LoJack and assure uniform product quality and specification
compliance and control, LICENSEE shall purchase directly from the
LICENSOR all Products or components which it uses or sells. In
addition, the LICENSEE will not sell any products which are in
competition with the Products or components. LICENSEE agrees to offer
in connection with the sale of VLUs, only the standard warranty from
time-to-time given by the LICENSOR to its retail customers, except as
the LICENSOR may otherwise in writing approve.
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4.2 LICENSEE assures that installation of VLUs shall be in compliance and
conformity with all procedures and standards reasonably established by
the LICENSOR for the Territory and in compliance with all applicable
laws and regulations. The LICENSOR shall provide LICENSEE with written
notice of any failure to so conform of which the LICENSOR has actual
notice, and LICENSEE shall thereupon, and within fifteen (15) days
thereafter, evidence to the LICENSOR that any such non-conformity has
been fully rectified. LICENSEE hereby grants the LICENSOR the right, at
reasonable times, from time-to-time and at any time, and with or
without notice to LICENSEE, as the LICENSOR elects, to audit and
inspect installations and installation facilities to ascertain
LICENSEE's compliance with this Section. All such audits and
inspections shall be at the LICENSOR's expense.
5. RESALE PRICING
--------------
LICENSEE shall have the right to establish its own price levels for sale,
lease or rent of all Products sold or installed in the Territory.
6. GOVERNMENTAL LICENSING
----------------------
6.1 LICENSEE acknowledges that certain permits, approvals, authorizations
and licenses necessary to operate the System in the Territory (herein
collectively called the "Required Permits") may be required by
governmental or other authorities prior to operation of the System in
the Territory and for the continued operation thereof. LICENSEE hereby
warrants to the LICENSOR that it has undertaken sole responsibility at
its sole expense to procure and prior to commencement of operations of
the System in the Territory shall have procured all such Required
Permits necessary to commence the operation of the System. LICENSEE
specifically represents and warrants that it shall make information
regarding all such Required Permits available to the LICENSOR from
time-to-time within fifteen (15) days after receipt of the LICENSOR's
written request, therefore, and that LICENSEE shall make all payments,
submit all filings and applications, and do all things necessary to
keep all such Required Permits at all times current and in full force
and effect at its sole expense. LICENSEE further warrants that it shall
procure any and all other permits, permissions, licenses and approvals
(from all governmental and other authorities and
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others), hereafter required or otherwise necessary for the operation or
use of the System in the Territory (all of which shall be deemed to be
"Required Permits" hereunder). It is specifically agreed that the
LICENSOR shall have no obligations or liability to LICENSEE for any
loss, cost or damage arising from LICENSEE's failure to procure or to
maintain any Required Permits.
6.2 LICENSEE at all times shall comply with all limitations regulations,
rules, guidelines and requirements of any governmental authorities
("Regulatory Body") having jurisdiction in the Territory granting any
of Required Permits, including, without limitation, those issued by
authorities having jurisdiction over radio transmissions licenses,
permits or approvals, or otherwise and in any way regulating or
affecting the System, or its operation or use in the Territory. The
LICENSOR will provide to LICENSEE, at no cost to LICENSEE, all
documents, information or data in the LICENSOR's control or possession
which LICENSEE reasonably determines to be necessary for LICENSEE to
obtain or maintain any Required Permit or to comply with any
requirement of any Regulatory Body, and the LICENSOR will provide same
with all due diligence and dispatch upon receipt of a written request
for same from LICENSEE.
6.3 The LICENSOR and LICENSEE, upon request of the other, will cooperate
with the other with respect to the filing and/or recording, if
applicable, by the LICENSOR of this Agreement (and any amendments
thereto from time-to-time in effect), or notice thereof, as applicable,
with all governmental authorities and other regulatory bodies in the
Territory necessary for the effectuation and/or enforcement thereof,
and the delivery to the LICENSOR of an opinion from country counsel,
reasonably approved by the LICENSOR, stating that this Agreement (or
amendment, if applicable) has been appropriately filed and/or recorded
and is in all events valid and enforceable in the Territory.
6.4 LICENSEE hereby grants, to the extent permitted by law, and assigns to
the LICENSOR all of its rights, title, and interest in and to the
Required Permits, which assignment shall take effect and become
operable only upon the expiration of the term of this Agreement, or
upon the earlier termination of this Agreement pursuant to Article 14,
or as otherwise provided in this Agreement.
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<PAGE>
7. INSURANCE
---------
The LICENSEE shall keep and maintain insurances with an insurer of repute in
such amounts and against such risks as are customarily maintained by
companies of similar size.
8. INDEMNIFICATION
---------------
8.1 The LICENSOR agrees to indemnify and hold harmless LICENSEE and, if
applicable, each of LICENSEE's officers, directors, subcontractors,
agents, employees and controlling persons against any and all loss,
liability, claim, damage and expense arising solely from a defect in
the design or manufacture of Products purchased by LICENSEE from the
LICENSOR except that this indemnification shall not extend to any loss,
liability, claim, damage or expense attributed solely to those matters
for which LICENSEE has indemnified the LICENSOR pursuant to section
8.2. below.
8.2 LICENSEE agrees to indemnify and hold harmless the LICENSOR and each
of the LICENSOR's officers, directors, agents, employees and
controlling persons against any and all loss, liability, claim, damage
and expense arising solely in connection with either (a) the LICENSEE's
establishment and operation of System, or (b) the sale, lease or rent
and installation by LICENSEE of Products, or (c) the conduct of
business by the LICENSEE pursuant to, or as contemplated by, this
Agreement, except that this indemnification shall not extend to any
loss, liability, claim, damage or expense attributable solely to those
matters for which the LICENSOR has indemnified LICENSEE pursuant to
Section 8.1 above.
8.3 Promptly after receipt by an indemnified party pursuant to Section 8.1
above or Section 8.2 above of actual notice of the commencement of any
action giving rise to indemnification rights under Section 8.1 above or
Section 8.2 above, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under the
applicable section, notify the indemnifying party in writing of the
commencement thereof. The failure to so notify the indemnifying party
shall relieve it from any liability which it may have to any
indemnified party under such section, but shall not relieve it from any
liability which it may have to any indemnified party otherwise than
under such section. Upon receipt of notice from the indemnified party
as aforesaid, the indemnifying party shall be entitled to participate
in, and, to the extent that it
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shall wish, to assume the defense of, the action, with counsel selected
and paid for by the indemnifying party but reasonably satisfactory to
the indemnified party. For purposes of this Agreement, the term
"counsel" shall mean attorneys and advocates. After the indemnified
party shall have received notice from the agreed upon counsel that the
defense has been assumed, the indemnifying party shall not be
responsible for any legal or other expense subsequently incurred by
such indemnified party in connection with the defense thereof, other
than reasonable costs of investigation, unless incurred at the written
request of the indemnifying party or the indemnifying party shall not
have employed counsel to have charge of the defense of such action or
the indemnified party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to
those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of
such action on behalf of the indemnified party) in any of which events
such legal or other expenses shall be borne by the indemnifying party.
In no event shall the indemnifying party be liable for the fees and
expenses of more than one counsel for all indemnified parties, in
connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general
obligations or circumstances, unless the indemnified party shall have
reasonably concluded and advised by indemnifying party that there may
be defenses available to it which are different from or additional to
those available to other indemnified parties, in which case the
indemnifying party shall be responsible for the fees and expenses of
such additional counsel as is reasonably required. The indemnifying
party shall not be liable under the indemnity provisions set forth
above for any amount paid in settlement of any claim unless such
indemnifying party consented in writing to any such settlement.
9. CONFIDENTIALITY
---------------
9.1 The LICENSEE agrees to maintain secret and confidential all Technical
Information and Confidential Information, Specifications, and
Proprietary Information (all of which are expressly agreed by the
parties to constitute the know-how disclosed or to be disclosed by the
LICENSOR to the LICENSEE or obtained by the LICENSEE from the LICENSOR
pursuant to this Agreement) and all other information that the
LICENSOR designates as
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confidential and discloses to the LICENSEE pursuant to this Agreement
including the design details and operating characteristics of the
System, information relating to installation of Vehicle Location Units
in motor vehicles, and trucks, and all other aspects of the System
treated as confidential by the LICENSOR or not generally known,
including the System Software, the Vehicle Activation Computer and the
Vehicle Activation Transmitters and all related file structures,
documentation, algorithms and software concepts (all of the foregoing
being referred to collectively as the "Confidential Information"), to
respect the LICENSOR's proprietary rights in the Confidential
Information, to use the Confidential Information exclusively for the
purposes of the exercise of the Licensed Rights and the installation,
use, servicing and operation of the System in the Territory in
accordance with this Agreement, and to disclose the Confidential
Information only to those persons to whom and to the extent such
disclosure is absolutely necessary for the aforesaid purposes.
9.2 The LICENSEE shall require that all of its employees, sub-contractors,
and agents, who will have access to any of the Confidential Information
shall be made aware of the confidentiality thereof. The LICENSEE shall
further procure that all of its employees and all of such sub-
contractors shall enter into a non-disclosure agreement substantially
in the form set forth in Attachment IV.
10. WARRANTY
--------
The LICENSOR warrants to LICENSEE that the Products when purchased from the
LICENSOR, under normal use and service, will be free from defect in
materials and workmanship. This warranty shall be in effect for a period
the greater of: i) one hundred and eighty (180) days from the date of
receipt of the Products at the Port of Entry of said VLUs and VTCs to the
LICENSEE and ii) the same warranty LICENSOR receives from its
manufacturers from time-to-time (the "Warranty Period"). The LICENSOR's
liability for honoring the warranty claims is subject to LICENSEE making
claims for defective Products within the applicable Warranty Period, and any
claims not made within the Warranty Period shall be conclusively deemed
waived and released.
During the Warranty Period for respective Products, the LICENSOR shall, at
its option, replace or repair, at any authorized repair facility designated
by the LICENSOR, any Products which the LICENSOR determines to be defective.
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The foregoing warranty does not apply to any Products which have been
damaged as a result of force majeure, accident, shipping and handling,
improper power supply, misuse, abuse, improper storage, improper
maintenance, improper installation, improper operation, unauthorized
modification, or which has been serviced, modified or repaired by anyone
other than a person designated, in writing by the LICENSOR, as an authorized
service representative.
EXCEPT AS EXPRESSLY SET FORTH ABOVE, NO OTHER WARRANTIES ARE EXPRESSED OR
IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, AND THE LICENSOR EXPRESSLY DISCLAIMS ALL
WARRANTIES NOT STATED HEREIN. THE LICENSOR'S SOLE OBLIGATION FOR VALID WARRANTY
CLAIMS AND LICENSEE'S SOLE REMEDY ON ACCOUNT OF WARRANTY CLAIMS SHALL BE FOR
REPAIR OR REPLACEMENT AS PROVIDED ABOVE. UNDER NO CIRCUMSTANCES WILL THE
LICENSOR BE LIABLE TO THE LICENSEE OR ANY OTHER PERSON FOR ANY DAMAGES OF ANY
KIND WHATSOEVER, INCLUDING WITHOUT LIMITATION ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
11. TERRITORY
---------
This Agreement shall apply to the Republic of Kenya, the ("Territory") with
no rights for any other Territory or area outside of the Territory.
In relation to the installation and operation of the System (as contemplated
by this Agreement) in the United Republic of Tanzania and the Republic of
Uganda, LICENSOR hereby gives LICENSEE a right of first refusal within 60
(sixty) days of the date of which LICENSOR invites LICENSEE to operate the
system in one or both such countries, such invitation to be made by LICENSOR
on terms no less favorable to those LICENSOR would be willing to enter into
with another prospective licensee.
12. PROMOTION AND ADVERTISING
-------------------------
12.1 LICENSEE agrees that its retail sales, lease or rental activity shall
be operated under the name CARSEARCH by LoJack and that all signs and
advertising shall prominently disclose that it is a LICENSEE of
Products.
12.2 LICENSEE agrees that it shall be solely responsible for sales
promotions and advertising of Products in the Territory, and that no
portion of the cost thereof shall be borne by the LICENSOR. The
LICENSOR reserves the right to review and approve all promotional
material and literature used by LICENSEE in the sale of LICENSOR'S
products.
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12.3 LICENSEE agrees that it shall be solely responsible at its expense for
the translation of LICENSOR'S sales literature and technical and other
documentation. Upon the expiration or earlier termination of this
Agreement, the LICENSEE agrees to promptly (within fifteen (15)
business days) deliver to the LICENSOR literature and documentation of
every kind relating to the System and/or any components thereof, and
all translations, and all promotional materials, in its possession or
within its control, in the manner directed by the LICENSOR.
13. TRANSFER
--------
13.l This Agreement shall be binding upon and enure to the benefit of the
parties and their respective legal successors and permitted assigns.
The LICENSOR shall have the right to assign or otherwise transfer its
rights and obligations under this Agreement to any subsidiary or to any
other person, persons, partnership, association, or corporation
provided that:-
13.l(a) each such transferee agrees in writing to assume all rights of
and obligations undertaken by the LICENSOR herein;
13.l(b) the LICENSEE receives an assignment and assumption agreement
executed by the LICENSOR and each such transferee to that effect;
13.l(c) each transferee has the financial capacity and technical
expertise necessary to discharge the obligations of the LICENSOR
under this Agreement; and
13.l(d) upon such assignment and assumption the LICENSOR shall
thereafter, have no further rights or obligations hereunder,
without prejudice, however, to the accrued rights of the LICENSOR
to such date.
13.2 The LICENSEE shall not assign, sell, transfer, sublease, sublicense,
license, convey, give away, transfer or part with possession of the
whole or any part of the Licensed Rights or its other rights and/or
obligations under this Agreement.
13.3 The LICENSEE shall not, without the LICENSOR'S prior written consent
(such consent not to be unreasonably withheld or delayed) pledge,
mortgage, charge or otherwise encumber all or any part of its other
rights and obligations under this Agreement, except that the LICENSEE
may grant a security interest for bank obligations in a maximum amount
of $l million (USD).
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14. TERMINATION
-----------
14.1 LICENSEE shall have the right to terminate this Agreement with or
without cause, upon the giving of sixty (60) days' written notice to
the LICENSOR, provided, however, that such sixty (60) day notice period
may be waived or shortened by the LICENSOR in writing after its receipt
of the notice of termination given by LICENSEE.
14.2 The following occurrences shall be events of default entitling the
LICENSOR, at its option, to terminate this Agreement immediately upon
the giving of written notice by the LICENSOR:
(a) If LICENSEE shall fail to make payment of any sum due from LICENSEE
to the LICENSOR within thirty (30) days following the receipt of
written notice by the LICENSOR stating with particularity the amount
and nature of any such unpaid amount or fails to maintain performance
standards as outlined in Section l6.
(b) if LICENSEE shall fail to comply with, observe or perform any other
material covenant or material agreement set forth in this Agreement,
other than those relating to the payment of monies from LICENSEE to the
LICENSOR or maintenance of performance standards as outlined in Section
16, within thirty (30) days following the receipt of written notice by
the LICENSOR stating with particularity the default claimed, provided
that the LICENSEE shall not be in default if such default is cured
within such thirty (30) day period, or, with respect to breaches that
are not curable within such thirty (30) day period, shall have
commenced to cure such default and, thereafter, shall have prosecuted
to completion the cure of the same with due diligence, provided,
however, a default shall occur in all events if any such cure is not
effectuated, notwithstanding LICENSEE's due diligence, within sixty
(60) days after the giving of the LICENSOR's default notice, provided
such cure is within LICENSEE'S control;
(c) if a receiver, liquidator or trustee of the LICENSEE shall be
appointed for LICENSEE by court order, or if judicial or other
proceedings are initiated against LICENSEE for the protection of
creditors or if any other action is taken by order of court or other
governmental authority wresting control of LICENSEE or its assets, or
if a petition to reorganize or its equivalent shall be filed against
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either party by a third party creditor under any bankruptcy,
reorganization or insolvency law, and shall not be dismissed within
thirty (30) days, or if LICENSEE shall file a petition in voluntary
liquidation or make an assignment for the benefit of creditors or its
equivalent under local law, any of the foregoing shall be default
entitling the LICENSOR to, thereupon, or thereafter, at any time,
terminate this Agreement.
15. RIGHTS AFTER TERMINATION
------------------------
15.1 Upon the termination of this Agreement, each party shall continue to
observe its respective obligations which shall survive the termination
of the Agreement, including the obligations in Section 1.5; LICENSEE
shall continue to observe its obligations with respect to Products
owned or possessed by LICENSEE; and the LICENSOR shall continue to
observe the obligation set forth in section 15.2.
15.2 Except in cases where LICENSEE terminates this Agreement without
cause, in the event that following the termination of this Agreement
the LICENSOR either (a) permits Products to be sold or distributed in
the Territory by a party other than the LICENSEE, or (b) permits a
party other than the LICENSEE to provide service in the Territory with
respect to any Products distributed, sold, or sublicensed by the
LICENSEE, then in either event the LICENSOR or its Designee (the
"Purchaser") may purchase inventory and such other assets, in good and
marketable condition, as agreed by both parties which are part of or
relate to the System within the Territory, including, items such as:
Vehicle Tracking Computers, the Vehicle Activation Computers, Vehicle
Activation Transmitters, VLUs (the "Designated Assets"). The price
which Purchaser shall pay for such Assets shall be equal to the lower
of cost or a price to be negotiated by the parties. The closing shall
occur in Boston, Massachusetts. At such closing, the Purchaser shall
pay in cash to the LICENSEE the price set forth above for all of the
Designated Assets and LICENSEE shall execute and deliver such
agreements (including without limitation an Asset Purchase Agreement
containing such reasonable representations and warranties and other
terms and conditions as the Purchaser may require), instruments and
other documents as are necessary to transfer to the Purchaser the
Assets which the Purchaser is acquiring, free and clear of all liens,
encumbrances and restrictions (unless otherwise agreed to by the
Purchaser).
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15.3 Immediately upon the expiration or earlier termination of this
Agreement, the LICENSEE shall cease and forever abstain from using the
Trademarks and to deliver to the LICENSOR all documents, instructions,
display items, and the like bearing any of the Trademarks. To the
extent that such items were originally purchased from the LICENSOR, are
in original packaging and can be used by LICENSOR, upon any such
termination by the LICENSOR, the LICENSOR may pay LICENSEE a price for
such items equal to cost less a fifteen (15%) percent restocking
charge.
15.4 Immediately upon the expiration or earlier termination of this
Agreement to the extent permitted by law, LICENSEE shall assign to
LICENSOR or designate of LICENSOR, free and clear of all liens,
encumbrances, and restrictions, permits to operate the System by any
governmental authority or other regulatory bodies.
15.5 By executing this Agreement to the extent permitted by law, the
LICENSEE waives any rights to compensation following expiration or
earlier termination of this Agreement, and LICENSEE further agrees
that, upon expiration or earlier termination of this Agreement, that it
will take whatever steps necessary to deregister the Agreement with any
governmental or other authority in the Territory.
16. PERFORMANCE STANDARDS
---------------------
16.1 Within six (6) months after the exercise of the Rights described in
Section l of this Agreement, all approvals required by governmental
authority or other regulatory bodies within the Republic of Kenya for
the installations and operations of the System and all other aspects of
the System shall have been obtained.
16.2 Within four (4) months of receipt of the approvals described in
Sentence l of Section 16.l of this Agreement, the Vehicle Activation
System shall be fully operational with coverage effective throughout
greater Nairobi.
16.3 By the (10th) tenth month of the receipt of the approvals described in
Section 16.l of this Agreement, LICENSEE shall have purchased a minimum
of Six Thousand (6,000) VLUs ("Minimum Unit Purchase").
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16.4 For each calendar quarter commencing ten (10) months after the receipt
of approvals described in Section l6.l of this Agreement, LICENSEE
shall purchase from the LICENSOR a minimum number of VLUs equal to the
greater of 200 (Two hundred) VLUs, or 6% (six percent) of new motor
vehicles registered in the Territory for that quarter.
16.5 In addition to the LICENSOR's Rights of Termination as described in
Section l5, in the event that the LICENSEE is not in compliance with
any of the terms or Performance Conditions of this Agreement, the
LICENSOR shall have the right, at the LICENSEE'S expense, to visit
LICENSEE's operation in order to review and inspect such operations
with five (5) day written notice.
17. DISPUTE RESOLUTION
------------------
The parties agree that all controversies and disputes arising under this
Agreement or in connection with the transactions hereunder shall be
determined by arbitration conducted in accordance with the rules for
commercial disputes of the International Chamber of Commerce in London, and
all matters submitted to arbitration shall be binding upon the parties and
fully enforceable.
18. GOVERNING LAW
-------------
This Agreement shall be deemed made in the Commonwealth of Massachusetts and
all rights and obligations of the parties hereunder shall be governed as to
validity, construction and in all other respects by the Laws of Kenya.
LICENSOR and LICENSEE agree to submit to the exclusive jurisdiction of the
Courts of the Territory.
19. NOTICE
------
All notices hereunder shall be in writing and shall be deemed to be given
and effective upon delivery by a recognized international delivery service
such as Federal Express, DHL or UPS, delivery charges prepaid or facsimile,
and addressed to the parties at their respective addresses set forth above,
or at such other addresses as may be designated from time-to-time by a party
by the giving of notice thereof in the manner herein provided for the giving
of notices.
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20. GENERAL
-------
20.1 The provisions of this Agreement may be varied or amended by mutual
consent of the parties but no such variation or amendment shall be
effective unless made in writing and signed by the LICENSOR and the
LICENSEE.
20.2 This Agreement contains the whole agreement between the parties with
respect to the subject matter hereof and supercedes all previous
agreements and understandings between the parties, whether written or
oral, with respect to the subject matter hereof.
20.3 If any provision of this Agreement shall be found by any court or
administrative body of competent jurisdiction to be invalid or
unenforceable the invalidity or unenforceability of such provision
shall not affect the other provisions of this Agreement and all
provisions not affected by such invalidity or unenforceability shall
remain in full force and effect. The parties hereby agree to attempt to
substitute for any invalid or unenforceable provision a valid or
enforceable provision which achieves to the greatest extent possible
the economic, legal and commercial objectives of the invalid or
unenforceable provision.
20.4 Each party to this Agreement shall execute and deliver such other
documents and do such other acts and things as may be necessary or
desirable to carry out the terms provisions and purpose of this
Agreement.
20.5 The failure to enforce or to require the performance at any time of
any of the provisions of this Agreement shall in no way be construed to
be a waiver of such provisions and shall not affect the right of any
party thereafter to enforce and to require performance of each and
every provision in accordance with the terms of this Agreement.
20.6 The headings of the clauses of this Agreement are used for convenience
only and shall not affect the meaning or interpretation of the contents
of this Agreement.
20.7 The relationship between LICENSOR and LICENSEE is that of independent
contractors, and that LICENSEE is not authorized to undertake any
obligation or commitment on behalf of LICENSOR, including any warranty
given by LICENSOR under this Agreement, and that such purported action
by LICENSEE shall be of no effect.
-25-
<PAGE>
21. FORCE MAJEURE
-------------
Neither party shall be liable or deemed to be in default for
delay or failure in performance under this Agreement or interruption of
service resulting directly or indirectly from acts of God, civil or military
authority, acts of public enemy, war, riots, civil disturbances,
insurrections, accidents, fire, explosions, earthquakes, floods, the
elements, strikes, labor disputes, fuel shortages, or from failure to
receive on a timely basis suitable parts, labor materials or transportation,
or other causes beyond reasonable control of such party; and the time for
performance so delayed shall be deemed extended for the period of such
delay.
22. SIGNATURES
----------
This Agreement may be executed in one or more counterparts having the
signatures of the parties and each such counterpart shall, for all purposes,
be deemed an original, but all such counterparts shall together constitute
but one and the same instrument.
LOJACK INTERNATIONAL CORPORATION
By:____________________________
C. Michael Daley, President
- --------------------------------
CARTRACK KENYA LIMITED
- -----------------------------
Gabriel Katri
- --------------------------
Date
-26-
<PAGE>
EXHIBIT 11
Page 1 of 3
LOJACK CORPORATION AND SUBSIDIARIES
PRIMARY EARNINGS PER SHARE
COMPUTATION FOR STATEMENT OF OPERATIONS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Reconciliation of net income before
extraordinary loss applicable to common stockholders
per statement of operations to amount used in
primary earnings per share computation:
Income before extraordinary loss and
preferred dividend $11,978,036 $ 3,837,738 $ 1,393,033
Interest on debt and investments, net of tax
effect on application of assumed proceeds
from exercise of options and warrants in
excess of 20% limitation (a) 278,777
----------- ----------- -----------
Income before extraordinary loss and
preferred dividend, as adjusted 11,978,036 3,837,738 1,671,810
Preferred dividend (425,563) (1,216,500)
----------- ----------- -----------
Income before extraordinary loss
applicable to common stockholders, as
adjusted 11,978,036 3,412,175 455,310
Extraordinary loss (163,062)
----------- ----------- -----------
Net income applicable to common
stockholders, as adjusted $11,978,036 $3,412,175 $ 292,248
=========== =========== ===========
Reconciliation of weighted average
number of common shares outstanding
to amount used in primary earnings
per share computation:
Weighted average number of shares
outstanding 21,544,346 19,660,496 13,652,255
Shares issuable from assumed exercise of
options and warrants using treasury stock
method 1,669,268 993,375 3,723,691
Dilutive effect of exercised options and
warrants outstanding during the year 71,070 12,186 154,150
----------- ----------- -----------
Weighted average number of common shares
outstanding, as adjusted 23,284,684 20,666,057 17,530,096
=========== =========== ===========
Primary earnings per share:
Income before extraordinary loss $ 0.51 $ 0.16 $ 0.02
Extraordinary loss (0.01)
----------- ----------- -----------
Net income $ 0.51 (b) $ 0.16 (b) $ 0.01 (b)
=========== =========== ===========
</TABLE>
<PAGE>
Page 2 of 3
LOJACK CORPORATION AND SUBSIDIARIES
COMPUTATION FOR STATEMENT OF OPERATIONS
FULLY DILUTED EARNINGS PER SHARE
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Reconciliation of net income before
extraordinary loss applicable to common
stockholders, as adjusted per primary
computation above, to amount used for fully
diluted computation in statement of operations:
Income before extraordinary loss
applicable to common stockholders, as
adjusted per primary computation $11,978,036 $ 3,412,175 $ 455,310
Interest on debt and investments, net of tax
effect on application of assumed
proceeds from exercise of options and
warrants in excess of 20% limitation (a) (30,341)
----------- ----------- -----------
Income before extraordinary loss
applicable to common stockholders, as
adjusted 11,978,036 3,412,175 424,969
Extraordinary loss (163,062)
----------- ----------- -----------
Net income applicable to common
stockholders, as adjusted $11,978,036 $ 3,412,175 $ 261,907
=========== =========== ===========
Reconciliation of weighted average number of
common shares outstanding, as adjusted per
primary computation above, to amount used for
fully diluted computation in statement of
operations:
Weighted average number of shares
outstanding, as adjusted per primary
calculation 23,284,684 20,666,057 17,530,096
Additional dilutive effect from the assumed
exercise of options and warrants using the
treasury stock method 59,503 407,670 69,315
Additional dilutive effect of exercised options
and warrants outstanding during the year 1,834 36,910 15,456
----------- ----------- -----------
Weighted average number of common shares
outstanding, as adjusted 23,346,021 21,110,637 17,614,867
=========== =========== ===========
Fully diluted earnings per share:
Income before extraordinary loss $ 0.51 $ 0.16 $ 0.02
Extraordinary loss (0.01)
----------- ----------- -----------
Net income $ 0.51 (b) $ 0.16 (b) $ 0.01 (b)
=========== =========== ===========
</TABLE>
<PAGE>
Page 3 of 3
LOJACK CORPORATION AND SUBSIDIARIES
ADDITIONAL FULLY DILUTED COMPUTATION (c)
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Additional adjustment to net income,
as adjusted, per fully diluted computation above:
Income before extraordinary loss
applicable to common stockholders, as
adjusted, per fully diluted computation above $11,978,036 $ 3,412,175 $ 424,969
Interest on 10% convertible subordinated
debentures, net of tax effect (a) 3,867 9,300
Dividend on 10% convertible preferred stock 425,563 1,216,500
----------- ----------- -----------
Income before extraordinary loss
applicable to common stockholders, as
adjusted 11,981,903 3,837,738 1,650,769
Extraordinary loss (163,062)
----------- ----------- -----------
Income applicable to common stockholders,
as adjusted $11,981,903 $ 3,837,738 $ 1,487,707
=========== =========== ===========
Additional adjustments to weighted average
number of shares outstanding, as adjusted:
Weighted average number of common shares
outstanding, as adjusted, per fully diluted
computation above 23,346,021 21,110,637 17,614,867
Effect of assumed conversion of 10%
convertible subordinated debentures 9,569 23,506 23,506
Effect of assumed conversion of 10%
convertible preferred stock 999,584 2,858,775
----------- ----------- -----------
Weighted average number of common shares
outstanding, as adjusted 23,355,590 22,133,727 20,497,148
=========== =========== ===========
Fully diluted earnings per share:
Income before extraordinary loss $ 0.51 $ 0.17 $ 0.08
Extraordinary loss (0.01)
----------- ----------- -----------
Net income $ 0.51 (b) $ 0.17 $ 0.07 (c)
=========== =========== ===========
</TABLE>
(a) Adjustments to income have been shown net of tax effects which were
calculated at the Company's effective tax rate which was (19.2%) for fiscal
1996, 7.1% for fiscal 1995 and 5.4% for fiscal 1994. The difference between
the Company's effective tax rate and the United States statutory rate is due
primarily to the utilization of loss carryforwards and the change in the
valuation allowance.
(b) These figures agree with the related amounts in the statements of
operations.
(c) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although, it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
<PAGE>
EXHIBIT 13
1996
ANNUAL REPORT
(ART)
<PAGE>
COMPANY PROFILE
- --------------------------------------------------------------------------------
LoJack Corporation markets and licenses the LoJack System, a unique,
proprietary system used exclusively by law enforcement personnel to track,
locate and recover stolen motor vehicles.
The problem of vehicle theft has escalated to an epidemic level--estimated to
result in an annual loss of almost $8 billion.
The LoJack System has a proven track record of reducing damage, enhancing
public safety, and solving serious crimes related to motor vehicle theft, all
accomplished within the practical constraints of today's overburdened law
enforcement system.
LoJack's strategy is to expand the use of its technology into those U.S. and
international markets where the combination of population density, new car
sales, and vehicle theft is high.
The LoJack System is currently operational in the following states:
Massachusetts, Florida, California, New York, New Jersey, Rhode Island,
Georgia, Michigan, Illinois, Virginia, District of Colombia, and Connecticut.
International licensees are operating stolen vehicle recovery systems using
LoJack's technology in the following countries: United Kingdom, Argentina,
Russia, Trinidad and Tobago, Hong Kong, Colombia, Venezuela, Ecuador, Greece,
Slovakia, and the Czech Republic.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
LoJack's Common Stock is traded on the NASDAQ National Market under the
symbol: LOJN.
The following table sets forth the range of the high and low bid information
for the Common Stock of LoJack for the fiscal periods indicated, as reported by
NASDAQ. This information reflects inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily reflect actual transactions.
LoJack's fiscal year ends the last day of February.
<TABLE>
<CAPTION>
HIGH LOW
Fiscal 1995 ------ -------
<S> <C> <C>
First Quarter 11 3/8 6 15/16
Second Quarter 8 1/2 5 7/8
Third Quarter 7 1/4 5 1/2
Fourth Quarter 8 5 1/8
<CAPTION>
Fiscal 1996
<S> <C> <C>
First Quarter 10 1/8 6 7/8
Second Quarter 13 5/8 9 1/8
Third Quarter 17 1/2 9 1/4
Fourth Quarter 11 1/2 9 1/4
</TABLE>
On May 17, 1996, there were 4,797 record holders of the Company's Common
Stock. The Company believes the actual number of beneficial owners of the
Common Stock is approximately 28,000 because a large number of the shares of
the Company's Common Stock is held in custodial or nominee accounts for the
benefit of persons other than the record holder.
LoJack has never paid a dividend, and at the present time, the Company expects
that future earnings will be retained for use in its business. The Company's
loan agreement with a bank permits the payment of dividends so long as such
payment does not cause non-compliance with certain loan covenants.
<PAGE>
LETTER TO SHAREHOLDERS: 1
- --------------------------------------------------------------------------------
OVERVIEW
I am pleased to report to you the results of LoJack Corporation's fiscal year
ended February 29, 1996 ("fiscal 1996"), and to share with you some insights
concerning the Company's vision for fiscal 1997 and beyond.
The Company demonstrated its continued profit potential during fiscal 1996
with pre-tax profit increasing by 143% on a 26% increase in revenues. The
growth in revenues from our domestic operations was particularly impressive
given that retail new car sales were down markedly in our large northeast
market: New York, New Jersey, Massachusetts, Connecticut, and Rhode Island. It
is noteworthy that despite bad winter weather and decreased new car sales we
were still able to increase our penetration of retail new car sales over fiscal
1995. Internationally, we continued our exceptional growth, bringing the number
of international markets to a total of 11 countries with the addition of four
new countries. The prospects for continued growth in the international arena
are very encouraging as several additional licensees are on the verge of
implementing LoJack's technology in their territories.
An exciting result of our strong financial performance is the immediate
opportunity it gives us to continue our growth, both in existing markets and
through domestic expansion and, more importantly, to increase our investment in
R&D to maintain our technology at the forefront of the stolen vehicle recovery
industry as well as to open new markets for our technology.
In summary, we are pleased with our present growth and profitability and
believe that our success and financial and technological strength puts the
Company in an excellent position as we enter fiscal 1997 and beyond.
FISCAL 1996 RESULTS
For fiscal 1996, revenues were $52,516,359, an increase of 26% over revenues
of $41,658,074 a year earlier. Pre-tax income was $10,047,036, an increase of
143% over $4,132,738 a year ago. Net income was $11,978,036, or $.51 per share.
Included in net income for fiscal 1996 was a $2,654,000, or $.11 per share,
deferred tax benefit which resulted from the recognition of the estimated
future tax benefit of the Company's remaining net operating loss carryforwards.
Net income a year ago was $3,837,738 or $.16 per share.
For fiscal 1996, the increase in revenues reflects an $8,871,891, or 23%
increase in revenues from domestic operations, and a $1,986,394, or 81%
increase in revenues from product sales and licensing fees pursuant to
international license agreements.
I would like to detail for you the improvements in profitability for the
fourth quarter. Our overall gross margin increased to 54% of revenues from 50%
a year ago, primarily because increased volume produced additional
manufacturing and installation efficiencies. As a percentage of revenues,
operating income before depreciation and amortization increased to 22% for the
fourth quarter as compared to 15% a year ago.
This represents a record year for profitability for the Company and I am
extremely proud to bring you this good news.
FISCAL 1997
While we were pleased with our results for fiscal 1996, we are now focusing on
improving those results in fiscal 1997. Domestically, our plans include both
increasing our penetration and coverage areas in existing markets and
aggressively working to complete our domestic expansion goals which include
Pennsylvania, Texas, and Maryland. Internationally, we also continue to work
with licensees who are resolving issues such as frequency availability and
financing to expand into a number of additional locations around the world,
such as Germany, Italy, China, Korea, and Israel, to name a few.
Our strategy to increase our penetration in existing domestic markets includes
expanding our sales presence among new car dealers, stepping up our sales
effort to test the viability of the fleet and commercial markets, and
strengthening and improving our advertising. We are in the final stages of
selecting an outside advertising agency and we expect to announce an
appointment in late spring. Currently, we do all our creative work internally,
which has been extremely effective in establishing our brand name and presence
in our markets. However, we believe that now is the time to engage
(ART)
the skills of an outside agency as we seek to better position LoJack and its
products in present and future markets.
We are aggressively engaged in improving and upgrading LoJack's technology and
product line in the following areas:
. We have been developing an updated version of the LoJack Unit required for
use in the European Community. All approvals for this product should be
received by late spring with the first shipment scheduled for South Africa in
mid-summer. This version of the LoJack Unit is also suitable for installation
in heavy equipment in the United States.
. Progress continues in the research and development program to develop a new
product, the LJU-III, which will help us open new markets for our technology.
LJU-III will be a totally self-contained LoJack Unit, the size of a credit
card, at a reduced cost over the present LoJack Unit. While development is
not complete, and therefore not a certainty, we have tentatively targeted
late 1997 for introduction of this new version of the LoJack Unit into the
retail aftermarket and fleet vehicle market including rentals, trucking and
cargo. The Company feels this new product will complement our existing LoJack
Unit which we intend to continue marketing through our existing new car
dealer distribution channels.
. We have completed development of a new version of the Police Tracking
<PAGE>
2
- --------------------------------------------------------------------------------
Computer which will be available this spring. The new compact unit is more
economical to manufacture and updates our technology replacing outdated parts
and meets the current requirement of law enforcement.
. Finally, we have developed a remote listening post to detect the presence of
a LoJack signal for the purpose of enhancing or broadening LoJack coverage.
We think this is a valuable use of our technology and has great potential in
both domestic and international markets for increasing coverage at a reduced
cost.
THE POTENTIAL FOR ACQUISITION
We will continue to consider strategic acquisitions in order to increase our
market size, revenue and profit potential. Our objective would be to acquire a
company or product line which would be compatible with our brand name,
distribution and overhead structure. While we have not seen any candidates that
fit our criteria this past year, we are continuing to seek and consider
opportunities without distracting ourselves from opportunities in our core
business.
CONCLUSION
In conclusion, on behalf of the officers and Board of Directors, I wish to
express our congratulations to Joseph F. Abely on his promotion to President
and Chief Operating Officer and also to extend our appreciation to all the
employees who make up the "LoJack Team" for their efforts, commitment and
dedication in contributing to the continued success of the Company.
LoJack Corporation has experienced the most successful year in its history
with the completion of fiscal 1996. I am extremely optimistic based on the
favorable condition of the company and the improvements we have made during the
year that we enter fiscal 1997 with even greater opportunity to succeed in
expanding our profitability in the coming year.
Yours truly,
(ART)
C. Michael Daley
Chairman and Chief Executive Officer
May 10, 1996
<PAGE>
3
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the periods indicated. The selected consolidated financial data for
and as of the end of the years in the five year period ended February 29, 1996
are derived from the consolidated financial statements of the Company which
have been audited by Deloitte & Touche LLP. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes appearing elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenues................ $52,516,359 $41,658,074 $30,218,584 $23,346,493 $17,535,402
Cost of goods sold...... 23,966,360 20,840,184 15,301,927 12,689,495 9,519,738
----------- ----------- ----------- ----------- -----------
Gross margin............ 28,549,999 20,817,890 14,916,657 10,656,998 8,015,664
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Systems costs and
research and
development.......... 1,263,492 807,462 522,117 725,462 523,910
Marketing............. 11,211,501 9,277,847 6,797,677 5,747,868 5,201,612
General and
administrative....... 5,574,757 4,870,004 4,111,385 3,750,387 3,747,863
Depreciation and
amortization......... 1,894,933 2,294,346 1,988,916 1,807,846 1,856,028
----------- ----------- ----------- ----------- -----------
Total................... 19,944,683 17,249,659 13,420,095 12,031,563 11,329,413
----------- ----------- ----------- ----------- -----------
Operating income (loss). 8,605,316 3,568,231 1,496,562 (1,374,565) (3,313,749)
Interest income
(expense) and other--
net.................... 1,441,720 564,507 (24,529) (367,244) (1,323,935)
----------- ----------- ----------- ----------- -----------
Income (loss) before
provision for income
taxes and extraordinary
item................... 10,047,036 4,132,738 1,472,033 (1,741,809) (4,637,684)
Income tax provision
(benefit).............. (1,931,000) 295,000 79,000
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item..... 11,978,036 3,837,738 1,393,033 (1,741,809) (4,637,684)
Extraordinary item, loss
on exchange of
subordinated
debentures............. (163,062)
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $11,978,036 $ 3,837,738 $ 1,229,971 $(1,741,809) $(4,637,684)
Preferred dividends for
the year............... (425,563) (1,216,500) (1,216,500)
----------- ----------- ----------- ----------- -----------
Net income (loss)
applicable to common
stockholders........... $11,978,036 $ 3,412,175 $ 13,471 $(2,958,309) $(4,637,684)
=========== =========== =========== =========== ===========
Earnings (loss) per
common share........... $ 0.51 $ 0.16 $ 0.01 $ (0.23) $ (0.38)
=========== =========== =========== =========== ===========
BALANCE SHEET DATA
Working capital......... $33,317,556 $21,967,747 $ 8,006,436 $ 1,270,527 $ 2,180,220
Total assets............ 53,079,437 36,694,816 21,376,486 13,559,392 14,775,489
Long-term debt.......... 644,218 899,246 617,662 2,384,656 2,221,723
Total liabilities....... 9,351,969 7,930,097 6,213,707 7,371,133 6,938,983
Stockholders' equity.... 43,727,468 28,764,719 15,162,779 6,188,259 7,836,506
</TABLE>
<PAGE>
4
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LoJack is the developer of, and owns all rights to, the LoJack System, a
unique patented system designed to assist law enforcement personnel in
locating, tracking, and recovering stolen vehicles. The LoJack System is
comprised of a Registration System maintained and operated by LoJack; a Sector
Activation System and Police Tracking Computers operated by law enforcement
officials (the "Law Enforcement Components"); and the LoJack Unit, a VHF (very
high frequency) transponder sold to consumers. The LoJack System is designed to
be integrated into existing law enforcement computer and telecommunication
networks and procedures. If a car equipped with a LoJack Unit is stolen, its
owner reports the theft as usual to a local police department. Existing law
enforcement computer and communication networks and procedures operate in the
normal manner for a report of a stolen vehicle. If the theft involves a vehicle
equipped with a LoJack Unit, a unique radio signal will be transmitted
automatically to the LoJack Unit in the stolen vehicle activating its tracking
signal. The tracking signal emitted from the LoJack Unit can be detected by the
Police Tracking Computer installed in police patrol cars throughout the
coverage areas and used to lead law enforcement officers to the stolen vehicle.
The Company's revenues in the United States are derived primarily from the
sale of LoJack Units and related products to consumers. Approximately 95% of
such sales are made through a distribution network consisting of new automobile
dealers.
In the fiscal year ended February 28, 1993, the Company commenced deriving
revenues from fees, sales of product, and royalties pursuant to agreements to
license ("License Agreements") the use of the Company's stolen vehicle recovery
system technology, principally to selected international markets. In connection
with this international expansion, the Company modified its stolen vehicle
recovery technology to develop the CarSearch Stolen Vehicle Recovery System
("CarSearch"). Unlike the LoJack System currently in operation in the United
States, CarSearch has the flexibility of operating independently of existing
law enforcement communication networks.
RESULTS OF OPERATIONS
Year Ended February 29, 1996 ("fiscal 1996") vs. February 28, 1995 ("fiscal
1995")
Revenues increased by $10,858,000, or 26%, in fiscal 1996 to $52,516,000 from
$41,658,000 in fiscal 1995. Revenues from domestic markets contributed
$8,872,000 of the increase and international revenues contributed $1,986,000.
The increase in domestic revenues was primarily due to increased revenues of
approximately $8,338,000 from sales of LoJack Units and related components in
domestic markets, including $3,500,000 from new markets which began operations
in fiscal 1996. The increase in international revenues of $1,986,000 resulted
from an increase in revenues from sales and royalties of the international
version of the LoJack Unit of $1,070,000 to both new and existing licensees,
with the balance of the increase from the non-recurring sale of components and
license fees principally from new licensing agreements with parties in foreign
countries including Russia, Argentina, and South Africa.
Cost of goods sold decreased to 46% of consolidated revenues in fiscal 1996
from 50% in fiscal 1995. Domestically cost of goods sold decreased as a
percentage of revenues to 46% in fiscal 1996 from 50% in fiscal 1995. This
decrease is primarily the result of a decrease in the manufactured cost of the
LoJack Unit during the year. Additionally, reductions in cost of goods sold
were due to installation efficiencies resulting from the economies of scale.
International cost of goods sold decreased to 40% of revenues in fiscal 1996
from 50% in fiscal 1995 primarily as the result of revenues being weighted
towards higher margin component sales and license fees.
Systems costs and research and development increased by $456,000 to $1,263,000
in fiscal 1996 from $807,000 in fiscal 1995. Research and development expense
increased by $185,000 as a result of expenses related to the development of
certain improvements and modifications to the LoJack Unit and Police Tracking
Computers, and other projects which commenced during fiscal 1996. Systems costs
increased by $271,000 primarily as a result of increased system operating costs
related to the fiscal 1995 expansion markets which were in operation for a full
year in fiscal 1996, as well as increases in systems maintenance costs and
maintenance engineering salaries related to updating and repairing existing
LoJack Systems.
Marketing expenses increased by $1,933,000 to $11,211,000 in fiscal 1996 from
$9,278,000 in fiscal 1995 primarily as the result of increases in marketing
wages and benefits of $506,000 and increases in general marketing expenses,
including advertising costs, of $1,427,000 as the result of both a full year of
operations in the fiscal 1995 expansion markets, the start-up of new markets in
fiscal 1996, and an increase in marketing spending related to the increase in
overall business volume during the year in existing domestic markets.
General and administrative expenses increased by $705,000 to $5,575,000 in
fiscal 1996 from $4,870,000 in fiscal 1995, primarily due to the addition of
certain administrative personnel and related office, telephone, insurance and
other expenses necessary to accommodate the demands of the increase in the
company's business volume, legal and other fees resulting from the Company's
international expansion and other non-recurring matters, as well as a full year
of operations for the fiscal 1995 expansion markets.
Depreciation expense decreased by $399,000 as the result of LoJack System
components in certain older markets becoming fully depreciated. This decrease
is offset partially by increases in depreciation related to fiscal 1995 and
fiscal 1996 start-up markets as well as current year additions of certain
computer equipment and software.
Interest income increased by $709,000 to $1,526,000 in fiscal 1996 from
$817,000 in fiscal 1995 as the result in the increase in cash balances
available for investment during the year offset by a general decrease in
average interest rates during the year.
Interest expense decreased by $177,000 to $167,000 in fiscal 1996
<PAGE>
5
- --------------------------------------------------------------------------------
from $344,000 in fiscal 1995 primarily due to the inclusion of additional
interest expense in fiscal 1995 related to a guarantee under a former line of
credit.
Other income decreased by $9,000 in fiscal 1996 to $82,000 from $91,000 in
fiscal 1995 primarily due to a decrease in income earned on disposals of
installation vehicles.
The income tax provision (benefit) decreased by $2,226,000 to a benefit of
$1,931,000 in fiscal 1996 from a provision of $295,000 in fiscal 1995. This
decrease resulted from an increase in the current provision of $428,000 as the
result of the increase in taxable income during the fiscal year, offset by a
deferred tax benefit of $2,654,000 which resulted from the realization of the
future tax benefit of the Company's remaining net operating loss carryforwards
in accordance with certain accounting pronouncements.
As a result of the foregoing, net income for fiscal 1996 increased by
$8,140,000 to $11,978,000 in fiscal 1996 from $3,838,000 in fiscal 1995.
Year Ended February 28, 1995 ("fiscal 1995") vs. February 28, 1994 ("fiscal
1994")
Revenues increased by $11,439,000, or 38%, to $41,658,000 for fiscal 1995 from
$30,219,000 in fiscal 1994. This increase is primarily the result of increased
revenues of $12,039,000 from sales of LoJack Units and related components in
the Company's domestic markets. Revenues from existing domestic markets
contributed $5,725,000 of this increase, while revenues from the new markets
("new markets") of Rhode Island and New York (both operational in June of 1994)
provided $6,314,000 of the increase in domestic revenues over fiscal 1994. This
increase in domestic revenues was offset partially by a net decrease of
$600,000 in foreign revenues derived pursuant to License Agreements consisting
of a $1,344,000 decrease in non-recurring license fees earned offset by a
$744,000 increase in revenues from the sale of CarSearch products and ongoing
royalties.
Cost of goods sold as a percentage of revenues decreased overall to 50% in
fiscal 1995 from 51% in fiscal 1994. Domestically, cost of goods sold as a
percentage of revenues decreased by 3% to 50% in fiscal 1995 from 53% a year
earlier. This decrease is the result of reduced manufacturing costs of the
LoJack Unit as well as increased installation efficiencies resulting from the
economies of scale. Cost of goods sold related to revenues derived under
License Agreements increased to 50% of related revenues in fiscal 1995 from 29%
in fiscal 1994. This increase is the result of the aforementioned decrease in
license fee revenue, which has no significant related cost component, to 15% of
total revenues under License Agreements in fiscal 1995 from 50% in fiscal 1994.
Systems costs and research and development increased by $285,000 to $807,000
in fiscal 1995 from $522,000 a year earlier. This increase is the result of
several research and development projects undertaken during the year related to
the LoJack System and other products as well as increased system operating
costs related to the addition of the new markets in fiscal 1995.
Overall, marketing expenses increased by $2,480,000 to $9,278,000 in fiscal
1995 from $6,798,000 a year earlier primarily as the result of advertising
costs and marketing wages related to the start-up of the new markets in fiscal
1995, as well as an increased media presence in certain existing domestic
markets.
Overall, general and administrative expenses increased by $759,000 to
$4,870,000 in fiscal 1995 from $4,111,000 a year earlier. This increase is
primarily the result of the start-up of new markets in fiscal 1995 as well as
an increase in administrative personnel, services, telephone expense and
supplies related to the increase in domestic revenues.
Depreciation and amortization increased by $305,000 to $2,294,000 in fiscal
1995 from $1,989,000 a year earlier. The start-up of new markets accounted for
$271,000 of the increase, and the remaining $34,000 is the result of net
additions to property and equipment in existing markets.
Interest expense increased by $31,000 to $344,000 in fiscal 1995 from $313,000
a year earlier primarily as the result of interest expense on new capital
leases for installation vehicles entered into during the fiscal year.
Interest income increased $741,000 to $817,000 in fiscal 1995 from $76,000 in
fiscal 1994. This increase is primarily the result of increased interest income
generated from the increase in cash available for investment during the year
and higher interest rates.
Other income decreased by $122,000 to $91,000 in fiscal 1995 from $213,000 in
fiscal 1994 primarily due to the absence in fiscal 1995 of income related to
the renegotiation of a lease in fiscal 1994.
Provision for income taxes increased
by $216,000 to $295,000 for fiscal 1995 from $79,000 a year earlier as the
result of the Company's increased taxable income for fiscal 1995.
The extraordinary loss item of $163,000 in fiscal 1994 is the result of the
exchange of the Company's
common stock for the convertible subordinated debentures of a subsidiary.
As a result of the foregoing, net income increased by $2,608,000 to $3,838,000
in fiscal 1995 from $1,230,000 a year earlier.
<PAGE>
6
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating
activities before changes in assets and
liabilities............................ $12,291,933 $ 6,815,872 $ 3,745,237
Increase (decrease) in cash from changes
in assets and liabilities.............. (1,147,524) (86,380) 198,574
----------- ----------- -----------
Net cash provided by operating
activities............................. $11,144,409 $ 6,729,492 $ 3,943,811
=========== =========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock................ $ 1,682,849 $13,585,828 $ 5,452,730
Repayment of debt and other............. (1,015,436) (687,895) (471,630)
Preferred stock dividends paid.......... (3,821,626)
Repurchase of common stock.............. (847,500)
----------- ----------- -----------
Net cash provided by (used for)
financing activities................... $ (180,087) $ 9,076,307 $ 4,981,100
=========== =========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment-
net.................................... $ (999,567) $(2,556,419) $(1,912,570)
----------- ----------- -----------
Net cash used for investing activities.. $ (999,567) $(2,556,419) $(1,912,570)
=========== =========== ===========
</TABLE>
The Company's strategic plan in the United States is to expand the use of its
technology to those jurisdictions where the combination of new vehicle sales,
population density, and the incidence of vehicle theft is high. Expansion of
the LoJack System in the United States requires substantial investments of
capital and operating resources. The Company had historically financed its
capital and operating needs through the issuance of common stock, convertible
debentures, long-term debt, and since fiscal 1993, from cash flow from
operations.
In fiscal 1996 the decrease in cash from changes in assets and liabilities of
$1,148,000 includes an increase in accounts receivable of $1,853,000, and an
increase in inventory of $935,000, and other net increases in assets and
liabilities of $4,000, offset partially by increases in accrued liabilities of
$894,000 and deferred revenue of $750,000. The increase in gross accounts
receivable of $1,853,000 is primarily related to the increase in domestic
revenues during the fourth quarter of fiscal 1996 of over $1,445,000 versus
fiscal 1995, as well as a receivable of over $200,000 related to a rebate due
from an inventory supplier. The increase in inventory of $935,000 resulted
primarily from an effort to increase the Company's inventory on hand to
sufficient levels to satisfy the Company's current level of business, as well
as to meet unanticipated demand. In addition, certain inventory on hand at
February 29, 1996 related to shipments of LoJack Units to certain international
licensees in early fiscal 1997. The Company expects that its investment in
inventory and accounts receivable will increase as its sales increase. As the
result of uncertainties in timing, changes in refundable deposits from
international licensees cannot be estimated. The increase in deferred revenue
is related to cash received during the year under the extended warranty program
for which revenue is amortized over a five year period. The increase in accrued
liabilities resulted from increases in accrued taxes and other liabilities
relative to the Company's increased business profitability and volume.
The Company is presently pursuing expansion efforts in several new states
which meet the qualifications set forth in the Company's initial strategic
plan. Additionally, the Company is in negotiations to expand into new
jurisdictions within certain states which currently have operational LoJack
Systems. The Company expects that, pending receipt of necessary approvals,
certain of these potential expansion markets will become operational during
fiscal 1997. The Company plans to fund these expansions as well as other
capital expenditures during fiscal 1997 using existing working capital or cash
flow from operations. The Company estimates capital expenditures in fiscal 1997
of approximately $2,500,000 to $3,000,000 for these expansions and other on-
going capital requirements.
The Company's expansion into additional international markets is achieved
through licensing agreements and has not, in the past, required capital
investment on the part of the Company. The Company currently has no plans to
change its practice.
During fiscal 1996 the Company's board of directors authorized a stock
repurchase program under which the Company may repurchase up to 2,200,000
shares of its outstanding common stock. The Company plans to accomplish the
repurchase program in open market transactions, from time to time, depending on
the price of its stock. As of February 29, 1996 the Company had repurchased
90,000 common shares. From March 1, 1996 through May 8, 1996 the Company has
repurchased an additional 20,000 common shares.
In February 1996 the Company completed an amendment to a revolving credit
facility with a bank which provides for borrowings up to a maximum of
$7,500,000. The amount of actual available borrowings is determined based upon
certain financial performance formulas. As of May 8, 1996 the Company would be
eligible to borrow $7,500,000. Amounts outstanding under the line of credit
bear interest at the bank's base rate. This facility permits borrowings and
repayments through March 1, 1997 at which time the line of credit converts to a
term loan which requires quarterly installments of principal commencing on May
31, 1997 and ending on February 28, 2002. The loan agreement contains
limitations on indebtedness, certain investments in equity securities, and
entity acquisitions; requires the bank's approval of mergers; and prohibits
disposition of assets other
<PAGE>
7
- --------------------------------------------------------------------------------
than in the normal course of business. Additionally, the Company is required to
maintain certain financial performance levels, including debt service coverage,
minimum tangible capital funds, leverage, quick ratio, and profitability. The
Company is permitted to pay dividends and repurchase its own common stock under
terms of the agreement, and is only limited to the extent of its ability to
meet certain financial performance measures. As of May 8, the Company has no
borrowings under this line of credit.
Capital lease obligations aggregating $879,000, $1,299,000 and $854,000 were
incurred for new equipment during each of the three years ended February 29,
1996. Interest rates on such leases range from 6% to 9% per annum. As of the
last day of February 1996 and 1995, principal amounts under such leases
aggregated $1,315,000 and $1,451,000, respectively.
The Company continues to participate in research and development efforts
regarding both improvements and modifications to the LoJack Unit and LoJack
system components. The Company expects to spend approximately $850,000 in
fiscal 1997 on its research and development efforts as compared with $515,000
spent in fiscal 1996.
As the result of the recognition of the estimated tax benefit of the remaining
net operating loss carryforwards, the Company will start, in its quarter ending
May 31, 1997, to accrue income taxes for financial reporting purposes based
upon its pre-tax income at a rate of approximately 39%, although the Company's
actual cash payment for taxes will be substantially offset to the extent of the
tax effect of the utilization of net operating loss carryforwards of
$13,600,000.
As of February 29, 1996 the Company had working capital of $33,348,000. The
Company believes that its anticipated capital and operating requirements for
fiscal 1997 can be funded from cash flows from operations. The Company intends
to continue to repurchase shares of its common stock in accordance with the
plan authorized by the board of directors during fiscal 1996 provided that the
reacquisition cost makes such repurchases economically practical. The Company
is also continuing to explore possible investment opportunities, including, but
not limited to, possible acquisitions of, or investments in, other companies.
The Company's current operations are not materially impacted by the effects of
inflation.
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and SFAS
No. 123 "Accounting for Stock-Based Compensation", which are effective for the
Company's fiscal year 1997. The Company's management does not believe
implementation of SFAS No. 121 will have a significant impact on the financial
statements when adopted in fiscal 1997. With regard to SFAS No. 123, the
Company has determined as permitted under SFAS No. 123 that it will not adopt
the fair value method and will continue to use Accounting Principles Board
Opinion No. 25 for the measurement and recognition of employee stock based
transactions.
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its directors, officers, or
employees may contain "forward-looking" information which involve risk and
uncertainties. Any statements in this report that are not statements of
historical fact are forward-looking statements (including, but not limited to,
statements concerning the characteristics and growth of the Company's market
and customers, the Company's objectives and plans for future operations,
possible acquisitions, and the Company's expected liquidity and capital
resources). Such forward-looking statements are based on a number of
assumptions and involve a number of risks and uncertainties, and accordingly,
actual results could differ materially. Factors that may cause such differences
include, but are not limited to: the continued and future acceptance of the
Company's products and services, the rate of growth in the industries of the
Company's customers; the presence of competitors with greater technical
marketing and financial resources; the Company's ability to promptly and
effectively respond to technological change which meet evolving customer needs;
capacity and supply constraints or difficulties; and the Company's ability to
successfully integrate new operations. For a further discussion of these and
other significant factors to consider in connection with forward-looking
statements concerning the Company, reference is made to Exhibit 99 of the
Company's Annual Report on Form 10-K for fiscal year February 29, 1996.
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 8
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................ $52,516,359 $41,658,074 $30,218,584
Cost of Goods Sold...................... 23,966,360 20,840,184 15,301,927
----------- ----------- -----------
Gross Margin............................ 28,549,999 20,817,890 14,916,657
----------- ----------- -----------
Costs and Expenses:
System costs and research and develop-
ment................................... 1,263,492 807,462 522,117
Marketing............................... 11,211,501 9,277,847 6,797,677
General and administrative.............. 5,574,757 4,870,004 4,111,385
Depreciation and amortization........... 1,894,933 2,294,346 1,988,916
----------- ----------- -----------
Total................................... 19,944,683 17,249,659 13,420,095
----------- ----------- -----------
Operating Income........................ 8,605,316 3,568,231 1,496,562
----------- ----------- -----------
Other Income (Expense):
Interest expense........................ (166,748) (343,658) (313,301)
Interest income......................... 1,526,440 817,179 75,732
Other income............................ 82,028 90,986 213,040
----------- ----------- -----------
Total................................... 1,441,720 564,507 (24,529)
----------- ----------- -----------
Income Before Provision for Income Taxes
and Extraordinary Item................. 10,047,036 4,132,738 1,472,033
Income Tax Provision (Benefit).......... (1,931,000) 295,000 79,000
----------- ----------- -----------
Income Before Extraordinary Item........ 11,978,036 3,837,738 1,393,033
Extraordinary Item--Loss on exchange of
subordinated debentures................ (163,062)
----------- ----------- -----------
Net Income.............................. 11,978,036 3,837,738 1,229,971
Preferred Dividends for the Year........ (425,563) (1,216,500)
----------- ----------- -----------
Net Income Applicable to Common Stock-
holders................................ $11,978,036 $ 3,412,175 $ 13,471
=========== =========== ===========
Primary and fully diluted earnings per
common share:
Income before extraordinary item........ $ 0.51 $ 0.16 $ 0.02
Extraordinary item...................... (0.01)
----------- ----------- -----------
Earnings per common share............... $ 0.51 $ 0.16 $ 0.01
=========== =========== ===========
Weighted average common shares and
equivalents............................ 23,284,684 20,666,057 17,530,096
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 9
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
ASSETS ---- ----
<S> <C> <C>
Current Assets:
Cash and equivalents............................... $ 31,630,663 $ 21,665,908
Accounts receivable--Net........................... 5,873,918 4,258,555
Inventories........................................ 2,780,416 1,845,753
Prepaid expenses and other......................... 83,544 63,971
------------ ------------
Total current assets............................... 40,368,541 27,834,187
Property and Equipment--Net........................ 7,652,703 8,440,427
Deferred Tax Asset................................. 4,703,173
Other Assets--Net.................................. 355,020 420,202
------------ ------------
Total.............................................. $ 53,079,437 $ 36,694,816
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current portion of capital lease obligations....... $ 670,925 $ 651,854
Accounts payable................................... 2,562,922 2,548,811
Accrued and other liabilities...................... 996,165 740,958
Deposits........................................... 1,087,741 718,668
Current portion of deferred revenue................ 695,794 437,778
Accrued compensation............................... 672,938 709,069
Accrued taxes...................................... 364,500 59,302
------------ ------------
Total current liabilities.......................... 7,050,985 5,866,440
------------ ------------
Deferred Revenue................................... 1,656,766 1,164,411
------------ ------------
Long-term Debt:
Capital lease obligations.......................... 644,218 799,246
10% convertible subordinated debentures............ 100,000
------------ ------------
Total long-term debt............................... 644,218 899,246
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Series A preferred stock--$.01 par value;
authorized, 10,000,000 shares; issued, 0 shares at
February 29, 1996 and February 28, 1995...........
Common stock--$.01 par value; authorized,
35,000,000 shares; issued, 21,876,666 and
21,252,610 shares at February 29, 1996 and
February 28, 1995, respectively................... 218,767 212,527
Additional paid-in capital......................... 56,872,389 53,046,416
Deficit............................................ (12,516,188) (24,494,224)
Treasury stock, at cost, 90,000 shares of common
stock............................................. (847,500)
------------ ------------
Total stockholders' equity......................... 43,727,468 28,764,719
------------ ------------
Total.............................................. $ 53,079,437 $ 36,694,816
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 10
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Stock
-------------------- ------------------- -------------------
Additional
Number of Number of Paid-in Number of
Shares Amount Shares Amount Capital Deficit Shares Amount Total
---------- -------- ---------- -------- ----------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 1,
1993............. 1,216,500 $ 12,165 12,839,088 $128,391 $31,788,010 $(25,740,307) $ 6,188,259
Issuance of common
stock:
Exercise of
warrants and
options......... 1,705,272 17,052 5,435,678 5,452,730
Conversion of
subordinated
debentures of a
subsidiary...... 554,262 5,543 2,202,845 2,208,388
Other............ 16,083 161 83,270 83,431
Net income........ 1,229,971 1,229,971
---------- -------- ---------- -------- ----------- ------------ -----------
Balance, February
28, 1994......... 1,216,500 12,165 15,114,705 151,147 39,509,803 (24,510,336) 15,162,779
Issuance of common
stock:
Exercise of
warrants and
options......... 3,278,453 32,785 13,553,043 13,585,828
Conversion of
preferred stock
into common
stock........... (1,216,500) (12,165) 2,859,452 28,595 (16,430) 0
Preferred dividend
paid............. (3,821,626) (3,821,626)
Net income........ 3,837,738 3,837,738
---------- -------- ---------- -------- ----------- ------------ -----------
Balance, February
28, 1995......... 21,252,610 212,527 53,046,416 (24,494,224) 28,764,719
Issuance of common
stock:
Exercise of
options......... 600,550 6,005 1,676,844 1,682,849
Conversion of
subordinated
debentures...... 23,506 235 99,765 100,000
Repurchase of
common stock..... 90,000 $(847,500) (847,500)
Tax benefit of
employee stock
option exercises. 2,049,364 2,049,364
Net income........ 11,978,036 11,978,036
---------- -------- ---------- -------- ----------- ------------ ------ --------- -----------
Balance, February
29, 1996......... 21,876,666 $218,767 $56,872,389 $(12,516,188) 90,000 $(847,500) $43,727,468
========== ======== ========== ======== =========== ============ ====== ========= ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 11
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income............................. $11,978,036 $ 3,837,738 $ 1,229,971
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Depreciation and amortization.......... 2,730,173 2,860,303 2,351,483
Provision for doubtful accounts........ 237,724 117,831 721
Loss on exchange of debentures......... 163,062
Deferred tax benefit................... (2,654,000)
Increase (decrease) in cash from
changes in assets and liabilities:
Accounts receivable.................... (1,853,087) (1,714,369) (255,144)
Inventories............................ (934,663) (42,483) 331,798
Prepaid expenses and other............. (19,573) (10,338) 4,108
Other assets........................... 1,778 41,325 (86,385)
Accounts payable....................... 14,111 300,477 (135,446)
Accrued and other liabilities.......... 893,539 677,287 (74,976)
Deferred revenue....................... 750,371 661,721 414,619
----------- ----------- -----------
Total adjustments...................... (833,627) 2,891,754 2,713,840
----------- ----------- -----------
Net cash provided by operating activi-
ties.................................. 11,144,409 6,729,492 3,943,811
----------- ----------- -----------
Cash Flows From Investing Activities:
Expenditures for property and equip-
ment--net............................. (999,567) (2,556,419) (1,912,570)
----------- ----------- -----------
Cash Flows From Financing Activities:
Issuance of common stock............... 1,682,849 13,585,828 5,452,730
Repayment of debt...................... (1,015,436) (687,895) (460,873)
Payment of preferred dividends......... (3,821,626)
Repurchase of common stock............. (847,500)
Other.................................. (10,757)
----------- ----------- -----------
Net cash (used for) provided by financ-
ing activities........................ (180,087) 9,076,307 4,981,100
----------- ----------- -----------
Increase in Cash and Equivalents....... 9,964,755 13,249,380 7,012,341
Beginning Cash and Equivalents......... 21,665,908 8,416,528 1,404,187
----------- ----------- -----------
Ending Cash and Equivalents............ $31,630,663 $21,665,908 $ 8,416,528
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 12
- --------------------------------------------------------------------------------
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY--LoJack Corporation and subsidiaries ("LoJack" or the "Company")
market and license for use components of the LoJack System (the "LoJack
System") and related products, a unique proprietary system for locating,
tracking and recovering stolen vehicles.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR--The Company's February 1996, 1995 and 1994 fiscal years ended on
February 29, 1996, and February 28, 1995 and 1994, respectively.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of LoJack and its wholly owned subsidiaries. Intercompany transactions
and balances are eliminated in consolidation.
REVENUE RECOGNITION--Sales of the LoJack Units and related products are
recognized upon installation by the Company. Revenues from the sales of
components of the LoJack System to licensees are recognized upon shipment.
Nonrefundable fees received in connection with the granting of licenses to
implement and operate components of the LoJack System are generally recognized
upon receipt of the fees or, in the case of deposits, once they become
nonrefundable. Such revenues aggregated approximately $932,000, $163,000 and
$1,507,000 for the fiscal years ended February 1996, 1995 and 1994,
respectively. LoJack's sole obligation in connection with the granting of
licenses is to provide technical assistance on a fee-for-service basis.
Revenues from sales of extended warranties are amortized over the estimated
term of the warranties (five years). Costs directly related to the sales of
such warranties are deferred and charged to expense proportionately as the
revenues are recognized. Such revenues aggregated approximately $570,000,
$334,000 and $153,000 for the fiscal years ended February 1996, 1995 and 1994,
respectively. The related warranty costs are recognized when incurred. Revenues
from extended warranty sales expected to be realized beyond one year are
classified as a long-term liability.
RESEARCH AND DEVELOPMENT--Costs for research and development on components of
the LoJack System have been expensed as incurred. Such costs aggregated
approximately $515,000, $330,000, and $150,000 for the fiscal years ended
February 1996, 1995 and 1994, respectively.
CASH EQUIVALENTS--Cash equivalents include short-term, highly liquid
investments purchased with remaining maturities of three months or less. These
cash equivalents consist of high quality securities purchased through major
banks. Management routinely assesses the financial strength of the banks and,
as of February 29, 1996, believes it had no significant exposure to credit
risks.
ACCOUNTS RECEIVABLE--The allowance for doubtful accounts was approximately
$395,000 and $193,000 as of the end of February 1996 and 1995, respectively.
Accounts receivable are principally due from new automobile dealers that are
geographically dispersed in various states in the United States.
INVENTORIES--Inventories are stated at the lower of cost (first-in, first-out
method) or market and consist primarily of finished goods, including LoJack
Units and other related products and components held for resale.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the related assets (three to seven years).
OTHER ASSETS--NET--Other assets--net consist of the following as of the end of
February:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Engineering deposits......................................... $110,000 $110,000
Deferred contract costs...................................... 153,920 185,612
Deferred financing costs..................................... 25,438 54,094
Deferred patent costs........................................ 12,318 15,373
Other (principally deposits)................................. 53,344 55,123
-------- --------
Total........................................................ $355,020 $420,202
======== ========
</TABLE>
Deferred contract, financing and patent costs are being amortized using the
straight-line method over periods ranging from 3 to 17 years. Accumulated
amortization aggregated approximately $247,000 and $184,000 as of the end of
February 1996 and 1995, respectively.
PRODUCT WARRANTY COSTS--Anticipated costs related to standard product
warranties are charged to income at the time of the sale of the related
products.
EARNINGS PER SHARE--Earnings per share has been computed by dividing net
income, after reduction for preferred stock dividends, by the weighted average
number of common shares and equivalents outstanding. Common share equivalents
included in the computation represent shares issuable upon assumed exercise of
stock options (and stock purchase warrants for fiscal years 1995 and 1994),
which would have a dilutive effect. Fully diluted and primary earnings per
share were the same for the years ended February 1996, 1995 and 1994.
INCOME TAXES--Deferred tax assets and liabilities are determined based upon:
(a) the difference between the financial statement carrying amounts and tax
bases of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse, and (b) operating loss and
tax credit carryforwards.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company's financial instruments
consist of cash and equivalents, accounts receivable, accounts payable,
deposits, accrued liabilities, capital lease obligations and, at the end of
February 1995, 10% convertible subordinated debentures. The fair value of these
financial instruments at the end of February 1996 and 1995 approximate their
carrying values.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash payments for interest
aggregated approximately $168,000, $672,000 and $83,000 for the fiscal years
ended February 1996, 1995 and 1994, respectively. Cash payments for income
taxes for the fiscal years ended February 1996, 1995 and 1994 were
approximately $418,000, $244,000 and $95,000, respectively.
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES AND
EXTRAORDINARY LOSS--Capital lease obligations aggregating approximately
$879,000, $1,299,000 and $854,000 were incurred when the Company entered into
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13
- --------------------------------------------------------------------------------
lease agreements for new vehicles and equipment during the fiscal years ended
February 1996, 1995 and 1994, respectively.
In July 1995, $100,000 of the Company's 10% convertible subordinated
debentures were converted into 23,506 shares of the Company's common stock.
On May 27, 1994, the Company called for redemption on July 11, 1994, 1,216,500
shares of its Series A Preferred Stock at a price of $10.50 per share. Prior to
the redemption date, holders of all of the 1,216,500 shares of the Preferred
Stock exercised their option to convert such shares into 2,859,452 shares of
the Company's common stock and receive payment of $3,821,626 of accumulated
preferred dividends, which had accumulated at a rate of 10% per year from May
15, 1991. As a result of this conversion, the Company no longer has any
preferred stock outstanding.
On May 7, 1993, the Company acquired from an investor group their holdings of
convertible subordinated debentures of the Company's New Jersey subsidiary in
exchange for 554,262 shares of the Company's common stock. The convertible
subordinated debentures which were exchanged had a face value of $1,566,977
plus accrued interest of $528,873. The total loss on exchange of the
convertible subordinated debentures aggregated $163,062, which is classified as
an extraordinary item. Of this loss, $152,306 was a noncash transaction,
including $39,768 of unamortized deferred financing costs related to the
convertible subordinated debentures which were written off upon the exchange.
ACCOUNTING PRONOUNCEMENTS--In fiscal 1996, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," and SFAS No. 123, "Accounting for Stock-Based
Compensation," which are effective for the Company's fiscal year 1997. The
Company's management does not believe implementation of SFAS No. 121 will have
a significant impact on the financial statements when adopted in fiscal 1997.
With regard to SFAS No. 123, the Company has determined that, as permitted
under SFAS No. 123, it will not adopt the fair value method and will continue
to use Accounting Principles Board Opinion No. 25 for the measurement and
recognition of employee stock-based transactions.
USE OF ESTIMATES--The management of the Company is required, in certain
instances, to use estimates and assumptions that affect the amounts reported in
the financial statements, and the notes thereto, in order to conform with
generally accepted accounting principles. The Company's actual results could
differ from these estimates.
RECLASSIFICATIONS--Certain 1995 and 1994 amounts have been reclassified to
conform to the 1996 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of the end of February:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
LoJack System components............................ $ 13,015,269 $ 12,144,624
Equipment, furniture, and fixtures.................. 2,766,764 2,076,926
Vehicles............................................ 3,129,892 2,797,533
------------ ------------
Total............................................... 18,911,925 17,019,083
Less accumulated depreciation and amortization...... (12,069,040) (10,042,098)
------------ ------------
Total............................................... 6,842,885 6,976,985
LoJack System components not yet in service......... 809,818 1,463,442
------------ ------------
Property and equipment--net......................... $ 7,652,703 $ 8,440,427
============ ============
</TABLE>
Total additions to property and equipment, including those relating to capital
lease obligations, aggregated approximately $2,158,000, $3,471,000 and
$3,122,000 for the fiscal years ended February 1996, 1995 and 1994,
respectively.
LoJack System components not yet in service consist primarily of certain
components relating to the implementation of the LoJack System in expansion
markets. Such components at the end of February 1996 are expected to be used in
markets which are estimated to be approved and become operational during the
year ending February 28, 1997.
3. NOTE PAYABLE AND CAPITAL LEASE OBLIGATIONS
LINE OF CREDIT--The Company has renewed a line-of-credit agreement with a bank
for a revolving credit facility which provides for borrowings up to a maximum
of $7,500,000. The amount of actual available borrowings is determined based
upon certain financial performance formulas. As of February 29, 1996, the
Company would be eligible to borrow $7,500,000. This facility permits
borrowings and repayments through March 1, 1997, at which time the line of
credit converts to a term loan which requires quarterly installments of
principal commencing on May 31, 1997 and ending on February 28, 2002.
Outstanding borrowings under the line of credit bear annual interest, payable
monthly, at the bank's base rate. No borrowings were outstanding under the line
of credit as of the end of February 1996 and 1995.
The Company has granted to the bank a security interest in substantially all
of the assets of the Company and its subsidiaries. The loan agreement relating
to the line of credit generally contains limitations on indebtedness, certain
investments in equity securities and entity acquisitions; requires lender's
approval of mergers; and prohibits disposition of assets other than in the
normal course of business. Additionally, the loan agreement requires the
Company to maintain certain financial performance measures including debt
service coverage, minimum tangible capital funds, leverage, quick ratio and
profitability.
The payment of dividends and repurchase of the Company's common stock is
permitted and is limited only to the extent such payments affect the Company's
ability to meet the financial performance measures under the line of credit.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14
- --------------------------------------------------------------------------------
CAPITAL LEASE OBLIGATIONS--The Company has entered into capital lease
arrangements for certain vehicles and equipment. The cost of leased vehicles
and equipment included in property and equipment was approximately $2,946,000
and $2,966,000, and the related accumulated amortization was approximately
$1,447,000 and $1,390,000 as of the end of February 1996 and 1995,
respectively.
REPAYMENT REQUIREMENTS--At February 29, 1996, scheduled repayment requirements
for capital lease obligations are as follows:
<TABLE>
<S> <C>
1997................................................................. $ 769,619
1998................................................................. 529,814
1999................................................................. 160,080
2000................................................................. 13,616
---------
Total payments....................................................... 1,473,129
Less amounts representing interest................................... (157,986)
---------
Total principal...................................................... 1,315,143
Less current portion................................................. (670,925)
---------
Long-term portion.................................................... $ 644,218
=========
</TABLE>
4. STOCKHOLDERS' EQUITY
STOCK OPTIONS--In July 1989, the Company's stockholders adopted the LoJack
Incentive Stock Option Plan ("ISO Plan") which covers substantially all
employees. The ISO Plan, as amended, provides for the granting of options to
purchase a maximum of 500,000 shares of common stock, of which options to
purchase 279,900 shares of common stock are outstanding and 91,050 shares
remained available for future grant as of February 29, 1996. In July 1992 and
July 1995, the Company's stockholders approved amendments to the ISO Plan to
create a new class of Senior Management Options, which provide for the granting
of options to purchase a maximum of 3,414,135 shares of common stock, of which
options to purchase 2,303,000 shares of common stock have been granted and
1,111,135 shares remained available for future grant as of February 29, 1996.
In July 1994, the Company's stockholders approved an amendment to the ISO Plan
to provide for the granting of options to non-employee directors to purchase a
maximum of 210,000 shares of common stock, of which options to purchase 75,000
shares of common stock have been granted and 135,000 remained available for
future grant. The Company has, from time to time, also granted options to key
employees, officers and directors to purchase an aggregate of 236,750 shares of
the Company's common stock. The options, including those issued under the ISO
Plan, provide for an exercise price equal to fair market value of the common
stock as of the date of the grant, generally vest ratably over periods of three
to five years, and expire ten years from the date of the grant.
A summary of stock option activity for the fiscal years ended February 1996,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Outstanding, beginning of period....... 2,842,600 2,493,550 2,022,250
Granted................................ 524,475 535,550 516,000
Exercised.............................. (600,550) (186,300) (35,700)
Canceled............................... (167,875) (200) (9,000)
------------ ----------- -----------
Outstanding, end of period ($2.00-
$12.38)............................... 2,598,650 2,842,600 2,493,550
============ =========== ===========
Exercisable, end of period............. 1,854,145 1,720,085 1,448,520
============ =========== ===========
Option prices per share:
Granted................................ $8.38-$12.38 $6.63-$7.63 $4.94
Exercised.............................. $2.00-$ 7.63 $2.00-$4.94 $2.00-$2.38
Canceled............................... $2.38-$ 9.00 $4.38 $2.38-$4.53
</TABLE>
STOCK PURCHASE WARRANTS--In connection with the issuance of the Company's 10%
subordinated debentures (see Note 1), holders of the Company's Series A
Preferred Stock (see Note 1) and 10% convertible subordinated debentures were
granted warrants to purchase 3,141,517 shares of common stock, expiring May 15,
1997, at an exercise price of $4.25 per share. During the year ended February
28, 1994, 91,092 of these warrants were exercised. On March 25, 1994, the
Company called the remaining warrants pursuant to terms of the related warrant
agreement. During the year ended February 28, 1995, 3,050,425 of such warrants
were exercised, resulting in net proceeds to the Company of approximately
$12,965,000.
In connection with the private placement of 794,449 shares of the Company's
common stock in November 1991, the Company issued warrants to purchase
1,459,800 shares of common stock, expiring November 15, 1998, at an exercise
price of $3.00 per share. The holders exercised all of these warrants during
the year ended February 28, 1994.
In connection with a 1989 offering of common stock, the Company granted the
underwriter warrants to purchase 170,000 shares of common stock at a price of
$5.25 per share. The warrants were exercisable through April 1994. During the
years ended February 28, 1995 and 1994, the holders exercised 42,000 and
118,680 warrants, respectively, and the balance expired unexercised in April
1994.
COMMON STOCK RESERVED--As of February 29, 1996, the Company had 21,786,666
shares of common stock issued and outstanding, and 3,908,835 shares of common
stock reserved for the exercise of stock options (see above).
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15
- --------------------------------------------------------------------------------
5. INCOME TAXES
The provision for income taxes consisted of the following for the fiscal years
ended February 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
----------- -------- -------
<S> <C> <C> <C>
Current:
Federal........................................ $ 200,000 $ 65,000 $50,000
State.......................................... 523,000 230,000 29,000
----------- -------- -------
Total............................................ 723,000 295,000 79,000
----------- -------- -------
Deferred:
Federal........................................ (2,348,000)
State.......................................... (306,000)
----------- -------- -------
Total............................................ (2,654,000)
----------- -------- -------
Income tax provision (benefit)................... $(1,931,000) $295,000 $79,000
=========== ======== =======
</TABLE>
The difference between the Company's effective income tax rate before
extraordinary item and the United States statutory rate is reconciled below:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
U.S. statutory rate....................................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit....................... 5.2 5.6 2.0
Utilization of net operating loss carryforwards........... (19.3) (26.2) (29.0)
Change in valuation allowance............................. (38.9)
Other, net................................................ (0.2) (6.3) (1.6)
----- ----- -----
Effective tax rate........................................ (19.2)% 7.1% 5.4%
===== ===== =====
</TABLE>
The tax effects of the items comprising the Company's net deferred tax asset
at the end of February 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- ----------------------
CURRENT LONG-TERM CURRENT LONG-TERM
-------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Deferred tax liability--
differences between book and tax
basis of property............... $(1,565,541) $ (880,961)
-------- ----------- --------- -----------
Deferred tax assets:
Reserves not currently
deductible...................... $ 23,493 $ 195,993
Income deferred for book
purposes........................ 278,317 662,707 177,911 465,764
Net operating loss carryforwards. 4,946,197 6,895,540
Tax credit carryforwards......... 358,000 140,000
-------- ----------- --------- -----------
Deferred tax assets.............. 301,810 5,966,904 373,904 7,501,304
Valuation allowance.............. (373,904) (6,620,343)
-------- ----------- --------- -----------
301,810 5,966,904 880,961
-------- ----------- --------- -----------
Net deferred tax assets.......... $301,810 $ 4,401,363 $ 0 $ 0
======== =========== ========= ===========
</TABLE>
Effective March 1, 1994, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." As a result, the Company recorded a deferred tax asset relating
to the tax benefit of operating loss and tax credit carryovers, and differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At that time the Company
provided for a valuation allowance equal to 100% of the deferred tax asset as a
result of the uncertainty of the Company's ability to utilize the benefit of
the net operating loss and tax credit carryovers against future taxable income
or payments. Changes in the valuation allowance for the years ended February
1996, 1995 and 1994 resulted in a decrease to the Company's tax provision of
approximately $5,854,000, $1,381,000 and $441,000, respectively, primarily
attributable to the utilization of net operating loss carryforwards and the
Company's determination that, as of the end of February 1996, the valuation
allowance was no longer necessary. Accordingly, the income tax provision for
the year ended February 29, 1996 includes a credit provision of approximately
$2,654,000 related to the elimination of the valuation allowance for the
deferred tax assets. The tax benefit that pertained to certain employee stock
option exercises of approximately $2,049,000 was recorded to additional paid-in
capital.
The Company (excluding Recovery System, Inc. ("RSI"), a subsidiary) has
available for tax purposes net operating loss carryforwards of approximately
$12,700,000 at February 29, 1996. These losses may be used to offset future
regular taxable income, if any, which may otherwise be subject to federal
income tax, and expire in varying amounts through 2008. The Company also has
investment tax and research and development credit carryforwards aggregating
approximately $140,000 at February 29, 1996, and expire in varying amounts
through 2001. The Company also has approximately $218,000 in alternative
minimum tax credits at February 29, 1996. These credits may be used to offset
future federal income tax liabilities, if any. The maximum amount of operating
loss and tax credit carryforwards available in any one year may be limited
under existing tax law.
RSI has available for tax purposes a net operating loss carryforward of
approximately $900,000 at February 29, 1996. This loss may be used to offset
future taxable income of RSI, if any, which may otherwise be subject to federal
income tax, and expires in varying amounts through 2005. As a result of the
acquisition of RSI by LoJack, the maximum amount of RSI carryforwards available
in any one year will be limited under existing tax law.
6. COMMITMENTS AND CONTINGENT LIABILITIES
LEASE COMMITMENTS--The Company leases various facilities under operating
leases whose terms expire from 1997 to 2001; the leases contain renewal options
ranging from two to five years. Minimum annual lease payments are as follows:
<TABLE>
<S> <C>
1997................................................................. $ 624,000
1998................................................................. 578,000
1999................................................................. 466,000
2000................................................................. 326,000
2001................................................................. 280,000
Thereafter........................................................... 43,000
----------
Total................................................................ $2,317,000
==========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16
- --------------------------------------------------------------------------------
Rental expense under operating leases aggregated approximately $786,000,
$721,000 and $667,000 for the fiscal years ended February 1996, 1995 and 1994,
respectively.
OTHER COMMITMENTS--The Company made a payment of $500,000 of contingent
interest in fiscal 1995 to a third-party guarantor under a previous line of
credit to the Company. The Company has no further contingent liabilities under
this agreement.
7. EMPLOYEE BENEFIT PLAN
Effective March l, 1992, the Company adopted a defined contribution 40l(k)
plan covering substantially all full-time employees. Under the provisions of
the plan, employees may contribute a portion of their compensation within
certain limitations. The Company matches a percentage of employee contributions
on a discretionary basis as determined by the Board of Directors. The Company's
Board of Directors elected to match 40% of employee contributions in fiscal
1996 and 25% in fiscal years 1995 and 1994, subject to certain limitations.
Company contributions are vested 100% after five years of continuous service.
Benefit costs related to the plan were $133,000, $59,000 and $27,000 for the
fiscal years ended February 1996, 1995 and 1994, respectively.
8. EXPORT SALES
Export revenues relate to product sales to and licensing revenues from
unaffiliated licensees in foreign countries. A summary of such revenues is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Export revenues:
Europe....................................... $1,589,000 $ 654,000 $2,246,000
South America................................ 2,391,000 1,044,000 582,000
Asia......................................... 236,000 749,000 219,000
Africa....................................... 217,000
---------- ---------- ----------
Total.......................................... $4,433,000 $2,447,000 $3,047,000
========== ========== ==========
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of LoJack Corporation:
We have audited the accompanying consolidated balance sheets of LoJack
Corporation and subsidiaries as of February 29, 1996 and February 28, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended February 29, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of LoJack Corporation and
subsidiaries as of February 29, 1996 and February 28, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended February 29, 1996 in conformity with generally accepted accounting
principles.
(ART)
Boston, Massachusetts
April 12, 1996
<PAGE>
CORPORATE DATA
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS SECURITIES LISTINGS
C. Michael Daley NASDAQ: National Market Systems--"LOJN"
Chairman of the Board of
Directors and Treasurer ANNUAL MEETING
(ChiefExecutive Officer)
10:00 a.m.
Joseph F. Abely July 17, 1996
President and Chief Sheraton Tara Hotel
Operating Officer Braintree, Massachusetts
William R. Duvall FORM 10-K AVAILABILITY
Senior Vice President
(Operations and Technical The Company's annual report filed with the
Development) Securities and Exchange Commission on Form 10-K is
available without charge upon written request to:
Kevin M. Mullins
Vice President Investor Relations
(Sales and Marketing) LoJack Corporation
Norfolk Place
Peter J. Conner 333 Elm Street
Vice President Dedham, Massachusetts 02026
(Government Relations) 617-326-4700
BOARD OF DIRECTORS CORPORATE COUNSEL
C. Michael Daley Peabody & Arnold
Chairman Boston, Massachusetts
James A. Daley INDEPENDENT CERTIFIED
President, Daley Hotel PUBLIC ACCOUNTANTS
Group, Inc.
Deloitte & Touche LLP
Robert J. Murray Boston, Massachusetts
Chairman and Chief
Executive OfficerNew INVESTOR RELATIONS
England Business
Service, Inc. Swanson Communications
New York, NY
Harold W. Shad, III 212-683-4890
President and Chief
Executive Officer,
Mike Shad Ford
Larry C. Renfro
Vice President,
Allmerica Financial
Services
Lee T. Sprague
Private Investor
Thomas A. Wooters
Clerk
REGISTRAR AND TRANSFER AGENT
American Stock Transfer &
Trust Company
New York, New York
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
------------------------------
CarSearch Corporation, a Delaware corporation
LoJack Midwest Corporation, a Delaware corporation
LoJack of New Jersey Corporation, a Delaware corporation
Recovery Systems, Inc.,* a Florida corporation
LoJack Holdings Corporation, a Massachusetts corporation
LoJack Venture Corporation, a Massachusetts corporation
*In Florida, Recovery Systems, Inc. does business under its tradename "LoJack of
Florida."
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 33-
86608, 33-65258 and 33-46462 on Form S-3 and Registration Statement Nos. 33-
86614 and 33-55904 on Form S-8 of LoJack Corporation of our reports dated April
12, 1996, appearing in and incorporated by reference in the Annual Report on
Form 10-K of LoJack Corporation for the year ended February 29, 1996.
/s/ Deloitte & Touche LLP
- -------------------------
Boston, Massachusetts
May 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS IN ITS ANNUAL REPORT TO SHAREHOLDERS FOR THE
FISCAL YEAR ENDED FEBRUARY 29, 1996, WHICH ARE INCORPORATED BY REFERENCE INTO
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR SUCH FISCAL YEAR, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 31,630,663
<SECURITIES> 0
<RECEIVABLES> 6,269,120
<ALLOWANCES> 395,202
<INVENTORY> 2,780,416
<CURRENT-ASSETS> 40,368,541
<PP&E> 19,721,743
<DEPRECIATION> 12,069,040
<TOTAL-ASSETS> 53,079,437
<CURRENT-LIABILITIES> 7,050,985
<BONDS> 0
0
0
<COMMON> 218,767
<OTHER-SE> 43,508,701
<TOTAL-LIABILITY-AND-EQUITY> 53,079,437
<SALES> 51,234,708
<TOTAL-REVENUES> 52,516,359
<CGS> 23,966,360
<TOTAL-COSTS> 23,966,360
<OTHER-EXPENSES> 19,944,683
<LOSS-PROVISION> 230,942
<INTEREST-EXPENSE> 166,748
<INCOME-PRETAX> 10,047,036
<INCOME-TAX> (1,931,000)
<INCOME-CONTINUING> 11,978,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,978,036
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
<PAGE>
EXHIBIT 99
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Forward-looking statements made by or on behalf of the Company represent
the Company's reasonable judgement on the future and are subject to risks and
uncertainties. Actual results may differ materially from those projected in the
forward-looking statements. Such risks and uncertainties include, among others:
DEPENDENCE ON PRINCIPAL PRODUCTS AND MARKET ACCEPTANCE. The Company
currently derives most of its revenues from the sales of LoJack Units and
related products to consumers, the licensing of its CarSearch Stolen Vehicle
Recovery System to licensees in foreign countries, and the sale of products
related to its CarSearch Vehicle Recovery System. The Company also derives a
limited portion of its revenues from sales of conventional vehicle security
devices. As a result, any factor adversely affecting sales of the Company's
principal products would have a material adverse effect on the Company.
In new markets, the Company's success is also heavily dependent upon
consumer acceptance. There can be no assurance that the LoJack System will
achieve widespread consumer acceptance in all of the Company's existing or
future markets.
EFFECT OF CHANGES IN ECONOMIC CONDITIONS AND NEW VEHICLE SALES. While the
Company's products are installed in both new and used vehicles, the Company's
sales levels are primarily affected by the level of sales of new vehicles.
During periods of economic slowdown or recession, as fewer new vehicles are
sold, it is possible that fewer LoJack Units may be installed. Because new car
sales are most often a discretionary activity, prolonged periods of economic
slowdown or recession could materially and adversely affect the Company's
revenues. The Company could also be adversely affected by slowdowns in new
vehicle production, such as those which may be caused by labor actions affecting
the automobile industry.
DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's success is heavily
dependent upon its proprietary technology. The Company attempts to protect its
proprietary technology through patents, copyrights, trademarks, trade secrets
and license agreements. Nevertheless, there can be no assurance that the
Company will be able to protect its technology from misappropriation or that
competitors will not be able to be able to develop similar technology
independently. In addition, effective patent, copyright, trademark and trade
secret protection may be unavailable or limited in certain foreign countries.
COMPETITION. Several competitors or potential competitors are marketing or
have announced the development of stolen vehicle recovery products directly
competitive with the LoJack System. To the knowledge of management, none is
compatible with the LoJack System and none is proposed to be operated or
actively monitored exclusively by law enforcement agencies as is the LoJack
System.
1
<PAGE>
LoJack markets the LoJack System as a stolen vehicle recovery device.
Management believes, however, that makers of auto theft prevention devices view
the System as competitive, and, consequently, LoJack believes it faces
competition from companies that sell auto theft prevention devices.
Some of these competitors and potential entrants into the stolen vehicle
recovery industry may have greater resources than LoJack. In addition, there
can be no assurance that a competitor will not develop a system of theft
detection or recovery, including other vehicle recovery systems that may or may
not require government approvals, that would compete with or be superior to the
LoJack System.
GOVERNMENT REGULATION AND APPROVALS. The Company must obtain the approval
of law enforcement agencies, as well as executive or legislative bodies, for
implementation of the LoJack System before sales of LoJack Units can commence in
a given domestic jurisdiction. The approval process may be time consuming and
costly and is subject to considerations generally affecting the process of
governmental decision-making. The Company may encounter similar or additional
regulatory requirements as it expands into additional foreign markets.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is dependent in
part on its ability to hire and retain qualified managerial personnel. Although
the Company to date has been able to hire and retain such personnel, there can
be no assurance that the Company will be successful in recruiting and retaining
such personnel in the future. There are no employment agreements between the
Company and any of its employees.
2
