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SECURITIES AND EXCHANGE COMMISSION
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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 for the fiscal year ended February 28, 1997
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 ______
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 Exchange 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 $196,939,600 as of May 21, 1997.
As of May 21, 1997, there were issued and outstanding 18,931,841 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 28, 1997 (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 16, 1997 (Items 1, 10, 11, and 12)
<PAGE>
LOJACK CORPORATION
<TABLE>
<CAPTION>
Securities and Exchange Commission
Item Number and Description Page
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<S> <C>
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
</TABLE>
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 21, 1997.
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.
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PART I
ITEM 1 - BUSINESS
General
LoJack Corporation ("LoJack" or the "Company") was organized as a Massachusetts
corporation in 1978. Its telephone number is (617) 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:
<TABLE>
<CAPTION>
Jurisdiction Date Operational
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<S> <C>
Massachusetts July 1986
Rhode Island June 1994
Connecticut April 1995
New York June 1994
New Jersey March 1990
Pennsylvania March 1997
Maryland February 1997
District of Columbia September 1994
Virginia August 1993
Georgia August 1992
Florida:
Dade, Broward,
Palm Beach and surrounding counties; December 1988
Tampa, St. Petersburg and
surrounding counties in West Florida; and July 1994
Orlando April 1996
Michigan April 1990
</TABLE>
1
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<TABLE>
<S> <C>
Illinois November 1990
Texas May 1997
California:
Los Angeles County; July 1990
San Diego and Orange County June 1995
San Bernadino March 1997
</TABLE>
The Company is presently pursuing negotiations 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 15 of the original 16 markets it has
targeted. Certain improvements to the Company's technology and interface with
law enforcement systems have made expansion beyond the 16 targeted states
economically feasible for the Company. Accordingly, over the next two years the
Company plans to expand to certain jurisdictions which are contiguous to
existing LoJack coverage areas as well as to markets that have increased
incidence of car theft.
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 generally installed in police vehicles. Modified designs of the PTC
have been developed for use in helicopters, as well as fixed locations such as
toll booths, radio towers, or police communication centers. 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.
The Sector Activation Computer ("SAC") contains a file with up-to-date
information on vehicles equipped with LoJack Units. This computer works 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.
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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.
The SAC 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 conventional vehicle security devices sold under
the names "LoJack Prevent" and "LoJack Alert."
LoJack's sales force routinely visits franchised new car dealers to educate and
train dealership personnel in 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 and used car buyers. Like other
options, the LoJack Unit can usually be financed conveniently as a part of the
purchase price of the vehicle. LoJack uses direct advertising to consumers to
generate product awareness and demand.
LoJack also has plans to intensify its efforts to market its products directly
to operators of fleet and commercial vehicles.
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
recovery vehicle 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.
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As of February 28, 1997, the Company had Licensees operating stolen vehicle
recovery systems using LoJack's technology in the following countries: the
United Kingdom, Slovak Republic, the Czech Republic, Greece, Ecuador, Colombia,
Trinidad and Tobago, Hong Kong, Argentina, Russia, Venezuela, South Africa,
Kenya and Korea. The Company also has entered into agreements to license the use
of LoJack's technology in countries such as Germany, Mexico, Brazil and the
Peoples Republic of China. 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, as well as adequate financing. The Company is also pursuing
similar agreements for other countries.
Approximately 16% of the Company's revenues in fiscal 1997 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 1997 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 173.075 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.
If LoJack were to seek 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, and does not expect to do so in the
near future.
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.
Patents and Trademarks
4
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LoJack holds United States Patent Nos. 4,818,998 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 products, including those which are GPS-based, which claim to
have stolen vehicle recovery features which may be directly competitive with the
LoJack System. To the knowledge of management, none are compatible with the
LoJack System and none are proposed to be operated or actively monitored
exclusively by law enforcement agencies as is the LoJack System. Additionally,
most potential competitors require consumers to pay recurring fees for their
service, which LoJack does not.
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 the manufacture of the LoJack Units, 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.
LoJack subcontracts 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.
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 1997, 1996 and 1995 the approximate amounts spent by LoJack
on company-sponsored research and development activities were $518,000,
$516,000, and $330,000, 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, excluding 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 ("LJU III") in exchange for certain royalty
payments based on the number of units sold. The technology contemplated by the
joint venture, the LJU III, is currently undergoing production validation
testing. Barring any unforeseen delays, the Company estimates that this product
could be ready for manufacturing by year end, although the Company can give no
assurances concerning the timing of commercial introduction of the LJU III or
its potential commercial success.
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Employees
As of May 21, 1997, the Company and its subsidiaries had a total of 377 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 16, 1997, 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
---- --- -----
<S> <C> <C>
Joseph F. Abely 44 President and Chief Operating Officer
William R. Duvall 45 Senior Vice President (Operations and Technical Development)
Peter J. Conner 56 Vice President (Government Relations)
Kevin M. Mullins 42 Vice President (Sales and Marketing)
</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,
California, Illinois, Georgia, Virginia, Florida and Texas under operating
leases whose terms expire from 1998 to 2002. 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.
6
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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 1997 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 4 of the Company's 1997
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 5 through 8 of the Company's 1997 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 9 through 19 of the
Company's 1997 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 16, 1997.
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 16, 1997 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 16, 1997 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 16, 1997 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 independent auditors' report are incorporated by reference
to the Company's 1997 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.
(3) Exhibits
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
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Practice. The location of each document so incorporated by
reference is indicated by footnote.
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)
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 filed with
the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1990 (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.++ Amendment Number One to Restated and Amended Stock Incentive Plan
(incorporated by reference to Exhibit 10ss filed with the Company's
Annual Report on Form 10-K for the fiscal year ended February 29, 1996
(the "1996 Form 10-K"))
10J.*++ Amendment Number Two to Restated and Amended Stock Incentive Plan
10K. Form of Agreement with respect to options granted to certain officers
and employees (incorporated by reference to exhibit 10H to File No. 33-
27457)
10L. 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)
10M. Accepted Proposal by LoJack Corporation to the Massachusetts Department
of Public Safety (incorporated by reference to exhibit 10F to File No.
2-74238-B)
10N. 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)
10O. 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. 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"))
10Q. 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)
10R.++ Form of Senior Management Option (incorporated by reference to exhibit
10Z to 1993 Form 10-K)
10S. 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)
10T. 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)
10U. 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)
10V. Memorandum of Understanding dated July 29, 1993 with the District of
Columbia Metropolitan Police Department (incorporated by reference to
Exhibit 10cc filed with the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995 (the "1995 Form 10-K"))
10W. Memorandum of Understanding dated February 28, 1994 with Rhode Island
State Police (incorporated by
9
<PAGE>
reference to Exhibit 10dd to the 1995 Form 10-K)
10X. Contract dated July 15, 1993 with the State of Connecticut (incorporated
by reference to Exhibit 10ee to the 1995 Form 10-K)
10Y. 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)
10Z. 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)
10aa. 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)
10bb. 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)
10cc. 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)
10dd. License and Ancillary Know-How Agreement dated October 1, 1995 between
LoJack International Corporation and Detektor, Bad Homburg, Germany
(incorporated by reference to Exhibit 10oo to the 1996 Form 10-K)
10ee. 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)
10ff. 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)
10gg. 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 (incorporated by reference
to Exhibit 10tt to the 1996 Form 10-K)
10hh. 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 (incorporated by reference to Exhibit
10mm to the 1996 Form 10-K)
10ii. Trademark and Supply Agreement dated August 15, 1995 between LoJack
International and CarTrack Kenya Limited, Nairobi, Kenya (incorporated
by reference to Exhibit 10yy to the 1996 Form 10-K)
10jj.* Third Amendment to Loan Agreement dated as of October 31, 1996 among The
First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc., LoJack Holdings Corporation and LoJack Venture
Corporation
10kk.* Second Amended and Restated Revolving Credit and Term Note dated as of
October 31, 1996 in the amount of $7,500,000 made by LoJack Corporation,
LoJack International Corporation, LoJack of New Jersey Corporation,
Recovery Systems, Inc., LoJack Holdings Corporation and LoJack Venture
Corporation
10ll.* Fourth Amendment to Loan Agreement dated as of February 28, 1997 among
The First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc., LoJack Holdiackngs Corporation, LoJ Venture Corporation,
LoJack of Pennsylvania, Inc. and LoJack FSC, Ltd.
10mm.* Third Amended and Restated Revolving Credit and Term Note payable to the
order of The First National Bank of Boston dated as of February 28, 1997
in the amount of $7,500,000 made by LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc., LoJack Holdings Corporation, LoJack Venture Corporation,
LoJack of Pennsylvania, Inc. and LoJack FSC, Ltd.
10nn.* License, Trademark and Supply Agreement dated September 10, 1996 between
LoJack International and S1 Corporation, Seoul, Korea
10oo.* Agreement dated September 1, 1996 between LoJack Corporation and the
Texas Department of Public Safety
10pp.* Agreement between Commonwealth of Pennsylvania, Pennsylvania State
Police and LoJack Corporation dated May 14, 1996
10qq.* Agreement between the Maryland Department of State Police and LoJack
Corporation dated November 8, 1996
10rr.* Joint Venture Agreement dated as of December 1, 1995 by and between
LoJack Venture Corporation and Micrologic, Inc.
10ss.* License Agreement dated as of December 1, 1995, between SCT Development
Venture and LoJack Corporation
10tt.* Development Agreement dated as of December 1, 1995 by and between SCT
Development Venture and Micrologic, Inc.
11.* Statement re: Computation of per share earnings
13.* 1997 Annual Report to Stockholders
10
<PAGE>
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 (incorporated by reference to Exhibit 99 to the 1996 Form 10-K)
- - -----------------------------
* 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 21st day of May 1997.
LOJACK CORPORATION
(Registrant)
BY: /s/ C. Michael Daley
---------------------------------------
C. Michael Daley
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in their capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- - --------- -------- ----
<S> <C> <C>
/s/ C. Michael Daley Director, Chairman, Chief May 21, 1997
- - -------------------- Executive Officer, and Treasurer
C. Michael Daley (Principal Executive Officer)
/s/ Robert J. Murray Director May 21, 1997
- - --------------------
Robert J. Murray
/s/ James A. Daley Director May 21, 1997
- - ------------------
James A. Daley
/s/ Harold W. Shad, III Director May 21, 1997
- - -----------------------
Harold W. Shad, III
/s/ Lee T. Sprague Director May 21, 1997
- - ------------------
Lee T. Sprague
/s/ Larry C. Renfro Director May 21, 1997
- - -------------------
Larry C. Renfro
/s/ Joseph F. Abely President and Chief Operating May 21, 1997
- - ------------------- Officer (Principal Financial
Joseph F. Abely and Accounting Officer)
</TABLE>
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 28, 1997 and February 29, 1996, and for each of the
three years in the period ended February 28, 1997, and have issued our report
thereon dated April 18, 1997; such consolidated financial statements and report
are included in your 1997 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
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 18, 1997
F-1
<PAGE>
SCHEDULE II
LOJACK CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- - --------------------------------------------------------------------------------
<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 28, 1997 $395,202 $223,384 $ (65,144) (1) $553,442
======== ======== ========= ========
February 29, 1996 $193,381 $230,942 $ (29,121) (1) $395,202
======== ======== ========= ========
February 28, 1995 $109,097 $117,831 $ (33,547) (1) $193,381
======== ======== ========= ========
WARRANTY RESERVE:
For the year ended:
February 28, 1997 $324,813 $371,275 $(307,409) $388,679
======== ======== ========= ========
February 29, 1996 $223,509 $267,036 $(165,732) $324,813
======== ======== ========= ========
February 28, 1995 $191,479 $134,732 $(102,702) $223,509
======== ======== ========= ========
</TABLE>
(1) Net accounts written off.
F-2
<PAGE>
Exhibit 10.j
LOJACK CORPORATION
Amendment Number Two to Restated and Amended Stock Incentive Plan
-----------------------------------------------------------------
On May 21, 1997, the Board of Directors of LoJack Corporation approved the
following Amendment Number Two to the Restated and Amended Stock Incentive Plan:
RESOLVED: That the following amendment to the Restated and Amended Stock
- - -------- Incentive Plan (the "Plan") is hereby adopted:
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, 650,000 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 10.jj
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (the "Amendment") is made as of
---------
October 31, 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"), RECOVERY SYSTEMS, INC., a Florida
----
corporation ("RSI"), LOJACK HOLDINGS CORPORATION, a Massachusetts corporation
---
("Holdings", with the Parent, LIC, LONJ, and RSI being collectively referred to
- - ----------
herein as the "Original Borrowers"); by execution of the Joinder attached
------------------
hereto, LOJACK VENTURE CORPORATION, a Massachusetts corporation ("LVC" 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
amended February 20, 1996 (as so amended, the "Loan Agreement"). Capitalized
--------------
terms used herein without definition have the meanings assigned to them in the
Loan Agreement; and
B. Since the execution of the Loan Agreement, the Parent has formed a
new subsidiary, LoJack Venture Corporation, without obtaining the consent of the
Lender, as required in the Loan Agreement, for the purpose of engaging in joint
ventures designed to develop, exploit and market vehicle recovery and automobile
security related technology; and
C. Since the execution of the Loan Agreement, the Parent has caused
LVC to enter into a joint venture agreement with Micrologic, Inc. (the
"Venture") pursuant to which LVC purchased a 50% interest in the Venture without
-------
obtaining the consent of the Lender, as required under the Loan Agreement; and
D. The Original Borrowers wish to amend the Loan Agreement (i) to add
LVC as a "Borrower" thereunder and waive the default caused by Borrower in
forming a new subsidiary without attaining the prior consent of the Lender; (ii)
to waive the default caused by LVC in connection with its 50% investment in the
Venture without first obtaining the Lender's consent; (iii) to convert the
Revolving Credit and Term Loan evidenced under the Amended and Restated
Revolving Credit and Term Note (the "Note") to an unsecured facility; and (iv)
----
to amend certain financial and other covenants all as hereinafter set forth; and
E. 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 are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
I. Amendments to Loan Agreement.
----------------------------
A. Amendment to Definitions in Loan Agreement.
------------------------------------------
1. The definition of "Borrowers" in Section 1 of the Loan Agreement
---------
is amended in its entirety to read as follows:
Borrowers: LoJack Corporation, LoJack International Corporation,
---------
LoJack of New Jersey Corporation, Recovery Systems, Inc., LoJack
Holdings Corporation and LoJack Venture Corporation.
2. In addition, the following new definition is added to Section 1
of the Loan Agreement:
LVC: LoJack Venture Corporation, a Massachusetts corporation,
---
and the Parent's wholly-owned subsidiary.
B. Security. Section 2.7 and any other relevant provisions and related
--------
references are deleted or amended to provide that the Lender will not require
the grant of security interests in or liens on any of the Borrowers' assets to
secure the Note.
II. Waivers. The Lender hereby agrees to waive:
-------
A. The Event of Default which occurred as of April 24, 1996 because the
Parent formed a new subsidiary, LoJack Venture Corporation, a Massachusetts
corporation, without first obtaining Lender's consent in accordance with Section
7.7 of the Loan Agreement; and
B. The Event of Default which occurred as of December 1, 1996 because the
Parent caused its wholly-owned subsidiary, LVC, to invest in 50% of the Venture,
without first obtaining Lender's consent in accordance with Section 7.7 of the
Loan Agreement.
The foregoing waivers are limited to their express terms and shall not be
deemed to be waivers of any other Event of Default (including, without
limitation, any other default of the Borrowers' obligations under Section 7.7 of
the Loan Agreement), which may have existed on or prior to the date hereof or
which may hereafter arise. Further, the granting of this waiver shall not be
construed as a continuing waiver or waiver of any other Event of Default under
the Loan Agreement, or any other documents executed in connection therewith.
III. Certain Representations. As a material inducement to the Bank to enter
-----------------------
into this Amendment, each of the Borrowers hereby represents and warrants to the
Bank (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 has been duly authorized
by all requisite corporate action on the part of each Borrower.
-2-
<PAGE>
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 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 Bank.
No Event of Default has occurred and is continuing.
C. The Borrowers are not required to obtain any consent, approval or
authorization from, or to file any declaration or statement with, any
governmental instrumentality or other agency or any other person or entity in
connection with this Amendment.
D. The execution and delivery of this Amendment and performance by each
Borrower of its respective obligations hereunder have been duly authorized by
all requisite corporate action and will not violate any provision of law, any
order, judgment or decree of any court or other agency of government, the
corporate charter and/or by-laws of each Borrower, or any indenture, agreement
or other instrument to which any Borrower is a party, or by which any Borrower
is bound.
E. This Amendment and the Note constitutes the legal, valid and binding
obligation of each Borrower, 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.
IV. Conditions. The willingness of the Lender to agree to the foregoing is
----------
subject to the following conditions:
A. Each Borrower shall have executed and delivered to Lender (or shall
have caused to be executed and delivered to Lender) the following:
1. This Amendment, including the Joinder to the Loan Agreement;
2. The Note in the form of the new Exhibit 2.1 to the Loan Agreement
(in exchange for the cancellation of the Amended and Restated Revolving Credit
and Term Note dated February 20, 1996).
3. True and complete copies of all required stockholders' and
directors' consents and/or resolutions, authorizing the execution and delivery
of this Amendment and such other documents as may be necessary, certified by a
duly authorized officer of the appropriate Borrowers; and
-3-
<PAGE>
4. 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.
V. Exhibits. Exhibit 2.1 to the Loan Agreement is deleted and the attached
-------- -----------
Exhibit 2.1 is substituted therefor.
- - -----------
VI. Effect of Amendment. This Amendment constitutes an amendment to and
-------------------
modification of the Loan Agreement and each of the Loan Documents. Each
reference in the Loan Agreement and the other Security Documents to the "Loan
Agreement", "this Agreement", "hereunder", "hereof" or words of like import
referring to the Loan Agreement shall mean and be a reference to the Loan
Agreement, as amended by this Amendment.
VII. Miscellaneous.
-------------
A. After the execution of this Amendment, the Lender, with the cooperation
of the Borrowers and at the Borrowers' expense, will promptly take all actions
necessary to cause the release of all liens of the Lender on the Borrowers'
assets and properties.
B. As provided in the Loan Agreement, the Borrowers jointly and severally
agree to reimburse the Lender upon demand for all reasonable out-of-pocket costs
and expenses of Lender, including all reasonable fees and disbursements of
counsel to the Bank incurred in connection with the preparation of this
Amendment, any releases, UCC-3 Termination Statements and any other agreements,
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.
D. The obligations of the Borrowers under this Amendment shall be joint
and several in nature.
-4-
<PAGE>
IN WITNESS WHEREOF, the Lender and the Original Borrowers have caused this
Amendment to be duly executed as a sealed instrument by their duly authorized
representatives, all as of the day and year first above written.
LOJACK CORPORATION
By: /s/ Joseph F. Abely
-----------------------------------------
Name: Joseph F. Abely
------------------------------------
Title: President
-----------------------------------
LOJACK INTERNATIONAL CORPORATION
By: /s/ Joseph F. Abely
-----------------------------------------
Name: Joseph F. Abely
------------------------------------
Title: Vice President
-----------------------------------
LOJACK OF NEW JERSEY CORPORATION
By: /s/ Joseph F. Abely
-----------------------------------------
Name: Joseph F. Abely
------------------------------------
Title: President
-----------------------------------
RECOVERY SYSTEMS, INC.
By: /s/ Joseph F. Abely
-----------------------------------------
Name: Joseph F. Abely
------------------------------------
Title: President
-----------------------------------
LOJACK HOLDINGS CORPORATION
By: /s/ Joseph F. Abely
-----------------------------------------
Name: Joseph F. Abely
------------------------------------
Title: President
-----------------------------------
-5-
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Patricia K. Conry
-----------------------------------------
Name: Patricia K. Conry
------------------------------------
Title: Vice President
-----------------------------------
-6-
<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
October 11, 1994, February 20, 1996 and October 31, 1996 (as amended, the "Loan
----
Agreement"), among The First National Bank of Boston, LoJack Corporation, LoJack
- - ---------
International Corporation, LoJack of New Jersey Corporation, Recovery System,
Inc., and LoJack Holdings Corporation, and shall have all of the rights and
obligations of a "Borrower" under the Loan Agreement.
Executed as a sealed instrument as of October 31, 1996.
LOJACK VENTURE CORPORATION
By: /s/ Joseph F. Abely
---------------------------------------
Name: Joseph F. Abely
----------------------------------
Title: President
---------------------------------
-7-
<PAGE>
Exhibit 10KK
SECOND 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
as Amended and Restated
as of October 31, 1996
FOR VALUE RECEIVED, LOJACK CORPORATION, LOJACK INTERNATIONAL CORPORATION,
LOJACK OF NEW JERSEY CORPORATION, RECOVERY SYSTEMS, INC., LOJACK HOLDINGS
CORPORATION and LOJACK VENTURE CORPORATION (collectively, 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 ($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 Borrowers 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, February 20, 1996 and October 31,
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.
<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 other agreements and
instruments evidencing 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 Amended and Restated Revolving Credit
and Term Note in the principal amount of $7,500,000 issued to the Lender by the
Borrowers on February 20, 1996 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 /s/ Joseph F. Abely
-------------------------------------------
Joseph F. Abely, President
[SIGNATURE APPEARS HERE]
- - --------------------------
LOJACK INTERNATIONAL CORPORATION
By /s/ Joseph F. Abely
-------------------------------------------
Joseph F. Abely, Vice President
<PAGE>
LOJACK OF NEW JERSEY CORPORATION
By /s/ Joseph F. Abely
-------------------------------------------
Joseph F. Abely, President
RECOVERY SYSTEMS, INC.
By /s/ Joseph F. Abely
-------------------------------------------
Joseph F. Abely, President
LOJACK HOLDINGS CORPORATION
By /s/ Joseph F. Abely
-------------------------------------------
Joseph F. Abely, President
LOJACK VENTURE CORPORATION
By: /s/ Joseph F. Abely
-------------------------------------------
Joseph F. Abely, President
<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
October 11, 1994, February 20, 1996 and October 31, 1996 (as amended, the "Loan
----
Agreement"), among The First National Bank of Boston, LoJack Corporation, LoJack
- - ---------
International Corporation, LoJack of New Jersey Corporation, Recovery System,
Inc., and LoJack Holdings Corporation, and shall have all of the rights and
obligations of a "Borrower" under the Loan Agreement.
Executed as a sealed instrument as of October 31, 1996.
LOJACK VENTURE CORPORATION
By: /s/ Joseph F. Abely
---------------------------------
Name: Joseph F. Abely
------------------------------
Title: President
-----------------------------
<PAGE>
Exhibit 10.ll
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT (the "Amendment") is made as of
---------
February 28, 1997 by and among LOJACK CORPORATION, a Massachusetts corporation
(the "Parent"), and its wholly-owned subsidiaries, LOJACK INTERNATIONAL
------
CORPORATION, a Delaware corporation, 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, RECOVERY SYSTEMS, INC., a Florida
corporation, LOJACK HOLDINGS CORPORATION, a Massachusetts corporation; and
LOJACK VENTURE CORPORATION, a Massachusetts corporation (collectively, the
"Original Borrowers"); by execution of the Joinder attached hereto, LOJACK OF
------------------
PENNSYLVANIA, INC., a Delaware corporation and LOJACK FSC, LTD., a corporation
organized under the laws of the country of Barbados (the "New Subsidiaries" and,
----------------
together with the Original Borrowers, the "Borrowers") and THE FIRST NATIONAL
BANK OF BOSTON (the "Lender").
------
RECITALS
--------
A. The Lender and the Borrowers are parties to a Loan Agreement dated
as of December 10, 1993, as amended as of October 11, 1994, as amended
February 20, 1996, as amended October 31, 1996 (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
two new subsidiaries, LoJack of Pennsylvania, Inc. and LoJack FSC, LTD., without
obtaining the consent of the Lender, as required in the Loan Agreement; and
C. The Original Borrowers wish to amend the Loan Agreement to (i) add
the New Subsidiaries as "Borrowers" thereunder and waive the default caused by
the Parent forming the New Subsidiaries without obtaining the prior consent of
the Lender; and (ii) amend certain financial and other covenants as hereinafter
set forth; and
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 are hereby acknowledged, the parties hereto agree as
follows:
I. Amendments to Loan Agreement.
----------------------------
A. Deletion of Definitions. The following definitions are hereby
-----------------------
deleted in their entirety from Section 1.1 of the Loan Agreement:
"Borrowing Base"
"Borrowing Base Certificate"
"Leverage"
<PAGE>
"Quick Assets"
B. Amendment to Certain Definitions. The definition of "Borrowers" in
-------------------------------- ---------
Section 1.1 of the Loan Agreement is amended in its entirety to read as follows:
"Borrowers. LoJack Corporation, LoJack International Corporation, LoJack
---------
of New Jersey Corporation, Recovery Systems, Inc., LoJack Holdings Corporation,
LoJack Venture Corporation, LoJack of Pennsylvania, Inc. and LoJack FSC, LTD."
C. Addition of New Definitions. The following definitions are hereby
---------------------------
added to Section 1.1 of the Loan Agreement in appropriate alphabetical order:
"Base Rate Loan. Any Revolving Loan, bearing interest determined with
--------------
reference to the Base Rate."
"Fixed Rate Loan. Any Money Market Loan or LIBOR Loan."
---------------
"Interest Period. (a) With respect to each Money Market Loan, the period
---------------
commencing on the date of the making or continuation of or conversion to such
Money Market Loan and ending up to 90 days later, but no later than the
Conversion Date, as the Borrowers may elect in the applicable Notice of
Borrowing or Conversion; and
(b) with respect to each LIBOR Loan, the period commencing on the date
of the making or continuation of or conversion to such LIBOR Loan and ending 30,
60, 90, 120 or 180 days thereafter, as the Borrowers may elect in the applicable
Notice of Borrowing or Conversion; and
(c) with respect to each Base Rate Loan, the period commencing on the
date of the making or continuation of or conversion to such Base Rate Loan and
ending when the Lender makes a Fixed Rate Loan as provided in Section 2.2
hereof, after delivery by the Borrowers of a Notice of Borrowing or Conversion;
provided that:
--------
(i) any Interest Period (other than an Interest Period determined
pursuant to clause (iii) below) that would otherwise end on a day that is not a
Business Day shall be extended to the next succeeding Business Day unless, in
the case of LIBOR Loans, such Business Day falls in the next calendar month, in
which case such Interest Period shall end on the immediately preceding Business
Day;
(ii) any Interest Period applicable to a LIBOR Loan that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (iii) below, end on the last business day of a
calendar month; and
(iii) any Interest Period that would otherwise end after the
Conversion Date shall end on the Conversion Date.
(iv) no Interest Period applicable to any Revolving Loan after the
Conversion Date shall include a principal repayment date for such Loan unless an
aggregate principal amount
-2-
<PAGE>
of Loans at least equal to the principal amount due on such principal repayment
date shall be Base Rate Loans or other Loans having Interest Periods ending on
or before such date."
"LIBOR Base Rate. With respect to each day during each Interest Period
---------------
pertaining to any LIBOR Loan, the interest rate per annum (rounded upward, if
necessary, to the nearest 1/16th of 1%) at which the Lender is offered deposits
in U.S. Dollars at or about 12:00 P.M. (Boston Time), two (2) Business Days
prior to the beginning of such Interest Period in the London interbank market
for delivery on the first day of such Interest Period, for the number of days
comprised therein and in an amount comparable to the amount of the LIBOR Loan to
be outstanding during such Interest Period."
"LIBOR Loan. Any Revolving Loan bearing interest determined with
----------
reference to the LIBOR Rate."
"LIBOR Rate. With respect to each day during each Interest Period
----------
pertaining to a LIBOR Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward, if necessary, to the
nearest 1/16th of 1%):
LIBOR Base Rate
----------------------------
1.00 - LIBOR Reserve Requirements"
"LIBOR Reserve Requirements. For any day as applied to a LIBOR Loan, the
--------------------------
aggregate (without duplication) of the rates (expressed as a decimal fraction)
of reserve requirements in effect on such day (including without limitation
basic, supplemental, marginal and emergency reserves under any regulations of
the Board of Governors of the Federal Reserve System or other governmental
authority having jurisdiction with respect thereto) prescribed for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
------------------------
such Board) maintained by a member lender of the Federal Reserve System."
"Money Market Loan. Any Revolving Loan bearing interest determined with
-----------------
reference to the Money Market Rate."
"Money Market Rate. That rate of interest per annum, if any, quoted by
-----------------
the Lender as its "Money Market Rate" for an Interest Period pursuant to
Section 2.2."
"New Subsidiaries. LoJack of Pennsylvania, Inc. and LoJack FSC, LTD."
----------------
"Notice of Borrowing or Conversion. See Section 2.2 and Exhibit 2.2."
--------------------------------- -----------
"Regulatory Change. With respect to the Lender, any change after the date
-----------------
of this Agreement in United States federal, state or foreign law or regulation
(including without limitation Regulation D), including without limitation the
issuance of any final regulations or guidelines, or the adoption or making after
such date of any interpretation, directive or request applying to a class of
lenders including the Lender of or under any United States federal, state or
foreign law or regulations (whether or not having the force of law and whether
or not failure to
-3-
<PAGE>
comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation thereof."
"Regulation D. Regulation D of the Board of Governors of the Federal
------------
Reserve System, as the same may be amended or supplemented from time to time."
D. Revolving Credit and Term Loans. Section 2 of the Loan Agreement is
-------------------------------
hereby deleted in its entirety and replaced with the following:
"2.1 The Revolving Credit and Term Loans. (a) Subject to the terms and
-----------------------------------
conditions hereof, the Lender will make Revolving Loans to the Borrowers, from
time to time from the date hereof until March 1, 1998 (the "Conversion Date"),
---------------
in such sums as the Borrowers may request, provided that the principal amount of
Revolving Loans outstanding at any one time shall not exceed the Commitment.
Subject to the provisions of this Agreement, from the date hereof until the
Conversion Date and within the limits of the Commitment, the Borrowers may
borrow, repay and reborrow 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.
2.2 Notice and Manner of Borrowing or Conversion of Loans. (a) Whenever
-----------------------------------------------------
the Borrowers desire to obtain or continue a LIBOR Loan hereunder or convert an
outstanding Base Rate Loan or a Money Market Loan to a LIBOR Loan, the Borrowers
shall notify the Lender (which notice shall be irrevocable) by telex, telegraph
or telephone received not later than 12:00 p.m. (Boston Time) on the date two
(2) Business Days before the day on which the requested Loan is to be made or
continued as or converted to a LIBOR Loan. Such notice shall specify the
effective date and amount of each Loan or portion thereof to be continued or
converted, subject to the limitations set forth in Section 2.1, and the duration
of the applicable Interest Period (subject to the provisions of the definition
of Interest Period and Section 2.4). Each such notification (a "Notice of
---------
Borrowing or Conversion") shall be immediately followed by a written
- - -----------------------
-4-
<PAGE>
confirmation thereof by the Borrowers in substantially the form of Exhibit 2.2
-----------
hereto, provided that if such written confirmation differs in any material
--------
respect from the action taken from the Lender, the records of the Lender shall
control absent manifest error.
(b) Whenever the Borrowers desire to obtain or continue a Money Market
Loan hereunder or convert an outstanding Base Rate Loan or LIBOR Loan to a Money
Market Loan, the Borrowers shall notify the Lender (which notice shall be
irrevocable) by telex, telegraph or telephone received not later than 2:00 p.m.
(Boston Time) on the date on which the requested Loan is to be made or continued
as or converted to a Money Market Loan. Such notice shall specify (i) the
effective date and amount of each Loan or portion thereof to be continued or
converted, subject to the limitations set forth in Section 2.1 and (ii) the
duration of the applicable Interest Period (subject to the provisions of the
definition of Interest Period and Section 2.4). Each Notice of Borrowing or
Conversion relating to such a Money Market Loan shall be immediately followed by
a written confirmation thereof by the Borrowers in substantially the form of
Exhibit 2.2 hereto, provided that if such written confirmation differs in any
- - ----------- --------
material respect from the action taken from the Lender, the records of the
Lender shall control absent manifest error. With respect to each such Notice of
Borrowing or Conversion, the Lender shall, no later than 3:00 p.m. (Boston Time)
on the date of the requested Loan, notify the Borrowers of the Money Market Rate
available for the Interest Period and the amount of the Loan requested, or if,
the Lender is unable to quote a Money Market Rate in response to the Borrowers'
request, the Borrowers shall have until 3:00 p.m. (Boston Time) on the date it
receives the quoted Money Market Rate to accept the quoted Money Market Rate
which acceptance may be oral or in writing. If the Borrowers accept the rate
and, subject to the terms and conditions hereof, the Lender shall make the Money
Market Loan on the effective date specified therefor by crediting the amount of
such Loan to the Revolving Loan Account. If the Borrowers do not accept the
quoted Money Market Rate or if the Lender is unable to offer the Money Market
Rate for the Interest Period requested by the Borrowers, subject to Section 2.1,
the Borrowers may request that the Loan be a Base Rate Loan.
2.3 Commitment Fee. (a) The Borrowers shall pay to the Lender a
--------------
commitment fee from the date hereof, 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 unborrowed portion of the Commitment.
(b) The Borrowers shall pay to the Lender any and all other reasonable
charges customarily made by the Lender against borrowers.
2.4 Certain Interest Periods. (a) If the Lender does not receive a
------------------------
Notice of Borrowing or Conversion for an outstanding Fixed Rate Loan or a notice
of election of duration of an Interest Period for a Fixed Rate Loan pursuant to
Section 2.2, above, within the applicable time limit specified therein, or if,
when such notice must be given, a Default exists, the Borrowers shall be deemed
to have elected to convert such Fixed Rate Loan into a Base Rate Loan on the
last day of the then current Interest Period with respect thereto.
-5-
<PAGE>
(b) Notwithstanding the foregoing, the Borrowers may not select an
Interest Period that would end, but for the provisions of the definition of
Interest Period, after the Conversion Date.
2.5 Interest Rates and Payment of Interest. (a) Each Base Rate Loan
--------------------------------------
shall bear interest on the outstanding principal amount thereof at a rate per
annum equal to the Base Rate, which rate shall change contemporaneously with any
change in the Base Rate. Such interest shall be payable on the last day of each
month and when such Loan is due (whether at maturity, by reason of acceleration
or otherwise).
(b) Each LIBOR Loan shall bear interest on the outstanding principal
amount thereof, for each Interest Period applicable thereto, at a rate per annum
equal to the LIBOR Rate at the inception of such Interest Period plus one and
----
one-half percent (1.5%). Such interest shall be payable for such Interest Period
on the last Business Day of each month after the commencement date of the
Interest Period for such LIBOR Loan.
(c) Each Money Market Loan shall bear interest on the outstanding
principal amount thereof, for each Interest Period applicable thereto, at a rate
per annum equal to the quoted Money Market Rate for the amount and the Interest
Period requested plus one and one-half percent (1.5%). Such interest shall be
----
payable for such Interest Period on the last Business Day of each month after
the commencement date of the Interest Period for such Money Market Loan.
(d) 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 hereunder (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 the Note, which interest shall
be compounded daily and payable on demand.
(e) 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. Nothing provided herein shall affect the Lender's right to exercise any
of its rights or remedies, including those provided in Section 8.2, arising upon
the occurrence of an Event of Default.
2.6 Indemnification. The Borrowers shall pay to the Lender, upon the
---------------
request of the Lender, such amount or amounts as shall compensate the Lender for
any loss (including, in the case of Fixed Rate Loans, loss of profit), cost or
expense incurred by the Lender (as reasonably determined by the Lender) as a
result of: (a) any payment or prepayment (whether voluntarily or after
acceleration and demand by the Lender pursuant to its rights hereunder) or
conversion of any Fixed Rate Loan held by the Lender on a date other than the
last day of the Interest Period for such Fixed Rate Loan; or (b) any failure by
the Borrowers to borrow, convert into or continue a Fixed Rate Loan on the date
for such borrowing specified in the relevant Notice of Borrowing or Conversion
or otherwise; such compensation to include, without limitation; an amount equal
to: (i) any loss or expense suffered by the Lender during the period from the
date of receipt of such early payment or prepayment or the date of such
conversion or failure to borrow, convert or
-6-
<PAGE>
continue to the last day of such Interest Period, if the rate of interest
obtainable by the Lender upon the redeployment of an amount of funds equal to
the Fixed Rate Loans so paid, prepaid or converted or as to which such failure
to borrow, convert or continue applies is less than the rate of interest
applicable to such Loans for such Interest Period and (ii) any loss or expense
suffered by the Lender in liquidating LIBOR or Money Market deposits, as the
case may be, prior to maturity which the Lender is unable to redeploy and which
correspond to the Fixed Rate Loans so paid, prepaid or converted or as to which
such failure to borrow, convert or continue applies. The determination by the
Lender of the amount of any such loss or expense, then set forth in a written
notice to the Borrowers, containing the Lender's calculation thereof in
reasonable detail, shall be presumed correct in the absence of manifest error.
2.7 Capital Requirements. If, after the date hereof, the Lender
--------------------
determines that (i) the adoption of or change in any law, rule, regulation or
guideline regarding capital requirements for lenders or bank holding companies,
or any change in the interpretation or application thereof by any governmental
authority charged with the administration thereof, or (ii) compliance by the
Lender or its parent bank holding company with any guideline, request or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on the Lender's or such
holding company's capital as a consequence of the Lender's commitment to make
Loans hereunder to a level below that which the Lender or such holding company,
but for such adoption, change or compliance, could have achieved (taking into
consideration the Lender's or such holding company's then existing policies with
respect to capital adequacy and assuming the full utilization of such entity's
capital) by any amount deemed by the Lender to be material, then the Lender
shall notify the Borrowers thereof. The Borrowers agree to pay to the Lender the
amount of such reduction as and when such reduction is determined, upon
presentation by the Lender of a statement in the amount and setting forth the
Lender's calculation thereof, which statement shall be deemed true and correct
absent manifest error. In determining such amount, the Lender may use any
reasonable averaging and attribution methods.
2.8 Payments and Prepayments. (a) (i) Prior to the Conversion Date, the
------------------------
Borrowers may prepay the Revolving Loans, in whole or in part, as follows:
(A) Base Rate Loans may be prepaid at any time without
premium or penalty, including, without limitation, pursuant to Section 2.9
hereof. Amounts so paid may, prior to the Conversion Date and within the limits
of the Commitment, be borrowed and reborrowed as provided in Section 2.1.
(B) LIBOR Loans may be prepaid (subject to payment of
amounts due in accordance with Section 2.6 in respect of any LIBOR Loans so
prepaid) on not less than two (2) Business Days prior written notice to the
Lender;
(C) Money Market Loans may be prepaid (subject to payment of
amounts due in accordance with Section 2.6 in respect of any Money Market Loans
so prepaid) on not less than one (1) Business Day prior written notice to the
Lender.
-7-
<PAGE>
(ii) If at any time the aggregate principal balance of the
outstanding Revolving Loans exceeds the Commitment, the Borrowers shall promptly
pay cash to the Lender in an amount as shall be necessary to eliminate such
excess.
(b) After the Conversion Date, 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, 1998 and
ending on February 28, 2003, when all outstanding principal, interest and other
expenses and charges payable under this Agreement and the Note 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>
Quarterly Date Percentage of Term Loan Principal Payable
-------------- -----------------------------------------
during Each Fiscal Quarter
--------------------------
<S> <C>
May 31, 1998 through February 28, 1999 3.00%
May 31, 1999 through February 28, 2000 4.00%
May 31, 2000 through February 28, 2001 5.00%
May 31, 2001 through February 28, 2002 6.00%
May 31, 2002 through February 28, 2003 7.00%
</TABLE>
(c) The Lender may, and the Borrowers hereby authorize the Lender to,
debit the amount of any payment provided for in this Agreement or the Notes to
the Revolving Loan Account.
2.9 Use of Proceeds; Loans to Subsidiaries. (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 the New Markets; (ii) for
Permitted Investments, and (iii) to make Equity Distributions in respect of the
Parent's capital stock.
(b) The Parent may reloan the proceeds of the Revolving Loans to one or
more of the Subsidiaries pursuant to Intercompany Loans, provided that each such
Intercompany Loan to any Subsidiary (i) is evidenced by such Subsidiary's
Intercompany Note bearing interest at a rate not less than the rate applicable
to the Note, and (ii) is secured by a perfected security interest in all
presently owned and hereafter acquired tangible and intangible personal property
and fixtures of such Subsidiary, subject only to Permitted Encumbrances.
(c) The Parent hereby acknowledges and agrees with the Lender and each
of the Subsidiaries that (i) all Intercompany Loans are and shall be in all
respects subordinate to the Obligations of the Subsidiaries to the Lender under
the Note and otherwise, such subordination
-8-
<PAGE>
to be effective only to the extent that such Obligations are valid, binding and
enforceable; (ii) from and during the existence of any Default, unless otherwise
consented to by the Lender, all payments owed by any Subsidiary in respect of
the Intercompany Loans shall be made directly to the Lender to retire amounts
owed on the Note and all other Obligations; and (iii) if any payments are made
by or on behalf of any Subsidiary to the Lender to be applied by the Lender to
repay the Revolving Loans or any other Obligations, including interest, fees or
other charges thereon, then the balance of the principal, interest, fees and
other charges outstanding in respect of the Intercompany Loans shall be reduced
by the amount of all such payments.
2.10 Requirements of Law. (a) In the event that any Regulatory Change
-------------------
shall:
(i) change the basis of taxation of the amounts payable to the
Lender in respect of any Fixed Rate Loans (other than taxes imposed on the
overall net income of the Lender);
(ii) impose or modify any reserve, compulsory loan assessment,
special deposit or similar requirement relating to any extensions of credit or
other assets of, or any deposits with or other liabilities of, any office of the
Lender in respect of any Fixed Rate Loans (including any of such Loans or any
deposits referred to in the definitions of "LIBOR Base Rate" or "Money Market
--------------- ------------
Rate" in Section 1); or
- - ----
(iii) impose any other conditions affecting Fixed Rate Loans;
and the result of any of the foregoing shall be to increase the Lender's
costs of making or maintaining any Fixed Rate Loans, or to reduce any amount
receivable by the Lender hereunder in respect of any of its Fixed Rate Loans, in
each case only to the extent that such additional amounts are not included in
the LIBOR Base Rate or the Money Market Rate, as the case may be, applicable to
such Loans, then the Borrowers and Lender shall thereafter attempt to negotiate
in good faith, within thirty (30) days of the day on which the Borrowers receive
the notice referred to in Section 2.10(b), an adjustment payable hereunder that
will adequately compensate the Lender in light of these circumstances. If the
Borrowers and the Lender are unable to agree to such adjustment within thirty
(30) days of the date on which the Borrowers receive such notice, then
commencing as of the date of such notice applicable to such Fixed Rate Loans,
the Borrowers shall pay on demand to the Lender and from time to time as
specified by the Lender, such additional amounts as shall be sufficient to
compensate the Lender for such increased cost or reduced amount receivable. Such
amounts may include amounts that arise by reason of such a Regulatory Change for
not more than thirty (30) days before receipt by the Borrowers of such notice.
(b) If the Lender becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrowers of the event by
reason of which it has become so entitled. A certificate setting forth in
reasonable detail the computation of any additional amounts payable pursuant to
this Section submitted by the Lender to the Borrowers shall be delivered to the
Borrowers promptly after the initial incurrence of such additional amounts and
shall be conclusive in the absence of manifest error. The covenants contained in
this Section shall survive for six (6) months following the termination of this
Agreement and the payment of
-9-
<PAGE>
the outstanding Note. No failure on the part of the Lender to demand
compensation under paragraph (a) above on any one occasion shall constitute a
waiver of its rights to demand compensation on any other occasion. The
protection of this Section shall be available to the Lender regardless of any
possible contention of the invalidity or inapplicability of any law, regulation
or other condition which shall give rise to any demand by the Lender for
compensation thereunder.
2.11. Limitations on Fixed Rate Loans; Illegality. (a) Anything herein to
-------------------------------------------
the contrary notwithstanding, if, on or prior to the determination of an
interest rate for any Fixed Rate Loans for any applicable Interest Period, the
Lender shall determine (which determination shall be conclusive absent manifest
error) that:
(i) by reason of any event affecting United States money markets or
the London interbank market, quotations or interest rates for the relevant
deposits are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining the rate of interest for such Loans under
this Agreement; or
(ii) the rates of interest referred to in the definitions of "LIBOR
-----
Base Rate" or "Money Market Rate" in Section 1, on the basis of which the rate
- - ---------
of interest on any Fixed Rate Loan for such period is determined, do not
accurately reflect the cost to the Lender of making or maintaining such Fixed
Rate Loans for such period;
then the Lender shall give the Borrowers prompt notice thereof (and shall
thereafter give the Borrowers prompt notice of the cessation, if any, of such
condition), and so long as such condition remains in effect, the Lender shall be
under no obligation to make Fixed Rate Loans or to convert Base Rate Loans into
Fixed Rate Loans and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for any outstanding Fixed Rate Loans, either prepay such
Fixed Rate Loans, or convert such Fixed Rate Loans into Base Rate Loans, in
either case, in accordance with the provisions of the Loan Agreement.
(b) Notwithstanding any other provision herein, if any Regulatory Change
shall make it unlawful for the Lender to make or maintain Fixed Rate Loans as
contemplated by this Agreement, (i) the Lender's commitment hereunder to make
Fixed Rate Loans, continue Fixed Rate Loans as such and convert Base Rate Loans
to Fixed Rate Loans shall thereupon terminate and (ii) the Lender's Loans then
outstanding as Fixed Rate Loans, if any, shall be converted automatically to
Base Rate Loans on the respective last days of the then current Interest Periods
with respect to such Loans or within such earlier period as required by law. If
any such conversion of a Fixed Rate Loan occurs on a day which is not the last
day of the then current Interest Period with respect thereto, the Borrowers
shall pay to the Lender such amounts, if any, as may be required pursuant to
Section 2.6.
E. Certain Financial Covenants. Sections 5.3 and 5.4 of the Loan
---------------------------
Agreement are hereby deleted in their entirety and replaced with the following:
"[Intentionally Omitted.]"
-10-
<PAGE>
F. Other Covenants. Section 6.1(c) of the Loan Agreement is hereby
---------------
amended by deleting the following portion of the sentence:
"... and, (ii) a report (in the form of Exhibit 6.1(c) and otherwise
--------------
satisfactory to the Lender), of the value of the Borrowing Base as of the end of
such month (the "Borrowing Base Certificate") all certified by the Parent's
--------------------------
principal financial officer"
G. New Exhibits.
------------
1. Exhibit 2.1 to the Loan Agreement is deleted and the attached
-----------
Exhibit 2.1 is substituted therefor.
- - -----------
2. Exhibit 2.2, Notice of Borrowing or Conversion is hereby added
-----------
as an Exhibit to the Loan Agreement.
H. Deleted Exhibit. Exhibit 6.1(c), Borrowing Base Certificate, is
--------------- --------------
hereby deleted in its entirety from the Loan Agreement.
II. Waivers. The Lender hereby agrees to waive the following:
-------
A. The Event of Default which occurred as of February 3, 1997 because
the Parent formed two new subsidiaries, LoJack of Pennsylvania, Inc. and LoJack
FSC, LTD., without first obtaining the consent of the Lender in accordance with
Section 7.7 of the Loan Agreement.
B. The foregoing waiver is limited to its express terms and shall not
be deemed to be a waiver of any other Event of Default (including, without
limitation, any other default of the Borrowers' obligations under Section 7.7 of
the Loan Agreement), which may have existed on or prior to the date hereof or
which may hereafter arise. Further, the granting of this waiver shall not be
construed as a continuing waiver or waiver of any other Event of Default under
the Loan Agreement, or any other documents executed in connection therewith.
III. Certain Representations. As a material inducement to the Lender to enter
-----------------------
into this Amendment, each of the Borrowers hereby represents and warrants 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 performance by each
Borrower of its respective obligations hereunder have been duly authorized by
all requisite corporate action and will not violate any provision of law, any
order, judgment or decree of any court or other agency of government, the
corporate charter and/or by-laws of each Borrower, or any indenture, agreement
or other instrument to which any Borrower is a party, or by which any Borrower
is bound.
B. The representations and warranties contained in Section 4 of the
Loan Agreement are true and correct in all material respects on and as of the
date of this Amendment as though
-11-
<PAGE>
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 otherwise in writing by the Lender). No material adverse change has occurred
in the assets, liabilities, financial condition, business or prospects of any
Borrowers from that disclosed in the financial statements most recently
furnished to the Lender. No Event of Default has occurred and is continuing.
C. The Borrowers are not required to obtain any consent, approval or
authorization from, or to file any declaration or statement with, any
governmental instrumentality or other agency or any other person or entity in
connection with this Amendment.
D. This Amendment and the Note constitutes the legal, valid and binding
obligation of each Borrower, 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.
IV. Conditions. The willingness of the Lender to agree to the foregoing is
----------
subject to the following conditions:
A. Each Borrower shall have executed and delivered to the Lender (or
shall have caused to be executed and delivered to the Lender) the following:
1. This Amendment, including the Joinder of the Loan Agreement;
2. The Note in the form of the new Exhibit 2.1 to the Loan
-----------
Agreement (which shall supercede and replace the Amended and Restated Revolving
Credit and Term Note dated October 31, 1996);
3. True and complete copies of all required directors' consents
and/or resolutions, authorizing the execution and delivery of this Amendment and
such other documents as may be necessary, certified by a duly authorized officer
of the appropriate Borrowers; and
4. 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.
V. Effect of Amendment. This Amendment constitutes an amendment to and
-------------------
modification of the Loan Agreement and each of the Loan Documents. Each
reference in the Loan Agreement
-12-
<PAGE>
to the "Loan Agreement", "this Agreement", "hereunder", "hereof" or words of
like import referring to the Loan Agreement shall mean and be a reference to the
Loan Agreement, as amended by this Amendment.
VI. Miscellaneous.
-------------
A. As provided in the Loan Agreement, the Borrowers jointly and
severally agree to reimburse the Lender upon demand for all reasonable out-of-
pocket costs and expenses of the Lender, including all reasonable fees and
disbursements of counsel to the Lender incurred in connection with the
preparation of this Amendment and any other agreements, 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.
D. The obligations of the Borrowers under this Amendment shall be joint
and several in nature.
-13-
<PAGE>
IN WITNESS WHEREOF, the Lender and the Borrowers have caused this Amendment
to be duly executed as a sealed instrument by their duly authorized
representatives, all as of the day and year first above written.
LOJACK CORPORATION
By: /S/Joseph F. Abely
------------------------------
Name: Joseph F. Abely
----------------------------
Title: President
---------------------------
LOJACK INTERNATIONAL CORPORATION
By: /s/Joseph F. Abely
------------------------------
Name: Joseph F. Abely
----------------------------
Title: Treasurer
---------------------------
LOJACK OF NEW JERSEY CORPORATION
By: /s/Joseph F. Abely
------------------------------
Name: Joseph F. Abely
----------------------------
Title: President
---------------------------
RECOVERY SYSTEMS, INC.
By: /s/Joseph F. Abely
------------------------------
Name: Joseph F. Abely
----------------------------
Title: President
---------------------------
LOJACK HOLDINGS CORPORATION
By: /s/Joseph F. Abely
------------------------------
Name: Joseph F. Abely
----------------------------
Title: President
---------------------------
LOJACK VENTURE CORPORATION
By: /s/Joseph F. Abely
------------------------------
Name: Joseph F. Abely
----------------------------
Title: President
---------------------------
THE FIRST NATIONAL BANK OF BOSTON
By: /s/Patricia K. Conry
------------------------------
Patricia K. Conry, Vice President
-14-
<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 October 11, 1994, February 20, 1996 and October 31, 1996 (as amended,
the "Loan Agreement"), among The First National Bank of Boston, LoJack
--------------
Corporation, LoJack International Corporation, LoJack of New Jersey Corporation,
Recovery System, Inc., LoJack Holdings Corporation and LoJack Venture
Corporation, and shall have all of the rights and obligations of a "Borrower"
--------
under the Loan Agreement.
Executed as a sealed instrument as of February 28, 1997.
LOJACK OF PENNSYLVANIA, INC.
By: /s/Joseph F. Abely
-----------------------------------
Name: Joseph F. Abely
Title: President
LOJACK FSC, LTD.
By: /S/Joseph F. Abely
-----------------------------------
Name: Joseph F. Abely
Title: President
-15-
<PAGE>
EXHIBIT 2.2
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Patricia K. Conry, Vice President
Re: Revolving Credit and Term Loan Agreement
Dated as of December 10, 1993, as amended
-----------------------------------------
Gentlemen:
We refer to the Revolving Credit and Term Agreement dated as of December
10, 1993, as amended (the "Agreement") among LOJACK CORPORATION and its wholly
owned subsidiaries and THE FIRST NATIONAL BANK OF BOSTON. Capitalized terms used
herein without definition are used as defined in the Agreement.
Pursuant to Section 2.2 of the Agreement, the undersigned hereby confirms
its request made on _____________, 19__ for a Revolving Loan. Such Loan shall be
a [Base Rate] [Fixed Rate] Loan in the amount of $________ on _______________,
199 .
[The Interest Period applicable to said Loan will be ___ days.]*
Said Loan represents a conversion of the [Base Rate] [Fixed Rate] Loan in
the same amount made on ______________.]**
The representation and warranties contained or referred to in Section 4 of
the Agreement and in the other Loan Documents are true and accurate on and as of
the effective date of the Loan as though made at and as of such date (except to
the extent that such representations and warranties expressly relate to an
earlier date); and no Default has occurred and is continuing or will result from
the Loan.
LOJACK CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LOJACK INTERNATIONAL CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LOJACK OF NEW JERSEY CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-16-
<PAGE>
RECOVERY SYSTEMS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LOJACK HOLDINGS CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LOJACK VENTURE CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
THE FIRST NATIONAL BANK OF BOSTON
By:
------------------------------------
Patricia K. Conry, Vice President
- - ------------------------------
Date
__________
* To be inserted in any request for a Fixed Rate Loan.
** To be inserted in any request for a conversion.
-17-
<PAGE>
Exhibit 10mm
-----------
THIRD 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
as Amended and Restated
as of October 31, 1996
as Amended and Restated
as of February 28, 1997
FOR VALUE RECEIVED, LOJACK CORPORATION, LOJACK INTERNATIONAL CORPORATION,
LOJACK OF NEW JERSEY CORPORATION, RECOVERY SYSTEMS, INC., LOJACK HOLDINGS
CORPORATION, LOJACK VENTURE CORPORATION, LOJACK OF PENNSYLVANIA, INC. and LOJACK
FSC, LTD. (collectively, 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 ($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 Borrowers 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,
February 20, 1996, October 31, 1996 and February 28, 1997 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
<PAGE>
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.
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 other agreements and
instruments evidencing 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 Amended and Restated Revolving Credit
and Term Note in the principal amount of $7,500,000 issued to the Lender by the
Borrowers on October 31, 1996 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 /s/ Joseph F. Abely
-------------------------------------
Joseph F. Abely, President
- - ------------------
LOJACK INTERNATIONAL CORPORATION
By /s/ Joseph F. Abely
-------------------------------------
Joseph F. Abely, Vice President
<PAGE>
LOJACK OF NEW JERSEY CORPORATION
By /s/ Joseph F. Abely
-------------------------------------
Joseph F. Abely, President
RECOVERY SYSTEMS, INC.
By /s/ Joseph F. Abely
-------------------------------------
Joseph F. Abely, President
LOJACK HOLDINGS CORPORATION
By /s/ Joseph F. Abely
-------------------------------------
Joseph F. Abely, President
LOJACK VENTURE CORPORATION
By: /s/ Joseph F. Abely
-------------------------------------
Joseph F. Abely, President
LOJACK OF PENNSYLVANIA, INC.
By: /s/ Joseph F. Abely
-------------------------------------
Joseph F. Abely, President
LOJACK FSC, LTD.
By: /s/ Joseph F. Abely
-------------------------------------
Joseph F. Abely, President
<PAGE>
EXHIBIT 10nn
KOREA
LICENSE, TRADEMARK, AND SUPPLY AGREEMENT
This Agreement, made this 10th day of September, 1996, is entered into by
and between (l) LOJACK CORPORATION, ("LOJACK"), a Massachusetts corporation
having its principal place of business at 333 Elm Street, Dedham, Massachusetts
02026 USA and LOJACK INTERNATIONAL CORPORATION, ("LIC"), a Delaware Corporation
having its principal place of business at 333 Elm Street, Dedham, Massachusetts
02026 USA (collectively, "LICENSOR"); and S1 Corporation, a Korean Corporation
having a place of business at 10th floor, East Wing Eun-soek Bldg., l-30,
Yeonji-Dong, Chongro-Ku, Seoul, Korea, hereinafter referred to as ("LICENSEE").
W I T N E S S E T H
-------------------
WHEREAS, LOJACK has developed and owns a system for the recovery of stolen
vehicles; and
WHEREAS, LOJACK has developed and owns Software and Software Programs
relative to the system for the recovery of stolen vehicles; and
WHEREAS, LOJACK has licensed to LIC its Software Programs, Trademarks and
related documentation in order for LIC to develop and license its own system for
the activation and recovery of stolen vehicles; and
WHEREAS, LICENSOR has agreed to grant LICENSEE an exclusive license to use
the Licensed Software Programs, associated documentation, and Trademarks; sell
VLUs; and use Products in the Territory as hereunder defined and to provide
certain services to 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 LIC, and being entitled to utilize the System and
Trademarks which LICENSOR makes available to its licensees, pursuant to
agreement; and
WHEREAS, LICENSEE desires to receive and LICENSOR is willing to grant an
exclusive License for the Licensed Rights solely 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 the context otherwise requires, the following terms, shall have the
meanings set forth below:
-1-
<PAGE>
CONFIDENTIAL INFORMATION
- - ------------------------
For purposes of this Agreement "Confidential Information" shall mean:
(i) 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 System designated as confidential or
proprietary by LICENSOR and not generally known, including all
related software, file structures, documentation, algorithms and
related software concepts;
(ii) all information, data, analyses, compilations, reports or
interpretations relating to technical, product, marketing,
financial, and business information, including but not limited to,
know-how, research, product plans, products, services, designs,
drawings, engineering, hardware configuration information, object
code, source code, interpretations, forecasts and records, which is
designated to be confidential or proprietary;
(iii) all oral information which is confirmed in writing as having been
disclosed as confidential or proprietary;
provided, however, Confidential Information shall not include:
(i) any information or data which at the time of furnishing was in the
public domain or which after such furnishing becomes part of the
public domain by any party other than LICENSEE;
(ii) any information or data which at the time of furnishing was already
in possession of the LICENSEE as evidenced by pre-existing written
records of the LICENSEE and was not previously acquired, in
confidence, from LICENSOR, or any other party obligated to maintain
the confidentiality thereof;
(iii) any information or data independently developed by the LICENSEE at
any time, without the benefit of any of the Confidential
Information, which independent development is demonstrated by
written evidence, or lawfully acquired from a third party not
subject to any restrictions on the disclosure thereof;
(iv) any information or data which LICENSOR publicly discloses;
-2-
<PAGE>
(v) any information or data which the LICENSEE is required to disclose
under the authorities of any statutes, ordinances, regulations, or
orders of the court or other government authorities, or in the
performance of this Agreement. In the event, LICENSEE is required to
disclose any Confidential Information pursuant to the authority of
any statute, ordinance, regulation or order of the court of
governmental authority, the LICENSEE will promptly provide LICENSOR
with prior written notice in order to enable LICENSOR, to seek a
protective order or other appropriate remedy and/or waive compliance
by the LICENSEE with the provisions of this Agreement. If, in the
absence of a protective order or waiver, the LICENSEE is compelled
to disclose any Confidential Information, the LICENSEE may disclose
only that portion of the Confidential Information which is legally
required.
LICENSEE:
- - --------
The LICENSEE shall mean Sl provided that Samsung America, Inc. (the
"Licensee Affiliate") will enter into a certain Confidentiality Agreement
with LICENSOR (the "Confidentiality Agreement") and the rights and
obligations of the Licensee Affiliate hereunder shall be limited to those
under the Confidentiality Agreement.
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 and
some of which is protected under copyright laws.
TRADEMARKS
- - ----------
All trademarks and trade names and logos now or hereafter registered in the
Territory during the term of this Agreement owned by LOJACK and Licensed to
the LICENSOR.
PRODUCTS
- - --------
All products purchased by LICENSEE from LICENSOR, including Vehicle
Location Units ("VLUs"), Vehicle Tracking Computers, (or "VTCs") the
Vehicle Activation Computer ("VAC"), Vehicle Activation Transmitter
("VATs") and all other components of the System.
-3-
<PAGE>
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); devices system for activating the VLU after report
of a theft (the "Vehicle Activation Computer and Vehicle Activation
Transmitter(s)"); and a directional tracking unit designed for installation
the in vehicles that are used for tracking the stolen 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, the Confidential Information
and Proprietary Information, including a U.S. Patent for use only as it
applies in the Territory and for no other purpose, and access to any and
all improvements, updates and revisions thereof.
PROPRIETARY INFORMATION
- - -----------------------
All inventions, whether patented or unpatented, design rights, copyrights
and data and information in the nature of copyrightable material, 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
- - ---------
Korea and its territories (as such are in place as of the date of this
Agreement), including North Korea.
EFFECTIVE DATE
- - --------------
The Effective Date of this Agreement shall be the date that LICENSEE makes
the first installment of License Fee required in Section 2.1.
1. TRADEMARK LICENSE, SOFTWARE LICENSE,EXCLUSIVE
---------------------------------------------
DISTRIBUTION RIGHTS, and INFRINGEMENT
--------------------------------------
1.1 The LICENSOR hereby grants to LICENSEE for the term described in
Section l.6 subject to the terms and conditions herein, including
Performance Standards provided in Section l6 hereof an exclusive
license to use the Licensed Rights solely in connection with the
operation of the System within the Territory.
-4-
<PAGE>
All improvements, updates, and revisions to the System shall be made
available to LICENSEE at no additional cost, provided that LICENSEE
is responsible, at its cost, for adapting such improvements to its
own System.
1.2 During the term of this Agreement, and within the Territory,
LICENSOR grants to LICENSEE, subject to all terms and conditions set
forth in this Agreement, the exclusive right to sell and distribute
for resale VLU's, solely in the Territory, either to vendors
appointed by LICENSEE 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 LICENSOR, in consideration of the payment by the LICENSEE of the
amounts set forth in Section 2.1, hereby grants to LICENSEE the
exclusive license to use solely 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, provided
that LICENSEE is responsible, at its cost, of adapting such
improvements to its own System.
1.4 In consideration of the payment by LICENSEE of the amount set forth
in Section 2.1, LICENSOR hereby grants to LICENSEE the exclusive
license to use, solely 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, including but not limited to any Patent Rights that may
be granted in said Territory.
1.5 During the term of this Agreement and within the Territory, LICENSOR
grants to LICENSEE, subject to all terms and conditions set forth in
this Agreement, the exclusive license to use the Trademarks solely
and exclusively in connection with the sale of Products in the
Territory and for no other use or purpose. LICENSEE recognizes and
acknowledges that the LICENSEE is the sole and exclusive LICENSEE of
the Trademarks and agrees not to register any of the Trademarks in
its own name or that of any other firm, person, or corporation and
further agrees not to use the LICENSOR'S name
-5-
<PAGE>
nor any of its Trademarks as any part of its corporate name, and
LICENSOR has the right to monitor the quality of LICENSEE'S
operations as set forth in Article l6 of this Agreement.
1.6 The term of this Agreement shall commence on the Effective Date, 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 sales of Products for
ultimate use in motor vehicles located in the Territory, which
includes trucks. LICENSEE agrees not to use the Licensed Rights,
System, or technology utilized therein for any other or additional
applications without the written approval of LICENSOR in each
instance, which approval shall be at 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.
1.8 (a) LICENSEE promptly shall notify LICENSOR of any claim by a third
party that any activities of LICENSEE pursuant to this Agreement
infringes trademark or proprietary rights of that third party. In
such event, 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 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
and further gives LICENSOR the sole conduct of the defense of
litigation and does not at any time admit liability or otherwise
attempt to settle or
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<PAGE>
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
LICENSOR as notified to LICENSEE and gives LICENSOR such assistance
as it shall reasonably require and instruct 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 LICENSEE's name or to
join LICENSEE as a party to the proceedings, or
(ii) procure the right for 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 or
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
reasonable efforts, cannot reasonably accomplish either (i) or (ii)
above, at reasonable expense, then LICENSOR shall refund a
proportionate part of LICENSEE fee provided in Section 2.1,
proportionate to the degree to which LICENSEE is prohibited from
exercising its rights in this Agreement.
(b) In the event of any infringement or claimed infringement of the
Licensed Rights by a third party, LICENSEE shall promptly notify
LICENSOR of said infringement or claimed infringement to the extent
such infringement would materially and adversely affect the value of
the Licensed Rights to the LICENSEE. In such a case, LICENSOR shall
promptly notify LICENSEE what action, if any, LICENSOR in its sole
discretion elects to take in respect of such matter. LICENSOR shall
have sole conduct of any action it elects to take in such matter
("Offensive Litigation") and either; 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 LICENSEE agrees to share equally the costs of such
Offensive
-7-
<PAGE>
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, LICENSOR and
LICENSEE as they relate to the Territory.
(c) In the event that LICENSOR fails to accept the conduct of any
Offensive Litigation within a reasonable period after notice from
LICENSEE requesting LICENSOR to do so, 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 to the extent such infringement would materially and
adversely affect the value of Licensed Rights to the LICENSEE, and
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 LICENSEE its reasonable costs and
expenses incurred in complying with the provisions of section 1.8
(a) above. (Assistance for Defensive Litigation). LICENSOR shall
have no liability or obligation to LICENSEE in respect of any
Defensive Litigation or Offensive Litigation if the same results
from any breach of LICENSEE's obligations under this Agreement.
2. PAYMENT, PRICING AND TERMS
--------------------------
2.1 In consideration of licenses granted hereunder for the term and
subsequent renewals, LICENSEE shall pay LICENSOR a lump sum License
Fee in the total amount of U.S. $600,000 (Six Hundred Thousand
dollars) (the "License Fee"). The License Fee shall be paid as
follows: $200,000 (Two Hundred Thousand dollars) upon execution of
this Agreement ("First Installment"), $200,000 (Two Hundred Thousand
dollars) upon first shipment or any portion thereof of initial
Purchase Order referred to in Section 2.2; and $200,000 (Two Hundred
Thousand dollars) upon initial installation and activation of a
System or any portion thereof in the Territory. The License Fee is
non-refundable.
2.2 The purchase price payable for the hardware and software and 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
-8-
<PAGE>
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 shall be paid when shipped F.O.B.
Dedham, Massachusetts, Seguin, Texas, U.S.A. or such other place
determined by LICENSOR.
2.3 An initial purchase order for the following hardware will be placed
30 (thirty) days following the Effective Date by LICENSEE in such
quantity as specified below (the "Initial Purchase Order"):
(1) Vehicle Activation Computer (VAC)
(21) Vehicle Activation Transmitters (VATs)
(200) Vehicle Tracking Computers (VTCs)
(960) Vehicle Location Units (VLUs)
The Initial Purchase Order and any subsequent purchase orders are
referred to in the Agreement as "Purchase Orders".
The delivery of the VAC, VAT's and VTC's ordered under the Initial
Purchase Order shall be made within four (4) months following the
acceptance of the Initial Purchase Order. The delivery of the VLUs
shall be made within six (6) months of the acceptance of the Initial
Purchase Order. The actual quantity of VLUs ordered by Purchase
Order by LICENSEE may be increased or decreased (in no case shall it
be reduced below the minimum specified in Section 16) by twenty-five
(25%) percent by giving ninety (90) days written notice to LICENSOR,
prior to scheduled shipments. For purposes of this Agreement
"delivery date" shall mean the date on which LICENSOR delivers
Products to common carrier for shipment to LICENSEE.
Subsequent Purchase Orders for the Products shall be authorized in
writing by LICENSEE and shall specify requested delivery dates, but
in no instance should such Purchase Orders specify delivery dates
sooner than ninety (90) days of receipt of order by LICENSOR.
LICENSOR will use its best efforts to comply with requested delivery
dates. LICENSOR shall use its best efforts to fill each Purchase
Order of LICENSEE that is accepted by LICENSOR, but shall not be
liable in any respect for failure or delay in shipping any accepted
Purchase Orders that is due wholly or in part to any cause beyond
-9-
<PAGE>
LICENSOR's reasonable control as described in Section 2l or without
the LICENSOR's fault or negligence. LICENSOR shall not be liable for
shipping over routes or by means of transportation not specified by
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 the Products, LICENSEE shall cause
to be issued by a bank satisfactory to LICENSOR, an Irrevocable
Letter of Credit in favor of LICENSOR, valid for the greater of six
(6) months or a period covering the shipping schedule of the
Products specified in the Purchase Order. Such letter of credit
shall be in an amount equal to the full amount of the Purchase Order
and provide for partial shipments, and payable upon presentation of
an Airway Bill or Bill of Lading, LICENSOR's Commercial Invoice,
Packing List, Certificate of Origin, and any other documents
required. 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 V. Delivery of equipment and costs shall be determined
and made a part of this Agreement as Attachment V.
2.5 LICENSOR hereby guarantees that the prices payable by LICENSEE for
the VTCs and VLUs will not be increased for one (1) year from the
Effective Date of this Agreement. Thereafter, LICENSOR shall provide
the VTCs and VLUs at a price no less favorable than those it offers
other Licensee who purchase similar annual volumes.
2.6 All fees and other amounts payable by LICENSEE to LICENSOR under
this Agreement are exclusive of any Korean Value Added Tax or other
Korean Tax, or Duty (except as provided in Section 2.8).
2.7 All amounts payable either party to the other party under this
Agreement which are not paid when due shall bear and be payable with
interest at 1% (one percent) over the Prime Rate as reported by the
Bank of Boston, determined at such due date, and calculated from
such due date to the date of actual payment (whether after judgment
or before).
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<PAGE>
2.8 The License Fee of Six Hundred Thousand ($600,000) Dollars, payable
by LICENSEE to LICENSOR under this Agreement (Section 2.1 for
Payment Shcedule less any applicable tax deduction.) shall be tax
deductible according to Convention between the Government of Korea
and USA to avoid double taxation and LICENSEE shall deduct or
withhold the taxes, charges and duties and pay over to the relevant
authority the full amount with the balance being paid to LICENSOR.
LICENSEE shall promptly forward to LICENSOR a certified copy of the
original official receipt issued by each appropriate Taxing
authority or other agency, evidencing payment in full. LICENSEE
shall cooperate with LICENSOR in such a manner as may be reasonably
requested by LICENSOR to obtain a credit or deduction in the United
States of such taxes so deducted or withheld.
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 the double taxation
treaty between the Governments of the Territory and the United
States.
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 LICENSOR, provided that the LICENSOR shall ensure that the System
will be fully functional and operative in accordance with the
specifications. Any and all modifications by LICENSEE 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 LICENSEE, and may, at
LICENSOR's sole discretion, affect the system warranty hereunder.
The responsibilities of the LICENSEE shall include, without
limitation, promptly and diligently upon execution of this
Agreement, 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.
-11-
<PAGE>
3.2 The sole obligations of 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 LICENSOR: (a) to render technical operating and marketing
assistance to LICENSEE upon the reasonable request of LICENSEE on a
fee for service basis; (See Attachment III) (b) to honor LICENSEE's
claims for warranty repairs without cost of repair to LICENSEE in
prompt and efficient manner made in accordance with this Agreement;
(c) to supply Products at agreed terms and prices subject to
Purchase Orders executed by LICENSEE and 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. 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. LICENSOR may, at its option, provide such technical
assistance directly or by subcontracting with qualified third
parties who have experience with the System.
3.3 LICENSEE shall pay LICENSOR fees for all technical, operating,
administrative and marketing assistance, and services rendered by
LICENSOR to LICENSEE (including assistance described in Section 3.2
above), at LICENSEE's written request. Provided, however, that
LICENSOR shall provide LICENSEE with the first l00 man hours of
services rendered in connection with the establishment, start-up,
tests, and adjustments of the System in the Territory free of
charge. LICENSOR shall provide reasonable levels of training at its
Dedham, Massachusetts facility free-of-charge. Such fees shall be
payable in full when the services are rendered. LICENSEE shall
reimburse LICENSOR for all expenses reasonably incurred by LICENSOR
in rendering such requested services to LICENSEE, including: travel,
hotel, out-of-pocket expenses of LICENSOR, and fees of independent
contractors retained by LICENSOR. LICENSEE shall reimburse LICENSOR
for such expenses promptly upon receipt from LICENSOR of reasonable
written evidence of such expenses.
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<PAGE>
3.4 Prior to the execution of the rights described in Section 1,
LICENSEE shall have provided to LICENSOR its most recent offering
information, quarterly and annual reports.
LICENSEE will provide LICENSOR with its annual financial statements
audited by an independent accounting firm.
4. PURCHASE OF SUPPLIES; COMPETING PRODUCTS; INSTALLATION
------------------------------------------------------
4.1 Recognizing that LICENSOR has developed a unique System, and in
order to safeguard the integrity of the Trademarks and to protect
Proprietary Information of the LICENSOR and assure uniform product
quality and specification compliance and control, LICENSEE shall
purchase from LICENSOR all Products which it uses or sells, except
standard off-the-shelf items ordinarily purchased by LICENSOR from
third parties. In addition, the LICENSEE will not sell any products
which are in competition with the Products. LICENSEE agrees to offer
in connection with the sale of VLUs, only the standard warranty from
time-to-time given by LICENSOR to its retail customers, except as
LICENSOR may otherwise in writing approve.
4.2 LICENSEE assures that installation of VLUs shall be in compliance
and conformity with all procedures and standards reasonably
established by LICENSOR for the Territory and in compliance with all
applicable laws and regulations. LICENSOR shall provide LICENSEE
with written notice of any failure or non-conformity of which
LICENSOR has actual notice, and LICENSEE shall thereupon, and within
fifteen (15) days thereafter, furnish evidence to LICENSOR that any
such non-conformity has been fully rectified. LICENSEE hereby grants
LICENSOR the right, at reasonable times, from time-to-time, and with
or without notice to LICENSEE, as 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 LICENSOR's expense.
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<PAGE>
4.3 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.
5. RESALE PRICING
--------------
5.l LICENSEE shall have the right to establish its own price levels
for sale 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 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 LICENSOR from time-to-time
within thirty (30) days after receipt of 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 referred to as the "Required Permits"
hereunder). It is specifically agreed that 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.
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<PAGE>
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 the 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. LICENSOR
will provide to LICENSEE, subject to the confidentiality
provisions in Section 9 hereof, 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 LICENSOR
will provide same with all due diligence and dispatch upon
receipt of a written request for same from LICENSEE.
6.3 LICENSOR and LICENSEE, upon request of the other, will cooperate
with the other with respect to the filing and/or recording, if
applicable, 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. LICENSEE shall deliver an opinion of counsel that no
filing of this or any other agreement between LICENSOR and
LICENSEE are required and that such agreements are enforceable in
Korea.
6.4 LICENSEE hereby grants and assigns to LICENSOR, 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, provided that LICENSOR
shall reimburse LICENSEE all of its reasonable costs and expenses
(to be negotiated) incurred to obtain and maintain the Required
Permits.
7. INSURANCE
---------
7.l LICENSEE at its sole cost agrees to obtain and to continuously maintain
insurance in such amounts and against such risks as may be customarily
maintained by companies operating similar business 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 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
LICENSOR pursuant to section 8.2. below.
8.2 LICENSEE agrees to indemnify and hold harmless LICENSOR and each
of LICENSOR's officers, directors, agents, employees and
controlling persons against any and all loss, liability, claim,
damage and expense, including attorney's fees, arising solely in
connection with either (a) LICENSEE's establishment and operation
of the System, or (b) the sale and installation by LICENSEE of
the Products, or (c) the conduct of business by 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
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
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<PAGE>
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 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 in the opinion of counsel to the indemnified party, 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 in the opinion of counsel to the
indemnified party, 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.
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9. CONFIDENTIALITY
---------------
9.1 LICENSEE agrees to maintain secret and confidential all Confidential
Information and Proprietary Information of LICENSOR (all of which are
expressly agreed by the parties to constitute the know-how disclosed
or to be disclosed by LICENSOR to LICENSEE or obtained by LICENSEE
from LICENSOR pursuant to this Agreement) and all other information
that LICENSOR designates as confidential and discloses to LICENSEE
pursuant to this Agreement, to respect 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 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. 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
--------
10.l LICENSOR shall provide LICENSEE with Quality Assurance Certificate for
the Products and Inspection Standard for the Products. LICENSOR
warrants to LICENSEE that the Products when purchased from 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 the
greater of (i) l (one) year from the delivery date of VLUs, VACs, VATs
and VTCs to LICENSEE or (ii) the period of the same warranty LICENSOR
receives from its manufacturers from time-to-time. 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.
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10.2 During the Warranty Period for respective Products, LICENSOR shall, at
its option, replace or repair, at any authorized repair facility in
the Territory designated by LICENSOR, any Products which LICENSOR
determines to be defective. In the event that LICENSOR does not hold a
sufficient number of stock of VLUs in the Far East for replacement and
does not have an authorized repair facility in the Territory to meet
the warranty claims, the LICENSOR shall deliver to LICENSEE without
any cost to LICENSEE with each shipment of VLUs in accordance with the
Purchase Order an additional quantity of VLUs equal to one percent
(l%) of the quantity so ordered by LICENSEE (the "Warranty Replacement
Stock"). LICENSEE shall maintain the Warranty Replacement Stock in its
warehouse and shall use them for replacement of the defective units
and make a monthly report to LICENSOR on the replacement occurring
during each calendar month and remaining balance, along with number of
defective units returned.
10.3 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.
10.4 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
---------
11.l This Agreement shall apply to 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 its retail sales activity shall be operated under
the name CARSEARCH by LoJack and that all signs and advertising shall
prominently disclose that it is a LICENSEE for the Products. In
addition, the LICENSEE hereby reserves the right to use any other
trademarks, trade names, brand names, logos, and other designation for
the Products for sale and marketing of the Products and use of the
System in the Territory. In such event, LICENSEE shall notify LICENSOR
in writing of his intent to exercise his right under this section.
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 LICENSOR. LICENSOR
reserves the right to review and approve all promotional material and
literature used by LICENSEE in the sale of the Products.
12.3 LICENSEE agrees that it shall be solely responsible at its expense for
the translation of LICENSOR'S technical and other documentation. Upon
the expiration or earlier termination of this Agreement, LICENSEE
agrees to promptly (within thirty (30) business days) deliver to
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 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.
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 LICENSOR herein;
13.l(b) LICENSEE receives an assignment and assumption agreement executed by
LICENSOR and each such transferee to that effect;
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13.l(c) each transferee has the financial capacity and technical expertise
necessary to discharge the obligations of LICENSOR under this
Agreement; and
13.l(d) upon such assignment and assumption LICENSOR shall thereafter, have no
further rights or obligations hereunder, without prejudice, however,
to the accrued rights of LICENSOR to such date.
13.2 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 LICENSEE shall not, without 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 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
LICENSOR.
14.2 The following occurrences shall be events of defaults entitling
LICENSOR, at its option, to terminate this Agreement immediately upon
the giving of written notice by LICENSOR:
(a) If LICENSEE shall fail to make payment of any sum due from
LICENSEE to LICENSOR within twenty (20) days following the receipt of
written notice by 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 covenant or agreement set forth in this Agreement, other than
those relating to the payment of monies from LICENSEE to LICENSOR or
maintenance of performance standards as outlined in Section 16, within
thirty (30) days following the receipt of written notice by LICENSOR
stating with particularity the default claimed, provided that the
LICENSEE shall not be in default if such default is
-21-
<PAGE>
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 LICENSOR's default notice;
(c) if a receiver, liquidator or trustee of 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 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 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
LICENSOR either (a) permits Products to be sold or distributed in the
Territory by a party other than LICENSEE, or (b) permits a party other
than LICENSEE to provide service in the Territory with respect to any
Products distributed, sold, or sublicensed by 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:
-22-
<PAGE>
VTCs, the VACs, VATs, VLUs (the "Designated Assets"). The price which
purchaser shall pay for such Assets shall be by mutual agreement
between the LICENSOR and LICENSEE. The closing of the sale shall occur
in Boston, Massachusetts. At such closing, the Purchaser shall pay in
cash to 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 Designated
Assets which the Purchaser is acquiring, free and clear of all liens,
encumbrances and restrictions (unless otherwise agreed to by the
Purchaser).
15.3 Immediately upon the expiration or earlier termination of this
Agreement, LICENSEE shall cease and forever abstain from using the
Trademarks and to deliver to LICENSOR all documents, instructions,
display items, and the like bearing any of the Trademarks. To the
extent that such items were originally purchased from LICENSOR, are in
original packaging and can be used by LICENSOR, upon any such
termination LICENSOR may buy from and pay LICENSEE a price for such
items, and the price shall be mutually agreeable between the LICENSOR
and LICENSEE.
15.4 To the extent permitted under the laws of the Territory 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 four (4) months after the Effective Date 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 eight (8) months after the Effective Date of this Agreement,
the System shall be established and ready for full operation within
the Territory.
-23-
<PAGE>
16.3 For each calendar quarter commencing twelve (12) months after the
initial receipt of VLUs under the Initial Purchase Order (as described
in Section 2.3) LICENSEE shall purchase from the LICENSOR a minimum of
Nine hundred sixty (960) VLUs, plus an annual increase of 3% (three
percent) over the quantity in Section 16.3 calculated on a quarterly
basis thereafter during the term of this Agreement.
16.4 In addition to LICENSOR'S rights of termination as described in
Section l5, in the event that LICENSEE is not in compliance with any
of the terms or Performance Conditions of this Agreement, the LICENSOR
shall have the right, at LICENSEE'S expense, to visit LICENSEE's
operation in order to review and inspect such operations with five (5)
day written notice.
16.5 LICENSOR hereby agrees to consider the feasibility of the local
production by LICENSEE of such products to be sold in the territory
and to cooperate with LICENSEE to achieve such localization of the
Products. Such agreement for localized production shall be on terms
and conditions acceptable to LICENSOR in its absolute and sole
discretion.
17. DISPUTE RESOLUTION
------------------
17.l 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
provided that the place of such arbitration shall be in Boston,
Massachusetts, where complainant is LICENSOR and in Los Angeles,
California where complainant is LICENSEE. All matters submitted to
arbitration shall be binding upon the parties and fully enforceable.
18. GOVERNING LAW
-------------
18.1 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 the United States and the Commonwealth of
Massachusetts. LICENSOR and LICENSEE agree to submit to the exclusive
jurisdiction of the Courts of the Commonwealth of Massachusetts and
the United States.
-24-
<PAGE>
19. NOTICE
------
19.l 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 LICENSOR and LICENSEE.
20.2 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.
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.
-25-
<PAGE>
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.
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 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 Sl Corporation
By: /s/ C. Michael Daley By: /s/ Jeong Ok Park
------------------------------- -----------------------------
C. Michael Daley, President Jeong Ok Park, President
LOJACK CORPORATION
By: /s/ C. Michael Daley
--------------------------
C. Michael Daley, Chairman
Date
---------------------------
-26-
<PAGE>
ATTACHMENT I
1 INTRODUCTION
--------------
This document specifies functional requirements of the CarSearch System, a
stand-alone system for activating and deactivating CarSearch Vehicle Locations
Units (VLUs).
The following items are part of the CarSearch System and are defined for the
reader to understand the meaning of this document.
CarSearch Vehicle Location Unit (VLU):
The transponder sold to and installed into subscriber vehicles.
Vehicle Tracking Computer (VTC):
The instrument used to track active VLUs in stolen vehicles.
Vehicle Activation Computer (VAC):
The command station to control transponders.
Vehicle Activation Transmitter (VAT):
The broadcast unit to transmit ACs, and DCs.
Activation Code (AC):
The unique number used to activate a specific VLU.
Reply Code (RC):
The unique number used to track an active VLU with a VTC.
Deactivation Code (DC):
The unique number used to deactivate a recovered VLU.
All issues and inquiries regarding this Attachment 1 should be directed to
William R. Duvall, LoJack Corporation, 333 Elm St., Dedham, MA 02026. Telephone
(617) 326-4700.
<PAGE>
2 SYSTEM REQUIREMENTS
---------------------
The following requirements pertain to the CarSearch System as a whole:
2.1 Compatibility with existing equipment/services
----------------------------------------------
The CarSearch System must be able to use and interface with if appropriate, the
following existing equipment/services.
. The Public Switched Telephone Network (PSTN)
. Existing radio communications equipment on site.
. An operating frequency between 165-174 MHz, inclusive, for all
components.
. Existing computer equipment on site.
2.2 General system description
--------------------------
The CarSearch System consists of one central computer (VAC) available for human
interface, and one to eight remote devices (VAT) each of which is located at a
radio transmitter site. The VAC computer communicates with each VAT over a
switched telephone line via 1200 baud Hayes-compatible modems. No other means
-- -----
of communication is provided. In addition to the VAC and VAT, Vehicle Location
Units are installed into customer vehicles or which are activated by the
transmission of the appropriate activation code.
2.3 Principal system function
-------------------------
The principal function of the system is to conveniently support the following:
A user informs a central computer via a local user interface that an VLU with a
specified activation and reply code is to be activated, or deactivated. The
central computer then informs the set of remote devices, each of which transmits
via radio a corresponding control signal(s) via its Mod/PTT connection.
2.4 Limitations
-----------
Following are explicit limitations indicating what the system is not expected to
---
do.
2.4.1 Police Involvement
------------------
The CarSearch System has no involvement of any sort with law enforcement
computer systems, or radio facilities.
<PAGE>
This means that CarSearch does not receive reports on stolen vehicles as a
normal consequence of the theft being reported to police. Rather, the owner of
a stolen VLU equipped vehicle must take steps to report the theft to the
CarSearch Operation Center.
This does not in any way preclude the participation of police vehicles which may
have VTC to track and recover stolen vehicles. Police so equipped would need to
communicate directly with the CarSearch Operation Center to query reply codes
and deactivated recovered VLU equipped vehicles.
2.4.2 No database maintained
----------------------
CarSearch System will not maintain any database of CARSEARCH equipped vehicles,
or of CarSearch Units which have been activated. It is instead oriented
strictly toward individual transactions possibly involving a single CarSearch
Unit; upon completion of any transaction, it will log that transaction to its
printer for reference by the user.
The only permanent or long-term data CarSearch System will maintain is system
configuration information, such as the phone numbers of its various remote
devices. (See section 3.4) A customer database is to be provided by the user in
the format he selects.
2.4.3 No security, encryption, authentication
---------------------------------------
CarSearch System will make no effort to encrypt or otherwise secure from
discovery the CarSearch "secret numbers" or other data it deals with.
2.4.4 No system diagnostics
---------------------
CarSearch Systems will not diagnose or report any system problems, other than
reporting success or failure of phone calls made to remote devices. (See
section 3.2.4.6)
2.4.5 No automatic broadcasts
-----------------------
When the central computer notifies a remote device or the need for broadcasting
some signal or test tone, the remote device will (promptly) perform the required
broadcast once; no repeats will occur other than by getting the central computer
to make phone calls for another specific request, as a result of specific
operator action.
<PAGE>
3 SECTOR ACTIVATION COMPUTER REQUIREMENTS
-----------------------------------------
Following are requirements relating to the system for CarSearch System:
3.1 Hardware platform
-----------------
The central computer will be an IBM AT-compatible computer with at least 1 Mb of
RAM and a standard BIOS. The system will contain the following peripherals:
. a keyboard
. a VGA or compatible color video monitor
. a permanent storage device such as a hard disk, at least 2 megabytes
of capacity
. a standard floppy disk drive, for system loading & debugging
. a COM1 and a COM2 device
. a Hayes 1200-baud modem or compatible
. an LPTI (parallel) port with attached printer.
The computer and its peripherals will be dedicated to use by CarSearch System;
use for any other systems is not supported.
3.2 User Interface
--------------
The user interface will allow the user repeatedly to specify one of 5
transactions: Set Time, Update Phone List, Activate, Deactivate, and Test Tone.
The interface will be presented in English. Details:
3.2.1 Main Menu
---------
The user interface will display a (titled) main menu, offering the choice of the
5 transactions noted, as well as possible termination of the program, and
including display of current time and date (at least to the minute) as known to
the computer. User selection of an action will be by some convenience means.
While the computer is awaiting user selection, it will update the displayed time
and date appropriately. When a valid user selection has been made, the
appropriate screen will be presented for the selected transaction, as described
in following sections.
During interaction for any user selection, time and date need be displayed only
as explicitly noted. When the interaction for any user selection other than
termination of the program is completed, the computer will return to displaying
the main menu.
3.2.2 Set Time
--------
If Set time is chosen, the user interface will accept a new date and time from
the user, to be used henceforth by the computer, or course updated by the
passage of time.
<PAGE>
Changes of time and date, showing old and new values, will be logged (see
section 3.5).
3.2.3 Update Phone List
-----------------
If update Phone List is chosen, the user information will display the current
list of phone numbers used by the central computer, and allow the user to add,
remove, or modify entries in the list.
The displayed list will always contain 8 items, some of which may be blank. To
add an entry, user fills in data for some currently blank entry. To remove an
- - --- ------
entry, user modifies it to all blanks.
The user may specify any printable characters in phone list entries. The user
interface will do no checking for reasonableness of the entries.
Modifications to the phone list, with old and new entry, will be logged (see
section 3.5).
The phone list will be maintained in a permanent file (section 3.4) so that
when the program is stopped and restarted, the last version of the phone list
will be available and used.
3.2.4 Activate, Deactivate, Test Tone
-------------------------------
To Activate, Deactivate, Test Tone choices all have many aspects in common, so
are treated together in the following subsections:
3.4.2.1 Activate chosen
---------------
If Activate is chosen, the user interface will accept a seven-character
activation code and a five character reply code. These codes will be validated
for correct syntax, and the user reprompted if either is invalid. The user may
then choose whether the transaction is to be sent to all the VATs or just one
VAT.
3.2.4.2 Deactivate chosen
-----------------
If Deactivate is chosen, the user interface will accept a seven-character
deactivation code. This code will be validated for correct syntax, and the user
reprompted if invalid. The user may then choose, whether the transaction is to
be sent to all the VATs or just one VAT.
3.2.4.4 Calling to remote devices
-------------------------
Following full valid specification of a transaction (Activate or Deactivate, or
Test Tone) the central computer will then attempt to notify the selected VATs;
see section 3.3. The user interface is not required to accept further
transactions, until handling of this transaction is completed or aborted.
<PAGE>
3.2.4.5 Start of each call announced
----------------------------
At the start of each phone call by the VAC, the user interfaces will display the
phone number being called and advise the user to wait while the call is made.
No information about progress of the call need to be presented until the call is
completed.
3.2.4.6 Results announced and logged
----------------------------
Following each individual phone call (successful or not), the user interface
will display the result of the call, specifying the phone number used.
Each phone call, with phone number and result and intended transaction, will be
logged (See section 3.5).
3.2.4.7 User may abort phone call sequence
----------------------------------
After the VAC gives the results of the call, if there are any more to be made,
the VAC will check whether user has pressed any keys, and if so will allow user
to specify continuation, pause, or abort of work on the transaction.
3.3 VAT notification
----------------
When the user has specified an Activate or Deactivate or Test Tone transaction,
the VAC will attempt to notify each selected VAT, using the telephone number
currently in the phone list file (section 3.4) information (including
transactions) transferred to VAT will be done error-free.
The VAC will call each selected phone number in turn; if it succeeds in
connecting to it, it will deliver the transaction. If it does not succeed in a
reasonable time, it will consider the call failed.
Following a round of attempted phone calls to each selected SAT, if there is at
least one to which the call was not successful, the VAC will retry phone calls
to the VATs it has not yet succeeded with, in sequence, up to a specified total
number of tries. This number, NumberCallTries, will be in range 1...99 and will
be defined by either (i) an MSDOS environment variable, or (ii) a statement in a
defined configuration file.
Following any of the phone calls made, the remainder may be aborted (or paused)
by user selection (section 3.2.4.7).
3.4 Phone list file
---------------
The VAC will maintain a permanent phone list, giving one entry for each of the
(8) allowed VATs. Each entry will provide space for at least (30) characters,
and may be edited at will be the user (Section 3.2.3).
<PAGE>
Blank entries will be interpreted to mean there is no corresponding SAT.
Non-blank entries will be interpreted as telephone numbers (including
Hayes-compatible command characters, such as a comma for short delay), to be
used when attempting to call the VAT.
The permanent phone list will be retrieved for use when the main program starts.
It will properly updated whenever user completes a modification to the list.
3.5 Logging
-------
The video screen will inform the user of the disposition of each transaction,
and in the case of Activate and Deactivate and Test Tone transactions, whether
each VAT was notified. Failed transactions will be highlighted or otherwise made
especially noticeable.
In addition, the disposition of each transaction and each notification attempt
(to a VAT) will be logged to the printer. See details in sections 3.2.2, 3.2.3,
3.2.4. Each item logged to the printer will include the current time and date.
On any given occasion when the VAC attempts to log something to the printer, if
the printer is not at that time operational, then:
the program will continue normally, except that there may be a short delay
(maximum 15 seconds) beyond the normal execution time;
the item being logged will be discarded, i.e., there will be no attempt to
save it for later printing;
the next time an item is to be logged to the printer, the same attempt to
log will be made.
4 VAT REQUIREMENTS
----------------
Following are requirements relating to each VAT for CarSearch:
4.1 Hardware Platform
-----------------
The remote computer will be an IBM AT-Compatible computer with at least 640 Kb
or RAM and a standard BIOS. The system will contain at least the following
peripherals:
. an MDA or compatible video board (technically, only the video RAM is
required).
. a non-mechanical permanent storage device such as a ROMdisk, with at
least 1 megabyte or capacity.
<PAGE>
. a standard floppy disk, for system loading and debugging.
. a COM1 and COM2 device.
. a Hayes 1200-baud modem or compatible.
. a standard CarSearch VAS "silver box" (Mod/PTT controller).
. an appropriate radio transmitter, of up to 50 watts Rf power.
The following peripherals are optional; the software is not required to support
them:
. a monitor
. a keyboard
The computer and its peripherals will be dedicated to use by CarSearch; use for
any other system is not supported. The system user is required to provide
appropriate power and environmental conditioning for the remote device
------------
equipment. This must be done as a part of site selection.
4.2 User Interface
--------------
Because a monitor and keyboard are optional, no user interface is required on
the VAT. The software may write some reasonable logging/diagnostic information
to the video RAM, which may be viewed if a monitor is attached to the remote
device.
4.3 Call processing
---------------
The VAT must be capable of receiving phone calls from the VAC via its modem.
Once a connection has been made, it will process Activate and Deactivate and
Test Tone transactions sent to it. The VAT is not required to accept more than
-----------------------------------
one transaction per call.
- - -------------------------
Transactions will be received error-free; i.e, the chance of phoneline bit
errors converting a valid transaction into a different but valid transaction
will, for practical purposes, be zero.
4.4 Transaction processing
----------------------
The various transactions will be processed as follows:
<PAGE>
4.4.1 Activate transactions
---------------------
When a VAT receives an Activate transaction, it will send a single Activate
control signal (using the specified activation code), a single Speed-up control
signal (using the specified reply code), and a single Antijam Disable control
signal to its Mod/PTT, in that order. The Activate and Speed-up signals must be
contained in separate message bursts, in the order specified; the Antijam
Disable signal may be contained in either burst (as the last signal). These
signals will not be repeated.
4.4.2 Deactivate transaction
----------------------
When a VAT receives a Deactivate transaction, it will construct a message burst
containing a single Deactivate control signal (using the specified activation
code), and single Antijam Disable signal, in that order, and send the burst to
its Mod/PTT. These signals will not be repeated.
4.4.3 Test Tone transaction
---------------------
When a remote device receives a Test Tone transaction, it will tell its Mod/PTT
to generate the specified test tone. This test time will not be repeated.
4.4.4 Message burst timing
--------------------
The remote device will make no effort to broadcast a control signal in a
specific "time slot". In general control signals will be broadcast as soon as
practical after the VAT has determined and need therefore, but not longer than
______ after receipt of the signal.
4.4.5 Optional logging
----------------
Because of video screen is optional, no logging is required of the VAT. The
remote device may log time-stamped transactions to the video RAM, which may be
viewed if a monitor is attached to the remote device.
<PAGE>
Attachment II page 1
<TABLE>
<CAPTION>
COMPONENT PRICING FOR
CARSEARCH
STOLEN VEHICLE RECOVERY NETWORK
<S> <C>
Vehicle Activation Computer (VAC) $52,242.00
Vehicle Activation Transmitter (VAT)
First Three $43,893.00
Additional $37,500.00
Vehicle Tracking Computer (VTC)
First Thirty $3,845.00
Additional $2,583.00
Vehicle Location Unit (VLU) $140.00*
Vehicle Alarm (Alert with Prevent)
AL-514 with SK Relay & Socket $48.75**
Door Lock/Unlock Relays and Socket $10.50**
LoJack Interface Module (IM) $25.00**
Backup Battery (BB) $12.50*
</TABLE>
* 960 piece minimum
** 500 piece minimum September 3, 1996
<PAGE>
Attachment II Page 2
[LETTERHEAD OF LOJACK APPEARS HERE]
================================================================================
CARSEARCH VEHICLE LOCATION UNIT (VLU)
QUANTITY DISCOUNT PRICE SCHEDULE
<TABLE>
<CAPTION>
Quantity Price (USD)
-------- -----------
<S> <C>
960 - 9,600 $ 140.00
10,560 - 15,360 130.00
16,320 - 37,440 122.00
38,400 - 52,800 115.00
53,760 + 109.00
</TABLE>
All purchases are subject to the following conditions:
- - ------------------------------------------------------
1. All orders must be in quantity increments of 960 which is our
standard manufacturing lot size.
2. Prices are FOB: Seguin, Texas; Denver, Colorado; and/or Dedham,
Massachusetts.
3. Price does not include: freight, duties, insurance, batteries, or any
externally conditioned factors.
4. Price is based on volume of units shipped in a twelve (12) month
-------
period to a single CarSearch territory, progressing from the date of
first order.
5. Price is for a VLU model that is certified for use in the United
States by the Federal Communication Commission (FCC).
6. Prices do not include any design changes or additional testing
required for certification or use in any countries other than the
United States.
7. Prices are subject to change without notice.
April 22, 1996
<PAGE>
Attachment II Page 3
COMPONENT PRICING FOR
CARSEARCH
STOLEN VEHICLE RECOVERY NETWORK
SUPPORT ITEMS
---------------------
<TABLE>
<S> <C>
VAC/VAT Spare Parts Kit $8,000.00
VLU and VTC Installation Tool Kit $1,000.00
Installation Supplies for 1000 VLU & Alarms $3,000.00
VLU Replacement Antennas (40 min.) $12.00
Installation and Test Unit
First two $1,800.00
Additional $1,200.00
Tracker Training Units (Kit)
First two $650.00
Additional $500.00
</TABLE>
April 16, 1996
<PAGE>
Attachment III
LoJack Corporation
Cost Schedule
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Labor:
- - -----
<S> <C>
Chief Executive $150.00/hour (minimum)
Executive Staffing 125.00/hour
Project Manager/Engineering Staff 80.00/hour
Technician/Installer 45.00/hour
Clerical or Support 35.00/hour
Materials and Non-Labor Expenditures: 1.25 X LoJack Cost
- - ------------------------------------
Travel Expenditures: 1.15 X LoJack Cost
- - -------------------
Subcontract Labor: 1.25 X LoJack Cost
- - -----------------
</TABLE>
W. R. Duvall
<PAGE>
Attachment IV
DISCLOSURE AGREEMENT
AGREEMENT made this day of 1996, by and between LoJack International
Corporation ("LIC"), a Delaware corporation, with its principal office at 333
Elm Street, Dedham, Massachusetts 02026 U.S.A., LoJack Corporation ("LoJack"), a
corporation organized under the laws of the Commonwealth of Massachusetts, with
its principal office at 333 Elm Street, Dedham, Massachusetts 02026 USA and S1
Corporation, a Korean corporation having a place of business at 10th floor, East
Wing Eun-soek Bldg., 1-30, Yeonji-Dong, Chongro-Ku, Seoul, Korea, referred to
(hereinafter "Disclosee").
WHEREAS, LoJack has developed and is the owner of certain patented,
confidential know-how relating to Stolen Vehicle Recovery System and Technology
and other information considered confidential or trade secret (the "Proprietary
Information"). LoJack has licensed the use of the Proprietary Information to
LIC; and
WHEREAS, LoJack has developed certain products and methods from the
Proprietary Information and it is anticipated that additional products, methods
and/or improvements will be developed from such Proprietary Information (such
developed products, additional products and improvements are herein collectively
referred to as (the "Products"); and
WHEREAS, Disclosee is desirous of the implementation and operation of a
System pursuant to a License Agreement between the parties dated ,
(the "Agreement").
NOW, THEREFORE, it is agreed as follows:
1. LIC will disclose to Disclosee Proprietary Information necessary for
Disclosee to carry out its obligations under the Agreement.
2. Disclosee will keep the Proprietary Information disclosed by LIC or LoJack
either in writing, or by physical sample, or if orally, in confidence and
will not make use of such Proprietary Information for any purpose other
than for carrying out its obligations under the Agreement pursuant to
this Secrecy Agreement. Disclosee will use substantially the same care to
maintain the confidentiality of the Proprietary Information as it uses with
respect to its own trade secrets, and, in any event, will use its best
efforts to:
<PAGE>
Page 2
(a) restrict disclosure of the Proprietary Information so that it is
disclosed only to persons to whom disclosure is required for the
purposes contemplated hereby;
(b) advise such persons of the obligation of confidentiality with respect
to such Proprietary Information;
(c) obtain from such persons, prior to disclosure of the Proprietary
Information, confidentiality agreements with respect to the Proprietary
Information; and
(d) limit the number of copies made of any items of the Proprietary
Information which are in documentary or other tangible form to that
reasonably necessary for the purposes contemplated hereby and to place
on each copy a legend as to confidentiality, provide that such legend
has been applied to the original or original copy by LIC or LoJack.
3. Notwithstanding anything to the contrary contained herein, there shall be
no restrictions on disclosure with respect to:
(a) information or data which at the time of furnishing was in the public
domain or which after such furnishing becomes part of the public domain
other than by Disclosee's own action;
(b) information or data which at the time of furnishing hereunder was
already in Disclosee's possession and was not previously acquired, in
confidence, from LIC or LoJack;
(c) information or data independently developed by Disclosee at any time,
or lawfully acquired after the date of this Secrecy Agreement from a
third party, except through a violation of confidence by such third
party which is known to Disclosee;
(d) information or data of which LoJack expressly consents to the
disclosure; or
(e) information or data which LoJack publicly discloses.
4. Disclosee will afford to representatives of LIC or LoJack: (a) access to
any and all raw data, original records, and summary reports, created
pursuant to the purposes contemplated hereby and (b) access to LIC or
LoJack representatives during normal business hours.
<PAGE>
Page 3
5. All notices required or permitted under this Secrecy Agreement shall be
deemed sufficiently given if in writing and mailed by registered or
certified mail addressed to the party to be notified at the address
hereinabove set forth for such party, or to such other address as such
party may hereafter request by notice given in accordance with this
paragraph.
6. Neither party shall assign its rights, or delegate its obligations, under
the Secrecy Agreement with the prior written consent of the other.
8. This Secrecy Agreement contains a complete statement of the understanding
between the parties with respect to its subject matter. It may not be
changed except by an instrument in writing signed by both parties.
9. This Secrecy Agreement shall be in all respects governed by the laws of the
Commonwealth of Massachusetts.
10. This Secrecy Agreement shall come into full force and effect when signed by
Disclosee.
IN WITNESS WHEREOF, the parties hereto have executed this Secrecy Agreement
the date and year first above written.
LoJack International Corporation LoJack Corporation
333 Elm Street 333 Elm Street
Dedham, MA 02026 Dedham, MA 02026
- - ------------------------------ --------------------------
Signature Signature
- - ------------------------------ --------------------------
Title Title
- - ------------------------------
Signature of Disclosee
- - ------------------------------
Title
<PAGE>
Attachment V
PROFORMA INVOICE
Initial Order
COMPONENT PRICING FOR CARSEARCH
<TABLE>
<S> <C> <C>
(1) Vehicle Activation Computer (VAC) $ 52,242.00 USD
(21) Vehicle Activation Transmitters (VAT) 806,679.00 USD
(200) Vehicle Tracking Computers (VTC) 516,600.00 USD
(960) Vehicle Location Units (VLU) 134,400.00 USD
----------
Total $1,509,921.00 USD
</TABLE>
F.O.B. Dedham, Massachusetts
Sequin, Texas
Denver, Colorado
<PAGE>
EXHIBIT 10oo
THIS AGREEMENT is made and entered into, in duplicate, this 1st day of
September, 1996, between LOJACK CORPORATION, a Massachusetts corporation,
hereinafter referred to as "LOJACK" and the TEXAS DEPARTMENT OF PUBLIC SAFETY,
hereinafter referred to as the "DEPARTMENT".
NOW, THEREFORE, in consideration of the mutual promises and covenants of
each party to the other, the parties agree as follows:
I
CONTRACT ADMINISTRATOR
1-1 The DEPARTMENT, hereby designates that the person named below is
authorized to administer the Contract on a day-to-day basis during the term of
the Contract. The Contract Administrator for this project is:
David M. Griffith,
Commander
Motor Vehicle Theft Service
Texas Department of Public Safety
5805 N. Lamar Blvd.
P.O. Box 4087
Austin, Texas 78773-0001
II
TERM AND RENT
2-1 The term of this Agreement shall be for a period of five (5) years
from the date hereof. The DEPARTMENT shall pay to LOJACK for the use of the
equipment and software specified in Section III a fee of $1.00 which fee is
payable in advance upon execution of this instrument, receipt whereof is
acknowledged by LOJACK.
2-2 Renewal: This Agreement will automatically renew for additional two
(2) year increments unless the DEPARTMENT notifies LOJACK, in writing, no less
than ninety
<PAGE>
(90) days prior to the expiration of the agreement that the Department does not
wish to extend the Agreement.
III
EQUIPMENT AND FACILITIES
3-1 The Equipment and the Software to be accessed/utilized will consist of
the following components of the LOJACK System: (A) The Sector Activation
System ("SAS") which consists of: 1. Sector Activation Computer ("SAC"); 2.
a software program containing files of activation codes, reply codes, vehicle
descriptions and other data, which directs the activation of the system (the
"Software"); 3. Sector Activation Transmitters ("SAT"); and (B) Police Tracking
Computers ("PTC") to be installed by LOJACK at LOJACK's expense in state and
local law enforcement vehicles.
3-2 Engineering and programming costs and expenses incurred in connection
with the installation of the Equipment and Software including any and all
programming costs incurred in interfacing the Software with any software or
hardware on computer equipment owned or operated by the DEPARTMENT and any other
governmental agencies to assure that the LOJACK System is operational, shall be
the sole responsibility of LOJACK. During the term of the Agreement, LOJACK,
without expense to the DEPARTMENT, shall provide to the DEPARTMENT and shall
make any and all modifications or enhancements to the Equipment and Software of
the LOJACK System.
3-3 The Texas Stolen Vehicle Recovery System will be installed in
conjunction with the Massachusetts Criminal History Systems Board as the central
clearing agency for all LOJACK activations, trackings, and recoveries of LOJACK
stolen vehicles. An Agreement
-2-
<PAGE>
may be required between Massachusetts Criminal History Systems Board and the
DEPARTMENT to connect with the Massachusetts Stolen Vehicle Recovery System
utilizing NLETS to access the DEPARTMENT to the Stolen Vehicle Recovery System
at Criminal History's Computer in Massachusetts.
IV
IMPLEMENTATION SCHEDULE
4-1 In order to insure adequate deployment of the LOJACK System in the
coverage area, LOJACK agrees to install the necessary equipment in a timely
manner after the signing of this Agreement. A specific implementation schedule
will be prepared by LOJACK no later than twelve (12) weeks after the signing of
this Agreement and submitted to the Department.
4-2 The initial goal of the parties is to achieve adequate coverage in
Dallas, Fort Worth, Houston, San Antonio.
V
INSTALLATION AND TESTING
5-1 The costs and expenses incurred in connection with the transporting,
delivery, installation, and testing of the Equipment and Software shall be paid
by and be the responsibility of LOJACK. Prior to the delivery of the Equipment,
the DEPARTMENT shall to the extent authorized by state law cooperate with LOJACK
in assisting in any engineering and other tasks necessary to the installation of
the LOJACK System. The DEPARTMENT shall cooperate with LOJACK in connection
with the delivery, installation, and testing of the
-3-
<PAGE>
Equipment and shall make its personnel and facilities reasonably available in
order for LoJack to assure that the Equipment and Software is installed, tested
and operational.
5-2 To the extent authorized by state law the DEPARTMENT shall also
provide such coordination among other governmental and law enforcement agencies,
departments, and authorities in the state as may be necessary or appropriate in
connection with the delivery, installation, testing, and operation of the
Equipment and Software and the LOJACK System. In the installation and testing
of the Equipment, LOJACK agrees not to unreasonably disrupt the normal
activities and operations of the DEPARTMENT and other governmental and law
enforcement agencies, departments and authorities in the state.
5-3 LOJACK shall furnish without expense to the DEPARTMENT qualified
service representatives, engineers, and personnel who will be responsible for
the installation of the Equipment and training of employees and representatives
of the DEPARTMENT and of other governmental agencies, departments, and
authorities of the state and law enforcement officers as may be designated by
the DEPARTMENT in the care, operations, and adjustment of the Equipment and
LOJACK System.
5-4 The DEPARTMENT, in cooperation with LOJACK and other governmental and
law enforcement agencies, departments, and authorities shall provide the
consultation advice and technical support needed to assist in the timely
installation, and operation of the LOJACK System throughout the designated
coverage area.
5-5 Notwithstanding anything herein to the contrary, the parties
acknowledge that: (1) The DEPARTMENT shall be holder of the license issued by
the Federal Communication Commission ("FCC") in connection with this Agreement
for the State of Texas; (2) This
-4-
<PAGE>
Agreement shall be subject to the rules, regulations, and policies of the FCC;
(3) The DEPARTMENT shall have the right to take such actions as may be required
to comply with the rules, regulations and policies of the FCC. LOJACK shall
prepare the application for the FCC Licensing and submit same to the DEPARTMENT
for review and signature.
VI
OPERATION AND MAINTENANCE
6-1 LOJACK, without expense to the DEPARTMENT, shall keep the Equipment in
good repair, condition, and working order and make all necessary adjustments,
parts replacements, repairs, and revisions for the entire term of the lease.
6-2 The DEPARTMENT shall actively operate and staff the LOJACK System
during the term of the Agreement. It is understood between the parties that it
is the absolute right of the DEPARTMENT to determine the law enforcement
priorities at any given time and that the DEPARTMENT will monitor the LOJACK
System subject to said law enforcement priorities.
6-3 LOJACK warrants that the Equipment, other related hardware and the
Software services provided by LOJACK pursuant to this Agreement shall conform to
the requirements set forth in this Agreement. LOJACK further warrants that all
said Equipment, other related hardware and the Software will be free from
defects in material and workmanship and defects affecting the functional
capability of the System described in this Agreement. If at any time during
said period the DEPARTMENT or LOJACK shall discover any malfunctions, failure,
defect or design error affecting the System, LOJACK shall, entirely at its own
expense, promptly correct such malfunction, failure, defect or design error
-5-
<PAGE>
so that the System functions in accordance with the provisions of this
Agreement. THE EXPRESSED REMEDIES AND WARRANTIES CONTAINED IN ARTICLE 6 OF THIS
AGREEMENT ARE GIVEN IN LIEU OF ALL OTHER REMEDIES AND WARRANTIES, EXPRESSED OR
IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS.
VII
OWNERSHIP AND USE
7-1 LOJACK warrants that it has full power and authority to grant the
rights set forth in this Lease Agreement to the DEPARTMENT with respect to the
LOJACK Equipment and Software and related documentation without the consent of
any other person; and that neither the performance of the services by LOJACK nor
the license to and use by the DEPARTMENT of the LOJACK hardware, software and
documentation (including the copying thereof as provided herein) will in any
manner constitute an infringement or other violation of any copyright, trade
secret, trademark, patent, invention, proprietary information nondisclosure of
other rights of any third party.
7-2 The Equipment and Software shall be used only for performing the
operation of the LOJACK Stolen Vehicle Recovery System for which it was
designated by LOJACK. The DEPARTMENT shall use the items and components
constituting the Equipment in a manner consistent with the use of any state
property that is used under similar circumstances and shall comply with all
reasonable operational instructions. The DEPARTMENT acknowledges that the
LOJACK System is manufactured and distributed under patents held by LOJACK. The
Equipment and Software is, and will at all times remain, personal property,
-6-
<PAGE>
notwithstanding that it or any component of it may become, in any manner
attached to or permanently resting on real property or improvements.
7-3 The parties agree that LOJACK, its officers, agents, and employees, in
the performance of this Agreement, shall act in the capacity of an independent
contractor and not as an officer, employee or agent of the DEPARTMENT. LOJACK
agrees to take such steps as may be necessary to ensure that each of its
subcontractors will not be deemed to be an agent, servant, joint venturer, or
partner of the Department. All persons furnished, used, retained, or hired by
or on behalf of LOJACK or any of its subcontractors shall be considered to be
solely the employees or agents of LOJACK or such subcontractor.
7-4 The DEPARTMENT shall limit its use of the Software and the Equipment
to the operations of the DEPARTMENT and other participating agencies. The
DEPARTMENT shall have no right to sell, transfer, assign (in whole or in part),
convey, pledge, encumber or otherwise dispose of the Software or other related
proprietary materials, or any right, duty or license to use the Software
hereunder without the prior written consent of LOJACK. The DEPARTMENT
understands and agrees that any violation of the restrictions set forth in this
Section will give LOJACK the right to revoke the Software license granted to the
DEPARTMENT.
7-5 LOJACK hereby grants to the DEPARTMENT a nonexclusive,
nontransferable license to use the LOJACK Software, as herein defined and
described in this Agreement, and related documentation under each program
element thereof during the term of this Agreement. The LOJACK Software license
shall include in its meaning, in addition to the
-7-
<PAGE>
description contained herein, any improvements or modifications thereto
subsequently installed by LOJACK.
VIII
CONFIDENTIALITY
8-1 The Software, file structures, documentation, algorithms and related
software concepts, except as otherwise provided herein, shall not be disclosed
in any manner without the written permission of LOJACK. (Such proprietary
information in hereinafter designated "Information".) The DEPARTMENT shall not
be bound by the confidential terms and conditions of this Section, with respect
to the Information, when, after and to the extent:
(i) The Information is or becomes publicly available other than through a
breach by the DEPARTMENT of any agreement restricting its disclosure; or
(ii) The Information is subsequently lawfully obtained by the DEPARTMENT
from a third party or parties; or
(iii)The Information was known by the DEPARTMENT prior to its disclosure
to the DEPARTMENT by LOJACK; or
(iv) The Information is independently developed by persons having no
contact with the Information; or
(v) The Information is disclosed by the DEPARTMENT as compelled by legal
process or otherwise required by state law; or
(vi) The Information is disclosed inadvertently by the DEPARTMENT despite
the exercise of the same degree of care which the DEPARTMENT takes to safeguard
its own proprietary information.
-8-
<PAGE>
8-2 All Information relative to the operation and law enforcement
activities of the DEPARTMENT and of any other agency, department, or authority
of the State supplied directly or indirectly to LOJACK, their respective agents
or employees (except such information as may be in the public domain) shall be
received in confidence. LOJACK shall exercise reasonable care to hold such
information in confidence.
IX
RISK OF LOSS
9-1 LOJACK assumes all risk of loss, damage, or destruction of all
equipment, software, materials, and supplies provided by LOJACK to the
DEPARTMENT. The DEPARTMENT agrees to take all reasonable measures within
DEPARTMENT guidelines to safeguard LOJACK equipment. LOJACK has the right to
maintain insurance coverage against loss or damage to the equipment at LOJACK'S
option and expense. The DEPARTMENT will cooperate with LOJACK and their
insurance carriers, to the extent that it does not interfere with DEPARTMENT
guidelines or policies, concerning the maintenance of such insurance coverage.
The DEPARTMENT will promptly notify LOJACK of any loss, damage or incident that
involves the insured property of the LOJACK System, materials or supplies.
X
LIABILITY OF THE DEPARTMENT
10-1 Notwithstanding any other provision of this Agreement, LOJACK shall
be responsible for and shall indemnify and hold the DEPARTMENT harmless from any
and all liability, loss, claim or damage to persons or property proportionate to
LOJACK's fault or
-9-
<PAGE>
negligence as related to this Lease Agreement. IN NO EVENT SHALL LOJACK BE
RESPONSIBLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES.
10-2 The obligations of the Contractor under this Indemnification
agreement shall not extend to the liability of the State of Texas, its agents or
employees arising out of (1) the preparation or approval of maps, drawings,
opinions, reports, surveys, Change Orders, designs or specifications, or (2) the
giving of or the failure to give directions or instructions by the State of
Texas, its agents or employees provided such giving or failure to give is the
primary cause of injury or damage.
10-3 LOJACK agrees not to represent or claim in any manner that the LOJACK
System is sponsored or endorsed by the DEPARTMENT or any other agency,
department or other Authority of the State of Texas or any local, state, or
federal law enforcement agency.
XI
ASSIGNMENT
11-1 Neither the DEPARTMENT or any participating agency or LOJACK shall
assign, sublet, or transfer any of their respective Rights under the Agreement
or to the Equipment and Software, without the prior written consent of the other
party to the Agreement. This provision shall not prevent LOJACK from assigning
their respective rights under this Agreement or in the Equipment and Software to
any entity owned or controlled by LOJACK.
XII
MISCELLANEOUS
-10-
<PAGE>
12-1 This Agreement shall be governed by the laws of the State of Texas.
This Agreement shall not be amended except by written agreement signed on behalf
of both parties. This Agreement shall be binding upon the respective successors
and assigns of the parties thereto.
12-2 LOJACK agrees that any law enforcement agency within the LOJACK
coverage area in Texas have the option as provided, herein, of purchasing LOJACK
Police Tracking Computers at a price not to exceed $1,750, installed throughout
the initial five (5) year term of this Agreement.
XIII
DEPARTMENT'S RIGHT TO PROCURE OTHER
STOLEN VEHICLE RECOVERY SYSTEMS
13-1 The DEPARTMENT's obligation to utilize the LOJACK System in
accordance with the provisions of this Agreement shall not prohibit the
DEPARTMENT from testing, procuring or using other stolen vehicle recovery
systems as it may desire during the term of this Agreement, providing the
DEPARTMENT continues actively to use and operate the LOJACK System under the
terms and conditions set forth herein.
XIV
PROJECT MANAGEMENT AND APPROVAL
14-1 The DEPARTMENT shall act as project manager for coordinating the
installation and utilization of the LOJACK System in State, and will assist
where possible on the development of Police Tracking computers in the County and
local law enforcement agencies.
-11-
<PAGE>
14-2 The Department's responsibilities as project manager shall include
the following:
(1) Secure the cooperation of any other state agencies as necessary to
install and implement the Sector Activation System as part of the LOJACK System.
(2) Shall assist LOJACK in deployment of the Police Tracking Computer
Network to participating law enforcement agencies in the coverage area.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, the day and year first above written.
Witness: STATE OF TEXAS
DEPARTMENT OF PUBLIC SAFETY
/s/ D. Thomas
- - ------------------------------- -------------------------------
Witness: LOJACK CORPORATION
/s/ C. Michael Daley
- - ------------------------------ -------------------------------
C. Michael Daley, President
-12-
<PAGE>
EXHIBIT 10pp
AGREEMENT
between
COMMONWEALTH OF PENNSYLVANIA, PENNSYLVANIA STATE POLICE
and
LOJACK CORPORATION
THIS AGREEMENT is made this 14 day of May, 1996 between the Commonwealth
of Pennsylvania, Pennsylvania State Police, hereinafter known as "PSP" and
LOJACK CORPORATION, a Massachusetts corporation, hereinafter referred to as
"LOJACK."
WHEREAS, the PSP and LOJACK are both desirous of entering into an
AGREEMENT regarding the installation and use of equipment, software, and systems
owned by LOJACK for the purpose of enhancing PSP's efforts in recovering
reported stolen vehicles within the Commonwealth of Pennsylvania.
NOW, THEREFORE, the parties to this Agreement set forth the following as
the terms and conditions of the Agreement.
1. TERM: The term of this Agreement shall be for a period of five (5)
years from the date designated above.
2. TERMINATION: This Agreement may be terminated by either party by
providing 90 days' written notice to the other party.
3. RENEWAL: 120 days prior to expiration, LOJACK will inform PSP of
its desire to renew agreement. If both parties desire renewal, PSP and LOJACK
will negotiate any changes and execute a new agreement.
4. TRANSFER OF RIGHTS: This Agreement shall be binding on any
successors of the parties.
5. Project Administrator for PSP will be Director, Bureau of Criminal
Investigation, or his designee.
6. INSTALLATION: LOJACK shall provide all equipment, software, and
interconnection service that will be required for PSP to operate the stolen
vehicle recovery system. This includes, but is not limited to, Radio sites and
transmitters for transponder activation; software and hardware for interaction
between PSP and LOJACK databases; connection from databases to activation
transmitters; and mobile tracking units installed in PSP vehicles. PSP agrees
to assist in coordinating system installation and connection to existing PSP
equipment and systems. Installation and removal of the mobile tracking unit in
PSP vehicles by LOJACK will be coordinated by PSP's Director, Communications
Division.
<PAGE>
7. COSTS: LOJACK shall be responsible for ALL costs involved in
the implementation, installation, and operation of this system. The PSP will
NOT be responsible for any costs or expenses except for personnel costs
resulting from PSP operation and use of the system.
8. COMMUNICATIONS LICENSING: LOJACK shall prepare, and submit
to PSP for signature and filing, all FCC 600 forms for the licensing of
frequencies required to operate the LOJACK system. LOJACK shall adhere to
current FCC and FAA standards in the operation and maintenance of LOJACK owned
and/or controlled radio sites. PSP shall hold LOJACK liable for any fine, and
any other citation, that may be levied against the PSP due to LOJACK's
inappropriate operation and/or maintenance of LOJACK owned and/or controlled
equipment operating on PSP licensed frequencies. LOJACK agrees to comply with
all local, state, and federal statutes and regulations applicable to the use and
operation of radio and antenna sites owned and/or controlled by LOJACK.
9. LIABILITY: Except as otherwise provided in this paragraph,
LOJACK shall be responsible for all costs, damage and/or loss to LOJACK owned
equipment including, but not limited to, damaged from lightning strikes, damage
resulting from motor vehicle accidents, and any costs associated with the repair
and/or replacement of any LOJACK owned equipment in PSP vehicles. Further,
LOJACK agrees to indemnify and hold harmless PSP for any claim for damages
asserted against PSP based upon the use by PSP of the LOJACK system and
attributable to any negligence of fault on the part of LOJACK or to a defect in
any component of the LOJACK system. The PSP will be liable for any damage or
loss of LOJACK owned equipment only in cases of gross negligence or willful
misconduct by PSP personnel acting within the scope of their employment.
10. PSP shall approve the addition of all non-PSP users on the
system.
11. LOJACK shall retain ownership and be liable for ALL maintenance
of LOJACK supplied equipment and software.
12. All LOJACK installation and maintenance personnel having access
to PSP facilities, property, and/or systems shall be approved by PSP and will be
subject to a PSP background investigation.
13. PSP shall approve selection and have access to LOJACK radio
sites associated with the operation of the stolen vehicle recovery system.
14. LOJACK agrees not to discriminate against any employee or other
person on account of race, color, religious creed, ancestry, age, sex, or
natural origin, as per the attached Non-Discrimination Clause, marked Exhibit A.
For purposes of this Agreement, the term Contractor in Exhibit A shall be
synonymous with LOJACK.
15. LOJACK agrees to comply with the attached Contractor integrity
Provisions, marked Exhibit B. For purposes of this Agreement, the term
Contractor in Exhibit B shall be synonymous with LOJACK. The PSP or the
Contractor shall not disclose to others any confidential information gained by
virtue of this agreement.
16. ENTIRE AGREEMENT: This Agreement, together with exhibits A and
B, constitutes the entire agreement of the parties and there are no other
promises or conditions in any other agreement whether oral or written. This
Agreement supersedes any prior written or oral agreements between the parties.
17. AMENDMENT: This Agreement may be modified or amended by the
written mutual consent of both parties.
2
<PAGE>
18. SEVERABILITY: If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid or enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
19. WAIVER OF CONTRACTUAL RIGHT: The failure of either party to enforce
any provision of this Agreement shall not be construed as a waiver or limitation
of that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
20. APPLICABLE LAW: This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto set their hands and seals the day and
year first above written.
PENNSYLVANIA STATE POLICE LOJACK CORPORATION
BY: BY:
[SIGNATURE APPEARS HERE] 11-20-95 /s/ C. Michael Daley 9/22/95
- - ----------------------------------- -----------------------------------
Commissioner Date Date
NAME: C. Michael Daley
-----------------------------
TITLE: President
----------------------------
[SIGNATURE APPEARS HERE]
- - -----------------------------------
Comptroller Date
APPROVED AS TO FORM AND LEGALITY:
[SIGNATURE APPEARS HERE] 4 OCT 95 [SIGNATURE APPEARS HERE]
- - ----------------------------------- -----------------------------------
PSP Chief Counsel Date Office of General Counsel:
Deputy General Counsel Date
[SIGNATURE APPEARS HERE]
- - ----------------------------------------
Office of Attorney General:
Chief Deputy Attorney General Date
3
<PAGE>
EXHIBIT A
NON-DISCRIMINATION CLAUSE
During the term of this contract, Contractor agrees as follows:
(1) Contractor shall not discriminate against any employee, applicant
for employment, independent contractor or any other person because of race,
color, religious creed, ancestry, national origin, age or sex.
Contractor shall take affirmative action to ensure that applicants are
employed, and that employees of agents are treated during employment, without
regard to their race, color, religious creed, ancestry, national origin, age
or sex. Such affirmative action shall include, but is not limited to;
employment, upgrading, demotion or transfer, recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of compensation;
and selection for training.
Contractor shall post in conspicuous places, available to employees,
agents, applicants for employment and other persons, a notice to be provided by
the contracting agency setting forth the provisions of this non-discrimination
clause.
(2) Contractor shall, in advertisements or requests for employment
placed by it or on its behalf, state that all qualified applicants will receive
consideration for employment without regard to race, color, religious creed,
ancestry, national origin, age or sex.
(3) Contractor shall send each labor union or workers' representative
with which it has a collective bargaining agreement or other contract or
understanding, a notice advising said labor union or workers' representative of
its commitments to this non-discrimination clause. Similar notice shall be sent
to every other source of recruitment regularity utilized by Contractor.
(4) It shall be no defense to a finding of noncompliance with this
non-discrimination clause that Contractor had delegated some of its employment
practices to any union, training program, or other source of recruitment which
prevents it from meeting its obligations. However, if the evidence indicates
that the Contractor was not on notice of the third-party discrimination or made
a good faith effort to correct it, such factor shall be considered in mitigation
in determining appropriate sanctions.
(5) Where the practices of a union or of any training program or other
source of recruitment will result in the exclusion of minority group persons, so
that Contractor will be unable to meet its obligations under this
non-discrimination clause, Contractor shall then employ and fill vacancies
through other non-discriminary employment procedures.
(6) Contractor shall comply with all state and federal laws
prohibiting discrimination in hiring or employment opportunities. In the event
of Contractor's noncompliance with the non-discrimination clause of this
contract or with any such laws, this contract may be terminated or suspended, in
whole or in part and Contractor may be declared temporarily ineligible for
further Commonwealth contracts and other sanctions may be imposed and remedies
invoked.
(7) Contractor shall furnish all necessary employment documents and
records to, and permit access to its books, records, and accounts by, the
contracting agency and the Office of Administration, Bureau of Affirmative
Action, for purposes of investigation to ascertain compliance with the
provisions of this clause. If Contractor does not possess documents or records
reflecting the necessary information requested, it shall furnish such
information on reporting forms supplied by the contracting agency.
(8) Contractor shall actively recruit minority subcontractors or
subcontractors with substantial minority representation among their employees.
(9) Contractor shall include the provisions of this non-
discrimination clause in every subcontract, so that such provisions will be
binding upon each Subcontractor.
(10)Contractor obligations under this clause are limited to the
Contractor's facilities within Pennsylvania or, where the contract is for
purchase of goods manufactured outside of Pennsylvania, the facilities at which
such goods are actually produced.
Firm:
---------------------------------
Address:
---------------------------------
<PAGE>
EXHIBIT B
CONTRACTOR INTEGRITY PROVISIONS
1. Definitions.
a. Confidential information means information that is not public
knowledge, or available to the public on request disclosure of which would give
an unfair, unethical, or illegal advantage to another desiring to contract with
the Commonwealth.
b. Consent means written permission signed by a duly authorized
officer or employee of the Commonwealth, provided that where the material facts
have been disclosed, in writing, by prequalification, bid, proposal, or
contractual terms, the Commonwealth shall be deemed to have consented by virtue
of execution of this agreement.
c. Contractor means the individual or entity that has this
agreement with the Commonwealth, including directors, officers, partners,
managers, key employes, and owners of more than a 5% Interest.
d. Financial Interest means:
(1) ownership of more than a 5% Interest in any business; or
(2) holding a position as an officer, director, trustee,
partner, employe, or one like, or holding any position of management.
e. Gratuity means any payment of more than nominal monetary
value in the form of cash, travel, entertainment, gifts, meals, lodging, loans,
subscriptions, advances, deposits of money, services, employment, or contracts
of any kind.
2. The contractor shall maintain the highest standards of integrity in
the performance of this agreement and shall take no action in violation of state
or federal laws, regulations, or other requirements that govern contracting with
the Commonwealth.
3. The contractor shall not disclose to others any confidential
information gained by virtue of this agreement.
4. The contractor shall not, in connection with this or any other
agreement with the Commonwealth, directly or indirectly, offer, confer, or agree
to confer any pecuniary benefit on anyone as consideration for the decision,
opinion, recommendation, vote, other exercise or discretion, or violation of a
known legal duty by any officer or employe of the Commonwealth.
5. The contractor shall not, in connection with this or any other
agreement with the Commonwealth, directly or indirectly, offer, give, or agree
or promise to give to anyone any gratuity for the benefit of or at the direction
or request of any officer or employe of the Commonwealth.
6. Except with the consent of the Commonwealth, neither the contractor
nor anyone in privity with him shall accept or agree to accept from, or give or
agree to give to, any person, any gratuity from any person in connection with
the performance of work under this agreement except as provided therein.
7. Except with the consent of the Commonwealth, the contractor shall
not have a financial Interest in any other contractor, subcontractor, or
supplier providing services, labor, or material on this project.
8. The contractor, upon being informed that any violation of these
provisions has occurred or may occur, shall immediately notify the Commonwealth
in writing.
9. The contractor, by execution of this agreement and by the submission
of any bills or invoices for payment pursuant thereto, certifies and represents
that he has not violated any of these provisions.
10. The contractor, upon the inquiry or request of the Inspector general
of the Commonwealth or any of that official's agents or representatives, shall
provide, or if appropriate, make promptly available for inspection or copying,
any information of any type or form deemed relevant by the Inspector General to
the contractor's integrity or responsibility, as those terms are defined by the
Commonwealth's statutes, regulations, or management directives. Such information
may include, but not be limited to, the contractor's business or financial
records, documents or files of any type or form which refer to or concern this
agreement. Such information shall be retained by the contractor for a period of
three years beyond the termination of the contract unless otherwise provided by
law.
11. For violation of any of the above provisions, the Commonwealth may
terminate this and any other agreement with the contractor, claim liquidated
damages in an amount equal to the value of anything received in breach of these
provisions, claim damages for expenses incurred in obtaining another contractor
to complete performance hereunder, and debar and suspend the contractor from
doing business with the Commonwealth. These rights and remedies are cumulative,
and the use or nonuse of any one shall not preclude the use of all or any other.
These rights and remedies are in addition to those the Commonwealth may have
under law, statute, regulation, or otherwise.
<PAGE>
EXHIBIT 10qq
[SEAL OF STATE OF MARYLAND APPEARS HERE]
[LOGO OF MARYLAND STATE POLICE APPEARS HERE]
STATE OF MARYLAND
MARYLAND STATE POLICE
AGREEMENT #MD1096LJK
between the
MARYLAND DEPARTMENT OF STATE POLICE
and
LOJACK CORPORATION
THIS AGREEMENT is made this 8th day of November, 1996 between the
Maryland Department of State Police, hereinafter known as "MSP" and LoJack
Corporation, a Massachusetts Corporation, hereinafter referred to as "LoJack" or
"Contractor."
The MSP, being authorized by statute as the contracting agent for the
State of Maryland, will administer and retain authority to change, modify,
clarify, amend or otherwise alter the terms, conditions and/or specifications
for the term of this Agreement.
NOW, THEREFORE, the parties to this Agreement set forth the following as
the terms and conditions of this Agreement:
SECTION A. - GENERAL PROVISIONS
-------------------------------
A.1 SCOPE OF AGREEMENT
This Agreement specifies the terms and conditions by which the MSP and
LoJack are both desirous of entering into, regarding the installation, use,
maintenance and/or other support services of equipment, communications and other
components required for a Stolen Vehicle Recovery System (hereinafter referred
to as "System") owned by LoJack, for the purpose of enhancing law enforcement
efforts in recovering reported stolen vehicles within the State of Maryland.
LoJack will be required to furnish the equipment, maintenance and/or
other support services indicated herein as required for the installation and
support of items under this Agreement. Such equipment, maintenance and/or other
support services shall be supplied in conformance with all terms and conditions
of this Agreement.
"Maryland's Finest"
<PAGE>
The language of this Agreement shall be appropriately construed in such a
manner that the singular shall include the plural and the use of feminine,
masculine or neuter genders shall be deemed to include the genders not used.
A.2 CONTRACTOR COMMITMENTS, WARRANTIES AND REPRESENTATIONS
Any commitment by LoJack within this Agreement will be binding upon LoJack.
Failure of LoJack to fulfill any such commitment may be cause to terminate this
Agreement for default. For the purposes of this Agreement, a commitment by
LoJack includes, but is not limited to:
a. prices and options committed to remain in force over a specified
period(s) of time;
b. any written warranty or representation made by LoJack as to hardware
performance and other physical, design or functional characteristics
of a machine, electrical component or system; and,
c. any written representation by LoJack in a proposal, supporting
documents, side letters or other memoranda, or negotiations
subsequent thereto, as to training to be provided, services to be
performed, prices and options committed to remain in force over a
fixed period of time or any other similar matter regardless of the
fact that the duration of such commitment may exceed the duration of
this Agreement.
A.3 INSTALLATION AND TESTING
a. LoJack will install all equipment necessary for testing on or before
December 31, 1996.
b. The MSP may delay the installation date by notifying LoJack at least
ten (10) calendar days before the installation date previously
established.
c. The equipment will not be considered ready for testing until LoJack
provides the MSP with the documentation of a successful system audit
or a diagnostic test performed at the site which demonstrates that
the equipment meets minimum design capabilities as specified by
LoJack, and after review of the documentation or test the MSP agrees
that the equipment is ready to begin the acceptance test.
d. If the equipment is certified to be ready on a day prior to the
installation date, the MSP and LoJack may elect to test the equipment
and change the installation date accordingly.
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e. If the equipment is not installed within thirty (30) calendar days
after the original installation date, the MSP reserves the right
to cancel this Agreement without further obligation whatsoever.
f. All costs and expenses incurred in connection with the transporting,
delivery, installation and testing of the System, will be the
responsibility of and paid for in full by LoJack. This provision
includes any interfaces that may be required with other computer
systems operated by the MSP or other government law enforcement
entities.
g. All equipment installation, repair, modification, update and removal
will be performed at MSP facilities or at a site mutually agreed to
by the Commander of the MSP Motor Vehicle Division and LoJack.
A.4 DELAYS AND EXTENSIONS OF TIME
The Contractor agrees to prosecute the work continuously and diligently and
no charges or claims for damages shall be made by it for any delays or
hindrances from any cause whatsoever during the progress of any portion of the
work specified in this Agreement. Time extensions will be granted only for
excusable delays that arise from unforeseeable causes beyond the control and
without the fault or negligence of the Contractor, including but not restricted
to, acts of God, acts of the public enemy, acts of the State in either its
sovereign or contractual capacity, acts of another contractor in the performance
of a contract with the State, fires, floods, epidemics, quarantine restrictions,
strikes, freight embargoes or delays of subcontractors or suppliers arising from
unforeseeable causes beyond the control and without the fault or negligence of
either the Contractor, subcontractors or suppliers.
A.5 RISK OF LOSS OR DAMAGE
LoJack shall be responsible for all repairs, loss, damage or destruction of
all LoJack equipment, materials or supplies provided by LoJack. The MSP is
relieved from all risks of loss, damage or destruction of the entire LoJack
Stolen Vehicle Recovery System until clear and unrestricted title to such System
is transferred to the MSP. The MSP shall promptly notify LoJack of any loss,
damage or incident that involves LoJack equipment, materials or supplies
associated with the LoJack System. LoJack has the right to maintain insurance
coverage against loss or damage to LoJack equipment at LoJack's option and
expense. The MSP shall cooperate with LoJack and representatives of the
insurance carrier concerning maintenance of any such insurance coverage.
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A.6 CONTRACTOR RESPONSIBILITY
If the Contractor includes equipment, maintenance or other services
marketed by other manufacturers or vendors, it will be mandatory for LoJack to
act as the prime contractor for the installation and maintenance of the entire
proposed configuration. LoJack will be considered as the sole point of contact
with regard to all Agreement stipulations to include purchase, if any, and
maintenance of the entire configuration(s).
Whenever any item of hardware, maintenance or other service marketed by
another manufacturer or vendor is specifically identified by LoJack, the
Contractor hereby warrants and represents that LoJack has made such other
manufacturer or vendor aware of the conditions governing such product(s) and
that said manufacturer or vendor agrees with LoJack's proposed use of such
product(s).
LoJack warrants and agrees that the LoJack Corporation shall act in the
capacity of an independent contractor and in no event whatsoever as an officer,
employee, agent, servant, joint venturer, hired person or partner of the MSP.
LoJack further agrees to take such actions as necessary to ensure that each
subcontractor or any other person associated with the System or its use, is made
aware of this provision and agrees in writing that this provision applies
equally to such parties.
A.7 TAXES: FEDERAL, STATE AND LOCAL
The MSP is exempt from federal excise and all state and local taxes. Such
taxes shall not be included in Agreement prices. A tax exemption certificate
will be furnished to LoJack upon request.
The Contractor shall be responsible for all federal, state and local taxes
applicable to it and for the employer's share of any FICA contributions for its
employees.
A.8 PATENT/COPYRIGHT/TRADE SECRET PROTECTION
LoJack, at its own expense, will defend any suit which may be brought
against the MSP for the infringement of United States patents, copyrights or
trade secrets arising from LoJack's or the MSP's use of any equipment, materials
or information prepared or developed in connection with the performance of this
Agreement and in such suit, LoJack will satisfy any final award for any
infringement. This is upon the condition that:
a. LoJack is notified of the suit within a reasonable time after the MSP
becomes aware of it; and,
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b. LoJack has the full right and opportunity to conduct the defense of
any such action. If, however, principles of governmental or public law
are involved, the MSP may at its option, participate in the defense of
any such action.
LoJack shall not indemnify the MSP against any claim of infringement
arising out of equipment made or modified by an agency to its own specification
or design, or any infringement that results from the combination of equipment
furnished hereunder with any equipment not supplied by LoJack.
If in LoJack's opinion the equipment, material, information or services
furnished hereunder is likely to or does become the subject or claim of
infringement of United States patents, copyrights or trade secrets, then without
diminishing LoJack's obligation to satisfy said final award, the Contractor may,
at its option, substitute for the alleged infringing equipment, modifications
suitably satisfactory to the MSP, or at LoJack's option and expense, obtain the
right for the MSP to continue the use of such equipment. If the use of such
equipment by the MSP shall be prevented by permanent injunction or LoJack's
inability to procure the right for the MSP to continue using the equipment,
LoJack agrees to take back the infringing equipment, materials or information
and refund the total amount, if any, the MSP had paid LoJack under this
Agreement.
A.9 NON-APPROPRIATION
If the General Assembly fails to appropriate funds or if funds are not
otherwise made available for continued performance for any fiscal period of this
Agreement succeeding the first fiscal period, this Agreement shall be canceled
automatically as of the beginning of the fiscal year for which funds were not
appropriated or otherwise made available; provided, however, that this will not
affect either the MSP's rights or the Contractor's rights under any termination
clause in this Agreement. The effect of termination of this Agreement hereunder
will be to discharge both the Contractor and the MSP from future performance of
the Agreement, but not from their rights and obligations existing at the time of
termination. The Contractor shall be reimbursed for the reasonable value of any
non-recurring costs incurred but not amortized in the price, if any, of this
Agreement. The MSP shall notify the Contractor as soon as it has knowledge that
funds may not be available for the continuation of this Agreement for each
succeeding fiscal period beyond the first.
In the event funding is subject to the availability of Federal funding and
such Federal funding is not made available, this Agreement may be terminated
effective the date of non-availability of funds for those items dependent on
Federal funds.
5
<PAGE>
A.10 SUBCONTRACTING AND ASSIGNMENTS
The Contractor may not subcontract or assign, in whole or in part, any
portion of this Agreement without the written consent of the MSP. Such consent
shall not be unreasonably withheld. This provision shall not prevent the
Contractor from assigning their respective rights under this Agreement to any
entity owned or controlled by LoJack.
A.11 MARYLAND LAW PREVAILS
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Maryland. In the event that any portion of this Agreement
conflicts with the laws of the State of Maryland, the affected portion of this
Agreement shall be subject to such changes as are necessary to bring it into
compliance with the laws, notwithstanding such provisions, the remainder of this
Agreement shall remain in full force and effect.
A.12 ENTIRE AGREEMENT
This Agreement and all executed attachments constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement. Any prior agreements which may exist are hereby superseded with
respect to equipment, training and/or maintenance services acquired by the MSP
under the terms and conditions of this Agreement.
Any Contractor's terms and conditions that are, or may be, set forth on
any invoice or subsequently added by the Contractor, including any terms and
conditions packaged with or accompanying Contractor's supplied product(s),
inclusive of third party product(s), or otherwise set forth in any manner, are
not part of this Agreement.
A.13 AMENDMENTS
No amendment to this Agreement shall be effective unless it is in writing
and signed by the duly authorized representatives of both parties. No term or
provision hereof shall be deemed waived and no breach excused unless such waiver
or consent to breach is in writing. For purposes of this Agreement, the only
authorized representatives shall be:
<TABLE>
<CAPTION>
LOJACK CORPORATION DEPARTMENT OF STATE POLICE
------------------ --------------------------
<S> <C>
C. Michael Daley Colonel David B. Mitchell
Chairman Superintendent
333 Elm Street 1201 Reisterstown Road
Dedham, MA 02026 Pikesville, MD 21208-3899
</TABLE>
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<PAGE>
A.14 TITLE
Clear and unrestricted title for any item of equipment which is acquired
under this Agreement shall pass to the MSP whenever the agreed to price is paid
or as otherwise specified in this Agreement. Prior to any termination of this
Agreement, the title to components of the System shall remain with LoJack.
A.15 USED EQUIPMENT
If any used equipment is furnished by the Contractor, such equipment must
be refurbished equipment that has been thoroughly inspected, repaired as
necessary and warranted as equivalent to new equipment. All used equipment
must be clearly identified by the Contractor. The Contractor must certify that
the equipment will be accepted under the manufacturer's standard equipment
agreement and standard rates. If such equipment is subsequently not accepted
for maintenance, the Contractor will be responsible for all costs associated
with expeditiously repairing, improving or upgrading such equipment to the level
required by the manufacturer for the Contractor's maintenance program.
A.16 TERMS OF USE
Any equipment acquired from the Contractor shall be used exclusively for a
Lojack Stolen Vehicle Recovery System and may be operated at any time for the
convenience of the MSP (exclusive of time required for preventive
maintenance, remedial maintenance and/or approved engineering changes). There
shall be no restrictions as to consecutive hours or length of personnel shifts
if used as a LoJack Stolen Vehicle Recovery System, unless such restrictions are
specifically incorporated.
A.17 PRICE PROTECTION
The MSP will not pay any additional costs above those costs provided for
in this Agreement for equipment or maintenance/support.
A.18 TERM OF AGREEMENT
The term of this Agreement shall be for a period of six (6) years from the
date hereof. This Agreement will automatically renew in yearly increments
unless the MSP notifies LoJack, in writing, not less than ninety (90) days prior
to the expiration of the Agreement that the MSP does not wish to extend the
Agreement.
7
<PAGE>
A.19 RETENTION OF RECORDS
The Contractor shall retain and maintain all records and documents
relating to this Agreement for the term of this Agreement or any applicable
statute of limitations, whichever is longer, and shall make them available for
inspection and audit by authorized representatives of the MSP.
Examples of records are defined as this Agreement, all orders,
modifications, invoices, licenses and correspondence between the parties to this
Agreement.
A.20 LIABILITY
The Contractor shall maintain such personal injury and property damage
liability insurance as necessary to protect itself from claims arising out of
the performance under this Agreement.
A.21 INDEMNITY
a. For the purpose of this section of the Agreement, the following
terms have the meanings indicated:
1. Contractor means the contractor, its officers, employees,
agents and representatives.
2. State means the State of Maryland, its departments, agencies,
officials, officers and employees.
3. Subcontractor means any subcontractor of the contractor, its
officers, employees, agents and representatives.
b. Indemnification by Contractor
The Contractor shall indemnify the State against liability for any
suits, actions or claims of any character arising from acts or
omissions of the Contractor, its agents, officers, employees or
subcontractors for defects relative to the LoJack System or relating
to the performance under this Agreement or its subcontractors. In
no event shall LoJack be responsible for incidental or consequential
damages.
c. Liability of State
1. The State has no obligation to provide legal counsel or legal
defense to the Contractor or its subcontractors in the event
that a suit, claim or action of any character is brought by
any person or persons not party to this Agreement
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<PAGE>
against the Contractor or its subcontractors as a result of
or relating to the Contractor's obligations under this
Agreement.
2. The State has no obligation for the payment of any judgments
or the settlement of any claims made against the Contractor
or its subcontractors as a result of or relating to the
Contractor's obligations under this Agreement.
d. Notice of a Cooperation in Litigation
The Contractor will immediately give notice to the State of any
claim or suit made or filed against the Contractor or its
subcontractors regarding any matter resulting from or relating to
the Contractor's obligations under this Agreement, and will
cooperate, assist and consult with the State in the defense or
investigation of any claim, suit, or action made or filed against
the State as a result of or relating to the Contractor's obligations
under this Agreement.
A.22 CONTINGENT FEE PROHIBITION
The Contractor, architect or engineer (as applicable) warrants that it has
not employed or retained any person, partnership, corporation, or other entity,
other than a bona fide employee or agent working for the Contractor, architect
or engineer, to solicit or secure this Agreement, and that it has not paid or
agreed to pay any person, partnership, corporation, or other entity, other than
a bona fide employee or agent, any fee or any other consideration contingent on
the making of this Agreement.
A.23 COMPLIANCE WITH LAWS
The Contractor hereby represents and warrants that:
a. It is qualified to do business in the State of Maryland and that it
will take such action as, from time to time hereafter may be
necessary, to remain so qualified;
b. It is not in arrears with respect to the payment of any monies due
and owing the State of Maryland, or any department or unit thereof,
including but not limited to the payment of taxes and employee
benefits, and that it shall not become so in arrears during the
term of this Agreement;
c. It shall comply with all federal, state and local laws, regulations
and ordinances applicable to its activities and obligations under
this Agreement; and,
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d. It shall obtain, at its expense, all licenses, permits, insurance and
governmental approvals, if any, necessary to the performance of its
obligations under this Agreement.
A.24 DRUG AND ALCOHOL FREE WORKPLACE
1. Terms defined in COMAR 21.11.08 shall have the same meaning when used
in this certification.
2. By submission of its bid or offer, the business, if other than an
individual, certifies and agrees that, with respect to its employees
to be employed under this Agreement, the business shall:
(a) maintain a workplace free of drug and alcohol abuse during the
term of this Agreement; and
(b) publish a statement notifying its employees that the unlawful
manufacture, distribution, dispensing, possession, or use of
drugs, and the abuse of drugs or alcohol is prohibited in the
business' workplace and specifying the actions that will be taken
against employees for violation of these prohibitions;
(c) prohibit its employees from working under the influence of drugs
or alcohol;
(d) not hire or assign to work on the contract anyone whom the
business knows, or in the exercise of due diligence should know,
currently abuses drugs or alcohol and is not actively engaged in
a bona fide drug or alcohol abuse assistance or rehabilitation
program;
(e) promptly inform the appropriate law enforcement department of
every drug related crime that occurs in its workplace if the
business has observed the violation or otherwise has reliable
information that a violation has occurred;
(f) establish drug and alcohol abuse awareness programs to inform its
employees about:
(i) the dangers of drug and alcohol abuse in the workplace;
(ii) the business' policy of maintaining a drug and alcohol
free workplace;
(iii) any available drug and alcohol counseling, rehabilitation
and employee assistance programs; and,
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(iv) the penalties that may be imposed upon employees who
abuse drugs and alcohol in the workplace.
(g) provide all employees engaged in the performance of the contract
with a copy of the statement required by Section 2(b), above;
(h) notify its employees in the statement required by Section 2(b),
above, that as a condition of continued employment on the
contract, the employee shall:
(i) abide by the terms of the statement; and,
(ii) notify the employer of any criminal, drug or alcohol abuse
conviction for an offense occurring in the workplace not
later than five (5) days after a conviction;
(i) notify the MSP within ten (10) days after receiving notice under
Section (2)(h)(ii), above or otherwise receiving actual notice of
a conviction;
(j) within thirty (30) days after receiving notice under Section
(2)(h)(ii), above, or otherwise receiving actual notice of a
conviction, impose either of the following sanctions or remedial
measures on any employee who is convicted of a drug or alcohol
abuse offense occurring in the workplace:
(i) take appropriate personnel action against an employee, up to
and including termination; and,
(ii) require an employee to satisfactorily participate in a bona
fide drug or alcohol abuse assistance or rehabilitation
program.
(k) make a good faith effort to maintain a drug and alcohol free
workplace through implementation of Section (2)(a)-(j), above.
3. If the business is an individual, the individual shall certify and agree
as set forth in Section 4, below, that the individual shall not engage
in the unlawful manufacture, distribution, dispensing, possession or use
of drugs or the abuse of drugs or alcohol in the performance of this
Agreement.
4. I acknowledge and agree that:
(a) this Agreement is conditional upon compliance with COMAR 21.11.08
and this certification;
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(b) the violation of the provisions of COMAR 21.11.08 or this
certification shall be cause to suspend payments under, or
terminate this Agreement for default under COMAR 21.07.01.11 or
21.07.03.15, as applicable; and,
(c) the violation of the provisions of COMAR 21.11.08 or this
certification in connection with the contract may, in the
exercise of the discretion of the Board of Public Works, result
in the suspension and debarment of the business under COMAR
21.08.06.
A.25 NON-DISCRIMINATION IN EMPLOYMENT
The Contractor agrees:
a. not to discriminate in any manner against an employee or applicant for
employment because of race, color, religion, creed, age, sex, marital
status, national origin, ancestry or physical or mental handicap
unrelated in nature and extent, so as reasonably to preclude the
performance of such employment.
b. to include a provision similar to that contained in subsection (a),
above, in any subcontract except a subcontract for standard commercial
supplies or raw materials; and,
c. to post and to cause subcontractors to post in conspicuous places
available to employees and applicants for employment, notices setting
forth substance of this clause.
A.26 NON-HIRING OF EMPLOYEES
No employee of the MSP or any unit thereof, whose duties as such employee
include matters relating to or affecting the subject matter of this Agreement,
shall, while so employed, become or be an employee of the party or parties
hereby contracting with the MSP or any unit thereof.
A.27 DISPUTES
This Agreement shall be subject to the provisions of State Finance and
Procurement Article, Title 15, Subtitle 2, Annotated Code of Maryland and COMAR
21.10 (Administrative and Civil Remedies). Pending resolution of a claim, the
Contractor shall proceed diligently with the performance of this Agreement in
accordance with the MSP's decision.
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A.28 TERMINATION FOR DEFAULT
If the Contractor fails to fulfill its obligations under this Agreement
properly and on time or otherwise violates any provision of this Agreement, the
MSP may terminate this Agreement by written notice to the Contractor. The notice
shall specify the acts or omissions relied upon as causes for termination. All
finished or unfinished work provided by the Contractor shall, at the MSP's
option, become the MSP's property. The MSP shall pay the Contractor fair and
equitable compensation for satisfactory performance prior to receipt of notice
of termination, less the amount of damages caused by Contractor's breach. If the
damages are more than the compensation payable to the Contractor, the Contractor
will remain liable after termination and the MSP can affirmatively collect
damages. Termination hereunder, including the determination of the rights and
obligations of the parties, shall be governed by the provisions of COMAR
21.07.01.11B.
A.29 TERMINATION FOR CONVENIENCE
The performance of work under this Agreement may be terminated by the MSP
in accordance with this clause in whole, or from time to time in part, whenever
the State shall determine that such termination is in the best interest of the
MSP. The MSP will pay all reasonable costs associated with this Agreement that
the Contractor has incurred up to the date of termination and all reasonable
costs associated with termination of this Agreement. However, the Contractor
shall not be reimbursed for any anticipatory profits that have not been earned
up to the date of termination. Termination hereunder, including the
determination of the rights and obligations of the parties, shall be governed by
the provisions of COMAR 21.07.01.12A(2).
A.30 FINANCIAL DISCLOSURE
The Contractor shall comply with the provisions of Section 13-221 of the
State Finance and Procurement Article of the Annotated Code of Maryland, which
requires that every business that enters into contracts, leases, or other
agreements with the State of Maryland or its agencies during a calendar year
under which the business is to receive in the aggregate $100,000 or more, shall,
within thirty (30) days of the time when the aggregate value of these contracts,
leases or other agreements reaches $100,000, file with the Secretary of the
State of Maryland, certain specified information to include disclosure of
beneficial ownership of the business.
A.31 POLITICAL CONTRIBUTION DISCLOSURE
The Contractor shall comply with the provisions of Article 33, Sections
30-1 through 30-4 of the Annotated Code of Maryland, which requires that every
person that enters into contracts, leases, or other agreements with the State
of Maryland, including its agencies, or a political subdivision of the State,
during a calendar year under which the person receives in the aggregate
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$10,000 or more, shall, on or before February 1 of the following year, file with
the Secretary of the State of Maryland, certain specified information to include
disclosure of political contributions in excess of $100 to a candidate for
elective office in any primary or general election.
A.32 VERIFICATION OF TAX PAYMENT
All corporations doing business in the State of Maryland are required to
be registered with the State of Maryland, Department of Assessments and
Taxation, Comptroller's Office and the Department of Business Economic and
Development. All corporations are required to have a resident agent. All
corporations not incorporated in the State of Maryland are considered foreign
corporations. Any contractor not certain as to their status should contact the
State of Maryland Comptroller's Office at (410) 225-1623.
A.33 CONFIDENTIALITY OF INFORMATION
Contractor agrees to observe complete confidentiality with respect to all
aspects of any confidential information, proprietary data or trade secrets and
any parts thereof, whether such contents are the MSP's or other manufacturers,
vendors or distributors, whereby the Contractor or any Contractor's personnel
may gain access while engaged by the MSP or while on MSP premises. Revealing,
copying or using in any manner whatsoever, any such contents which have not been
authorized by the MSP are strictly prohibited. The restrictions herein shall
survive the termination of this Agreement for any reason and shall continue in
full force and effect and shall be binding upon the Contractor, its agents,
employees, successors, assigns, subcontractors or any party claiming an interest
in this Agreement on behalf of or under the rights of the Contractor following
any termination. The Contractor shall advise all of its agents, employees,
successors, assigns and subcontractors who are engaged with the MSP of the
restrictions, present and continuing, set forth herein. The Contractor shall
defend and incur all costs for actions which arise as a result of noncompliance
by the Contractor, its agents, employees, successors, assigns and subcontractors
regarding the restriction herein. Restrictions encompass law enforcement
activities.
A.34 DEFINITIONS
For the purpose of this Agreement, the following terms have the meanings
indicated:
MARS - Multiple Activation Registration System
NLETS - National Law Enforcement Telecommunications System, Inc.
NCIC - National Crime Information Center
14
<PAGE>
SECTION B - SYSTEM ACCEPTANCE PROVISIONS
----------------------------------------
B.1 REQUIRED PERFORMANCE LEVEL
This section establishes the criteria of the LoJack System Acceptance Test
as defined in Exhibit A attached as an integral part of this Agreement. The
equipment and communications must satisfactorily perform before any equipment
offered by the Contractor is accepted by the MSP. This also includes
replacements, substitutes and field modified items of equipment which are
proposed after the completion of the original acceptance period. The
acceptance period shall begin on the installation date or on the date that the
Contractor certifies to the MSP that the equipment is ready for testing,
whichever is later. The LoJack System shall operate in conformance with the
Contractor's published technical specifications and functional descriptions,
and in accordance with the LoJack System Acceptance Test, Exhibit A. The MSP
will not pay any charges, either beforehand or retroactively, associated with
the Contractor's requirement to successfully complete the requirements of
Exhibit A.
B.2 CONTINUANCE OF PERFORMANCE PERIOD AND ACCEPTANCE OF SYSTEM
In the event the equipment does not successfully perform and complete the
LoJack System Acceptance Test during the initial sixty (60) consecutive calendar
days from the date of testing commencement, the acceptance period shall continue
on a day-to-day basis.
B.3 FAILURE TO MEET STANDARD OF PERFORMANCE
If any item of equipment fails to satisfactorily complete the LoJack System
Acceptance Test after ninety (90) consecutive calendar days have elapsed from
the start of the testing period, the MSP may require a replacement to be
provided. In the event that the equipment fails to perform, this entire
Agreement may be terminated.
B.4 DELAY OF START OF PERFORMANCE PERIOD
Should it be necessary, the MSP may delay the start of the testing period,
but such a delay shall not exceed thirty (30) consecutive calendar days.
Therefore, the testing period must start not later than the 31st day after the
date that the Contractor certifies the system is ready for testing.
15
<PAGE>
B.5 SITE PREPARATION
a. Equipment environmental specifications, if required, shall be
furnished in writing by the Contractor. These specifications shall be
in such detail to ensure that the equipment to be installed in a
building shall operate efficiently from the point of view of the
environment.
b. The MSP shall prepare the computer installation site in a building at
its own expense and in accordance with the equipment environmental
specifications. Specifications must be furnished to the MSP by the
Contractor at least thirty (30) calendar days prior to the
installation date or by another date mutually agreed upon when such
notice is not required.
c. Any alterations or modifications in site preparation which are
directly attributed to incomplete or erroneous equipment
specifications provided by the Contractor shall be made at the
expense of the Contractor.
d. All equipment proposed by the Contractor for the installation site in
a building must have been approved by Underwriters Laboratories or a
recognized equivalent certification agency.
B.6 INSTALLATION RESPONSIBILITY DURING IMPLEMENTATION
Except for specific limitations contained herein, the Contractor shall be
responsible for the complete installation of all equipment and shall make such
items ready for operational use. Examples include unpacking, installation and
connection with utility services. Employees of the MSP will accompany the
Contractor on MSP site visits and monitor the installation of any System
component to be installed by the Contractor.
All tower work on MSP owned towers shall be done by the Contractor subject
to site equipment specifications, supervision and inspection by MSP
representatives.
Installation of the tracking units shall be done by the LoJack Corporation
at the respective police department's facilities under supervision of such
police department's Motor Vehicle Division Commander. The number of tracking
units to be installed at State Police, County and City facilities shall be
determined by the MSP with input from the Contractor.
The MSP and the Contractor agree that the quantity of trackers to be
provided under the terms and conditions of this Agreement will be three hundred,
twenty-five (325) Police Tracking Computers (PTCS).
16
<PAGE>
The Contractor shall be responsible for correcting any interference to MSP
communications and speed enforcement equipment. This shall include both fixed
and mobile units. MSP is not responsible for correcting any interference to
Contractor's equipment.
SECTION C - OPERATIONAL USE PROVISIONS
--------------------------------------
C.1 TESTING RECORDS
The MSP shall maintain appropriate records during the testing period to
document performance requirements and MSP records shall be deemed conclusive for
purposes of determining acceptance.
C.2 MOVEMENT OF EQUIPMENT
Equipment may be transferred from one (1) MSP location to another with the
approval of the MSP Motor Vehicle Division Commander, upon thirty (30) calendar
days written notice to the Contractor. The Contractor shall continue to maintain
the equipment at the new location. Prior written notice shall not be required
when movement is required for emergencies. Shipment to and installation of
equipment at the new site shall be at the Contractor's expense by any mode of
transportation mutually agreeable to both parties and deemed most appropriate.
C.3 FIELD MODIFICATIONS AND/OR ENGINEERING CHANGES
Contractor sponsored modification's and/or engineering changes shall be
made with the consent of the MSP Motor Vehicle Division Commander at no
additional charge. The MSP Motor Vehicle Division Commander reserves the right,
at all times, to schedule these Contractor sponsored modification's and/or
changes to minimize the impact on the daily operations of the MSP.
SECTION D - HARDWARE PROVISIONS
-------------------------------
D.1 RESPONSIBILITIES OF THE CONTRACTOR
a. During the term of this Agreement, the Contractor shall provide all
equipment maintenance, including parts and labor, at no charge to the
MSP and shall keep the equipment in good operating condition and
preserve its operating efficiency.
17
<PAGE>
b. The Contractor shall be responsible for all repairs, loss, damage or
destruction of all System equipment, materials and supplies provided
by the Contractor under this Agreement.
c. The Contractor will be responsible for ensuring that, upon termination
or expiration of this Agreement or the transfer, sale, trade or
disposal of any MSP vehicle equipped with LoJack System equipment,
such MSP vehicle will be repaired as deemed necessary by the MSP Motor
Vehicle Division Commander at the Contractor's expense.
d. The Contractor shall be responsive to all reasonable MSP requests for
service/support relating to the LoJack System.
e. The Contractor shall conduct tests, as required, to ensure that the
System is operating within applicable FCC standards and other
government standards, if any.
D.2 RESPONSIBILITIES OF THE MSP
a. MSP personnel shall not perform maintenance or attempt repairs to
equipment while the System is under the purview of this Agreement
unless agreed to in writing by the Contractor.
b. Subject to security regulations, the MSP shall permit access to the
equipment which is to be maintained.
c. The MSP shall provide time for Contractor sponsored modifications
within ten (10) calendar days after being notified by the Contractor
that the modification is ready to be made.
d. The MSP shall report any system malfunction to a designated LoJack
representative as soon as possible after any malfunction occurs.
e. The MSP shall provide assistance for repairs to MSP equipment, as may
be necessary, to interface with the LoJack System.
D.3 MAINTENANCE RESPONSE TIME
The Contractor shall provide maintenance service to the MSP, Monday through
Friday, 8:00 a.m. to 5:00 p.m., Eastern Time, (MSP holidays excluded) as
follows:
18
<PAGE>
a. Acknowledgment by the Contractor of a trouble call by return telephone
call to an individual designated by the MSP, shall occur within one
(1) hour of report of a problem.
b. On-site service by the Contractor shall occur within six (6) hours of
report of a problem to the Contractor.
c. Maximum time for completion of all MSP vehicle repairs/maintenance,
will be eight (8) hours from the time the Contractor arrives on-site
as required in D.3.b above. If any MSP vehicle cannot be returned to
duty within the specified eight (8) hours, LoJack will install another
unit, at no cost to the MSP, until original unit can be repaired.
D.4 PREVENTIVE MAINTENANCE
The Contractor shall specify in writing the frequency and duration of the
preventive maintenance required for the equipment supplied by the Contractor
under this Agreement. The MSP shall specify the schedule for the performance of
the preventive maintenance. This schedule may be modified by mutual agreement.
D.5 REMEDIAL MAINTENANCE
Remedial maintenance shall be performed after notification that equipment
is inoperative.
The Contractor shall provide the MSP with a designated point(s) of
contact and make arrangements to enable the Contractor's maintenance
representative to receive such notification or provide an answering service or
other continuous telephone coverage to permit the MSP to make such contact.
D.6 MALFUNCTION REPORTS
The Contractor shall furnish a signed malfunction incident report to the
MSP's installation representative upon completion of each on-site maintenance
call. At a minimum, the report shall include the following:
a. Date and time notified
b. Date and time of arrival
c. Type and mode number(s) of equipment repaired
d. Date and time when equipment is returned to operation
e. Description of malfunction
19
<PAGE>
f. Signature of Contractor's representative
g. Signature of MSP's representative
D.7 ADDITIONAL PROVISIONS FOR MAINTENANCE SUPPORT
Maintenance includes all labor, parts, factory overhaul,
rehabilitation, transportation and substitute equipment as necessary for
effective performance and at no cost to the MSP. In those instances where it is
necessary for the Contractor to return the equipment to the factory, the
Contractor shall be responsible for all costs of the equipment from the time it
leaves the MSP site until it is returned to the MSP site in good operating
condition. Only new standard part's equal in performance to new parts shall be
used in affecting repairs. Parts which have been replaced shall become the
property of the Contractor. Replacement parts installed shall become the
property of the owner of the equipment.
D.8 GUARANTEE (WARRANTY)
The Contractor shall furnish all equipment maintenance, including
parts and labor, beginning on the date of delivery and for the entire duration
of this Agreement at no cost to the MSP.
Contractor warrants that whenever the Contractor is unable to repair
the equipment on-site, the Contractor shall bear all costs, including but not
limited to, costs of packing, transportation, rigging, drayage and insurance.
This guarantee shall apply to any replacement machine beginning on the date of
acceptance of the replacement machine. If the equipment must be returned for
repair, the Contractor shall furnish the MSP with replacement equipment until
such time as the failed item has been returned in operable condition. Such
replacement hardware will be delivered concurrent with the removal of the
defective item.
Contractor warrants that all equipment provided by the Contractor
under this Agreement shall be free from defects affecting the functional
capability of the System.
Contractor warrants that all repairs or revisions shall be performed
by persons authorized and skilled to make such repairs or revisions.
Contractor warrants that if at any time during the duration of this
Agreement, the MSP or the Contractor discover malfunctions, failures or design
errors materially and adversely affecting the functional requirements of the
System, the Contractor shall promptly correct such discrepancies at no cost to
the MSP in order for the System to function in accordance with System
specifications and the provisions of this Agreement.
20
<PAGE>
D.9 REPLACEMENT PARTS
The Contractor shall furnish replacement parts for each model, type or
feature supplied by the Contractor under this Agreement for the term of this
Agreement when such parts are required for replacement purposes.
D.10 MAINTENANCE CONTINUITY
Upon request by the MSP, the Contractor agrees to provide maintenance
services as defined in this Agreement for as long as the equipment is utilized
by the MSP.
SECTION E - FINANCIAL CONSIDERATIONS
------------------------------------
E.1 INVOICES
The MSP shall pay the LoJack Corporation for the use of all products
delivered or services performed under this Agreement for an annual fee of one
dollar ($1.00) per year for the term of this Agreement.
SECTION F - TECHNICAL CONSIDERATIONS
------------------------------------
F.1 TRAINING
The Contractor, without additional charge to the MSP, shall train an
adequate number of operating personnel (as the MSP designates and determines
necessary), to support the daily use of equipment proposed by the Contractor.
In addition to initial training, training shall also be provided to governmental
and law enforcement personnel as may be necessary as a result of expansion of
the System, change in personnel or modifications to the System. Such training
shall be at an MSP or local law enforcement agency location, or at Contractor's
location if mutually agreed upon by the MSP and Contractor.
F.2 TECHNICAL SERVICES
The Contractors' technical personnel shall be available to assist the MSP
in implementation of acquired equipment. The amount of such technical services
shall be agreed upon, in writing, before execution of this Agreement.
21
<PAGE>
The Contractor shall provide documentation and other technical data for the
equipment utilized by the MSP under this Agreement.
The MSP shall assist with the installation, testing and operational
implementation of the System. MSP Radio Technicians will not assist or provide
--------
any labor with the installation involving any Lojack equipment.
The MSP shall assist in the coordination with other governmental law
enforcement entities to provide advice and support as deemed appropriate by the
MSP.
F.3 HARDWARE COMPONENTS SPECIFICATION
The hardware components delivered hereunder will conform to the detailed
specifications of each component as described in specifications and/or
publications provided by the Contractor, including but not limited to, physical
characteristics, operating characteristics, space requirements, power
requirements and maintenance. Hardware manuals shall be provided to describe
the functions, characteristics and operating capabilities that may be expected
of the Contractor's System.
PERSONS SIGNING THIS AGREEMENT ARE AUTHORIZED REPRESENTATIVES OF EACH PARTY TO
THIS AGREEMENT AND ACKNOWLEDGE THAT EACH PARTY AGREES TO BE BOUND BY THE TERMS
AND CONDITIONS OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto set their hands and seals the day and
year first above written.
MARYLAND STATE POLICE
By: Witness:
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE] 11/08/96
- - ---------------------------------- ----------------------------------
Date Date
LOJACK CORPORATION
By: Witness:
/s/ C. Michael Daley
- - ---------------------------------- ----------------------------------
Date Date
APPROVED AS TO FORM AND LEGALITY:
[SIGNATURE APPEARS HERE] 11/8/96
- - ----------------------------------
Date
22
<PAGE>
ATTACHMENT A
TO
AGREEMENT #MD1096LJK
between the
MARYLAND DEPARTMENT OF STATE POLICE
and
LOJACK CORPORATION
REFERENCE:
- - ----------
Attachment A is hereby incorporated by reference, made an integral part of
and attached to Agreement #MD1096LJK between the Maryland Department of State
Police and LoJack Corporation.
SCOPE:
- - ------
The Contractor shall be responsible for delivery of the products and
services set forth below and in accordance with the terms and conditions of the
above referenced Agreement and this Attachment A.
EQUIPMENT:
- - ----------
The following equipment comprising the LoJack System to be accessed and
utilized by the MSP will be installed by and at the Contractor's expense. The
equipment shall be used only for performing the operation of the Stolen Vehicle
Recovery System. The equipment shall at all times remain personal property,
notwithstanding that any component of the System may become attached to or
residing on real property:
a. Sector Activation Computer (SAC)
b. Sector Activation Transmitters (SAT)
c. Programs containing files of activation codes, reply codes, vehicle
descriptions and other data which directs the activation of the System
d. Transmission lines and antennas required to operate the MSP's System
e. Police Tracking Computers (PTCS) to be installed by LoJack, in state,
county and local police vehicles in the State of Maryland.
f. Any additional equipment required to implement a State of Maryland
Stolen Vehicle Recovery System including any hardware necessary to
interface with the MSP's existing computer system to allow the MSP to
track vehicles equipped with activated LoJack System transmitters
23
<PAGE>
During the term of this Agreement, LoJack without expense to the MSP, will
fund any and all modifications to MSP equipment as required by the LoJack
System. The Contractor will be responsible for all engineering and programming
cost incurred in interfacing the LoJack System to equipment owned or operated
by the MSP and linked to the Multiple Activation Registration System (MARS)
housed by the Massachusetts Criminal History Systems Board (CHSB) during the
term of this Agreement.
The Contractor will provide all modifications, upgrades and updates to
LoJack System hardware being utilized by the MSP, at no cost to the MSP during
the term of this Agreement.
The Contractor shall pay all invoices for System related documented costs
incurred by the MSP pursuant to this section within thirty (30) calendar days
after the receipt of such invoice.
The Contractor agrees to install the necessary System components to
achieve adequate LoJack System coverage in portions of the following city and
counties, including the municipalities that have a high population and incidents
of vehicle theft:
a. Baltimore City
b. Baltimore County
c. Anne Arundel County
d. Howard County
e. Montgomery County
f. Prince Georges County
g. Charles County
LoJack agrees to provide and install 325 Police Tracking Computers for law
enforcement vehicles designated by the MSP in the State of Maryland at no cost
to the MSP.
If dedicated data communication lines to the MSP's law enforcement
computer system are required for the sole use of the System, all costs will
be borne by the Contractor.
FACILITIES:
- - -----------
The MSP shall provide at no expense to the Contractor, spaces for the SAT
antennae network on existing MSP radio towers and space inside equipment
facilities at existing radio broadcast locations, as required. The availability
of MSP owned radio towers shall be at the sole determination of the MSP. Such
permission shall not unreasonably be withheld. The Contractor shall, upon
written request from the MSP, provide an engineering analysis of radio
interference, structural loading and other related factors for each radio tower
owned by the MSP. No new towers shall be acquired or erected by the MSP solely
for the purpose of implementation of the System.
24
<PAGE>
The MSP shall operate the System facility on a full-time basis during the
term of this Agreement. Such staffing and operation shall commence upon the
successful completion of the LoJack System Acceptance Test attached hereto as
Exhibit A.
FACILITY ACCESS:
- - ----------------
The MSP shall provide identification for the Contractor's employees to
enter into MSP restricted areas as deemed appropriate by the MSP. The parties
agree that all employees or agents designated by the Contractor to work in or
about MSP owned or operated facilities must be reasonably acceptable to the MSP
and shall be subject to security approval. The Contractors' employees or agents
may be denied access to MSP facilities at the sole determination of the MSP.
FEDERAL COMMUNICATIONS COMMISSION LICENSES:
- - -------------------------------------------
This Agreement shall be subject to the rules, regulations and policies of
the Federal Communications Commission (FCC). The MSP shall have the right to
take any actions as may be necessary to comply with FCC requirements. The MSP
shall be the holder of the license issued by the FCC. Any costs incurred by the
MSP in obtaining such license shall be at the expense of the Contractor.
PUBLICATIONS AND DISCLOSURES:
- - -----------------------------
The Contractor shall not represent, publish, cause to be published or
disseminate in any manner for any purpose whatsoever, that the System is
sponsored or endorsed by the MSP or any other government law enforcement
entities within the State of Maryland.
The Contractor agrees that any sales agreements, brochures, warranties or
any form of printed advertising used in connection with any sale of LoJack Units
shall contain the following statement and, at a minimum, the following
statement shall be prominently displayed on the product literature or otherwise
shown in writing to the purchaser immediately before purchase:
"THE STATE OF MARYLAND, THE MARYLAND DEPARTMENT OF STATE POLICE, THE
COMMONWEALTH OF VIRGINIA AND THE DEPARTMENT OF VIRGINIA STATE POLICE, ARE NOT
PARTIES TO THE SALES AGREEMENT RELATING TO THIS PRODUCT AND DO NOT WARRANT,
GUARANTEE, ASSURE OR OTHERWISE MAKE ANY REPRESENTATIONS OR ENDORSEMENTS
REGARDING THE CONTINUATION, USE, ACCURACY, RELIABILITY, MERCHANTABILITY, FITNESS
FOR USE OR OPERATION OF THIS PRODUCT OR THE LOJACK STOLEN VEHICLE RECOVERY
SYSTEM OR ANY OF THE SYSTEM'S COMPONENT PARTS."
<PAGE>
The MSP agrees and acknowledges that the Contractor may make reference to
MSP and local entities with regard to the generic explanation of the operation
of the LoJack Stolen Recovery System. Advertising containing reference to the
State of Maryland, the Maryland Department of State Police or any other law
enforcement entity of the State of Maryland, shall be subject to the approval of
the MSP. In the event that any approval by the MSP of any advertising is
required, the MSP shall not unreasonably withhold such approval and will approve
or deny such advertising, in writing, within fifteen (15) calendar days from the
date of receipt of the proposed advertising request.
OPTIONAL PURCHASES:
- - -------------------
The Contractor agrees that any governmental law enforcement entity within
LoJack's coverage area in the State of Maryland, shall have the option of
purchasing LoJack's Police Tracking Computers at a price not to exceed $1,750.00
including installation, throughout the term of this Agreement.
SALE OF LOJACK UNITS:
- - ---------------------
The Contractor shall be responsible for marketing, selling, installing and
maintaining LoJack units to be installed in privately owned individual vehicles
and shall use best efforts to sell sufficient quantities of such units to the
public in order to make proper use of the System.
OTHER RIGHTS OF THE MSP:
- - ------------------------
The Contractor agrees that nothing in this Agreement shall be construed to
determine law enforcement priorities at any given time regardless of the
circumstances. The Contractor agrees that the MSP or any other governmental law
enforcement entity shall, at all times, regain the right to establish law
enforcement priorities for law enforcement service to LoJack units.
OBLIGATIONS AFTER TERMINATION:
- - ------------------------------
LoJack recognizes that applicable law and regulations may require that
subsequent MSP contracts for continuation of the LoJack System or another stolen
vehicle recovery system, if available, after termination of this Agreement may
be based upon competitive bidding. The MSP has concerns regarding persons who
then will have purchased and installed LoJack unit transmitters in their
personal vehicles. The MSP intends to require that all bidders propose a stolen
vehicle recovery system which will continue to enable the LoJack units to
function as part of the continuing system ("compatible system"). In recognition
of the MSP's concern that any such "compatible system" may infringe on LoJack
patents or other proprietary technology, LoJack hereby agrees to license the
bidder selected by MSP to use the technology in the State of Maryland. Such
license to be as
26
<PAGE>
broad as is required to avoid such infringement. LoJack further agrees that it
will charge no higher total royalty (inclusive of initial payment, if any, and
continuing royalties), than is reasonable in the circumstances, taking into
account the extent of the technology required, the cost of developing the same
and the size of the relevant market.
The MSP's obligation to utilize the System in accordance with the
provisions of this Agreement shall not prevent the MSP from testing, using or
procuring other stolen vehicle recovery systems, if available, as it may desire
during the term of this Agreement.
MSP PROJECT MANAGER:
- - --------------------
The MSP shall act as the project manager for coordinating the
installation and utilization of the LoJack System in the State of Maryland and
assist, where possible, in the coordination of the Stolen Vehicle Recovery
System. Also, the MSP must request of the Massachusetts CHSB, approval to
utilize the Massachusetts Stolen Vehicle Recovery System for the computer
interface to initiate the activation of State of Maryland LoJack equipped
vehicles.
The MSP project manager shall be:
Lt. Robert L. Scruggs
Bureau of Drug and Criminal Enforcement
(410) 290-0050 Ext. 305
The MSP reserves the right to redesignate the project manager at any
time during the term of this Agreement.
The MSP responsibilities as project manager shall include the following:
a. Shall be responsible in conjunction with the Contractor for
obtaining state approval for any required federal communication
licensing applications to operate a Stolen Vehicle Recovery Network
using the LoJack System within the State of Maryland. Any out of the
pocket costs regarding this application shall be at the expense of
LoJack.
b. The MSP agrees that the LoJack System being offered by LoJack is
contingent upon approval of the Massachusetts CHSB approving a
request by the MSP to interface with the existing Stolen Vehicle
Recovery System presently in operation by the Massachusetts State
Police at Police Headquarters in Boston, Massachusetts. Such
approval is to be requested in writing by the MSP and accepted by
the Massachusetts CHSB in writing before LoJack will initiate any
preliminary plans to draw specifications for the Maryland Stolen
Vehicle Recovery System or implementing a LoJack System in the State
of Maryland.
27
<PAGE>
c. Shall reasonably assist with efforts involving other Maryland state,
county and local law enforcement entities in the implementation of the
LoJack Stolen Vehicle Recovery Network.
d. Assist in the allocation and deployment of the Police Tracking
Computer Network to participating government law enforcement entities
within the State of Maryland.
e. Secure the cooperation of any other Maryland government agency or
department required to install or implement the LoJack System.
IMPLEMENTATION SCHEDULE:
- - ------------------------
The Contractor, with full coordination with the MSP, shall prepare and
deliver to the MSP, a specific implementation schedule within twelve (12) weeks
of the signing of this Agreement. The installation of the Maryland System is
contingent upon written approval by the Massachusetts CHSB of an interface to
the Massachusetts Stolen Vehicle Recovery System at the Headquarters of the CHSB
in Massachusetts. The vehicle for transmission of the necessary information to
CHSB will be through utilizing the National Law Enforcement Telecommunications
System (NLETS) line in cooperation with the two (2) agencies, CHSB and MSP. The
System shall be fully implemented no later than one (1) calendar year from the
date of final execution of this Agreement.
IN WITNESS WHEREOF, the parties hereto set their hands and seals the day and
year first above written.
MARYLAND STATE POLICE
By: Witness:
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE] 11/08/96
- - -------------------------------- ------------------------------------
Date Date
LOJACK CORPORATION
By: Witness:
/s/ C. Michael Daley
- - --------------------------------- ------------------------------------
Date Date
APPROVED AS TO FORM AND LEGALITY:
[SIGNATURE APPEARS HERE] 11/8/96
- - ---------------------------------
Date
28
<PAGE>
EXHIBIT A
TO
AGREEMENT #MD1096LJK
between the
MARYLAND DEPARTMENT OF STATE POLICE
and
LOJACK CORPORATION
LOJACK SYSTEM ACCEPTANCE TEST
-----------------------------
The LoJack System Acceptance Test shall evaluate:
a. the activation, "speed up" and deactivation of the LoJack receiver
unit
b. the ability of the related tracking unit to detect and track
c. the combined effective range of the LoJack transmitting unit and the
tracking unit receiver
d. the effective range of a typical activation transmitter/antenna
e. the user interface of the overall LoJack System with respect to
controlling the tracking procedure and the advisory messages which
result from a particular action
The overall LoJack System has been divided into three (3) general areas
which are to be evaluated:
1.0 COMMUNICATIONS
1.1 Proper operation of the NLETS communications lines between MSP and
MARS.
1.1.1 Test in accordance with Section 3.2.5
1.2 NLETS response times to agency requests. Responses should be
received within fifteen (15) seconds at any reasonable traffic load.
29
<PAGE>
2.0 SOFTWARE
The performance of the LoJack provided software in MARS, is highly
dependent on the validity of the data files which it receives from MSP. The MSP
shall perform extensive testing of the related software. The correct
functioning of the overall LoJack MSP System, shall be used to attest to the
validity of all the software involved. To resolve any discrepancies which arise
during testing, each interface transaction will be continually recorded for
references.
3.0 FUNCTIONALITY
3.1 Functionality tests will require three (3) vehicles to carry a LoJack
transmitter unit and one (1) search vehicle equipped with the
corresponding Lojack tracking unit. A radio voice link between the
test center at MSP Headquarters and the search vehicle will be
required. This series of tests shall test the functional behavior
of the LoJack System with respect to:
a. the ability to activate a vehicle transmitter
b. the ability to discriminate between multiple active vehicle
transmitters
c. the ability to put a transmitter into the "speed up" mode
d. the ability to deactivate a vehicle transmitter
3.2 Zero Range Test:
---------------
All vehicles participating in the test shall be assembled in close
proximity to one another to quickly determine the test objectives
in 3.1. a. through d. above,
3.2.1 Enter the three (3) test vehicles as stolen using an MSP
National Crime Information Center (NCIC) quality control
terminal to enter an EV message transaction for each of the
three (3) test vehicles. In addition to normal response
messages to the originating terminal, the following should
happen:
a. a "LoJack unit activated" message should be returned by
the MARS to the originating terminal for each EV request
entered.
b. the transmitter on each stolen vehicle should be
activated within three (3) minutes. This will be
verified by maneuvering the search vehicle to pick up
the stolen vehicle(s) transmission and then reading out
the reply code for each vehicle. The displayed reply
code on the search vehicle tracking unit should agree
with the reply code provided by the LoJack Corporation.
30
<PAGE>
3.2.2 Using one (1) of the stolen vehicle reply codes obtained
above, enter a LoJack query transaction into an MSP NCIC
quality control terminal. The following should happen:
a. MARS should return a message to the originating MSP
terminal, stating that a car is stolen and that the
LoJack unit was put in the "speed up" mode for easier
tracking.
b. The tracking unit display in the search vehicle should
provide an indication of the increased transmission
rate from the sped up transmitter in the stolen
vehicle. This will verify that the test vehicle
transmitter was actually put in the "speed up" mode.
3.2.3 Enter a CV transaction using the related attributes, NCIC and
the vehicle identification number (VIN), of the stolen vehicle
which was just put into the "speed up" mode (above). This
will clear the vehicle as stolen in the NCIC files and result
in the normal response to the originating MSP terminal. In
addition, the following should happen:
a. MARS should send a message to the originating terminal
stating that the vehicle just cleared was LoJack unit
equipped and is now deactivated.
b. The LoJack transmitter in the test vehicle just cleared
should turn off completely within three (3) minutes.
This will be confirmed by the tracking unit in the
search vehicle being unable to display the related
reply code which was displayed prior to entering the
CV transaction.
3.2.3.1 Enter a LoJack query for the reply code of the
test vehicle just cleared to verify that the MARS
files no longer classify the vehicle as
activated. This should result in the MARS sending
a message to the originating terminal which
states that the vehicle is not stolen and that
the LoJack unit was deactivated.
3.2.4 Repeat tests 3.2.3 and 3.2.3.1 to clear the two (2) remaining
stolen test vehicles using a LV message request on one and a
XV request for the other.
31
<PAGE>
3.2.5 Modified Vehicle Test(MV):
--------------------------
A stolen vehicle record is created in NCIC and is then activated.
Then another stolen test vehicle's VIN is used in a MV request to
modify the original stolen vehicle's record in NCIC. This should
cause the original vehicle to be deactivated and the vehicle with the
newly updated VIN to become activated.
3.2.5.1 Using the VIN of one (1) of the test vehicles, enter an
EV request via an MSP NCIC quality control terminal. This
should cause the test vehicle's transmitter to become
activated and can be verified by the related reply code
displayed on the search vehicle's tracking unit.
3.2.5.2 Using the VIN of the second test vehicle, enter a MV
request via an MSP NCIC quality control terminal. This
should cause the original test vehicle transmitter to
become deactivated and the second test vehicle to become
activated. The reply code of the second test vehicle
should now be displayed on the search vehicle's tracking
unit display.
3.2.5.3 Verify the new vehicle's status in the NCIC files. Enter
a LoJack query request with the reply code of the first
test vehicle via an MSP NCIC quality control terminal.
The resulting response to the terminal should indicate
that the vehicle is not stolen and that its transmitter
is being deactivated. Then enter a LoJack query request
with the reply code of the second test vehicle. The
resulting response should indicate that the vehicle is
stolen and that the LoJack transmitter has been sped up
for tracking.
3.2.5.4 Enter a CV request to clear the second vehicle in the
NCIC files. This should be verified by a LoJack query by
reply code.
3.3 LoJack Activation Transmission Range:
-------------------------------------
The effective range of an activation transmitter will be dependent upon
diverse factors; e.g., activation antenna height, the flatness of the
surrounding terrain, man made obstruction and the radiated power of the
antenna. The results of this test should be representative of a typical
activation range.
32
<PAGE>
3.3.1 Select the Maryland tower which has the LoJack activation
transmitter/antenna installed.
3.3.2 Position a LoJack equipped test vehicle beyond the range of the
selected activation transmitter site. LoJack Corporation shall
provide this range information.
3.3.3 Enter an EV for the test vehicle via an MSP NCIC quality control
terminal.
3.3.4 Instruct the test vehicle to proceed in the direction of the LoJack
activation transmitter site until the LoJack unit successfully
activates. From this information and the location of the LoJack
transmitter site on the map, the approximate activation range can be
determined.
3.3.5 Enter a CV request to clear the test vehicle.
33
<PAGE>
Exhibit 10rr
JOINT VENTURE AGREEMENT
AGREEMENT (the "Agreement"), dated as of December 1, 1995, by and
between LoJack Venture Corporation, a Massachusetts corporation having its
principal place of business at Norfolk Place, 333 Elm Street, Dedham,
Massachusetts 02026, ("LVC") and Micrologic, Inc., a Massachusetts corporation
having its principal place of business at 78 Fourth Avenue, Waltham,
Massachusetts 02154, ("Micrologic").
Recitals
--------
WHEREAS, the parent of LVC is the vehicle recovery and automotive
security business and is the owner of patents and other proprietary technology
in the field, including the trademark LOJACK(R) applied to such vehicle recovery
and automobile security business, and has given LVC the right to authorize the
use of the same pursuant to this agreement; and
WHEREAS, Micrologic is in the design, engineering and technology
development business and is the technical developer of the LoJack Stolen Vehicle
Recovery System and has developed the concept of a completely self-contained
transponder; and
WHEREAS, the parties wish to continue to develop a new self-contained
transponder technology using state of the art technology, of which the first
application will be a next generation LoJack Unit, designated LJU-III; and
WHEREAS, the parties believe that the development process will result
in additional proprietary technology (the "Technology") which also will have
applications beneficial to LVC outside of stolen vehicle recovery and vehicle
security; and
- 1 -
<PAGE>
WHEREAS, the parties would like jointly to exploit these other
applications; and
WHEREAS, the parties wish to form a joint venture for the purpose of
developing LJU-III and the Technology; and
WHEREAS, the parties desire to set forth their respective interests in
the joint venture with respect to the services to be rendered and in any
profits, losses, or liabilities arising therefrom;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereby agree as follows:
1. Formation of Joint Venture.
--------------------------
(a) The parties hereby agree to form a joint venture (the "Joint
Venture") solely for the purposes of developing the Technology (the "Project")
and exploiting the Technology for the benefit of the Joint Venture. The Joint
Venture shall be known as "SCT Development Venture". The parties hereto are
sometimes herein referred to as "Venturers" or, where applicable, "Venturer".
(b) The Venturers agree to use their best efforts to carry out
the respective duties and obligations of the Joint Venture required of them, or
each of them hereunder; to protect and further the interests of the Joint
Venture; and to contribute such funds as are required of each such Venturer to
be contributed to undertake and carry out the Project as herein described.
(c) This Agreement shall not constitute any Venturer the
partner or agent of any other Venturer except as herein expressly provided, nor
in any manner limit the Venturers in carrying on their respective separate
businesses or activities, nor impose upon
- 2 -
<PAGE>
any Venturer any fiduciary duty by reason of its carrying on its separate
business or activity, nor impose upon any Venturer any liability or obligation
to the other Venturer or the Joint Venture except as expressly provided herein.
(d) Except as otherwise expressly and specifically provided
herein, no Venturer shall have any authority to act for or to assume any
obligations or responsibility on behalf of the Joint Venture or any other
Venturer.
(e) Except as otherwise expressly and specifically provided
herein, no Venturer shall have the right to borrow money on behalf of the Joint
Venture or any other Venturer. No Venturer shall have the right to use the
credit of another Venturer for any purpose whatsoever.
(f) Subject to the provisions of Section 15, the Venture
shall terminate on December 31, 2015.
2. Contributions to the Joint Venture.
----------------------------------
(a) LVC hereby contributes $10,000 in cash, the receipt of which
is hereby acknowledged.
(b) Micrologic hereby contributes $10,000 in cash, the receipt of
which is hereby acknowledged.
(c) Working capital shall be contributed equally by the
Venturers, as provided in Section 4.
(d) LVC and the Joint Venture shall execute a License Agreement
substantially in the form attached hereto as Exhibit B.
- 3 -
<PAGE>
(e) Micrologic and the Joint Venture shall execute a LJU-III
Development Agreement substantially in the form attached hereto as Exhibit C.
3. Interest in Property, Profits and Losses and Liabilities.
--------------------------------------------------------
(a) All property of the Joint Venture of whatever description
("Property of the Joint Venture"), including, without limitation, accounts
receivable, cash receipts and undistributed cash used, generated or earned in
connection with the performance of the Project and proceeds of insurance and
fidelity bonds with respect to property or funds of the Joint Venture and loan
proceeds shall be deemed owned by the Joint Venture. No Venturer, individually,
shall have any ownership of or title to such property.
(b) The Venturers' interest in the Property of the Joint Venture
and in the Profits, Losses, Operating Deficits and liabilities of the Joint
Venture shall be shared in the following percentages ("Proportionate Shares")
namely: LVC 50% and Micrologic 50%. The Proportionate Shares of the Venturers
are subject to adjustment in the event a Venturer does not furnish its
Proportionate Share of working capital or pay its Proportionate Share of any
Operating Deficit or Loss as provided in Section 5.
(c) Each Venturer shall be jointly and severally liable to
third parties as to obligations of the Joint Venture; provided, however, that as
between the Venturers, each Venturer shall indemnify and save the other harmless
from and against any loss sustained or liability incurred in the performance of
or in connection with the Project or this Agreement, to the extent any such loss
or liability shall exceed such Venturer's respective Proportionate Share
thereof.
4. Working Capital; Bank Account.
-----------------------------
- 4 -
<PAGE>
(a) Initial working capital in the aggregate amount of $20,000
has been contributed to the Joint Venture. Thereafter additional working capital
shall be furnished by the Venturers at such times and in such amounts as may be
determined by the Venturers. All contributions to working capital by the
Venturers shall be in amounts equal to their respective Proportionate Shares.
All working capital contributed shall be repaid to the Venturer contributing the
same prior to the distribution of any Profits.
(b) The Venturers shall open and establish such bank account(s)
under such description or title as the Venturers may determine. All funds
contributed or advanced by the Venturers, as well as all funds received on
account of the performance of the Project and all proceeds of insurance and
fidelity bonds, shall be deposited in the bank account(s) of the Joint Venture.
Withdrawals from the bank account(s) shall be made only in such manner and form
as the Venturers may from time to time direct by such persons as are approved by
the Venturers.
5. Failure to Contribute; Right to Cure.
------------------------------------
If any Venturer (the "Defaulting Party") shall at any time fail to
make the payments required to be made or contributed pursuant to this Agreement,
including, without limitation, contributions to working capital and
contributions on account of Operating Deficits and Losses, then:
(i) If such failure shall occur prior to July 31, 1996, the other
Venturer (the "Non-Defaulting Party") may make such contribution and the
proportional interest of the Non-Defaulting Party shall be increased by a
percent determined by dividing the amount of the contribution made by the
Non-Defaulting Party by $803,025 and multiplying the quotient
- 5 -
<PAGE>
by one hundred. For example, if the amount of the contribution is $26,767 and
the Non-Defaulting Party's percentage prior to the contribution is fifty percent
(50%), after the contribution the Non-Defaulting Party's percentage would be
fifty-three and one-third percent (53 1/3%) determined as follows:
26,767/803,025=1/30x100=3 1/3%+50%=53 1/3%.
(ii) If such failure shall occur thereafter, the Non-Defaulting Party
may, within ten (10) days after written notice specifying the default and prior
to cure thereof by the Defaulting Party, without waiving or releasing the
Defaulting Party, contribute the amount in default for the account of the
Defaulting Party. If the Non-Defaulting Party does so contribute the amount in
default, the amount of such contribution, together with interest thereon at 3%
above the then current prime rate of Bank of Boston from the date of such
contribution, shall become a debt of, and be paid by, the Defaulting Party to
the Non-Defaulting Party within forty-five (45) days after written demand. If
the debt is not paid by the Defaulting Party within said forty-five (45) day
period, in addition to any other remedy or relief available to the
Non-Defaulting Party, said debt shall be deemed a lien upon and collectible out
of the Defaulting Party's interest in, and distributions from the Joint Venture.
Reimbursement of amounts paid under this Section shall have priority over
payment of any distribution to the Defaulting Party under this Agreement.
6. Manager. The general supervision and management of the Joint
-------
Venture and any and all matters relating thereto shall be under the general
charge and control of a board of three managers. One such manager shall be
designated by each Venturer from among its executive officers and directors. The
Venturers together shall designate a third member of the Board of Managers who
shall not be an employee or director of either Venturer or of a
- 6 -
<PAGE>
subsidiary or parent of either Venturer. The Board of Managers may delegate
day-to-day operating authority to one or more persons (the "Manager").
Initially, in the absence of such designation, Joseph F. Abely and Sheldon
Apsell jointly shall act as Manager. Until further or other delegation is made
by the Board of Managers, both of them, acting together as Manager shall have
the power, in the name of the Joint Venture, to execute and deliver sales
orders, purchase orders, contracts, and other agreements, and to borrow money,
obtain letters of credit and pledge Property of the Joint Venture as collateral
for obligations of the Joint Venture, except that, where any single commitment
resulting in an obligation of the Joint Venture exceeds $5,000 in amount, or the
total of such commitments then outstanding exceed $10,000 in the aggregate, the
Manager shall obtain the approval of the Venturers before executing any such
agreements. The Manager shall be given such additional specific powers as the
Venturers may from time to time delegate. Unless specifically authorized by the
Venturers, the Manager shall serve without compensation.
7. Venture Costs. Costs of performance of the Joint Venture ("Venture
-------------
Costs") to be borne by the Joint Venture and shared by the Venturers shall
consist of all costs incurred pursuant to the Development Contract, all costs of
exploiting the Technology, and all administrative costs, insurance (other than a
Venturer's own general liability insurance and workers compensation insurance
relating to a Venturer's own employees which shall not be borne by the Joint
Venture), taxes, if any, imposed on the Joint Venture or the Property of the
Joint Venture, legal fees, accounting fees, liability, fidelity or casualty
losses not covered by insurance, compensation and benefits (if any, as approved
by the Venturers) of the Manager and other administrative, supervisory and
clerical personnel employed directly by
- 7 -
<PAGE>
the Joint Venture or assigned full time to the Joint Venture, all costs
attributable to the maintenance of an office and all other expenses and
obligations incurred in connection with the performance of the Project of a kind
and nature which, under generally accepted accounting principles, would be
properly charged as an expense relating to the performance of the Project.
Except by agreement of the Venturers, the Joint Venture shall not be charged for
any overhead expenses or charges attributable to the main or branch offices of a
Venturer, nor for compensation of officers and administrative staff of a
Venturer unless assigned full time to the Project, nor for any costs associated
with the negotiation, preparation or enforcement by a Venturer of this
Agreement.
8. Books and Records.
-----------------
(a) Separate books of account and other records relating to the
performance of the Project, the amount of Venture Costs incurred and revenue
received in the performance of the Project, the amount of each Venturer's
respective capital account, the records relating to bank accounts of the Joint
Venture and all other matters pertaining to the Joint Venture and the Project
shall be kept and maintained at the main office of the Joint Venture.
(b) A periodic audit (or, if agreed upon by the Board of
Directors, review) of the books and records shall be made by an independent firm
of certified public accountants or by such individuals and at such intervals as
may be agreed upon by the Venturers.
(c) A true and correct accounting shall be rendered by the
Manager to each Venturer monthly within thirty (30) days after the close of each
month (and at the Completion
- 8 -
<PAGE>
of the Project) of all costs, expenses, and other data relating to the
performance of the Project and the affairs of the Joint Venture.
(d) Records shall be kept of each Venturer's capital account in
the Joint Venture, including, without limitation, contributions to working
capital, the amount of all distributions therefrom, and adjustments to capital
accounts resulting from defaults, if any, pursuant to Section 5.
(e) Each Venturer shall have the right at all reasonable times,
during usual business hours, to audit, examine, and, at its expense, make copies
of or extracts from the books and records maintained in connection with the
Project. The Venturer or Venturers requesting such inspection shall bear all
expenses incurred in any examination made for its or their account.
(f) The books and records of the Joint Venture shall be kept for
a period of five years after the Completion of the Project at such place or
places as the Venturers may from time to time determine. The cost of maintaining
and storing the books and records after Completion of the Project shall be borne
by the Venturers in amounts equal to their respective Proportionate Shares.
(g) The fiscal year of the Joint Venture shall be December 31.
9. Tax Status, Returns and Allocations.
-----------------------------------
(a) Any provision hereof to the contrary notwithstanding, for
federal income tax purposes, each of the Venturers hereby recognizes and agrees
that the Joint Venture will be treated as a partnership in accordance with the
provisions of the United States Internal Revenue Code, as the same may from time
to time be amended; provided,
- 9 -
<PAGE>
however, that the filing of partnership tax returns shall not be construed to
extend the purposes of the Joint Venture or expand the obligations or
liabilities of the Venturers. The Venturers shall, by mutual agreement, file any
election permitted or required under said Internal Revenue Code (the "Code") in
confirmation of the foregoing provided, however, that the Venturers shall file
an election under Section 754 of the Code on the first federal income tax return
of the Joint Venture.
(b) The Manager shall cause to be prepared all tax returns and
statements, if any, which are required to be filed on behalf of the Joint
Venture with the appropriate taxing authorities. Such returns and statements
shall be submitted to the Venturers for their approval prior to filing, and,
when approved by the Venturers, shall be filed promptly. The Venturers agree not
unreasonably to withhold or delay approval of tax returns.
10. Division of Profits.
-------------------
(a) Profits or losses of the Joint Venture shall be allocated to
the capital accounts of the Venturers in proportion to their respective
ownership interests. All tax and other items separately allocated shall be
allocated in proportion to aggregate profit or loss.
(b) The Profits of the Joint Venture shall be distributed to
the Venturers in the discretion of the Board of Managers. All distributions
shall be in proportion to capital account balances. Either Venturer may require,
to the extent that cash is available, that a distribution shall be made to each
of the Venturers in an amount at least sufficient to pay estimated Federal and
State income taxes on the taxable income of the Joint Venture, assuming each
Venturer to be subject to such taxes at the maximum applicable effective rate,
net, in the case of Federal taxes, of the benefit of the deduction of State
taxes.
- 10 -
<PAGE>
Further, if combined capital accounts of the Venturers exceed $1,000,000, either
Venturer may require, to the extent of available cash, a distribution to the
Venturers of an amount not more than the amount by which such combined capital
accounts exceed $1,000,000.
(c) As used herein, the term "Profits" shall mean the total
amount of funds of the Joint Venture:
- - - after payment of (i) all Venture Costs and any other costs and charges
-------------
incurred in the performance of the Project; (ii) all other costs and
charges provided in this Agreement to be paid or borne by the Joint
Venture theretofore due and payable; and (iii) any and all liens and
claims against the Project or the Joint Venture (unless covered by
insurance and being defended, without reservation of right, by the
insurer or unless the parties agree in good faith to contest the same
and maintain an adequate reserve therefor as set forth below);
- - - and after the retention of adequate and reasonable reserves for (iv)
--------------------------
any liens or claims which either have been brought against the Project
or the Joint Venture and not paid or covered by insurance (but
contested as provided above) or which are reasonably anticipated by the
Venturers to be brought and for (v) all other monetary obligations of
the Joint Venture or the Venturers on its behalf not then due and
payable, including a cash reserve approximately equal to an average one
month's operating expenses of the Joint Venture; and
- - - after repayment to the Venturers of (vi) all sums advanced by the
-----------------------------------
Venturers for working capital, as adjusted for defaults as provided in
Section 5 hereof, including repayment of advances (and interest
thereon) made by a Non-Defaulting Party.
- 11 -
<PAGE>
Any reserves, when no longer required, or so much thereof as shall remain, shall
be distributed to the Venturers in the amount of their respective Proportionate
Shares. This obligation shall survive the Completion of the Project.
11. Sharing of Losses and Operating Deficit.
---------------------------------------
(a) If the cost of performance of the Project from time to time
exceeds available cash from the sale of Product and working capital or if there
are insufficient funds, at any time, to meet accrued obligations of the Joint
Venture or the Venturers acting on its behalf ("Operating Deficit") or if, upon
Completion of the Project there are insufficient funds to make the payments and
reservations set forth in Section 10(i), (ii), (iii), (iv) and (v) ("Loss" or
"Losses"), the Venturers shall be obligated to make additional contributions of
cash or otherwise satisfy claims and obligations in the amount of their
respective Proportionate Shares of the Operating Deficit or Loss, as the case
may be. The liability of the Venturers for Losses shall continue with respect to
any claims which at any time, either before or after the Completion of the
Project, shall be made against them or either of them or the Joint Venture by
reason of the Joint Venture or the Project or this Agreement.
(b) Any deficit in the account of a Venturer by reason of its
failure to contribute its required proportion of the Operating Deficit or Loss
shall be subject to the provisions of Section 5 as a failure to contribute
working capital.
12. Insolvency. In the event a Venturer shall institute proceedings or
----------
consent to proceedings requesting relief or an arrangement under the Federal
Bankruptcy Code or any similar or applicable federal or state law; or if a
petition under any federal or state bankruptcy or insolvency law is filed
against a Venturer and such petition is not dismissed
- 12 -
<PAGE>
within sixty (60) days from the date of said filing; or if a Venturer admits in
writing its inability to pay its debts generally as they become due; or if a
Venturer makes a general assignment for the benefit of its creditors; or if a
receiver, liquidator, trustee or assignee is appointed on account of its
bankruptcy or insolvency; or if a receiver of all or any substantial portion of
a Venturer's properties is appointed; or if a Venturer fails to perform promptly
and diligently its obligations under this Agreement; or if a Venturer is a
Defaulting Party and payments are made on its behalf under Section 5; then, from
and after the date of such event, such Venturer shall cease to have any voice in
the management of the Joint Venture and the Project and all acts, consents, and
decisions with respect to the Joint Venture and the Project shall thereafter be
taken solely by the other Venturer. The Venturer thus prohibited shall, however,
remain liable for its Proportionate Share of Losses, Operating Deficits and
liability for obligations of the Joint Venture, including those arising or
accruing after the date of such prohibition.
13. Assignment. Neither this Agreement nor any interest of a Venturer
----------
herein (including any interest in the Property of the Joint Venture) may be
assigned, pledged, transferred, or hypothecated, without the prior written
consent of the other Venturer.
14. Rights of First Purchase.
------------------------
(a) In the event of termination pursuant to Section 15, the
terminating Venturer ("Offeror") shall offer in writing to sell its interest in
the Venture (the "Offered Interest") to the other Venturer ("Offeree") as
hereinafter provided. The written offer to sell shall state the terms and
conditions of the proposed sale.
- 13 -
<PAGE>
(b) Upon receipt of such written notice and offer, the Offeree
shall, within a period of ten (10) business days thereafter, give notice in
writing to the Offeror of its election to negotiate for the purchase of the
Offered Interest. Thereafter, for a period not to exceed 45 days after such
notice by the Offeree, the parties shall proceed to negotiate in good faith for
the purchase of the Offered Interest.
(c) If the Offeree shall have elected not to negotiate, or if
the parties shall have been unable to reach agreement within the 45 day period
specified in subsection (b) hereof, then if the dispute between the parties
relates to valuation, the issue of valuation shall be determined by arbitration
in the City of Boston pursuant to the Rules for Commercial Arbitration of the
American Arbitration Association. Valuation, as so determined, shall be binding
upon the parties for all purposes. If the dispute is other than as to valuation,
or if the Offeree declines to purchase based upon the value determined by
arbitration, then the Venture shall be liquidated.
(d) Nothing herein shall prevent any of the Venturers hereto from
selling or otherwise transferring its entire interest, or any portion thereof,
in this Agreement, and the Venture to its subsidiaries, affiliates, or parent
(including a corporate or individual majority shareholder), provided that such
transferee shall expressly assume and agree to be bound by all the terms and
conditions of this Agreement.
(e) It is hereby expressly agreed that upon any sale, assignment,
transfer, mortgage, pledge, lease or other disposition of any Venturer's
interest herein, including a judicial or involuntary sale or transfer, or a
transfer by operation of law, the purchaser or transferee shall be bound by all
of the terms and conditions of this Agreement, and by
- 14 -
<PAGE>
acceptance of any such transfer shall be deemed to have assumed and agreed to be
so bound, and will on request of the Venture execute an instrument in writing to
that effect.
15. Voluntary Termination. This Agreement may be terminated at any
---------------------
time by the mutual agreement of the Venturers, or by either venturer on sixty
(60) days written notice.
16. Liquidation Procedures.
----------------------
(a) Upon failure of negotiation as provided in Section 14, or if
all Venturers otherwise wish to terminate this Agreement, (i) a final accounting
shall be prepared by the Manager; (ii) all liabilities and obligations of the
Joint Venture shall be discharged; and (iii) the Property of the Joint Venture
and other assets of the Venture shall be distributed to the Venturer(s) as
herein provided; provided, however, that in order to effect distribution, all or
any portion of the Property of the Joint Venture and other assets of the Joint
Venture may by agreement of the Venturers be sold and the proceeds thereof
distributed in accordance with the foregoing.
(b) (i) In no event shall a termination or liquidation of the
Joint Venture terminate the LVC License Agreement. In the event of
termination or liquidation, the provisions of the License Agreement
shall cover the rights to the Technology which is subject to it.
(ii) Upon liquidation, the Technology shall be distributed in
kind to the Venturers, who shall own it jointly, subject to the rights
of LVC pursuant to the License Agreement. Any net proceeds from
licensing the Technology shall be divided between the former Venturers
in proportion to their respective Proportionate Shares immediately
prior to liquidation.
- 15 -
<PAGE>
(iii) Where a former Venturer exploits the Technology
directly (i.e., without licensing), proceeds of exploitation of the
----
Technology shall be deemed to be two and one-half percent (2 1/2%) of
the revenues recognized in accordance with generally accepted
accounting principles for the subject line of business before interest,
taxes, depreciation and amortization.
(c) Any remaining assets shall be distributed to the Venturers in
proportion to their Proportionate Shares.
17. Indemnity. Except as provided herein, in the event any claims are
---------
made or asserted against any Venturer or any parent, subsidiary or affiliate of
a Venturer by reason of the execution of any agreements, guarantees, or other
obligations assumed or guaranteed for or on behalf of the Joint Venture, and
approved by the Joint Venture, the Joint Venture shall defend said claims and be
responsible for the payment thereof, as well as otherwise indemnify and hold
said Venturer, its parent, subsidiary or affiliate harmless from any loss, cost
or expense incurred by it or them, or any of them, with respect thereto. All of
the assets of the Joint Venture shall be available to discharge any claims so
asserted against any of the Venturers, their parents, subsidiaries or
affiliates, or any of them, in accordance with the foregoing.
18. General.
-------
18.1 Further Cooperation. The Venturers hereto agree to execute and
-------------------
furnish any and all papers and documents which may reasonably be necessary to
carry out the terms of this Agreement and to further the interests of the Joint
Venture, including, without limitation, any financial statements, corporate
resolutions, and other documentation and information as
- 16 -
<PAGE>
may be required by depositories of funds of the Joint Venture by insurers and by
lenders or as may be required under the License Agreement or Procurement
Agreement or in aid or defense of patents.
18.2 Entire Agreement. All exhibits and schedules hereto shall be
----------------
deemed to be incorporated into and made part of this Agreement. This Agreement,
together with the exhibits and schedules hereto, contains the entire agreement
among the parties and there are no agreements, representations, or warranties
which are not set forth herein. This Agreement may not be amended or revised
except by a writing signed by all parties hereto.
18.3 Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of the parties hereto and their respective successors and assigns;
provided, however, that, except as expressly provided herein, this Agreement and
all rights hereunder may not be assigned by any party hereto except by written
consent of the other parties hereto.
18.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.
18.5 Notices. All notices, request, demands and other communications
-------
required hereunder shall be in writing and shall be deemed to have been duly
given or made if delivered personally, sent by facsimile transmission or telex
confirmed in writing within two (2) business days, or sent by registered or
certified mail, postage prepaid, as follows:
- 17 -
<PAGE>
If to LVC:
LoJack Venture Corporation Corporation
Norfolk Place
333 Elm Street
Dedham, MA 02026
Attention: C. Michael Daley, President
With a copy to:
Thomas A. Wooters, Esquire
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
If to Micrologic:
Micrologic, Inc.
78 Fourth Avenue
Waltham, MA 02154
Attention: Sheldon Apsell
Any Venturer may change the address to which such communications are to be sent
to it by giving written notice of change of address to the other party in the
manner provided above for giving notice.
18.6 Provisions Separable. The provisions of this Agreement are
--------------------
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
18.7 Captions. The captions herein have been inserted solely for
--------
convenience of reference and in no way define, limit or describe the scope or
substance of any provision of this Agreement.
- 18 -
<PAGE>
18.8 Construction. The Venturers acknowledge that each Venturer and its
------------
counsel have reviewed and revised this Agreement and that the normal rules of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments or exhibits hereto.
18.9 Delays or Omissions. Any waiver, permit, consent or approval of
-------------------
any kind or character of any breach or default under this Agreement, or any
waiver of any provision or condition of this Agreement shall be effective only
to the extent specifically set forth in writing.
18.10 Consent to Jurisdiction. Each of the Venturers hereto agrees that
-----------------------
any suit, action or proceeding instituted against such party under or in
connection with this Agreement shall be brought exclusively in a court of
competent jurisdiction of the Commonwealth of Massachusetts. By execution
hereof, each Venturer hereto irrevocably waives any objection to, and any right
of immunity on the grounds of, improper venue, the convenience of the forum, the
personal jurisdiction of such courts or the execution of judgments resulting
therefrom. Each Venturer hereto hereby irrevocably accepts and submits to the
exclusive jurisdiction of such courts in any such action, suit or proceeding.
18.11 Governing Law. The execution, interpretation, and performance of
-------------
this Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
18.12 Assumed Name Certificate: The Venturers shall execute any assumed
------------------------
or fictitious name certificate or certificates required by law to be filed in
connection with the formation of the Joint Venture and shall cause such
certificate or certificates to be filed in the appropriate offices as required
by law.
- 19 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as an instrument under seal by its officer
thereunto duly authorized as of the date first above written.
LoJack Venture Corporation
By: /s/ Joseph F. Abely
---------------------------------
Joseph F. Abely
Title: President
Micrologic, Inc.
By: /s/ Sheldon Apsell
---------------------------------
Sheldon Apsell
Title: President
- 20 -
<PAGE>
EXHIBIT B
LICENSE AGREEMENT
-----------------
License Agreement (the "Agreement"), between SCT Development Venture, a
joint venture (the "Venture") of LoJack Venture Corporation and Micrologic, Inc.
("Micrologic"), and LoJack Corporation, a Massachusetts corporation having its
principal place of business at Norfolk Place, 333 Elm Street, Dedham,
Massachusetts (hereinafter "LoJack"), with respect to certain proprietary rights
and certain patents that have been registered or are being registered with the
Patent and Trademark Office of the United States of America. The parties agree
as follows:
I. DEFINITIONS:
-----------
Field means all aspects of stolen Vehicle recovery systems and Vehicle
-----
security systems, and any product or system in any way utilizing or operating on
LoJack's Sector Activation System as it now or hereafter may be operated.
Licensed Rights mean the LJU-III Patents and the LJU-III Proprietary
---------------
Information.
LJU-III Patents. All patents now or hereafter during the term of this
---------------
Agreement held by the Venture relating to LJU-III.
LJU-III Products include all products manufactured or distributed in any
----------------
way utilizing or operating on LoJack's Sector Activation System as it is now or
hereafter may be operated by LoJack, including third-generation LoJack Units for
installation in consumer vehicles.
LJU-III Proprietary Information means all unpatented proprietary
-------------------------------
information of the Venture, including design details and operating
characteristics, information relating to installation, and all other things
treated as confidential by the Venture or not generally
-21-
<PAGE>
known, including all related software, file structures, documentation,
algorithms and related software concepts, and all aspects of the Registration
System, except as otherwise provided herein.
LoJack System means the system for locating and recovering stolen motor
-------------
vehicles utilizing a computerized transceiver located in the vehicle (the
"LoJack Unit"), a terrestrial radio system for activating the LoJack Unit after
report of the theft (the "Sector Activation System"), and method of assigning
code numbers (the "Registration System") and a directional tracking unit
designed for installation in police vehicles (the "LoJack Tracking Computer").
Territory means, subject to Article VII, Section 4, anywhere in the world.
---------
Vehicle means passenger motor vehicles, trucks, vans, motorcycles,
-------
tractors, trailers, buses, motorized construction equipment, aircraft and water
craft.
II. LICENSE GRANTS:
--------------
1. PATENT AND PROPRIETARY INFORMATION LICENSE
------------------------------------------
1. For the term of this Agreement and within the Territory, the
Venture grants to LoJack and its distributors and licensees, subject to all
terms and conditions set forth in this Agreement, the exclusive right, with the
right to sublicense, within the Field to make, use and sell LJU-III Products
within the scope of the LJU-III Patents and the LJU-III Proprietary Information,
provided, however, that LoJack's right to sublicense manufacture shall be
limited to subcontractors manufacturing for LoJack, and shall not authorize
distributors or licensees to manufacture. Initially, the Venture shall be
responsible to manufacture, or select the manufacturer of, the LJU-III. LoJack
shall have the right to
-22-
<PAGE>
approve the manufacturer, the specifications, and the terms of the contract,
which approval shall not unreasonably be withheld or delayed. The Venture shall
sell LJU-III units it manufactures or has manufactured to LoJack at its direct
cost. The Venturers responsibility for and right to manufacture or contract for
manufacturing LJU-III units shall be limited to the first 100,000 units. If
earlier, such responsibility and right shall terminate one year after
manufacturing commences, in the event of the termination of the Venture, or upon
failure of the Venture to commence manufacturing.
2. For the term of this Agreement and within the Territory, the Venture
grants to LoJack and its distributors and licensees, subject to all terms and
conditions set forth in this Agreement, the right, co-terminous and coextensive
with the rights granted to LoJack herein, to sublicense the LJU-III Patents and
the LJU-III Proprietary Information, provided, however, that LoJack may
sublicense manufacturing only for the use of and sale by LoJack and not for sale
to third parties.
3. To the extent that any intellectual property developed by the Venture
constitutes an improvement to inventions encompassed by patents owned by LoJack
Corporation, such property hereby is assigned to LoJack, and LoJack shall have
the right to file patents on and to own such improvements. The filing or
granting of such patents shall not affect royalty or other obligations of LoJack
pursuant to this Agreement.
III. LIMITATIONS AND USE:
-------------------
1. USE OF LJU-III PROPRIETARY INFORMATION. The LJU-III Proprietary
--------------------------------------
Information shall continue to be treated as Confidential by LoJack, and may be
used by
-23-
<PAGE>
LoJack only in connection with the rights granted hereunder, and with reasonable
care to assure its continued confidentiality.
2. EXTENT OF LICENSES. Subject to the limitations set forth in paragraph
------------------
II, 2, above, the licenses granted herein shall be transferable within the
Territory for use within the Field.
IV. ROYALTIES.
---------
1. In each year, LoJack shall pay to the Venture royalties based on the
sale of third-generation LoJack Units according to the following formula:
<TABLE>
<CAPTION>
UNIT VOLUME PERCENTAGE OF
WHOLESALE
PRODUCT REVENUE
RECEIVED
<S> <C>
First 99,999 Units 5%
Next 50,000 Units 4.5%
Next 50,000 Units 4%
All Additional Units 3%
</TABLE>
Such Royalties shall be payable thirty (30) days after the end of each calendar
quarter.
2. LoJack will pay to the Venture a minimum royalty of $8,333.33 per
month, commencing twelve (12) months after initial production of third-
generation LoJack Units commences. The minimum royalty shall be applicable to
the second, third, fourth and fifth years of production only, and shall
terminate after the fifth year.
3. As soon as practicable after the end of each fiscal year, LoJack shall
provide to the Venture accounting information sufficient to determine wholesale
product revenue received for the sale of LJU-III Products and royalties due. The
Venture shall have, at its
-24-
<PAGE>
own expense, the right to audit such information, on reasonable advance notice.
All accounting and financial information provided by LoJack to the Venture shall
be deemed confidential and proprietary information of LoJack Corporation.
V. OWNERSHIP OF RIGHTS. LoJack acknowledges the Venture's exclusive right,
-------------------
title and interest in and to the LJU-III Patents and the LJU-III Proprietary
Information, and will not at any time do or cause to be done any act or thing
contesting or in any way impairing or tending to impair any part of such right,
title and interest. The Venture acknowledges the LoJack's exclusive right, title
and interest in and to the intellectual property within the scope of Section II,
3, above, and will not at any time do or cause to be done any act or thing
contesting or in any way impairing or tending to impair any part of such right,
title and interest.
Each party agrees that for the term of this Agreement it shall promptly
notify the other in writing of any infringement or potential infringement of
patents owned by such other party of which it becomes aware.
VI. EXCLUSIVITY. The rights granted herein are exclusive in the Field.
-----------
VII. TERMINATION.
-----------
1. Except as specifically set forth below, the Venture shall not have the
right to terminate this Agreement at any time, for any reason, with or without
cause. In the event of a dispute between the parties, it shall be submitted to
binding arbitration under the commercial rules of the American Arbitration
Association, in Boston, Massachusetts. Both parties shall continue to perform
this Agreement pending resolution of the dispute.
-25-
<PAGE>
2. If LoJack fails, for a continuous period of sixty days or more, to pay
royalties due pursuant to this Agreement, the Venture shall have the right, on
thirty (30) days advance written notice, to terminate this Agreement in its
entirety.
3. If LoJack ceases, for a continuous period of 12 months or more, to
manufacture any LJU-III Products, the Venture shall have the right, on thirty
(30) days advance written notice, to terminate this Agreement in its entirety.
4. The Venture shall have the right to limit the territories so as to
exclude any designated country on six (6) months written notice to LoJack given
not earlier than three (3) years from the commencement of manufacturing of the
third-generation LoJack Unit, provided that LoJack shall not, directly or
through a licensee or distributor, have sold the lesser of 25,000 LJU-III units,
or units representing 2% of annual new vehicle sales, in such countries as
operate a stolen vehicle recovery system compatible with such units. The
Venture's right so to limit the Territory shall expire, and the Territory shall
be restored to include such country, if, within six (6) months of the expiration
of such notice period, the Venture a stolen vehicle recovery system operating in
such country utilizing, at least in part, the LJU-III Patents or the LJU-III
Proprietary Information. With respect to jurisdictions which operate
incompatible systems, the Venture shall not supply units adapted for use with
such system or contract for their supply unless the opportunity shall have been
offered to and declined by LoJack.
5. Upon any termination of the Venture, LoJack's rights to use the
Licensed Rights within the Field and within the Territory shall continue,
however, royalties will not be payable to the Venture. Upon any termination of
the Venture, LoJack shall pay royalties to
-26-
<PAGE>
Micrologic, Inc. in an amount equal to that percentage of the royalties which
would have been due to the Venture pursuant to this Agreement had the Venture
continued in existence which equals Micrologic.'s proportionate share in the
Venture immediately prior to its termination.
In witness whereof the parties have signed this agreement this 1st day of
December, 1995.
SCT DEVELOPMENT VENTURE
By:
MICROLOGIC, INC.
By:
------------------------
duly authorized
LOJACK VENTURE CORPORATION
By:
------------------------
duly authorized
LOJACK CORPORATION
By:
------------------------
duly authorized
-27-
<PAGE>
EXHIBIT C
LJU-III DEVELOPMENT AGREEMENT
-----------------------------
AGREEMENT made and entered into the 1st day of December, 1995, by and
between SCT Development Venture (the "Venture"), a joint venture between LoJack
Venture Corporation and Micrologic, Inc., and Micrologic, Inc., a corporation
organized and existing under the laws of the Commonwealth of Massachusetts
("Micrologic").
W I T N E S S E T H :
-------------------
WHEREAS, the business of Micrologic is to provide design, engineering and
manufacturing services for entities seeking to develop and manufacture a
product; and
WHEREAS, the Venture has a concept and design elements and specifications
for a new self-contained transponder technology using state of the art
technology; and
WHEREAS, Micrologic and the Venture desire to enter into an agreement by
which Micrologic will undertake such engineering and development for the Venture
to develop a next generation LoJack Unit (designated LJU-III) based on such
technology.
NOW, THEREFORE, in consideration of the mutual covenants expressed herein
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereby agree as follows:
I. DEFINITIONS
-----------
1.1 "Cost," as incurred by Micrologic, shall mean hours spent by
Micrologic employees directly on the Project at rates in effect on January 1,
1995, and actual out-of-pocket costs, including the cost for subcontractors and
materials directly employed on the Project.
-28-
<PAGE>
1.2 "Developed Technology" shall mean the technology resulting from the
activities and efforts of Micrologic pursuant to this Agreement.
1.3 "LoJack Patents" shall mean all United States Letters patent now owned
or hereafter acquired by LoJack Venture Corporation or its parent, LoJack
Corporation.
1.4 "Know-how" shall mean confidential information which is not generally
known to the public including knowledge, techniques, processes and inventions
owned, developed or acquired by and proprietary to the Company, relating to or
developed in connection with the LoJack System.
1.5 "LoJack Improvements" shall mean all Developed Technology which
constitutes an improvement in the technology embodied in the LoJack Patents.
1.6 "New Discoveries" shall refer to all developments, discoveries,
improvements, inventions, processes and trade secrets, whether or not tangible,
that are conceived, developed or reduced to practice, alone or jointly with
others, from the date hereof through termination of this Agreement, which relate
in any way to the Project.
1.7 "Project" shall refer to the further development by Micrologic of the
new transponder technology referred to above. Specifically, it shall refer to
the development of the LJU-III consistent with the specifications attached as
Exhibit A.
II. RESEARCH AND DEVELOPMENT SERVICES.
---------------------------------
2.1 Micrologic hereby agrees to exercise its best efforts to perform all
research and development necessary to complete the Project and to assist the
Venture in securing any patent or technology license necessary to enable the
Venture, its licensee or assignee, to commercially exploit the work product of
the Project. The parties acknowledge that the very
-29-
<PAGE>
nature of a research and development program precludes a detailed statement in
advance of the work that will be required to complete the Project but the
description, attached as Exhibit B, prepared by Micrologic, describes the work
to be performed. The parties intend that Micrologic will, under this Agreement,
develop new technology that will enable the Venture or LoJack or its designee to
produce the LJU-III and other products on or before October l, l996, complete
LJU-III testing on or before January l, l997, commence production on or before
July l, l997, and will use its best efforts to complete various aspects of the
Project on or before such dates.
2.2 Warranty. Micrologic will perform the agreed upon services using their
--------
best efforts and warrants professional workmanship and conduct. However,
Micrologic cannot and does not guarantee that any engineering or product
development effort provided by Micrologic shall result in a commercially LJU-III
product, and does not guarantee the ultimate commercial success of any developed
product, or assume any liability in connection with the development,
manufacture, distribution, or use of a product, machine, or model thereof.
Product documentation resulting from the development project shall conform to
the usual and customary standards of Micrologic.
EXCEPT AS STATED HEREIN, MICROLOGIC DISCLAIMS ALL WARRANTIES, EITHER
EXPRESSED, IMPLIED OR STATUTORY, WITH RESPECT TO ANY DEVELOPED PRODUCT, OR ANY
DEVELOPMENT OR ENGINEERING SERVICE, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ANY EXPRESS WARRANTY
STATED IN THIS AGREEMENT IS IN LIEU OF ALL OBLIGATIONS OR LIABILITIES OF
-30-
<PAGE>
MICROLOGIC FOR DAMAGES INCLUDING, BUT NOT LIMITED TO, GENERAL SPECIAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE DELIVERY, USE OR
PERFORMANCE OF THE LJU-III PRODUCT OR PRODUCT DOCUMENTATION OR ARISING FROM THE
NEGLIGENCE OF MICROLOGIC, ITS EMPLOYEES, OFFICERS, DIRECTORS, OR CONSULTANTS.
Any warranties extend solely to LoJack and all warranty claims must be
made by LoJack and not by customers or other successors or assigns of LoJack.
III. PAYMENT.
-------
The Venture agrees to pay Micrologic on a staged basis for Cost
incurred in connection with performance of the attached description of work,
with an estimated total development cost of between Six Hundred Seventy-five
Thousand Dollars ($675,000) and Eight Hundred Twenty-five Thousand Dollars
($825,000), provided, however, that the total cost of the Project as defined in
-------- -------
Paragraph 1.7 shall not exceed Eight Hundred Twenty-five Thousand Dollars
($825,000) unless specifically authorized in advance by the Venture. The Venture
agrees to pay Micrologic for costs incurred prior to the date of this Agreement
in accordance with the payment terms set forth herein.
Micrologic will deliver invoices for services and expenses at the
beginning of each calendar month for those services and expenses rendered to the
Venture in the prior calendar month. Terms of payment are net thirty (30) days
from the date of receipt of the invoice by the Venture.
IV. LIMITATIONS ON EXPENDITURES.
---------------------------
-31-
<PAGE>
4.1 Both parties understand that the Venture intends to secure Federal
income tax treatment pursuant to Internal Revenue Code Section 174 for payments
made to Micrologic under this Agreement. Accordingly, Micrologic agrees to apply
all sums received under this Agreement only to qualifying research and
experimental expenditures relating to this Project.
V. REPORTS AND RECORDS.
-------------------
5.1 Micrologic shall provide to the Venture within ten (10) days of
the end of each calendar month a report in such reasonable detail as the Venture
may require setting forth:
(a) all of its labor hours by category, material expenses,
subcontract, travel, and miscellaneous expenses relating to the Project
during such period;
(b) the work performed by Micrologic during such period pursuant
to this Agreement; and
(c) the status of the Project at the end of the period. The
estimated cost to complete.
5.2 Micrologic shall keep and maintain, in accordance with generally
accepted accounting principles and practices, proper and complete books and
records of account documenting all costs and expenses.
5.3 Micrologic immediately shall notify LoJack, in writing if:
(a) Micrologic determines that it is not feasible or practicable
to develop LJU-III consistent with the specifications attached as
Exhibit A;
(b) The cost to complete development of LJU-III will greatly
exceed prior estimates; or
-32-
<PAGE>
(c) The time required to complete the development of LJU-III
shall substantially exceed the guidelines set forth in Section 2.1,
above.
VI. OWNERSHIP, DISCLOSURE AND PATENTS.
---------------------------------
6.1 Except as provided in Subsection (c), the Venture shall have full
and exclusive right, title and interest in and to:
(a) all general and specific knowledge, know-how, experience and
information developed, acquired or conceived by Micrologic in
performing its obligations under this Agreement including, without
limitation, design features, processes, schematics, manufacturing
procedures, test procedures and parts information; and
(b) all physical manifestations or embodiments of such knowledge,
experience and information, including without limitation all documents
and writings and all copies thereof developed or made by Micrologic,
and including without limitation, all patent rights, patentable
information, patent applications, engineering and manufacturing
information, schematics, layout drawings, assembly drawings, printed
circuit patterns, specifications, parts lists, inspection procedures,
test procedures and engineering prototype models. Micrologic may retain
possession of all study models and prototypes constructed by
Micrologic.
(c) LoJack shall own and have all patent and other rights to the
LoJack Improvements.
6.2 Micrologic shall routinely or upon demand disclose in writing to
the Venture all developments, discoveries, inventions, improvements and trade
secrets, whether or not
-33-
<PAGE>
tangible, that are conceived, developed or reduced to practice alone or jointly
with others from the date hereof through termination of this Agreement which
relate in any way to the Project. Such matters are herein referred to as the
"New Discoveries."
6.3 Micrologic agrees to participate in and cooperate in the
preparation, filing and prosecution of such United States and foreign patent
applications relating to the new Discoveries as the Venture or LoJack shall
reasonably request in writing. Except as provided in paragraph 6.1 (c), above,
all such applications and patents will be owned exclusively by the Venture. All
costs and expenses incurred pursuant to this Paragraph 6.3 shall be borne by the
Venture.
6.4 Micrologic hereby assigns to the Venture all rights to all
software developed in connection with the Project and agrees to deliver all
instruments or writings reasonably requested and necessary by the Venture to
perfect its title to such software.
6.5 Within thirty (30) days of termination of this Agreement for any
reason, Micrologic will deliver to the Venture all property owned by the Venture
held by or under the control of Micrologic relating to the Project.
VII. CONFIDENTIALITY.
---------------
7.1 Micrologic agrees to keep confidential and all new discoveries and
all information relating thereto, and not to disclose the same to any third
party whatsoever and to use the same only for the purpose of performing its
obligations under this Agreement and for no purpose whatsoever following the
termination of this Agreement.
-34-
<PAGE>
7.2 Not later than thirty (30) days after the termination of this
Agreement, provided that the Venture is not in default of any of its
obligations, Micrologic shall deliver to the Venture or its designee property:
(a) furnished to Micrologic by the Venture, or
(b) developed or made by Micrologic pursuant to this Agreement,
or
(c) which embodies or reflects the New Discoveries.
Such property shall include, without limitation, all property in which
the Venture or LoJack has ownership rights pursuant to Section 6.1 above. In the
case of any such documents other than items created by Micrologic as a result of
information furnished to Micrologic by the Venture, Micrologic shall deliver a
certificate certifying that all such documents or items or all copies thereof
have been destroyed.
7.3 The provisions of this Article VII shall survive the termination
of this Agreement.
7.4 Micrologic agrees that remedies at law may be inadequate to
protect against breach of this Article VII, and Micrologic hereby consents to
the granting of injunctive relief, whether temporary, preliminary or final, in
favor of the Venture without proof of actual damages.
VIII. TECHNICAL ASSISTANCE.
--------------------
Micrologic agrees to make available to the Venture or its designee, at
reasonable times and places and on reasonable notice the services of technical
personnel to consult with, instruct and assist the Venture or its designee in
technical matters relating to the New Discoveries in particular and the LoJack
System in general, at the Venture's expense. The
-35-
<PAGE>
cost for this work is not included in previous figures of Section III and shall
be billed separately.
IX. TERMINATION.
-----------
This Agreement (other than Articles VI and VII) will terminate upon the
earliest of:
(a) completion of the Project;
(b) thirty (30) days written notice by either party; or
(c) the institution of voluntary or involuntary proceedings by
or against either party in bankruptcy or under any solvency law, or
corporate reorganization, the appointment of a receiver, or petition
for the dissolution of such party or an assignment by such party for
the benefit of creditors.
X. MISCELLANEOUS.
-------------
10.1 This Agreement sets forth and constitutes the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof, supersedes any and all prior agreements, understandings, promises and
representations made by either party to the other concerning the subject matter
hereof and the terms applicable hereto. This Agreement may not be released,
discharged, amended or modified in any manner except by and instrument in
writing signed by duly authorized officers of both parties hereto.
10.2 If any provision of this Agreement is or becomes or is deemed to
be invalid, illegal or unenforceable in any jurisdiction, such provision shall
be deemed amended to conform to applicable law so as to be valid and enforceable
or, if it cannot be so amended without materially altering the intention of the
parties, it shall be stricken and the remainder of this Agreement shall remain
in full force and effect.
-36-
<PAGE>
10.3 This Agreement shall be deemed to have been entered into and
shall be construed and enforced in accordance with the laws of the Commonwealth
of Massachusetts.
10.4 No waiver of any right under this Agreement shall be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future such right or of any other right
arising under this Agreement.
10.5 Headings contained in this Agreement are included for convenience
only and form no part of the Agreement or understanding between the parties.
10.6 Notices required and permitted hereunder shall be in writing and
shall be delivered in person or sent by registered certified mail, postage
prepaid, addressed as follows:
to the Venture:
LoJack Venture Corporation
Norfolk Place
333 Elm Street
Dedham, MA 02026
Attention: C. Michael Daley, President
to Micrologic:
Micrologic, Inc.
78 Fourth Avenue
Waltham, MA 02154
Attention: Sheldon Apsell, President
10.7 This Agreement may be executed in any number of counterparts,
each of which shall be an original and all of which shall constitute together
but one in the same document.
-37-
<PAGE>
10.8 Neither this Agreement nor any right or obligation arising
hereunder may be assigned, in whole or in part, by either party without the
prior written consent of the other party; provided, however, that the Venture
may contract with others in furtherance of the research and development to be
undertaken pursuant to this Agreement.
This Agreement shall be binding upon any assignor and, subject to the
restrictions on assignment herein set forth, shall inure to the benefit of the
successors and assigns of each of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.
ATTEST: LoJack Venture Corporation
By:
- - -------------------------- -----------------------------
ATTEST: MICROLOGIC, INC.
By:
- - -------------------------- -----------------------------
-38-
<PAGE>
EXHIBIT 10.SS
LICENSE AGREEMENT
-----------------
License Agreement (the "Agreement"), between SCT Development Venture, a
joint venture (the "Venture") of LoJack Venture Corporation and Micrologic, Inc.
("Micrologic"), and LoJack Corporation, a Massachusetts corporation having its
principal place of business at Norfolk Place, 333 Elm Street, Dedham,
Massachusetts (hereinafter "LoJack"), with respect to certain proprietary rights
and certain patents that have been registered or are being registered with the
Patent and Trademark Office of the United States of America. The parties agree
as follows:
I. DEFINITIONS:
-----------
Field means all aspects of stolen Vehicle recovery systems and Vehicle
-----
security systems, and any product or system in any way utilizing or operating on
LoJack's Sector Activation System as it now or hereafter may be operated.
Licensed Rights mean the LJU-III Patents and the LJU-III Proprietary
---------------
Information.
LJU-III Patents. All patents now or hereafter during the term of this
---------------
Agreement held by the Venture relating to LJU-III.
LJU-III Products include all products manufactured or distributed in any
----------------
way utilizing or operating on LoJack's Sector Activation System as it is now or
hereafter may be operated by LoJack, including third-generation LoJack Units for
installation in consumer vehicles.
LJU-III Proprietary Information means all unpatented proprietary
-------------------------------
information of the Venture, including design details and operating
characteristics, information relating to installation, and all other things
treated as confidential by the Venture or not generally known, including all
related software, file structures, documentation, algorithms and related
software concepts, and all aspects of the Registration System, except as
otherwise provided
<PAGE>
herein.
LoJack System means the system for locating and recovering stolen motor
-------------
vehicles utilizing a computerized transceiver located in the vehicle (the
"LoJack Unit"), a terrestrial radio system for activating the LoJack Unit after
report of the theft (the "Sector Activation System"), and method of assigning
code numbers (the "Registration System") and a directional tracking unit
designed for installation in police vehicles (the "LoJack Tracking Computer").
Territory means, subject to Article VII, Section 4, anywhere in the
---------
world.
Vehicle means passenger motor vehicles, trucks, vans, motorcycles,
-------
tractors, trailers, buses, motorized construction equipment, aircraft and water
craft.
II. LICENSE GRANTS:
--------------
1. PATENT AND PROPRIETARY INFORMATION LICENSE
------------------------------------------
1. For the term of this Agreement and within the Territory,
the Venture grants to LoJack and its distributors and licensees, subject to all
terms and conditions set forth in this Agreement, the exclusive right, with the
right to sublicense, within the Field to make, use and sell LJU-III Products
within the scope of the LJU-III Patents and the LJU-III Proprietary Information,
provided, however, that LoJack's right to sublicense manufacture shall be
limited to subcontractors manufacturing for LoJack, and shall not authorize
distributors or licensees to manufacture. Initially, the Venture shall be
responsible to manufacture, or select the manufacturer of, the LJU-III. LoJack
shall have the right to approve the manufacturer, the specifications, and the
terms of the contract, which approval shall not unreasonably be withheld or
delayed. The Venture shall sell LJU-III units it
-2-
<PAGE>
manufactures or has manufactured to LoJack at its direct cost. The Venturers
responsibility for and right to manufacture or contract for manufacturing
LJU-III units shall be limited to the first 100,000 units. If earlier, such
responsibility and right shall terminate one year after manufacturing commences,
in the event of the termination of the Venture, or upon failure of the Venture
to commence manufacturing.
2. For the term of this Agreement and within the Territory, the
Venture grants to LoJack and its distributors and licensees, subject to all
terms and conditions set forth in this Agreement, the right, co-terminous and
coextensive with the rights granted to LoJack herein, to sublicense the LJU-III
Patents and the LJU-III Proprietary Information, provided, however, that LoJack
may sublicense manufacturing only for the use of and sale by LoJack and not for
sale to third parties.
3. To the extent that any intellectual property developed by the
Venture constitutes an improvement to inventions encompassed by patents owned by
LoJack Corporation, such property hereby is assigned to LoJack, and LoJack shall
have the right to file patents on and to own such improvements. The filing or
granting of such patents shall not affect royalty or other obligations of LoJack
pursuant to this Agreement.
III. LIMITATIONS AND USE:
-------------------
1. USE OF LJU-III PROPRIETARY INFORMATION. The LJU-III Proprietary
--------------------------------------
Information shall continue to be treated as Confidential by LoJack, and may be
used by LoJack only in connection with the rights granted hereunder, and with
reasonable care to assure its continued confidentiality.
2. EXTENT OF LICENSES. Subject to the limitations set forth in
paragraph II,
-3-
<PAGE>
2, above, the licenses granted herein shall be transferable within the Territory
for use within the Field.
IV. ROYALTIES.
---------
1. In each year, LoJack shall pay to the Venture royalties based
on the sale of third-generation LoJack Units according to the following
formula:
<TABLE>
<CAPTION>
UNIT VOLUME PERCENTAGE OF
WHOLESALE
PRODUCT REVENUE
RECEIVED
<S> <C>
First 99,999 Units 5%
Next 50,000 Units 4.5%
Next 50,000 Units 4%
All Additional Units 3%
</TABLE>
Such Royalties shall be payable thirty (30) days after the end of each calendar
quarter.
2. LoJack will pay to the Venture a minimum royalty of $8,333.33
per month, commencing twelve (12) months after initial production of third-
generation LoJack Units commences. The minimum royalty shall be applicable to
the second, third, fourth and fifth years of production only, and shall
terminate after the fifth year.
3. As soon as practicable after the end of each fiscal year,
LoJack shall provide to the Venture accounting information sufficient to
determine wholesale product revenue received for the sale of LJU-III Products
and royalties due. The Venture shall have, at its own expense, the right to
audit such information, on reasonable advance notice. All accounting and
financial information provided by LoJack to the Venture shall be deemed
confidential and proprietary information of LoJack Corporation.
-4-
<PAGE>
V. OWNERSHIP OF RIGHTS. LoJack acknowledges the Venture's exclusive right,
-------------------
title and interest in and to the LJU-III Patents and the LJU-III Proprietary
Information, and will not at any time do or cause to be done any act or thing
contesting or in any way impairing or tending to impair any part of such right,
title and interest. The Venture acknowledges the LoJack's exclusive right, title
and interest in and to the intellectual property within the scope of Section II,
3, above, and will not at any time do or cause to be done any act or thing
contesting or in any way impairing or tending to impair any part of such right,
title and interest.
Each party agrees that for the term of this Agreement it shall promptly
notify the other in writing of any infringement or potential infringement of
patents owned by such other party of which it becomes aware.
VI. EXCLUSIVITY. The rights granted herein are exclusive in the Field.
-----------
VII. TERMINATION.
-----------
1. Except as specifically set forth below, the Venture shall not
have the right to terminate this Agreement at any time, for any reason, with or
without cause. In the event of a dispute between the parties, it shall be
submitted to binding arbitration under the commercial rules of the American
Arbitration Association, in Boston, Massachusetts. Both parties shall continue
to perform this Agreement pending resolution of the dispute.
2. If LoJack fails, for a continuous period of sixty days or more,
to pay royalties due pursuant to this Agreement, the Venture shall have the
right, on thirty (30) days advance written notice, to terminate this Agreement
in its entirety.
3. If LoJack ceases, for a continuous period of 12 months or more,
to
-5-
<PAGE>
manufacture any LJU-III Products, the Venture shall have the right, on thirty
(30) days advance written notice, to terminate this Agreement in its entirety.
4. The Venture shall have the right to limit the territories so as
to exclude any designated country on six (6) months written notice to LoJack
given not earlier than three (3) years from the commencement of manufacturing of
the third-generation LoJack Unit, provided that LoJack shall not, directly or
through a licensee or distributor, have sold the lesser of 25,000 LJU-III units,
or units representing 2% of annual new vehicle sales, in such countries as
operate a stolen vehicle recovery system compatible with such units. The
Venture's right so to limit the Territory shall expire, and the Territory shall
be restored to include such country, if, within six (6) months of the expiration
of such notice period, the Venture a stolen vehicle recovery system operating in
such country utilizing, at least in part, the LJU-III Patents or the LJU-III
Proprietary Information. With respect to jurisdictions which operate
incompatible systems, the Venture shall not supply units adapted for use with
such system or contract for their supply unless the opportunity shall have been
offered to and declined by LoJack.
5. Upon any termination of the Venture, LoJack's rights to use the
Licensed Rights within the Field and within the Territory shall continue,
however, royalties will not be payable to the Venture. Upon any termination of
the Venture, LoJack shall pay royalties to Micrologic, Inc. in an amount equal
to that percentage of the royalties which would have been due to the Venture
pursuant to this Agreement had the Venture continued in existence which equals
Micrologic.'s proportionate share in the Venture immediately prior to its
termination.
-6-
<PAGE>
In witness whereof the parties have signed this agreement this 1st day
of December, 1995.
SCT DEVELOPMENT VENTURE
By:
MICROLOGIC, INC.
By: /s/ Sheldon Apsell
--------------------
duly authorized
LOJACK VENTURE CORPORATION
By: /s/ Joseph F. Abely
--------------------
duly authorized
LOJACK CORPORATION
By: /s/ Joseph F. Abely
--------------------
duly authorized
-7-
<PAGE>
Exhibit 10.tt
LJU-III DEVELOPMENT AGREEMENT
-----------------------------
AGREEMENT made and entered into the 1st day of December, 1995, by and
between SCT Development Venture (the "Venture"), a joint venture between LoJack
Venture Corporation and Micrologic, Inc., and Micrologic, Inc., a corporation
organized and existing under the laws of the Commonwealth of Massachusetts
("Micrologic").
W I T N E S S E T H:
-------------------
WHEREAS, the business of Micrologic is to provide design, engineering and
manufacturing services for entities seeking to develop and manufacture a
product; and
WHEREAS, the Venture has a concept and design elements and specifications
for a new self-contained transponder technology using state of the art
technology; and
WHEREAS, Micrologic and the Venture desire to enter into an agreement by
which Micrologic will undertake such engineering and development for the Venture
to develop a next generation LoJack Unit (designated LJU-III) based on such
technology.
NOW, THEREFORE, in consideration of the mutual covenants expressed herein
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereby agree as follows:
I. DEFINITIONS
-----------
1.1 "Cost," as incurred by Micrologic, shall mean hours spent by
Micrologic employees directly on the Project at rates in effect on January 1,
1995, and actual out-of-pocket costs, including the cost for subcontractors and
materials directly employed on the Project.
<PAGE>
1.2 "Developed Technology" shall mean the technology resulting from the
activities and efforts of Micrologic pursuant to this Agreement.
1.3 "LoJack Patents" shall mean all United States Letters patent now
owned or hereafter acquired by LoJack Venture Corporation or its parent, LoJack
Corporation.
1.4 "Know-how" shall mean confidential information which is not
generally known to the public including knowledge, techniques, processes and
inventions owned, developed or acquired by and proprietary to the Company,
relating to or developed in connection with the LoJack System.
1.5 "LoJack Improvements" shall mean all Developed Technology which
constitutes an improvement in the technology embodied in the LoJack Patents.
1.6 "New Discoveries" shall refer to all developments, discoveries,
improvements, inventions, processes and trade secrets, whether or not tangible,
that are conceived, developed or reduced to practice, alone or jointly with
others, from the date hereof through termination of this Agreement, which relate
in any way to the Project.
1.7 "Project" shall refer to the further development by Micrologic of
the new transponder technology referred to above. Specifically, it shall refer
to the development of the LJU-III consistent with the specifications attached as
Exhibit A.
II. RESEARCH AND DEVELOPMENT SERVICES.
---------------------------------
2.1 Micrologic hereby agrees to exercise its best efforts to perform all
research and development necessary to complete the Project and to assist the
Venture in securing any patent or technology license necessary to enable the
Venture, its licensee or assignee, to commercially exploit the work product of
the Project. The parties acknowledge that the very
-2-
<PAGE>
nature of a research and development program precludes a detailed statement in
advance of the work that will be required to complete the Project but the
description, attached as Exhibit B, prepared by Micrologic, describes the work
to be performed. The parties intend that Micrologic will, under this Agreement,
develop new technology that will enable the Venture or LoJack or its designee to
produce the LJU-III and other products on or before October l, l996, complete
LJU-III testing on or before January l, l997, commence production on or before
July l, l997, and will use its best efforts to complete various aspects of the
Project on or before such dates.
2.2 Warranty. Micrologic will perform the agreed upon services using
--------
their best efforts and warrants professional workmanship and conduct. However,
Micrologic cannot and does not guarantee that any engineering or product
development effort provided by Micrologic shall result in a commercially LJU-III
product, and does not guarantee the ultimate commercial success of any developed
product, or assume any liability in connection with the development,
manufacture, distribution, or use of a product, machine, or model thereof.
Product documentation resulting from the development project shall conform to
the usual and customary standards of Micrologic.
EXCEPT AS STATED HEREIN, MICROLOGIC DISCLAIMS ALL WARRANTIES, EITHER
EXPRESSED, IMPLIED OR STATUTORY, WITH RESPECT TO ANY DEVELOPED PRODUCT, OR ANY
DEVELOPMENT OR ENGINEERING SERVICE, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ANY EXPRESS WARRANTY
STATED IN THIS AGREEMENT IS IN LIEU OF ALL OBLIGATIONS OR LIABILITIES OF
-3-
<PAGE>
MICROLOGIC FOR DAMAGES INCLUDING, BUT NOT LIMITED TO, GENERAL SPECIAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE DELIVERY, USE OR
PERFORMANCE OF THE LJU-III PRODUCT OR PRODUCT DOCUMENTATION OR ARISING FROM THE
NEGLIGENCE OF MICROLOGIC, ITS EMPLOYEES, OFFICERS, DIRECTORS, OR CONSULTANTS.
Any warranties extend solely to LoJack and all warranty claims must be
made by LoJack and not by customers or other successors or assigns of LoJack.
III. PAYMENT.
-------
The Venture agrees to pay Micrologic on a staged basis for Cost incurred
in connection with performance of the attached description of work, with an
estimated total development cost of between Six Hundred Seventy-five Thousand
Dollars ($675,000) and Eight Hundred Twenty-five Thousand Dollars ($825,000),
provided, however, that the total cost of the Project as defined in
- - -------- -------
Paragraph 1.7 shall not exceed Eight Hundred Twenty-five Thousand Dollars
($825,000) unless specifically authorized in advance by the Venture. The Venture
agrees to pay Micrologic for costs incurred prior to the date of this Agreement
in accordance with the payment terms set forth herein.
Micrologic will deliver invoices for services and expenses at the
beginning of each calendar month for those services and expenses rendered to the
Venture in the prior calendar month. Terms of payment are net thirty (30) days
from the date of receipt of the invoice by the Venture.
IV. LIMITATIONS ON EXPENDITURES.
---------------------------
4.1 Both parties understand that the Venture intends to secure Federal
income tax
-4-
<PAGE>
treatment pursuant to Internal Revenue Code Section 174 for payments made to
Micrologic under this Agreement. Accordingly, Micrologic agrees to apply all
sums received under this Agreement only to qualifying research and experimental
expenditures relating to this Project.
V. REPORTS AND RECORDS.
-------------------
5.1 Micrologic shall provide to the Venture within ten (10) days of the
end of each calendar month a report in such reasonable detail as the Venture may
require setting forth:
(a) all of its labor hours by category, material expenses,
subcontract, travel, and miscellaneous expenses relating to the Project
during such period;
(b) the work performed by Micrologic during such period pursuant
to this Agreement; and
(c) the status of the Project at the end of the period. The
estimated cost to complete.
5.2 Micrologic shall keep and maintain, in accordance with generally
accepted accounting principles and practices, proper and complete books and
records of account documenting all costs and expenses.
5.3 Micrologic immediately shall notify LoJack, in writing if:
(a) Micrologic determines that it is not feasible or practicable
to develop LJU-III consistent with the specifications attached as
Exhibit A;
(b) The cost to complete development of LJU-III will greatly
exceed prior estimates; or
(c) The time required to complete the development of LJU-III shall
substantially exceed the guidelines set forth in Section 2.1, above.
-5-
<PAGE>
VI. OWNERSHIP, DISCLOSURE AND PATENTS.
---------------------------------
6.1 Except as provided in Subsection (c), the Venture shall have full
and exclusive right, title and interest in and to:
(a) all general and specific knowledge, know-how, experience and
information developed, acquired or conceived by Micrologic in performing
its obligations under this Agreement including, without limitation, design
features, processes, schematics, manufacturing procedures, test procedures
and parts information; and
(b) all physical manifestations or embodiments of such knowledge,
experience and information, including without limitation all documents and
writings and all copies thereof developed or made by Micrologic, and
including without limitation, all patent rights, patentable information,
patent applications, engineering and manufacturing information,
schematics, layout drawings, assembly drawings, printed circuit patterns,
specifications, parts lists, inspection procedures, test procedures and
engineering prototype models. Micrologic may retain possession of all
study models and prototypes constructed by Micrologic.
(c) LoJack shall own and have all patent and other rights to the
LoJack Improvements.
6.2 Micrologic shall routinely or upon demand disclose in writing to the
Venture all developments, discoveries, inventions, improvements and trade
secrets, whether or not tangible, that are conceived, developed or reduced to
practice alone or jointly with others
-6-
<PAGE>
from the date hereof through termination of this Agreement which relate in any
way to the Project. Such matters are herein referred to as the "New
Discoveries."
6.3 Micrologic agrees to participate in and cooperate in the
preparation, filing and prosecution of such United States and foreign patent
applications relating to the new Discoveries as the Venture or LoJack shall
reasonably request in writing. Except as provided in paragraph 6.1 (c), above,
all such applications and patents will be owned exclusively by the Venture. All
costs and expenses incurred pursuant to this Paragraph 6.3 shall be borne by the
Venture.
6.4 Micrologic hereby assigns to the Venture all rights to all software
developed in connection with the Project and agrees to deliver all instruments
or writings reasonably requested and necessary by the Venture to perfect its
title to such software.
6.5 Within thirty (30) days of termination of this Agreement for any
reason, Micrologic will deliver to the Venture all property owned by the Venture
held by or under the control of Micrologic relating to the Project.
VII. CONFIDENTIALITY.
---------------
7.1 Micrologic agrees to keep confidential and all new discoveries and
all information relating thereto, and not to disclose the same to any third
party whatsoever and to use the same only for the purpose of performing its
obligations under this Agreement and for no purpose whatsoever following the
termination of this Agreement.
7.2 Not later than thirty (30) days after the termination of this
Agreement, provided that the Venture is not in default of any of its
obligations, Micrologic shall deliver to the Venture or its designee property:
-7-
<PAGE>
(a) furnished to Micrologic by the Venture, or
(b) developed or made by Micrologic pursuant to this Agreement, or
(c) which embodies or reflects the New Discoveries.
Such property shall include, without limitation, all property in which the
Venture or LoJack has ownership rights pursuant to Section 6.1 above. In the
case of any such documents other than items created by Micrologic as a result of
information furnished to Micrologic by the Venture, Micrologic shall deliver a
certificate certifying that all such documents or items or all copies thereof
have been destroyed.
7.3 The provisions of this Article VII shall survive the termination of
this Agreement.
7.4 Micrologic agrees that remedies at law may be inadequate to protect
against breach of this Article VII, and Micrologic hereby consents to the
granting of injunctive relief, whether temporary, preliminary or final, in favor
of the Venture without proof of actual damages.
VIII. TECHNICAL ASSISTANCE.
--------------------
Micrologic agrees to make available to the Venture or its designee, at
reasonable times and places and on reasonable notice the services of technical
personnel to consult with, instruct and assist the Venture or its designee in
technical matters relating to the New Discoveries in particular and the LoJack
System in general, at the Venture's expense. The cost for this work is not
included in previous figures of Section III and shall be billed separately.
-8-
<PAGE>
IX. TERMINATION.
-----------
This Agreement (other than Articles VI and VII) will terminate upon the
earliest of:
(a) completion of the Project;
(b) thirty (30) days written notice by either party; or
(c) the institution of voluntary or involuntary proceedings by or
against either party in bankruptcy or under any solvency law, or corporate
reorganization, the appointment of a receiver, or petition for the
dissolution of such party or an assignment by such party for the benefit
of creditors.
X. MISCELLANEOUS.
-------------
10.1 This Agreement sets forth and constitutes the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof, supersedes any and all prior agreements, understandings, promises and
representations made by either party to the other concerning the subject matter
hereof and the terms applicable hereto. This Agreement may not be released,
discharged, amended or modified in any manner except by and instrument in
writing signed by duly authorized officers of both parties hereto.
10.2 If any provision of this Agreement is or becomes or is deemed to be
invalid, illegal or unenforceable in any jurisdiction, such provision shall be
deemed amended to conform to applicable law so as to be valid and enforceable
or, if it cannot be so amended without materially altering the intention of the
parties, it shall be stricken and the remainder of this Agreement shall remain
in full force and effect.
10.3 This Agreement shall be deemed to have been entered into and shall
be construed and enforced in accordance with the laws of the Commonwealth of
Massachusetts.
-9-
<PAGE>
10.4 No waiver of any right under this Agreement shall be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future such right or of any other right
arising under this Agreement.
10.5 Headings contained in this Agreement are included for convenience
only and form no part of the Agreement or understanding between the parties.
10.6 Notices required and permitted hereunder shall be in writing and
shall be delivered in person or sent by registered certified mail, postage
prepaid, addressed as follows:
to the Venture:
LoJack Venture Corporation
Norfolk Place
333 Elm Street
Dedham, MA 02026
Attention: C. Michael Daley, President
to Micrologic:
Micrologic, Inc.
78 Fourth Avenue
Waltham, MA 02154
Attention: Sheldon Apsell, President
10.7 This Agreement may be executed in any number of counterparts, each
of which shall be an original and all of which shall constitute together but one
in the same document.
10.8 Neither this Agreement nor any right or obligation arising hereunder
may be assigned, in whole or in part, by either party without the prior written
consent of the other
-10-
<PAGE>
party; provided, however, that the Venture may contract with others in
furtherance of the research and development to be undertaken pursuant to this
Agreement.
This Agreement shall be binding upon any assignor and, subject to the
restrictions on assignment herein set forth, shall inure to the benefit of the
successors and assigns of each of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
ATTEST: LoJack Venture Corporation
By: /s/ Joseph F. Abely
- - -------------------------- -----------------------------
ATTEST: MICROLOGIC, INC.
By: /s/ Sheldon Apsell
- - -------------------------- -----------------------------
-11-
<PAGE>
Exhibit 11
Page 1 of 3
LOJACK CORPORATION AND SUBSIDIARIES
PRIMARY EARNINGS PER SHARE
COMPUTATION FOR STATEMENT OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Reconciliation of net income applicable to common
stockholders per statement of operations to amount
used in primary earnings per share computation:
Income before preferred dividend $ 8,180,198 $ 11,978,036 $ 3,837,738
Preferred dividend (425,563)
------------- ------------- -------------
Net income applicable to common
stockholders, as adjusted $ 8,180,198 $ 11,978,036 $ 3,412,175
============= ============= =============
Reconciliation of weighted average number of
common shares outstanding to amount used in
primary earnings per share computation:
Weighted average number of shares
outstanding 21,176,205 21,544,346 19,660,496
Shares issuable from assumed exercise of
options and warrants using treasury stock
method 1,378,258 1,669,268 993,375
Dilutive effect of exercised options and
warrants outstanding during the year 14,716 71,070 12,186
------------- ------------- -------------
Weighted average number of common shares
outstanding, as adjusted 22,569,179 23,284,684 20,666,057
============= ============= =============
Primary earnings per share $ 0.36 (b) $ 0.51 (b) $ 0.16 (b)
============= ============= =============
</TABLE>
<PAGE>
Exhibit 11
Page 2 of 3
LOJACK CORPORATION AND SUBSIDIARIES
COMPUTATION FOR STATEMENT OF OPERATIONS
FULLY DILUTED EARNINGS PER SHARE
YEARS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net income applicable to common stockholders,
as adjusted per primary computation $ 8,180,198 $11,978,036 $ 3,412,175
=========== =========== ===========
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 common shares
outstanding, as adjusted per primary
calculation 22,569,179 23,284,684 20,666,057
Additional dilutive effect from the assumed
exercise of options and warrants using the
treasury stock method 42,363 59,503 407,670
Additional dilutive effect of exercised options
and warrants outstanding during the year 793 1,834 36,910
----------- ----------- -----------
Weighted average number of common shares
outstanding, as adjusted 22,612,335 23,346,021 21,110,637
=========== =========== ===========
Fully diluted earnings per share $ 0.36 (b) $ 0.51 (b) $ 0.16 (b)
=========== =========== ===========
</TABLE>
<PAGE>
Exhibit 11
Page 3 of 3
LOJACK CORPORATION AND SUBSIDIARIES
ADDITIONAL FULLY DILUTED COMPUTATION (c)
YEARS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Additional adjustment to net income,
as adjusted, per fully diluted computation above:
Income applicable to common stockholders, as
adjusted, per fully diluted computation above $ 8,180,198 $ 11,978,036 $ 3,412,175
Interest on 10% convertible subordinated
debentures, net of tax effect (a) 3,867
Dividend on 10% convertible preferred stock 425,563
------------ ------------ ------------
Income applicable to common stockholders,
as adjusted $ 8,180,198 $ 11,981,903 $ 3,837,738
============ ============ ============
Additional adjustment to weighted average
number of shares outstanding, as adjusted:
Weighted average number of common shares
outstanding, as adjusted, per fully diluted
computation above 22,612,335 23,346,021 21,110,637
Effect of assumed conversion of 10%
convertible subordinated debentures 9,569 23,506
Effect of assumed conversion of 10%
convertible preferred stock 999,584
------------ ------------ ------------
Weighted average number of common shares
outstanding, as adjusted 22,612,335 23,355,590 22,133,727
============ ============ ============
Fully diluted earnings per share $ 0.36 (b) $ 0.51 (b) $ 0.17 (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 and 7.1% for fiscal 1995. 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
[INSET PICTURE OF ___________ APPEARS HERE]
[PHOTOGRAPH OF 3 LANE HIGHWAY APPEARS HERE]
1997
Annual
Report
[LOGO OF LOJACK CORPORATION APPEARS HERE]
<PAGE>
- - --------------------------------------------------------------------------------
[TRAFFIC PICTURE APPEARS HERE] 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: California,
Connecticut, District of Columbia, Florida, Georgia, Illinois, Maryland,
Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Rhode Island,
Texas, and Virginia.
International licensees are operating stolen vehicle recovery systems using
LoJack's technology in the following countries: Argentina, Colombia, Czech
Republic, Ecuador, Greece, Hong Kong, Kenya, Korea, Panama, Russia, Slovak
Republic, South Africa, Tobago and Trinidad, United Kingdom, and Venezuela.
[LOGO OF LOJACK CORPORATION APPEARS HERE]
LoJack
Stolen Vehicle
Police Recovery Network
[PICTURE OF A RADIO TOWER APPEARS HERE] [PICTURE OF A LOJACK UNIT APPEARS HERE]
1 After you report your car theft to 2 The LOJACK UNIT randomly hidden in
police, a signal from a RADIO TOWER your car broadcasts a silent, coded
activates the LoJack in your car. signal to police.
The problem of vehicle
theft has escalated to an
epidemic level - estimated to
result in an annual loss of
almost $8 billion.
[PICTURE OF LOJACK POLICE TRACKING [PICTURE OF POLICEMAN APPEARS HERE]
COMPUTER APPEARS HERE]
3 The LOJACK POLICE TRACKING COMPUTER 4 Leads police directly to it.
receives the LoJack signal,
identifies your car and. . .
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,
markdowns or commission and may not necessarily reflect actual transactions.
LoJack's fiscal year ends on the last day of February.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal 1996
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
Fiscal 1997
First Quarter 14 1/8 9 1/8
Second Quarter 14 1/8 9 1/4
Third Quarter 11 9/16 9 1/4
Fourth Quarter 11 5/16 9 1/4
</TABLE>
On May 12, 1997, there were 4,300 record holders of the Company's Common Stock.
The Company believes the actual number of beneficial owners of shares of the
Common Stock is approximately 28,000 because a large number of the shares are
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 or to repurchase
shares of its Common Stock. The Company's loan agreement with a bank permits the
payment of dividends so long as such payment does not cause noncompliance with
certain loan covenants.
1
<PAGE>
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[TRAFFIC PICTURE APPEARS HERE] Letter To Shareholders
- - --------------------------------------------------------------------------------
Overview
I recently had the opportunity to visit our licensees of the LoJack
Technology in Argentina and South Africa. My visits to these distant parts of
the world, and my observations of the exciting and intense start-up efforts
experienced by these two licensees provided me an opportunity to reflect on the
incredible progress and success that LoJack Corporation has achieved. Over the
past eleven years we have built a strong foundation for the LoJack Technology
that sets the stage for our continued growth into the future. We produced
revenues of over $61 million during our fiscal year ended February 28, 1997
("Fiscal 1997"). More importantly, this past year we continued to invest in
establishing our Stolen Vehicle Recovery Network, which today includes fourteen
states, plus the District of Columbia. In addition, our licensees presently
operate the LoJack Technology in 15 foreign countries.
It gives me great pleasure to outline for you our accomplishments over the
past year and to give some insights into our future plans. We produced solid
financial results while completing domestic expansion to Maryland, Pennsylvania
and Texas, with additional expansions within the existing states of California
and Florida. On the international front, we extended our coverage to include
South Africa, Korea, Kenya and Panama. It is of equal importance to recognize
that our research and development efforts have produced efficiencies in our
technology which provide us the opportunity to expand coverage on an
economically feasible basis to a broader geographic area than was originally
planned. We are also nearing completion of the development of the LJU III
product, a self-powered version of the LoJack Unit, which we hope will be the
catalyst for expansion into the fleet, rental and commercial markets. We believe
that this product and our enhanced geographic coverage represent significant
opportunities for the company's continued growth.
Fiscal 1997 Results
For fiscal 1997, revenues increased 17% to $61,665,000, compared to
$52,616,000 a year ago. Operating income for fiscal 1997 was $11,920,000, an
increase of 39% over $8,605,000 in fiscal 1996. Net income was $8,180,000, or
$.36 per share. Fiscal 1996's net income of $11,978,000, or $.51 per share,
included a non-recurring credit for income taxes of $2,654,000. The company's
effective tax rate for fiscal 1997 was reported on a fully taxed basis of 39%,
compared with a net tax benefit of 19% a year ago. Pro forma net income for
fiscal 1996 would have been $6,129,000, or $.26 per share, had taxes been
calculated at the fully taxed rate of 39%.
[PHOTOGRAPH OF C. MICHAEL DALEY APPEARS HERE]
The increase in our revenues reflects a $5,265,000, or 119%, increase in
revenues from our international licensing activities, and a $3,884,000, or 8%
increase in revenues from our domestic operations. Our overall gross margin, as
a percentage of revenues, increased to 55% from 54% a year ago. It is important
to note that domestically in fiscal 1997 there were no new markets opened. In
addition, our cost of sales and operating expenses in fiscal 1997 included costs
and expenses relating to our expansion into Maryland, Pennsylvania, and Texas,
all of which became fully operational in fiscal 1998.
We realize that the increase in our effective tax rate to a fully taxed
rate of 39% in fiscal 1997, coupled with the large tax credit in fiscal 1996,
made comparisons of the company's performance for the two years somewhat
confusing. Fortunately, in the fiscal year ending February 28, 1998 (fiscal
1998), our effective tax rate is expected to be the same as in fiscal 1997,
which should provide a more realistic comparison of our results.
In fiscal 1997, we generated $12,879,000 in cash flow from operations,
which helped enhance our already strong financial position. This strength gave
us the opportunity to undertake a stock repurchase program. Through May 12,
1997, we have repurchased 3,065,000 shares of our common stock. We believe that
this program represents a good investment and utilization of cash, and will
contribute to enhancing shareholder value.
Fiscal 1998
It is exciting to report that we are off to a very strong start in the
first two months of fiscal 1998, which we hope will be a good indication of the
potential results for the coming year.
We will be ramping up our sales in Maryland, Pennsylvania and Texas. These
markets increase the portion of the U.S. retail new car and light truck market
served by LoJack by approximately 30% over fiscal 1997. We believe that the
potential in these new markets represents a solid revenue growth opportunity for
the company in fiscal 1998.
In addition, we are undertaking over the next two years to expand into
markets contiguous to existing LoJack coverage areas as well as to markets that
have a higher incidence of auto theft. Present plans include Ohio, Delaware,
southern New Hampshire, and several key metropolitan areas such as
Tucson/Phoenix, St. Louis, Denver and northern California.
2
<PAGE>
- - --------------------------------------------------------------------------------
[TRAFFIC PICTURE APPEARS HERE] Letter To Shareholders
- - --------------------------------------------------------------------------------
In our new markets, we have improved our advertising program to include
greater frequency and more focused content and we are testing other media in
addition to our traditional drive time radio format. We have evaluated and are
improving our sales organizations in several markets and have strengthened our
training program. We believe that these changes will improve our sales results
over the coming year.
Internationally, our licensee in South Africa commenced operations during
the third quarter of fiscal 1997, and our licensees in Korea and Kenya have
commenced operations in the first quarter of fiscal 1998. Of note, affiliates of
licensees in South Africa and Korea, Rembrant Group and Samsung Corporation,
respectively, both are major multinational companies. We are excited about the
potential of these markets. In addition, some of our international licensees
have arrangements with Jaguar, Fiat, Vauxhall, Mercedes Benz and BMW for the
installation of LoJack Units. Finally, we expect that growth will be healthy in
our international area with fourteen additional countries under agreement.
Licensees in Germany, Mexico, Brazil, China and several additional countries in
South America are making significant progress, with the potential for several of
them to open sometime during fiscal 1998.
As I write this letter, LJU III is going through production validation
testing, and barring any unforeseen delays, we estimate that this product could
be ready for manufacturing by year end. The LJU III is equipped with a self-
contained power supply and antenna, and will have a lower installed cost than
the current LoJack Retrieve Unit. This product will not differ functionally from
our existing product. We feel this product increases the number of potential
applications for use of the LoJack System. We will initially market the LJU III
to fleet, commercial, and car rental operators, which we feel present a growth
opportunity as well as an introduction into an underdeveloped market segment for
our system. We have also recently completed the development of a version of our
current LoJack Unit for use by the heavy equipment industry which will be ready
to market in the coming year.
We are enthusiastic about our prospects for fiscal 1998. Domestically, we
believe that the stage is set for increased growth in our existing markets, and
that new markets will start to contribute meaningful revenue growth
progressively over the course of the year. Our international licensees are
performing well, and we estimate that our growth in that area will be strong
throughout the year.
The Future
LoJack is one of the few companies in the highly fragmented automotive
aftermarket that has an established brand name and brand equity, distribution
channels, advertising presence and installation capability in most major US
markets. Now that we have attained that position, we are continually seeking
potential niche products to more effectively utilize our aftermarket
installation organization and distribution networks. We are currently evaluating
several potential research and development projects which will assist our
expansion program and growth, including technologies to increase our coverage
over a broader nationwide area. We are aggressively looking at ways to lower the
cost of our products to make them more affordable to consumers as well as
compatible for automobile manufacturers to utilize in the production line
environment.
Conclusion
It is encouraging to note that the LoJack System continues to be the only
proven technology for Stolen Vehicle Recovery in the world. A number of
competitive systems have attempted but failed to equal the success we have
achieved with our system.
The major elements of our domestic success are that our product is operated
exclusively by law enforcement and that there are no hidden charges or ongoing
monitoring fees to our customers.
Finally, a recent article in Business Week discusses an independent study
by the National Bureau of Economic Research which gives a substantial boost to
the LoJack Technology. The study suggests that there is a major deterrent effect
in the states that have the LoJack System. The study also states that there are
significant economic benefits to be realized by society as a whole as the result
of reduced auto theft due to the use of the LoJack System. The study encourages
expansion of the system and makes the suggestion that the insurance industry
should take a more aggressive interest in its growth.
On behalf of the Officers and Directors of LoJack Corporation, I would like
to express our appreciation to the many loyal and dedicated employees who are a
part of the LoJack Family. It is because of their efforts and dedication to our
mission that the Company has been so successful. I know with their continued
commitment and this unique technology we are positioned for a promising and
prosperous future.
Yours truly,
/s/ C. Michael Daley
C. Michael Daley
Chairman and Chief Executive Officer
May 12, 1997
3
<PAGE>
- - --------------------------------------------------------------------------------
[TRAFFIC PICTURE APPEARS HERE] Selected Financial Data
- - --------------------------------------------------------------------------------
The following tables set 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 28, 1997 are derived from the
consolidated financial statements of the Company which have been audited by
Deloitte & Touche LLP, independent auditors. The selected quarterly financial
data has not been audited. 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
as of and for the three years ended February 28, 1997 appearing elsewhere in
this report.
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------------
FEBRUARY 28 FEBRUARY 29 FEBRUARY 28 FEBRUARY 28 FEBRUARY 28
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 61,664,501 $ 52,516,359 $ 41,658,074 $ 30,218,584 $ 23,346,493
Cost of goods sold 27,703,963 23,966,360 20,840,184 15,301,927 12,689,495
---------- ---------- ---------- ---------- ----------
Gross margin 33,960,538 28,549,999 20,817,890 14,916,657 10,656,998
---------- ---------- ---------- ---------- ----------
Costs and expenses:
System costs and research and development 1,316,832 1,263,492 807,462 522,117 725,462
Marketing 12,943,309 11,211,501 9,277,847 6,797,677 5,747,868
General and administrative 6,283,731 5,574,757 4,870,004 4,111,385 3,750,387
Depreciation and amortization 1,496,406 1,894,933 2,294,346 1,988,916 1,807,846
---------- ---------- ---------- ---------- ----------
Total 22,040,278 19,944,683 17,249,659 13,420,095 12,031,563
---------- ---------- ---------- ---------- ----------
Operating income 11,920,260 8,605,316 3,568,231 1,496,562 (1,374,565)
Interest income (expense) and other - net 1,483,938 1,441,720 564,507 (24,529) (367,244)
---------- ---------- ---------- ---------- ----------
Income (loss) before provision for income
taxes and extraordinary item 13,404,198 10,047,036 4,132,738 1,472,033 (1,741,809)
Income tax provision (benefit) 5,224,000 (1,931,000) 295,000 79,000
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item 8,180,198 11,978,036 3,837,738 1,393,033 (1,741,809)
Extraordinary item, loss on exchange of
subordinated debentures (163,062)
---------- ---------- ---------- ---------- ----------
Net income (loss) 8,180,198 11,978,036 3,837,738 1,229,971 (1,741,809)
Preferred dividends (425,563) (1,216,500) (1,216,500)
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common
stockholders $ 8,180,198 $ 11,978,036 $ 3,412,175 $ 13,471 $ (2,958,309)
========= ========== ========== ====== ===========
Earnings per common share $ 0.36 $ 0.51 $ 0.16 $ 0.01 $ (0.23)
========= ========== ========== ====== ===========
BALANCE SHEET DATA:
Working capital $ 21,883,016 $ 33,619,366 $ 21,967,747 $ 8,006,436 $ 1,270,527
Total assets 38,165,143 53,079,437 36,694,816 21,376,486 13,559,392
Long term debt 781,817 644,218 899,246 617,662 2,384,656
Total liabilities 10,944,954 9,351,969 7,930,097 6,213,707 7,371,133
Stockholders' equity 27,220,189 43,727,468 28,764,719 15,162,779 6,188,259
</TABLE>
REVENUES AND EARNINGS BY QUARTER (UNAUDITED):
Year Ended February 28, 1997 and February 29, 1996
<TABLE>
<CAPTION>
1997 1996
First Second Third Fourth First Second Third Fourth
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 15,005,326 $ 15,909,555 $ 15,131,688 $ 15,617,932 $ 11,832,738 $ 13,490,835 $ 13,600,226 $ 13,592,560
Gross margin 8,072,908 8,858,602 8,401,214 8,627,814 6,199,714 7,361,968 7,367,039 7,621,278
Net income 1,936,290 2,360,338 1,927,555 1,956,015 1,620,785 2,245,298 2,560,264 5,551,689*
Earnings per share $ 0.08 $ 0.10 $ 0.09 $ 0.09 $ 0.07 $ 0.10 $ 0.11 $ 0.24
</TABLE>
* Included a non-recurring credit for income taxes of $2,654,000.
4
<PAGE>
[TRAFFIC PICTURE Management's Discussion and Analysis of
APPEARS HERE] 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 is
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 and used
automobile dealers.
The Company also derives 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 28, 1997 ("fiscal 1997")
vs. February 29, 1996 ("fiscal 1996")
Revenues increased by $9,149,000 or 17% in fiscal 1997 to $61,665,000 from
$52,516,000 in fiscal 1996. Revenues from domestic markets contributed
$3,884,000 of the increase and international revenues contributed $5,265,000.
The increase in domestic revenues was primarily due to increased revenues from
sales of LoJack Units and related components in existing domestic markets. The
increase in international revenues of $5,265,000 resulted primarily from an
increase in the sales and royalties of the international version of the LoJack
Unit and related products of $2,839,000 which are primarily recurring in nature,
as well as an increase in revenues from the sale of system components and
licensing fees of $2,426,000, which are primarily both non-recurring in nature
and related to new licensees.
Cost of goods sold decreased to 45% of consolidated revenues in fiscal 1997 from
46% for the same period a year earlier. Domestically cost of goods sold
decreased as a percentage of revenues to 45% in fiscal 1997 from 46% in fiscal
1996. The decrease results primarily from a decrease in the manufactured cost of
the LoJack unit as well as installation efficiencies realized from economies of
scale resulting from increased product sales. International cost of goods sold
increased to 43% of revenues in fiscal 1997 from 40% in fiscal 1996.
Systems costs and research and development expense increased by $54,000 to
$1,317,000 in fiscal 1997 from $1,263,000 in fiscal 1996. Research and
development expense increased by $2,000 to $518,000 in fiscal 1997 from $516,000
in fiscal 1996. Fiscal 1997 expense was primarily related to the ongoing
development of a third generation LoJack Unit, while fiscal 1996 research and
development expense related to modifications to the LoJack Unit for
international applications and the Police Tracking Computer. Systems costs
increased by $52,000 to $799,000 in fiscal 1997 from $747,000 in fiscal 1996 due
to an increased number of domestic markets and increased age of the LoJack
System in established markets.
Overall, marketing expenses remained at 21% of total revenues. Marketing
expenses increased by $1,731,000 to $12,943,000 in fiscal 1997 from $11,212,000
in fiscal 1996. These increases were primarily related to an increase in media
expense due to increased radio advertising in certain markets, as well as start-
up expenses (including personnel and media planning) related to expansion
activity in Maryland, Pennsylvania, and Texas. Additionally, sales and marketing
salaries and wages and other general marketing expenses increased as the result
of an increase in overall business volume.
Overall, general and administrative expenses as a percentage of revenues
decreased to 10% in fiscal 1997 as compared to 11% in fiscal 1996. General and
administrative expenses increased by $709,000 to $6,284,000 in fiscal 1997 from
$5,575,000 in fiscal 1996. These increases are primarily the result of increased
payroll costs and administrative expenses related to the increased domestic and
international
LoJack is the developer of, and owns all rights to, the LoJack System, a unique
patented system designed to assist law enforcement personnel in tracking,
locating, and recovering stolen vehicles.
5
<PAGE>
[TRAFFIC PICTURE Results Of Operations
APPEARS HERE]
volume during the year, as well as start-up expenses related to expansion
activity in Maryland, Pennsylvania and Texas.
Depreciation and amortization decreased by $399,000 as the result of LoJack
System components in certain older markets becoming fully depreciated, offset
partially by increases in depreciation related to current year additions of
computer equipment and software.
Interest and other income increased by $29,000 primarily as the result of the
increase in average cash balances related to cash flow from operations during
the first half of fiscal 1997, partially offset by the decrease in average cash
balances during the second half of fiscal 1997 related to increased activity in
the Company's stock repurchase program.
Interest expense decreased by $13,000 due to a decrease in the average capital
lease obligations outstanding in fiscal 1997 as compared to fiscal 1996.
Provision for income taxes increased by $7,155,000 for fiscal 1997 primarily as
the result of both the increase in the Company's taxable income during the
fiscal year as well as an increase in the Company's effective tax rate to 39% in
fiscal 1997. The Company had a net tax benefit of 19% for fiscal 1996 primarily
as the result of a non-recurring credit for income taxes.
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 the Police
Tracking Computer, 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 and increases in general marketing expenses, including
advertising costs, 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 and other income increased by $700,000 to $1,608,000 in fiscal 1996
from $908,000 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 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.
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
non-recurring credit for income taxes of $2,654,000.
As a result of the foregoing, net income increased by $8,140,000 to $11,978,000
in fiscal 1996 from $3,838,000 in fiscal 1995.
6
<PAGE>
[TRAFFIC PICTURE Liquidity and Capital Resources
APPEARS HERE]
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 currently finances its capital and
operating needs from cash flow from operations and capital leases. During fiscal
1995 and prior years, the Company financed such needs through the issuance of
common stock, convertible debentures, and long-term debt.
In fiscal 1997 cash and equivalents decreased by $16,959,000. The overall
decrease is the result of cash outlays for financing of $25,961,000 and
investing of $3,877,000 being partially offset by cash flow from operating
activities of $12,879,000.
Cash used for financing activities included $25,356,000 related to the
repurchase of the Company's stock under a stock repurchase program approved
during fiscal 1996 and amended during fiscal 1997, as well as repayment of
capital leases of $1,008,000 offset by proceeds from the exercise of stock
options of $403,000.
Cash used for investing activities included a purchase of short-term investment
of $1,600,000 as well as expenditures for property and equipment of $2,277,000
(excluding assets purchased under capital lease agreements.)
Cash flow provided by operating activities of $12,879,000 includes net income of
$8,180,000 and $4,699,000 of adjustments to reconcile net income to net cash
provided by operating activities. The decrease in cash from changes in assets
and liabilities of $1,898,000 includes an increase in accounts receivable of
$1,780,000, an increase in inventories of $965,000, an increase in prepaid
expenses of $70,000 and a decrease in other assets of $11,000 and accrued and
other liabilities of $133,000, offset partially by increases in accounts payable
of $279,000, and deferred revenue of $782,000. The increase in accounts
receivable is primarily related to a $1,603,000 increase in receivables related
to international sales substantially all of which were secured under the terms
of letters of credit and paid in March 1997. The Company expects its investment
in accounts receivable will increase as its sales increase. The increase in
inventory is primarily the result of a $690,000 increase in international
inventory, as well as a $275,000 increase in domestic inventory levels. The
international inventory was increased to satisfy orders which were primarily
shipped during March and April 1997, whereas the domestic increase related to
efforts to increase inventories on hand to sufficient levels to satisfy the
Company's current level of business, anticipated sales in expansion markets of
Maryland, Texas and Pennsylvania, as well as to meet unanticipated demand. 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 Company is presently pursuing expansion efforts in several additional
markets which meet the qualifications set forth in the Company's strategic plan.
The Company expects that, pending receipt of necessary approvals, certain of
these potential expansion markets may become operational during fiscal 1998. The
Company plans to fund these expansions as well as other capital expenditures
during fiscal 1998, using the existing working capital, cash flow from
operations, or line of credit. The Company estimates capital expenditures in
fiscal 1998 of approximately $3,100,000 (excluding assets purchased under
capital lease agreements) principally for planned and anticipated domestic
market expansions, including Pennsylvania and Texas, as well as other on-going
capital requirements, including an investment to upgrade the Company's
information systems.
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 this
practice.
As of February 28, 1997 the Company had working capital of $21,883,000. The
Company believes that its anticipated capital and operating requirements for
fiscal 1998 can be funded from cash flows from operations and, if necessary, the
existing line of credit. The Company intends to continue to repurchase shares of
its common stock provided that the purchase price makes such repurchases
economically practical. The Company's existing line of credit with a bank of
$7,500,000 was amended during the third and fourth quarters of fiscal 1997
primarily to convert it from a secured facility to an unsecured facility, and to
extend the revolving credit facility term to March 1998 at which time any then
outstanding balances would convert to a term loan payable in quarterly
installments through February 2003.
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, which subsequently was increased to 3,200,000
on January 3, 1997 and to 5,200,00 in May, 1997. As of February 28, 1997 the
Company had repurchased 2,569,500 shares for a total of $26,203,658. From
February 28, 1997 through May 12, 1997 the Company has repurchased an additional
496,000 shares at a cost of $4,997,808.
The Company continues to participate in research and development efforts that
will lead to improvements and modifications to the LoJack Unit and LoJack System
components. The Company estimates it will spend approximately $750,000 in fiscal
1998 on its research and development efforts as compared with $518,000 spent in
fiscal 1997.
The Company is also continuing to explore possible investment opportunities,
including, but not limited to, possible acquisitions of or investments in other
companies.
7
<PAGE>
[TRAFFIC PICTURE New Accounting Pronouncements
APPEARS HERE] and Cautionary Statements
New Accounting Pronouncements
During fiscal 1997 the Company adopted 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". The implementation of SFAS No. 121 did not have a
significant impact on the financial statements when adopted in fiscal 1997. The
Company, as permitted under SFAS No. 123, did not adopt the fair value method
for the measurement and recognition of employee stock-based transactions and
continues to use Accounting Principles Board Opinion No. 25. In February 1997
the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per
Share" which will become effective during the fourth quarter of fiscal 1998.
SFAS No. 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share, which excludes dilution, and requires
the dual presentation of basic and diluted earnings per share. Had the Company
used SFAS No. 128, the Company's basic earnings per share would have been $.39,
$.56 and $.17 for fiscal 1997, 1996 and 1995, respectively. Diluted earnings per
share would have been the same as the earnings per share presented in the
consolidated statements of operations.
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 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 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 to 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 the fiscal year ended February 28,
1997.
8
<PAGE>
[TRAFFIC PICTURE LoJack Corporation
APPEARS HERE]
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents............................................. $ 14,671,700 $ 31,630,663
Short-term investment............................................ 1,600,000
Accounts receivable - net........................................ 7,430,491 5,873,918
Inventories...................................................... 3,745,473 2,780,416
Prepaid expenses and other....................................... 153,812 83,544
Deferred income taxes............................................ 1,525,010 301,810
---------- ----------
Total current assets........................................ 29,126,486 40,670,351
PROPERTY AND EQUIPMENT - Net...................................... 8,722,950 7,652,703
DEFERRED INCOME TAXES............................................. 4,401,363
OTHER ASSETS - Net................................................ 315,707 355,020
---------- ----------
TOTAL............................................................. $ 38,165,143 $ 53,079,437
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital
lease obligations............................................... $ 693,553 $ 670,925
Accounts payable................................................. 2,842,186 2,562,922
Accrued and other liabilities.................................... 847,984 996,165
Deposits......................................................... 749,020 1,087,741
Current portion of deferred revenue.............................. 985,301 695,794
Accrued compensation............................................. 837,953 672,938
Accrued taxes.................................................... 287,473 364,500
---------- ----------
Total current liabilities.................................... 7,243,470 7,050,985
DEFERRED REVENUE.................................................. 2,149,524 1,656,766
DEFERRED INCOME TAXES............................................. 770,143
CAPITAL LEASE OBLIGATIONS......................................... 781,817 644,218
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; authorized,
35,000,000 shares; issued 21,985,091 and
21,876,666 shares at February 28,
1997 and February 29, 1996, respectively........................ 219,851 218,767
Additional paid-in capital....................................... 57,539,986 56,872,389
Deficit.......................................................... (4,335,990) (12,516,188)
Treasury stock, at cost, 2,569,500 and 90,000
shares of common stock at February 28, 1997
and February 29, 1996, respectively............................. (26,203,658) (847,500)
---------- ----------
Total stockholders' equity................................... 27,220,189 43,727,468
---------- ----------
TOTAL............................................................. $ 38,165,143 $ 53,079,437
========== ==========
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
[LOGO OF LOJACK CORPORATION APPEARS HERE]
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
1997 1996 1995
<S> <C> <C> <C>
REVENUES.......................................$ 61,664,501 $ 52,516,359 $ 41,658,074
COST OF GOODS SOLD............................. 27,703,963 23,966,360 20,840,184
---------- ----------- ----------
GROSS MARGIN................................... 33,960,538 28,549,999 20,817,890
---------- ----------- ----------
COSTS AND EXPENSES:
System costs and research and development..... 1,316,832 1,263,492 807,462
Marketing..................................... 12,943,309 11,211,501 9,277,847
General and administrative.................... 6,283,731 5,574,757 4,870,004
Depreciation and amortization................. 1,496,406 1,894,933 2,294,346
---------- ----------- ----------
Total..................................... 22,040,278 19,944,683 17,249,659
---------- ----------- ----------
OPERATING INCOME............................... 11,920,260 8,605,316 3,568,231
---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest expense.............................. (153,517) (166,748) (343,658)
Interest income............................... 1,571,867 1,526,440 817,179
Other income.................................. 65,588 82,028 90,986
---------- ----------- ----------
Total..................................... 1,483,938 1,441,720 564,507
---------- ----------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES....... 13,404,198 10,047,036 4,132,738
INCOME TAX PROVISION (BENEFIT)................. 5,224,000 (1,931,000) 295,000
---------- ----------- ----------
NET INCOME..................................... 8,180,198 11,978,036 3,837,738
PREFERRED DIVIDENDS............................ (425,563)
---------- ----------- ----------
NET INCOME APPLICABLE TO COMMON
STOCKHOLDERS.................................. $ 8,180,198 $ 11,978,036 $ 3,412,175
========== =========== ==========
EARNINGS PER COMMON SHARE...................... $ 0.36 $ 0.51 $ 0.16
========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES AND
EQUIVALENTS................................... 22,569,179 23,284,684 20,666,057
========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
[LOGO OF LOJACK CORPORATION APPEARS HERE]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
<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, 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 stock
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)
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 stock 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
Exercise of stock options.. 108,425 1,084 402,397 403,481
Repurchase of common stock. 2,479,500 (25,356,158) (25,356,158)
Tax benefit of employee
stock option exercises.... 265,200 265,200
Net income................. 8,180,198 8,180,198
--------- ------ ---------- -------- ---------- ----------- ------ ------- ----------
BALANCE, FEBRUARY 28, 1997 21,985,091 $219,851 $57,539,986 $(4,335,990) 2,569,500 $(26,203,658) $27,220,189
========= ====== ========== ======== ========== =========== ========= ============ ===========
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
[LOGO OF LOJACK CORPORATION APPEARS HERE]
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 8,180,198 $ 11,978,036 $ 3,837,738
------------ ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................................... 2,425,794 2,730,173 2,860,303
Provision for doubtful accounts..................................... 223,384 237,724 117,831
Deferred income taxes............................................... 3,948,000 (2,654,000)
Increase (decrease) in cash from changes in
assets and liabilities:
Accounts receivable............................................... (1,779,957) (1,853,087) (1,714,369)
Inventories....................................................... (965,057) (934,663) (42,483)
Prepaid expenses and other........................................ (70,268) (19,573) (10,338)
Other assets...................................................... (11,053) 1,778 41,325
Accounts payable.................................................. 279,264 14,111 300,477
Accrued and other liabilities..................................... (133,408) 893,539 677,287
Deferred revenue.................................................. 782,265 750,371 661,721
------------ ---------- ----------
Total adjustments............................................ 4,698,964 (833,627) 2,891,754
------------ ---------- ----------
Net cash provided by operating activities.................... 12,879,162 11,144,409 6,729,492
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment - net.......................... (2,277,443) (999,567) (2,556,419)
Purchase of short-term investment...................................... (1,600,000)
------------ ---------- ----------
Net cash used for investing activities....................... (3,877,443) (999,567) (2,556,419)
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock............................................... 403,481 1,682,849 13,585,828
Repayment of capital lease obligations................................. (1,008,005) (1,015,436) (687,895)
Payment of preferred dividends......................................... (3,821,626)
Repurchase of common stock............................................. (25,356,158) (847,500)
------------ ---------- ----------
Net cash (used for) provided by financing activities......... (25,960,682) (180,087) 9,076,307
------------ ---------- ----------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS............................. (16,958,963) 9,964,755 13,249,380
BEGINNING CASH AND EQUIVALENTS.......................................... 31,630,663 21,665,908 8,416,528
------------ ---------- ----------
ENDING CASH AND EQUIVALENTS............................................. $ 14,671,700 $ 31,630,663 $21,665,908
============ ========== ==========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
[LOGO OF LOJACK CORPORATION APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED FEBRUARY 28, 1997,
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
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 tracking, locating, and
recovering stolen vehicles.
Summary of Significant Accounting Policies
Fiscal Year - The Company's February 1997, 1996, and 1995 fiscal years ended on
February 28, 1997, February 29, 1996, and February 28, 1995, 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.
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 consolidated 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.
Revenue Recognition - Sales of the LoJack Units and related products are
recognized upon installation by the Company. Revenues from the sale of products
and 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 became
nonrefundable. Such revenues aggregated approximately $1,168,000, $932,000, and
$163,000 for the fiscal years ended February 1997, 1996, and 1995, 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). Revenues from extended warranty sales expected
to be realized beyond one year are classified as a long-term liability. 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 $855,000, $570,000 and $334,000 for the fiscal years ended
February 1997, 1996 and 1995, respectively. The related warranty costs are
recognized when incurred.
Research and Development - Costs for research and development on components of
the LoJack System have been expensed as incurred. Such costs aggregated
approximately $518,000, $516,000 and $330,000, for the fiscal years ended
February 1997, 1996 and 1995, respectively.
Certain Concentrations - The Company has subcontracted one supplier to
manufacture certain LoJack System components (including police tracking
computers) as well as to perform certain research and development. The Company
also conducts certain research and development through an equally owned joint
venture between the supplier and a subsidiary of the Company. The Company's
subsidiary reimburses the joint venture for fifty percent of the research and
development costs incurred. Such reimbursed costs are included as research and
development expense in the consolidated statements of operations. The Company
also has subcontracted the manufacturing of the LoJack Unit to another supplier.
The Company believes that other suppliers have the capability to perform these
services, but that changing suppliers may cause delays and additional costs to
the Company.
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 28, 1997, believes it had no significant exposure to credit risks.
Short-Term Investment - Short-term investment consists of a floating rate demand
security with a final maturity of greater than three months. The Company has a
continuous option to have the security redeemed at par value at any seven day
interval.
Accounts Receivable - The allowance for doubtful accounts was approximately
$553,000 and $395,000 as of the end of February 1997 and 1996, respectively.
Domestic receivables are principally due from new and used automobile dealers
that are geographically dispersed in various states. International receivables
are primarily secured by letters of credit and are related to fees, sales of
product, and royalties pursuant to licensing agreements.
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).
Deferred Contract and Patent Costs - Deferred contract and patent costs,
included in other assets, are being amortized using the straight-line method
over periods ranging from 3 to 17 years.
Fair Value of Financial Instruments - The Company's financial instruments
consist of cash and equivalents, a short-term investment, accounts receivable,
accounts payable, deposits, accrued liabilities, and capital lease obligations.
The fair value of these financial instruments at the end of February 1997 and
1996 approximate their carrying values.
Product Warranty Costs - Anticipated costs related to standard product
warranties are charged against income at the time of the sale of the related
products.
13
<PAGE>
[LOGO OF LOJACK CORPORATION APPEARS HERE]
Income Taxes - Effective March 1, 1994, the Company adopted Statement of
Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes."
SFAS 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
Company's financial statements or tax returns. Deferred tax liabilities and
assets are determined based upon the difference between the financial statement
carrying amounts and the tax basis of existing assets and liabilities, using
enacted tax rates in effect in the year(s) in which the differences are expected
to reverse.
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 1995), which would have a
dilutive effect. Fully diluted and primary earnings per share were the same for
the years ended February 1997, 1996 and 1995.
Accounting for Long-Lived Assets - The Financial Accounting Standards Board
("FASB") has issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company adopted this standard in fiscal 1997. The adoption did
not have a material effect on the Company's consolidated financial position or
results of operations.
Accounting for Stock-Based Compensation - The Company accounts for stock-based
compensation using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25.
New Accounting Pronouncement - In February 1997, the FASB issued SFAS No. 128,
"Earnings per Share" which will become effective during the fourth quarter of
fiscal 1998. SFAS No. 128 replaces the presentation of primary earnings per
share with basic earnings per share, which excludes dilution, and requires the
dual presentation of basic and diluted earnings per share. Had the Company used
SFAS No. 128, the Company's basic earnings per share on a proforma basis would
have been $0.39, $0.56 and $0.17 for fiscal 1997, 1996 and 1995, respectively.
Diluted earnings per share would have been the same as the earnings per share
presented in the consolidated statements of operations.
Supplemental Disclosures of Cash Flow Information - Cash payments for interest
aggregated approximately $154,000, $168,000 and $672,000 for the fiscal years
ended February 1997, 1996 and 1995, respectively. Cash payments for income taxes
for the fiscal years ended February 1997, 1996 and 1995 were approximately
$1,064,000, $418,000 and $244,000, respectively.
Supplemental Disclosures of Noncash Investing and Financing Activities - Capital
lease obligations aggregating approximately $1,168,000, $879,000 and $1,299,000
were incurred when the Company entered into lease agreements for new vehicles
and equipment during the fiscal years ended February 1997, 1996 and 1995,
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.
Reclassifications - Certain 1996 and 1995 amounts have been reclassified to
conform to the 1997 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of the end of February:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
LoJack System components $ 13,489,289 $ 13,015,269
Equipment, furniture, and fixtures 3,281,973 2,766,764
Vehicles 3,985,963 3,129,892
------------ ------------
Total 20,757,225 18,911,925
Less accumulated depreciation
and amortization (14,032,945) (12,069,040)
------------ ------------
Total 6,724,280 6,842,885
LoJack System components
not yet in service 1,998,670 809,818
------------ ------------
Property and equipment - net $ 8,722,950 $ 7,652,703
============ ============
</TABLE>
Total additions to property and equipment, including those relating to capital
lease obligations, aggregated approximately $3,567,000, $2,158,000 and
$3,471,000 for the fiscal years ended February 1997, 1996 and 1995,
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 1997 are expected to be used in
the expansion markets of Pennsylvania and Texas which are expected to become
operational during the year end February 28, 1998.
3. OTHER ASSETS
Other assets consisted of the following as of the end of February:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Engineering deposits $110,000 $110,000
Deferred contract costs 122,229 153,920
Deferred patent costs 9,263 12,318
Other (principally deposits) 74,215 78,782
------- -------
Total $315,707 $355,020
======= =======
</TABLE>
Accumulated amortization aggregated approximately $289,000 and $247,000 as of
the end of February 1997 and 1996, respectively.
14
<PAGE>
[LOGO OF LOJACK CORPORATION APPEARS HERE]
4. LINE-OF-CREDIT AND CAPITAL LEASE OBLIGATIONS
Line-of-Credit - The Company has an unsecured line-of-credit agreement with a
bank which provides for borrowings up to a maximum of $7,500,000. This facility
permits borrowings and repayments through March 1, 1998, at which time the line-
of-credit converts to a term loan which requires quarterly installments of
principal commencing on May 31, 1998 and ending on February 28, 2003.
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 l997 and 1996.
The line-of-credit agreement 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 Company is required to maintain
certain financial performance measures including debt service coverage, minimum
tangible capital funds, 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.
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 $3,986,000 and
$2,946,000, and the related accumulated amortization was approximately
$2,326,000 and $1,447,000 as of the end of February 1997 and 1996, respectively.
Amortization of such assets is included within depreciation and amortization
expense in the accompanying consolidated financial statements. At February 28,
1997, scheduled repayment requirements for capital lease obligations are as
follows:
<TABLE>
<S> <C>
1998 $ 818,192
1999 510,790
2000 289,006
2001 59,248
---------
Total payments 1,677,236
Less amounts representing interest (201,866)
---------
Total principal 1,475,370
Less current portion (693,553)
---------
Long-term portion $ 781,817
=========
</TABLE>
5. STOCKHOLDERS' EQUITY
Common Stock - As of February 28, 1997, the Company has 35,000,000 authorized
shares of $.01 par value common stock, of which 19,415,591 are issued and
outstanding and 3,800,410 shares are reserved for issuance upon the exercise of
stock options.
Preferred Stock - The Company has 10,000,000 authorized shares of $.01 par value
Series A Preferred Stock (the "Preferred Stock"). On May 27, 1994, the Company
called for redemption on July 11, 1994, 1,216,500 shares of its 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 received
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,
there is no Preferred Stock outstanding as of February 28, 1997 and February 29,
1996.
Stock Options - The Company's Incentive Stock Option Plan ("the Option Plan"),
as amended, provides for the issuance of incentive stock options to employees,
senior management ("Management Options") and non-employee directors ("Directors
Options") to purchase an aggregate of 4,124,135 shares of common stock. The
Company has, from time to time, also granted nonqualified options to key
employees, officers and directors to purchase an aggregate of 234,250 shares of
common stock. The incentive and nonqualified options are granted at exercise
prices equal to the fair market value of the common stock on the date of grant.
Options generally become exercisable over periods of two to five years and
expire ten years from the date of the grant. Selected information regarding the
options under the Option Plan as of February 28, 1997 is as follows:
<TABLE>
<CAPTION>
Authorized Available for
for Grant Outstanding Future Grant
<S> <C> <C> <C>
Incentive stock options 500,000 287,950 49,700
Management options 3,414,135 2,204,750 813,760
Directors options 210,000 127,000 83,000
Nonqualified options 234,250
--------- --------- -------
4,124,135 2,853,950 946,460
========= ========= =======
</TABLE>
The following table presents activity of all stock options:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
<S> <C> <C>
Outstanding, March 1, 1994 2,493,550 $ 2.84
Granted 535,550 7.47
Exercised (186,300) 2.15
Canceled (200) 6.88
--------- ------
Outstanding, February 28, 1995 2,842,600 3.76
Granted 524,475 8.72
Exercised (600,550) 2.80
Canceled (167,875) 6.78
--------- ------
Outstanding, February 29, 1996 2,598,650 4.79
Granted 390,350 12.25
Exercised (108,425) 3.72
Canceled (26,625) 7.80
--------- ------
Outstanding, February 28, 1997 2,853,950 $ 5.84
========= ======
</TABLE>
15
<PAGE>
[LOGO OF LOJACK CORPORATION APPEARS HERE]
The following table sets forth information regarding options outstanding at
February 28, 1997:
<TABLE>
<CAPTION>
Weighted Average
Weighted Average Number of Options Exercise Price for
Number of Range of Exercise Weighted Average Remaining Life Currently Currently
Options Prices Exercise Price (Years) Exercisable Exercisable Options
<S> <C> <C> <C> <C> <C>
1,110,450 $ 2.00-2.38 $ 2.01 4 1,100,850 $ 2.01
383,750 4.53-4.94 4.92 6 359,550 4.92
80,500 5.31-5.97 5.88 3 80,500 5.88
427,950 6.88-7.63 7.48 7 311,660 7.47
396,450 8.38-9.00 8.43 8 187,290 8.40
122,350 9.13-10.13 9.82 8 10,000 9.63
332,500 12.38-12.88 12.84 9 89,375 12.81
--------- ----------- ----- --- --------- -----
2,853,950 $2.00-$12.88 $ 5.84 6 2,139,225 $ 4.48
========= =========== ===== === ========= =====
</TABLE>
As described in Note 1, the Company uses the intrinsic value method to measure
compensation expense associated with grants of stock options to employees and
non-employee directors. Had the Company used the fair value method to measure
compensation for options granted subsequent to February 28, 1995, reported net
income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net income $ 6,627,893 $11,328,626
Earnings per share $ 0.29 $ 0.49
</TABLE>
Options granted during fiscal 1997 and 1996 had a weighted average grant date
fair value of $8.47 and $5.58, respectively. The fair value of options on their
grant date was measured using the Black/Scholes option pricing model. Key
assumptions used to apply this pricing model were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Range of risk free interest rates 6.51% - 6.87% 5.81% - 7.06%
Expected life of option grants 9 years 9 years
Range of expected volatility of underlying
stock 51% - 53% 44% - 51%
</TABLE>
It should be noted that the option pricing model used was designed to value
readily tradable stock options with relatively short lives. The options granted
to employees are not tradable and have contractual lives of up to ten years.
However, management believes that the assumptions used to value the options and
the model applied yield a reasonable estimate of the fair value of the grants
made under the circumstances.
Stock Repurchase Plan - During fiscal 1996, the Company's Board of Directors
authorized a stock repurchase plan (the "Repurchase Plan"). The Repurchase Plan,
as amended, authorizes the Company to purchase up to 3,200,000 shares of its
outstanding common stock. As of February 28, 1997, the Company repurchased
2,569,500 shares for a total of $26,203,658.
Stock Purchase Warrants - During the year ended February 28, 1995, 3,092,425 of
stock warrants were exercised resulting in net proceeds to the Company of
approximately $13,185,500. There were no stock warrants outstanding as of the
end of February 1997, 1996, and 1995.
16
<PAGE>
[LOGO OF LOJACK CORPORATION APPEARS HERE]
6. INCOME TAXES
The provision for income taxes consisted of the following for the fiscal years
ended February 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ 873,000 $ 200,000 $ 65,000
State 337,000 523,000 230,000
Foreign 66,000
--------- --------- -------
Total 1,276,000 723,000 295,000
--------- --------- -------
Deferred:
Federal 3,762,000 (2,348,000)
State 186,000 (306,000)
--------- --------- -------
Total 3,948,000 (2,654,000)
--------- --------- -------
Income tax provision
(benefit) $5,224,000 $(1,931,000) $295,000
========= ========= =======
</TABLE>
The difference between the Company's effective income tax rate and the United
States statutory rate is reconciled below:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
U.S. statutory rate 34.0 % 34.0 % 34.0 %
State taxes, net of federal
benefit 5.0 5.2 5.6
Utilization of net operating
loss carryforwards (19.3) (26.2)
Change in valuation allowance (38.9)
Other, net (0.2) (6.3)
------ ------- -------
Effective tax rate 39.0 % (19.2) % 7.1 %
====== ======= =======
</TABLE>
The tax effects of the items comprising the Company's net deferred tax asset at
the end of February 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
Current Long-term Current Long-term
<S> <C> <C> <C> <C>
Deferred tax liability - differences between
book and tax basis of property $(1,608,458) $(1,565,541)
--------- ---------
Deferred tax assets:
Reserves not currently deductible $ 99,028 $ 23,493
Income deferred for book purposes 384,267 838,315 278,317 662,707
Net operating loss carryforwards 371,293 4,946,197
Tax credit carryforwards 670,422 358,000
------- ------- ------- -------
Deferred tax assets 1,525,010 838,315 301,810 5,966,904
--------- -------- ------- ---------
Net deferred tax asset (liability) $ 1,525,010 $ (770,143) $ 301,810 $ 4,401,363
========= ======== ======= =========
</TABLE>
17
<PAGE>
[LOGO OF LOJACK CORPORATION APPEARS HERE]
SFAS No. 109 requires a valuation allowance against deferred tax assets, if
based on available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. As of February 28, 1995, the Company
believed that uncertainty existed with respect to future realization of the net
deferred tax assets and established a valuation allowance for the full amount.
Changes in the valuation allowance for the years ended February 1996 and 1995
resulted in a decrease to the Company's tax provision of approximately
$5,854,000 and $1,381,000, 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 included a credit provision of approximately $2,654,000 related to the
elimination of the valuation allowance for the deferred tax assets. Tax benefits
that pertained to certain employee stock option exercises of approximately
$265,000 and $2,049,000 were recorded to additional paid-in capital for the
fiscal years ended February 1997 and 1996, respectively.
The Company has investment tax and research and development credit carryforwards
aggregating approximately $140,000 at February 28, 1997, which expire in varying
amounts through 2001. The Company also has approximately $530,000 in alternative
minimum tax credits at February 28, 1997. 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.
Recovery System, Inc. ("RSI"), a subsidiary of the Company, has available for
tax purposes a net operating loss carryforward of approximately $799,000 at
February 28, 1997. 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.
7. COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments - The Company leases various facilities under operating leases
whose terms expire from 1998 to 2002; the leases contain renewal options ranging
from two to five years. Minimum annual lease payments are as follows:
<TABLE>
<S> <C>
1998 $ 595,000
1999 533,000
2000 387,000
2001 342,000
2002 80,000
----------
Total $ 1,937,000
==========
</TABLE>
Rental expense under operating leases aggregated approximately $844,000,
$786,000 and $721,000 for the fiscal years ended February 1997, 1996 and 1995,
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.
8. EMPLOYEE BENEFIT PLAN
The Company has 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 both fiscal 1997 and 1996 and 25% in fiscal year 1995,
subject to certain limitations. Company contributions become fully vested after
five years of continuous service. Company contributions related to the plan were
$139,000, $133,000 and $59,000 for the fiscal years ended February 1997, 1996
and 1995, respectively.
9. 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>
1997 1996 1995
<S> <C> <C> <C>
Export revenues:
Europe $ 871,000 $1,589,000 $ 654,000
South America 3,131,000 2,391,000 1,044,000
Asia 2,324,000 236,000 749,000
Africa 3,372,000 217,000
---------- --------- ---------
Total $9,698,000 $4,433,000 $2,447,000
========= ========= =========
</TABLE>
18
<PAGE>
----------------------------
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 28, 1997 and February 29, 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended February 28, 1997.
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 28, 1997 and February 29, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
April 18, 1997
19
<PAGE>
--------------
Corporate Data
--------------
EXECUTIVE OFFICERS
C. Michael Daley
Chairman of the Board of Directors and Treasurer
(Chief Executive Officer)
Joseph F. Abely
President and Chief Operating Officer
William R. Duvall
Senior Vice President
(Operations and Technical Development)
Kevin M. Mullins
Vice President
(Sales and Marketing)
Peter J. Conner
Vice President
(Government Relations)
BOARD OF DIRECTORS
C. Michael Daley
Chairman
James A. Daley
President
Daley Hotel Group, Inc.
Robert J. Murray
Chairman and Chief Executive Officer
New England Business Service, Inc.
Harold W. Shad, III
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
SECURITIES LISTINGS
NASDAQ: National Market System-"LOJN"
ANNUAL MEETING
10:00 a.m.
July 16, 1997
Sheraton Tara Hotel
Braintree, Massachusetts
FORM 10-K AVAILABILITY
The Company's annual report filed
with the Securities and Exchange
Commission on Form 10-K is available
without charge upon written request to:
Investor Relations
LoJack Corporation
Norfolk Place
333 Elm Street
Dedham, Massachusetts 02026
617.326.4700
CORPORATE COUNSEL
Peabody & Arnold
Boston, Massachusetts
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Boston, Massachusetts
INVESTOR RELATIONS
Swanson Communications, Inc.
New York, New York
212.683.4890
20
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
------------------------------
LoJack International 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
LoJack of Pennsylvania, Inc., a Delaware 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 18, 1997, appearing in and incorporated by reference in the Annual
Report on Form 10-K of LoJack Corporation for the year ended February 28, 1997.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOJACK 1997
ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> FEB-28-1997 FEB-29-1996
<PERIOD-START> MAR-01-1996 MAR-01-1995
<PERIOD-END> FEB-28-1997 FEB-29-1996
<CASH> 14,671,700 31,630,663
<SECURITIES> 1,600,000 0
<RECEIVABLES> 7,983,933 6,269,120
<ALLOWANCES> 553,442 395,202
<INVENTORY> 3,745,473 2,780,416
<CURRENT-ASSETS> 29,126,486 40,670,351
<PP&E> 22,755,895 19,721,743
<DEPRECIATION> 14,032,945 12,069,040
<TOTAL-ASSETS> 38,165,143 53,079,437
<CURRENT-LIABILITIES> 7,243,470 7,050,985
<BONDS> 0 0
0 0
0 0
<COMMON> 219,851 218,767
<OTHER-SE> 27,000,338 43,508,701
<TOTAL-LIABILITY-AND-EQUITY> 38,165,143 53,079,437
<SALES> 60,089,388 51,234,708
<TOTAL-REVENUES> 61,664,501 52,516,359
<CGS> 27,703,963 23,966,360
<TOTAL-COSTS> 27,703,963 23,966,360
<OTHER-EXPENSES> 22,040,278 19,944,683
<LOSS-PROVISION> 223,384 237,724
<INTEREST-EXPENSE> 153,517 166,748
<INCOME-PRETAX> 13,404,198 10,047,036
<INCOME-TAX> 5,224,000 (1,931,000)
<INCOME-CONTINUING> 8,180,198 11,978,036
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,180,198 11,978,036
<EPS-PRIMARY> .36 .51
<EPS-DILUTED> .36 .51
</TABLE>
