TOP SOURCE TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X]Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the year ended September 30, 1995
Commission file number 1-11046
TOP SOURCE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter).
Delaware 84-1027821
(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification Number)
2000 PGA Boulevard, Suite 3200 Palm Beach Gardens, Florida 33408
(Address of Principal executive office) (zip code)
Registrant's telephone number, including area code: (407) 775-5756
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
.001 par value common stock (Title of Class)
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 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 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 by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
As of December 29, 1995, 27,970,477 shares of $.001 par value Common Stock (the
Registrant's only class of voting stock) were outstanding. The aggregate market
value of the common shares of the Registrant on December 29, 1995 (based upon
the closing sales price) held by non-affiliates of the Registrant, was
approximately $183,497,408.
Documents Incorporated by Reference
Location in Form 10-K Incorporated Document
Part III-Items 10, 11, & 12 Definitive Proxy Statement in connection with
its annual meeting of stockholders to be held
on March 15, 1996
<PAGE>
PART I
ITEM 1. BUSINESS
A. General Description of Business
Top Source Technologies, Inc. (the "Company") was organized in 1986 to
distribute a patented overhead mounted speaker system ("OHSS") for vehicles. In
1989, the Company's mission was expanded to include developing and marketing of
products, services and technologies for the transportation and related
industries. The Company has since further expanded its product line. In addition
to the OHSS, the Company now owns three oil analysis laboratories and has
developed a proprietary On-Site Oil Analyzer ("OSA") for use in the
petrochemical, automotive and equipment service industries. The Company also
licenses one safety restraint technology Acceleration Restraint Curve Safety
Seat ("ARCS") from the Massachusetts Institute of Technology (M.I.T.).
Top Source Technologies, Inc. is the parent company with four subsidiaries: Top
Source Automotive, Inc. ("TSA") in Troy, Michigan, United Testing Group, Inc.
("UTG") with its main office and laboratory in Atlanta, Georgia and satellite
offices in Sparks, Nevada and Addison, Illinois, On-Site Analysis, Inc. ("OSA,
Inc.") in Atlanta, and ARCS Safety Seat, Inc. ("ARCS, Inc.") in Troy, Michigan.
In fiscal 1995, the Company derived substantially all of its revenue from sales
of its OHSS at TSA and from the sale of oil analysis services at UTG.
The Company receives new technology ideas for possible inclusion into Top
Source's business lines from individuals, universities and other companies. The
technologies are screened for their proprietary nature, market potential and
strategic fit with the Company structure and business before any research
and development expenditures are committed.
B. Financial Information About Industry Segments
The Company currently has two industry segments: automotive technology comprised
of TSA and ARCS, Inc. and oil analysis service comprised of UTG and OSA, Inc.
(For information on industry segments, see Item 8. - Financial Statements and
Supplementary Data, Note 20. Segment Information.)
C. Narrative Description of Business
General
The Company markets one product, an OHSS, and provides one service, oil
analysis. The Company has two proprietary technologies, OSA which has generated
a nominal amount of revenue and ARCS which is non-revenue generating. Another
technology, Engine Fuel Economy Emissions Control Reduction System ("EFECS"),
was also licensed from M.I.T. and subsequently sold pursuant to a future royalty
arrangement in May 1995. (See Item 8. - Financial Statements and Supplementary
Data, Note 19).
Products and Technologies
Overhead Speaker System
In 1987, the Company acquired the exclusive rights to distribute in the United
States and Canada a patented automotive overhead mounted speaker system from its
Swedish inventor. The Company holds a number of patents for the OHSS which
expire at various times through 2009. In addition, the Company has patent
applications for other uses of OHSS. The patents cover the design and mounting
method which permits speakers, dome lights and other accessories to be mounted
overhead. The assembly includes enclosed audio speakers pre-wired in an overhead
mounting system. The unit, about six inches wide, mounts up against the
headliner across the width of the sport utility vehicle as a rear speaker
system. Overhead mounted speakers deliver unobstructed sound directly to the
listener whereas speakers mounted in the side doors, tailgate or cargo area can
become obstructed by passengers or cargo. The OHSS eliminates the need for rear
speakers in traditional locations, reduces weight in the liftgate and because of
their fixed overhead mounting, are not subject to the same risks of damage as
speakers located in door or liftgate panels. The OHSS provides the Original
Equipment Manufacturers ("OEMs") with a cost effective solution to improved
audio sound without additional expensive tooling and within relatively short
lead times, and the assembly reduces installation time in factory applications.
ITEM 1. BUSINESS, (continued)
In 1991, a custom designed OHSS was approved by Chrysler Corporation for dealer
installation on the Jeep(R) Wrangler, and a purchase order was received. This
OHSS unit can be installed in less than 30 minutes and retails for around $300.
A patent on the Wrangler OHSS was issued in 1991. In February 1992, the Company
established an engineering team that worked on housing designs, materials, and
other features, as well as audio sound issues. The team, which included internal
engineers and outside consultants, identified vehicle opportunities for the OHSS
and built working prototypes. The Company's marketing group presented these
units to OEM audio, trim and product planning engineers for evaluation. The
second custom OHSS unit was designed for the Jeep(R) Cherokee, a high volume
vehicle in production since 1984. The Cherokee unit was molded from reinforced
urethane and housed two 5 1/4 inch speakers. The unit mounted over the rear
cargo area and incorporated the cargo area dome light. In May 1992, Chrysler
approved this unit and a purchase order was received for dealer installation.
The third custom unit which was designed for the new Jeep(R) Grand Cherokee
featured four speakers and mounted above the cargo area in the rear of the
vehicle. In early 1993, the Company received approval and a purchase order for
the Grand Cherokee unit as a dealer installed option. Patents have been applied
for in regard to both Cherokees.
In 1992, TSA focused its marketing effort on expanded production line
installation opportunities for both the Wrangler and Cherokee, and the Company
received its first production line orders for both the Wrangler and the
Cherokee. That opportunity promised significant increases in OHSS volumes
compared to dealer installed application. To support that effort the Company, in
early 1993, established its own assembly operation in a leased Michigan
facility. The in-house assembly assured reduced costs and permitted the Company
total control of quality and delivery schedules. By September 1993, the Company
was shipping significantly increased OHSS units due to the production line
purchase orders.
Based on an excellent rating from Chrysler for quality, performance and on-time
delivery over several years, the Company was awarded a preferred supplier
rating. This positions TSA favorably as a tier one supplier for new business,
long-term contracts and joint ventures. The present contract for the Cherokee
extends through model year 1997. The Company started shipments of a new Jeep
Wrangler OHSS model in January 1996 designed for the completely redesigned
Wrangler. Although no formal commitments beyond model year 1997 have been
received, the Company believes that this program will last at least through year
2000. In addition, the Company has also received approval from Chrysler to begin
tooling for an upscale OHSS to be factory installed in the 1997 high end Grand
Cherokee.
The Company has designed and presented many more custom units to domestic and
foreign OEMs including a completely new design. The new design positions small
speakers in the center part of the vehicle with sound channels distributing the
sound to accoustically correct positions. The whole system will be built as a
modular assembly and attached to the ceiling of the vehicle at assembly lines
and later covered by the headliner. This new product has the potential to
eliminate the need for speakers in all doors and instrument panels and will be
incorporated both in front as well as the rear of the vehicle. This product also
opens up a wider target market range of vehicles than the earlier truck, van and
sport utility vehicle market. The Company has applied for a patent on this new
design.
In 1990, the Company shipped approximately 7,480 OHSS units. In 1995, that
number grew to 197,327 OHSS units of which 3,850 were shipped to Venezuela. The
Company intends to continue an aggressive patent effort and expects to remain a
sole source supplier due to the unique patent position in regard to the OHSS
design.
The Company is confident it can meet additional demand for its OHSS from present
or new customers due to available excess capacity at TSA's new plant. OHSS
operations will remain assembly-only, which requires minimal capital support.
Components of the OHSS such as speakers, grills, wiring harnesses, housings and
dome lights are sourced either by the Company or the OEM customer. Back-up
sources are available for all components. The Company is prepared with back-up
contingency assembly plans and is capable of establishing satellite assembly
facilities to support just-in-time delivery demand for incremental business in
the United States, Canada, Mexico and Europe.
Oil Analysis
Oil analysis is a 50-year-old technology initially used by the railroad industry
to monitor the internal condition of their engines. Over the past 30 years, use
of the technology expanded and oil analysis is now widely used for diagnostic
and preventative maintenance programs for equipment in the aircraft, marine,
heavy duty vehicle, industrial machine, defense and automotive
ITEM 1. BUSINESS, (continued)
industries. The technology is also used for process quality control and pipe
line monitoring in the petrochemical industry as well as many other chemical and
mineral production processes.
It is estimated that the size of the oil analysis market is in excess of two
billion dollars. This includes oil analysis performed by independent and
in-house laboratories. The Company believes that the use of oil analysis will
increase as a preventative maintenance and process control technology. The
Company also believes that advances in oil analysis technology owned by the
Company will permit oil analysis utilization in new markets, such as automotive,
and will increase oil analysis application by those presently using the
technology.
Traditionally, the service requires extracting a small sample of used oil from
oil lubricated equipment and sending it to a laboratory. Scientific tests
identify and quantify metal debris that is the result of wear. The amount of
metal debris, correlated to time or mileage that the oil has been in service,
indicates if wear is normal or abnormal. Other laboratory tests indicate and
measure if there is any coolant or water in the oil, the amount of airborne
dirt, viscosity, acidity, depletion level of the additive package, flash point,
coloration and many other factors. Oil analysis users select the tests from a
service menu based on their particular needs. Once the empirical data is
generated by laboratory tests, a trained evaluator reviews the results and
generates a report, which often contains service recommendations,. The report is
then sent to the end user.
All major oil companies provide oil analysis service for their industrial and
commercial lubricant customers to help them monitor the service and maintenance
needs of their equipment. These oil companies either contract with an
independent laboratory for a private label package or perform the service in
their own laboratory.
In March of 1992, the Company decided to pursue the concept of an On-Site
Analyzer (OSA) using the advanced software technology, automated diagnostic
system and proprietary database developed and used at Spectro/Metrics, Inc.
("SMI"), then a privately owned oil analysis laboratory. The Company entered
into an agreement with SMI to solicit instrument manufacturers with the goal of
designing and building a low cost test instrument for use on the shop floor,
which was capable of performing many of the services provided by an oil analysis
laboratory. The goal was to provide almost instant results by eliminating the
need to send a sample to a laboratory. Initially, the Company intended to
license the proprietary software and database from SMI, purchase OSAs from an
instrument manufacturer and either sell the instrument or sell the service on a
per test basis. The Company also conducted primary market research in many
markets to verify the demand, acceptability and requirements of an OSA.
In order to provide present and potential users of OSAs with the oil analysis
data, the oil sample must be tested by two distinctly different types of
spectrometers: an emission spectrometer to identify and quantify metal elements
and an infrared spectrometer to measure the physical-chemical properties of the
used oil. Other specifications for the instrument included parameters such as:
user friendly, low cost, minimal maintenance, near laboratory accuracy and
repeatability, reliability and several minute turn around time, etc. The overall
objective was to provide high volume oil analysis locations with an OSA that
delivers acceptable data in minutes at about the same price they pay for similar
data by sending samples to a laboratory.
Under their agreement, the Company and SMI jointly developed an initial design
that outlined the flow of oil and information in a potential instrument, defined
the specifications required by the target market and identified the user
friendly aspects. The instrument considerations included cost limits,
calibration, diagnostic and service issues. The concept design and
specifications were presented to several instrument manufacturers around the
world.
In January 1993 the Company and SMI entered into an initial development
agreement with the Thermo Jarrell Ash ("TJA") Division of Thermo Instrument
Systems, Inc. ("THI") to jointly develop an OSA with both emission and infrared
capability. The intent of the agreement was to provide TJA with exclusive
manufacturing rights in exchange for their development expense and the Company
would receive exclusive distribution rights to the petrochemical and synthetic
lubricants market while TJA could pursue other markets. Under the agreement, TJA
was responsible for all hardware included in the instrument as well as software
for each individual spectrometer. The Company was responsible for the analytical
software including quantification files and database and the overall instrument
operating software.
ITEM 1. BUSINESS, (continued)
In July 1993, the Company acquired SMI and Professional Services Inc. ("PSI") ,
another oil analysis laboratory with a broad customer base. This enabled the
Company to gain control of the extensive database, technology and software
necessary to develop the OSA. SMI and PSI were merged under the name United
Testing Group, Inc. ("UTG"). In January 1994, UTG acquired a small laboratory
located near Reno, Nevada. With this acquisition, UTG now had three laboratories
(Atlanta, Chicago, Reno) and further expanded its database.
The financial performance of UTG has been below the expectations of the Company.
In the fourth quarter of fiscal 1995, the Company substantially reduced
personnel and operating costs to help offset the loss of several major
customers. These expense reductions along with the laboratory efficiency
improvements through the usage of the advanced analytical technology developed
at OSA (see OSA Development below) have reduced the revenue threshold for
potential profitability of UTG.
OSA Development
In July 1993, On-Site Analysis, Inc. (OSA, Inc.) was formed as a wholly-owned
subsidiary of the Company to exclusively develop the OSA program. The Company
has since staffed itself with spectroscopists, instrument specialists, sales and
marketing, systems and programmer personnel as well as technicians capable of
assisting in installation, operation and training.
During August 1993, TJA and OSA, Inc. produced an Alpha developmental prototype
that appeared to be able to meet the requirements and specifications established
for the OSA. In December 1993, OSA, Inc. introduced the first OSA Beta prototype
at Chevron's national oil distributor convention in San Diego. Concurrently,
OSA, Inc. placed an order with TJA to manufacture additional Beta OSA units.
The intent was to place OSAs in the field at various locations to identify
any issues yet to be resolved before a final design was established for larger
distribution.
During 1993, the Company confirmed with several oil companies that they had a
strong interest for OSA use in their operations for process control, pipe line
monitoring, and maintenance of equipment such as compressors, pumps, engines and
gear cases. The petroleum processing industry, including refining, blending and
recycling, is today a large user of oil analysis. Presently, oil production
facilities rely on in-house central laboratories for quality control testing
after each production process. It generally takes more than six hours to get
results which determine if the product is acceptable to go on to the next
process or to be shipped. OSA has the potential to become an at, or on-line
process controller which could provide operators with almost instant information
concerning the quality of the product. This would permit adjustments to the
process to keep the product "in spec," creating significant cost savings and
increases in production speeds.
In December 1993, the Company signed a confidentiality agreement with Exxon
Corporation ("Exxon") and began evaluating a variety of petroleum product
samples. In July 1994, the Company and Exxon signed a national lease.
In Fall of 1994, extensive testing was commenced at Exxon on three OSA units.
The purpose of the testing was to determine the durability and operational
reliability of an OSA unit in the refinery market. Based on positive initial
results, the Company and TJA began hardware and software changes to enhance the
original OSA equipment maintenance design to be usable in process control
applications required in a refinery. This highly complex project continued
throughout 1995 to the present.
Currently, the Company believes that the OSA has met refinery requirements for
reliability and repeatability; and that it has successfully developed a
prototype refinery OSA unit with several process control applications that can
be used for certain refinery petroleum products. The Company believes that it
will receive additional purchase orders for refinery OSA units from one or more
oil refineries, although no assurances can be given.
In July 1994, the first 15 Beta equipment maintenance OSA (the original design)
units were shipped to various business test sites. From July 1994 and
through mid-August 1995, the Company and TJA identified and corrected many
unexpected design flaws and made modifications necessary for the OSAs to operate
reliably. Due to these engineering changes, the Company was unable to generate
any revenue on these OSA units.
<PAGE>
ITEM 1. BUSINESS, (continued)
By the end of August 1995, the Company had retrofitted all existing Beta units
at customer sites and began shipping the newly designed units to additional
customers for evaluation and testing. In September, the customers began
retesting the OSAs in order to ensure the required reliability and performance
existed. Concurrently with the commencement of the retesting period, the Company
began modifying its proposed lease agreement for equipment maintenance units to
conform to franchise laws in the United States.
The Company's overall marketing strategy is to charge customers on a per test
basis, or on a minimum monthly lease basis, and maintain ownership of the unit.
In certain markets, the Company has identified an opportunity to sell franchises
(See Letter of Intent for World Wide Franchising Right, below).In the second
week of January 1996, the Company began generating revenue from two equipment
maintenance OSAs at two customer sites, an oil distributor and an automobile
dealership.
The Company has identified car dealers, heavy duty equipment dealers, large used
car auto auctions, truck fleets, municipalities, quick lubes, truck service
centers, and marine and industrial locations as potential markets for equipment
maintenance OSA usage.
Each OSA currently has the capacity to effectively analyze approximately eight
samples per hour. Software enhancements currently in process will increase the
samples per hour to 12. The Company believes that the OSA units are now user
friendly, self-calibrating, self-diagnostic, and capable of being operated by
non-technical personnel in a non-laboratory environment.
Based on the reliability demonstrated by the equipment maintenance OSAs since
September 1995, the Company anticipates signing numerous leases and generating
an increasing quarterly revenue stream throughout fiscal 1996 and future years.
Although the Company has experienced four months of reliable performance from
the OSA units, there are no assurances that other technical problems will not
develop or the above expectations will be met.
On March 3, 1995, the Company and TJA signed a long-term agreement. The
agreement provides for exclusive manufacturing rights for TJA and exclusive
distribution rights for the Company for petrochemical products and synthetics
used as lubrication. TJA is now assembling OSAs in its Grand Junction, Colorado
facility. TJA has the capacity to produce up to 1,500 units within 12 months and
has the capability to increase their capacity and supply all of the Company's
needs given several months ramp-up time.The Company has received three patents
on various aspects of the instrument and applied for several others The Company
believes that TJA has also applied for and received patents on the instrument.
There is presently no known technology competitive to OSA. The proprietary
nature of the OSA is also protected by trade secrets, high cost of development,
requirement of a large database and a highly complex analytical process. As of
January 12, 1996, the Company knows of no other supplier capable of developing a
comparable unit in the near term.
The Company used its existing cash resources to fund the development and
purchase of the initial OSAs. Future units will be paid for with available cash
and an established $6,000,000 line of credit from the First Union National Bank.
(See Item 8. Financial Statements and Supplementary Data, Note 9 Debt.) In 1995,
the Company increased personnel at OSA, Inc. to handle the anticipated demand
for the OSA units.
Letter of Intent for World Wide Franchising Rights
On December 4, 1995, the Company entered into a non-binding Letter of Intent
with a group interested in becoming the exclusive world-wide franchisor of the
Company's On-Site Analyzer for use in the equipment maintenance market. In
consideration of the payment of $10,000, this group, which has a history of
successful worldwide franchising over a 25 year period, received the exclusive
right to negotiate with the Company for a limited period of time for the
acquisition of these worldwide rights.
Specifically excluded from this Letter of Intent are the rights to negotiate for
the refinery market, oil blending plants and numerous other markets where the
usage of the On-Site Analyzer will be utilized only for internal use. There can
be no assurances that a final agreement will be reached. Due to the preliminary
nature of these discussions, the potential impact on the Company's financial
statements is indeterminable. (See Item 8. Financial Statements and
Supplementary Data, Note 22. Other Events)
<PAGE>
ITEM 1. BUSINESS, (continued)
ARCS (Acceleration Restraint Curve Safety Seat) Over the past six years the
Company has developed a proprietary technology involving controlled seat motion
that occurs at the instant of a frontal crash to help restrain vehicle occupants
and assist automakers in meeting Federal passive restraint laws. The Company
labeled the technology ARCS (Acceleration Restraint Curve Safety Seat). The
primary objective of this technology is to provide supplemental lower torso
restraint to alleviate abdominal, hip, leg and ankle injuries caused by unwanted
lower torso motion often experienced in a severe frontal crash. The secondary
objective of the technology is to better position the upper torso in a frontal
crash and alleviate injuries to the head, neck and chest. In a severe frontal
crash, occupants restrained by any combination of air bags and seat belts may
experience upper and/or lower torso injuries caused by "submarining" under the
lap belt, shoulder harness and/or air bag. The ARCS technology is designed to
reduce or alleviate those injuries caused by submarining. The ARCS technology is
intended to become part of the overall restraint system along with air bags and
seat belts, eliminating the need and expense of knee bolsters, allowing more
passenger leg room and giving instrument panel designers more latitude.
A prototype seat was built in October 1990. The Company selected the Wayne State
University Biomechanics Department, based in Detroit, to conduct the sled tests
since the test facility and staff are respected by the auto industry world-wide.
The sled test results proved ARCS' technology ability to provide significant
injury reduction potential for vehicle occupants during a frontal crash. Sled
tests were conducted with the occupant restrained by a shoulder harness only
without the use of an air bag or lapbelt, and the instrument panel and steering
column were removed.
During the third and fourth quarters of fiscal year 1994, a major Detroit
automaker sled-tested the ARCS technology in a second vehicle. The results were
within Federal Safety Standards with the occupant restrained using the ARCS seat
motion for the lower torso and an air bag for the upper body. The knee bolsters
were removed, and there was no shoulder harness or lap belt used. The Company is
unaware of any other moving seat technology that has been successfully tested by
a major automobile manufacturer.
The Company believes research and development costs to the Company for the ARCS
Safety Seat are complete and all future development and application engineering
will be paid for by the vehicle and/or seat manufacturers.
Due to the requirement to design and build actual pre-production hardware for
automaker testing, the Company is attempting to establish a strategic partner
relationship with a seat manufacturer.
The Company hopes to sell the technology and maintain a long-term opportunity
for future royalty income. Based on lead times in the automobile industry,
royalties would not be generated for at least four years after a contract is
signed.
EFECS
In early 1990, the technology licensing office at M.I.T. offered the Company a
new technology that promised to improve the fuel economy and reduce exhaust
emissions of a spark-ignited engine, without decreasing power or driveability.
The technology, named EFECS, Engine Fuel Economy Emissions Control Reduction
System, was developed by an engineer who is also a member of the M.I.T. racing
team. EFECS is based on a patented computer-controlled engine operation strategy
and employs its own patented high powered variable output ignition system
coupled to a unique spark plug design. The system is intended to help automakers
meet future stringent exhaust emission standards, including cold start
emissions, as well as improve fuel economy. The EFECS technology may solve the
major problems experienced with lean burn engine operation in the past and also
provide a cost and weight effective solution to cold start emissions. These
problems include (i) control of the transient fuel air charge to maintain
driveability, (ii) control of a variable air fuel ratio, (iii) maintaining low
NOX in a lean burn environment, (iv) ignitability of a lean mixture and (v)
misfire control. EFECS' self-tuning capability eliminates the need to tune-up
the engine and keeps it running efficiently for the life of the vehicle. It also
provides diagnostics and trouble-shooting information. In May 1995, the Company
sold the EFECS technology to Adrenaline Inc. pursuant to a future royalty
arrangement. (See Item 8. Financial Statements and Supplementary Data, Note 19.
Sale of Engine Fuel Economy Emissions Control Reduction System Technology
("EFECS") to Adrenaline, Inc., the original inventor of the EFECS.)
ITEM 1. BUSINESS, (continued)
Significant Customer Information
During 1995, approximately 66% of the Company's revenue was derived from the
Overhead Speaker System sold to Chrysler Corporation. For significant customer
information see Item 8. - Financial Statements and Supplementary Data -Note 18.
Government Regulation
The Company is subject to government regulations generally affecting all
businesses. The Company's industrial oil analysis subsidiary routinely disposes
of used oil in the course of its ordinary business and as such is subject to
federal, state and local regulations. To handle this oil disposal, the Company
hires a licensed, insured third party. The Company believes that it and its
predecessors are and have been in material compliance with all rules and
regulations of the federal, state and local agencies. Environmental compliance
costs are not expected to have a material effect on the financial condition and
results of operations of the Company.
Seasonal Information
The Company's management believes its products and services are not seasonal.
Offices and Employees The Company maintains principal administrative offices in
Palm Beach Gardens, Florida and handles investor relations in the New York City
office. On December 8, 1995 the Company signed a lease effective January 15,
1996 to move its principal administrative offices to a new location in Palm
Beach Gardens could accommodate the current office staff and allow for future
growth. In July 1995 the Company's automotive subsidiary, TSA, moved its
administrative, engineering and assembly operation to a 45,000 square foot
facility in Troy, Michigan. The UTG office is located near Atlanta, Georgia with
satellite laboratories in Addison, Illinois, and a West Coast laboratory in
Sparks, Nevada. On-Site Analysis, Inc. is located near the UTG facility. The
Company employs approximately 145 full-time and five part-time people.
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth the location and use of the Company's facilities.
All of the facilities are leased.
USE LOCATION EXPIRATION
Corporate Headquarters Palm Beach Gardens, Florida January 1999
Investor Relations Office New York, New York November 1996
OEM Assembly, Marketing and
Engineering Troy, Michigan June 2000
UTG-Administration and
Main Laboratory Atlanta, Georgia July 1999
UTG-Satellite Laboratory Addison, Illinois November 1998
UTG-Satellite Laboratory Sparks, Nevada June 1996
OSA, Inc. Atlanta, Georgia May 1997
All facilities have excess capacity and the capability to accommodate
significant future growth. Each of these facilities is in good condition.
ITEM 3. LEGAL PROCEEDINGS
On April 20, 1994, the Company initiated a suit in U.S. District ("the Court")
in Atlanta, Georgia against PSI for failure to honor contractual obligations
relating to oil testing samples sold prior to the Company's purchase of PSI on
July 16, 1993. On June 26, 1995, PSI paid the Company $229,500, without any
conditions attached, in anticipation of the Company dismissing the lawsuit
against PSI. On October 17, 1995, PSI, pursuant to a ruling made by the Court,
paid the Company $56,367 in full settlement of the suit. The Company believes
that the amount received from PSI does not constitute an accord and satisfaction
of the amount which PSI owes to the Company and anticipates filing an appeal of
the Court ruling by the middle of January 1996. The Company
ITEM 3. LEGAL PROCEEDINGS, (continued)
believes that PSI owes the Company an additional $378,000 plus interest and
legal fees. The Company's counsel believes that the Company's appeal is with
merit. The Company has not recorded any receivables or income related to the
potential recovery of additional amounts in this appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1995.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information For Common Stock
The following table sets forth for the periods indicated the range of quarterly
high and low representative market prices for the Company's common stock. The
Company's common stock trades on the American Stock Exchange under the symbol
"TPS".
<TABLE>
Fiscal 1995 Fiscal 1994
High Low High Low
<S> <C> <C> <C> <C>
First Quarter (December 31) ........................................ 8-3/8 5-3/4 4-11/16 2-7/8
Second Quarter (March 31) ........................................... 7-3/4 5-3/8 9 4-1/4
Third Quarter (June 30) ............................................ 7-3/16 5-3/16 7-3/4 4-1/4
Fourth Quarter (September 30) ....................................... 9-3/16 6-1/8 7-7/8 4-1/4
</TABLE>
Holders
As of December 29, 1995 there were approximately 1,558 holders of record of the
Company's common stock.
Dividend Policy
The Company has never paid cash dividends on its common stock.
Payment of dividends is within the discretion of the Company's Board of
Directors and will depend upon the earnings, capital requirements and operating
and financial condition of the Company, and any restrictions in loan agreements
among other factors. Currently, the Company intends to follow a policy of
retaining future earnings in order to finance the growth and development of its
businesses.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of the Company's
financial condition and results of operations as of and for the years ended
September 30, 1995, 1994 and 1993, December 31, 1991 and as of and for the nine
months ended September 30, 1992. The selected financial data should be read in
conjunction with Item 8. Financial Statements and Supplementary Data and Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
<TABLE>
AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993, DECEMBER 31, 1991
AND AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1992
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance Sheet Data..... 1995 1994 1993 1992 1991
Current Assets .................$5,631,093 $ 5,759,900 $ 2,367,983 $ 1,537,877 $ 1,508,460
Total Assets .............. 19,245,439 18,479,955 10,842,168 2,353,657 2,085,738
Current Liabilities ....... 2,780,341 2,975,785 2,534,987 515,997 608,368
Long-term Debt ............ 2,060,000 -- 458,368 -- --
Total Liabilities ......... 4,840,341 2,975,785 2,993,355 515,997 608,368
Stockholders' Equity ...... 14,405,098 15,504,170 7,848,813 1,837,660 1,477,370
Net Tangible Book
Value* ................ .. 6,564,170 7,341,098 737,072 1,515,477 1,108,959
Net Tangible Book
Value Per Share ........... .24 .27 .03 .08 .07
Statement of Operations:
Net Sales ................. $ 18,968,806 $15,137,862 $ 3,881,805 $ 1,826,623 $ 1,397,890
Net Income (Loss)** ....... (3,399,796) 2,014,577 (3,610,226) (2,118,154) (1,482,418)
Net Income per
Common and Common
Equivalent Share:
Primary ................ -- .07 -- -- --
Fully Diluted .......... -- .07 -- -- --
Common and Common
Equivalent Shares Outstanding:
Primary ........................ -- 28,381,211 -- -- --
Fully Diluted ............... -- 28,728,488 -- -- --
Net Loss per Weighted
Average Common Share .......... (.12) -- (.18) (.12) (.09)
Weighted Average Common
Shares Outstanding ..........27,249,541 -- 19,613,887 17,518,810 15,920,784
Declared Cash Dividends
Per Common Share ...... -- -- -- -- --
</TABLE>
* Net tangible book value equals total assets minus total liabilities and
intangible assets.
**The 1994 net income of $2,014,577 includes an income tax benefit of
$2,270,000, resulting primarily from a reduction in the valuation allowance
against deferred income tax assets.
The 1995 net loss includes a tax expense of $550,000 due to a reversal of a
portion of the Company's previously established $2,270,000 tax asset.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
In January 1994, the Company acquired the assets of an oil analysis business and
in July 1993, the Company consummated the acquisition of two oil analysis
businesses (See Item 8. - Financial Statements and Supplementary Data, Note 2.
Acquisitions). The operations for the period subsequent to the dates of
acquisitions are included in the 1994 and 1993 financial statements. Costs
associated with culminating the acquisitions of approximately $235,500 have been
capitalized.
1995 Compared to 1994
Total revenue for the year ended September 30, 1995 was $18,968,806 compared to
$15,137,862 for the year ended September 30, 1994, an increase of 25.3%. This
is primarily due to an increase of 51% in product sales at the Company's
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
1995 Compared to 1994 (continued)
TSA subsidiary which is attributable to an increased installation rate and sales
of OHSS products for Chrysler's Jeep(R) Wrangler and Jeep(R) Cherokee vehicles
as well as increased deliveries to Chrysler Venezuela for Jeep(R) Cherokee
applications. The increase in sales is partially offset by the decrease of
$802,934 for the year ended September 30, 1995 compared to the year ended
September 30, 1994 in the comparable sales volume for oil analysis services at
UTG which is primarily attributable to the loss of several major oil analysis
customers. The Company is aggressively attempting to replace the lost customers
by offering expanded services to existing customers and by acquiring new
customers. There can be no assurances that these efforts will be successful.
The gross profit margin for the year ended September 30, 1995 was 31.2%compared
to 32.6% for the year ended September 30, 1994. The decrease in margins below
comparable levels in the prior year is attributable to a decline in gross
margins from 21.9% for the year ended September 30, 1994 to 15.1% for the year
ended September 30, 1995 in oil analysis services at UTG.
General and administrative expenses increased 78.7% for the year ended September
30, 1995 compared to the year ended September 30, 1994. The increase was caused
by significant general and administrative expenditures of $1,536,849 at OSA,
Inc., an increase of $1,468,931 over fiscal 1994. The majority of the expenses
are attributable to an increase in personnel and technical staff necessary to
support the anticipated rollout of the OSA units. Also, the Company incurred
additional costs of $331,050 related to payments on an employment and consulting
contract. The services have been completed and there will be no additional
expenses incurred under this agreement. In the fourth quarter of fiscal 1995,
senior management of the Company made reductions, primarily through personnel
cuts, in operating costs from the then current levels in order to reduce
expenses.
Selling and marketing expense increased 56.4% for the year ended September 30,
1995 compared to the year ended September 30, 1994. This increase was a result
of the intensification of marketing and promotional activities in support of the
OSAs including an increase in the OSA sales force. These selling and marketing
expenses include increased salaries, benefits and travel expenses.
Professional fees increased 20.7% for the year ended September 30, 1995 compared
to September 30, 1994. This increase is primarily due to legal costs incurred in
connection with the PSI litigation (see Item 3. Legal Proceedings). Professional
fees incurred in fiscal 1995 relating to the PSI lawsuit were approximately
$102,000. The Company's attorneys are proceeding with the appeal in the PSI
lawsuit, and have agreed that their legal fees will not exceed $7,500. Any
additional fees will only be paid from proceeds collected by the Company in the
event of a successful appeal.
Depreciation and amortization increased 85.1% for the year ended September 30,
1995 compared to the year ended September 30, 1994. This increase is due to the
purchase of $2,017,411 in capital assets during fiscal 1995 of which $774,857
related to purchases by OSA, Inc. Depreciation and amortization of $415,428 was
allocated to cost of sales as it directly relates to the products and services
sold during fiscal 1995.
Research and development decreased 71.3% for year ended September 30, 1995
compared to the year ended September 30, 1994. This decrease is primarily
attributable to the elimination of research and development expenses related to
the ARCS technology. During 1995, the Company modified and enhanced the OSA.
These costs are included in general and administrative expenses. In fiscal 1995,
there were no research and development expenses related to the OSA.
Interest income increased 48.8% for the year ended September 30, 1995 compared
to the year ended September 30, 1994. This increase is due to the interest
earned on the senior subordinated convertible note proceeds of $2,060,000 which
were received in June 1995. (See Item 8. Financial Statements and Supplementary
Data, Note 9. Debt)
Other income (expense) decreased 40.7% for the year ended September 30, 1995
compared to the year ended September 30, 1994. In fiscal 1995 the Company
recovered $229,500 from the lawsuit against PSI (See Item 3. Legal Proceedings).
However, this was offset by loan fee expenses of approximately $73,000.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS (continued)
1995 Compared to 1994 (continued) In fiscal 1994 OtherIncome included
approximately $278,000 which related to the recovery of loan fees that had been
previously written off in fiscal 1993.
Income tax expense increased to $550,000 for the year ended September 30, 1995
compared to the year ended September 30, 1994. The tax expense was due to a
reversal of a portion of the Company's previously established $2,270,000 tax
asset, as a result of the Company not meeting expectations of taxable income in
1995.
The net deferred tax asset consists primarily of net operating loss
carryforwards. The Company has determined that over the relevant period, the
reversal patterns of its deferred tax liabilities are such that they offset
similar amounts of deferred tax assets. To realize the benefits of the net
deferred tax asset, the Company must generate approximately $4.2 million
of taxable income in the carryforward period. The regular tax carryforward
period for net operating losses extends for 15 years from the year of
origination. Based on expectations for future taxable income, management
believes that it is more likely than not that the net deferred tax assets not
reserved for will be realized before expiration. The future taxable income
assumptions for 1996 and beyond have remained in principal unchanged from the
previous year. (See Item 8. Financial Statements and Supplementary Data, Note
12. Income Taxes)
At September 30, 1995, the Company has net tax basis Federal operating loss
carryforwards of approximately $19,838,000, which may be used to offset future
taxable income, if any. The Company's net operating loss carryforwards begin
expiring in 2001.
Following is a summary of the Company's pretax book losses and taxable losses
for the last five years.
<TABLE>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
----------- --------- ----------- ----------- -----------
Pretax book loss $(2,789,796) $(255,423) $(3,610,226) $(2,118,154) $(1,482,418)
Taxable loss ... $(7,452,000) $(686,000) $(3,774,000) $(2,144,000) $(1,432,000)
</TABLE>
The net loss for the year ended September 30, 1995 compared to the year ended
September 30, 1994 is attributable to increased expenses relating to the rollout
of OSA units and an increased loss for oil analysis services at UTG. Also, the
loss was attributable to the $550,000 increase in the deferred tax valuation
allowance.
1994 Compared to 1993
Net Sales increased 290% for the year ended September 30, 1994 compared to the
year ended September 30, 1993. This increase is due to revenue generated from
the new Oil Analysis Group for a full fiscal year in 1994 (only two and one-half
months of revenue for fiscal year 1993) and the increased sales volume of the
OHSS due to a new purchase order from Chrysler for the Jeep(R) Cherokee. The
Company began shipping these OHSS units in September 1993. There were no
significant price increases in fiscal 1994.
The gross profit margin increased to 32.6% in fiscal 1994 from 18.5% in fiscal
1993. This increase is primarily attributable to the Automotive Technology
segment's increased sales causing production to operate at increased capacity
levels thereby reducing cost of sales on a per unit basis. The Oil Analysis
Service segment's gross margin percentage decreased slightly. The Oil Analysis
segment experienced a loss during the fiscal year due to administrative and
selling expenses incurred in developing the OSA business base.
UTG's loss of business from existing customers was caused for the most part by
the normal bidding process which occurs every two to three years with major oil
companies. In this bidding process, UTG was outbid by other competitors. In
addition, UTG lost business from existing customers due to service problems
which arose in connection with its 1993 oil analysis acquisitions and the
consolidation of two distinct operations. The Company has responded to these
consolidation problems and recently implemented a program to reduce expenditures
commensurate with the current level of business. (See Item. 1 Business -
Products and Technologies)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
General and administrative expenses increased 32.3% for the year ended September
30, 1994 compared to the year ended September 30, 1993. The increase is due to
additional expenses incurred related to incentive payments of $151,378 on an
employment contract and the termination of the former President of UTG whose
severance compensation totaled $321,313. (See Item 8. Financial Statements and
Supplementary Data, Note 13. Related Party Transactions).
1994 Compared to 1993 (continued)
Selling and marketing expense increased 104.4% for the year ended September 30,
1994 compared to the year ended September 30, 1993. This increase is due
primarily to the addition of the oil analysis laboratories and customer service
function during late fiscal 1993.
In fiscal year 1993, there was only two and one-half months of selling and
marketing expenses.
Professional fees increased by 80.1% for the year ended September 30, 1994
compared to the year ended September 30, 1993. This increase is due to the rapid
growth and complexity of the Company's operations, additional professional
services were utilized in the areas of banking negotiations, personnel and human
resource matters. Additionally, only two and one-half months of UTG operations
were included in fiscal 1993. This increase is also due in part to a legal suit
regarding the defense of the UTG operation against an aviation claim which was
settled in September 1994 with the Company being released in exchange for
payment of a nominal sum.
Depreciation and amortization increased 73.1% for the year ended September 30,
1994 compared to the year ended September 30, 1993. The increase is primarily
due to amortization of intangible assets relating to businesses acquired and the
capitalized database (See Item 8. Financial Statements and Supplementary Data,
Note 7. Intangible Assets). The current year reflects a full year of expense
whereas the prior year reflects two and one-half months amortization of the
database and no amortization expense relating to intangible assets of the
businesses acquired.
Research and development increased 71.6% for the year ended September 30, 1994
compared to the year ended September 30, 1993 due to research and development
costs associated with OSA.
Interest income increased 215.8% for the year ended September 30, 1994 compared
to the year ended September 30, 1993. This increase is due to the interest
earned on the increased funds invested in the current fiscal period.
Interest expense-affiliate decreased 71% for the year ended September 30, 1994
compared to the year ended September 30, 1993. This decrease is due to the
payment-in-full of the $400,000 affiliate note and payments of $347,550 on the
remaining affiliate note balance. During October and November 1994, the Company
paid the remaining balance of approximately $88,000.
Other income increased significantly for the year ended September 30, 1994
compared to the year ended September 30, 1993 due to a refund of $278,000 in
loan fees which had been previously written off in 1993. In fiscal year 1993,
the Company paid $278,000 in loan fees to a third party relating to the
establishment of a line of credit. After working with this organization for over
90 days, the Company found that they were not licensed by Florida as a loan
broker and the third party's liquidity was questionable. The Company was
uncertain at the end of fiscal year 1993 as to the recovery of the loan fees
advanced to the third party and commenced litigation against that party. At
September 30, 1993, due to concerns over the recoverability of loan fees
advanced, the $278,000 was written off. Five months later, in fiscal 1994, the
Company filed a lawsuit against the entity in which it made the payment and
recovered the entire amount of $278,000, at which time the Company recorded the
recovery as other income.
Income tax benefit - During fiscal 1994, the Company adopted Statement of
Financial Accounting Standards No. 109 (SFAS No. 109) - Accounting for Income
Taxes. SFAS No. 109 requires an asset and liability approach to accounting for
income taxes whereas Accounting Principles Board Opinion No. 11 (APB No. 11)
required a deferral approach. SFAS No. 109 results in the recording of deferred
income tax assets for tax attributes, such as net operating loss carryforwards,
which APB No. 11 did not require to be recognized. SFAS No. 109 also requires
companies to assess their deferred tax assets for realizability and where
management cannot conclude that it is "more likely than not" that the deferred
income tax asset will be realized. SFAS No. 109 requires the recording of a
valuation allowance equal to the portion of the deferred income tax asset deemed
not realizable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
The net deferred tax asset consists primarily of net operating loss
carryforwards. The Company has determined that, over the relevant period, the
reversal patterns of its deferred tax liabilities are such that they offset
similar amounts of deferred tax assets. To realize the benefits of the net
deferred tax asset, the Company will need to generate approximately $5.5 million
of taxable income in the carryforward period. The regular tax carryforward
period for net operating losses extends for 15 years from the year of
origination. Based on expectations for future taxable income, management
believes that it is more likely than not that the net deferred tax assets not
reserved for will be realized before expiration. The future taxable income
assumptions are largely based on increased sales of Overhead Speaker System
units as the Company attains greater penetration in the Jeep Cherokee and
Wrangler models and expands into other Chrysler models and other automobile
companies. The Overhead Speaker System is performing well in its current
applications and is expected to gain broader utilization going forward. (See
Item 8. Financial Statements and Supplementary Data Note 12. Income Taxes for a
discussion of income taxes.)
The Company has reflected in the accompanying financial statements for fiscal
1994 a tax benefit of $2,270,000 which largely consists of a reduction in the
valuation allowance that was established upon adoption of SFAS No. 109 of
$2,209,874. This reduction is based on expectations of future taxable income.
The Company estimates future taxable income by projecting the results of its
business activities based on known factors existing at the current date. The
Company's estimate of future taxable income changed from the beginning of fiscal
1994 due to: (i) greater certainty regarding the Company's OHSS units for Jeep
Cherokee production installation (this application began in September 1993);
(ii) greater penetration in the Grand Cherokee OHSS application being attained;
(iii) the decision by Chrysler to convert its Toledo facility to full
utilization for Jeep Cherokee production, thereby increasing the number of units
the Company would be supplying (previously the Toledo facility produced not only
Jeep Cherokees but also other Chrysler models); (iv) progress, during mid-fiscal
year 1994, in gaining new vehicle applications for the OHSS.
The Company is dependent upon the automobile industry, particularly Chrysler
Corporation. In recent years, sales by the United States automobile
manufacturers including Chrysler have been eroded, due to economic conditions
and foreign competition. However, the Company's sales of OHSS units are aimed at
a niche market consisting of sports and utility vehicles rather than standard
passenger vehicles. Demand for these vehicles has been strong at Chrysler. No
assurances can be given that consumer demand will continue.
The remaining products marketed by the Company may be adversely affected by
economic conditions.
Liquidity and Capital Resources
Net cash flows used in operations during the current fiscal year totaled
$1,800,366. The usage of cash is attributable to a net operating loss excluding
depreciation and amortization, of $2,086,838, a decrease in accounts payable and
accrued liabilities of $107,402, an increase in current assets of $327,035 and
an increase in the tax valuation allowance of $550,000.
Net cash used in investing activities was $2,747,541 of which approximately
$2,017,411 was expended for capital assets and $650,000 was a deposit made to
TSA.
Net cash provided by financing activities was $4,272,682 which included the
exercise of stock options and warrants (exercise prices ranged from $.28 to
$6.50) that generated approximately $2,300,724 in net proceeds. Also, net
proceeds of $1,971,958 were primarily generated from the issuance of senior
subordinated convertible notes. The Company has arranged bank financing with
First Union National Bank of Florida, ("the Bank"). On October 12, 1995, the
Company increased its line of credit with the Bank to $6,000,000 with $1,500,000
being available for short term working capital and $4,500,000 to be used
exclusively for the purchase of OSAs. The entire facility bears interest at .85%
over the prime rate, is governed by specific financial covenants and ratios
limiting accessibility, and is secured by substantially all of the assets of the
Company. The Company believes that the $1,500,000 working capital line of credit
will be renewed upon its expiration on January 31, 1996. The$4,500,000 line
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, (continued)
of credit expires on December 31, 1997. The Company has expanded its credit
facility with the Bank in order to be able to finance the roll-out of the OSAs
and purchase OSAs from TJA based on anticipated orders received from customers.
The maximum utilization of the working capital line of credit occurred in May
1995 in the amount of $550,000. This amount was subsequently repaid in June
1995. As of the date of this report, no amounts were outstanding on either line.
On June 9, 1995, the Company entered into an agreement with advisory clients of
Ganz Capital Management, Inc. ("Ganz") whereby the holders would purchase
$3,020,000 in senior subordinated convertible notes from the Company. In June
1995, the Company issued $2,060,000 of nine per cent (9%) convertible notes
maturing in June 2000. After June 9, 1996, the notes can be prepaid by the
Company without penalty, and can be converted by the holders into fully
registered shares of the Company's common stock at a conversion price of $10 per
share. The Company issued the remaining $960,000 in notes and received the
related proceeds in October 1995. The proceeds from these notes will be used to
fund operations and the deployment of the OSAs.
Based on current cash balances, current bank lines and cash flows generated from
expense reductions and efficiency improvements, the Company believes it has
sufficient cash flow to fund its current operations and finance the deployment
of a substantial number of OSA units.
Inflation
The impact of inflation has become less significant with dormant inflation rates
in recent years. The Company believes inflation has not had a material effect on
the Company's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX Page
Report of Independent Certified Public Accountants...........................18
Consolidated Balance Sheets as of September 30, 1995 and 1994................19
Consolidated Statements of Operations for the Years Ended September 30, 1995,
1994, and 1993 .............................................................20
Consolidated Statements of Stockholders' Equity for the Years Ended September
30, 1995, 1994 and 1993......................................................21
Consolidated Statements of Cash Flows for the Years Ended September 30, 1995,
1994 and 1993................................................................22
Notes to Consolidated Financial Statements...................................23
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of Top Source Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Top Source
Technologies, Inc., (a Delaware corporation) and subsidiaries as of September
30, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for the three years ended September 30,
1995, 1994 and 1993. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Top Source Technologies, Inc.
and subsidiaries as of September 30, 1995 and 1994 and the results of their
operations and their cash flows for the three years ended September 30, 1995,
1994 and 1993 in conformity with generally accepted accounting principles.
As explained in Note 12 to the financial statements, effective October 1, 1993,
the Company changed its method of accounting for income taxes.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The financial statement schedule II is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
West Palm Beach, Florida ARTHUR ANDERSEN LLP
December 13, 1995
<PAGE>
TOP SOURCE TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1995 AND 1994
ASSETS 1995 1994
Current Assets: -------------------------
Cash and cash equivalents 1,154,137 1,429,362
Accounts receivable trade (net of allowance of
$145,703 and $150,000 in 1995 and 1994, respectively 3,489,791 3,363,560
Advance to officer -- 40,000
Inventories 468,169 356,498
Prepaid expenses 436,738 307,605
Other 82,258 262,875
-------------------------
Total current assets 5,631,093 5,759,900
Property and equipment, net 3,244,723 2,204,858
Manufacturing and distribution rights and patents, net 366,765 376,799
Capitalized database, net 2,705,693 2,916,527
Intangible assets relating to businesses acquired, net 4,768,470 4,869,746
Deferred income tax assets, net 1,720,000 2,270,000
Other assets, net 808,695 82,125
-------------------------
TOTAL ASSETS 19,245,439 18,479,955
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 1,279,761 1,605,322
Accrued salaries 318,621 119,483
Accrued other liabilities 681,961 538,296
Deferred service revenue 499,998 624,642
Note payable-affiliate -- 88,042
-------------------------
Total current liabilities 2,780,341 2,975,785
Senior subordinated convertible notes 2,060,000 --
-------------------------
Total liabilities 4,840,341 2,975,785
Commitments and contingencies (Notes 10 and 13)
Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares
authorized; none outstanding
Common stock, $.001 par value, 50,000,000 shares
authorized; 27,731,477 and 26,716,395 shares
issued in 1995 and 1994, respectively 27,731 26,716
Additional paid-in capital 27,514,154 25,214,445
Accumulated deficit (13,005,002) (9,605,206)
Treasury stock-at cost; 87,534 shares (131,785) (131,785)
-------------------------
Total stockholders' equity 14,405,098 15,504,170
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 19,245,439 18,479,955
=========================
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets
TOP SOURCE TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,1995,1994 AND 1993
1995 1994 1993
-------------------------------------
Product sales 13,893,459 9,203,938 2,423,488
Service revenue 5,075,347 5,878,281 1,345,465
Other -- 55,643 112,852
-------------------------------------
Net sales 18,968,806 15,137,862 3,881,805
Cost of product sales 8,739,691 5,596,167 2,080,400
Cost of services 4,308,591 4,593,539 1,018,466
Other -- 10,151 63,796
-------------------------------------
Cost of sales 13,048,282 10,199,857 3,162,662
-------------------------------------
Gross profit 5,920,524 4,938,005 719,143
Expenses:
General and administrative 5,766,626 3,227,761 2,750,428
Selling and marketing 1,681,149 1,075,076 525,883
Professional fees 448,114 371,323 206,184
Depreciation and amortization 897,530 484,809 279,994
Research and development 76,151 265,330 154,643
-------------------------------------
Total expenses 8,869,570 5,424,299 3,917,132
-------------------------------------
Loss from operations (2,949,046) (486,294) (3,197,989)
Other income (expense):
Interest income 62,845 42,219 13,367
Interest expense (62,627) (68,305) (79,361)
Interest expense-affiliate -- (11,066) (38,150)
Other income (expense), net 159,032 268,023 (308,093)
-------------------------------------
Net other income (expense) 159,250 230,871 (412,237)
-------------------------------------
Net loss before income taxes (2,789,796) (255,423) (3,610,226)
Income tax benefit (expense) (610,000) 2,270,000 --
-------------------------------------
Net income ( loss) (3,399,796) 2,014,577 (3,610,226)
=====================================
Net loss per weighted average common share
outstanding (0.12) (0.18)
============ =============
Weighted average common shares outstanding 27,249,541 19,613,887
============ =============
Net income per common and common
equivalent share:
Primary 0.07
============
Fully diluted 0.07
Weighted average common and common ============
equivalent shares:
Primary 28,381,211
============
Fully diluted 28,728,488
============
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
TOP SOURCE TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
SHARES AMOUNT
BALANCE, SEPTEMBER 30, 1992 17,931,219 $17,931
Exercise of stock options ($.28125 to $1.25 per share) 467,541 468
Exercise of warrants ($.01 to $1.6875 per share) 1,158,700 1,159
Sale of common stock ($1.27 to $1.50 per share) 4,073,439 4,073
Common stock issued in acquisitions ($2.0625
to $3.375 per share) 700,000 700
Write-off of deferred offering costs
Amortization of deferred officers' compensation -- --
Net loss -- --
-------------------------
BALANCE, SEPTEMBER 30, 1993 24,330,899 24,331
Exercise of stock options ($.28125 to $6.00 per share) 708,800 709
Exercise of warrants ($1.00 to $3.00 per share) 1,052,300 1,052
Sale of common stock ($1.75 per share) 550,000 550
Common stock issued in acquisition ($6.62 per share) 74,396 74
Amortization of deferred officers' compensation -- --
Net income -- --
-------------------------
BALANCE, SEPTEMBER 30, 1994 26,716,395 26,716
Exercise of stock options ($.28 to $6.50 per share) 1,015,082 1,015
Net loss -- --
-------------------------
BALANCE, SEPTEMBER 30, 1995 27,731,477 $27,731
========================
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT
BALANCE, SEPTEMBER 30, 1992 $10,022,155 ($8,009,557)
Exercise of stock options ($.28125 to $1.25 per share) 458,791 --
Exercise of warrants ($.01 to $1.6875 per share) 1,618,169 --
Sale of common stock ($1.27 to $1.50 per share) 5,260,335 --
Common stock issued in acquisitions ($2.0625
to $3.375 per share) 2,230,550 --
Write-off of deferred offering costs -- --
Amortization of deferred officers' compensation -- --
Net loss -- (3,610,226)
-------------------------
BALANCE, SEPTEMBER 30, 1993 19,590,000 (11,619,783)
Exercise of stock options ($.28125 to $6.00 per share) 1,275,722 --
Exercise of warrants ($1.00 to $3.00 per share) 2,894,346 --
Sale of common stock ($1.75 per share) 961,950 --
Common stock issued in acquisition ($6.62 per share) 492,427 --
Amortization of deferred officers' compensation -- --
Net income -- 2,014,577
-------------------------
BALANCE, SEPTEMBER 30, 1994 25,214,445 (9,605,206)
Exercise of stock options ($.28 to $6.50 per share) 2,299,709 --
Net loss -- (3,399,796)
-------------------------
BALANCE, SEPTEMBER 30, 1995 $27,514,154 ($13,005,002)
=========================
DEFERRED
OFFICERS' TREASURY
COMPENSATIONSTOCK
BALANCE, SEPTEMBER 30, 1992 ($38,834) ($131,785)
Exercise of stock options ($.28125 to $1.25 per share) -- --
Exercise of warrants ($.01 to $1.6875 per share) -- --
Sale of common stock ($1.27 to $1.50 per share) -- --
Common stock issued in acquisitions ($2.0625
to $3.375 per share) -- --
Write-off of deferred offering costs -- --
Amortization of deferred officers' compensation 24,884 --
Net loss -- --
-------------------------
BALANCE, SEPTEMBER 30, 1993 (13,950) (131,785)
Exercise of stock options ($.28125 to $6.00 per share) -- --
Exercise of warrants ($1.00 to $3.00 per share) -- --
Sale of common stock ($1.75 per share) -- --
Common stock issued in acquisition ($6.62 per share) -- --
Amortization of deferred officers' compensation 13,950 --
Net income -- --
-------------------------
BALANCE, SEPTEMBER 30, 1994 -- (131,785)
Exercise of stock options ($.28 to $6.50 per share) -- --
Net loss -- --
-------------------------
BALANCE, SEPTEMBER 30, 1995 $-- ($131,785)
=========================
DEFERRED TOTAL
OFFERING STOCKHOLDERS'
COSTS EQUITY
BALANCE, SEPTEMBER 30, 1992 ($22,250) $1,837,660
Exercise of stock options ($.28125 to $1.25 per share) -- 459,259
Exercise of warrants ($.01 to $1.6875 per share) -- 1,619,328
Sale of common stock ($1.27 to $1.50 per share) -- 5,264,408
Common stock issued in acquisitions ($2.0625
to $3.375 per share) -- 2,231,250
Write-off of deferred offering costs 22,250 22,250
Amortization of deferred officers' compensation -- 24,884
Net loss -- (3,610,226)
-------------------------
BALANCE, SEPTEMBER 30, 1993 -- 7,848,813
Exercise of stock options ($.28125 to $6.00 per share) -- 1,276,431
Exercise of warrants ($1.00 to $3.00 per share) -- 2,895,398
Sale of common stock ($1.75 per share) -- 962,500
Common stock issued in acquisition ($6.62 per share) -- 492,501
Amortization of deferred officers' compensation -- 13,950
Net income -- 2,014,577
-------------------------
BALANCE, SEPTEMBER 30, 1994 -- 15,504,170
Exercise of stock options ($.28 to $6.50 per share) -- 2,300,724
Net loss -- (3,399,796)
-------------------------
BALANCE, SEPTEMBER 30, 1995 $-- $14,405,098
========================
TOP SOURCE TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,1995,1994 AND 1993
1995 1994 1993
OPERATING ACTIVITIES: -------------------------------------
Net income (loss) (3,399,796) 2,014,577 (3,610,226)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation 941,992 447,919 267,109
Amortization 370,966 427,474 76,726
Discount amortization -- 52,052 44,044
Amortization of deferred officers'
compensation -- 13,950 24,884
Disposal of property and equipment 70,487 45,151 349,318
Provision for doubtful accounts (4,297) 136,855 22,250
Deferred income taxes (75,000) (33,126) --
Increase (decrease) in deferred income
tax assets, net 625,000 (2,236,874) --
Advances to officers (45,000) (140,000) --
Repayments from officers 85,000 100,000 --
Increase in accounts receivable, net (121,934) (2,143,976) (831,478)
Increase in inventories (111,671) (92,974) (249,032)
Decrease (increase) in prepaid expenses (129,133) (208,269) 25,285
Decrease (increase) in other assets 100,422 (270,776) 54,138
Increase (decrease) in accounts payable (325,561) 498,526 561,766
Increase (decrease) in accrued liabilities 342,803 (395,080) 331,213
Increase (decrease) in deferred revenue (124,644) 415,391 --
-------------------------------------
Net cash used in operating activities (1,800,366) (1,369,180) (2,934,003)
INVESTING ACTIVITIES:
Purchases of property and equipment, net (2,017,411) (1,335,484) (617,257)
Additions to patent costs (80,130) (138,088) (6,225)
Decrease (increase) in other assets (650,000) -- 57,107
Purchase of businesses, net -- (96,324) (3,835,260)
-------------------------------------
Net cash used in investing activities (2,747,541) (1,569,896) (4,401,635)
FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 2,300,724 5,237,858 7,935,763
Commissions and expenses on stock sales -- (103,529) (632,614)
Proceeds from borrowings 4,460,000 600,000 500,000
Repayments of borrowings (2,488,042) (1,728,242) (633,880)
-------------------------------------
Net cash provided by financing activities 4,272,682 4,006,087 7,169,269
-------------------------------------
Net increase (decrease) in cash and
cash equivalents (275,225) 1,067,011 (166,369)
Cash and cash equivalents at beginning
of period 1,429,362 362,351 528,720
-------------------------------------
Cash and cash equivalents at end of period 1,154,137 1,429,362 362,351
=====================================
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Top Source Technologies, Inc. (the "Company") is focused on
developing and commercializing state-of-the-art technologies for use in the
transportation, industrial and petrochemical marketplaces.
The Company concentrates on two industry segments: automotive technology and oil
analysis service. Within these two segments, the Company has two proprietary
technologies: one patented product - an Overhead Speaker System; and one
service, oil analysis which includes both the United Testing Group, Inc. ("UTG")
(consisting of three oil analysis laboratories); and the On-Site Analyzer
(developed jointly with the Thermo Jarrell Ash ("TJA") Division of Thermo
Instrument Systems, Inc.), which is a proprietary oil analysis instrument that
combines two spectrometers in order to analyze both new or used oil in eight
minutes at the end-user's site; and one technology licensed from the
Massachusetts Institute of Technology ("M.I.T."), ARCS (a safety and restraint
technology).
The Company provides the initial financing, management and outside consultants
needed to adequately research, develop and test technologies, and the marketing
and sales expertise required to develop and implement programs to commercialize
technologies.
The Company seeks technologies that satisfy global market demands and provide
solutions to problems in areas such as safety, efficiency, diagnostics, and
others. Technologies in both initial and mature stages are reviewed for their
potential commercialization in accordance with this philosophy.
Revenue is currently derived primarily from sales of the Overhead Speaker System
for both production line and dealership installed units and from the sale of oil
analysis services.
Basis of Presentation - Certain 1994 and 1993 amounts have been reclassified to
conform to the current year presentation.
Cash Equivalents - The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Revenue Recognition - The Company recognizes revenue from sales of its products
(Automotive Technology segment) at the time the products are shipped. On October
1, 1994, the Company changed its method of revenue recognition for its oil
analysis test kits (oil analysis service segment). Previously, the Company
recorded revenue from the advance billing of unprocessed test kits mailed to
customers to collect oil samples and accrued an estimated cost amount for
processing such kits. Under the new policy, the Company recognizes revenue from
the performance of its oil analysis services (oil analysis service segment) at
the time the service is rendered. Advance billings for oil analysis services are
considered deferred revenue until such time as the oil analysis service is
rendered.
Through the use of computer modeling techniques, creation of a new software
program to track test kits by identification numbers and based on an analytic
review of the activity of major customers, the Company has determined that
retroactive application of this revised method to correct the accounting error
from using the previous method from the period October 1, 1993 through September
30, 1994 would have resulted in an immaterial net change in net income for the
period. In order to reflect the change in revenue recognition method, the
caption in the liability section of the Company's balance sheet at September 30,
1994 was changed from "Accrued Testing Costs" to "Deferred Service Revenue".
Advance billings for oil analysis service will now be considered deferred
revenue until such time as the oil analysis is rendered.
Inventories - Inventories are stated at the lower of cost or market and are
valued by the first-in, first-out (FIFO) method.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
Property and Equipment - Property and equipment are stated at cost. Repairs and
maintenance costs are charged to expense as incurred. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets, or the lease term if shorter in the case of
leasehold improvements, ranging from two to twelve years. When property or
equipment is retired or otherwise disposed of, the cost less related accumulated
depreciation is removed from the accounts and the resulting gains or losses are
included in other expense in the accompanying statements of operations.
Manufacturing and Distribution Rights and Patents - These assets are valued at
the lower of cost or net realizable value and are being amortized using the
straight-line method over the terms of the agreements or life of the patents,
ranging from ten to thirteen years.
Intangible Assets - Intangible assets primarily consist of the cost of acquired
businesses in excess of the fair value of net tangible and identifiable
intangible assets acquired (See Note 7.) The cost in excess of the fair value of
net tangible and identifiable intangible assets is being amortized on a
straight-line basis over 40 years. The capitalized database is being amortized
over 15 years using the straight-line method. Subsequent to its acquisitions,
the Company continually evaluates factors, events and circumstances which
include, but are not limited to, the historical and projected operating
performance of acquired businesses, specific industry trends and general
economic conditions to assess whether the remaining estimated useful life of
intangible assets may warrant revision or that the remaining balance of
intangible assets may not be recoverable. When such factors, events or
circumstances indicate that intangible assets should be evaluated for possible
impairment, the Company uses an estimate of undiscounted cash flow over the
remaining lives of the intangible assets in measuring their recoverability.
Research and Development - The costs associated with research and development of
products and technologies are expensed as incurred.
Quarterly Information - During the fourth quarter of fiscal 1994, the Company
expensed as compensation an amount for the acceleration of option vesting
related to an officer's severance agreement and capitalized certain costs
related to the On-Site Analyzer (OSA) operation that relate to prior quarters of
fiscal 1994. The following indicates the impact on the fiscal 1994 quarters'
pretax income (loss) of these two items:
<TABLE>
<S> <C> <C> <C> <C>
Q1 Q2 Q3 Q4
Pretax income (loss), as reported $251,265 $ 513,265 $(482,681) $(537,272)
Option Compensation - (262,813) -- 262,813
OSA Capitalized Costs 6,124 (42,418) 57,068 (20,774)
-------- --------- --------- ---------
Pretax income (loss), as adjusted $257,389 $ 208,034 $(425,613) $(295,233)
========= ========= ======== =========
</TABLE>
During the fourth quarter of fiscal 1995, the Company recorded an additional
valuation allowance in the amount of $550,000. (See Note 12.)
2. ACQUISITIONS
In January 1994, the Company acquired the assets of Pro-Tech Oil Analysis
(Pro-Tech) of Sparks, Nevada. The total purchase price of $589,075 consisted of
approximately $96,324 in cash and issuance of 74,396 shares of the Company's
common stock which were valued at $6.625 per share, the closing market price on
the date of the transaction.
In July 1993, the Company acquired certain assets (exclusive of accounts
receivable) of the oil analysis business of Professional Service Industries,
Inc. ("PSI") for approximately $2,905,000 in cash. The assets consist of
tangible assets, including laboratory equipment, computers, automobiles and
office equipment. The Company also assumed the vacation liability to employees
to be retained and the requirement to process a certain amount of samples sold
prior to closing but not as of that date returned for processing.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
2. ACQUISITIONS, (continued)
The Company acquired all of the outstanding stock of Spectro/Metrics, Inc.
("SMI") in July 1993. The cost of the acquisition, a ten-year non-compete
agreement and a four-year employment agreement was $4,800,000. The purchase
price was paid by a $1,670,000 note, $780,000 in cash and 100,000 shares of
common stock of the Company valued at $1.50 per share. These shares were
recorded at the fair market value on the date of issuance, $2.0625 per share,
which differed from the rate attributed to them in the purchase agreement. The
non-compete agreement cost was $600,000, to be paid over a three-year period,
and the employment agreement contained an annual base salary of $400,000.
In September 1993, the original purchase agreement was amended. The amendment
included the issuance of 600,000 shares of common stock of the Company, with a
guaranteed minimum value of $3.375 per share, a portion of which was considered
full consideration for the cancellation of the previous $1,670,000 note. Two
promissory notes totaling $835,592 were issued (See Note 9) and additional cash
payments of $210,000 were made. The original ten-year non-compete agreement was
canceled and the annual base salary, under the four-year employment agreement to
an officer of the Company (see Note 13) was reduced to $200,000. PSI and SMI
were later merged and a new subsidiary, UTG was formed.
The above acquisitions were accounted for under the purchase method of
accounting and, accordingly, the results of operations of the businesses
acquired are included in the consolidated statements of operations for the
respective years of acquisition for the period from the dates of the
acquisitions. (See Note 7).
The unaudited pro forma consolidated results of operations of the Company, as if
the PSI and SMI acquisitions had been made at the beginning of the fiscal year
in the period ended September 30, 1993, are as follows:
Year Ended
1993
Net sales $ 9,392,146
===========
Net loss $(3,292,857)
============
Net loss per common share (.14)
===============
The Pro-Tech acquisition was not material and therefore is not included in the
above table.
3. STATEMENTS OF CASH FLOWS
There were no noncash investing activities for the year ended September 30,
1995. Noncash investing activities for the years ended September 30, 1994 and
1993 are as follows:
1994 1993
---- ----
Accounts Receivable $ (208,484) $ 148,298
Property and equipment - 652,115
Capitalized database - 3,162,500
Other - 120,100
Intangibles 1,337,092 3,697,559
Liabilities assumed (539,783) (878,470)
Issuance of stock in connection with the
acquisitions (492,501) 2,231,250)
Issuance of notes payable in connection
with the acquisition of SMI - (835,592)
-------------- ---------
Cash used in acquisitions $ 96,324 $3,835,260
========== =========
The 1994 amounts include the preliminary purchase price allocations for the
Pro-Tech acquisition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
3. STATEMENTS OF CASH FLOWS (continued)
There were no noncash financing activities during 1995 and 1994. Noncash
financing activities during 1993 consisted of the following:
1993
----
Issuance of warrants in connection with notes payable $ 96,096
Discount on notes payable in connection with the issuance
of warrants (96,096)
-------
Cash paid $ -
=======
4. INVENTORIES
Inventories consisted of the following at September 30, 1995 and 1994:
1995 1994
-------- --------
Raw materials $395,999 $292,211
Finished goods 72,170 64,287
-------- --------
$468,169 $356,498
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 1995 and
1994:
<TABLE>
Useful
Life (Years) 1995 1994
---- ----
------------
<S>
<C> <C> <C>
Equipment .................................................... 2-12 $ 1,360,009 $1,142,086
Computer Equipment ........................................... 3-4 1,261,950 565,472
On-Site Analyzers ............................................ 4-5 1,015,101 746,033
Tooling ...................................................... 2 832,891 231,669
Furniture and fixtures ....................................... 3-5 286,731 198,079
Vehicles and delivery equipment .............................. 3 102,893 107,409
Leasehold improvement ........................................ 2-5 163,945 107,715
----------- ----------
5,023,520 3,098,463
Less: accumulated depreciation .............................. (1,778,797) (893,605)
----------- ----------
$ 3,244,723 $2,204,858
</TABLE>
Depreciation of tooling and production equipment in the amount of $415,428 and
$337,380 for the years ended September 30, 1995 and 1994, respectively, has been
allocated to cost of sales as it directly relates to the services and products
sold.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
6. MANUFACTURING AND DISTRIBUTION RIGHTS AND PATENTS
Manufacturing and distribution rights and patents consisted of the following at
September 30, 1995 and 1994:
<TABLE>
Useful
Life (Years) 1995 1995
--------- --------- --------
<S> <C> <C> <C>
<C> <C> <C>
Manufacturing rights ................................................ 13 $ 58,438 $ 58,438
Distribution rights ................................................. 13 437,501 437,501
Patents ............................................................. 10 218,964 175,392
--------- --------
714,903 671,331
Less: accumulated amortization ...................................... (348,138) (294,532)
--------- --------
$ 366,765 $376,799
========= ========
</TABLE>
OHSS (Overhead Speaker System)
The Company has the exclusive right to produce and sell Pelo Sound products in
North, Central and South America and a non-exclusive right to produce and sell
the products in all other areas of the world, excluding Europe. The value of
these rights is being amortized over 13 years, and have a remaining net book
value of $26,697.
The Company has distribution rights acquired from B&R International Imports,
Corp. related to its Overhead Speaker System. The net book value of these
rights, which are being amortized over 13 years, is $152,825 at September 30,
1995. The Company also has patents on the OHSS relating to improvements and
perfections on the Overhead Speaker System. The net book value of these patents,
which is being amortized over ten years is $53,304.
OSA (On-Site Analyzer)
OSA, Inc. has been granted two patents on unique technology critical to the
operations of its On-Site Analyzer. The Company is carrying net assets of
$36,937 relating to patents on the OSA in the accompanying balance sheet at
September 30, 1995.
ARCS (Acceleration Restraint Curve Safety Seat)
In September 1990, the Company entered into an exclusive licensing agreement
with M.I.T. for certain technologies associated with the ARCS Seat Safety Motion
whereby M.I.T. would share in any revenue produced from the technologies. M.I.T.
shall receive 5% of any sublicense revenue and one-half of one percent (.5%) of
Net Sales of Licensed Products or Licensed Processes, as defined. These licensed
technologies have contributed to the research, development and design efforts
for the Company's ARCS project. No revenues were recorded in fiscal 1995.
The Company has a net book value of $91,576 manufacturing and distribution
rights and patents related to the ARCS Seat Safety Device included in the
accompanying balance sheet as of September 30, 1995.
EFECS (Engine Fuel Economy Emission Control Reduction System) Fuel Saving Device
(See Note 19.)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. INTANGIBLE ASSETS
Intangible assets consisted of the following at September 30, 1995 and 1994:
<TABLE>
Useful
Life (Years) 1995 1994
---- ----
------------
<S> <C> <C> <C>
Capitalized database ...................... 15 $ 3,162,500 $3,162,500
Less: accumulated amortization (456,807) (245,973)
-------- --------
$ 2,705,693 $2,916,527
============ ==========
............. 40 $ 5,034,651 $5,034,651
Intangible assets relating to business. (266,181) (164,905)
Less: accumulated amortization ----------- ----------
$ 4,768,470 $4,869,746
=========== ==========
</TABLE>
The capitalized database contains an active library of engine and machine tests
that have a diagnosed history. The value of the capitalized base was determined
based on an assessment of the number of samples included in the database and a
per unit cost to develop/buy the data. The 15-year amortization period is
supported by an independent study of the expected life in use of each engine
type in the database. Intangible assets related to businesses acquired consist
of the excess of purchase price over estimated fair value of net tangible and
identifiable intangible assets acquired. (See Notes 2 and 3).
8. OTHER ASSETS
Included in other assets at September 30, 1995 is a $650,000 deposit which was
made to the manufacturer of the OSA units.
9. DEBT
<TABLE>
<S>
<C> <C>
Notes payable at September 30, 1995 and 1994 are as follows: 1995 1994
---------- ------
Senior Subordinated convertible notes, due June 2000, bearing
interest at 9% ............................................. $2,060,000 $ --
========== ======
Note payable-affiliate, payable to sellers of SMI,
non-interest bearing $ - $ 88,042
========== ========
</TABLE>
On June 9, 1995, the Company entered into an agreement with advisory clients of
Ganz Capital Management, Inc. ("Ganz") whereby the holders would purchase
$3,020,000 in senior subordinated convertible notes from the Company. In June
1995, the Company issued $2,060,000 of nine percent (9%) convertible notes
maturing in June 2000. After June 9, 1996, the notes can be prepaid by the
Company without penalty and can be converted by the holders into fully
registered shares of the Company's common stock at a conversion price of $10 per
share. The Company issued the remaining $960,000 in notes and received the
related proceeds on October 12, 1995. If there is a change in control of the
Company, as defined in the agreement, there is a mandatory prepayment due for
any amounts outstanding relating to the notes.
In November 1994, the Company entered into a $5,000,000 Loan Agreement, which
was subsequently amended, with the First Union National Bank of Florida (the
"Bank"). The agreement stipulated that $4,500,000 (OSA Line) of the proceeds
could be used for the purchase of certain OSAs. The agreement also indicates
that $500,000 would be available for short-term working capital through January
31, 1996. In April 1995 the short-term working capital line was increased by
$250,000 and subsequently increased by an additional $750,000 in October 1995
for an aggregate of $1,500,000 of borrowing capacity. The Bank is not required
to fund any part of the OSA Line until such time as the Company has paid to
Thermo Jarrell Ash (TJA) $1,900,000 or purchased 31 OSAs for a total purchase
price of $1,250,000 without Bank funding. As of September 30, 1995, the Company
has paid $1,285,018 toward the above $1,900,000 requirement.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. DEBT (continued)
Those OSAs purchased with proceeds from the OSA line are required to be leased
to the Company's customers and meet certain conditions, such as acceptable term
of lease, inspection, and creditworthiness of lessee. OSAs purchased with
sources of funds other than Bank financing do not need to be leased to the
Company's customers. The Loan Agreement is secured by each OSA unit purchased by
the Company along with all of the Company's other assets, including leases for
any of the OSA units and a $650,000 deposit paid by the Company to TJA. During
the term of the loan, the Company is required to meet certain financial
covenants as well as pay a commitment fee on the OSA line unused funds.
Amounts outstanding under the Loan Agreement bear interest at the prime rate
plus .85% and interest only is payable monthly. A principal payment will be
required that is sufficient to reduce the principal amount outstanding, if any,
to $2,250,000 on December 31, 1996 with any remaining amounts outstanding being
due and payable on December 31, 1997. The Company has expanded its bank facility
in order to be able to finance the roll-out of the OSAs and purchase OSAs from
TJA. As of September 30, 1995 no amounts were outstanding under this Loan
Agreement.
In July 1993, a $1,670,000 note was issued to the former owners of SMI as part
of the acquisition of SMI. The note was subsequently canceled in connection with
the issuance of 600,000 shares of the Company's common stock valued at
$2,025,000. Two non-interest bearing notes were then issued totaling $835,592.
Interest on the note due October 31, 1994 was imputed at the fair market value
rate of 3.87% in fiscal 1994 and the balance outstanding of $88,042 at September
30, 1994 for this note was paid in full in November 1994.
Cash paid for interest for the years ended September 30, 1995, 1994 and 1993 was
$60,300, $16,253 and $73,467, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space under noncancelable operating leases. Future
minimum rental commitments under these leases is as follows:
Fiscal Year Ending September 30:
1996 $451,171
1997 373,094
1998 320,365
1999 275,942
2000 143,325
Thereafter -
The lease commitments schedule above excludes the lease for the Company's
corporate offices in Palm Beach Gardens, Florida, which can be canceled at any
time through April 15th of each lease year upon 30 days notice. (See Item 2.
Description of Property)
Total rental expense amounted to $447,170, $347,555 and $107,982 for the years
ended September 30, 1995, 1994, and 1993, respectively.
The Company has commitments under certain employment agreements entered into
with individuals in management positions. The payments due under these
agreements aggregate $474,300 and are payable during fiscal 1996. Two executives
are eligible to receive an incentive payment of half of their base salary if the
Company's net operating income as a percentage of net sales exceeds eight
percent. This incentive payment could be as high as twice the base salary if
this percentage is 20 percent or greater. (See Note 13 for incentive
compensation based on revenue.) Also, an executive is eligible for a 3%
commission on the cumulative gross profit from OSA, Inc. There were no amounts
due related to the incentive payments or the 3% commission in fiscal 1995, 1994
and 1993.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (continued)
The Company enacted a Retirement Salary Savings Plan (401(k)) (the "Plan")
effective October 1, 1993. All employees that were employed on October 1, 1993
were eligible to join the Plan. Otherwise, they will be eligible to participate
in the Plan if they have completed three months of service and have attained the
age of 21. The enrollment dates are the first day of each quarter. The Company
will match 25% of each dollar contributed by an employee to the Plan on the
first 6% of the salary deferral, not to exceed 1 1/2% of the employee's total
salary eligible under the Plan. The cost the Company incurred for matching
employee contributions and administrative costs during fiscal 1995 and 1994 was
approximately $57,384 and $42,530 respectively.
The Company has from time to time incurred expenses associated with litigation
defense and payment of settlements or judgments in connection with its
businesses. The Company believes that such litigation and other legal matters
should not have a significant adverse effect on the Company's financial position
or results of operations.
11. NET INCOME (LOSS) PER SHARE
The Company utilizes the treasury stock method for computing net income per
share. Net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding after reduction for treasury shares.
The common stock options and warrants (See Note 17) have been excluded from the
net loss per share calculation since their inclusion would have been
anti-dilutive.
12. INCOME TAXES
In February 1992, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes".
The Company implemented SFAS No. 109 in fiscal 1994 by accounting for the
cumulative effect of the change in the period of adoption. The cumulative effect
upon adoption was not material. SFAS No. 109 changed the method of computing
deferred income taxes from a deferred method to a liability method. Under the
liability method, deferred income taxes are determined based on temporary
differences between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect during the years in which the
differences are expected to reverse, and on available tax carryforwards.
The income tax expense (benefit) for the years ended September 30, 1995 and 1994
consists of the following components:
Current: 1995 1994
---- ----
Federal $(839,000) $ (27,000)
State 60,000 -
----------- ----------
$(779,000) (27,000)
---------- ----------
Deferred:
Federal (64,000) (28,157)
State (11,000) (4,969)
----------- ----------
(75,000) (33,126)
----------- -----------
Increase (reduction
in beginning
of the year valuation
allowance 1,464,000 (2,209,874)
---------- ----------
$ 610,000 $(2,270,000)
========== ============
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
12. INCOME TAXES (continued)
A reconciliation of the federal income tax expense (benefit) at the statutory
rate to the Company's effective income tax benefit for the years ended September
30, 1995 and 1994 are as follows:
1995 1994
----------- -----------
Income tax benefit at statutory rate ........... $(949,000) $ (86,844)
State income tax expense (benefit) ............. 40,000 (15,325)
Increase (reduction) in valuation allowance, net 1,464,000 (2,209,874)
Non-deductible expenses ........................ 55,000 33,696
Other .......................................... -- 8,347
----------- -----------
$ 610,000 $(2,270,000)
=========== ===========
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The Company has determined, based
on expected future taxable income which can be predicted with reasonable
certainty, that it is more likely than not that the net deferred tax assets at
September 30, 1995 will be realized before the expiration of the underlying net
operating loss carryforwards
The reduction in the valuation allowance of $2,209,874 in 1994 was based on
expectations of future taxable income. The Company estimates future taxable
income by projecting the results of its business activities based on known
factors existing at the current date. The Company's estimate of future taxable
income changed from the beginning of fiscal 1994 due to: (1) greater certainty
regarding the Company's OHSS units for Jeep(R) Cherokee production installation
(this application began in September 1993); (2) greater penetration in the
Jeep(R) Grand Cherokee OHSS application being attained; (3) the decision by
Chrysler to convert its Toledo facility to full utilization for Jeep Cherokee
production, thereby increasing the number of units the Company would be
supplying (previously the Toledo facility produced not only Jeep(R) Cherokees
but also other Chrysler models; and (4) progress, during mid-fiscal year 1994,
in gaining new vehicle applications for the OHSS.
An additional valuation allowance in the amount of $550,000 has been established
for a portion of the deferred income tax asset recorded at September 30, 1994 as
a result of the Company not meeting expectations of taxable income for fiscal
1995.
The Company has recorded a deferred income tax benefit and related deferred
income tax asset based on the pre-tax loss for fiscal 1995. A valuation
allowance in the same amount has been established since the Company's assessment
for future taxable income expected in fiscal 1996 and beyond has remained in
principal unchanged.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 1995
and 1994 are as follows:
1995 1994
----------- -----------
Deferred tax assets:
Book operating losses ................. $ 5,547,000 $ 4,784,500
Expenses for book, not for tax 116,000 92,000
----------- -----------
5,663,000 4,876,500
----------- -----------
Deferred tax liabilities:
Capitalized database .................. (1,082,000) (1,167,000)
Excess book over tax basis of
acquired property and equipment ...... -- (60,000)
Tax over book depreciation ............ (118,000) (129,374)
Other, primarily deductible intangibles
amortization ......................... (115,000) (86,000)
----------- -----------
(1,315,000) (1,442,374)
----------- -----------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
12. INCOME TAXES (continued)
Net deferred assets before 1995 1994
----- ----
valuation allowance 4,348,000 3,434,126
Less valuation allowance (2,628,000) (1,164,126)
----------- -----------
Net deferred tax assets $1,720,000 $2,270,000
========== ==========
At September 30, 1995, the Company has net tax basis Federal operating loss
carryforwards of approximately $19,838,000, which may be used to offset future
taxable income, if any. The Company's net operating loss carryforwards begin
expiring in 2001. Expiration of the net operating loss carryforwards will occur
as follows:
Year Net Operating
Expiring Loss
2001 $ 124,000
2002 306,000
2003 721,000
2004 1,466,000
2005 1,733,000
2006 1,432,000
2007 2,144,000
2008 3,774,000
2009 686,000
2010 7,452,000
---------
$19,838,000
===========
13. RELATED PARTY TRANSACTIONS
In fiscal 1993, the President and Chief Executive Officer (CEO) of the Company
entered into a new employment agreement. The term of this employment agreement
is five years through August 18, 1998. The agreement provides for a base annual
salary of $200,000 per year. The Company's Compensation Committee will review
the base salary annually during the term, and may increase, but not decrease,
the base salary. Additionally, the new agreement calls for incentive
compensation payments based upon the following: (1) revenue (at the rate of 1%
of quarterly revenue, if quarterly revenue exceeds $6.25 million and descending
downward to the rate of .75% of quarterly revenue if it is between $6.25 million
to $12.5 million and .5% of quarterly revenue if quarterly revenue is over $12.5
million), and (2) profitability (at the rate of 50% of the incentive amount
based on revenue if net income is 8% of net sales, up to a rate of twice the
incentive amount based on revenue if net income is 20% or greater) of the
Company during the term, payable after the end of each of the Company's fiscal
quarters according to specific formulas contained in the agreement. The
incentive compensation expense for fiscal 1995 and 1994 was $189,688 and
$151,378, respectively. In fiscal 1994, the Company granted the President/CEO
non-qualified options to purchase 600,000 shares of common stock of the Company,
at the then current market price of $2.0625, under the 1993 Plan, as later
defined. The options vest annually, with 500,000 being vested at September 30,
1995 and 100,000 options vesting on August 18, 1996. In the event of termination
without cause or if the President/CEO resigns for "good reason", as defined in
the agreement, the Company is required to make 36 consecutive monthly payments
equal to his base and incentive compensation. The President/CEO will also
continue to receive medical, life and disability insurance coverage during the
36 month term.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS (continued)
In January 1994, an employee, the former President of the Company's subsidiary,
UTG, was terminated. The employee was paid his monthly base salary of $11,700
through June 30, 1994 for a total of $58,500. The employee exercised all vested
stock options and the Company accelerated vesting of 70,200 of the employee's
remaining stock options. Compensation expense of $262,813 is included in general
and administrative expenses in the accompanying statement of operations for the
year ended September 30, 1994 related to this acceleration.
A former owner of SMI (See Note 2), entered into a four year employment
agreement in July 1993, as amended subsequently, and was appointed Chairman of
UTG and a director of the Company. The employment agreement calls for a base
salary of $200,000 per year and issuance of stock options to purchase 70,000
shares of the Company's common stock which vest on July 18, 1997. The Company
had a note payable to the sellers of SMI, one of which is this individual, at
September 30, 1994 which resulted from the purchase of SMI by the Company (See
Note 9). This note was paid in full in November 1994.
14. STOCK OFFERINGS
The Company completed two private placements in fiscal 1994. The total common
shares issued through these placements were 550,000 at $1.75 per share. The
gross proceeds generated in these placements were $962,500.
The Company completed various private placements in fiscal 1993. The total
common shares issued through these placements were 4,073,439, at prices ranging
from $1.27 to $1.50 per share. The gross proceeds generated on these placements
was approximately $5,897,000. The commissions and expenses on those placements
was approximately $632,600.
15. STOCK AND STOCK OPTION PLANS
The "1990 Stock Plan", as amended, covers 3,300,000 shares of common stock and
is intended to provide: (a) officers and other employees of the Company and its
Related Corporations opportunities to purchase stock in the Company pursuant to
options granted hereunder which qualify as incentive stock options ("ISOs")
under the Internal Revenue Code of 1986, as amended; (b) directors, officers,
employees and consultants of the Company and its Related Corporations
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISO's ("Non-Qualified Options"); (c)
directors, officers, employees and consultants of the Company and its Related
Corporations awards of stock in the Company ("Awards"); (d) directors, officers,
employees and consultants of the Company and its Related Corporations
opportunities to make direct purchases of stock in the Company ("Purchases");
and (e) directors of the Company and its Related Corporations who are not
employees of the Company or its Related Corporations with Non-Discretionary
Options.
The 1990 Stock Plan is administered by a committee of two non-employee
directors. The committee, subject to certain restrictions in the 1990 Stock
Plan, has the authority to grant or issue, as applicable, ISOs, Non-Qualified
Options, Awards, Purchases and Non-Discretionary Options. The committee also
establishes exercise or issue prices, vesting schedules and expiration dates.
In August 1993, the Company established a 1993 Stock Option Plan (the "1993
Plan") covering 1,500,000 shares of common stock. The 1993 Plan provides: (a)
officers and other employees of the Company and its Related Corporations
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "ISOs"; and (b) directors, officers, employees and
consultants of the Company and Related Corporations opportunities to purchase
stock in the Company pursuant to options granted hereunder which do not qualify
as ISOs ("Non-Qualified Options").
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. STOCK AND STOCK OPTION PLANS (continued)
The 1993 Plan is administered by a committee of two non-employee directors. The
committee, subject to certain restrictions in the 1993 Plan, has the authority
to (i) determine the employees of the Company and Related Corporations to whom
ISOs may be granted, and determine to whom Non-Qualified Options may be granted;
(ii) determine the time or times at which Options may be granted; (iii)
determine the exercise price of shares subject to Options; (iv) determine
whether Options granted shall be ISOs or Non-Qualified Options; (v) determine
the time or times when the Options shall become exercisable, the duration of the
exercise period and when the Options shall vest; (vi) determine whether
restrictions such as repurchase options are to be imposed on shares subject to
Options and the nature of such restrictions, if any, and (vii) interpret the
1993 Plan and promulgate and rescind rules and regulations relating to it.
The 1993 Plan also provides for the automatic grant of 30,000 non-qualified
options to any director who is not an employee of the Company. These options
vest in increments of 5,000 options per director every six months commencing six
months from the date of the director's election to the board, provided that they
are still serving as a director at that time. In December 1994, the 1993 Plan
was amended to change the vesting periods for both directors and employees from
every six months to June 30 and December 31. However, in the event any director
resigns prior to full vesting, the options will vest on a pro-rata basis.
16. STOCK GRANTS
In 1990, the Company issued Awards of 300,000 and 150,000 shares of restricted
common stock to the President/CEO and Executive Vice President, respectively,
under the 1990 Stock Plan. At September 30, 1995, 300,000 of the shares awarded
to the President/CEO and Executive Vice President were vested. In fiscal 1994
and 1993, the President/CEO deferred vesting of 50,000 shares (a total of
100,000 shares) granted in 1990. Also, in fiscal 1993, the Executive Vice
President canceled 50,000 shares previously granted to him which were reissued
to a consultant for previous services rendered.
17. STOCK OPTIONS AND WARRANTS
The Company has issued the following options and warrants to directors,
officers, employees and consultants during 1995, 1994 and 1993. All of the
following options and warrants were generally issued at the fair market value of
the underlying stock at the date of grant; therefore, no expense has been
recognized.
The information for shares under option is as follows:
<TABLE>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Outstanding, beginning of year:
Shares ............................................. 3,537,562 4,687,072 3,896,791
Price .............................................. $.28125-8.75 $.28125-4.00 $.28125-7.00
Granted:
Shares ............................................. 583,750 831,757 3,404,155
Price .............................................. $6.625-8.25 $2.9375-8.75 $.01-4.00
Expiration Dates ................................... 10/25/2004- 4/1/1994 - 4/29/1996 -
8/31/2005 9/1/2004 9/28/2003
Exercised:
Shares ............................................. (1,015,082) (1,761,100) (1,626,241)
Price .............................................. $.28-6.50 $.28125-6.00 $.01-2.00
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
17. STOCK OPTIONS AND WARRANTS (continued)
Expired or Canceled:
Shares ........................ (59,280) (220,167) (987,633)
Price ......................... $.5625-6.50 $2.3125-6.00 $.28125-7.00
Outstanding, end of year:
Shares ........................ 3,046,950 3,537,562 4,687,072
Price ......................... $.28125-8.75 $.28125-8.75 $.28125-4.00
Exercisable, end of year
Shares ........................ 2,298,700 2,452,411
Available for grant, end of year
Shares ........................ 438,691
18. CONCENTRATION OF CREDIT RISK
The majority of the Company's overall revenue was derived from customers in the
automotive manufacturing and automotive parts and accessories industries. In
fiscal 1995, one customer accounted for 66% of net sales. That same customer
accounted for 60% and 63% of net sales in both 1994 and 1993. In the Company's
automotive technology segment the same customer, an OEM, accounted for 91% of
the total business activity in fiscal 1995. As of September 30, 1995 the
Company's receivable balance from this customer was $2,722,045. The majority of
this receivable was subsequently collected. The loss of this customer would have
a material adverse effect on the Company. Oil analysis services are being
provided to over 1,500 active customers on a normal credit terms basis. In
fiscal 1995 five customers accounted for approximately 42% of the oil analysis
service segments business activity. The loss of any two of the five customers
would have a material adverse effect on the Company.
Export sales in 1995, 1994 and 1993 were insignificant.
19. SALE OF ENGINE FUEL ECONOMY EMISSIONS CONTROL REDUCTION SYSTEM
TECHNOLOGY ("EFECS") TO ADRENALINE, INC.
On May 10, 1995, the Company entered into an agreement with Adrenaline, Inc.
("Adrenaline"), the original inventor of the Engine Fuel Economy Emission
Control Reduction System ("EFECS") technology, to assign its interest in the
proprietary technology to Adrenaline. The agreement extends until such time as
the patent rights expire due to the passage of time or otherwise, unless the
license to Adrenaline from M.I.T. under the Patent Agreement is terminated.
Under the terms of the agreement the Company assigned its interest in this
technology in return for future royalties. Beginning in December 31, 1996, the
Company will receive an annual royalty equal to the greater of (i)$50,000, or
(ii) an amount based upon royalties received from sublicensing and a percentage
of Adrenaline's net sales derived from the technology. After the Company
receives $400,000 in cumulative royalty payments, the Company will receive (i)
25% of any royalty income received by Adrenaline from sublicensing and (ii) 2%
of Adrenaline's net sales of the technology. As of December, 1995, Adrenaline
had not commenced marketing this technology. At such time as Adrenaline
generates revenues in the future, the agreement permits Adrenaline to withhold
paying the Company prospective royalty payments in the event a patent
infringement suit is brought challenging the technology. Adrenaline is further
permitted to withhold paying royalties until the patent litigation is
terminated. To the extent that Adrenaline has paid the Company any royalties, it
will not be obligated to reimburse Adrenaline for such sums. Because of the
contingent nature of the agreement, the Company intends to record all future
royalty income on a cash basis. The cost of $35,000 related to the assignment of
interest of the EFECS patents is included in the statement of operations for the
fiscal year ended September 30, 1995.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
20. SEGMENT INFORMATION
The Company currently classifies its operations into the following segments: (1)
automotive technology which primarily consists of the Overhead Speaker System,
(2) Oil Analysis Service which primarily consists of UTG and OSA operations.
Corporate and other includes general corporate assets consisting primarily of
cash and cash equivalents, property and equipment, deferred income tax assets,
and corporate expenses. The material components of corporate general and
administrative expenses are salaries and benefits; travel and entertainment;
consulting; and proxy, printing and transfer costs. In fiscal 1995 direct
corporate expenses (salaries, benefits and general and administrative expenses)
have been allocated to the segments.
Financial information about the Company's operations by segments for the years
ended September 30, 1995, 1994 and 1993 is as follows:
Automotive Oil Analysis Corporate
Revenue: Technology Service and Other Consolidated
1995 $ 13,893,459 $ 5,075,347 $ -- $ 18,968,806
1994 $ 9,203,938 $ 5,878,281 $ 55,643 $ 15,137,862
1993 $ 2,423,488 $ 1,345,465 $ 112,852 $ 3,881,805
Operating Income
(Loss):
1995 $ 4,008,392 $ (3,468,432) $(3,489,006) $ (2,949,046)
1994 $ 2,821,308 $ (384,367) $(2,923,235) $ (486,294)
1993 $ (833,343) $ 25,848 $(2,390,494) $ (3,197,989)
Depreciation and
Amortization:
1995 $ 79,085 $ 700,004 $ 118,441 $ 897,530
1994 $ 66,647 $ 323,314 $ 94,848 $ 484,809
1993 $ 80,012 $ 83,205 $ 116,777 $ 279,994
Identifiable
Assets:
1995 $ 4,336,403 $ 11,335,226 $ 3,573,810 $ 19,245,439
1994 $ 1,737,336 $ 10,217,289 $ 6,525,330 $ 18,479,955
1993 $ 1,843,608 $ 8,634,738 $ 363,822 $ 10,842,168
Capital
Expenditures:
1995 $ 778,804 $ 1,110,250 $ 128,357 $ 2,017,411
1994 $ 323,723 $ 891,169 $ 120,592 $ 1,335,484
1993 $ 269,742 $ 282,170 $ 65,345 $ 617,257
21. OTHER INCOME
Included in Other Income in fiscal 1995 is $229,500 which relates to the
recovery of funds from the PSI, Inc. lawsuit. (See Item 3. Legal Proceedings)
Included in Other Income in fiscal 1994 is approximately $278,000 related to the
recovery of loan fees that had been previously written-off in fiscal 1993.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
22. OTHER EVENT
On December 4, 1995, the Company entered into a non-binding Letter of Intent
with a group interested in becoming the exclusive world-wide franchisor of the
Company's On-Site Analyzer for use in the equipment maintenance market. In
consideration of the payment of $10,000, this group received the exclusive right
to negotiate with the Company for a limited time for the acquisition of these
worldwide rights.
Specifically excluded from this agreement are the rights to negotiate for the
refinery market, oil blending plants and numerous other markets where the usage
of the On-Site Analyzer will be utilized only for internal use. There can be no
assurances that a final agreement will be reached. Due to the preliminary nature
of these discussions, the potential impact on the Company's financial statements
is indeterminable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated by reference from the Proxy Statement, for the annual
meeting of stockholders to be held on March 15, 1996, sections entitled
"Election of Directors".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement, for the annual
meeting of stockholders to be held on March 15, 1996, section entitled
"Executive Officer Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Proxy Statement, for the annual
meeting of stockholders to be held on March 15, 1996, sections entitled
"Voting Securities and Principal Holders".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
(a) (1) Financial Statements. See Item 8 of Form 10-K..................17
(a) (2) Financial Statement Schedules required to be filed.
Schedule II - Valuation and Qualifying Accounts............40
All other schedules have been omitted because the required
information is shown in the consolidated financial statements
or notes thereto or they are not applicable.
(a) (3) Exhibits
3.0 Amended and Restated Certificate of Incorporation..............(1)
3.1 Amendment to Certificate of Incorporation......................(8)
3.2 Bylaws of Registrant...........................................(2)
3.3 Amendment to Bylaws of Registrant..............................(8)
3.4 Amendment to the Amended and Restated Certificate of
Incorporation.................................................(10)
4.0 1990 Stock Plan................................................(3)
4.1 1993 Stock Option Plan.........................................(4)
10.0 Employment Agreement Between Registrant and Mr. Stuart Landow.(5)
10.1 Employment Agreement of Carlton S. Joyce......................(6)
10.2 First Amendment to Employment Agreement of Stuart Landow......(8)
10.3 First Amendment to Employment Agreement of Carlton S.Joyce....(9)
10.4 Lease of Office/Laboratory Space - of United Testing
Group, Inc. - Addison, Illinois...............................(8)
10.5 Lease of Office/Warehouse Space of United Testing
Group, Inc. (Spectro Metrics, Inc.) - Atlanta, Georgia........(8)
10.6 Master License Lease Agreement - Exxon.......................(10)
10.7 Equipment Purchase Agreement - Thermo Jarrell Ash
Corporation..................................................(10)
10.8 First Amendment to Lease of On-Site Analysis, Inc.,
Atlanta, Georgia.............................................(10)
10.9 Lease of Office and Warehouse Space of United Testing
Group, Inc., Sparks, Nevada..................................(10)
10.10Lease of Office Space of Top Source Technologies, Inc.,
New York City, New York......................................(10)
10.11Shareholder Rights Plan.......................................(7)
10.12Note Purchase Agreement dated as of June 9, 1995 Regarding
9% Senior Subordinated Convertible Notes Due June 9,
2000 by and among Top Source Technologies, Inc. Purchasers
and Ganz Capital Management, Inc.............................(11)
<PAGE>
(a) (3) Exhibits (continued)
10.13 Agreement by and between Top Source Technologies, Inc., dated
May 10, 1995, Adrenaline, Inc.and Edward Van Duyne
(EFECS Technology) ........................................(11)
10.14 First Amendment to Shareholder Rights Plan.................(12)
10.15 Second Amendment to Shareholder Rights Plan................(13)
10.16 Loan Agreement dated November 24, 1994 between Top
Source Technologies, Inc. and On-Site Analysis, Inc. and
First Union National Bank of Florida.......................(14)
10.17 Loan Agreement dated April 13, 1995 between Top Source
Technologies, Inc. and On-Site Analysis, Inc. and First
Union National Bank of Florida.............................(14)
10.18 Lease Agreement dated February 10, 1995 for Michigan
facility, Troy, MI.........................................(14)
10.19 Employment Agreement of David Natan........................(15)
10.20 Master Purchase Agreement - Thermo Jarrell Ash Corporation.....
10.21 Lease of Office Space dated December 20, 1995 of Top Source
Technologies, Inc., Palm Beach Gardens, FL.....................
10.22 Loan Agreement dated October 12, 1995 between Top Source
Technologies, Inc. and On-Site Analysis, Inc...................
11.0 Statement Re Computation of Net Income Per Share...........(10)
27.0 Financial Data Schedule........................................
(b) Reports on Form 8-K
A report on Form 8-K, an update of other events, was filed on
September 27, 1995.
Exhibit Index
(1) Contained in the Form 8-A dated July 10, 1993.
(2) Contained in the documents previously filed with the
Securities and Exchange Commission in conjunction with the
Form 8-B on 11/16/92.
(3) Contained in the documents previously filed with the
Securities and Exchange Commission in conjunction with the
12/31/90 Form 10-K.
(4) Contained as an exhibit to the Proxy Statement dated January
11, 1994.
(5) Contained in Amendment No. 1 to the Registration Statement on
Form S-3 filed on November 16, 1993.
(6) Contained in the Form 8-K/A No. 3 dated November 13, 1993.
(7) Contained in Form 8-K dated January 5, 1995.
(8) Contained in the documents filed with the Securities and
Exchange Commission in conjunction with the 9/30/93 Form 10-K.
(9) Contained in Amendment No. 3 to the Registration Statement on
Form S-3 filed on January 10, 1994.
(10) Contained in the documents filed with the Securities and
Exchange Commission in conjunction with the 9/30/94 Form 10-K.
(11) Contained in documents filed with the Securities & Exchange
Commission in conjunction with the 6/30/95 Form 10-Q.
(12) Contained in the Form 8-A/A No. 1 dated July 17, 1995.
(13) Contained in the Form 8-A/A No. 2 dated December 5, 1995
(14) Contained in Amendment No. 1 to the Registration Statement on
Form S-3 filed May 4, 1995.
(15) Contained in Amendment No. 3 to the Registration Statement on
Form S-3 filed September 27, 1995.
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<S> <C> <C> <C> <C> <C>
=========================== ---------------- ---------------- ----------------- ----------------- =======================
Balance at Charged to Additions
Beginning of Costs and Charged to Balance at End of
Period Expenses Other Accounts (1) Period
Description Deductions
=========================== ---------------- ---------------- ----------------- ----------------- =======================
Deducted from Accounts
Receivable -
Allowance for Doubtful
Accounts
=========================== ---------------- ---------------- ----------------- ----------------- =======================
Year Ended September 30,
1995
$150,000 $159,645 - ($163,942) $145,703
=========================== ---------------- ---------------- ----------------- ----------------- =======================
Year Ended September 30,
1994 $13,145 $136,855 - - $150,000
=========================== ================ ================ ================= ================= =======================
Year Ended September 30,
1993 $ - $5,645 $7,500 - $ 13,145
=========================== ================ ================ ================= ================= =======================
</TABLE>
(1) Allowance upon acquisition of receivables of Spectro/Metrics, Inc.
<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 Registrant's report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
TOP SOURCE TECHNOLOGIES, INC.
By: \s\Stuart Landow
Stuart Landow, President and
Chief Executive Officer
Dated: January 12, 1996
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 the capacities and on the dates indicated.
GNATURE TITLE DATE
\s\ Stuart Landow Chairman of the January 12, 1996
Stuart Landow of the Board of Directors
\ Christer Rosen Director January 12, 1996
Christer Rosen
\s\ David Natan Treasurer, Vice President of January 12, 1996
David Natan of Finance(Principal Financial
Officer) and Director
\s\ Ronald P. Burd Director January 12, 1996
Ronald P. Burd
\s\ Carlton S. Joyce Director January 12, 1996
Carlton S. Joyce
\s\ Arthur S. Kirsch Director January 12, 1996
Arthur S. Kirsch
\s\ Clinton D. Lauer Director January 12, 1996
Clinton D. Lauer
\s\ Paul F. Moore Director January 12, 1996
Paul F. Moore
Mani A. Sadeghi Director January 12, 1996
Mani A. Sadeghi
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MASTER PURCHASE AGREEMENT
THIS MASTER PURCHASE AGREEMENT ("Agreement") is made effective as of
December 28, 1995 by and between THERMO JARRELL ASH CORPORATION, a Massachusetts
corporation whose address is 27 Forge Parkway, Franklin, Massachusetts
02038-3148 ("TJA"), and THERMO INSTRUMENT SYSTEMS INC., a Delaware corporation
whose address is 504 Airport Road, Santa Fe, New Mexico 87504 and which is the
parent corporation of TJA ("Thermo Instrument") (TJA and Thermo Instrument being
sometimes collectively referred to herein as "Thermo"), and ON-SITE ANALYSIS,
INC., a Georgia corporation whose address is 3125 Presidential Drive, Suite 130,
Atlanta, Georgia 30340-3907 ("OSA, Inc."), and TOP SOURCE TECHNOLOGIES, INC., a
Delaware corporation whose address is 2000 PGA Boulevard, Suite 3200, Palm Beach
Gardens, Florida 33408-2713 and which is the parent corporation of OSA, Inc.
("Top Source") (OSA, Inc. and Top Source being sometimes collectively referred
to herein as "TSI").
W I T N E S S E T H:
WHEREAS, TSI and United Testing Group, Inc., a Georgia corporation
which is the successor (by way of merger) to Spectro/Metrics, Inc., a Georgia
corporation, and whose parent corporation is Top Source ("UTG"), and TJA and
Nicolet Instrument Corporation, a Wisconsin corporation whose parent corporation
is Thermo Instrument ("Nicolet"), have each contributed certain Technical
Contributions (as hereinafter defined) in the joint development of the On-Site
Analyzer (as hereinafter defined); and
WHEREAS, Top Source and UTG have transferred or licensed their
Technical Contributions to OSA, Inc., and Thermo Instrument and Nicolet have
transferred or licensed their Technical Contributions to, or otherwise
authorized the use thereof by, TJA; and
WHEREAS, the parties intend from time to time jointly to modify the
specifications for the On-Site Analyzer in order to create specialized
instrumentation (individually, a "Specialized Unit" and, collectively, the
"Specialized Units") for use in different commercial applications relating to
Oil Analysis (as hereinafter defined); and
WHEREAS, OSA, Inc., in addition to its Technical Contributions, will be
contributing to the commercial exploitation of the Specialized Units the
marketing expertise of OSA, Inc., and the knowledge of the business of Oil
Analysis required in order to determine which commercial applications are
technologically feasible and otherwise appropriate for each Specialized Unit
which may be developed; and
WHEREAS, TJA, in addition to its Technical Contributions, will be
contributing to the commercial exploitation of the Specialized Units the
manufacturing expertise of TJA required in order to
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ensure that each Specialized Unit functions in substantial conformance with the
Specialized Unit Specification (as hereinafter defined) applicable thereto, upon
the terms and subject to the conditions more particularly set forth in this
Agreement; and
WHEREAS, the parties wish to memorialize their agreement regarding
their rights and obligations with respect to the Specialized Units and the
commercial exploitation thereof as hereinafter provided;
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
accepted, the parties hereto do agree as follows:
1. DEFINITIONS.
In addition to such other terms as may be defined elsewhere in this
Agreement, the following terms as used herein shall have the meanings ascribed
in this Article:
1.1 Customer means a person or entity who purchases, leases
or licenses a Specialized Unit from OSA, Inc. as contemplated by
the terms of this Agreement.
1.2 Customer Site means a location at which a Specialized Unit will be
installed as herein provided for Customer use.
1.3 Instrument Software means, with respect to any Specialized Unit
developed hereunder, that portion of the computer software operating system and
any application software used to operate the Specialized Unit, in object code
form only, developed by or for (and owned or licensed by) TJA and all future
modifications and enhancements thereto developed by or for (and owned or
licensed by) TJA, all as incorporated in the Specialized Unit. Instrument
Software shall not include the OSA, Inc. Software or any other proprietary
software of OSA, Inc.
1.4 Integrated Instrument means any integrated apparatus used for
analysis of mineral oils, synthetic oils and hydraulic fluids, which combines an
optical emission spectrometer ("OES") with spark excitation and a Fourier
transform infrared spectrometer ("FTIR") in one cabinet with a single computer
control.
1.5 Intellectual Property means all intellectual property rights
existing from time to time, including without limitation any patents, design
rights or registered designs, trademarks or service marks (and any application
throughout the world or the right to apply therefor), copyrights (whether
registered or unregistered, and including moral rights), know-how (including
without limitation engineering and technical know-how), trade secrets,
confidential
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information, any business name, trade name or style or brand name and any
merchandising rights.
1.6 Oil Analysis means the testing and analysis of any and all
petrochemical-based lubricants, synthetic oils and hydraulic fluids in any and
all stages of processing, production or use, including (without limitation)
extraction, refinement, product-in- use and waste, regardless of the industry or
purpose for which such testing and analysis is performed. Petrochemical-based
fluids other than those identified in the preceding sentence are not within the
scope of "Oil Analysis" and are excluded from the definition thereof.
1.7 Operator's Manual means the written materials produced by
OSA, Inc. and supplied to a Customer in conjunction with any given
Specialized Unit instructing the Customer in the use of such
Specialized Unit.
1.8 On-Site Analyzer or OSA means the Integrated Instrument (and
software incorporated therein, including without limitation the Instrument
Software and OSA, Inc. Software) described in the specifications attached hereto
as Exhibit A entitled "'U' Specification" and incorporated herein by this
reference, as the same may be amended from time to time.
1.9 OSA, Inc. Software means, with respect to any Specialized Unit
developed hereunder, that portion of the computer software operating system and
any application software used to operate the Specialized Unit, in object code
form only, developed by or for (and owned or licensed by) OSA, Inc. and all
future modifications and enhancements thereto developed by or for (and owned or
licensed by) OSA, Inc., all as incorporated in the Specialized Unit. OSA, Inc.
Software shall not include Instrument Software or any other proprietary software
of TJA.
1.10 Party or "party" means Thermo considered as one party (or any one
or both of TJA or Thermo Instrument, as the context may require) and TSI
considered as one party (or any one or both of OSA, Inc. or Top Source, as the
context may require).
1.11 Technical Contributions means, with respect to any
Specialized Unit developed hereunder, Intellectual Property
contributed respectively by OSA, Inc. (itself or as transferee or
licensee of Top Source and UTG) and TJA (itself or as transferee,
licensee, or authorized designee of Thermo Instrument and Nicolet)
in the development of the Specialized Unit. Technology,
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engineering and other technical know-how constituting prior art existing within
the public domain as of the effective date of this Agreement shall be expressly
excluded from the definition of Technical Contributions hereunder.
2. SPECIALIZED UNIT ADDENDA.
Upon the development of specifications mutually acceptable to the
parties for a Specialized Unit which OSA, Inc. desires to purchase from TJA and
TJA desires to sell to OSA, Inc. (as to each such Specialized Unit, the
"Specialized Unit Specification"), the parties shall execute an Addendum to this
Agreement, in form mutually acceptable to the parties (a "Specialized Unit
Addendum"), setting forth the Specialized Unit Specification and the purchase
price applicable to such Specialized Unit (the "Purchase Price"). Each
Specialized Unit Addendum shall be a separate and enforceable agreement, shall
incorporate therein all of the terms and conditions of this Agreement, and shall
contain such additional terms and conditions as the parties mutually agree upon.
3. OWNERSHIP OF SPECIALIZED UNITS AND RELATED INTELLECTUAL
PROPERTY.
3.1 Technical Contributions, Etc. Except to the extent
expressly otherwise provided in this Agreement, TJA and OSA, Inc.
shall each remain fully vested with all right, title and interest
(as owner, licensee or designee, as the case may be) in and to its
respective Technical Contributions.
3.2 Marks. Specialized Units (and related services) shall be sold,
leased, licensed, sublicensed, distributed and marketed as permitted herein only
under the trademarks, trade names, service marks and trade dress of OSA, Inc.
(collectively, the "OSA, Inc. Marks"). Specialized Units (and related services)
shall not be sold, leased, licensed, sublicensed, distributed or marketed under
the trademarks, trade names, service marks or trade dress of TJA, Thermo
Instrument or Nicolet (collectively, the "TJA Marks"). Notwithstanding the
foregoing provisions of this Section 3.2, OSA, Inc. shall not remove or obscure
any notice of copyright, patent, trademark, trade secret or restricted or
limited rights which may be contained on the Instrument Software and/or any of
TJA's Technical Contributions. For purposes of this Agreement, the OSA, Inc.
Marks and the TJA Marks are referred to collectively as the "Marks." No party
shall use any of the Marks of another party hereto without the prior written
consent of the other party. No
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party shall register, agree to register or assist any other person in
registering any Marks of another party hereto in any jurisdiction in the world.
Each party acknowledges that the other has the exclusive right, title and
interest in and to such other party's respective Marks. Each party agrees that
it will not use, without the other's prior written consent, any Marks which are
likely to be similar to or confused with the Marks of the other party.
Notwithstanding the foregoing, OSA, Inc. shall have the right to identify TJA as
the manufacturer of any Specialized Unit developed hereunder, and to identify
any TJA Marks affixed by TJA to components of the Specialized Unit, in
presentations marketing the Specialized Unit, and in sales, advertising and
marketing materials for the Specialized Unit; provided, however, that (i) TJA
shall have the right to pre-approve in writing all such written sales,
advertising and marketing materials referencing TJA and/or any TJA Marks prior
to the dissemination of such materials by OSA, Inc., (ii) except where such
identification is required by law (and in such cases, TJA shall be notified
prior to the making of such identification), TSI shall obtain TJA's prior
written consent to identify TJA or any TJA Marks in relation to the Specialized
Unit in any press release or public statement, including without limitation
those to the financial community, and (iii) if TJA determines, in good faith,
that the TJA Marks are being used by OSA, Inc. in a manner which is detrimental
to the reputation of TJA (including without limitation in connection with the
sale, leasing, licensing or sublicensing of one or more Specialized Units to any
Customer for an application as to which the applicable Specialized Unit
Specification is, in TJA's sole discretion, inadequate or otherwise
inappropriate), then, in such event, TJA shall so notify OSA, Inc., and OSA,
Inc. shall immediately remove all TJA Marks from Specialized Units then in OSA,
Inc.'s possession and thereafter shall not identify TJA as the manufacturer of
the Specialized Units nor otherwise use the TJA Marks in any manner, including
without limitation in connection with the sale, leasing, licensing,
sublicensing, distribution or marketing of the Specialized Units (or related
services). The consents required of TJA pursuant to the provisions of the
immediately preceding sentence shall not unreasonably be withheld or delayed,
provided TJA expressly reserves the right to make determinations in TJA's sole
discretion to the extent set forth in clause (iii) of said sentence.
4. USE OF TECHNICAL CONTRIBUTIONS, ETC.
4.1 General. Except to the extent permitted by the terms of
this Agreement, neither party may use the Technical Contributions
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of the other party in any manner whatsoever without the express written consent
of such other party.
4.2 Instrument Software. TJA hereby grants to OSA, Inc. a
nontransferable (except to the extent expressly otherwise provided
herein), nonexclusive right and license to use the Instrument
Software, subject to the following:
4.2.1 Use of the Instrument Software by OSA, Inc. shall
be solely in connection with the ordinary operation of a
Specialized Unit, as specified in the applicable Operator's Manual
.
4.2.2 OSA, Inc. shall have the right to grant to any Customer
(and shall in any event not grant rights greater than) a nonexclusive,
nontransferable sublicense (expressly excluding the right by the Customer to
further sublicense) for the sole purpose of allowing the Customer to use the
Instrument Software in connection with the ordinary operation of the Specialized
Unit, as specified in the Operator's Manual.
4.2.3 The license to OSA, Inc., and any Customer's sublicense,
shall encompass only object code.
4.2.4 OSA, Inc. is prohibited from, and any Customer's
sublicense shall prohibit the Customer from, (a) copying, accessing or
downloading the Instrument Software, other than in connection with the ordinary
operation of the Specialized Unit in accordance with the Operator's Manual; (b)
decompiling, disassembling or reverse engineering the Instrument Software; (c)
removing or obscuring any notice of copyright, patent, trademark, trade secret
or restricted or limited rights; or (d) removing or obscuring any export
restriction or similar notice contained on the Instrument Software.
4.3 OSA, Inc. Software. OSA, Inc., hereby grants to TJA a
nontransferable, nonexclusive right and license to use the OSA,
Inc. Software, subject to the following restrictions:
4.3.1 TJA shall have the right only to copy and use the OSA,
Inc. Software solely in connection with (a) developing the Instrument Software
for purposes of this Agreement for the mutual benefit of the parties hereto and
(b) installation of the OSA, Inc. Software into Specialized Units prior to
shipment by TJA to OSA, Inc. or Customers.
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4.3.2 Without limiting the foregoing, TJA agrees not to (a)
copy, access or download the OSA, Inc. Software; (b) decompile, disassemble or
reverse engineer the OSA, Inc. Software; (c) remove or obscure any notice of
copyright, patent, trademark, trade secret, restricted or limited rights; or (d)
remove or obscure any export restriction or similar notice contained on the OSA,
Inc.
Software.
5. MANUFACTURING.
5.1 Manufacture by TJA. TJA shall manufacture Specialized Units
developed hereunder (including, without limitation, installing the Instrument
Software thereon) and supply such Specialized Units to OSA, Inc. in accordance
with the terms and conditions of this Agreement.
5.2 Specifications. IT IS EXPRESSLY UNDERSTOOD AND AGREED BY THE
PARTIES HERETO THAT ANY MODIFICATION OF THE SPECIALIZED UNIT SPECIFICATION MUST
BE APPROVED IN WRITING BY BOTH THE PRESIDENT OF TJA AND THE PRESIDENT OF OSA,
INC., WHICH APPROVAL MAY BE WITHHELD BY EITHER TJA OR OSA, INC. IN SUCH PARTY'S
SOLE AND ABSOLUTE DISCRETION, IT BEING EXPRESSLY UNDERSTOOD AND AGREED THAT,
EXCEPT AS MAY BE EXPRESSLY AGREED TO BY THE PARTIES AS PROVIDED ABOVE IN THIS
SECTION 5.2, NEITHER TJA NOR THERMO INSTRUMENT HAS ANY OBLIGATION UNDER THIS
AGREEMENT, EXPRESS OR IMPLIED, TO MANUFACTURE, DELIVER OR OTHERWISE PROVIDE TO
OSA, INC. OR TOP SOURCE ANY SPECIALIZED UNIT WHICH DIFFERS IN ANY MANNER FROM
THE SPECIALIZED UNIT SPECIFICATION ORIGINALLY DEVELOPED AND AGREED UPON BY THE
PARTIES WITH RESPECT THERETO.
6 RIGHT TO MODIFY.
Notwithstanding any provision herein to the contrary, it is understood
and agreed by the parties hereto that OSA, Inc. shall have the right, alone or
in conjunction with any third party, to modify (including without limitation to
add or substitute component parts) in any manner any Specialized Unit purchased
by OSA, Inc. hereunder (so long as OSA, Inc. does not infringe upon the
Instrument Software or any of TJA's Technical Contributions); provided, however,
that any such modification shall immediately void and cancel, with respect to
the Specialized Unit so modified, (i) all Installation obligations under Section
9.1, (ii) all maintenance obligations under Section 9.2 and (iii) all warranties
under Section 10.1.1. . Upon the modification of any Specialized Unit pursuant
to the provisions of this Article 6, OSA, Inc.
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immediately shall remove all TJA Marks therefrom and thereafter shall not
identify TJA as the manufacturer of the same nor otherwise use the TJA Marks in
any manner with respect to such modified Specialized Unit, including without
limitation in connection with the sale, leasing, licensing, sublicensing,
distribution or marketing thereof.
7. SHIPMENT; DELIVERY.
7.1 Site Survey Report. OSA, Inc. agrees to deliver to TJA,
prior to the week in which an order for Specialized Units hereunder is to be
shipped by TJA, a completed Site Survey Report with respect to each Customer to
which such order relates in substantially the form of Exhibit B attached hereto
and incorporated herein by this reference (the "Site Survey Report"). It is
understood and agreed that one purpose of such Site Survey Report is to enable
TJA to contact any Customer directly, whether by mail, telephone, facsimile,
computer modem or otherwise, in order to relay to such Customer information
regarding the use, operation and/or maintenance of the Specialized Unit(s) in
such Customer's possession.
7.2 Terms and Conditions. No terms or conditions of any order for
Specialized Units other than the terms and conditions set forth in this
Agreement shall apply to purchases of Specialized Units by OSA, Inc.
7.3 Shipment. Specialized Units shall be shipped to the destination
specified by OSA, Inc., on an F.O.B. destination basis.. Unless otherwise
requested by OSA, Inc., TJA shall select the carrier. Partial shipments shall be
permitted and TJA may invoice each shipment separately. All shipping costs shall
be borne by OSA, Inc., and all Specialized Units shall be insured in transit by
TJA (unless otherwise requested by OSA, Inc.), at the expense of OSA, Inc. OSA,
Inc. shall reimburse TJA for such shipping and insurance costs promptly upon
demand. The delivery date for any given shipment of Specialized Units will be
mutually agreed upon by the parties at the time of TJA's acceptance of the order
therefor.
7.4 Return Authorization. No Specialized Unit shipped by TJA
may be returned without TJA's written permission. All shipping
expenses on returned Specialized Units will be paid by the party
who necessitated the return (the "Responsible Party"). In the
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event such expenses are not paid by the Responsible Party, the other party may
invoice the Responsible Party therefor.
7.5 Shortages; Damages in Transit. If the quantity of Specialized Units
received by OSA, Inc. shall be less than the quantity shown in the applicable
invoice, or if the Specialized Units received by OSA, Inc. shall have been
damaged in transit, OSA, Inc. shall, within twenty (20) days after receipt of
such goods, give written notice of such shortage or damage to the agent of the
delivery carrier in order to permit written verification of the shortage or
damage by the delivery carrier and substantiate a formal claim when and if
presented. OSA, Inc. shall promptly send a copy of such notice to TJA.
7.6 Title and Risk of Loss. Subject to any claims pursuant to Section
7.5, title to and post-delivery risk of loss for Specialized Units shall pass to
OSA, Inc. upon delivery of the Specialized Units to the designated destination;
provided, however, that title to the Instrument Software shall at all times
remain with TJA (or its licensor). OSA, Inc. shall reasonably cooperate with TJA
in any documentation and proof of loss claims promptly presented by TJA to the
appropriate carrier and/or insurer.
7.7 Title Matters. OSA, Inc. shall have flexibility in its discretion
to arrange for title to any Specialized Unit to be transferred at any time to
any third party, including, without limitation, finance corporations, subject to
compliance with the provisions of Section 14.2 below. Written notice of any such
transfer, together with the identity of the transferee, shall be promptly
presented to TJA by OSA, Inc.
8. PAYMENT TERMS.
8.1 Payments Net. An amount equal to forty percent (40%) of the total
Purchase Price allocable to a given order for Specialized Units hereunder shall
be paid by OSA, Inc. at the time of the order. The balance of the Purchase Price
will be paid within thirty (30) days after the date of shipment. All amounts
payable by OSA, Inc. to TJA under this Agreement shall be paid net of all
freight charges, insurance premiums, taxes (including without limitation sales,
value-added and use taxes, but excluding taxes based on TJA's net income),
tariffs and other governmental charges, payment of which shall be the
responsibility of OSA, Inc. If TJA is required to pay any such charge, premium,
tax, tariff or other charge based on goods sold or any services performed under
this Agreement, then the same (together with any penalties and/or
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interest thereon) shall be billed to and paid by OSA, Inc. All
payments hereunder shall be made in U.S. dollars.
8.2 Late Payment Charges. In addition to any other remedies available
to TJA hereunder, if OSA, Inc. fails to pay any amounts when due, OSA, Inc.
shall pay TJA interest on such overdue amounts at the rate of 2.0% per month (or
the highest rate permitted by law, if lower) from the date due until paid
(calculated on the basis of a thirty (30)-day month and pro-rated on a per diem
basis with respect to any partial month), together with all costs and expenses,
including without limitation reasonable attorneys' fees, incurred by TJA in
collecting such overdue amounts.
8.3 OSA, Inc. Pricing. OSA, Inc. shall be free to establish
its own pricing for Specialized Units sold, leased or licensed to
Customers and shall have no obligation whatsoever to TJA to account
for any differential relative to the applicable Purchase Price
paid to TJA therefor.
9. INSTALLATION, TRAINING AND MAINTENANCE.
9.1 Installation.
9.1.1 Installation Obligation. TJA shall install each
Specialized Unit at the applicable Customer Site ("Installation") located within
the United States within twenty (20) business days after delivery of the
Specialized Unit to the Customer Site. TJA may, in its discretion and for an
additional fee as specified in Section 9.1.3, arrange for Installation at
Customer Sites outside of the United States. TJA may subcontract its
Installation obligations hereunder to a qualified subcontractor.
9.1.2 Customer Site. Notwithstanding the provisions of Section
9.1.1 above, TJA's Installation obligation need not be completed until the
latest to occur of (a) the expiration of the twenty (20) business day period
referenced in Section 9.1.1 above; (b) the second (2nd) business day after
receipt by TJA of the Site Survey Report referenced in Section 7.1 above or (c)
the fourteenth (14th) day after receipt by TJA of written notice from OSA, Inc.
that the following conditions have been satisfied: (i) the Customer Site is in
compliance with the site specifications listed on Exhibit C attached hereto and
incorporated herein by this reference and is otherwise safe and appropriate for
Installation; and (ii) any third-party equipment to be used in conjunction with
the Specialized Unit has been reasonably approved by TJA and is operating
according to the manufacturer's specifications. TJA or
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its designated subcontractor shall perform the unpacking of the Specialized Unit
at the Customer Site. On the date scheduled for Installation, OSA, Inc. shall
cause appropriate personnel of the Customer or OSA, Inc. or both to be available
to cooperate with TJA, allowing TJA to use without charge any of the Customer's
equipment and facilities which TJA reasonably deems necessary for Installation.
TJA shall give OSA, Inc. and/or the Customer sufficient advance notification of
personnel required for completion of the Installation. The Customer Site shall
remain accessible to TJA throughout the period of Installation. Upon
Installation of a Specialized Unit, TJA or its designated subcontractor or
agent, as the case may be, shall perform TJA's standard acceptance test
procedures to confirm that the Specialized Unit operates in substantial
conformance with the Specialized Unit Specification applicable thereto. Upon
successful completion of the aforesaid acceptance test procedures, Installation
of the Specialized Unit shall be deemed complete.
9.1.3 Installation Fee. Specialized Units shall be installed
by TJA free of charge in the United States. If TJA in its discretion agrees to
install a Specialized Unit outside of the United States, TJA will charge an
installation fee in accordance with TJA's then current rates (the "Installation
Fee"). The terms and conditions of Section 9.1.2 shall be applicable to any
Installation to be performed by TJA outside of the United States.
9.1.4 Reinstallation. In the event a Customer desires to
relocate a Specialized Unit previously installed by TJA, TJA shall install the
Specialized Unit at the new Customer Site within the United States
("Reinstallation"), provided that the terms and conditions of Section 9.1.2
above are satisfied with respect to the Reinstallation at the new Customer Site.
TJA shall charge a fee, payment of which shall be the responsibility of the
Customer, for Reinstallation in accordance with TJA's then current rates (the
"Reinstallation Fee").
9.1.5 Unauthorized Installation or Reinstallation. OSA,
-------------------------------------------
Inc. shall have the right to elect to have the Installation or
Reinstallation of any Specialized Unit performed by OSA, Inc. or
any third party, including without limitation a Customer; provided,
however, that any Installation or Reinstallation of a Specialized
Unit at a Customer Site or any other location by any person or
entity other than TJA or TJA's designated subcontractor or agent
without the express written consent of TJA, signed by the President
of TJA and specifically referencing this Section 9.1.5. (an
"Unauthorized Installation"), shall automatically invalidate and
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void any TJA warranty with respect to such Specialized Unit. TJA HEREBY
DISCLAIMS ALL LIABILITY FOR ANY AND ALL CLAIMS, LOSSES, COSTS AND DAMAGES TO THE
EXTENT ARISING FROM OR ATTRIBUTABLE TO ANY UNAUTHORIZED INSTALLATION OR
REINSTALLATION OF A SPECIALIZED UNIT.
9.2 Maintenance. OSA, Inc. agrees to retain TJA to provide all
maintenance with respect to Specialized Units manufactured or supplied by TJA
hereunder, provided TJA's maintenance services are competitive. The
determination as to whether or not the maintenance services of TJA are
competitive for purposes of this Section 9.2 shall be based upon such factors
as, without limitation, timeliness of performance, price and professional
competence. If OSA, Inc. requests that TJA provide all maintenance with respect
to Specialized Units manufactured or supplied by TJA hereunder, TJA agrees to
provide the same in accordance with the terms of TJA's standard form of
maintenance agreement (whether or not TJA's maintenance services are
competitive). Payment for maintenance services provided by TJA hereunder shall
be made by OSA, Inc. to TJA on a time and materials basis at TJA's then current
rates. TJA may subcontract any such maintenance services to qualified
subcontractors. In the event that TJA's services are not competitive, OSA, Inc.
shall have the right to elect to obtain said maintenance directly from third
party vendors. In the event that OSA, Inc. contracts with any party other than
TJA to provide such maintenance services, OSA, Inc. agrees to defend, indemnify
and hold harmless TJA, its parent, subsidiaries and affiliates (including
without limitation Thermo Instrument) from and against any and all losses,
damages, liabilities and expenses (including without limitation reasonable
attorneys' fees and disbursements and court costs) incurred in connection with
third party claims or suits, whether based in statute, contract, tort, strict
liability, breach of warranty or otherwise, to the extent arising, or alleged by
such third party claimant to arise, by reason of the acts or omissions of any
such third party service provider. It is understood and agreed that in no event
shall OSA, Inc., or any third party service provider retained by OSA, Inc., have
any right to the use of any diagnostic software owned by, or otherwise developed
on behalf of, TJA or Thermo Instrument. TJA shall have no obligation to provide
service manuals to OSA, Inc. or to any third party service provider. If it is
determined that TJA's maintenance services are competitive with respect to
certain geographic areas and not others, and OSA, Inc. elects to contract with
one or more third party service providers with respect to any such geographic
area or areas as to which TJA's services are not competitive, TJA shall in such
event have the right to elect not to provide maintenance services with respect
to Specialized Units
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located in any remaining areas.
10. WARRANTY AND LIMITATION OF LIABILITY.
10.1 Warranties to OSA, Inc.
10.1.1 TJA warrants to OSA, Inc. that the Specialized Units
(including, without limitation, the Instrument Software) purchased from TJA
shall (a) upon initial delivery be free from material defects in workmanship or
materials and (b) upon initial delivery and for a period of six (6) months after
initial shipment (the "Warranty Period") operate substantially in accordance
with the Specialized Unit Specification applicable thereto when subjected to
normal, proper and intended usage. TJA agrees during the Warranty Period,
provided it is promptly notified in writing upon the discovery of any defect, to
repair or replace, at its option, free of charge, defective Specialized Units so
as to cause the same to conform to the warranties set forth in clauses (a) or
(b) above, as the case may be, and such repair or replacement shall constitute
the sole and exclusive remedy for breach of any such warranty. Replacement parts
may be new or refurbished, at the election of TJA. All costs for returning
defective Specialized Units to TJA shall be paid by OSA, Inc., with
reimbursement of such costs to be made by TJA to OSA, Inc. within thirty (30)
days following TJA's receipt of an invoice and reasonable back-up documentation
therefor. Notwithstanding anything to the contrary contained herein, TJA makes
no warranties (INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE) with respect to equipment, materials or
software (including without limitation the OSA, Inc. Software) not manufactured
by TJA, Thermo Instrument, or any parent, subsidiary or affiliate of either.
Lamps, mercury bulbs and other minor expendable items are further expressly
excluded from this warranty. TJA agrees to assign to OSA, Inc. any
manufacturer's warranty relating to any such excluded equipment, materials and
software, to the extent the same is assignable. If TJA determines that any
Specialized Unit for which OSA, Inc. or any Customer has requested warranty
service is not covered by the terms of the warranty under clause (a) or (b)
above, OSA, Inc. shall pay or reimburse to TJA all costs of investigating and
responding to such request at TJA's then prevailing time and materials rates.
ANY INSTALLATION, MAINTENANCE, REPAIR, SERVICE, ALTERATION, MODIFICATION
(PURSUANT TO THE TERMS OF ARTICLE 6 ABOVE OR OTHERWISE), RELOCATION OR OTHER
TAMPERING TO OR WITH A SPECIALIZED UNIT PERFORMED BY ANY PERSON OR ENTITY OTHER
THAN TJA OR TJA's DESIGNATED SUBCONTRACTOR OR AGENT WITHOUT TJA'S WRITTEN
APPROVAL SIGNED BY THE PRESIDENT OF TJA AND
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SPECIFICALLY REFERENCING THIS SECTION 10.1.1, OR ANY USE OF REPLACEMENT PARTS
SUPPLIED BY ANY PARTY OTHER THAN TJA WITHOUT TJA'S WRITTEN APPROVAL SIGNED BY
THE PRESIDENT OF TJA AND SPECIFICALLY REFERENCING THIS SECTION 10.1.1 (IT BEING
UNDERSTOOD AND AGREED THAT REPLACEMENT PARTS DELIVERED DIRECTLY TO OSA, INC. OR
TO ANY CUSTOMER BY TJA, TJA's DESIGNATED SUBCONTRACTOR OR AGENT OR A THIRD PARTY
VENDOR AT THE DIRECTION OF TJA WILL BE DEEMED TO HAVE BEEN SUPPLIED BY TJA FOR
PURPOSES OF THIS SECTION 10.1.1), SHALL IMMEDIATELY VOID AND CANCEL ALL
WARRANTIES WITH RESPECT TO SUCH SPECIALIZED UNITS (BUT SHALL NOT IMPAIR ANY
VALID WARRANTY CLAIMS THERETOFORE ACCRUED WITH RESPECT TO SUCH SPECIALIZED
UNITS).
10.1.2 TJA warrants that the Instrument Software and Technical
Contributions of TJA do not violate or infringe the United States Intellectual
Property rights of any third party.
10.1.3 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, TJA
DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH
RESPECT TO THE SPECIALIZED UNITS, INCLUDING, WITHOUT LIMITATION, ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
10.2 Limitation of Liability.
10.2.1 (a) TJA's LIABILITY FOR DAMAGES TO OSA, INC. OR ANY
CUSTOMER FOR ANY BREACH OF WARRANTY CLAIM HEREUNDER SHALL NOT EXCEED THE PRICE
PAID FOR THE SPECIALIZED UNIT TO WHICH SUCH BREACH RELATES; AND (b) TJA SHALL IN
NO EVENT BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, INCLUDING WITHOUT LIMITATION LOSS OF DATA, PROFITS OR USE, ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING WITHOUT LIMITATION IN
CONNECTION WITH THE USE OR PERFORMANCE OF THE SPECIALIZED UNITS.
10.2.2 IN NO EVENT SHALL TJA BE LIABLE TO CUSTOMERS OR OTHER
THIRD PARTIES FOR, AND, SUBJECT TO THE LIMITATIONS IN SECTION 10.2.3, OSA, INC.
SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS TJA, ITS PARENT, SUBSIDIARIES AND
AFFILIATES (INCLUDING WITHOUT LIMITATION THERMO INSTRUMENT AND NICOLET) FROM AND
AGAINST, ANY DAMAGES TO THE EXTENT (a) CAUSED BY ANY INSTALLATION, MAINTENANCE,
REPAIR, SERVICE, ALTERATION, MODIFICATION (PURSUANT TO THE TERMS OF ARTICLE 6
ABOVE OR OTHERWISE), RELOCATION OR OTHER TAMPERING TO OR WITH ANY SPECIALIZED
UNIT PERFORMED BY ANY PARTY OTHER THAN TJA OR TJA's DESIGNATED SUBCONTRACTOR OR
AGENT WITHOUT TJA'S WRITTEN APPROVAL SIGNED BY THE PRESIDENT OF TJA AND
SPECIFICALLY
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REFERENCING THIS SECTION 10.2.2; (b) DUE TO A CUSTOMER'S FAILURE TO OBSERVE THE
SAFETY INSTRUCTIONS ACCOMPANYING ANY SPECIALIZED UNIT, INCLUDING WITHOUT
LIMITATION THOSE CONTAINED IN THE OPERATOR'S MANUAL OR DUE TO THE CUSTOMER
HAVING ALTERED, OBSCURED OR REMOVED WARNING OR OTHER LABELS OR MATERIALS
PROVIDED BY TJA; (c) DUE TO THE NATURE OR CONTENT OF THE DIAGNOSTIC DATA OR
OTHER RESULTS GENERATED OR PRODUCED BY THE OSA, INC. SOFTWARE; (d) DUE TO USE OR
STORAGE OF AN UNPACKED SPECIALIZED UNIT IN A PHYSICAL ENVIRONMENT WHICH IS NOT
IN CONFORMANCE WITH THE OPERATING ENVIRONMENT DESCRIBED IN THE SPECIALIZED UNIT
SPECIFICATION APPLICABLE THERETO; OR (e) DUE TO ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOSS OF DATA, PROFITS OR
USE, IN CONNECTION WITH THE USE OR PERFORMANCE OF ANY SPECIALIZED UNIT;
PROVIDED, HOWEVER, THAT OSA, INC. SHALL HAVE NO LIABILITY UNDER THIS SECTION
10.2.2 TO THE EXTENT ANY DAMAGES ARE ATTRIBUTABLE TO THE NEGLIGENCE OR WILLFUL
MISCONDUCT OF TJA, OR ITS PARENT, AFFILIATES, EMPLOYEES, AGENTS, REPRESENTATIVES
OR CONTRACTORS. The foregoing provisions of this Section 10.2.2 are not intended
to limit the express terms of any warranty set forth herein, including without
limitation in clause (b) of Section 10.1.1 above regarding substantial
conformance of a Specialized Unit with the Specialized Unit Specification
applicable thereto during the Warranty Period; provided, however, that to the
extent any warranty claim made against TJA is attributable to the occurrence of
any one or more of the events enumerated in clauses (a) through (e) above, OSA,
Inc. shall indemnify TJA for all costs incurred by TJA in connection with such
claim.
10.2.3 OSA, INC. SHALL IN NO EVENT BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOSS OF PROFITS,
ARISING OUT OF THIS AGREEMENT.
10.3 Warranty to TJA. OSA, Inc. warrants that the OSA, Inc.
Software and Technical Contributions of OSA, Inc. do not violate or
infringe the United States Intellectual Property rights of any
third party.
11. MARKETING BY OSA, INC.
11.1 Marketing. OSA, Inc. shall use its best efforts to
market and promote the Specialized Units and to maximize its sales,
leases or licenses of Specialized Units.
11.2 [Intentionally deleted.]
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11.3 Information Regarding Specialized Units. OSA, Inc. shall: (a)
provide pertinent information concerning the Specialized Units to prospective
Customers; (b) promptly present to TJA complaints concerning any Specialized
Unit which OSA, Inc. receives from Customers; (c) remain reasonably informed and
knowledgeable concerning the function, specifications and advantages of the
Specialized Units; (d) avoid deceptive, misleading or unethical practices that
are detrimental to TJA, Thermo Instrument and/or any one or more of the
Specialized Units; (e) make no false or misleading representations with regard
to TJA, Thermo Instrument and/or any one or more of the Specialized Units; (f)
not publish or employ, or cooperate in the publication or employment of, any
misleading or deceptive advertising material with regard to TJA, Thermo
Instrument and/or any one or more of the Specialized Units; and (g) make no
representations, warranties or guarantees to Customers or to the trade with
respect to the specifications, features or capabilities of any one or more of
the Specialized Units that are inconsistent with this Agreement and the various
Exhibits attached hereto or the warranties provided herein.
11.4 Specialized Unit Applications. It is understood and agreed by the
parties hereto that the identification of Customers to whom the Specialized
Units are to be sold, leased or licensed, and the selection of the commercial
applications for and environments in which any given Specialized Unit is to be
utilized, shall be determined exclusively by OSA, Inc. in the exercise of its
sole discretion. TJA MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND OR
NATURE THAT THE FUNCTIONALITY OF ANY SPECIALIZED UNIT IS ADEQUATE, SUITABLE OR
OTHERWISE APPROPRIATE, FROM A TECHNOLOGICAL STANDPOINT OR OTHERWISE, IN THE
CONTEXT OF ANY CURRENTLY CONTEMPLATED AND/OR FUTURE APPLICATIONS THEREFOR AND
HEREBY DISCLAIMS ALL LIABILITY ARISING FROM OR IN CONNECTION WITH THE ADEQUACY,
SUITABILITY OR APPROPRIATENESS OF SUCH FUNCTIONALITY FOR ANY SUCH APPLICATIONS.
The foregoing provisions of this Section 11.4 are not intended to limit the
express terms of the warranty set forth in clause (b) of Section 10.1.1 above
regarding substantial conformance of each Specialized Unit developed hereunder
with the applicable Specialized Unit Specification during the Warranty Period.
12. CUSTOMER AGREEMENT.
No Specialized Unit shall be sold, leased, licensed or sublicensed by
OSA, Inc. to any Customer until such time as a form of customer agreement
mutually acceptable to OSA, Inc. and TJA, in the exercise of each party's
reasonable discretion, has been
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created (the "Customer Agreement"). OSA, Inc. agrees to cause each Customer to
execute a Customer Agreement prior to the delivery to such Customer of any
Specialized Unit hereunder. Upon execution of this Agreement, OSA, Inc. and TJA
shall commence and thereafter diligently continue to negotiate in good faith the
form of such Customer Agreement.
13. INDEMNIFICATION.
13.1 By OSA, Inc. Subject to the limitations in Section 10.2.3, OSA,
Inc. shall indemnify, defend and hold harmless TJA, its parent, subsidiaries and
affiliates (including without limitation Thermo Instrument and Nicolet), from
and against any and all losses, damages, liabilities and expenses (including,
without limitation, reasonable attorneys' fees and disbursements and court
costs) incurred by them in connection with third party claims or suits, whether
based in statute, contract, tort, strict liability or breach of warranty or
otherwise, to the extent arising, or alleged by said third party claimant to
arise, by reason of (a) the negligence or willful misconduct of OSA, Inc., its
parent, affiliates, employees, agents, representatives or contractors, (b) false
or misleading statements made by OSA, Inc., its parent, affiliates, employees,
agents, representatives or contractors, to any persons including, but not
limited to, Customers, (c) infringement by the OSA, Inc. Software of any patent,
copyright, trademark, trade secret or any other proprietary right of any third
party, (d) use of any Specialized Unit in combination with equipment or software
external to the Specialized Unit and not manufactured by TJA or Thermo
Instrument, or any parent, subsidiary or affiliate of either, which use is not
approved in writing by TJA in an instrument expressly referencing this Section
13.1(d) and signed by the President of TJA , (e) TJA's compliance with designs,
specifications or instructions of OSA, Inc., or of any Customer made with OSA,
Inc.'s approval, (f) use of any Specialized Unit in an application or
environment for which the Specialized Unit design and/or the Specialized Unit
Specification applicable thereto is or are inadequate, unsuitable or otherwise
inappropriate, (g) use of any Specialized Unit which has been modified pursuant
to the provisions of Article 6 above or otherwise, (h) repair, maintenance or
installation of, or other tampering with, any Specialized Unit by anyone other
than TJA or its affiliates, employees, contractors or agents unless approved by
TJA, which approval must be evidenced by an instrument expressly referencing
this Section 13.1(h) and signed by the President of TJA, (i) infringement of any
Intellectual Property rights of any person or entity by OSA, Inc.'s Technical
Contributions or Marks or (j) TSI's breach of any
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representation or warranty under Section 17.16.1 below; provided, however, that
OSA, Inc. shall have no liability under this Section 13.1 to the extent any
third party claims or suits are attributable to the negligence or willful
misconduct of TJA or its parent, affiliates, employees, agents, representatives
or contractors.
13.2 By TJA. Subject to the limitations in Section 10.2.1(b), TJA shall
indemnify, defend and hold harmless OSA, Inc., its parent, subsidiaries and
affiliates (including without limitation Top Source and UTG), from and against
any and all losses, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees and disbursements and court costs)
incurred by them in connection with third party claims or suits, whether based
in statute, contract, tort, strict liability or breach of warranty or otherwise,
to the extent arising, or alleged by said third party claimant to arise, by
reason of (a) the negligence or willful misconduct of TJA, its parent,
affiliates, employees, agents, representatives or contractors, (b) false or
misleading statements made by TJA, its parent, affiliates, employees, agents,
representatives or contractors, to any persons including, but not limited to,
Customers, (c) infringement by the Instrument Software of any patent, copyright,
trademark, trade secret or any other proprietary right of any third party, (d)
use of any Specialized Unit in combination with equipment or software external
to the Specialized Unit and manufactured by TJA or Thermo Instrument, or any
parent, subsidiary or affiliate of either, or otherwise used with TJA's written
approval, which approval must be evidenced by an instrument expressly
referencing this Section 13.2(d) and signed by the President of TJA, (e) OSA,
Inc.'s compliance with designs, specifications or instructions of TJA, (f)
repair, maintenance, installation or reinstallation of any Specialized Unit by
TJA or its parent, affiliates, employees, agents, representatives or
contractors, (g) infringement of any Intellectual Property rights of any person
or entity by TJA's Technical Contributions or Marks, (h) OSA, Inc.'s or any
Customer's compliance with written safety or training materials provided by TJA
or (i) Thermo's breach of any representation or warranty under Section 17.16.2
below; provided, however, that TJA shall have no liability under this Section
13.2 to the extent any third party claims or suits are attributable to the
negligence or willful misconduct of OSA, Inc. or its parent, affiliates,
employees, agents, representatives or contractors.
13.3 Procedures. The party seeking indemnification under this
Article 13 ("Indemnified Party") shall provide prompt written
notice of any claim to the party from whom indemnification is
sought hereunder ("Indemnifying Party"). The Indemnifying Party
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shall have the right, at its option, to assume the defense of any claim for
which indemnification is sought. In the event that the defense of any claim has
been assumed by the Indemnifying Party, the Indemnified Party shall have the
right to participate in any such proceeding with counsel of its own choice and
at its own expense.
13.4 Terminology. It is understood and agreed that any time the term
"contractor(s)" is used in this Agreement, the same shall be deemed to refer to
and include subcontractor(s) as well.
14. CONFIDENTIALITY.
14.1 Proprietary Information. All of the parties to this Agreement
(i.e., TJA, Thermo Instrument, OSA, Inc. and Top Source) agree and acknowledge
that in order to further the performance of this Agreement, they have disclosed
and will continue to disclose to each other certain information concerning their
respective Technical Contributions, proprietary inventions, confidential
know-how and trade secrets (including without limitation methods or concepts
utilized therein), marketing and sales, pricing (including without limitation
the pricing information contained in any Specialized Unit Addendum hereto),
software (including without limitation the Instrument Software and OSA, Inc.
Software), distributors, customers, business and other confidential information
(collectively, the "Proprietary Information"). The Proprietary Information shall
remain the sole property of the disclosing party (the "Owner"), and the
receiving party (the "Recipient") shall have no interest in, or rights with
respect to, such Proprietary Information except as set forth in this Agreement.
In addition, the terms of this Agreement shall constitute Proprietary
Information of all parties.
14.2 Protection. The Recipient agrees to use the same degree of care to
protect the confidentiality of all Proprietary Information, designated as such
in writing by the Owner thereof, as a reasonable man would utilize in protecting
his own similar proprietary information, including without limitation agreeing:
14.2.1 Except as specifically authorized by this Agreement,
not to permit the disclosure, use, copying, display, loan, publication, transfer
of possession (whether by sale, exchange, gift, operation of law or otherwise)
or other dissemination of or access to the Proprietary Information, in whole or
in part, to any third party without the prior written consent of the Owner,
except that such disclosure or access shall be permitted
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(a) to an employee, agent, representative, contractor or director of the
Recipient requiring access to the Proprietary Information in the course of his
or her duties in connection with the performance by the Recipient of its
obligations under this Agreement and who has agreed to maintain the
confidentiality of the Proprietary Information, (b) with respect to disclosure
only of Proprietary Information other than the contents of this Agreement, to a
Customer or other third party who has executed a Customer Agreement or (c) with
respect to disclosure of the contents of this Agreement only, to any party
providing, or considering providing, financing or capital to TSI in connection
with any Specialized Unit developed hereunder who has agreed, in writing, to
maintain the confidentiality of the contents of this Agreement;
14.2.2 To notify the Owner promptly, and in writing, of the
circumstances surrounding any suspected possession, use or knowledge of the
Proprietary Information or any part thereof at any location or by any person or
entity other than those whose access thereto is authorized by this Agreement and
take further steps as may reasonably be requested by the Owner to prevent or
remedy any such violation. The Owner shall be permitted to make reasonable
inquiries from time to time concerning the Recipient's compliance with the
provisions of this Article 14.
14.3 Exception. Nothing in this Article 14 shall restrict the Recipient
with respect to information or data, whether or not identical or similar to that
contained in the Proprietary Information, if such information or data (a) was
rightfully possessed by the Recipient before it was received from the Owner; (b)
is independently developed by or for the Recipient without derivation from or
reference to the Owner's information or data; (c) is or becomes public or
available to the general public otherwise than through any act or default of the
Recipient; (d) becomes available to the Recipient from a source (other than the
Owner) who is not, to the Recipient's knowledge, bound by a confidentiality
obligation; or (e) is required by law or stock exchange rule to be disclosed. In
addition, nothing in this Article 14 shall restrict the Recipient from
disclosing this Agreement (a) in connection with any legal action to enforce the
terms hereof or (b) in compliance with any valid subpoena, provided the
Recipient notifies the Owner prior to making any such disclosure and uses
reasonable efforts to obtain a protective stipulation of confidentiality with
respect to the subpoenaed information prior to disclosure of the same.
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14.4 Efforts to Maintain Confidentiality. The parties agree to take any
and all reasonable and appropriate measures to maintain confidentiality of all
Proprietary Information in conformance with the standards set forth in Section
14.2 above, such measures to include, without limitation, written agreements
with Customers and other users, purchasers, lessees, licensees and sublicensees
acknowledging the parties' proprietary rights, imposing confidentiality
obligations, and prohibiting internal inspection or reverse engineering of any
Specialized Unit, the Instrument Software or the OSA, Inc. Software. No
Specialized Unit may be transferred to any person without such an agreement.
Said agreements shall be in form acceptable to counsel for all parties, and
shall provide that the provisions thereof will survive the expiration or earlier
termination of this Agreement.
14.5 Obligation to Defend Proprietary Information. Each Owner agrees to
protect and defend its Proprietary Information against infringement to the
extent such Owner, in its sole discretion, considers appropriate. An Owner which
otherwise would elect not to protect and defend its Proprietary Information
against infringement shall be obligated to do so if the other party pays or
reimburses the Owner for all costs incurred therefor.
14.6 Injunctive Relief. Because the unauthorized use, transfer or
dissemination of the Instrument Software or OSA, Inc. Software or any
Proprietary Information provided by one party to the other may diminish
substantially the value thereof and of the Specialized Units and may irreparably
harm the offended party, if either party breaches the provisions of this Article
14 or the software licensing provisions of this Agreement, the other party shall
be entitled, without limiting its other rights or remedies, to seek equitable
relief, including, but not limited to, injunctive relief.
15. TERM AND TERMINATION.
15.1 Term and Non-Compete. This Agreement shall be for an initial term
(the "Term") commencing as of the effective date hereof and continuing through
and including December 31, 1997 (the "Term Expiration Date"), unless earlier
terminated in accordance with the provisions of this Article 15. This Agreement
shall automatically terminate as of the Term Expiration Date without the
requirement of notice or any other action on the part of either party hereto.
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15.2 Termination. This Agreement may be terminated as to all
parties prior to the Term Expiration Date:
15.2.1 By either party in the event of a material breach by
the other party of any of such other party's obligations under this Agreement,
which breach has not been cured within sixty (60) days following the date on
which the non-breaching party has given written notice to the breaching party
specifying the nature of the breach (or, if such breach is of a nature that it
cannot reasonably be cured within said sixty (60)-day period, if the breaching
party fails to commence to cure the same within said sixty (60)-day period or
thereafter fails to diligently prosecute such cure to completion);
15.2.2 By either party, effective immediately and without the
requirement of any notice, if the other party (a) files for or consents to a
general assignment for the benefit of creditors, (b) files a petition in
bankruptcy or liquidation, or is adjudicated bankrupt or insolvent or takes
similar actions under the laws of any jurisdiction for the general benefit of
creditors of an insolvent or financially troubled debtor or (c) is the subject
of an involuntary bankruptcy or insolvency proceeding which is not finally
dismissed within forty-five (45) days;
15.2.3 (i) Notwithstanding the provisions of Section 17.9
below, by TJA, upon not less than thirty (30) days' prior written notice, in the
event of a change in control, direct or indirect, of OSA, Inc. or Top Source
which has, or in the reasonable opinion of TJA could have, a material adverse
effect on the ability of TSI to perform its obligations hereunder or otherwise
on the consummation of the transactions contemplated herein; or
(ii) Notwithstanding the provisions of Section 17.9
below, by OSA, Inc., upon not less than thirty (30) days' prior written notice,
in the event of a change in control, direct or indirect, of TJA or Thermo
Instrument which has, or in the reasonable opinion of OSA, Inc. could have, a
material adverse effect on the ability of Thermo to perform its obligations
hereunder or otherwise on the consummation of the transactions contemplated
herein;
(iii) For purposes of this Section 15.2.3,
"control" shall mean ownership of greater than fifty percent (50%) of the
capital stock or the power to vote or direct the voting of sufficient securities
to elect a majority of the directors;
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15.3 Effect of Expiration or Termination. Upon expiration or the
effective date of termination of this Agreement for any reason, all rights and
obligations of the parties under this Agreement shall cease, except as follows:
15.3.1 In the event of the expiration of the Term of this
Agreement pursuant to Section 15.1 above, TJA shall complete the manufacture and
shipment of all orders in effect at the time of such expiration, and OSA, Inc.
shall be obligated to make payment for the same in accordance with the
applicable provisions of Article 8 above.
15.3.2 At the election of the party initiating termination in
the case of a termination pursuant to the provisions of Sections 15.2.1, 15.2.2
or 15.2.3 above TJA shall be obligated to complete the manufacture and shipment
of all (or such portion thereof as is indicated by the electing party under this
Section 15.3.2) orders in effect on the effective date of such termination, and
OSA, Inc. shall be obligated to make payment for the same in accordance with the
applicable provisions of Article 8 above.
15.3.3 OSA, Inc. shall, within ten (10) days after the
expiration or the effective date of any termination of this Agreement, provide
TJA with a list of all Customers for whom the Installation or Reinstallation of
a Specialized Unit has been performed by any person or entity other than TJA or
its designated subcontractor or agent. Such list shall specify the date of
Installation or Reinstallation, as the case may be, and the appropriate contact
with, and address of, each such Customer. TJA may, at its option, thereafter
communicate directly with such Customers.
15.3.4 Solely with respect to Specialized Units purchased from
TJA and paid for by OSA, Inc. hereunder, TJA shall continue, for a period of
five (5) years following the expiration or the effective date of any termination
of this Agreement, to provide maintenance services for such Specialized Units to
the extent required by, and in accordance with, the provisions of Section 9.2
above. TJA shall honor warranty coverage extended to Customers by OSA, Inc.,
provided that such coverage does not exceed the warranty coverage provided by
TJA pursuant to the terms of this Agreement. Solely with respect to Specialized
Units purchased from TJA and paid for by OSA, Inc. hereunder, and solely in
connection with the normal operation thereof, OSA, Inc. and Customers shall
have, without payment of additional consideration, the continuing perpetual and
worldwide non-exclusive right and license to use,
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license and, with respect to OSA, Inc. only, sublicense, "AS IS, WHERE IS", the
Instrument Software and other Technical Contributions of TJA and to install and
reinstall such Specialized Units with existing or new Customers, all without
restriction except (i) with respect to OSA, Inc., as provided in those Sections
of this Agreement which shall survive, in accordance with the provisions of
Section 15.4 below, the expiration or earlier termination of this Agreement, and
(ii) with respect to any Customer, as provided for the benefit of TJA in the
Customer Agreement.
15.3.5 The termination of this Agreement shall not affect OSA,
Inc.'s obligation to make payments to TJA which have become due and payable
hereunder on or before the effective date of such termination, nor release
either party from any liability to the other party which shall have accrued or
matured at the time such termination becomes effective.
15.3.6 On or before the expiration or effective date of
termination of this Agreement, OSA, Inc. shall remove all TJA Marks from
Specialized Units then in OSA, Inc.'s possession and thereafter shall cease all
use of the TJA Marks, including without limitation the use thereof in connection
with the sale, leasing, licensing, sublicensing, distribution or marketing of
Specialized Units (or related services); provided, however, that OSA, Inc.
agrees not to remove or obscure any notice of copyright, patent, trademark,
trade secret or restricted or limited rights which may be contained on the
Instrument Software and/or any of TJA's Technical Contributions.
15.4 Survival. Notwithstanding anything to the contrary contained
herein, the provisions of Section 3.1, Section 3.2 (as it relates to the OSA,
Inc. Marks), Section 4.1, Section 4.2.4, Section 4.3.2, Section 6, Section 7.7
(first sentence only), Sections 9.1.1 and 9.1.2 (solely with respect to OSAs
purchased from TJA and paid for by OSA, Inc. hereunder), Section 9.2 (solely to
the extent related to the obligations of TJA under Section 15.3.4), Article 10,
Article 13, Article 14, Article 15, and, to the extent related to the foregoing,
Articles 1, 16 and 17 (including without limitation Section 17.12 and 17.18),
shall survive any termination or expiration of this Agreement according to their
respective terms. Subject to the limitations of Article 10, an aggrieved party's
right to pursue all legal remedies for breach of contract or otherwise,
including without limitation damages related thereto, shall survive any
expiration or earlier termination of this Agreement unimpaired.
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16. COMPLIANCE WITH LAWS.
16.1 Compliance with Laws. OSA, Inc. and TJA shall comply with all
laws, legislation, rules, regulations, governmental requirements and industry
standards existing from time to time with respect to the Specialized Units
(including without limitation with respect to the sale, leasing, licensing and
sublicensing thereof) and performance of their respective obligations hereunder;
provided, however, that OSA, Inc. shall be solely responsible for ensuring that
the Specialized Units comply with all applicable governmental requirements and
industry standards imposed by any foreign country prior to any shipment of
Specialized Units to any such country. In the event that this Agreement is
required to be registered with any foreign governmental authority with respect
to Specialized Units purchased or sublicensed by OSA, Inc., OSA, Inc. shall
cause such registration to be made and shall bear any expense or tax payable in
respect thereof.
16.2 Customs and Local Taxes. TJA shall be responsible for
clearing Specialized Units purchased or sublicensed by OSA, Inc.
through customs in the country of destination, provided that OSA,
Inc. shall pay all applicable customs or import duties and all
applicable local taxes.
16.3 Export. TJA shall not export any Specialized Unit to any
jurisdiction without first obtaining all necessary export permits and
clearances, and in no event shall TJA export any Specialized Unit in violation
of any applicable law or regulation; provided that OSA, Inc. shall pay all
applicable permit and clearance fees. Any shipment of Specialized Units by OSA,
Inc. or any Customer subsequent to the initial shipment thereof by TJA (other
than returns to TJA of defective Specialized Units in accordance with the terms
of this Agreement) shall be the sole responsibility of OSA, Inc., and OSA, Inc.
shall comply with all import, export and other laws, rules, orders and
regulations, foreign or domestic, applicable to such re-shipment.
17. MISCELLANEOUS.
17.1 Governing Laws. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts (without
reference to the conflict of laws provisions thereof and excluding the United
Nations Convention on Contracts for the International Sale of Goods).
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17.2 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and shall not be
released, discharged, supplemented, interpreted, amended, varied, or modified in
any manner except by an instrument in writing signed by an authorized officer or
representative of each of the parties hereto. The exhibits following the
operative part of this Agreement shall be deemed to be incorporated in this
Agreement by this reference and the various other references contained herein.
The parties acknowledge that they are not entering into this Agreement on the
basis of any representations not expressly contained herein.
17.3 Waivers. No delay or omission on the part of any party to this
Agreement in requiring performance by any other party or in exercising any right
hereunder shall operate as a waiver of any provision hereof or of any right or
rights hereunder; and the waiver, omission or delay in requiring performance or
exercising any right hereunder on any one occasion shall not be construed as a
bar to or waiver of such performance or right on any future occasion.
17.4 Severability. If any provision of this Agreement shall for any
reason be held illegal or unenforceable, such provision shall be deemed
severable from the remaining provisions of this Agreement and shall in no way
affect or impair the validity or enforceability of the remaining provisions of
this Agreement.
17.5 Force Majeure. Notwithstanding anything to the contrary contained
herein, Thermo shall not be liable in any respect for any delay in the
performance of any of its obligations under this Agreement to the extent such
delay shall have been due to acts of God, acts of terrorism, acts of OSA, Inc.
or Top Source, acts of civil or military authority, legal or regulatory changes,
fires, floods, epidemics, quarantine restrictions, war, armed hostilities,
riots, strikes, lockouts, accidents to machinery, delays in deliveries by TJA's
suppliers, delays in transportation not the fault of TJA or any other cause
beyond the reasonable control of Thermo. Notwithstanding anything to the
contrary contained herein, TSI shall not be liable in any respect for any delay
in the performance of any of its obligations under this Agreement (other than
obligations for the payment of money) to the extent such delay shall have been
due to acts of God, acts of terrorism, acts of TJA or Thermo Instrument, acts of
civil or military authority, legal or regulatory changes, fires, floods,
epidemics, quarantine restrictions, war, armed hostilities, riots, strikes,
lockouts or any other cause beyond the reasonable control of TSI.
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17.6 Captions. Article and Section headings are for
descriptive purposes only and shall not control or alter the
meaning of this Agreement.
17.7 Relationship of the Parties. The parties acknowledge that the
parties hereto are independent contractors and that OSA, Inc. will, on its own
behalf, solicit orders for Specialized Units only as an independent contractor.
The parties shall not represent themselves as partners, joint-venturers, agents,
employees or general representatives of each other for any reason. The parties
acknowledge that they shall have no right, power or authority to in any way
obligate each other to any contract or obligation other than the obligations
contained herein.
17.8 Notices. For the purposes of this Agreement, and for all
notices and correspondence hereunder, the addresses of the
respective parties are as follows:
If to TJA: Thermo Jarrell Ash Corporation
27 Forge Parkway
Franklin, MA 02038-3148
Attn.: President
with a copy to: Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02254 02109
Attn.: General Counsel
If to Thermo Instrument: Thermo Instrument Systems Inc.
1851 Central Drive
Suite 220
Bedford, Texas 76021
Attn.: President
with a copy to: Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02254
Attn.: General Counsel
If to TSI (or one On-Site Analysis, Inc.
or more of OSA, 3125 Presidential Drive, Suite 130
Inc., and Atlanta, Georgia 30340-3907
Top Source): Attn.: President
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with a copy to: Top Source Technologies, Inc.
2000 PGA Boulevard, Suite 3200
Palm Beach Gardens, Florida
33408-2713
Attn.: President
and: Cushing, Morris, Armbruster & Jones
2110 Peachtree Center Cain Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn.: Kevin R. Armbruster, Esq.
No change of address shall be binding upon the other party hereto until
written notice thereof is received by such party at the address shown herein.
All notices shall be in English and shall be effective upon receipt if delivered
personally or by courier or sent by facsimile, and three (3) business days after
mailing if sent by United States Mail.
17.9 Assignment and Corporate Reorganization. None of the parties shall
assign any rights or obligations under this Agreement without the prior written
consent of the other parties hereto. Notwithstanding the foregoing provisions of
this Section 17.9, but subject to the provisions of Section 15.2.3, any party
hereto ("Assignor") shall have the right to assign its rights and obligations
under this Agreement, without the prior written consent of any other party
hereto, (i) to a parent, subsidiary or affiliate of Assignor, (ii) in connection
with a merger, consolidation or combination or (iii) in connection with a sale
of substantially all of the assets of Assignor; provided that any such assignee
shall agree in writing to be bound by all obligations of Assignor hereunder, and
further provided that, unless released in writing by the other parties hereto,
Assignor shall continue to be bound by all of the terms and conditions of this
Agreement. Subject to the foregoing, this Agreement shall inure to the benefit
of and be binding upon any successor or permitted assign of such party.
17.10 Official Language. If this Agreement is translated
into another language besides English, the English language version
shall be the official version.
17.11 Currency. All prices are in currency of the United
States of America.
17.12 Guaranty.
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17.12.1 By Top Source. Top Source, as a material inducement to
Thermo to enter into this Agreement, hereby unconditionally guarantees, as and
for its own obligation, the full and prompt performance by OSA, Inc. of all of
its obligations under this Agreement. If any such obligations are not performed
when due, Top Source will immediately perform them, without resort by the
obligee to any other person or party. TJA and Thermo Instrument (or either of
them) may grant one or more extensions to fulfill such obligations or may
release or reach a compromise with any person liable for such obligations
without giving Top Source notice and without obtaining Top Source's consent.
This guaranty shall not be released, in whole or in part, by any action or thing
which might, but for this provision, be deemed a legal or equitable discharge of
a surety or guarantor, or by reason of any waiver, omission, action or failure
to act by TJA or Thermo Instrument (whether or not Top Source's risk is varied
or increased or its rights or remedies are affected thereby), or by reason of
any further dealings between TSI and TJA or Thermo Instrument.
17.12.2 By Thermo Instrument. Thermo Instrument, as a material
inducement to TSI to enter into this Agreement, hereby unconditionally
guarantees the full and prompt performance by TJA of all of its obligations
under this Agreement. If any such obligations are not performed when due, Thermo
Instrument will immediately perform them, without resort by the obligee to any
other person or party. TSI may grant one or more extensions to fulfill such
obligations or may release or reach a compromise with any person liable for such
obligations without giving Thermo Instrument notice and without obtaining Thermo
Instrument's consent. This guaranty shall not be released, in whole or in part,
by any action or thing which might, but for this provision, be deemed a legal or
equitable discharge of a surety or guarantor, or by reason of any waiver,
omission, action or failure to act by TSI (whether or not Thermo Instrument's
risk is varied or increased or its rights or remedies are affected thereby), or
by reason of any further dealings between TJA or Thermo Instrument and TSI.
17.13 Remedies Cumulative. Any and all rights and remedies which any
party may have under this Agreement, at law or in equity, shall be cumulative
and shall not be deemed inconsistent with each other, and any two or more of all
such rights and remedies may be exercised at the same time insofar as permitted
by law.
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17.14 Authority. The individuals executing this Agreement hereby
represent and warrant that they are empowered and duly authorized to so execute
this Agreement on behalf of the parties they represent.
17.15 Nicolet. Notwithstanding anything contained in this Agreement, it
is expressly understood and agreed by all parties hereto that in no event shall
Nicolet be deemed to be a party to this Agreement or otherwise be subject to or
bound in any way by any of the terms or provisions contained herein, including
without limitation the confidentiality obligations set forth in Article 14. It
is further expressly understood and agreed by all parties hereto that,
notwithstanding any provision in this Agreement to the contrary, TJA and Thermo
Instrument shall each have the right, in connection with the performance of
their respective obligations under this Agreement or the consummation of the
transactions contemplated hereby, to convey, disclose or disseminate to any
officer, employee, representative or agent of Nicolet (acting in his or her
capacity as such) any Proprietary Information of OSA, Inc. or Top Source
(including without limitation any Intellectual Property of either such party),
regardless of whether Nicolet, or any such officer, employee, representative or
agent of Nicolet , shall have theretofore agreed to maintain the confidentiality
of such Proprietary Information, and such conveyance, disclosure or
dissemination shall in no event be deemed to constitute a breach by TJA or
Thermo Instrument of any of the provisions of this Agreement, including without
limitation those contained in or Article 14 above.
17.16 Representations and Warranties.
17.16.1 By OSA, Inc. and Top Source. OSA, Inc. and Top
Source each warrant and represent that (i) it has full right,
power, capacity and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby;
(ii) the execution, delivery and performance of this Agreement, and
the consummation of the transactions contemplated hereby, will not
(A) conflict with or result in a violation, breach, termination or
acceleration of, or default under (or would result in a violation,
breach, termination, acceleration or default with the giving of
notice or passage of time, or both), any of the terms, conditions
or provisions of the Articles of Incorporation or Bylaws of OSA,
Inc. or Top Source, as amended, or of any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to
which OSA, Inc. or Top Source is a party or by which either of
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<PAGE>
them, or any of their respective properties or assets, may be bound or affected,
or (B) result in the violation of any order, writ, injunction, decree, statute,
rule or regulation applicable to OSA, Inc. or Top Source, or their respective
properties or assets; (iii) this Agreement is enforceable in accordance with its
terms; and (iv) no consent or approval by, or notification to or filing with,
any court, governmental authority or third party is required in connection with
the execution, delivery and performance of this Agreement by OSA, Inc. and Top
Source, or the consummation of the transactions contemplated hereby. Without in
any way limiting the foregoing, OSA, Inc. warrants and represents that it owns
or otherwise has the right to use all Technical Contributions contributed by
OSA, Inc. (as referenced in Section 1.11 above) in the development of the OSA
and any Specialized Unit hereunder and has obtained all consents, approvals and
authorizations required for the use of such Technical Contributions by TSI and
Thermo in connection with the performance of this Agreement and the consummation
of the transactions contemplated hereby. Each of the foregoing representations
and warranties shall also be true and correct as though made on and as of the
date of execution of each Specialized Unit Addendum hereunder.
17.16.2 By TJA and Thermo Instrument. TJA and Thermo
Instrument each warrant and represent that (i) it has full right, power,
capacity and authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby; (ii) the execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby, will not (A) conflict with or result in a violation,
breach, termination or acceleration of, or default under (or would result in a
violation, breach, termination, acceleration or default with the giving of
notice or passage of time, or both), any of the terms, conditions or provisions
of the Articles of Incorporation or Bylaws of TJA or Thermo Instrument, as
amended, or of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which TJA or Thermo Instrument is a party or by
which either of them, or any of their respective properties or assets, may be
bound or affected, or (B) result in the violation of any order, writ,
injunction, decree, statute, rule or regulation applicable to TJA or Thermo
Instrument, or their respective properties or assets; (iii) this Agreement is
enforceable in accordance with its terms; and (iv) no consent or approval by, or
notification to or filing with, any court, governmental authority or third party
is required in connection with the execution, delivery and performance of this
Agreement by TJA and Thermo Instrument, or the consummation of the transactions
contemplated hereby. Without in any way limiting the
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<PAGE>
foregoing, TJA warrants and represents that it owns or otherwise has the right
to use all Technical Contributions contributed by TJA (as referenced in Section
1.11 above) in the development of the OSA and any Specialized Unit hereunder and
has obtained all consents, approvals and authorizations required for the use of
such Technical Contributions by Thermo and TSI in connection with the
performance of this Agreement and the consummation of the transactions
contemplated hereby. Each of the foregoing representations and warranties shall
also be true and correct as though made on and as of the date of execution of
each Specialized Unit Addendum hereunder.
17.17 Prevailing Party. If any action at law or in equity is brought to
enforce or interpret the provisions of this Agreement, the prevailing party in
such action shall be entitled to reimbursement of the reasonable attorneys' fees
and disbursements and court costs incurred by said prevailing party in
connection with such action.
17.18 General Provisions Regarding Warranties. Subject to the
provisions of Sections 15.2.3 and 17.9 above, the warranties provided to OSA,
Inc. hereunder shall continue to be enforceable by OSA, Inc., in accordance with
the terms of this Agreement, regardless of the transfer by OSA, Inc. of title to
the products to which such warranties relate in the ordinary course of marketing
the same as contemplated by this Agreement. Subject to the provisions of
Sections 15.2.3 and 17.9 above, the warranties provided to TJA hereunder shall
continue to be enforceable by TJA, in accordance with the terms of this
Agreement, regardless of the transfer by TJA of title to the products to which
such warranties relate in the ordinary course of marketing the same as
contemplated by this Agreement.
18. "U" UNIT AGREEMENT.
Reference is hereby made to that certain Agreement dated as of March 3,
1995 by and between TJA and Thermo Instrument and OSA, Inc. and Top Source (the
"'U' Unit Agreement"). It is understood and agreed that each purchase by OSA,
Inc. of a Specialized Unit hereunder shall also be deemed to constitute a
purchase by OSA, Inc. of an OSA for purposes of Sections 15.1 and 15.2.6 of the
"U" Unit Agreement. Notwithstanding anything to the contrary contained in the
"U" Unit Agreement, including without limitation the provisions of Sections 5.2
and 15.1 thereof, it is further understood and agreed that the performance by
either party of its obligations under this Agreement will not constitute a
default by
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<PAGE>
such party under the "U" Unit Agreement. The "U" Unit Agreement is hereby
ratified and confirmed in its entirety, and, except to the extent expressly
provided in this Article 18, nothing contained herein shall be deemed to
constitute an amendment to or modification of the "U" Unit Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement under seal as of the day and year first above written.
TJA:
THERMO JARRELL ASH CORPORATION
By: /s/ Earl Lewis
Title: Sr. Vice President
Witness/
Attest:
Title:
[CORPORATE SEAL]
THERMO INSTRUMENT:
THERMO INSTRUMENT SYSTEMS INC.
By: /s/ Earl Lewis
Title: Sr. Vice President
Witness/
Attest:
Title:
[CORPORATE SEAL]
[Signatures Continued on Next Page]
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<PAGE>
OSA, INC.:
ON-SITE ANALYSIS, INC.
By: /s/ Stuart Landow 12/28/95
Title: CEO
Witness/
Attest: /s/ Jane M. Ott
Title: Corporate Administrator
[CORPORATE SEAL]
TOP SOURCE:
TOP SOURCE TECHNOLOGIES, INC.
By: /s/ Stuart Landow 12/28/95
Title: CEO
Witness/
Attest: /s/ Jane M. Ott
Title: Corporate Administrator
[CORPORATE SEAL]
AA953250027
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LIST OF EXHIBITS
Exhibit A "U" Specification
Exhibit B Site Survey Report
Exhibit C Customer Site Specifications for
Installation
AA953250027
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<PAGE>
LEASE AGREEMENT
THIS LEASE made as of the 20th day of December, 1995, between Greenleaf Venture
Associates, Ltd. d/b/a/ FAIRWAY CENTER, hereinafter referred to as "Lessor", and
TOP SOURCE TECHNOLOGIES, INC., a Delaware corporation registered to conduct
business in the State of Florida hereinafter referred to as "Lessee".
WITNESSETH:
A. DESCRIPTION OF PREMISES
For and in consideration of the covenants and agreements herein contained,
Lessor hereby leases to Lessee and Lessee rents from Lessor subject to the
terms, covenants and conditions of this Lease those certain premises (the
"Premises") constructed or to be constructed as outlined on the Floor Plan
attached hereto as Addendum A and made a part hereof which is known as Suite
#200 being deemed to contain for all purposes under this Lease 6,723 "rentable
square feet" computed in accordance with the last sentence of this Paragraph A,
on the second floor of the building to be generally known as FAIRWAY CENTER
(hereinafter known as the "Building") located at 7108 Fairway Drive, Palm Beach
Gardens, Florida, together with a license for the duration of the term of this
Lease to use those parking spaces described in the Parking Space Schedule
attached hereto as Addendum B and made a part hereof. The "rentable square
footage" of the Premises shall be defined as the sum of the actual square
footage of the Premises plus 11% of such square footage which is deemed to be
for hallways, restrooms, electrical, janitor and telephone closets and other
such Common Areas.
B. TERM
The term of this Lease shall be for three (3) years, commencing on January
15, 1996 (the "Estimated Completion Date" for improvements to the Lessee's
Premises) or such earlier date if Lessee takes possession of the Premises prior
thereto, and ending at 5:00 P.M. on January 14, 1999, subject to prior
termination or extension pursuant to the terms contained herein and the
applicable provision of Florida law. In the event the Premises are not completed
by the Estimated Completion Date, the commencement of rent shall be as specified
in Section 6. of the Standard Lease Provisions.
C. BASE RENT
Subject to adjustments in the amount of Base Rent for each Lease Year (as
hereinafter defined in Section 1 of the Standard Lease Provision hereof) Lessee
agrees to pay Base Rent to the Lessor at 1555 Palm Beach Lakes Boulevard, West
Palm Beach, Florida, 33401, or at such place as may be designated from
time-to-time by Lessor. As used hereinafter in this Lease, the term "Base Rent"
shall include the Premises Base Rent and the Parking Space Base Rent,
collectively, as such amounts are adjusted for each Lease Year, as provided in
Section 2 of the Standard Lease Provision.
1. The annual amount of Seventy-three Thousand Nine Hundred Fifty-three and
00/100 ($73,953.00) Dollars plus sales tax thereon Base Rent for the Premises,
payable in equal consecutive monthly installments in advance, on the first day
of each month during the term of this Lease (hereinafter referred to as the
"Premises Base Rent"), the annual amount of NOT APPLICABLE Dollars, as rental
for the parking spaces described in Addendum B, plus sales tax thereon, payable
in equal monthly installments simultaneously with the payment of the Premises
Base Rent (hereinafter referred to as the "Parking Space Base Rent").
2. The Base Rent shall be payable in lawful money of the United States,
without any setoff or deduction. Lessor acknowledges receipt of the amount of
Six Thousand Five Hundred Thirty-two and 52/100 ($6,532.52) Dollars from Lessee,
upon execution of this Lease, representing payment of the first month's
installment of Base Rent, including sales tax thereon.
D. OPERATING EXPENSES
Subject to adjustment each year during the term of this Lease, the
Operating Expenses payable by Lessee to Lessor during the first year of the term
hereof shall be in the amount of Forty-six Thousand Three Hundred Twenty-one and
47/100 ($46,321.47) Dollars plus sales tax in lawful money of the United States
payable in accordance with the terms set forth hereinafter, concurrently with
the payment of Base Rent. Operating Expenses shall constitute additional Rent
for all purposes under this Lease. Lessee's proportionate share is 14.2% of
Operating Expenses.
The Operating Expenses shall be payable in lawful money of the United States,
without
<PAGE>
any setoff or reduction. Lessor acknowledges receipt of the amount of Four
Thousand Ninety- one and 73/100 ($4,091.73) Dollars from Lessee, upon execution
of this Lease, representing payment of the first month's installment of
Operating Expenses, including sales tax thereon.
E. SECURITY DEPOSIT
Upon execution of this Lease, Lessee agrees to deliver to Lessor Forty
Thousand Ninety- one and 48/100 ($40,091.48) Dollars as a Security Deposit
("Deposit") to be applied as set forth in Section 9 of the Standard Lease
Provisions.
F. USE OF THE PREMISES
The Lessee covenants that the Premises shall be used and occupied only for
general office and administrative purposes and OSA Lab and for no other purpose.
G. STANDARD LEASE PROVISIONS
This Lease includes the Standard Lease provisions containing Sections
numbered 1 through 49 and the Addenda A-L which are attached hereto and by this
reference incorporated into this Lease. Each of the preceding Paragraphs A
through F is subject to the Standard Lease Provisions and Addenda.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on December 20, 1995.
Lessee: TOP SOURCE TECHNOLOGIES, INC.
Witnesses: /s/ Robert Book By:/s/ David Natan (SEAL)
David Natan
/s/ Andrew Dietz Official Title: Chief Financial Officer
(As to Lessee) This Lease, including payment of Base Rent
and all other sums due herein, together
with Standard Lease Provisions No. 1
through 46 and Addenda A-L, is hereby
personally guaranteed.
Witnesses: Guarantor
Lessor: GREENLEAF VENTURE ASSOCIATES,LTD
(As to Guarantor)
By: FAIRWAY PROPERTY COMPANY
MANAGING GENERAL PARTNER
Witnesses: By:/s/ E. Llwyd Ecclestone, Jr. (SEAL)
E. Llwyd Ecclestone, Jr.
Official Title: Chairman
(As to Lessor)
<PAGE>
STANDARD LEASE PROVISIONS
1. DEFINITIONS
A. "Base Year" means the calendar year preceding the calendar year in which the
Lease term commences.
B. "Common Area" means all portions of the Real Property which are intended
for the common use and enjoyment of all tenants, including with limitation, the
lobby area, all hallways, stairways, elevators and restrooms within the
Building, the parking garage, the parking areas, and all driveways, walkways and
landscaped areas within the Real Property.
C. "Consumer Price Index" or "CPI" means the average of: (a) U.S. City
Averages for all Urban Consumers, all items of the United States Bureau of Labor
Statistics; and (b) U.S. City Averages For Urban Wage Earners and Clerical
Workers, all items of the United States Bureau of Statistics. If the Bureau of
Labor Statistics substantially revises the manner in which the CPI is
determined, an adjustment shall be made in the revised index which would produce
results equivalent, as nearly as possible, to those which would be obtained if
the CPI had not been so revised. If the 1967 average shall no longer be used as
an index of 100, such change shall constitute a substantial revision. If the CPI
becomes unavailable to the public because publication is discontinued, or
otherwise, Lessor shall substitute therefor a comparable index based upon
changes in the cost of living or purchasing power of the consumer dollar
published by any other governmental agency; or, if no such index is available,
then a comparable index published by a major bank, other financial institution,
university or recognized financial publication.
D. "Lease Year" means each calendar year during the term of this Lease.
E. "Lessee's Proration Percentage" represents the proportion of the rentable
square footage of the Premises bears to the rentable square footage of the
Building. The rentable square footage of the Building is the sum of the rentable
square footage of all Premises (leased or unleased) in the Building, and for all
purposes under this Lease shall be conclusively deemed to be 47,317 square feet.
The rentable square footage of the Premises is set forth in Paragraph A on page
1 of this Lease.
F. "Operating Expenses" means and includes: (a) all expenses paid or incurred
by Lessor for maintaining, operating and repairing the Real Property, the office
tower and the parking garage and all other systems and components of the
building (hereinafter called the "Building), and other parking areas, the curbs,
sidewalks and plazas adjoining the same, including but not limited to the cost
of painting, cleaning, refurbishing, recarpeting, redecorating, gardening,
planting, seeding and maintenance of landscaped areas, trash removal, drain
maintenance, security guard service, exterior maintenance of the improvements,
window cleaning, janitorial service, uniforms, management fees, supplies and
sundries; (b) utility expenses incurred by Lessor in furnishing utility services
for the Real Property, including the cost of electricity, gas or other fuel,
heating, lighting, air-conditioning, sewer and waste-water service and general
surface drainage; (c) those expenses paid or incurred by Lessor for insurance,
including but not limited to fire, extended coverage, liability, workmen's
compensation, elevator, or any other insurance carried in good faith by Lessor
and applicable to the Real Property; (d) the cost of rental of all supplies,
tools, materials and equipment, including expenses paid or incurred by Lessor
for sales or use taxes on supplies or services; (e) the cost of wages and
salaries of all persons engaged in the operation, maintenance and repair of the
Real Property, and so-called fringe benefits, including social security taxes,
unemployment insurance taxes, cost for providing coverage for disability
benefits, cost of any pensions, hospitalization, welfare or retirement plans, or
any other similar or like expenses incurred under the provisions of any
collective bargaining agreement, or any other cost of expense which Lessor pays
or incurs to provide benefits for employees so engaged in the operation,
maintenance and repair of the Real Property; (f) the charges of any independent
contractor who, under contract with Lessor or its representatives, does any of
the work operating, maintaining or repairing the Real Property, including
without limitation the charges for services, materials and supplies furnished in
connection with the operation, maintenance or repair of any part of the Building
or the heating, air-conditioning, ventilating, plumbing, roofing, electrical,
elevator and other systems of the Building; (g) depreciation of hand tools and
other moveable equipment used in the repair, maintenance or operation of the
Real property; (h) legal, accounting, and other professional expenses incurred
in connection with the operation, maintenance and management of the Real
Property, including, but not limited to, such expenses as relate to seeking
refunds of or obtaining reductions in the taxes; (i) the amortized portion of
the cost of any capital improvement or alteration made to the Real property
which is either required by law (or governmental regulation) or intended by
Lessor to reduce operating costs or
1
<PAGE>
expenses, it being understood that such amortization shall be in accordance with
generally accepted accounting principles and include interest at the prime rate
in effect on the date of installation of the capital improvement; (j) reasonable
reserves as determined by Lessor to be necessary for the efficient operation,
management and repair of the Premises and the Building; (k) all real estate
taxes, assessments, sewer rents, rates and charges, transit taxes, taxes based
upon the receipt of rent, including the sales taxes of other governmental taxes,
fees or charges on account of rent and any other federal, state, city, county or
other local governmental charges or charges by any school, drainage or other
special improvement district, general, special, ordinary or extraordinary (but
not including income taxes or any other taxes imposed upon or measured by
Lessor's income or profits, unless the same be imposed in lieu of real estate
taxes), which may now or hereafter be levied or assessed against the Real
Property (hereinafter the "Taxes"). In case of special taxes or assessments
which may be payable in installments, only the amount of each installment paid
during a Lease Year shall be included in Taxes for that Lease Year. Taxes shall
also include any personal property taxes imposed upon the furniture, fixtures,
machinery, equipment, apparatus, systems, and appurtenances used in connection
with the Real Property for the operation thereof. The amount of Taxes
attributable to any Lease Year shall be the amount of Taxes payable in such
year, notwithstanding that in each case the assessments for such Taxes may have
been made for a different year or years than the year in which payable; and (l)
any other expense or charge, whether or not hereinbefore mentioned, which in
accordance with generally accepted accounting and management principles would be
considered as an expense of maintaining, operating, or repairing the Building.
If any Operating Expense, though paid in one (1) year, relates to more than one
(1) calendar year, at the option of Lessor such expense may be proportionately
allocated among such related calendar years. If during any calendar year,
including the Base Year, any rentable space in the Building shall be vacant or
unoccupied, at Lessor's option, the Operating Expense for such calendar year
shall be adjusted to reflect the expenses that would have been incurred if such
space had been occupied.
Notwithstanding the above, the following are excluded from the definition of
Operating Expenses; (a) real estate broker's leasing commission; (b)
depreciation (except as provided above), interest on the amortization of debt
(except as provided above); (c) leasehold improvements made for new tenants of
the Building; (d) refinancing costs; and (e) the cost of any work or services
performed for any tenants of the Building to the extent that such work is
separately reimbursed.
G. "Real Property" means the Building, the parking garage, the land and real
property owned or leased by Lessor upon which the Building and the parking
garage stand or which is adjacent thereto, and used in connection with the
operation of the Building and its common areas.
2. BASE RENT
A. The Base Rent set forth in paragraph C on the cover page of this Lease
shall be adjusted at the commencement of each Lease Year in accordance with any
adjustment in the Consumer Price Index. The new Base Rent for each Lease Year
shall be determined by multiplying the Base Rent for the immediately preceding
Lease Year by a fraction, the numerator of which shall be the CPI published for
the month of October in the Lease Year then ended, and the denominator of which
shall be the CPI published for the month of October in the immediately preceding
Lease Year. With respect to the first such adjustment, the initial Base Rent
shall be multiplied by a fraction, the numerator of which shall be the CPI
published for the month of October in the year of the commencement of this
Lease, and the denominator of which shall be the CPI published for the month in
which the Lease term commenced. In no event shall the Base Rent for any Lease
Year be less than the Base Rent for the immediately preceding Lease Year.
B. Prior to the commencement of each such Lease Year, Lessor shall deliver to
Lessee a statement setting forth the Annual Base Rent for the forthcoming Lease
Year, the manner in which it was calculated and the monthly installment that the
Lessee shall pay to the Lessor pursuant to this Lease for such Lease Year.
C. If the Lease term commencement date is on any day other than the first day
of January, or if the Lease term expiration date is on any date other than the
first day of December, the Base Rent as adjusted for such year shall be prorated
on the basis of the actual number of days of the Lease term during such calendar
year.
3. OPERATING EXPENSES
A. In addition to the Base Rent, as annually adjusted, Lessee shall pay to
Lessor during each Lease Year, including the calendar year in which the Lease
term expires, Lessee's share of the
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Operating Expenses for the Lease Year. Lessee's share of Operating Expenses
shall be computed by multiplying the amount of the Operating Expenses by
Lessee's Proration Percentage.
B. On or about the commencement of each Lease Year, Lessor shall provide
Lessee with a written estimate of Lessee's share of the Operating Expenses for
the forthcoming Lease Year. Lessee shall thereafter pay to Lessor, concurrent
with the payment of Base Rent during the Lease Year, one-twelfth (1/12) of
Lessee's share of the Operating Expenses, as set forth on Lessor's written
estimate. In the event that Lessor revises its estimate of Lessee's share of the
Operating Expenses, or if Lessor furnishes such estimate subsequent to the
commencement of a Lease Year, Lessor shall furnish to Lessee a statement of any
adjustments to be paid or refunded as a result of such revision or late
estimate, which adjustment shall be paid with, or credited against, the next
monthly payment by Lessee of its share of Operating Expenses. Failure of Lessor
to submit the written estimate shall not waive any rights of Lessor hereunder.
C. No later than April 1 of each Lease Year, Lessor shall submit to Lessee a
statement of Lessee's share of the actual Operating Expenses for the immediately
preceding Lease Year. If Lessee's share of the actual Operating Expenses exceeds
the estimate prepared by Lessor at the commencement of the preceding Lease Year,
then Lessee shall pay the difference to Lessor, in a single payment, within
fifteen (15) days after receipt from Lessor of the amount due. In the event that
Lessee's share of the actual Operating Expenses is less than the estimate
prepared by the Lessor, then the difference shall be credited to Lessee against
current monthly payments of Operating Expenses.
D. Lessee may examine Lessor's records regarding Operating Expenses during
normal business hours within ten (10) days following the issuance to the Lessee
of the Statement of actual Operating Expenses. The Statement of actual Operating
Expenses (the "Statement") shall be considered as final and acceptable to Lessee
unless Lessee objects to the Statement by written notice to the Lessor within
thirty (30) days following the issuance of the Statement. If Lessee disputes the
accuracy of the Statement, and if such dispute shall not have been settled by
agreement between Lessor and Lessee, the issue shall be conclusively determined
by an audit performed by a certified public accounting firm located in Palm
Beach County and selected by Lessor. Pending resolution of the dispute by the
certified public accountant, Lessee shall pay the amount indicated in the
Statement of actual Operating Expenses, without prejudice to Lessee's position.
If the dispute is resolved in Lessee's favor, any overpayment due to Lessee
shall be credited against Lessee's share of the Operating Expenses for the
current Lease Year, and Lessor shall pay the cost of the audit. If the dispute
shall be determined in Lessor's favor, Lessee shall pay the cost of the audit,
which expenses shall be deemed to constitute additional Rent hereunder.
4. PAYMENT OF RENT
A. For all purposes under this Lease and under law, the Premises Base Rent as
adjusted, the Parking Space Base Rent, as adjusted, Lessee's share of the
Operating Expenses as adjusted, and all other sums due from Lessee to Lessor
under this Lease shall be deemed to constitute Rent, and the term "Rent" as used
herein shall be deemed to include all such amounts.
B. Lessee shall pay the Rent to Lessor promptly when due without notice or
demand therefor and without any abatement, deduction, counterclaim or setoff for
any reason whatsoever, except as may be expressly provided in this Lease. No
payment by Lessee or receipt or acceptance by Lessor of a lesser amount than the
correct Rent shall be deemed to be other than the payment on account, nor shall
any endorsement or statement on any check or letter accompanying any payment be
deemed an accord or satisfaction and Lessor may accept such payment without
prejudice to its rights to recover the balance or pursue any other remedy in
this Lease or at law. Lessee's obligation to pay the Rent for the full term of
this Lease shall survive the expiration or earlier termination of the term
hereof.
5. LATE PAYMENTS
If any payment of Rent or other sums due hereunder is made later than the
seventh day of the month, a late fee of fifty ($50.0) dollars shall be paid by
Lessee, upon demand by Lessor, for each day beyond the seventh unless a lesser
rate shall then be the maximum rate permissible by law, in which event, said
lesser rate shall be charged. This late fee shall be in addition to and not in
exclusion of any other sums payable by Lessee due to Lessee's failure to pay
when due any sums hereunder. Acceptance of such late charge by Lessor shall in
no event constitute a waiver of Lessee's default with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder.
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6. COMMENCEMENT OF RENT AND TERM
The term of this Lease and Lessee's obligation to pay Rent shall commence on
the Estimated Completion Date or earlier date, if Lessee assumes possession, as
specified in Paragraph B of this Lease Agreement. However, in the event the
Premises have not been completed by the Estimated Completion Date sufficient for
a certificate of occupancy ("C.O.") to have been issued therefor, then the
commencement of Rent shall be postponed until such time as a C.O. for Lessee's
Premises has been issued and the date of expiration of the Lease term shall be
similarly postponed by the same number of days between the earlier of the
Estimated Completion Date or the date of possession and the date of issuance of
a C.O. Under no circumstances, however, may Lessee enter into possession of the
Premises prior to completion of improvements to the Premises by Lessor, except
upon the express written consent of Lessor and subject to any terms of such
consent. Should the term of this Lease and the Lessee's obligation to pay Rent
commence on a day other than the first day of a month, then the term of this
Lease, for purposes of calculating the length of term only, shall commence on
the first day of the following month, but Lessee shall nevertheless be subject
to all terms and conditions of this Lease for the fractional month preceding the
commencement of this Lease during which Lessee is in occupancy. The Lessee shall
pay Rent for the fractional month preceding the commencement of this Lease, if
the term of this Lease commences on a day other than the first day of a month,
on a per diem basis (calculated on the basis of a thirty-day month) payable on
commencement of the term of this Lease. Any Rent payment hereunder for any other
fractional month shall likewise be calculated and paid on such per diem basis.
7. CONSTRUCTION OF LEASED PREMISES
A. Lessor's Work. Lessor agrees that it will supply, at its own expense,
its standard space, as more particularly described and set forth on Addendum C,
annexed hereto and made a part hereof ("Lessor's Work").
B. The purpose of the Floor Plan attached hereto as Addendum "A" is to show
the approximate location of the Premises. The Lessor reserves the right, at any
time, to add to or reduce or to relocate the various improvements, automobile
parking areas, and other common areas as shown on the Floor Plan.
8. ACCEPTANCE BY LESSEE
A. If Lessor's Work is not completed at the time this Lease is executed,
Lessee agrees that either the acceptance by Lessee of possession of the Premises
for the purpose of construction of Lessee's improvements constructed by Lessor
shall be deemed acceptable if all of the work is substantially completed except
for those additional items that Lessor is doing for Lessee (See Addendum "C").
The only remaining items would be punchlist type items.
B. If Lessor's Work has been completed at the time this Lease is executed,
Lessee certifies that it has inspected the Premises and accepts same in its
existing condition. No repair work, alterations, or remodeling of the Premises
is required to be done by Lessor as a condition of the Lease.
9. SECURITY DEPOSIT
A. Amount of Deposit. Lessee, simultaneously with the execution of this
Lease, has deposited with the Lessor the sum stated in Paragraph E of the cover
page of this Lease, receipt of which is hereby acknowledged by Lessor. The
Deposit shall be held by Lessor. The Deposit may be commingled with other funds
of Lessor, and Lessor shall have no liability for the accrual or payment of any
interest thereon. If at any time during the term of this Lease any of the Rent
herein reserved shall be overdue and unpaid, or any other sum payable by Lessee
to Lessor hereunder shall be overdue and unpaid, then Lessor may, at the option
of Lessor, appropriate and apply all or any portion of said deposit to the
payment of any such overdue Rent or other sum.
B. Use and Return of Deposit. In the event of the failure of Lessee to keep
and perform any of the terms, covenants and conditions of this Lease to be kept
and performed by Lessee, then the Lessor, at its option, may appropriate and
apply the Deposit or so much thereof as Lessor may deem necessary, to compensate
the Lessor all reasonable loss, cost, expense or damage sustained or suffered by
Lessor due to such default or failure on the part of the Lessee. Should the
entire Deposit, or any portion thereof, be appropriated and applied by Lessor as
permitted hereby, then Lessee shall, upon the demand of Lessor, forthwith remit
to Lessor a sufficient amount in cash to restore the Deposit to the original sum
deposited, and Lessee's failure to do so within five (5) days after receipt of
such demand shall constitute a
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default of this Lease. Should Lessee comply with all of said terms, covenants
and conditions and promptly pay all of the Rent and additional rent herein
provided for as it falls due, and all other sums payable by Lessee to Lessor
hereunder, the Deposit shall be returned in full to Lessee within a reasonable
time following the expiration of the term of this Lease, or the earlier
termination hereof.
C. Transfer of Deposit. Lessor may deliver the Deposit to the purchaser of
Lessor's interest in the Premises, in the event that such interest be sold, and
thereupon Lessor shall be discharged from any further liability with respect to
the Deposit.
10. USE OF COMMON AREAS
The use and occupation by Lessee of the Premises shall include the
non-exclusive use, in common with others entitled thereto, of the hallways,
elevators, toilets, stairways, entrance ways, grounds, loading facilities,
sidewalks and customer car parking areas (hereinafter collectively "common
areas") as such common areas now exist or as such common areas may hereafter be
constructed for the benefit of and as a part of the Building, and other
facilities as may be designated from time to time by the Lessor, subject,
however, to the terms and conditions of this Lease and to the reasonable Rules
and Regulations for the use thereof as set forth in Addendum E hereto and by
this reference incorporated herein as covenants of this Lease, and as may be
prescribed from time to time by the Lessor.
11. USE OF PREMISES
Lessee hereby covenants to use and occupy the Premises for the sole and
exclusive purpose of operating as set forth in Paragraph "F" on the cover page,
and for no other use or purpose whatsoever without the Lessor's prior written
consent which may not be unreasonably withheld. Lessee covenants not to use or
maintain the Premises in any unlawful manner or for any unlawful purposes, and
shall promptly comply with any and all laws, ordinances, order, and regulations
of any and all municipal, county, state, federal, and other governmental
authorities that may pertain or apply to Lessee's occupancy, use or business
operations on the Premises at Lessee's sole cost and expense, including, but not
limited to, any and all energy or fuel conservation orders or regulations
promulgated by any government authority. Lessee shall, additionally, in its use
of the Premises comply with the reasonable Rules and Regulations as set forth in
Addendum E hereof, and as may be prescribed from time to time by Lessor. Lessee
shall make no use whatever of the Premises that would cause an increase in the
fire insurance rate applicable to the Building upon the commencement of the term
of this Lease and shall not do or permit to be done any act or thing which might
subject Lessor any liability or responsibility for injury to any person or
persons or to any property by reason of any business or operation being
conducted on the Premises. Lessee shall not bring any flammable material or
substances or any articles of a dangerous nature or any heating or cooking units
except for microwave into the Building or the Premises without the prior written
consent of Lessor. No safes, heavy files, bookcases or other heavy equipment
shall be allowed in the Building unless the weight, location and handling of the
same is approved by the Lessor and not unreasonably withheld. Regardless of such
approval, Lessee agrees to indemnify, defend and save Lessor harmless from all
expenses and other damages, including attorneys' fees and costs, incurred by
Lessor resulting from the use or installation by Lessee of such heavy equipment
in the Building, which indemnification shall survive the expiration or earlier
termination of this Lease. Lessee shall not cause or permit any noise or odor
that is objectionable to the public, to other occupants of the Building, or to
Lessor, to emanate from the Premises and shall not create or maintain a nuisance
thereon, and shall not disturb, solicit, or canvas any occupant of the Building,
and shall not do any act tending to injure the reputation of the Building or the
Premises. Lessee shall not use, create, store or permit any toxic or hazardous
material anywhere on the Real Property. Without limiting the foregoing, Lessee
shall not dispose of any toxic or other hazardous waste through the plumbing
system in the Building, or through the storm drainage system of the Real
Property, nor shall Lessee violate any requirements of the Florida Department of
Environmental Regulation or the Florida Department of Health, or any other
governmental agency, with respect to waste disposal. Lessee agrees to indemnify,
defend and save Lessor harmless from all expenses and other damages incurred by
Lessor as a result of improper waste disposal by Lessee, which indemnification
shall survive the expiration or earlier termination of this Lease. The building
presently meets the 1986 ADA requirements.
Lessee shall not cause or maintain any nuisance in or about the Premises and
shall keep the Premises free of debris, rodents, vermin, and anything of a
dangerous, noxious, or offensive nature or which could create a fire hazard
(through undue load on electrical circuits or otherwise) or undue vibration,
heat, or noise.
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12. ALTERATIONS
Lessee shall make no changes in or to the Premises of any nature without
Lessor's prior written consent which shall not be unreasonably withheld. Lessee
shall conduct all alterations and improvements in a merchantable manner, subject
to the prior written consent of Lessor. Any Lessee alterations, additions or
improvements shall only be permitted, if at all, where such improvements are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the Premises by using contractors or
mechanics first approved by Lessor. All fixtures and all paneling, partitions,
railing and like installations, installed in the Premises at any time, either by
Lessee or by Lessor on Lessee's behalf, shall, upon installation, become the
property of Lessor and shall remain upon and be surrendered with the Premises
unless Lessor by notice to Lessee no later than twenty (20) days prior to the
date fixed as the termination of this Lease, elects to relinquish Lessor's right
hereto and to have them removed by Lessee, in which event, the same shall be
removed from the Premises by Lessee prior to the expiration of the Lease at
Lessee's expense. Nothing in this article shall be construed to give Lessor
title to or to prevent Lessee's removal of trade fixtures, moveable office
furniture and equipment, but upon removal of any such items from the premises or
upon removal of other installations as may be required by Lessor. Lessee may
remove its curtains, furniture and accessories. Lessee shall immediately and at
its expense, repair and restore the Premises to the condition existing prior to
installation and repair any damage to the Premises or the building due to such
removal. All property permitted or required to be removed by Lessee at the end
of the term remaining in the Premises after Lessee's removal shall be deemed
abandoned and may, at the election of Lessor, either be retained as Lessor's
property or may be removed from the Premises by Lessor at Lessee's expense.
Lessee shall, before making any alterations, additions, installations or
improvements, at its expense, obtain all permits, approvals and certificates
required by any government or quasi-governmental bodies and (upon completion)
certificates of final approval thereof and shall deliver promptly duplicates of
all such permits, approvals and certificates to Lessor and Lessee agrees to
carry and will use Lessee's contractors and sub-contractors to carry such
workman's compensation, general liability, personal property and property damage
insurance as Lessor may require.
13. SERVICES
Lessor agrees, while Lessee is not in default under this Lease, to furnish
the Premises with air-conditioning and heat during the appropriate seasons from
8:00 A.M. to 6:00 P.M., Monday through Friday and 8:00 A.M. to 1:00 P.M. on
Saturday of each week excluding legal holidays. After hours air-conditioning
rate is $20 per hour and is coordinated by the Building's Management Office.
Lessor agrees to instruct Lessee regarding access to air-conditioning control
panel in the event Management Office is not available to do so. Lessor agrees to
supply janitorial services for the hallways and common areas and for the
interior of the Premises. If, for security or other valid reasons approved by
the Lessor, Lessee elects to provide separate janitorial services for the
interior of the Premises it may do so, provided that the janitorial service
company selected by Lessee shall be subject to the prior written approval of
Lessor. Further, in such event, the Lessee shall indemnify, defend and save the
Lessor harmless from all claims and damages, including attorneys' fees and
costs, arising out of any acts or omissions of the Lessee's janitorial service
company. Upon request of the Lessor, the Lessee shall post with the Lessor a
fidelity bond in form and substance satisfactory to the Lessor, applicable to
all employees of the Lessee's janitorial service company. The employment of its
own janitorial service company shall not entitle the Lessee to any credit
against its share of the Operating Expenses. Lessor shall supply landscaping and
maintenance services for the grounds of the Building. Lessor will furnish
elevator service, lighting replacement for common area lights, toilet room
supplies, common area janitor service daily during the time and in the manner
that such services are customarily furnished in first class buildings in Palm
Beach County, Florida. All services rendered by Lessor shall be deemed an
Operating Expense as aforementioned herein. Lessor shall not be liable for any
damages directly or indirectly resulting from, nor shall any Rent herein set
forth be abated by reason of (1) installation, use, or interruption of use, of
any equipment in connection with the furnishing of any of the foregoing
services, or (2) failure to furnish or delay in furnishing, any such services
when such failure or delay is caused by accident or any condition beyond the
reasonable control of Lessor or by the making of necessary repairs or
improvements to the Premises or to the Building. The temporary failure to
furnish any such services shall not be construed as an eviction of Lessee or
relieve Lessee from the duty of observing and performing any of the provisions
of this Lease. Lessor shall use its best efforts to promptly restore any
interrupted service. Lessor to provide electrical, water and sewer service,
twenty-four (24) hours a day.
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14. ASSIGNMENT AND SUBLETTING
Lessee shall not assign the right of occupancy under this Lease or any other
interest therein, or sublet the Premises, or any portion thereof, without the
prior written consent of Lessor, which shall not be unreasonably withheld.
Lessee absolutely shall have no right of assignment or subletting if it is or
has been in default of this Lease. Notwithstanding any assignment of the Lease,
or the subletting of the Premises, or any portion thereof, Lessee shall continue
to be liable for the performance of the terms, conditions and covenants of this
Lease, including, but not limited to, the payment of Rent. Consent by Lessor to
one or more assignments or sublettings shall not operate as a waiver of Lessor's
rights as to any subsequent assignments and sublettings. Lessor shall have the
sole option, which shall be exercised by providing Lessee with written notice of
terminating the Lessee's rights and obligations under this Lease rather than
permitting any assignment or subletting by Lessee. Should Lessor permit any
assignment or subletting by Lessee and should the monies received as a result of
such assignment or subletting (when compared to the monies still payable by
Lessee to Lessor) be greater than would have been received hereunder had not
Lessor permitted such assignment or subletting, then the excess shall be payable
by Lessee to Lessor, it being the parties' intention that Lessor, and not
Lessee, shall be the party to receive any profit from any assignment or
subletting. If there are one or more assignments or sublettings by Lessee to
which Lessor consents, the parties understand and agree, notwithstanding
anything to the contrary, that any and all renewal options to be exercised
subsequent to the date of such assignment or subletting and any and all options
to lease additional space in the Building to be exercised subsequent to the date
of such assignment or subletting are absolutely waived and terminated at
Lessor's sole option. In the event of the transfer and assignment by Lessor of
its interest in this Lease and/or sale of the Building containing the Premises,
the Lessor shall thereby be released from any further obligations hereunder, and
Lessee agrees to look solely to such successor in interest of the Lessor for
performance of such obligations.
15. DAMAGE BY FIRE OR STORM
In the event that the Building should be totally destroyed by fire,
hurricane, tornado, or other casualty, or in the event the Premises or Building
should be so damaged that rebuilding or repairs cannot be completed within one
hundred eighty (180) days after the date of such damage, either Lessor or Lessee
may at its option, by written notice to the other given not more than thirty
(30) days after the date of such fire or other casualty, terminate this Lease.
In such event, security deposit will be returned and Lessee released from
further obligation and the rent shall be abated during the unexpired portion of
this Lease effective with the date of such fire or other casualty. In the event
the Building or Premises should be damaged by fire, hurricane, tornado, or other
casualty covered by Lessor's insurance but only to such extent that rebuilding
or repairs can be completed within one hundred eighty (180) days after the date
of such damage, or if the damage should be more serious as descried in the prior
sentence but neither Lessor nor Lessee elects to terminate the Lease, then
Lessor shall within sixty (60) days after the date of such damages commence to
rebuild or repair the Building and/or the Premises and shall proceed with
reasonable diligence to restore the Building and/or the Premises to
substantially the same condition in which it was immediately prior to the
occurrence of the casualty, except that Lessor shall be required to restore the
Premises only to the extent of Lessor's Work originally performed, and Lessor
shall not be required to rebuild, repair or replace any part of the furniture,
equipment, fixtures, and other improvements which may have been placed by Lessee
or other tenants within the Building or Premises. Lessor shall, unless such
damage is the result of negligence or willful misconduct of Lessee or Lessee's
employees or invitees, allow Lessee a fair diminution of Rent during the time
that the Premises is unfit for occupancy. In the event any mortgage, under a
deed of trust, security agreement or mortgage on the building, should require
that the insurance proceeds be used to retire the mortgage debt. Lessor shall
have no obligation to rebuild the Building and/or the Premises and this Lease
shall terminate upon notice to Lessee. Any insurance which may be carried by
Lessor or Lessee against loss or damage to the Building or to the Premises shall
be for the sole benefit of the party carrying such insurance and under its sole
control.
16. EMINENT DOMAIN
If the whole or a portion of the Building shall be taken for any public or
quasi-public use under any statute or by right of eminent domain or private
purchase in lieu thereof, then at Lessor's option, but not otherwise, the term
hereby demised and all rights of Lessee hereunder shall immediately cease and
terminate and the Base Rent shall be adjusted as of the date of such
termination. Lessee shall be entitled to no part of the award made for such
condemnation (or other taking) or the purchase price thereof. Nevertheless,
notwithstanding anything to the contrary likewise at Lessor's option, but not
otherwise, if the Premises is unaffected by such condemnation (or other taking),
then this Lease and each and every one
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of its provisions shall continue in full force and effect.
17. FORCE MAJEURE
Whenever a period of time is herein prescribed for action to be taken by
Lessor, Lessor shall not be liable or responsible for, and there shall be
excluded from the computation for any such period of time, any delays due to
strikes, riots, acts of God, shortages of labor or materials, theft, fire,
public enemy, injunction, insurrection, court order, requisition of other
governmental body or authority, war, governmental laws, regulations or
restrictions or any other causes of any kind whatsoever which are beyond the
control of Lessor.
18. INDEMNITY
Lessor shall not be liable for and Lessee will indemnify and save Lessor
harmless of and from all fines, suits, claims, demands, losses and actions
(including attorneys' fees) for any injury to person or damage to or loss of
property on or about the Premises caused by the negligence or misconduct or
breach of this Lease by Lessee, its assigns, employees, subtenants, invitees or
by any other person entering the Premises or the Building under express or
implied invitation of Lessee, or arising out of Lessee's use of the Premises.
19. INSURANCE TO BE MAINTAINED BY LESSEE
Lessee shall insure all its property in the Premises against damage by fire,
including extended coverage, in any reasonable amount as determined by Lessor in
consultation with Lessee. The Lessee shall also maintain at its expense,
throughout the Term, insurance against liability in connection with bodily
injury, death, property damage and destruction occurring within the Premises or
arising out of the use thereof by the Lessee or its agents, employees, officers,
or invitees, visitors and guests under one or more policies or general public
liability insurance having such limits as to each as are reasonably required by
the Lessor from time to time, but in no event less than (a) One Million
($1,000,000) Dollars for injury to or death of any one or more persons during
any one occurrence and (b) Five Hundred Thousand ($500,000) Dollars for property
damage or destruction during any one occurrence. Such policies shall name Lessor
and the Lessee (and, at the request of the Lessor, any mortgagee), as the
insured parties, and shall provide that they shall not be cancelable without at
least thirty (30) days prior written notice to the Lessor (and, at the request
of the Lessor, any mortgagee), and shall be issued by insurers of recognized
responsibility licensed to do business in Florida, approved by Lessor.
20. SUBROGATION
In the event of any loss or damage to the Building, the Premises and/or any
contents therein, each party shall look first to any insurance in its favor
before making any claim against the other party. To the extent possible without
affecting the validity, coverage or premium for applicable insurance, Lessee
shall obtain, for each applicable policy of insurance, a provision in such
policies permitting waiver of claim against the Lessor for loss or damage within
the scope of the insurance, and Lessee, to such extent permitted for itself and
its insurers, waives all such insured claims against the Lessor.
21. KEYS AND LOCKS
A. Locks. Lessee may from time to time install and change locking mechanisms
on entrances to the Building, common areas thereof, and the Premises, and shall
provide to Lessee a reasonable number of keys and replacements therefor to meet
the bona fide requirements of the Lessee. As used herein, "keys" includes any
device servicing the same purpose. Lessee shall not add to or change existing
locking mechanisms on any door in or to the Premises without Lessor's prior
written consent which shall not be unreasonably withheld. If with Lessor's
consent, Lessee installs lock(s) incompatible with the Building master locking
system:
1) Lessor, without abatement of Rent shall be relieved of any obligation under
the Lease to provide any service to the affected areas which require access
thereto;
2) Lessee shall indemnify Lessor against any expense as a result of forced
entry thereto which may be required in an emergency.
3) Lessee shall at the end of the term and at Lessor's request remove such
lock(s) at Lessee's expense; and
4) Lessee shall not, during periods outside of the normal operation hours of the
Building,
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do anything which shall cause the main entry to the Building to remain unlocked.
Any violation of the foregoing provisions shall subject the Lessee to strict
liability for any and all damage to the Building caused by persons gaining entry
as a result of such violation. The Lessee agrees to abide by all rules set by
the Lessor concerning security.
5) Lessor will provide Lessee with the necessary access cards and five (5) keys
to the Suite.
B. Return of Keys. At the end of the term, Lessee shall promptly return to
Lessor all keys for the Building and Premises which are in possession of Lessee.
22. LESSEE'S EQUIPMENT
The Lessee shall not connect any electrical equipment of any type to the
electrical distribution system without the Lessor's prior written consent which
shall not be unreasonably withheld, provided that the Lessee may, without the
Lessor's consent, connect equipment which do not overtax the electrical system.
Lessor does not warrant that the Premises are sufficient or adaptable for the
use of computer or word or data processing equipment. Lessee agrees not to
connect with water pipes any apparatus using water without consent of the
Lessor. Lessee shall be permitted to use a copying machine plus any number of
computers, typewriters and desk calculators consistent with the leased area
without being subject to the utility surcharge hereinafter provided. Lessee
shall not be permitted to install any equipment causing a floor load in excess
of _________ pounds per square foot. Additional equipment shall only be
connected upon written permission of the Lessor which shall not be unreasonably
withheld and shall be subject to an electrical service surcharge in an amount
determined by the Lessor upon the grant of permission. In particular but not
exclusively, the following equipment is subject to the surcharge: More than one
refrigerator, water coolers, incandescent lighting and any other equipment
determined by Lessor in its sole discretion. No cooking or warming up of food
(except for microwave) or room heaters will be permitted. No device will be used
by Lessee that creates any unreasonable odor.
Lessee may install or affix to the Premises such equipment and trade fixtures
as are reasonably necessary for the conduct of Lessee's business operation
therein with the Lessor's prior written consent; and upon termination of the
Lease for any reason other than Lessee's default, Lessee may remove the same
provided that after such removal Lessee restores the Premises at Lessee's
expense to the same condition as existed prior to the installation of such
equipment and fixtures. It is understood and agreed, however, that any floor
coverings, window treatments, wall coverings or other appurtenants attached to
the floor or any part of the Premises by Lessee shall at the termination of the
Lease or any renewal thereof, remain the property of Lessor and shall not be
removed unless Lessor requests Lessee to remove same. Lessee shall promptly pay
and discharge and shall indemnify and hold Lessor harmless of and from, all
tangible property taxes and assessments now or hereafter taxed, assessed,
imposed or levied by any lawful authority against or upon any fixtures,
equipment, or personal property located in the Premises which shall not be
unreasonably withheld during the term of this Lease.
Lessee shall not store or maintain any equipment, boxes or other containers
in the hallways or other common areas inside or outside the Building. Lessor
shall have the right to remove any such equipment, boxes or containers after one
(1)hour notice to Lessee, and to store such equipment or dispose of it in any
manner deemed appropriate by Lessor. In such event, Lessee shall pay to Lessor
all expenses incurred by Lessor for such storage or other disposition, which
expenses shall be deemed to constitute additional Rent hereunder.
23. LESSOR'S LIEN
In addition to the statutory Lessor's Lien, Lessor shall have, at all times,
a valid security interest to secure payment of all Rent and other sums of money
becoming due hereunder from Lessee, and to secure payment of any damages or loss
which Lessor may suffer by reason of the breach by Lessee of any covenant,
agreement or condition contained herein, upon all goods, wares, equipment,
fixtures, furniture, files, improvements and other personal property of Lessee
presently or which may hereinafter be situated in the Premises, and all proceeds
therefrom, and such property shall not be removed therefrom without the consent
of Lessor until all arrearages in Rent as well as any and all other sums of
money then due to Lessor hereunder shall first have been paid and discharged and
all of the covenants, agreements, and conditions hereof have been fully complied
with and performed by Lessee. In consideration of this Lease, upon the
occurrence of an event of default by Lessee, Lessor may, in addition to any
other remedies provided herein, enter upon the Premises and take possession of
any and all goods, wares, equipment, fixtures, furniture, improvements and other
personal property of Lessee situated on or in the Premises, without liability
for trespass or conversion,
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and sell the same at public or private sale, with or without having such
property at the sale, after giving Lessee reasonable notice of the time and
place of any public sale or at the time after which any private sale is to be
made, at which sale the Lessor or its assigns may purchase unless otherwise
prohibited by law. Unless otherwise provided by law, and without intending to
exclude any other manner of giving Lessee reasonable notice, the requirement of
reasonable notice shall be met if such notice is given in the manner prescribed
in Section 36 of this Lease at least five (5) days before the time of sale. The
proceeds from any such disposition, less any and all expenses connected with the
taking of possession, holding and selling of the property (including reasonable
attorneys' fees and other expenses) shall be applied as a credit against the
indebtedness secured by the security interest granted in this Section 23. Any
surplus shall be paid to Lessee or as otherwise required by law, and Lessee
shall pay any deficiencies forthwith. Upon request by Lessor, Lessee agrees to
execute and deliver to Lessor a financing statement in form sufficient to
perfect the security interest of Lessor in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial Code in force in
the State of Florida. The statutory lien for Rent is not hereby waived, the
security interest herein granted being in addition and supplementary thereto.
24. LESSOR'S LIMITED LIABILITY
Lessee agrees that no judgment arising from any default of Lessor's
agreements under the terms of this Lease or by reason of any willful or
negligent act of Lessor, his employees or agents, shall attach against any
property of Lessor other than the Building and the lands upon which they are
located and in no event shall any such judgment constitute a lien upon any other
lands or properties owned by Lessor wheresoever located. Neither shall any such
judgment attach or constitute a lien against any property of any principal of
the Lessor, or any property of such principal's family, devises or heirs.
Lessor shall not be liable or responsible for any loss or damage to any
property or death or injury to any person, or any business or personal loss or
damage to any party, occasioned by theft, fire or false fire alarm, smoke,
hurricane, act of God, public enemy, injunction, riot, strike, insurrection,
bombing or threat thereof, war, court order, requisition of other governmental
body or authority, by any tenants of or persons within the building, or of any
other matter beyond control of Lessor, or for any injury of damage or
inconvenience which may arise through repair or alteration of any part of the
Building, or failure to make repairs, or from any cause whatever except Lessor's
negligence. Lessor will not be responsible for money, jewelry, or personal
property of any kind lost or stolen in the Premises or Building, nor for damage
to Lessee's property caused by roof leaks or bursting and leaking pipes in the
Premises or the Building, unless Lessee shall have notified Lessor in writing of
an existing defect in said pipes and the Lessor shall have had a reasonable time
in which to repair the same. Lessor shall not be responsible for loss or damage
occurring on or about the Parking Area to automobiles, vehicles, or accessories,
or the contents therein caused by fire, theft, collision, water, windstorm or
any other causes whatsoever, nor shall Lessor be responsible for any personal
injury, death, disablement or property damage sustained by any person arising
from the use or entry upon the Parking Area unless incurred due to Lessor's
negligence. All property of Lessee kept or stored in the Premises shall be so
kept or stored therein at the risk of Lessee only and Lessor shall have no
liability therefor. It is expressly agreed that Lessor shall not be liable in
any manner for any interruption, diminution or cessation for any period of time,
of any electrical water, sewage or other utility service to the Premises or the
Building, including damages, consequential or otherwise, that Lessee may incur,
unless incurred due to Lessor's negligence, therefrom best efforts to promptly
restore. Lessor shall in no respect be liable for damage to any electrical
equipment, including computer or word and data processing equipment and any
software, memory, or other components therefor, by reason of any interruption
diminution in electrical current or air-conditioning to the Premises. Lessor
shall not be liable for any latent defect in the Premises or the Building of
which they form a part, unless undiscovered due to Lessor's negligence.
25. MAINTENANCE, REPAIR AND IMPROVEMENTS BY LESSEE
Except to the extent that Lessee is specifically responsible therefor under
this Lease, Lessor shall maintain the Premises and all improvements therein in
good order and condition, in accordance with the maintenance obligations set
forth on Addendum "F" attached hereto and incorporated herein by reference.
Lessee agrees to prevent waste and to take good care of the Premises throughout
the term of this Lease. Lessee's duty of repair shall extend to and include
windows, doors, glass surfaces, carpeting, and draperies within the Premisses.
Lessee, at Lessee's sole cost and expense, shall make when needed all repairs
and alterations to the Premises, the Building and the land whenever damage or
injury to the same shall have resulted from any willful or negligent act or
omission by Lessee, its servants, employees, agents, visitors, invitees,
customers, or licensees. If Lessee neglects or refuses promptly to
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make any repairs or maintenance required by this paragraph, Lessor may perform
the same on Lessee's behalf, and Lessee shall reimburse Lessor for all costs
and, as additional Rent, all expense incurred upon payable by Lessee to Lessor
upon demand. Upon termination of this Lease in any manner, Lessee shall
peaceably and quietly leave, surrender, and yield up unto Lessor the Premises
broom-clean and in as good order and repair as existed upon the commencement of
the term of the Lease, ordinary wear and tear and acts of God excepted, and
shall surrender all keys to the Premises and the Building to Lessor.
26. MAINTENANCE, REPAIR AND IMPROVEMENTS BY LESSOR
Lessor will, as items of Operating Expense, make necessary repair of damage
to the Building corridors, lobby, structural members of the Building, and
equipment used to provide the services, unless any damage is caused by acts or
omissions of Lessee, its agents, customers, employees, or invitees, in which
event Lessee will bear the cost of such repairs. Lessee will not injure the
Premises or the Building but will maintain the Premises in a clean, attractive
condition and in good repair, except as to damage to be repaired by Lessor as
provided above. Upon termination of this Lease, Lessee will surrender and
deliver up the Premises to Lessor in the same condition in which it existed at
the commencement of the Lease, excepting only ordinary wear and tear. Except as
otherwise provided in this Section, the Lessor agrees to keep in good order,
condition and repair the foundations, exterior walls, air-conditioning equipment
and the roof of the Building, except for reasonable use and wear and acts of God
and any damage thereof caused by any act of negligence of the Lessee, its
employees, agents, visitors, licensees or contractors. In the event of damage to
the air-conditioning equipment, foundations, exterior walls and/or roof of the
Premises caused by any act of negligence of the Lessee, its employees, agents,
visitors, licensees or contractors, such damage shall be repaired at the sole
cost and expense of the Lessee. The Lessor shall not be responsible to make any
other improvements or repairs of any kind upon the Premises.
27. CONSTRUCTION LIEN
Nothing contained in this Lease shall be construed as a consent on the part
of the Lessor to subject the estate the Lessor to liability under the
Construciton Lien Law of the State of Florida, it being expressly understood
that the Lessor's estate shall not be subject to such liability. Lessee shall
strictly comply with The Construction Lien law of the State of Florida as set
forth in Florida Statutes, Chapter 713. In the event that a construction claim
of lien is filed against the Property in connection with any work performed by
or on behalf of the Lessee, the Lessee shall satisfy such claim, or shall
transfer same to security, within ten (10) days from the date of filing or
notice thereof, whichever is later. In the event that the Lessee fails to
satisfy or transfer such claim within said ten (10) day period, the Lessor may
do so and thereafter charge the Lessee, as additional rent, all costs incurred
by the Lessor in connection with the satisfaction or transfer of such claim,
including attorneys' fees. Further, the Lessee agrees to indemnify, defend and
save the Lessor harmless from and against any damage or loss incurred by the
Lessor as a result of any such claim or lien. If so requested by the Lessor, the
Lessee shall execute a short form or memorandum of this Lease, which may, in the
Lessor's discretion be recorded in the Public Records for the purpose of
protecting the Lessor's estate from construction claims of lien, as provided in
Florida Statutes, Chapter 713.10. No other memorandum of this Lease, nor this
Lease itself shall be recordable in the public records of any county within the
State of Florida without Lessor's written consent and joinder, which may be
arbitrarily withheld by Lessor in its sole discretion. In the event such short
form of Memorandum of Lease is executed, the Lessee shall simultaneously execute
and deliver to the Lessor an instrument terminating the Lessee's interest in the
real property upon which the Premises are located, which instrument may be
recorded by the Lessor at the expiration of the term of this Lease, or such
earlier termination hereof. The Security Deposit paid by the Lessee may be used
by the Lessor for the satisfaction or transfer of any claim of lien, as provided
in this Section. This Section shall survive the termination of this Lease.
28. ACCESS TO PREMISES
Lessor or Lessor's agents shall have the right (but shall not be obligated)
to enter the Premises in any emergency at any time, and at other reasonable
times, to examine the same and to make such repairs, replacements and
improvements as Lessor may deem necessary and reasonably desirable to the
Premises or to any other portion of the Building, or which Lessor may elect to
perform following Lessee's failure to make repairs or perform any work which
Lessee is obligated to perform under this Lease, or for the purpose of complying
with laws, regulations, and other directions of governmental authorities. Lessee
shall permit Lessor to use and maintain and replace pipes and conduits in and
through the Premises and to erect new pipes and conduits therein. Lessor may,
during the progress of any work in the Premises, take all necessary materials
and equipment into the Premises without the same constituting an eviction nor
shall the Lessee be entitled to any abatement of rent while such work is in
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progress nor to any damages by reason of loss or interruption of business or
otherwise. Throughout the term hereof Lessor shall have the right to enter the
Premises at reasonable hours for the purpose of showing the same to prospective
purchasers or mortgagees of the Building, and during the last six (6) months of
the term, for the purpose of showing the same to prospective tenants. If Lessee
is not present to open and permit an entry into the Premises, Lessor or Lessor's
agents may enter the same whenever such entry may be necessary or permissible by
master key or forcibly and provided reasonable care is exercised to safeguard
Lessee's property and such entry shall not render Lessor or its agents liable
therefor, nor in any event shall the obligations of Lessee hereunder be
affected. If during the last month of the term Lessee shall have removed all or
substantially all Lessee's property therefrom, Lessor may immediately enter,
alter, renovate or redecorate the Premises without reduction or abatement of
rent, or incurring liability to Lessee for any compensation and such act shall
have no effect on this Lease or Lessee's obligations hereunder. Lessor shall
have the right at any time, without the same constituting an eviction and
without incurring liability to Lessee therefor to change the arrangement and/or
location of public entrances, passageways, doors, doorways, corridors,
elevators, stairs, toilets, or other public parts of the Building and to change
the name, number or designation by which the Building may be known.
29. DEFAULT OF LESSEE
A. Events of Default. The occurrence of any one or more of the events set
forth below in (1) to (9), inclusive (any of which is referred to hereinafter as
an "Event of Default") is a default by Lessee under this Lease for which the
Lessor shall have any and all rights and remedies set forth in paragraph 29.B,
hereof.
1) In the event Lessee should fail to pay any one or more of said monthly
installments of Premises Base Rent, as adjusted from time to time, Parking Space
Base Rent, as adjusted from time to time, Lessee's share of the Operating
Expenses, as adjusted from time to time, sales tax due on the amount of any
Rent, any prorations due under this Lease or any other sums required to be paid
hereunder as additional Rent, as and when the same becomes due, after three (3)
days prior written notice;
2) In the event Lessee shall cease to fully conduct its business as specified
herein for a period of thirty (30) business days as determined by Lessor;
3) In the event a petition of bankruptcy under any present or future
bankruptcy laws (including but not limited to reorganization proceedings) be
filed by or against the Lessee and such petition is not dismissed within thirty
(30) days from the filing thereof, or in the event Lessee is adjudged a
bankrupt;
4) In the event an assignment for the benefit or creditors is made by Lessee;
5) In the event of an appointment by any court of a receiver or other court
officer of Lessee's property and such receivership is not dismissed within
thirty (30) days from such appointment;
6) In the event Lessee removes, attempts to remove, or permits to be removed
from the Premises, except in the usual course of trade, the goods, furniture,
effects or other property of the Lessee brought thereon;
7) In the event Lessee, before the expiration of the term of this Lease, and
without the written consent of the Lessor, vacates the Premises or abandons the
possession thereof, or uses the same for purposes other than the purposes for
which the same are hereby leased, or ceases to use the Premises for the purposes
herein contained;
8) In the event an execution or other legal process is levied upon the goods,
furniture, effects or other property of Lessee brought on the Premises, or upon
the interest of Lessee in this Lease, and the same is not satisfied or dismissed
within ten (10) days from such levy;
9) In the event Lessee violates any other material term, condition or
covenant herein on the part of Lessee to be performed, and fails to commence and
proceed with diligence and dispatch to remedy the same within thirty (30) days
after written notice thereof is given by Lessor to Lessee.
B. Remedies of Lessor
1) If any Event of Default occurs, the Lessor shall have the right, at the
option of Lessor, to terminate this Lease upon three (3) days written notice to
Lessee, and to thereupon re-enter and take possession of the Premises with or
without summary or other legal process. If any
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Event of Default occurs, Lessor shall have the right, at its option, from time
to time, without terminating the Lease, to re-enter and re-let the Premises, or
any part thereof, with or without legal process, as the agent and for the
account of Lessee upon such terms and conditions as Lessor may deem advisable or
satisfactory, in which event the rents received on such re- letting shall be
applied first to the expenses of such re-letting and collection including, but
not limited to, necessary renovation and alterations to the Premises, reasonable
attorneys' fees, any real estate commissions paid, and thereafter toward payment
of all sums due or to become due to the Lessor hereunder, and if a sufficient
sum shall not be thus realized or secured to pay such sums and other charges,
(i) at Lessor's option, Lessee shall pay Lessor any deficiency monthly,
notwithstanding Lessor may have received rental in excess of the rental
stipulated in this Lease in previous or subsequent months, and Lessor may bring
an action therefor as such monthly deficiency shall arise, or (ii) at Lessor's
option, the entire deficiency, which is subject to ascertainment for the
remaining term of this Lease, shall be immediately due and payable to Lessor.
Nothing herein, however, shall be construed to require Lessor to re-enter or
re-let the Premises or any portion thereof in any event. The Lessor shall not,
in any event, be required to pay Lessee any surplus of any sums received by
Lessor on a re-letting of said Premises in excess of the rent provided in this
Lease.
2) If any Event of Default occurs, the Lessor shall have the right, at its
option, to declare all rent (or any portion thereof) for the entire remaining
terms, and other indebtedness owing by Lessee to Lessor, if any, immediately due
and payable without regard to whether possession of the Premises shall have been
surrendered to or taken by Lessor, and may commence action immediately thereupon
and obtain a judgment therefor.
3) If any Event of Default occurs, the Lessor, in addition to other rights
and remedies it may have, shall have the right to remove all or any part of the
Lessee's property from the Premises and any property removed may be stored in
any public warehouse or elsewhere at the cost of, and for the account of Lessee
and the Lessor shall not be responsible for the care or safekeeping thereof
whether in transport, storage or otherwise, and the Lessee hereby waives any and
all claims against Lessor for loss, destruction and/or damage or injury which
may be occasioned by any of the aforesaid acts.
4) No such re-entry or taking possession of the Premises by Lessor shall be
construed as an election on Lessor's part to terminate this Lease unless a
written notice of such intention is given to Lessee. Notwithstanding any such
re-letting without termination, Lessor may at all times thereafter elect to
terminate this Lease for such previous default. Any such re-entry shall be
allowed by Lessee without hindrance, and Lessor shall not be liable for damages
for any such re-entry, or guilty of trespass or forcible entry.
5) In the event of a breach or threatened breach by Lessee of any of the
covenants or provisions hereof, Lessor shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this Lease of any particular remedy shall not preclude Lessor from any other
remedy, in law or in equity. Lessee hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event of
Lessee being evicted or dispossessed for any cause, or in the event of Lessor
obtaining possession of Premises by reason of the violation by Lessee of any of
the covenants and conditions of this Lease, or otherwise.
6) If any Event of Default occurs, the Lessor shall have the right to apply
and/or retain all or any portion of the Deposit paid by Lessee hereunder against
any or all reasonable loss, cost, expenses or damage sustained or incurred by
Lessor as a result thereof, as specified in Section 9 this Lease.
7) Notwithstanding any other provision hereof, Lessee shall indemnify,
reimburse and hold harmless the Lessor from any and all reasonable costs,
expenses, charges and fees, including without limitation reasonable attorneys'
fees, incurred or expended by Lessor as a result of the default by Lessee of any
term, condition, or covenant of this Lease or any rule or regulation promulgated
pursuant hereto; or as a result of Lessor's defense of any right or lien held by
Lessor under this Lease or provided by law, whether or not suit shall actually
be brought. All costs, expenses, charges and fees shall be deemed Additional
Rent and shall be payable by Lessee upon demand of Lessor. All sums, Rent and
Additional Rent payable under this Lease, including without limitation the sums
due under this section, shall bear interest from the date payment is due, and
whether before or after judgment, at a rate of interest equal to 12% per annum
notwithstanding any lower rate of interest specified in Florida Statutes,
Chapter 55.03 or any other Chapter of the Florida Statutes.
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30. BANKRUPTCY
A. If, at any time prior to the date fixed as the commencement of the term of
this Lease, a petition in bankruptcy or insolvency or for reorganization or for
the appointment of a receiver or trustee for all or part of Lessee's property is
filed in any court by Lessee, or is filed against Lessee, and if filed against
Lessee, the same is not vacated within thirty (30) days thereafter, or if Lessee
makes an assignment for the benefit of creditors, then, and in any such event,
this Lease shall be deemed to be in default by Lessee and shall, at the election
of the Lessor, be terminated and cancelled and neither Lessee nor any other
person claiming through Lessee shall be entitled to possession of the Premises.
B. If the Lessee shall become insolvent or if bankruptcy proceedings are
brought against the Lessee before the end of the term of this Lease, the Lessor
is hereby irrevocably authorized at its option to cancel this Lease. The Lessor
may elect to accept rent from a receiver, trustee or other judicial officer,
during the term of their occupancy in their fiduciary capacity without affecting
Lessor's rights as contained in this Lease. No receiver, trustee or other
judicial officer shall ever have any right, title or interest in the Premises.
31. QUIET ENJOYMENT
Lessee hereby covenants and agrees to pay all Rent reserved hereunder at the
times and in the manner herein provided, and to fully and faithfully comply,
perform, and abide by each and every term, stipulation, and agreement herein
contained, and upon the said faithful compliance, Lessee shall have peaceable
and undisturbed possession of the Premises during the term aforesaid without
hindrance from any person lawfully claiming under the Lessor.
32. NAME OF BUILDING
Lessor shall have the right, after thirty (30) days notice to Lessee to
change the name, number or designation of the Building, during the term without
liability to Lessee.
33. RELOCATION
Lessor may relocate Lessee and substitute for the Premises other space (which
would then become "the Premises" for the purposes of this Lease) in the
Building. Lessor shall pay the reasonable moving costs including phones and
stationery of such relocation, but shall not be responsible for any other costs,
damages or injuries of any nature whatsoever. Lessee's new space shall be
substantially comparable to the Premises hereby leased, and the Rent therefor
shall be adjusted based upon the square footage contained in the new premises;
provided, however, that in no event shall the Rent for the new premises exceed
One Hundred Ten Percent (110%) of the Rent for the original Premises described
herein.
34. SUBORDINATION, ATTORNMENT, ESTOPPEL CERTIFICATES
In consideration of the execution of this Lease by Lessor, Lessee accepts
this Lease subject to any master leases, security interest or first mortgage
which might now or hereafter constitute a lien upon the Building or improveme
therein or on the Premises and to zoning ordinances and other building and fire
ordinances and governmental regulations relating to the use of the Property.
Although no instrument or act on the part of the Lessee shall be necessary to
effectuate such subordination, Lessee shall, nevertheless, for the purposes of
confirmation, at any time hereafter, on demand, in the form(s) prescribed by
Lessor, execute any instruments, certificates, releases or other documents that
may be requested or required by any holder of any superior interest for the
purposes of subjecting and subordinating this Lease to the lien of any such
master lease, security interest, mortgage, or superior interest. Lessee hereby
appoints Lessor attorney in fact, irrevocably to execute and deliver any such
instrument or document for Lessee should Lessee fail or unreasonably refuse to
do so. Lessor will provide Lessee with a Non-Disturbance Agreement.
In the event any proceedings are brought for the foreclosure of, or in the
event of exercise of the power of sale under, any mortgage made by the Lessor
covering the Premises or in the event a deed is given in lieu of foreclosure of
any such mortgage, Lessee shall attorn to the purchaser, or grantee in lieu of
foreclosure, upon any such foreclosure or sale and recognize such purchaser, or
grantee in lieu of foreclosure, as the Lessor under this Lease, provided Lender
assumes all obligations of Lessor hereunder.
Lessee agrees to furnish from time to time when requested by Lessor, a
certificate signed by Lessee to the effect that this Lease is then presently in
full force and effect and unmodified (or has been modified and is as set forth
in the certificate); that the term of this Lease has commenced and the full
rental is then accruing hereunder; the amount of Base Rent, adjusted
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as called for herein, currently being paid by the Lessee; that Lessee has
accepted possession of the Premises and that any improvements required by the
terms of this Lease to be made by Lessor have been completed to the satisfaction
of Lessee; that no rent under this Lease has been paid more than thirty (30)
days in advance of its due date; that the address for notices to be sent to
Lessee is as set forth in this Lease (or has been changed by notice duly given
and is set forth in the certificate); that Lessee, as of the date of such
certificate, has no charge, lien, or claim of offset under this Lease or
otherwise against rents or other charges due or to become due hereunder; and
that to the knowledge of Lessee, Lessor is not then in default under this Lease.
The certificate shall also contain such other and further information as may be
requested by Lessor.
35. ATTORNEYS' FEES, EXPENSES AND INTEREST
If Lessee shall default in the observance or performance of any material term
or covenant on Lessee's part to be observed or performed under or by virtue of
any of the terms or provisions in any Section of this Lease, then, unless,
otherwise provided elsewhere in this Lease, Lessor upon ten (10) days notice and
a reasonable opportunity to cure or at any time thereafter and without notice
perform the obligations of Lessee thereunder, and if Lessor, in connection
therewith or in connection with any default by Lessee in the covenant to pay
rent hereunder, makes any expenditures or incurs any obligations for the payment
of money, including but not limited to attorneys' fees, in instituting,
prosecuting or defending any action or proceeding, such reasonable sums so paid
or obligations with interest and costs shall be deemed to be additional rent
hereunder and shall be paid by Lessee to Lessor within five (5) days of
rendition of any bill or statement to Lessee therefor, and Lessor may
immediately apply and retain Lessee's Deposit or any portion thereof against
same. If Lessee's Lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable by
Lessor as damages.
36. NOTICES
A. Any notice by Lessee or Lessor must be served by prepaid certified mail,
return receipt requested, addressed to Lessor at the address first hereinabove
given or at such other address as lessor may designate by written notice.
B. After commencement of the term hereof any notice by Lessor to Lessee shall
be served by prepaid certified mail, return receipt requested, addressed to
Lessee at the Premises or at such other address as Lessee shall designate by
written notice, or by delivery by Lessor to the Premises or to such other
address. Prior to the commencement of the term hereof such notice may be given
by Lessor by such mail or by delivery at the following address:
Mr. Robert Book, Director of Human Resources and Administration
Top Source Technologies, Inc.
2000 PGA Boulevard, Suite 3200
Palm Beach Gardens, FL 33408-2713
C. All notices given hereunder shall be in writing, and shall be effective
and deemed to have been given only upon receipt by the party to which notice is
being given, said receipt being deemed to have occurred upon hand delivery or
prepaid certified mail, return receipt requested, or upon such date as the
postal authorities shall show the notice to have been delivered, refused, or
undeliverable, as evidenced by the return receipt. Notwithstanding any other
provision hereof, Lessor and Lessee shall also have the right to give notice to
Lessee in any other manner provided by law.
37. SUCCESSORS AND ASSIGNS
The covenants, conditions and agreements contained in this Lease shall bind
and inure to the benefit of Lessor and Lessee and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this Lease, their assigns.
38. TIME OF ESSENCE
Time shall be of the essence with regard to the payment of all Rent and
Additional Rent, and the performance of each and every of the terms, conditions
and covenants set forth herein on the part of the Lessor and Lessee to be
performed.
39. TENANCY AT SUFFERANCE
If, without Lessor's written consent, Lessee remains in possession of the
Premises after the expiration or other termination of the term of this Lease,
Lessee shall be deemed to be
15
<PAGE>
occupying the Premises upon a tenancy at sufferance only, at a monthly rental
equal to two (2) times the last Base Rent, plus any applicable additional Rent,
which tenancy shall be terminable by Lessor and by Lessee in accordance with the
laws of the State of Florida.
40. BROKERAGE COMMISSIONS
Except for commissions payable by Lessor to C Plus Properties and Deitz
Realty Company, Lessee warrants that there are no claims for broker's
commissions or finder's fees in connection with its execution of this Lease, and
agrees to indemnify, defend and save Lessor harmless from any liability that may
arise from such claim, including reasonable attorneys' fees.
41. TITLES
The titles to the sections of this Lease have been inserted only for the
convenience of the Lessor and Lessee in referring to the provisions hereof, and
are not a part of the terms, conditions and covenants. Each section will be
construed according to its text without reference to the title.
42. SEPARABILITY
If any clause or provision of this Lease is illegal, invalid or unenforceable
under present or future laws effective during the term of this Lease, then and
in that event, it is the intention of the parties hereto that the remainder of
this Lease shall not be affected thereby.
43. COUNTERPARTS
This Lease may be executed in any number of counterparts, each of which shall
be an original, but all of which shall together constitute one Lease.
44. APPLICABLE LAW
This Lease shall be given effect and construed by application of the law of
Florida, and any action or proceeding arising hereunder shall be brought in the
courts of Palm Beach County, Florida; provided that if any such action or
proceeding arises under the constitution, laws or treaties of the United States
of America, or if there is a diversity of citizenship between the parties
hereto, so that it may be brought in the United States District Court, it may be
brought in the United States District Court for the Southern District of
Florida.
45. WAIVER OF TRIAL BY JURY
It is mutually agreed by and between Lessor and Lessee that the respective
parties hereto shall and they hereby do waive trial by jury in any action,
proceeding, or counterclaim brought by either of the parties hereto against the
other except for personal injury or property damage, on any matters whatever
arising out of or in any way connected with this Lease, the relationship of
Lessor and Lessee, Lessee's use of or occupancy of said Premises, and any
emergency statutory or any other statutory remedy. It is further mutually agreed
that in the event Lessor commences any primary proceeding for possession of the
Premises, Lessee will not file any counterclaim of whatever nature or
description in any such proceeding.
46. INTEGRATION, MODIFICATION, AND WAIVER
This instrument contains all the agreements and conditions made between the
parties hereto and may not be modified, changed, or terminated, in whole or in
part, orally, or in any other manner other than by an agreement in writing,
signed by all parties hereto or their respective successors in interest. The
receipt of Rent by Lessor with knowledge of any breach of this Lease by Lessee,
or of any default on the part of the Lessee in the observance or performance of
any of the conditions or covenants of this Lease, shall not be deemed to be a
waiver of any provision of this Lease. No waiver of any default on the part of
Lessee nor any extension of time by Lessor to Lessee for any purpose whatsoever
shall be held or deemed to be a waiver of any of the terms of this Lease or any
default thereafter occurring, and no termination of this Lease in any manner
shall affect the rights of the parties against each other as of the time of such
termination. If Lessee makes any payment of any amount less than that due
hereunder, Lessor, without notice may accept the same as a payment on account;
the Lessor shall not be bounded by any notation or any check involving such
payment nor any statement in any letter accompanying such payment. No failure on
the part of Lessor to enforce any covenant or provision herein contained, nor
any waiver of any right hereunder by the Lessor, unless in writing, shall
discharge or invalidate such covenant or provision or affect the right of Lessor
to enforce the same in the event of subsequent breach
16
or default. The receipt by Lessor of any Rent or other sum of money or any other
consideration hereunder paid by Lessee after the termination of the Lease, in
any manner, of the term herein demised or after the giving by Lessor of any
notice hereunder to effectuate such termination, shall not reinstate, continue,
or extend the term herein demised, or destroy, or in any manner impair the
efficacy of any such notice of termination as may have been given hereunder by
Lessor to Lessee prior to the receipt of any such sum of money or other
consideration, unless so agreed to in writing and signed by the Lessor. Neither
the acceptance of keys nor any other act or thing done by Lessor, its agents or
employees, during the term herein demised shall be deemed to be an acceptance of
a surrender of the Premises, excepting only an agreement in writing signed by
the Lessor accepting or agreeing to accept such a surrender. Any right herein
granted to the Lessor to terminate this Lease shall apply to any extension or
renewal of the term herein demised, and the exercise of any such right during
the term herein demised shall terminate any extension or renewal of the term
herein demised, and any right on the part of the Lessee thereto. No act or
conduct of any nature or character on the part of Lessor, its agents or
employees, other than an agreement in writing signed by the Lessor, shall be
construed as a waiver of the provision of this paragraph irrespective of any
circumstances existing at the time of such act or conduct. Regardless of any
other understanding this Lease is not to be considered effective until fully
executed by both Lessor and Lessee.
47. RADON GAS
Radon is a naturally occurring radioactive gas that, when it has accumulated
in a building in sufficient quantities, may present health risks to persons who
are exposed to it over time. Levels of radon that exceed federal and state
guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit.
48. AGENCY DISCLOSURE
DEITZ REALTY COMPANY is, by this document, giving notice to the Lessee that
it is the agent, employee, independent contractor or representative of the
Lessor in connection with this Lease. Lessee hereby acknowledges that this
written notice was received by Lessee before the execution of a contractual
lease agreement, in compliance with Florida Statute 475.25 (1)(q), and Rule
21V-10.033, Florida Administrative Code.
49. ADJUSTMENT TO RENTABLE SQUARE FOOTAGE
Either party has the right, at any time within one (1) year from the
Estimated Completion Date, to verify the amount of rentable square feet within
the Premises. If such verification indicates that the actual amount of rentable
square feet is different from the rentable square feet stated in Paragraph A of
the cover sheet of the Lease, the parties agree that the Base Rent and Lessee's
share of Operating Expenses shall be adjusted accordingly and the parties agree
to sign an amendment to Lease to document such adjustment.
17
<PAGE>
ADDENDUM "B"
PARKING SPACE SCHEDULE
reserved parking spaces at $ per month for each space.-------
2 undercover employee
parking spaces at $NO CHARGE per month for each space.
rooftop parking spaces at $ per month for each space. -------
TOTAL
FREE SURFACE PARKING
<PAGE>
ADDENDUM "C"
LESSOR'S WORK
Per the plans provided. See Addendum "C-1" attached.
In addition, the Lessor will install glass entry doors, marble countertop, track
lighting and replacement carpeting to be paid for by the Lessee in monthly
payments over the term of the Lease. It is further understood that an additional
work authorization will be signed by the Lessee upon agreement by Lessor and
Lessee regarding the cost of the additional work and Lessee will approve all
colors and materials.
It is further understood that the Lessee will have permission to move into the
building on Saturday. Lessee is required to give Lessor 24 hours notice of the
date of the move.
It is also agreed that the Lessee will not be responsible for the payment of
rent until the Lessor's Work is substantially completed (excepting the entry
doors and marble countertop), which will be installed at a later date).
<PAGE>
ADDENDUM "E"
BUILDING RULES AND REGULATIONS
BUILDING RULES AND REGULATIONS. Lessee and his employees, agents, licensees and
invitees shall faithfully observe and comply with the following Rules and
Regulations and all reasonable modifications of any additions thereto from time
to time put into effect by Lessor. Lessor shall not be responsible to Lessee for
the nonperformance of any said Rules and Regulations by any other tenant or
occupant of the Building.
Alterations. No Lessee shall mark, paint, drill into, or in any way deface
any part of the Premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Lessor, and as Lessor may direct. No Lessee shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the Premises, and if linoleum or other similar floor covering is
desired to be used, an interlining of builder's deadening felt shall be first
affixed to the floor, by a paste or other material, soluble in water, the use of
cement or other similar adhesive material being expressly prohibited.
Advertising. Lessor shall have the right to prohibit any advertising by any
Lessee which, in Lessor's opinion, tends to impair the reputation of the
building or its desirability as a building for offices and upon written notice
from Lessor. Lessee shall refrain from or discontinue such advertising. Without
limiting the foregoing, no advertising or notices shall be permitted in the
windows or common areas of the building.
Bicycles, Animals. Lessee shall not bring any animals or birds into the
Building and shall not permit bicycles or other vehicles inside or on the
sidewalks outside the Building except in areas designated from time to time by
Lessor for such purposes.
Dangerous or Immoral Activities. Lessee shall not make any use of the
Premises which involves the danger of injury to any person, nor shall the same
be used for an immoral use.
Deliveries. Lessee shall ensure that deliveries of materials and supplies to
the Premises are made through such entrances, elevators and corridors and at
such time as may from time to time be designated by Lessor, and shall promptly
pay or cause to be paid to Lessor the cost of repairing any damage to the
Building caused by any person making such deliveries.
Foods and Beverages. Only persons approved from time to time by Lessor may
prepare, solicit orders for, sell, serve or distribute foods or beverages in the
Building, or use the elevators, corridors or common areas for any such purposes.
Except with Lessor's prior written consent and in accordance with arrangements
approved by Lessor, Lessee shall not permit on the Premises the use of equipment
for dispensing food or beverages or for the preparation, solicitation of orders
for, sale, serving or distribution of food or beverages.
Furniture and Equipment. Lessee shall ensure that furniture and equipment
being moved into or out of the Premises is moved through such entrances,
elevators and corridors and at such times as may from time to time be designated
by Lessor, and by movers or a moving company approved by Lessor, and shall
promptly pay or cause to be paid to Lessor the cost of repairing any damage in
the Building caused thereby.
Heavy Articles. Lessee shall not place in or move about the Premises without
Lessor's prior written consent any safe or other heavy article which in Lessor's
reasonable opinion may damage the Building, and Lessor may designate the
location of any heavy articles in the Premises.
Loading, Unloading and Moving.
1. The delivery and shipping of merchandise, supplies, fixtures, and other
materials or goods of whatsoever nature to or from the Premises and all loading,
unloading and handling thereof shall be done only at such times, in such areas,
by such means and through such elevators, entrances, halls and corridors as are
designated by Lessor.
2. Lessor accepts no liability and is hereby relieved and released by Lessee
in respect of this operation of delivery facilities for the Building, or the
adequacy thereof, or of the acts or omissions of any person or persons engaged
in the operation thereof, or in the acceptance, holding, handling or dispatch,
or any error, negligence or delay therein.
3. Lessor may from time to time make and amend regulations for the orderly and
efficient
<PAGE>
operation of the delivery facilities for the Building, and may require the
payment of reasonable and equitable charges for delivery services and demurrage
provided by Lessor.
4. No furniture may be moved in or out of the Building without prior consent
of Lessor. Arrangements for moving must be made with Lessor's office and must be
supervised by Lessor's representative. Lessee agrees to pay for any and all
damages to any part of the Building or Premises because of such moving, by
either Lessee, his agents or movers. No moving shall be permitted except between
the hours of 8:00 a.m. and 5:00 p.m. Monday through Friday. Charges will be made
for any material and office building personnel who are needed to assist in the
Lessee's move.
Obstructions. Lessee shall not obstruct or place anything in or on the
sidewalks or driveways outside the Building or in the lobbies, corridors, stair
wells or other common areas of the Building, or use such locations for any
purpose except access to and exit from the Premises without Lessor's prior
written consent. Lessor may remove at Lessee's expense any such obstructions or
thing (unauthorized by Lessor) without notice or obligation to Lessee.
Additionally, Lessee shall not permit its employees, agent,s invitees or
customers to loiter, sleep, assembly or congregate within any common areas or
grounds of the Building, nor shall Lessee conduct any lottery whether within the
Premises, common areas, or otherwise.
Odors. Lessee shall not bring or permit to be brought or kept in or on the
Premises, any inflammable, combustible or explosive fluid, material, chemical or
substance, or cause or permit any odors of cooking or other processes or any
unusual or other objectionable odors to permeate in or emanate from the
Premises.
Parking. Lessee shall insure that its employees, customers, clients, guests,
invitees and licensees comply with the following parking regulations, and
acknowledges that such regulations shall be strictly enforced by Lessor.
A. The short term parking area at the front entrance of the north side of the
Building shall be used only by guests, customers and clients, and shall be
limited to a maximum parking period of fifteen (15) minutes. In no event shall
any service vehicles be permitted to park in this area at any time.
B. All service vehicles (including those engaged in deliveries, loading and
unloading) must enter the Real Property through the service road from Palm Beach
Lakes Boulevard and must park only in the service parking area on the east side
of the Building. Parking in the service parking area shall be limited to a
maximum of one (1) hour, provided, however, that a tenant may make arrangements
with the Lessor for longer parking periods when moving in or moving out of the
Building only. In no event shall service vehicles be permitted to use the main
entrance road to the Real Property.
C. Lessee's employees shall not utilize any number of parking spaces in excess
of those granted by the Lessor.
D. Lessor reserves the right to control the method, manner and time of parking
in all parking spaces.
E. In the event of any violation of the parking regulations, Lessor shall
have the right to post a notice of violation on the offending vehicle and to tow
the offending vehicle (regardless of whether the vehicle is owned by a Lessee or
any other party, including any employee, customer, client, invitee or licensee
of a Lessee), and to charge the expense thereof to the applicable Lessee as
additional Rent, or terminate the Lessee's license to park on the Real Property.
In the event of continued violations of these regulations, and after notice to
the Lessee, the Lessor may assess a charge of twenty dollars ($20.00) against
the Lessee for each violation, which shall be payable as additional Rent.
Proper Conduct. Lessee shall not conduct itself in any manner which is
inconsistent with the character of the Building as a first quality building or
which will impair the comfort and convenience of other tenants in the Building.
Lessee shall be responsible for the conduct of its employees, customers,
clients, licensees, invitees and servants.
Personal Use of Premises. The Premises shall not be used or permitted to be
used for residential, lodging or sleeping purposes, or for the storage of
personal effects or property not required for business purposes.
Refuse. Lessee shall place all refuse in proper receptacles provided by
Lessee at its expense in the Premises, or in receptacles (if any) provided by
Lessor for the Building, and shall keep sidewalks and driveways outside the
building, and lobbies, corridors, stairwells, ducts and
<PAGE>
shafts of the Building free of all refuse.
Repair, Maintenance, Alterations and Improvements. Lessee shall carry out
Lessee's repair, maintenance, alterations and improvements in the Premises only
during times agreed to in advance by Lessor and in a manner which will not
interfere with the rights of other tenants in the Building.
Signs. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Lessee on any part of the outside of the
Premises or the building or on the inside of the Premises if the same is visible
from the outside of the Premises without the prior written consent of Lessor,
except that the name of the Lessee may appear on the entrance door of the
Premises. In the event of the violation of the foregoing by any Lessee, Lessor
may remove same without any liability, and may charge the expense incurred by
such removal to Lessee or Lessees violating this rule. Interior signs on doors
and directory tablet shall be inscribed, painted or affixed for each Lessee by
Lessor at the expense of such Lessee, and shall be of a size, color and style
acceptable to Lessor.
Solicitations. Lessor reserves the right to prohibit canvassing, soliciting or
peddling in the Building but shall not be in any manner liable for any such acts
within or about the Building.
Water Fixtures. Lessee shall not use water fixtures for any purposes for
which they are not intended, nor shall water be wasted by tampering with such
fixtures. Any cost or damage resulting from such misuse by Lessee shall be paid
for by Lessee.
Windows. The Lessee acknowledges the importance of the exterior glass to the
architectural integrity of the Building, and agrees to observe Lessor's rules
with respect to maintaining window coverings at all windows in the Premises so
that the Building presents a uniform exterior appearance. Lessee shall not
install any window shades, screens, drapes, covers or other materials on or at
any window in the Premises without Lessor's prior consent. Lessor shall have the
right to approve the color, design and all materials of window treatments.
Further, no window treatments which may be installed by Lessor shall be removed
or altered by Lessee.
Public Access. Lessor reserves the right at all times to exclude the general
public from the Building upon such days and at such hours as in Lessor's sole
judgement will be in the best interest of the Building and its tenants.
Wires. No wires of any kind or type (including but not limited to T.V. and radio
antennas) shall be attached to the outside of the Building and no wires shall be
run or installed in any part of the Building without Lessor's prior written
consent.
<PAGE>
ADDENDUM "F"
MAINTENANCE OBLIGATIONS
1. Gather all waste paper and place for disposal.
2. Empty and wash all ash trays.
3. Sweep and/or dust all floor surfaces.
4. Vacuum clean all carpeted areas.
5. Dust all office furniture.
6. Dust counters, file cabinets and sanitize telephones.
7. Dust all ledges and flat surfaces within reach.
8. Properly arrange furniture in offices.
9. Spot clean desk tops.
10. Empty and clean out urns on each lobby area of elevators.
11. Remove fingerprints from doors and partition glass.
12. Clean and sanitize restroom fixtures and fittings.
13. Clean and refill all restroom dispensers from stock.
14. Spot wash restroom walls, partitions and doors.
15. Wash and sanitize exterior containers.
16. Clean and disinfect restroom floors.
17. Clean and sanitize toilets, toilet seats and urinals.
18. Clean, sanitize and polish all drinking fountains.
19. Clean and polish all metal hardware.
20. Vacuum elevator lobbies above first floor.
21. Spot clean spills from carpet, if possible.
22. Wash marble lobby floor.
23. Supply trash can liners.
24. Clean interior windows twice a year.
25. Spot clean vinyl flooring daily.
Annually strip and refinish vinyl flooring.
The Lessor will use its best effort to make sure that all employees of the
cleaning service are bonded.
<PAGE>
ADDENDUM "G"
ABATEMENT OF PREMISES BASE RENT FOR THREE MONTHS
Providing Lessee is not in breach or default of any of the material terms of the
Lease, Lessee shall not be required to pay Premises Base Rent to Lessor for the
first three (3) months of the term of the Lease. Lessee shall, however, be
required to pay Lessee's share of Operating Expenses, plus sales tax thereon,
for said three (3) months, and throughout the remainder of the term of the
Lease.
ADDENDUM "H"
INCREASES IN PREMISES BASE RENT
Notwithstanding anything contained in paragraph 2.A. or elsewhere in the Lease
to the contrary, the annual Premises Base Rent payable by Lessee to Lessor for
any Lease Year is fixed at one hundred five percent (105%) of the annual
Premises Base Rent payable by Lessee to Lessor in the immediately preceding
Lease Year. Base Rent shall not increase or be adjusted until the 1996 calendar
year.
ADDENDUM "I"
INCREASES IN OPERATING EXPENSES
Notwithstanding anything contained in paragraph 3. or elsewhere in the Lease to
the contrary, the annual Operating Expenses payable by Lessee to Lessor for any
Lease Year is capped at one hundred five percent (105%) of the annual Operating
Expenses payable by Lessee to Lessor in the immediately preceding Lease Year.
The Operating Expenses payable by Lessee to Lessor for electricity, insurance
and taxes shall be based upon Lessee's share of the actual Operating Expenses of
the Building, plus applicable sales tax thereon.
ADDENDUM "J"
SIGNAGE
Lessee shall not be entitled to any building signage for the first three (3)
months of the Lease Term. Provided Lessee is not in breach or default of any of
the material terms and conditions of the Lease, and the Lessor has not agreed to
give said signage to Bascom Palmer/University of Miami, at the beginning of the
fourth (4th) month of the Lease, Lessee may submit proposed signage to Lessor
for approval, which shall not be unreasonably withheld. Upon Lessor's approval,
Lessee may install signage, as approved, at its own cost and expense. Said
signage is the portion that is presently installed on top of the entry sign.
ADDENDUM "K"
RIGHT OF FIRST REFUSAL FOR ADDITIONAL SPACE
When the Leases on the Suites listed below come due or another person or entity
wishes to lease said space and providing Lessee is not in breach or default of
any of the material terms and conditions of the Lease, Lessee shall have the
right of first refusal to lease all, but not less than all, those certain suites
as scheduled below, (the "Additional Space") containing the following square
footage, as depicted by crosshatched marks on Addendum "A-1", attached hereto:
Suite 225 with approximately 1,314 rentable square feet; Suite 235
with approximately 1,669 rentable square feet; Suite 240 with
approximately 2,541 rentable square feet;
and made a part hereof, under the following terms and conditions:
a. If Lessor intends to lease the Additional Space to another person or entity,
Lessor shall so notify Lessee in writing ("Lessor's Notice") of same, and
Lessee shall have ten (10) days from the date of Lessor's Notice to exercise
its right of first refusal to lease the Additional Space.
b. If Lessee exercises its right of first refusal and properly notifies Lessor
of same, then an Amendment to the Lease shall be executed by Lessee within
five (5) days from the date such document is presented to Lessee.
<PAGE>
c. The Premises Base Rent and Operating Expenses for the Additional Space shall
be at the same rates as then paid by Lessee for the Premises and all of the
terms of the Lease shall be the same.
d. If Lessee properly exercises its right of first refusal to lease the
Additional Space, then Lessor shall, at Lessor's cost and expense, remove the
existing wall between the Premises and the Additional Space.
ADDENDUM "L"
OPTION TO TERMINATE
Notwithstanding anything contained in the Lease or Addenda to the contrary,
Lessee shall have the option to terminate the Term of this Lease under the
following conditions:
a. During the period from Lease commencement and expiring at 5:00 PM New York
time on the 15th day of April, 1996, the Lessee shall have the option to
terminate the Lease by giving notice to the Lessor and tendering
simultaneously to the Lessor the sum of three (3) months' rent.
b. During the period of time beginning on January 1, 1997, and expiring at 5:00
PM New York time on the 15th day of April, 1997, the Lessee shall have the
option to terminate the Lease by giving notice to the Lessor and tendering
simultaneously to the Lessor the sum of three (3) months rent.
c. During the period of time beginning on January 1, 1998, and expiring at 5:00
PM New York time on the 15th day ofApril, 1998, the Lessee shall have the
option to terminate the Lease by giving notice to the Lessor and tendering
simultaneously to the Lessor the sum of three (3) months rent.
d. The Lease shall terminate at 11:59 PM on the 30th day following the giving of
notice provided for on this Section.
e. If the Lessee does not terminate the Lease after 24 months, the Lessor will
return the total Security Deposit.
<PAGE>
FIRST UNION NATIONAL BANK OF FLORIDA
AMENDMENT TO LOAN AGREEMENTS
AND OTHER LOAN DOCUMENTS
This Amendment to Loan Agreement and Other Loan Documents (hereinafter the
"Agreement") is made on the 12th day of October, 1995, by and between First
Union National Bank of Florida, a national banking association organized and
existing under the laws of the United States of America, Commercial Banking-WPB,
Florida (hereinafter referred to as "Bank"); and Top Source Technologies, Inc.,
a Delaware corporation authorized to do business in the state of Florida, and On
Site Analysis, Inc., a Georgia corporation (each hereinafter referred to jointly
and severally as "Borrower"), and having their principal place of business as
follows:
Top Source Technologies, Inc. On Site Analysis, Inc.
2000 P.G.A. Boulevard, Suite 3200 3125 Presidential Drive
Palm Beach Gardens, FL 33408 Suite 130
Atlanta, GA 30340-3907
and is joined by Top Source Automotive, Inc., a Florida corporation, United
Testing Group, Inc., a Georgia corporation, and ARCS Safety Seat, Inc., a
Florida corporation (each hereinafter referred to jointly and severally as
"Guarantors"), and having their principal place of business as follows:
Top Source Automotive, Inc. United Testing Group, Inc.
2000 P.G.A. Boulevard, Suite 3200 3121 Presidential Drive
Palm Beach Gardens, FL 33408 Atlanta, GA 30340-3907
ARCS Safety Seat, Inc.
2000 P.G.A. Boulevard, Suite 3200
Palm Beach Gardens, FL 33408
RECITALS:
A. On November 22, 1994, Borrower executed a Loan Agreement (the "Loan
Agreement") with Bank setting forth certain terms and conditions under which
Bank would make two loans to Borrower described as follows:
Revolver Loan #1- (hereinafter sometimes "Loan #1") in the principal
amount of $4,500,000.00, the terms and conditions of which are more
fully described in the Promissory Note and Security Agreement in such
principal amount executed by Borrower in favor of Bank on November 22,
1994 ("Note #1"); and
Revolver Loan #2- (hereinafter sometimes "Loan #2") in the principal
amount of $500,000.00, the terms and conditions of which are more fully
described in the Promissory Note and Security Agreement in such
principal amount executed by Borrower in favor of Bank on November 22,
1994 ("Note #2).
<PAGE>
B. On April 13, 1995, Borrower executed an additional Loan Agreement
with Bank setting forth certain terms and conditions under which Bank would make
an additional loan to Borrower described as follows:
Revolver Loan #3- (hereinafter sometimes "Loan #3") in the principal
amount of $250,000.00, the terms and conditions of which are more fully
described in the Promissory Note and Security Agreement in such
principal amount executed by Borrower in favor of Bank on April ,13,
1995 ("Note #3).
(Each of the above loans and the Promissory Note(s) described in
Recital "A" and "B" or Instrument(s) and Security Agreement(s) executed
pursuant thereto is hereinafter jointly and severally sometimes
referred to as the "Note(s)" and/or the "Loans")
C. In addition to the Notes, the terms of the Loans are set forth in
various other loan documents (the "Loan Documents" which term includes, but is
not restricted to, the Loan Agreement dated November 22, 1994 [Loan Agreement
#1], concerning Loan #1 and Loan # 2, and the Loan Agreement executed April 13,
1995 [Loan Agreement #2], concerning Loan #3, the Notes [Note #1, Note #2, and
Note #3], the Guarantees, an Assignment of Leases, Rents, and Fees, and a
Collateral Assignment of Interest in Security Deposit and Additional Agreements
by Borrowers) executed and delivered at the closing of the Loans on November 22,
1994, or executed on later dates in accordance with agreements reached at the
closing of the Loans on November 22, 1994, and executed and delivered at the
closing of the Loan on April 13, 1995, or executed on later dates in accordance
with agreements reached at the closing of the Loan on April 13, 1995.
D. All of the obligations of Borrower to Bank under the terms of the
Loans and the Loan Documents were unconditionally guaranteed by the Guarantors
under the terms of separate guaranty agreements (the "Guarantees") executed by
each of the Guarantors.
E. Borrower has requested that Bank make an additional Revolver Loan
(sometimes herein referred to as Loan #4) in the principal amount of SEVEN
HUNDRED AND FIFTY THOUSAND AND 00/100 DOLLARS ($750,000.00) to Borrower and that
Loan #4 be consolidated with Loan #2 and Loan #3 into a single consolidated Loan
(the "Consolidated Loan") in total principal amount of ONE MILLION FIVE HUNDRED
THOUSAND AND 00/100 DOLLARS ($1,500,000.00) in accordance with the terms of the
Consolidated Promissory Note a copy of which is attached hereto as Exhibit "A"
and made a part hereof, and in accordance with the terms of this agreement.
F. Relying upon the representations and warranties and the agreements
and covenants set forth in the Loan Documents and herein contained, and in
consideration of the modifications to the Loan Agreement and the other Loan
Documents described herein, the Bank is willing to make Loan #4 and to
consolidate Loan #4 with Loan #2
2
<PAGE>
and Loan #3 upon the terms and subject to the conditions
hereinbefore and hereinafter set forth.
The Bank, Borrower, and the Guarantors hereby agree as follows:
1. The Recitals set forth in paragraphs A through F inclusive as set
forth above are true and correct and ratified and confirmed by the parties
hereto.
2. Borrower confirms that all representations and warranties set forth
in Loan Agreement #1 and Loan Agreement #2 remain true and correct as of the
date hereof.
3. The Loans referred to in Loan Agreement #1 as Revolver Loan #2 in
principal amount of $500,000.00, and in Loan Agreement #2 as the Revolver Loan
in principal amount of $250,000.00 are hereafter referred to as the "Revolver
Loan" and is described as follows:
Revolver Loan - (hereinafter sometimes "Loan") in the principal amount
of $1,500,000.00, the terms and conditions of which are more fully
described in the Consolidated Promissory Note and Security Agreement in
such principal amount executed by Borrower in favor of Bank on October
12, 1995 ("Consolidated Promissory Note").
4. Paragraph 2 (f) is hereby added to the Loan Agreement as
follows:
f. NET WORTH: Borrower will at all times maintain a minimum
consolidated tangible net worth of THREE MILLION AND 00/100
DOLLARS ($3,000,000.00). Consolidated tangible net worth shall
mean the consolidated net worth of the Borrower and its
subsidiaries, after subtracting therefrom the aggregate amount
of (i) deferred income tax assets, and (ii) any intangible
assets of the Borrower and its subsidiaries, including, and
without limitation, goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks, and
capitalized database.
5. Paragraph 6 (a) (3) of Loan Agreement #1 is hereby
modified to provide as follows:
6. Security: ...
a. PERSONALTY: ....
3. All of the presently owned or hereinafter acquired other
assets, including, without limitations, accounts, inventory,
equipment, chattel paper, instruments, general intangibles and
documents, as those terms are defined by the Uniform
Commercial Code of the State of Florida, or
3
<PAGE>
as otherwise determined by Bank, owned by Borrower and by
Top Source Automotive, Inc.
6. The following paragraph is added as subparagraph 9 (l) (v) to Loan
Agreement #1 and as subparagraph 9 (k) (iii) to Loan Agreement #2:
The total cumulative amount that will be outstanding as advanced to
Borrower at any time under the terms of the Consolidated Promissory
Note shall be the lesser of a) 75% of Eligible Accounts Receivable, or
b) $1,500,000.00. Eligible accounts receivable are defined and agreed
to be those Accounts Receivable of Top Source Automotive, Inc. aged 60
days or less; Accounts Receivable of On Site Analysis, Inc. aged 60
days or less; and Accounts Receivable of United Testing Group, Inc.
aged 60 days or less. To determine Eligible Accounts Receivable,
Borrower will submit to Bank a monthly Accounts Receivable Aging
Analysis. No portion of an Account Receivable will be considered
eligible if 50% of the Account Receivable is outstanding for 90 days or
more as evidenced by the monthly Accounts Receivable Aging Analysis.
The Accounts Receivable Aging Analysis will be submitted to Bank
monthly with an executed compliance certificate in the form attached
hereto as Exhibit "B" and made a part hereof.
7. The Assignment of Leases, Rents, and Fees, and the Collateral
Assignment of Interest in Security Deposit and Additional Agreements by
Borrowers both executed and delivered at the closing of the Loans on November
22, 1994, are hereby amended to provide that all obligations of the Borrower
under the terms of Loan #1, and due under Loan #2, Loan #3, and Loan #4 as
consolidated in total principal amount of SIX MILLION AND 00/100 DOLLARS
($6,000,000.00) are secured by the security interests therein granted.
8. The Guarantors join in the execution of this instrument for the
specific purpose of consenting to the terms hereof and to ratify and confirm
their continuing obligations under the terms and provisions of the Guarantees,
and to further acknowledge that nothing contained herein, or contained in any
other document modifying or supplementing the Loan Documents, in any way limits
or otherwise reduces or restricts the obligations and liabilities of any
Guarantor to the extent provided in the Guarantees as to any obligation or
liability of the Borrowers to be performed or owed in connection with Loan #1,
and Loan #2, Loan #3, and Loan #4 as consolidated.
9. All terms and provisions of the Loan Agreements and any other of the
Loan Documents not specifically modified by this agreement or modified by any
other agreement executed by the parties, remain in full force and effect and
fully enforceable in accordance with such terms.
4
<PAGE>
IN WITNESS WHEREOF, the Borrower, Guarantors, and the Bank have caused
this Modification to Loan Agreements and other Loan Documents to be duly
executed all as of the day and year first above written:
Witnesses: BORROWERS:
TOP SOURCE TECHNOLOGIES,
INC.
/s/Kevin R. Armbruster
Kevin R. Armbruster BY:/s/David Natan
type or print name of witness
/s/Mary Ann Latham its Chief Financial Officer
Mary Ann Latham
type or print name of witness
ATTEST:
(CORPORATE SEAL)
BY:/s/Christer Rosen
its Secretary
ON SITE ANALYSIS, INC.
/s/Kevin R. Armbruster
Kevin R. Armbruster BY:/s/David Natan
type or print name of witness
/s/Mary Ann Latham its Chief Financial Officer
Mary Ann Latham
type or print name of witness
ATTEST:
BY:/s/Christer Rosen
its Secretary
5
<PAGE>
GUARANTORS:
TOP SOURCE AUTOMOTIVE, INC.
/s/Kevin R. Armbruster
Kevin R. Armbruster BY:/s/David Natan
type or print name of witness
/s/Mary Ann Latham its Chief Financial Officer
Mary Ann Latham
type or print name of witness
ATTEST:
(CORPORATE SEAL)
BY:/s/Christer Rosen
Secretary
ARCS SAFETY SEAT, INC.
/s/Kevin R. Armbruster
Kevin R. Armbruster BY:/s/David Natan
type or print name of witness
/s/Mary Ann Latham its Chief Financial Officer
Mary Ann Latham
type or print name of witness
ATTEST:
(CORPORATE SEAL)
BY:/s/Christer Rosen
Secretary
UNITED TESTING GROUP,
INC.
/s/Kevin R. Armbruster
Kevin R. Armbruster BY:/s/David Natan
type or print name of witness
/s/Mary Ann Latham its Chief Financial Officer
Mary Ann Latham
type or print name of witness
ATTEST:
(CORPORATE SEAL)
BY:/s/Christer Rosen
its Secretary
6
<PAGE>
BANK:
FIRST UNION NATIONAL BANK
OF FLORIDA
/s/Kevin R. Armbruster
Kevin R. Armbruster BY:/s/Dena P. Bombard
type or print name of witness Dena P. Bombard
its Vice President
/s/Mary Ann Latham
Mary Ann Latham
type or print name of witness
7
<PAGE>
CONSOLIDATED
PROMISSORY NOTE AND SECURITY AGREEMENT
$1,500,000.00 October 12, 1995
(Date of Execution and Delivery)
LENDER: FIRST UNION NATIONAL BANK OF FLORIDA (hereinafter
termed "LENDER"), Commercial Banking-WPB, Florida
BORROWERS: TOP SOURCE TECHNOLOGIES, INC., 2000 P.G.A.
Boulevard, Suite 3200, Palm Beach Gardens, Florida
33408; and ON-SITE ANALYSIS, INC., 3125
Presidential Parkway, Suite 130, Atlanta, Georgia
30340-3907.
BORROWERS REPRESENT HEREWITH THAT THE LOAN EVIDENCED HEREBY IS
BEING OBTAINED FOR THE PRIMARY PURPOSE OF BUSINESS.
RECITALS:
A. On November 22, 1994, Borrower executed a Promissory Note and
Security Agreement (Promissory Note #1) in favor of Bank in principal amount of
$500,000.00, the terms and conditions of which are more fully described in the
Promissory Note and Security Agreement in such principal amount executed by
Borrower in favor of Bank on November 22, 1994.
B. On April 13, 1995, Borrower executed a Promissory Note and Security
Agreement (Promissory Note #2) in favor of Bank in principal amount of
$250,000.00, the terms and conditions of which are more fully described in the
Promissory Note and Security Agreement in such principal amount executed by
Borrower in favor of Bank on April 13, 1995.
C. Bank has agreed to extend to Borrower an additional loan in
principal amount of $750,000.00 and to consolidate the loans evidenced by
Promissory Note #1 and Promissory Note #2 with the additional loan in amount of
$750,000.00 into a single loan in principal amount of $1,500,000.00 evidenced by
this single Consolidated Promissory Note and Security Agreement.
Therefore, the obligations of Borrower to Bank under the terms of
Promissory Note #1 and Promissory Note #2 and the obligations of Borrower to
Bank as to an additional loan to Borrower being made as of the execution of this
Consolidated Promissory Note and Security Agreement are hereby consolidated into
a single obligation in principal amount of $1,500,000.00 and this Consolidated
Promissory Note and Security Agreement is executed by Borrower to evidence the
total obligation being hereby consolidated.
FOR VALUE RECEIVED: To wit, money loaned the undersigned Borrowers (hereinafter
collectively termed "BORROWER"), jointly and severally (if more than one
borrower) promise to pay to the order of LENDER at its office in the above city,
or wherever else LENDER may
8
<PAGE>
specify, the sum of ONE MILLION AND FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($1,500,000.00) with interest until paid, at the rate of LENDER'S PRIME RATE
plus eighty-five one-hundredths percent (.85%) as that rate may change from time
to time with changes to occur on the date the LENDER'S PRIME RATE changes;
payable in full on demand, with monthly payments of interest only on all
outstanding principal commencing November 12, 1995, and continuing on the same
day of each month thereafter until all outstanding sums of principal plus
accrued interest are paid in full. The foregoing principal sum may be advanced
to BORROWER in such installments as BORROWER may request, or as a lump sum, and
may be prepaid by BORROWER in whole or in part without penalty at any time.
Provided that BORROWER is not in default under any of the OBLIGATIONS (as
defined herein), BORROWER may from time to time and until maturity, draw
additional funds in accordance with the terms hereof notwithstanding prior
principal repayments; provided, however, that the total principal sum due from
BORROWER at any time shall not exceed the total principal sum of ONE MILLION AND
FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00) or such lesser amount
as may be determined in accordance with the Loan Agreements dated November 22,
1994 and April 13, 1995, as modified by modification agreement of even d
hereof. Provided, further, that all obligation of LENDER to make any advance to
BORROWER under the terms of this agreement will terminate on January 31, 1996,
and will at all times be subject LENDER's determination, in its sole and
absolute discretion, that BORROWER's financial condition is satisfactory.
BORROWER agrees as follows:
1. The BORROWER agrees to pay a late charge equal to five percent (5%) of each
payment of principal and/or interest which is not paid within ten (10) days of
the date on which it is due. At LENDER'S option, the contract rate shall become
the highest rate allowed by the law of the state of LENDER'S office as set forth
herein, commencing with and continuing for so long as the loan or portion
thereof is in default (as hereinafter defined). Further, upon BORROWER'S default
and where LENDER deems it necessary or proper to employ an attorney to enforce
collection of any unpaid balance hereunder, then BORROWER agrees to pay LENDER'S
reasonable attorney's fees (including appellate costs, if any) and collection
costs. Liability for reasonable attorney's fees and costs shall exist whether or
not any suit or proceeding is commenced.
2. INTEREST is computed on the basis of a three hundred sixty (360) day year for
the actual number of days in the interest period (ACTUAL/360 COMPUTATION).
LENDER'S ACTUAL/360 or 365/360 COMPUTATION determines the annual effective
interest yield by taking the stated (nominal) interest rate for a year's period
and then dividing said rate by 360 to determine the daily periodic rate to be
applied for each day in the interest period. Application of such computation
produces an annualized effective interest rate exceeding that of the nominal
rate. If the interest provision contained herein refers to LENDER'S PRIME RATE,
then BORROWER
9
<PAGE>
acknowledges that LENDER'S PRIME RATE is not represented or intended to be the
lowest or most favorable rate of interest offered by LENDER.
3. All payments received during normal banking hours after 2:00
p.m. shall be deemed received at the opening of the next banking
day. At LENDER'S option, any repayments of this Note, other than
by U.S. currency, will not be credited to the outstanding loan
balance until LENDER receives collected funds.
4. BORROWER'S payment will increase if the scheduled payment amount is
insufficient to pay accrued interest. If the scheduled payment amount is
insufficient to pay accrued interest, the scheduled payment amount shall be
immediately increased as is necessary to pay all accruals of interest for the
period and all accruals of unpaid interest from previous periods. Such
adjustments to the scheduled payment amount shall remain in effect for as long
as the interest accruals shall exceed the original scheduled payment amount and
shall be further adjusted upward or downward to reflect changes in the variable
interest rate. In no event shall the scheduled payment amount be reduced below
the original scheduled payment specified herein.
5. Each of the undersigned, whether BORROWER, sureties, or endorser, and all
others who may become liable for all or any part of the obligations evidenced
and secured hereby, do hereby, jointly and severally; waive presentment, demand,
protest, notice of protest and/or of dishonor, and also notice of acceleration
of maturity on default or otherwise. Further, they agree that LENDER may, from
time to time, extend, modify, amend or renew this Note and Security Agreement
for any period (whether or not longer than the original period of the Note) and
grant any releases, compromises or indulgences with respect to the Note or any
extensions, modifications, amendments or renewals thereof or any security
therefore, or to any party liable thereunder or hereunder, all without notice to
or consent of any of the undersigned and without affecting the liability of the
undersigned hereunder.
6. If more than one person has signed this instrument, such parties are jointly
and severally obligated hereunder. Further, use of the masculine pronoun herein
shall include the feminine and neuter and also the plural. If any provision of
this instrument shall be prohibited or invalid under applicable law, such
provision shall be ineffective but only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remainder of such provision or the remaining provisions of this Note.
7. TIME IS OF THE ESSENCE HEREOF. Any notices to BORROWER shall
be sufficiently given, if mailed or delivered to the principal
place of business.
8. To secure payment of this Note, all obligations of the
undersigned BORROWER hereunder, and all other obligations of
10
<PAGE>
BORROWER to LENDER, its successors and assigns, howsoever created, arising or
evidenced; whether direct or indirect, absolute or contingent, or now or
hereafter existing or due to become due (the loan and debt evidenced by this
Note and secured by the Security Agreement and all other present and future
obligations of BORROWER owed to LENDER are hereinafter collectively termed the
"OBLIGATIONS"); the undersigned BORROWER hereby mortgages, conveys and grants to
LENDER, as permitted by law, a security interest in, and herewith pledges and
deposits as collateral, the following described and identified intangible and/or
tangible personal and/or real property, and any and all additions, accessions,
and substitutions thereto or therefore, including all cash, stock, or other
dividends and all proceeds thereof, and all rights to subscribe for securities
incident thereto, ( hereinafter termed the "COLLATERAL"), and a security
interest in proceeds and product of the COLLATERAL is granted to LENDER:
(a) Each on-site analysis unit (OSA) purchased by BORROWER
with funds not borrowed from LENDER, and each OSA
purchased by BORROWER with funds advanced by LENDER in
accordance with this Promissory Note and Security
Agreement, which OSA's are purchased in accordance with
the terms and provisions of those certain existing
agreements by and between Borrower and Thermo Jarrell Ash
Corporation, a Massachusetts corporation, for the
purchase of OSA's, which agreements may (but for purposes
of this agreement are not required to) be superseded by
a master agreement expressing all of the agreements
between the parties as to the purchase and sale of OSA's
(all of the agreements existing and to be executed in the
future are collectively referred to herein as the
"Purchase Agreement").
(b) A first security interest in and a collateral assignment
of each lease and/or lease and license agreement of all
OSA's purchased by BORROWER with funds not borrowed from
LENDER, and each OSA purchased by BORROWER with funds
advanced by LENDER in accordance with a separate
Promissory Note and Security Agreement dated November 22,
1994 in principal amount of $4,500,000.00, which are
purchased under the terms of the Purchase Agreement,
wherein BORROWER leases an OSA(s) or enters into any
agreement for the use of an OSA(s) with any third party,
and the right to receive any and all rentals and revenues
payable thereunder.
(c) All presently owned or hereafter acquired other assets,
including, without limitations, accounts, inventory,
equipment, chattel paper, instruments, general
intangibles and documents, as those are defined by the
Uniform Commercial Code of the State of Florida, or, as
otherwise determined by LENDER, owned by BORROWER and
owned by BORROWER'S subsidiary corporation known as Top
Source Automotive, Inc., a Florida corporation.
11
<PAGE>
(d) A first security interest in and assignment of the rights to
receive the security deposit in the amount of $650,000.00 paid
by BORROWER under the terms and provisions of the Purchase
Agreement consented to and acknowledged by Thermo Jarrell Ash
Corporation.
9. BORROWER HEREBY WARRANTS, COVENANTS, AND AGREES THAT:
(a) BORROWER'S principal place of business is that shown
above.
(b) That part of the COLLATERAL which is personal property is used
or is being purchased for business use and portions of the
COLLATERAL is being acquired with the proceeds of an advance
evidenced by this Agreement, which LENDER may disburse
directly to the seller of said personal property.
(c) The OSA's will be manufactured at the manufacturing
facilities of Thermo Jarrell Ash Corporation in Colorado
and will be shipped from the manufacturing facility to
the site designated by the person or entity leasing the
OSA from BORROWER. Except on termination of lease or in
connection with maintenance and repairs, the OSA will not
be removed or transported from the site designated by the
person or entity leasing the OSA from BORROWER without
the approval and consent of LENDER. Except for
transactions in the ordinary course of business, all
other portions of the COLLATERAL which is personal
property will be kept at the principal place of business
of BORROWER or Guarantors and will not be removed or
transferred from the principal place of business of
BORROWER or Guarantors without the written consent of
LENDER.
(d) BORROWER will provide LENDER with executed Uniform
Commercial Code Financing Statements for recordation in
the State of Florida, the State of Colorado (the state in
which the OSA's are manufactured), and the state in which
the OSA(s) will be located pursuant to any lease or other
agreement by and between BORROWER and the lessee of the
OSA(s). BORROWER will also provide executed Uniform
Commercial Code Financing Statements to be recorded in
any state in which any COLLATERAL is located.
(e) None of the COLLATERAL which is personal property, including
OSA's, will be affixed to real property and become a fixture
to real property.
(f) All COLLATERAL is free and clear of all liens, security
interests, claims, and/or encumbrances other than any to
LENDER.
12
<PAGE>
(g) This Note is subject to the terms and conditions of all
Commitment Letters issued by Bank in connection with the
loans consolidated into the single loan evidenced by this
Note, Loan Agreements, as amended, executed in connection
with the loans so consolidated between BORROWER and
LENDER and Other Loan Documents executed in connection
with the loans so consolidated, which are incorporated
herein by reference.
10. WAIVER: BORROWER agrees that LENDER shall, after the occurrence of any event
of default, be entitled to immediate possession of the COLLATERAL subject to the
terms of any lease and the terms of the separate Assignment of Leases, Ren
and Fees of even date herewith from BORROWER to LENDER. BORROWER agrees that
LENDER'S interest in the COLLATERAL arose out of a commercial transaction.
11. BORROWER HEREBY FURTHER WARRANTS, COVENANTS AND AGREES AS
FOLLOWS:
(a) Anything contained herein to the contrary
notwithstanding, if for any reason, the
effective rate of interest on this Note should
exceed the maximum lawful rate, the effective
rate shall be deemed reduced to and shall be
such maximum lawful rate, and any sums of
interest which have been collected in excess
of such maximum lawful rate shall be applied
as a credit against the unpaid balance due
hereunder.
(b) No waivers, amendments, or modifications shall
be valid unless in writing. No waiver by
LENDER of any default(s) shall operate as a
waiver of any other default or the same
default on a future occasion. All rights of
LENDER hereunder shall enure to the benefit of
its successors and assigns, and all
obligations of BORROWER shall bind BORROWER'S
heirs, executors, administrators, successors
and/or assigns.
(c) In the case of conflict between the terms of
this Note and the Loan Agreement of even date
herewith and/or Commitment Letters issued in
connection herewith, the priority of
controlling terms shall be first the Loan
Agreement, then this Note, then the Security
Instrument, if any, then the Commitment
Letter, except as otherwise provided herein.
(d) In the event any provision(s) of this
instrument shall be left blank or incomplete,
BORROWER hereby authorizes and empowers LENDER
13
<PAGE>
to supply and complete the necessary information as a
ministerial task consistent with the understanding between the
parties.
(e) BORROWER WILL IMMEDIATELY NOTIFY LENDER in writing of any (1)
change in BORROWER'S principal place of business and/or
residence; (2) change in BORROWER'S name or identity; (3)
change in BORROWER'S corporate structure other than as
permitted in the Loan Agreement.
(f) BORROWER warrants that BORROWER or any principal of BORROWER
does not have either a record or reputation for violating laws
of the United States or of any state relating to liquor(s) as
referred to in 18 USCA 3617, et seq., or narcotics and/or any
commercial crimes.
12. Upon the occurrence of any of the "EVENTS OF DEFAULT" as hereinafter
defined; LENDER is herewith expressly authorized to exercise its right of
SET-OFF or bank lien as to any monies deposited in demand, checking, time,
savings, or other accounts of any nature maintained in and with it by any of the
undersigned, without advance notice. Said right of SET-OFF shall also be
exercised and applicable where LENDER is indebted to any signer hereof by reason
of any certificate of deposit, note, or otherwise.
13. BORROWER shall promptly pay all documentary and/or intangible taxes on this
transaction, whether assessed at closing or arising from time to time.
14. WAIVER OF JURY TRIAL: BY THE EXECUTION HEREOF, BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY AGREES THAT: (A) NEITHER THE BORROWER NOR ANY
ASSIGNEE, SUCCESSOR, HEIR OR LEGAL REPRESENTATIVE OF ANY OF THE SAME SHALL SEEK
A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION
PROCEDURE ARISING FROM OR BASED UPON THIS PROMISSORY NOTE, ANY OTHER LOAN
AGREEMENT, OR ANY OTHER LOAN DOCUMENT EVIDENCING, SECURING, OR RELATING TO THE
OBLIGATIONS, OR TO THE DEALINGS OR RELATIONSHIP BETWEEN OR AMONG THE PARTIES
THERETO; (B) NEITHER THE BORROWER, NOR LENDER WILL SEEK TO CONSOLIDATE ANY SUCH
ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL HAS NOT BEEN OR CANNOT BE WAIVED; (C) THE PROVISIONS OF THIS
PARAGRAPH HAVE BEEN FULLY NEGOTIATED BY THE PARTIES HERETO AND THESE PROVISIONS
SHALL BE SUBJECT TO NO EXCEPTIONS; (D) NEITHER THE BORROWER, NOR LENDER HAS IN
ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF
THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES; AND (E) THIS
PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER INTO THIS TRANSACTION.
15. EVENTS OF DEFAULT: BORROWER shall be in default under this
Note, upon the happening of any of the following events,
circumstances, or conditions; namely:
14
<PAGE>
(a) Default in the payment or performance of any of the
OBLIGATIONS provided hereunder or in that certain
Promissory Note and Security Agreements dated November
22, 1994 by and between LENDER and BORROWER in principal
amount of $4,500,000.00, or in connection herewith or
therewith, or any other OBLIGATIONS of BORROWER or any
affiliate as defined in 11 USC 101(2), (hereinafter
"AFFILIATE") of BORROWER or any endorser, guarantor, or
surety for BORROWER to LENDER or any AFFILIATE of
BORROWER, however created, primary or secondary, whether
direct or indirect, absolute or contingent, now or
hereafter existing, due or to become due, or of any other
covenant, warranty, or undertaking expressed herein,
therein, or in any other document establishing said
endorsement, guaranty, or surety; provided, however, that
in the case of nonpayment of principal or interest
payments due, such default shall continue uncured for a
period of thirty days, and in the case of any other
default, such default shall continue for a period of
thirty days from written notice from LENDER; or
(b) Any warranty, representation, or statement made or
furnished to LENDER by or on behalf of BORROWER, or any
guarantor, endorser or surety for BORROWER in connection
with this Note or to induce LENDER to make a loan to
BORROWER which was false in any material respect when
made or furnished or has become materially false, if such
warranty of BORROWER, or guarantor, endorser, or surety
for BORROWER was ongoing in nature and not cured within
thirty days from written notice from LENDER; or
(c) Any representation or warranty made in this Note or in
any Loan Document shall prove to be false or misleading
in any material respect; or
(d) Any report, certificate, financial statement or other document
furnished in connection with any Loan Document or the loans
made pursuant thereto, shall prove to be false or misleading
in any material respect; or
(e) BORROWER shall default on any other obligation of
BORROWER when due or in the performance of any obligation
incurred for money borrowed if, in the opinion of LENDER
such default in any way threatens the security or the
ability of BORROWER to meet its obligations hereunder or
under any loan document to LENDER and such default
continues for a period of 30 days after receipt by
BORROWER of notice from LENDER that such default exists;
or
(f) Should a custodian, as that term is defined in the
Bankruptcy Code, be appointed for or take possession of
any or all of the assets of the BORROWER or any GUARANTOR
15
<PAGE>
(other than ARCS Safety Seat, Inc.) as a result of any
proceeding under the Bankruptcy Code, or should the BORROWER
or any GUARANTOR (other than ARCS Safety Seat, Inc.) either
voluntarily or involuntarily become subject to any insolvency
proceeding, proceeding to dissolve the BORROWER or any
GUARANTOR (other than ARCS Safety Seat, Inc.) which is not
discharged within thirty (30) days, or should BORROWER or any
GUARANTOR (other than ARCS Safety Seat, Inc.) be the subject
of a proceeding to have a receiver appointed of assets, or
should there be an attachment, execution, or other judicial
seizure of all or any portion of the BORROWER'S or GUARANTOR'S
assets (other than ARCS Safety Seat, Inc.), which, in the
opinion of the LENDER, jeopardize any security interest
granted LENDER or otherwise jeopardizes repayment of any
amounts owed to LENDER by BORROWER, and such receiver or
seizure is not discharged within thirty (30) days, or should
the BORROWER or GUARANTOR (other than ARCS Safety Seat, Inc.)
make an assignment for the benefit of creditors, or
(g) Breach of any covenant, condition, or agreement made by
BORROWER pursuant to this Note, and, except where the default
is failure to make any payment of any installment of principal
and/or interest due under the Note which is governed by
Section 14(a) hereof, such default continues for a period of
30 days after receipt by BORROWER of notice from LENDER that
such default exists; or
(h) Final judgment for the payment of money shall be rendered
against the BORROWER or any GUARANTOR in excess of $250,000.00
and shall remain undischarged for a period of thirty (30)
days, unless such judgment and execution thereon shall be
effectively stayed; or
(i) Dissolution or termination of the existence of a
corporate Borrower or Guarantor (other than ARCS Safety
Seat, Inc.) or their respective subsidiaries, if any; or
(j) If LENDER should otherwise deem itself or the debt created
hereunder unsafe or insecure; or should LENDER, in good faith,
believe that the prospect of payment or other performance is
impaired; or
(k) The BORROWER or any GUARANTOR (other than ARCS Safety
Seat, Inc.) shall be a debtor, either voluntarily or
involuntarily, under (as the term debtor is defined in)
the Bankruptcy Code; or
(l) The BORROWER shall be in default under the terms of the
Purchase Agreement (which continues after any applicable grace
period) and such default, under the terms of the Purchase
Agreement, could result in a loss of BORROWER'S material
rights thereunder.
16
<PAGE>
(m) Except and to the extent permitted in the Loan Agreement,
Failure of said BORROWER, endorser, guarantors or sureties to
furnish financial statements or other financial information
and reports requested by LENDER or required by the Loan
Agreement or any other loan document; or
(n) Loss, theft, substantial damage, destruction, sale or
encumbrance to or of any COLLATERAL except when the
COLLATERAL is insured and the proceeds of such insurance
is paid to LENDER, or the assertion or making of any
levy, seizure, mechanic's or materialman's lien or
attachment thereof or thereon which is not discharged or
satisfied within thirty (30) days after written notice
from LENDER.
16. ADDITIONAL PROVISIONS FOR PERSONAL PROPERTY COLLATERAL:
BORROWER HEREBY FURTHER WARRANTS, COVENANTS AND AGREES AS FOLLOWS:
(a) THE COLLATERAL SHALL, AT ALL TIMES, BE AT
BORROWER'S RISK. The loss, injury to or
destruction of COLLATERAL shall not release
BORROWER from payment or other performance
hereof. BORROWER agrees to obtain and keep in
force physical damage and/or property damage
insurance and any other insurance required
LENDER. Such insurance is to be in form and
amount satisfactory to LENDER, with same
payable to LENDER.
(b) All such policies shall provide for ten (10)
days written minimum cancellation notice to
LENDER. BORROWER shall furnish to LENDER the
original policies or certificates or other
evidence satisfactory to LENDER of compliance
with the foregoing provisions. LENDER is
authorized, but not obligated, to purchase any
or all of said insurance, or "single interest
insurance," protecting only its security
interest, all at BORROWER'S expense. In such
event, BORROWER agrees to reimburse LENDER for
the cost of such insurance to the extent that
the same is not included in the principal
amount of this Note.
(c) BORROWER hereby assigns to LENDER the proceeds
of all such insurance to the extent of the
unpaid balance hereunder, and directs any
insurer to make payments directly to LENDER.
BORROWER further hereby grants to LENDER its
power of attorney exercisable only in the
event of default as declared by LENDER, which
shall be irrevocable for so long as any amount
17
<PAGE>
is paid hereunder. Said power of attorney gives LENDER the
sole right to file proof of loss and/or any other forms
required to collect from any insurer any amount due from any
loss, damage or destruction of the COLLATERAL; to agree to and
bind BORROWER as to the amount of said recovery; to designate
payee(s) of such recovery; to grant releases to payor-insurers
for their liability; to grant subrogation rights to any such
payor- insurer; to endorse any settlement check or draft. In
the event of default, BORROWER further agrees not to exercise
any of the foregoing powers granted to LENDER without the
LENDER'S written consent. In the event of any default
hereunder, LENDER is authorized, in its sole discretion, to
cancel any insurance and to credit any premium refund against
the unpaid balance due on BORROWER'S OBLIGATIONS.
(d) If, with respect to any security pledged
hereunder, a stock dividend is declared or any
stock split-up made or right to subscribe is
issued, all the certificates for the shares
representing such stock dividend or stock
split-up or right to subscribe will be
immediately delivered, duly endorsed, to the
LENDER as additional COLLATERAL security.
(e) If, at any time, the COLLATERAL shall be
deemed unsatisfactory to and by LENDER, or in
the event LENDER shall otherwise deem itself,
its security interest, its COLLATERAL, or said
debt unsafe or insecure, then and on demand of
LENDER, BORROWER shall immediately furnish
such further COLLATERAL or make such payment
on said account as will be satisfactory to
LENDER to be held by said LENDER as if
originally pledged hereunder.
(f) At its option, LENDER may discharge taxes,
liens, security interests, or other
encumbrances at any time levied or placed on
said COLLATERAL, and may pay for insurance and
for the maintenance and preservation of same
if BORROWER fails to pay or discharge same
within 30 days after written notice from
LENDER that such payment must be made unless
LENDER determines that such payment must be
sooner made to protect any right or interest
of LENDER established by any Loan Document.
BORROWER agrees to reimburse LENDER, on
demand, for any such payment made, or any such
expense incurred by LENDER pursuant to the
18
<PAGE>
foregoing authorization. Until default, as hereinafter
defined, BORROWER shall have the right to retain possession of
the COLLATERAL, unless otherwise agreed by the parties hereto,
and to use it in any lawful manner not inconsistent with this
Note and with any policy of insurance thereon.
(g) Upon occurrence of an event of default, LENDER
may, with or without notice, before or after
maturity of this Note, transfer or register in
the name of its nominee(s) all or any part of
the COLLATERAL and also exercise any or all
rights of collection, conversion, or exchange
and other similar rights, privileges and
options pertaining to the COLLATERAL; but
shall have no duty to exercise any such
rights, privileges or options, or to sell or
otherwise realize upon any of the COLLATERAL
as herein authorized or to preserve the same
and shall not be responsible for any failure
to do so or delay in so doing. As to any
COLLATERAL consisting of instruments or
chattel paper, it is agreed that LENDER shall
not be required to take any steps whatever to
preserve any rights against prior parties.
(h) LENDER shall have no custodial or ministerial
duties to perform with regard to COLLATERAL
pledged except for its safe keeping; and by
way of explanation and not by way of
limitation thereof, LENDER shall incur no
liability for any of the following except to
the extent caused by its gross negligence or
willful misconduct: Either loss or
depreciation of the COLLATERAL; or its failure
to present any paper for payment or protest or
to protest or give notice of non-payment or
any other notice with respect to any paper or
collateral; or its failure to present or
surrender for redemption, conversion or
exchange any bond, stock, paper, or other
security, whether in connection with any
merger, consolidation, recapitalization,
reorganization, or arising out of their
intendment or refunding of the original
security; or its failure to notify any party
hereto that the COLLATERAL should be so
presented or surrendered.
(i) Upon any transfer of this Note, the LENDER may deliver the
property held as security, or any part thereof, to the
transferee, as well as any subsequent holder hereof, who shall
19
<PAGE>
thereupon become vested with all the powers and rights herein
given to the LENDER in respect to the property so transferred
and delivered; and the LENDER shall thereafter be forever
relieved and fully discharged from any liability or
responsibility thereafter with respect to such property so
transferred, but with respect to any property not so
transferred, the LENDER shall retain all rights and powers
hereby given.
(j) With prior written consent of LENDER, other COLLATERAL may be
substituted for the original COLLATERAL herein, in which event
all rights, duties, OBLIGATIONS, remedies and security
interests provided for, created or granted shall apply fully
to such substitute COLLATERAL.
(k) BORROWER will not use any COLLATERAL in any
jurisdiction other than a state in which
BORROWER shall have previously advised LENDER
such COLLATERAL will be used. If certificates
are issued or outstanding as to any of said
COLLATERAL, BORROWER will cause the security
interest of LENDER to be properly protected
and perfected. Absent advance written consent
of LENDER, the COLLATERAL therein described
will not be used outside the territorial
limits of the United States of America.
(l) BORROWER and GUARANTORS (or one or more of the
undersigned) has, or forthwith will acquire,
full title to COLLATERAL, and will at all
times, keep same free of all liens, security
interests, attachments and/or claims
whatsoever, other than the security interests
hereunder. BORROWER and Guarantors have good
indivisible marketable title to the COLLATERAL
and will warrant and defend same against all
claims. BORROWER and Guarantors are not and
will not attempt to transfer, sell, or
encumber the COLLATERAL or use it for hire or
in violation of any statute or ordinance
except as specifically approved by LENDER or
permitted in the Loan Agreement. BORROWER and
Guarantors further agree to pay promptly all
taxes and assessments upon the COLLATERAL
and/or for its use or operation, and/or on the
agreement to keep, use, and maintain said
COLLATERAL in a reasonably careful manner so
as not to unreasonably or unnecessarily expose
the same to waste, damage, wear or
depreciation, and to keep the same in good
20
<PAGE>
order and repair. If permitted by any applicable lease, LENDER
may examine and inspect COLLATERAL or any part thereof,
wherever located at any reasonable time(s). All equipment,
accessories and parts shall become part of said COLLATERAL by
accession.
(m) BORROWER will, at all times, keep LENDER'S
security interest properly perfected and
hereby designates LENDER as its attorney-in-
fact to do any acts or deeds or execute such
documents reasonably appropriate to accomplish
said perfection. Said designation shall be
irrevocable as long as any OBLIGATION of
BORROWER is outstanding.
17. REMEDIES ON DEFAULT (INCLUDING POWERS OF SALE) FOR PERSONAL PROPERTY
COLLATERAL: Upon the occurrence of any of the foregoing events, circumstances or
conditions of default, all of the OBLIGATIONS evidenced herein and secured
hereby shall, at the option of the LENDER, immediately be due and payable
without notice. Further, LENDER shall then have all rights and remedies of a
SECURED PARTY under the Uniform Commercial Code as adopted by the state of
LENDER'S office as set forth herein. Without limitation thereto, LENDER shall
have the following specific rights and remedies:
(a) Subject to the right of any lessee of an OSA to continue
possession and quiet enjoyment of the OSA while not in
default of its lease, to take immediate possession of the
COLLATERAL without notice or resort to legal process; and
for such purpose, to enter upon any premises on which the
COLLATERAL or any part thereof may be situated and remove
the same therefrom; or, at its option, to render the
COLLATERAL unusable. Further, also at its option, to
dispose of said COLLATERAL on BORROWER'S premises.
(b) To require BORROWER to assemble the COLLATERAL and make it
available to LENDER at a place to then be designated by
LENDER, which is reasonably convenient to both parties.
(c) To exercise its rights of SET-OFF by applying any monies
of BORROWER and/or a GUARANTOR on deposit with LENDER
toward payment of the OBLIGATIONS evidenced or referred
to herein or secured hereby, without notice. If any
process is issued or ordered to be served on LENDER
seeking to seize BORROWER'S and/or a GUARANTOR'S rights
and/or interest in any bank account maintained with
LENDER, the balance in any said account shall immediately
be deemed to have been and shall be SET-OFF against any
and all OBLIGATIONS of BORROWER to LENDER, as of the time
of issuance of any such writ or process, whether or not
BORROWER and/or LENDER shall have been served therewith.
21
<PAGE>
(d) To dispose of COLLATERAL as allowed by the Uniform Commercial
Code as adopted by the state of LENDER'S office as set forth
herein, in any county or place selected by LENDER, at either
private or public sale (at which public sale LENDER may be the
purchaser), with or without having the COLLATERAL physically
present at said sale.
(e) To make or have made any repairs deemed necessary or desirable
at time of repossession, possession, or sale, the cost of
which is to be charged against BORROWER.
(f) To receive all rents and fees payable to BORROWER under the
terms of all leases of OSA(s) by BORROWER to any third party.
(g) To apply the proceeds realized from disposition of the
COLLATERAL to satisfy the following items, in order here
listed:
(aa) The cost of reimbursing any person whose interest in
the premises is physically damaged by the entry and
removal of the COLLATERAL, upon BORROWER'S failure to
do so; next, to
(bb) The expenses of taking, removing, holding for sale,
repairing or otherwise preparing for sale and selling
of said COLLATERAL, specifically including the
LENDER'S reasonable attorney's fees (including
appellate costs, if any), and both legal and
collection expenses; next, to
(cc) The expense of liquidating any liens, security
interests, attachments or encumbrances superior to
the security interests herein created; and, finally
(dd) The unpaid principal and all accumulated interest
hereunder, and to any other debts owed to LENDER by
any signer hereof.
Any surplus, after the satisfaction of the foregoing items (aa) through (dd)
shall be paid to BORROWER or to any other party lawfully entitled thereto and
known to the LENDER. Further, if proceeds realized from disposition of the
COLLATERAL shall fail to satisfy any of the foregoing items (a) through (d),
BORROWER shall forthwith pay the deficiency balance to LENDER.
17. No waivers, amendments or modifications shall be valid unless in writing.
Further, this Note shall be governed by and construed under the laws of the
state of the LENDER'S office as set forth herein. All terms and expressions
contained herein which are defined in Articles 1, 3, or 9 of the Uniform
Commercial Code of the state of LENDER'S office set forth herein shall have the
same meaning herein as in said Articles of said Code.
22
<PAGE>
IN WITNESS WHEREOF, the BORROWER, on the day and year first written above, has
caused this Security Agreement to be executed under seal by its duly authorized
officers by hereunto setting their hands and seals.
"BORROWER"
TOP SOURCE TECHNOLOGIES, INC.
BY: /s/David Natan
(CORPORATE SEAL)
TAXPAYER IDENTIFICATION NO.:
84-1027821
ON-SITE ANALYSIS, INC.
BY: /s/David Natan
(CORPORATE SEAL)
TAXPAYER IDENTIFICATION NO.:
58-2074446
23
<PAGE>
BORROWER'S REPRESENTATIONS, WARRANTIES
AND AFFIDAVIT
STATE OF GEORGIA
COUNTY OF FULTON
WHEREAS, FIRST UNION NATIONAL BANK OF FLORIDA, a national banking
association ("BANK") has agreed to extend a loan to TOP SOURCE TECHNOLOGIES,
INC., of 2000 PGA Boulevard, Suite 3200, Palm Beach Gardens, Florida 33408; and
ON-SITE ANALYSIS, INC., of 3125 Presidential Parkway, Suite 130, Atlanta,
Georgia 30340-3907 (collectively referred to herein as the "BORROWERS") in the
total principal amount of SEVEN HUNDRED AND FIFTY THOUSAND AND NO/100 DOLLARS
($750,000.00); and
WHEREAS, as a material condition to said loan, the BANK has required
the BORROWERS and Top Source Automotive, Inc., a subsidiary of Top Source
Technologies, Inc., to grant a security interest in and to certain personal
property owned by BORROWERS and Top Source Automotive, Inc., or to be acquired
by BORROWERS with the proceeds of the loan; and
WHEREAS, as a further condition to granting of said loan, the BANK has
required the GUARANTORS listed herein to ratify and confirm existing Guaranty
Agreements guarantying the obligations of BORROWERS to BANK in form acceptable
to BANK; and
WHEREAS, as a further condition to the granting of said loan, the BANK
has required the BORROWERS to make certain representations and warranties to
BANK, its successors and assigns.
NOW, THEREFORE, in consideration of the BANK'S agreement to extend the
loan ("Loan") to the BORROWERS, the BORROWERS, through the undersigned officer
of each of the BORROWERS, hereby jointly and severally make the following
representations and warranties to BANK, its successors and assigns:
1. David Natan is the Chief Financial Officer of TOP SOURCE
TECHNOLOGIES, INC., a Delaware corporation authorized to do business in the
State of Florida, and is the Chief Financial Officer of ON-SITE ANALYSIS, INC.,
a Georgia corporation, and, therefore, has personal knowledge of the matters set
forth herein and has the ability and authority to bind each of said corporations
to the covenants and warranties set forth herein.
2. ON-SITE ANALYSIS, INC., a Georgia corporation, is a wholly owned
subsidiary of TOP SOURCE TECHNOLOGIES, INC., a Delaware corporation, authorized
to do business in the State of Florida. In addition, the following corporations
("GUARANTORS") which are confirming their existing guarantees of the obligations
24
<PAGE>
of BORROWERS, are wholly owned subsidiary corporations of TOP
SOURCE TECHNOLOGIES, INC.:
A. ARCS SAFETY SEAT, INC., a Florida corporation;
B. TOP SOURCE AUTOMOTIVE, INC., a Florida corporation;
and
C. UNITED TESTING GROUP, INC., a Georgia corporation.
3. Personal properties of BORROWERS and Top source Automotive, Inc.,
being pledged as security for the loan are owned by BORROWERS and/or Top Source
Automotive, Inc., free and clear from any pledge, hypothecation, assignment, or
other security interest other than the security interest being granted to BANK.
4. There are no parties other than BORROWERS, Guarantors, and lessees
in possession of or claiming possession to any of the property in which a
security interest is given to BANK by BORROWERS as security for the loan.
5. Except as described in Exhibit "A" attached hereto and made a part
hereof, there are no actions, suits or proceedings pending or to the knowledge
of the undersigned, threatened against or affecting any of the BORROWERS or
GUARANTORS before any court or any governmental department or agency which may
result in any material adverse change in any of the BORROWERS' or GUARANTORS'
financial conditions. Except as previuosly described in representations given to
BANK as supplimented by Exhibit "A" attached hereto and made a part hereof,
there are no claims involving the BORROWERS or GUARANTORS.
6. None of the BORROWERS or GUARANTORS is a party to any contract or
agreement which materially and/or adversely affects their properties, or any
part thereof, or which results in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon their properties, or any part
thereof, superior to the liens given by BORROWERS to BANK to secure the loan.
Neither the execution nor delivery of any security interest on the properties of
BORROWERS, the execution and delivery of a Amendment to Loan Agreement and other
Loan Documents of even date, the execution and delivery of a Promissory Note and
Security Agreement evidencing the loan, the execution and delivery of any
Unconditional Guaranty Agreement by a GUARANTOR, and/or the execution and
delivery of any other loan document will conflict or result in a breach of the
terms, conditions, or provisions of, or constitute a default under any agreement
or other instrument to which any BORROWER or GUARANTOR is a party or by which
any BORROWER or GUARANTOR is bound.
7. Except as expressly permitted in the Loan Agreement as
amended between BORROWERS and BANK, the BORROWERS or any GUARANTOR
will not execute any instrument or do any act whatsoever which
25
<PAGE>
would or might in any way affect the title to any property in which a security
interest is granted to the BANK.
8. BORROWERS and GUARANTORS are each duly incorporated and in good
standing in their state of incorporation and each is authorized to do business
in each state where business is transacted by such corporation to the extent
failure to be so authorized would have a material adverse affect on such
corporation or the interests and rights of the Bank under any Loan Document, and
each has the requisite power and authority to execute the loan documents
executed by each, including the Promissory Note and Security Agreement,
Amendment to Loan Agreement and other Loan Documents, and Guaranty, and all such
action has been duly approved by the Board of Directors of each and otherwise
approved and authorized as required by the Articles of Incorporation, Charter,
and By-Laws of each.
9. If any of the representations and warranties contained herein are
not true and correct in any respect that materially adversely affects the
interests and rights of the Bank under any Loan Document at any time during the
term of the loan, the same shall be deemed a material default under all loan
documents to the extent required in the Loan Agreement as amended. In addition
to all other rights of the BANK, the BANK shall be relieved of its obligation to
disburse any of the loan proceeds until such representations and warranties are
cured and corrected.
10. If a representation or warranty is ongoing in nature and
subsequently becomes materially false, BORROWERS and GUARANTORS shall have the
right to cure same within 30 days from written notice from BANK before same
shall constitute a default or event of default. The BORROWERS acknowledge that
this Affidavit is given as a material inducement to BANK to make the loan. In
addition, the BORROWERS declare that this Affidavit is true, correct and
complete in all respects that materially adversely affect the interests and
rights of the Bank under any Loan Document, and that there is no matter which
constitutes any excuse for the performance under the terms and provisions of the
loan documents. The BORROWERS agree to indemnify and hold BANK, its directors,
officers, employees, affiliates, successors and assignees harmless if any of the
foregoing provisions of this Affidavit are not true. The foregoing
indemnification and hold harmless shall survive the closing of the loan, and
shall include all costs and expenses incurred by the BANK, including, without
limitation, attorney's fees and paralegal fees, through all trial and appellate
levels and post judgment proceedings to the extent that BANK is the prevailing
party.
11. This instrument may be executed in counterparts by each of the
parties hereto and each counterpart will be considered as the agreement and as
the representation of the party or parties executing the counterpart.
26
<PAGE>
IN WITNESS WHEREOF, the BORROWERS have caused this Affidavit,
Representations and Warranties, to be executed this 12th day of October, 1995.
TOP SOURCE TECHNOLOGIES, INC.,
a Delaware corporation
authorized to do business in
the State of Florida
BY:/s/ David Natan
David Natan
its Chief Financial Officer
ON-SITE ANALYSIS, INC., a
Georgia corporation
BY:/s/ David Natan
David Natan
its Chief Financial Officer
STATE OF Georgia
COUNTY OF Fulton
Sworn to (or affirmed) and subscribed before me this 12th day of
October, 1995, David Natan, as Chief Financial Officer of TOP SOURCE
TECHNOLOGIES, INC., a Delaware corporation authorized to do business in the
State of Florida, on behalf of the corporation.
NOTARY PUBLIC
/s/ Mary Ann Latham
(SEAL)
Mary Ann Latham
(Print Name)
My commission expires:09/14/98
Commission No.
Personally Known X OR Produced Identification .
Type of identification Produced .
STATE OF Georgia
COUNTY OF Fulton
Sworn to (or affirmed) and subscribed before me this 12th day of
October, 1995, David Natan, as Chief Financial Officer of ON- SITE ANALYSIS,
INC., a Georgia corporation, on behalf of the corporation.
27
<PAGE>
NOTARY PUBLIC
/s/ Mary Ann Latham
(SEAL)
Mary Ann Latham
(Print Name)
My commission expires:09/14/98
Commission No.
Personally Known X OR Produced Identification .
Type of identification Produced .
TOP SOURCE AUTOMOTIVE, INC., a
Florida corporation
BY:/s/ David Natan
its Chief Financial Officer
STATE OF Georgia
COUNTY OF Fulton
Sworn to (or affirmed) and subscribed before me this 12th day of
October, 1995, David Natan, as Chief Financial Officer of TOP SOURCE AUTOMOTIVE,
INC., a Florida corporation, on behalf of the corporation.
NOTARY PUBLIC
/s/ Mary Ann Latham
(SEAL)
Mary Ann Latham
(Print Name)
My commission expires:09/14/98
Commission No.
Personally Known X OR Produced Identification .
Type of identification Produced .
28
<PAGE>
ARCS SAFETY SEAT INC., a
Florida corporation
BY:/s/ David Natan
its Chief Financial Officer
STATE OF Georgia
COUNTY OF Fulton
Sworn to (or affirmed) and subscribed before me this 12th day of
October, 1995, David Natan, as Chief Financial Officer of ARCS SAFETY SEAT,
INC., a Florida corporation, on behalf of the corporation.
NOTARY PUBLIC
/s/ Mary Ann Latham
(SEAL)
Mary Ann Latham
(Print Name)
My commission expires:09/14/98
Commission No.
Personally Known X OR Produced Identification .
Type of identification Produced .
UNITED TESTING GROUP, INC., a
Georgia corporation
BY:/s/ David Natan
its Chief Financial Officer
STATE OF Georgia
COUNTY OF Fulton
Sworn to (or affirmed) and subscribed before me this 12th day of
October, 1995, David Natan, as Chief Financial Officer of UNITED TESTING GROUP,
INC., a Georgia corporation, on behalf of the corporation.
29
<PAGE>
NOTARY PUBLIC
/s/ Mary Ann Latham
(SEAL)
Mary Ann Latham
(Print Name)
My commission expires:09/14/98
Commission No.
Personally Known X OR Produced Identification .
Type of identification Produced .
First Union National Bank
of Florida
303 Banyon Boulevard
West Palm Beach, Florida 33401
October 12, 1995
David Natan, Vice President and Chief Financial Officer
Top Source Technologies, Inc.
On-Site Analysis, Inc.
2000 P.G.A. Boulevard, Suite 3200
Palm Beach Gardens, FL 33408
Re: Loan Commitment and Agreement
Dear Mr. Natan:
We are pleased to advise you that First Union National Bank of Florida ("First
Union") has increased the Line of Credit for Top Source Technologies, Inc. and
On-Site Analysis, Inc. (collectively "Borrower") by $750,000.00 to a total
amount of $1,500,000.00. First Union's obligation to advance under this Line of
Credit will expire on January 31, 1996. All terms and conditions of the Line of
Credit as per the Loan Agreements dated November 24, 1994 and April 13, 1995
will remain in full force and effect, with the exception of the following:
1. The covenant pertaining to the Debt Service Coverage Ratio (and any
default relating thereto) as defined in Section g. under Financial
Statements, Reports, and Financial Covenants, has hereby been waived
through the expiration date of the Line of Credit or January 31, 1996.
This waiver only applies to the Line of Credit and, hence, not to the
$4,500,000.00 Revolver Loan.
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2. The Borrower shall at all times maintain a minimum consolidated
tangible net worth of $3,000,000.00. Consolidated tangible net worth
shall mean the consolidated net worth of the Borrower and its
subsidiaries, after subtracting therefrom the aggregate amount of (I)
deferred income tax assets, and (ii) any intangible assets of the
Borrower and its subsidiaries, including, and without limitation,
goodwill, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks, and capitalized database.
The Line of Credit shall be subject to a borrowing base formula defined as
follows:
Borrowing Formula: The maximum amount of the Line
shall be the lesser of a) 75% of eligible Accounts
Receivable or b) $1,500,000.00. Eligible Accounts
Receivable shall be defined as Accounts Receivable
of Top Source Automotive, Inc. aged 60 days or
less; Accounts Receivable of On-Site Analysis, Inc.
aged 60 days or less. Accounts Receivable will be
evidenced by a monthly Accounts
Top Source Technologies, Inc. and
On-Site Analysis, Inc.
Loan Commitment and Agreement
October 10, 1995
Page 2
Receivable aging submitted by the Borrower. No portion of an account
shall be defined as eligible if fifty percent (50%) of the account is
aged 90 days or more, as evidenced by the monthly Accounts Receivable
aging. The Borrower shall furnish said aging to the Bank on a monthly
basis with a compliance certificate as per the attached Exhibit 1.
Please indicate your acceptance of this commitment by executing your acceptance
immediately below and returning one executed copy of the Commitment Letter and
Agreement to the Bank. This Loan and Commitment Agreement letter supersedes and
replaces that certain Loan and Commitment Agreement Letter dated August 3, 1995.
Upon receipt, First Union shall refer the closing of this transaction to legal
counsel who shall prepare all necessary documents, including a consolidated Loan
Agreement which will detail the terms and conditions of this transaction.
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Thank you for allowing First Union to be of service. Please do not hesitate to
give me a call if you have additional questions about the Line of Credit.
Sincerely,
FIRST UNION NATIONAL BANK OF FLORIDA
By: /s/ Dena P. Bombard
Vice President
The above Loan Commitment and Agreement is hereby accepted on the terms and
conditions outlined therein.
BORROWERS
TOP SOURCE TECHNOLOGIES, INC.
By: /s/ David Natan
David Natan, Vice President, Chief
Financial Officer
Date: 10/12/95
ON-SITE ANALYSIS, INC.
By: /s/ David Natan
David Natan, Vice President, Chief
Financial Officer
Date: 10/12/95
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