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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to ______________
Commission file number: 1-10790
INDUSTRIAL TECHNOLOGIES, INC.
(Name of Small Business Issuer as in Its Charter)
Delaware 04-2596252
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
70 Cascade Boulevard, Milford, CT 06460
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (203)876-1800
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act:
Common Stock, $.01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes __ No X
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB [ ]
The issuer's revenues for its fiscal year ended September 30, 1997 were
$6,552,332.
As of July 5, 1998, 5,766,798 shares of Common Stock, $.01 par value per
share, were outstanding. The aggregate market value, held by non-affiliates, of
shares of the Common Stock, based upon the average of the bid and ask prices for
such stock on that date, was approximately $748,100
Transitional small business disclosures format (check one):
Yes __ X No
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Industrial Technologies, Inc. ("Industrial Technologies" or the "Company")
develops sensing, monitoring, processing and inspection technologies that
operate under the demanding factory floor conditions encountered in a range of
industries. Its customers include web process manufacturers of paper, plastic,
film, photosensitive materials, steel, aluminum, glass, non-wovens and rubber
products and their subsequent converting operations. The Company's industrial
computer group offers a full line of industrial strength processors, displays
and peripherals designed to operate under harsh temperature, humidity and shock
conditions found in factory environments. The Company's industrial computers are
also integrated into inspection systems delivered by the Company. The Company's
innovative solutions help industrial firms to increase yields, improve product
reliability and diminish costs associated with defects, thereby allowing such
firms to become more competitive in world markets.
The Company was incorporated in 1976 as Aerodyne Products Corporation
("APC"), a Massachusetts corporation, and was reincorporated as a Delaware
corporation in 1989. In 1991, APC acquired the assets of Amdex Corporation,
which became the Amdex Industrial Computer Division, and in 1992 acquired Intec
Corp. and a subsidiary of Intec Corp., Intec Europe, Ltd. APC changed its name
to Industrial Technologies, Inc. in February 1994 to achieve better name
recognition for its core business. The Amdex Industrial Computer Division, Intec
Corp., and Intec Europe, Ltd. are sometimes collectively included in the term
"the Company" where the context requires.
The Company operates two business divisions. The larger division, the Intec
Surface Inspection Division, offers a family of standard inspection systems used
in web process industries for control of primary and intermediate processes and
final inspection of finished material. The second business division, the Amdex
Industrial Computer Division, offers a full line of industrial computers,
computer monitors, and peripherals designed to operate under harsh temperature,
humidity, and shock conditions found in factory environments. Amdex industrial
computers are also integrated into inspection systems delivered by the Company.
The Company's products range in price from under $10,000 for industrial
computers, $25,000 to $50,000 for a basic detection system, $80,000 to $125,000
for a standard performance inspection system, and $175,000 to $500,000 for an
advanced inspection system. The Surface Inspection Division contributed 82% and
85%, respectively, to revenues for the fiscal years ended September 30, 1997 and
September 30, 1996. The Industrial Computer Division contributed 18% and 15%,
respectively, to revenues for the fiscal years ended September 30, 1997 and
September 30, 1996.
The Company sells its products both domestically and internationally, with
approximately 58% of its revenues in fiscal year 1997 coming from international
markets. A European sales and service operation located near Brussels, Belgium
coordinates distribution of all Company products in Europe and maintains a local
spare parts inventory and an applications laboratory. The Company also has
distributors and representatives in the Pacific Rim, South America, the Middle
East and Africa. Domestically, the Company sells its products directly through
its own sales personnel based in Milford, Connecticut and independent
representatives throughout North America.
SURFACE INSPECTION DIVISION
The Intec Surface Inspection Division of the Company has installed more than
950 systems worldwide. By monitoring a moving web of material visually searching
for surface defects, the Company's systems help manufacturers of a wide range of
different materials provide quality product to their customers. Its systems
alert users to the precise type, location and size of each defect. Patented and
proprietary techniques ensure accuracy by compensating for opacity, gloss,
surface roughness and many other factors. The Company's systems have been
installed in various industries where material is manufactured in a continuous
web.
The Intec Surface Inspection System Division targets those industries that
manufacture material on a continuous web. The largest users of these inspection
systems have been suppliers of paper, plastics and photosensitive materials. A
number of systems have, however, been utilized by the steel, aluminum, textiles,
fibers, glass and rubber industries. As the cost of inspection technology has
decreased, the Company believes that new inspection applications have increased.
Based on the number of active process lines and the typical system
configuration purchased by customers in the various market sections, the Company
has identified the paper, plastics, photo-sensitives, metals, and converting
industries as its five target industry sections, and is focusing substantially
all of its efforts on these particular sections.
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The Intec Surface Inspection Division offers three levels of surface
inspection equipment based on the level of technological control required. The
first level of equipment is a basic detection monitor. This equipment
continuously monitors the material and when an anomaly is observed the monitor
either notifies the operator by an alarm mechanism and/or sends an electronic
signal to another control system for corrective action. The second level of
equipment is a standard performance package which not only identifies defects,
but also provides a more sophisticated level of process control, assigns
physical parameters to categorize defects and provides a detailed quality
report. The third level of equipment is configured from standard hardware and
software modules to provide the customer with the maximum versatility through
the use of multiple detectors, double sided inspection, and a sophisticated
level of defect categorization/classification. Systems currently offered by the
Surface Inspection Division include:
BASIC DETECTION SYSTEM: SMARTCAM
The SmartCam System is a low cost camera-based visual inspection system
intended primarily for fixed, well-defined applications. SmartCam has an array
of CCD elements (charged coupled devices, i.e., capacitors) which are sensitive
to changes in the light pattern caused by passing surface defects or edge
features. This line image is scanned, digitized and processed several thousand
times every second to insure 100% inspection coverage. When the measured
deviation is found to exceed pre-set limits, the SmartCam instantly sets alarms
to warn the operator or provide outputs for machine control. SmartCam's open
design and low cost are attractive for converters, integrators, and original
equipment manufacturers ("OEM's") who want to incorporate the advantages of
inspection into their machinery. The base price for a single camera system
begins at $35,000. Beginning with the second quarter of fiscal year 1998, the
SmartCam was replaced with the newly designed Webscam System. The Webscam
incorporates all of the above features plus a laser option.
STANDARD PERFORMANCE SYSTEM: SYSTEM 3000
A laser-based web inspection system, the System 3000 has been designed to
provide a compact, medium cost, high performance inspection system for customers
who do not require the capabilities of, and who do not wish to incur the expense
associated with, purchasing the System 9000. In contrast to the System 9000,
which can be configured for simultaneous use of multiple laser or camera
scanners, the System 3000 is intended for relatively narrow (60 inches and
under) webs and supports only a laser scanner. A camera version of the System
3000 was introduced in the first quarter of 1998. The System 3000 supports 12
defect types which can be defined by length, width, repeat interval or density.
The average sale price is approximately $85,000.
ADVANCED CONFIGURABLE SYSTEM: SYSTEM 9000
The System 9000 incorporates either laser-based or camera-based sensors.
Through its defect analysis and display processor, the System 9000 can both
detect the size and shape of an overall defect and also provide real time, color
graphic computer monitor displays and printed reports relating to such defects.
Laser-based and camera based System 9000's sell in the range of $170,000 to
$500,000, and up, based on configuration of the system.
INDUSTRIAL COMPUTER DIVISION
Following the acquisition of the assets of Amdex Corporation, a
PC-based industrial computer assembler, the Company established its Amdex
Industrial Computer Division, which designs, assembles and sells PC-based
industrial computers and designs and sells CPU boards, computer monitors and
terminals. The Amdex Industrial Computer Division also develops customized
hardware and software applications.
The Company's industrial computers are configured to function in the harsh
environmental conditions found on the factory floor, including wide temperature
fluctuations, electrical isolation, poor air flow and shock and vibration.
Industrial computers have applications in the integration of internal
development of equipment, external systems and imbedded computer processing.
Products offered by the Amdex Industrial Computer Division embody two key
characteristics. The first is the capacity to offer customers the latest
computer processor engine; the second is durability. The Company's experience in
building rugged equipment for surface inspection as well as for space and
military use has enabled the Company to produce equipment that will work
reliably in harsh environments.
PRODUCT DEVELOPMENT
Based on the increasing customer demand for new technological advances that
will enhance performance, the Company engages in both applications and new
product development. The Company's objective is to provide a general solution
for automated inspection which will satisfy requirements in multiple industries
by providing a standard line of products designed for flexibility and
modularity. The Company contemplates that such standardized products will
ultimately replace all special, one-of-a-kind systems
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currently in existence. Examples of applications and/or new product development
include the System 3000 that was introduced in January 1993, and has since
become a sales leader, and the development of the repeat pattern recognition
(RPR) module for the System 9000 which was instrumental in obtaining new
business with companies such as Nan Ya Plastics and Tetra Pak. In addition to
in-house developments, the Company is continuously looking for product line
additions through acquisition, partnerships and/or other business relationships.
Examples of such activities are the addition to the product line of an edge
crack and spray marking device, and various additions to the Amdex Industrial
Computer product line through OEM relationships made over the past several
years.
MARKETING
The Company focuses its sales and marketing efforts on three regions of the
world: The Western Hemisphere, Western Europe and Asia-Pacific. In fiscal year
1997, the Company's revenues were approximately 43% from sales in the Western
Hemisphere, 32% in Western Europe and 25% in the Asia-Pacific market.
In North America, the Company markets and sells its products both directly
and through manufacturer's representatives. A European subsidiary, Intec Europe,
Ltd., located in Zaventem, Belgium, a suburb of Brussels, coordinates sales,
distribution and service of all of the Company's products in Europe and works
with manufacturer's representatives based in Italy, England, Spain, France,
Finland, Sweden, West Germany, Portugal and Belgium. Intec Europe, Ltd.
currently employs 8 people.
The Company also has distributors and representatives in the Pacific Rim,
Australia, South America, the Middle East and Africa. The Company's distributors
and manufacturer's representatives do not represent the Company exclusively.
Under their distribution and manufacturer's representative arrangements with the
Company, however, such entities have agreed not to market and sell products
manufactured by competitors of the Company. The Company plans to intensify its
global marketing efforts in fiscal year 1998.
ADVERTISING AND PROMOTION
The promotional efforts of the Company have included product brochures,
press releases, technical presentations before trade and professional groups and
by direct mailings. The Company has also exhibited its product lines at major
industry trade shows.
The promotional efforts of the Company in fiscal year 1998 will be focused
mainly on participation at selected major trade shows, local customer seminars,
selected trade advertising, direct mail, conferences and the favorable publicity
gained through articles in key industry trade journals.
SERVICE AND WARRANTIES
The Company services its surface inspection systems from its facilities in
Milford, Connecticut, and from its office in Belgium. It is expected that its
representative in Taiwan will begin to service the Company's growing installed
base in this area. Its Japanese distributor provides service to customers in the
Far East and a sales representative in Sweden provides services to certain
European and Scandinavian customers. The Company enters into annual maintenance
and service contracts with approximately 30% of its customers. Specialized test
equipment and service personnel fulfill its maintenance and service obligations.
In addition, it routinely conducts training of customer personnel at both its
Milford, Connecticut and Brussels, Belgium facilities.
For surface inspection systems, the Company provides an extensive operating
and maintenance training program for customer personnel. System diagnostics
enable plant personnel to identify and repair most problems down to the printed
circuit board level. Customers are encouraged to purchase spare parts in
conjunction with system purchases to ensure maximum equipment on line
availability. The Company has established a spare parts policy to ensure an
adequate supply of spare parts for equipment in the field. The Company provides
a one-year warranty for its surface inspection systems (parts and labor) on all
Company fabricated parts and passes on to the ultimate consumer the
manufacturers' warranties on OEM components. Through the purchase of an extended
preventive maintenance and service warranty, customers can extend the warranty
on surface inspection products for an additional six month period or longer.
The Amdex Industrial Computer Division offers no service contracts or
training of customer personnel for its products. The Amdex PC-based computer
systems have a one-year warranty. Extensive user documentation is provided.
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COMPETITION
The surface inspection industry is highly competitive. The Company's current
and future products compete and will compete with similar products marketed by
other companies and may compete against other developing technologies. The
Company's principal competitors in the laser inspection and line scan technology
markets are Cognex, European Electronic Systems International, ABB and
Honeywell. Other competitors include Lasor, Futek and SIRA, a non-profit
corporation. Some of these companies are substantially larger in size and have
greater financial, advertising, marketing and other resources than the Company
has or may be reasonably expected to have in the future. There can be no
assurance that the Company will be able to continue to compete successfully with
these or other companies.
The Company believes that it has several advantages over its competitors in
the global marketplace. One advantage is that the Company is, to its knowledge,
one of very few companies offering multiple sensor technologies to all major
markets worldwide for continuous web processes. Further, the Company believes
that it is the only company serving all application areas, e.g., paper,
photographic and light sensitive films and plates, plastics, metal, non-wovens,
etc. In addition, the Company believes that its twenty-five years in the
industrial inspection industry, together with its support of multiple industries
worldwide in such diverse areas as pulp, paper and photosensitive materials,
provide it with greater credibility and experience than many of its competitors
who have been in business for a shorter time period. Additionally, the Company's
offering of several standardized inspection system models at various prices,
including its less capital-intensive systems, provide it with a significant
advantage over its competitors who offer a single product. Furthermore, the
Company's establishment of multinational sales, distribution and service
capabilities have placed it in a position to compete in both domestic and
foreign markets.
The principal competitors of the Company's Amdex Industrial Computer
Division are IBM, Texas Micro Systems, ICS, Ibus and Action Instruments. The
Company believes that several of its product features, including its compact,
slim-line product, rugged enclosures, air cooling system, vibration-isolated
hard disk drives and the radio frequency interference/electromagnetic
interference filtering system enhance the durability and reliability of its
products, and provide the Company with a competitive advantage in the PC-based
industrial computer market.
MANUFACTURING AND SUPPLIERS
The manufacturing process for the Company's products consists primarily of
assembly and testing of subsystems and components. The Company relies on outside
suppliers for all of its manufacturing supplies, parts and components. The
Company believes that it is more cost effective to purchase the components and
subassemblies than to spend valuable resources to acquire costly capital
equipment to manufacture the parts internally.
The Company relies on a limited number of sole source suppliers and to date
has not had any problems obtaining the components and subassemblies needed to
complete its products. If the Company were unable to obtain the required
components and subassemblies from its current suppliers, the Company believes
that there are a number of other vendors available to satisfy the Company's
needs, although there can be no assurance that they will be able to do so in a
timely manner or that the Company's costs will not increase.
ENGINEERING, RESEARCH AND DEVELOPMENT
During the fiscal year ended September 30, 1997, the Company incurred
engineering expenses of $563,175, of which $297,000 are considered research and
development expenses. During the fiscal year ended September 30, 1996, the
Company incurred engineering expenses of $644,337, including research and
development expenses of $169,000. Engineering expenses decreased overall by
$81,162, whereas, research and development expenses increased by $128,000. The
decrease in engineering expenses was the result of transferring system test and
evaluation to the service group (i.e. Marketing and Sales), while the increase
in research and development resulted from the development of new products
offerings for both the inspection and computer divisions.
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company has federal patent protection relating to certain aspects of its
surface inspection systems. A number of these patents relate to the tracking of
defects through the Company's laser scanner flaw detection system, as well as to
the Company's System 3000.
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The Industrial Computer Division has neither applied for nor holds any
patents relating to its products.
MAJOR CUSTOMERS
For fiscal years ended September 30, 1997 and 1996, there were no customers
accounting for 10% or more of the Company's total revenues. The Company does not
anticipate that any one customer will be a major factor in the future.
Management believes that as the Company continues to expand and diversifies its
product lines and customer base, of which there can be no assurance, its
reliance in the future on any single customer will not be significant.
ENVIRONMENTAL COMPLIANCE
In May of 1992, the Company filed a Form III with the Connecticut Department
of Environmental Protection relating to the discovery of the presence of
tetrachloroethylene in the soil and possible contamination at its former
headquarters in Trumbull, Connecticut. This discovery was confirmed by a Limited
Phase II Assessment performed by Enviro-Shield, Inc. in April and May of 1992.
As of June 1997, the Company had incurred expenses of approximately $35,000 in
connection with the investigation of this matter. Based on preliminary findings
and tests as recent as December 1997, the Company does not believe that a
significant environmental liability exists, although there can be no assurance
that the Company will not incur substantial additional expense in connection
with the investigation of this matter or compliance orders from the State of
Connecticut. Management believes that such additional remediation as may be
requested will not have a material effect on the financial condition of the
Company.
EMPLOYEES
As of September 30, 1997, the Company employed 37 persons in Milford,
Connecticut, and Brussels, Belgium, on a full-time basis. Seven persons are
employed in sales and marketing, six in technical services, three in
engineering, fourteen in manufacturing and seven in finance and administration.
The Company considers its relations with its employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company moved its corporate facilities to Milford, CT, during August
1997. The Company occupies approximately 35,000 square feet in a single-story
building in a modern industrial park in Milford, Connecticut. This facility
houses corporate activities, the Intec Inspection Division and the Amdex
Industrial Computer Division. The Milford, Connecticut, facilities include
special optics laboratories, demonstration laboratories, corporate offices, and
manufacturing, assembly and testing areas. The Milford facilities are leased
from an unaffiliated third party under a lease that expires on September 30,
2002, with an option to renew for one additional five-year term. The base annual
rent for the premises is approximately $192,000. This includes all common area
maintenance, building insurance expenses and real estate taxes. The rent is
subject to annual increases in the event taxes, area maintenance and insurance
costs increase. The Company believes that the Milford facility is adequate for
its current and anticipated future needs.
The Company also leases approximately 14,000 square feet in Brussels,
Belgium at a cost of approximately $50,000 per year through its subsidiary,
Intec Europe Ltd.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, on February 26, 1997, the lessor of the Company's
Trumbull, Connecticut facility filed an action in the Bridgeport Housing Session
of the Superior Court of Connecticut seeking eviction of the Company for
nonpayment of additional rents in accordance with the terms of the lease. The
Company vacated the Trumbull, Connecticut facility on August 31, 1997 in
conjunction with its relocation to the Milford, Connecticut facility. Also as
previously reported, on April 1, 1997, the lessor filed an action in the same
court seeking to collect amounts claimed due and payable under the terms of the
lease. On February 23, 1998, a Stipulation for Judgment was entered by the
lessor and the Company settling the litigation between them in favor of the
lessor in the amount of approximately $175,000. The amount is payable in twelve
equal monthly installments of approximately $14,200. The Stipulation for
Judgment provides that upon payment of all amounts by the Company, the lessor
will indemnify the Company for up to $50,000 against any environmental liability
the Company may incur related to the property.
The Company is not involved in any other material litigation which is not
routine and/or incidental to its business and which would have a material impact
on the financial position of the Company.
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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, 1997.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
During fiscal year 1997, the Company's Common Stock was traded on the
National Association of Securities Dealers Automated Quotation System (NASDAQ)
under the symbol INTI. The following table sets forth the high and low bid
prices quoted on NASDAQ for the Common Stock for the periods indicated. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $ 0.68 $ 0.25 $ 1.75 $ 1.25
Second Quarter $ 0.56 $ 0.25 $ 1.56 $ 0.75
Third Quarter $ 0.37 $ 0.15 $ 1.00 $ 0.75
Fourth Quarter $ 0.25 $ 0.12 $ 0.88 $ 0.31
</TABLE>
The closing bid quotation on NASDAQ on September 30, 1997 was $0.25 per share of
Common Stock. As of September 30, 1997, the Company had approximately 210
stockholders of record. The Common Stock was delisted from the NASDAQ SmallCap
market on October 2, 1997. The Common Stock was delisted from the Boston Stock
Exchange on February 2, 1998. The Company's Common Stock currently trades on the
OTC Bulletin Board.
The Company has not paid dividends to its stockholders since its inception.
The Company's 1996 Financing Agreement described below contains provisions
prohibiting the payment of dividends. The Company intends to retain any earnings
to finance growth.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING INFORMATION
The statements in this Annual report on Form 10-KSB that are not historical
fact constitute "forward-looking statements." Said forward-looking statements
involve risks and uncertainties which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
These forward-looking statements are identified by their use of forms of such
terms and phrases as "expects," "intends," "goals," "estimates," "projects,"
"plans," "anticipates," "should," "future," "believes," and "scheduled".
Variables which may cause differences include, but are not limited to, the
following: lack of adequate capital due to the inability to make timely
deliveries, the lack of prompt payment by large customers, the inability to
negotiate reasonable payment terms with creditors and a demand for payment under
the Company's revolving loan agreement; an unexpected increase in remediation
costs associated with environmental compliance; general economic and business
conditions; competition; success of operating initiatives; operating costs;
advertising and promotional efforts; the existence or absence of adverse
publicity; changes in business strategy or development plans; the ability to
retain management; business abilities and judgment of personnel; availability of
qualified personnel; labor and employee benefit costs; availability and costs of
raw materials and supplies; and changes in, or failure to comply with,
government regulations. Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements included in this filing will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and expectations of the Company will be achieved.
GENERAL
During the fourth quarter of fiscal year 1997, management initiated a
turnaround program focused on increasing revenues through improved sales
revenues and cost containment in the areas of overhead, sales, general and
administrative expenses. Initial benefits of the turnaround program are
anticipated in fiscal year 1998. Overhead expenses have been reduced by
relocating the Company and simultaneously consolidating the accounting and
operations functions of the Intec and Amdex Divisions, thus eliminating
duplicate functions. Financial reporting has been computerized, thus allowing
for a reduction in G&A staff. Marketing
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and Sales for the U.S. and Europe have been consolidated under a single manager,
and the position of President has been eliminated with the Chairman performing
the function of President.
New operations and manufacturing management is evaluating procedures as well
as analyzing previous out-sourcing decisions with a focus on reducing costs of
manufacturing and improving shipping schedules. The Company expects these
programs to improve gross profits, which fell from 44% of net sales in 1996 to
31% of net sales in 1997.
The Company continues to search for strategic alliances to enhance its
position in the markets it serves and to work more closely with other equipment
manufacturers to create marketing and sales synergy.
Increased product development activity in both hardware and software is
expected to yield greater benefits for the Company's customers and prospects,
thus helping improve revenues.
Although the Company believes its new programs and management will be
successful in effecting a turnaround in fiscal 1998, there can be no assurance
that the Company will achieve these objectives.
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RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997 AS COMPARED TO YEAR ENDED SEPTEMBER 30, 1996.
NET SALES
The Company had net sales for the fiscal year ended September 30, 1997
("fiscal year 1997") of $6,552,332 as compared to $6,438,213 for the fiscal year
ended September 30, 1996 ("fiscal year 1996"). The increase in net sales for
fiscal year 1997 of $114,119 reflects a slight difference in product mix.
GROSS PROFIT
The Company generated a gross profit of $1,998,940 or 31% of net sales for
fiscal year 1997 compared to a gross profit of $2,843,698 or 44% of net sales
for fiscal year 1996. The decrease in gross profit and gross profit percentages
is due primarily to the increase in materials cost, extra discounting on certain
major orders for systems because of strong competition and obsolescence of
existing inventories for discontinued products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category of expenses totaled $3,019,044 or 46% of net sales for fiscal
year 1997 compared to $2,934,833 or 46% of net sales for fiscal year 1996. The
decrease in selling expense in fiscal year 1997 of $131,299 was due primarily to
the reduction of commission expense from restructuring the commission plan,
shift of expenses from selling to general and administrative and slightly
reduced advertising costs. The increase in general and administrative expense
for fiscal year 1997 of $215,510 was due primarily to increased legal cost,
increased costs of pursuing new borrowing facilities, and the accrual of several
severance packages. Also, fiscal year 1996 general and administrative expense
benefited from favorable adjustments to reserves during that year.
ENGINEERING AND RESEARCH AND DEVELOPMENT EXPENSES
The Company had engineering and research and development costs of $563,175
or 9% of net sales for fiscal year 1997, compared to 644,337 or 10% of net sales
for fiscal year 1996. The decrease in engineering expenses of $81,162 between
1997 and 1996 is due primarily to the shift in applications work from
engineering to either operations or marketing/sales depending upon the nature of
the work required.
AMORTIZATION OF COSTS IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL)
Cost in excess of net assets of business acquired is the difference between
the purchase price and the amounts assigned to the assets of a business acquired
accounted for by the purchase method of accounting. This intangible was
generally amortized by the Company over 15 years. The Company's policy is to
review the carrying amount of this intangible if facts and circumstances suggest
that it may be impaired. The Company evaluates the recoverability of the
intangible asset by measuring the carrying amount of the intangible asset
against the undiscounted cash flows associated with the intangible asset. If
this review indicates that the undiscounted cash flows are not sufficient to
recover the carrying value of the intangible asset, the intangible asset is
adjusted to fair value.
During the fourth quarter of 1997, management of the Company reviewed this
intangible asset and wrote off the balance as there is currently estimated to be
no continuing fair value associated with the intangible asset. Amortization in
the amount of $3,266,780 was charged against operations for the year ended
September 30, 1997.
INTEREST EXPENSE/INTEREST INCOME
The Company had interest expense of $222,647 or 3% of net sales for fiscal
year 1997, compared to $108,854 or 2% of net sales for fiscal year 1996. This
increase is due to the Company entering into a revolving financing agreement at
the end of 1996 to replace existing bank debt which resulted in an increase of
principal outstanding. Interest income for fiscal year 1997 and fiscal year 1996
were $1,956 and $8,570 respectively.
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NET INCOME (LOSS)
The net loss for fiscal year 1997 was $5,070,750 or $.91 per share, compared
to a net loss of $1,143,218 or $.22 per share in fiscal year 1996. This decline
in fiscal year 1997 was due primarily to the elimination of cost in excess of
net assets of business acquired in the amount of $3,266,780, competitive and
strategic pricing in the Far East Market, the increase in legal costs, increased
costs of pursuing new borrowing facilities, the accrual of several severance
packages, and interest expense as covered in this discussion. Amortization of
cost in excess of net assets of business acquired was $3,226,780 in fiscal year
1997 and $307,462 in fiscal year 1996, or $0.58 per share in fiscal year 1997
and $0.06 in fiscal year 1996. Management of the Company reviewed this
intangible asset and wrote off the balance as there is estimated to be no
continuing fair value associated with the intangible asset.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had negative working capital of
$1,196,896, compared to a positive working capital of $203,277 at September 30,
1996. The decrease in working capital is due primarily to a net loss of
$5,070,750 for the year ended September 30, 1997, compared to a net loss of
$1,143,218 for the year ended September 30, 1996.
During 1995 and 1996, the Company received $1,119,496, net of offering
expenses, from a private offering for an aggregate of 2,000,000 units of its
securities at $.80 per unit. Each unit consists of one share of common stock,
one Class C warrant, and one Class D warrant. The Company also distributed
200,000 units to the two placement agents who assisted the Company with the
offering. Each Class C and D warrant entitles the holder to purchase one-half
share of common stock for a period of three years commencing on December 1,
1995. During 1997, the Company realized $75,550, net of offering cost, upon the
exercise of Class C and Class D warrants. See Note 8 to the Consolidated
Financial Statements for information concerning the warrants.
The Company's primary source of liquidity at September 30, 1997 consisted
of $104,115 of cash plus the borrowing power under the Company's revolving loan,
demand loan and security agreement entered November 1, 1996 ("Loan Agreement")
which provides maximum borrowings of $1,500,000 at an annual interest rate of 4%
over the prime interest rate as published in the Wall Street Journal. The loan
matures on October 31, 1999, unless sooner terminated at the option of the
lender at which time all amounts outstanding will be due and payable. At
September 30, 1997, the Company had borrowed $804,270 under the Loan Agreement
and $695,730 of additional borrowings would have been available if there had
been additional eligible accounts receivable. The revolving loan requires
interest to be paid monthly and has a maximum borrowing base of : the lesser of
$1,500,000 or the aggregate of (1) 80% of the Company's eligible domestic
accounts receivable, (2) 80% of the Company's eligible accounts receivable
covered by irrevocable letters of credit, (3) the lesser of 80% of the Company's
European eligible open accounts receivable or $500,000, and (4) a $500,000
demand loan which is payable in installments of approximately $16,700 of
principal. The August, September and October, 1997 installments have been
deferred by the lender to September 1, 1999.
On May 28, 1997, the Company entered into a letter agreement (the "Amendment
Letter") modifying the Loan Agreement. The Amendment Letter modifies the Loan
Agreement such that the total principal amount permitted to be outstanding may
not exceed $2,000,000. Pursuant to the Loan Agreement as amended by the
Amendment Letter, additional credit was extended to the Company in the amount of
$500,000 (the "New Term Loan"). Interest at a rate of 6% per annum above the
prime rate on a floating basis is due and payable monthly. Principal is payable
in quarterly installments of $19,231 commencing on December 1, 1997 through
February 1, 2004. The Company is not in compliance with the covenant that
pertains to the timely submission of financial statements. The Loan Agreement
and the New Term Loan are secured by a first priority security interest in all
of the Company's personal property. Simultaneous with the closing of the New
Term Loan, the Connecticut Development Authority purchased a 100% participation
interest in the New Term Loan.
Upon the closing of the Loan Agreement, the Company received an initial
disbursement of $781,500, of which approximately $640,000 was used to repay
existing indebtedness of the Company. Upon closing the 1997 Amendment Letter,
the Company received a disbursement of $500,000 which was used as working
capital to sustain the day-to-day operations of the Company.
The Company requires additional capital to finance continuing operations,
make enhancements to and expansions of its manufacturing capacity in accordance
with its business strategy, and for working capital for inventory and accounts
receivable. The Company is seeking such funds through strategic alliances,
merger and acquisition efforts as well as through public or private debt and
equity. There can be no assurance that such efforts will be successful. Without
such future financing, the Company's ability to finance its operations and
growth will be severely limited.
11
<PAGE> 12
At February 3, 1998 the Company's backlog of customer orders was
approximately $4,073,000 compared to $3,037,000 at December 9, 1996. The
Company's ability to fulfill these orders is largely dependent upon the
Company's ability to maintain its borrowing capacity and improve its liquidity.
CAPITAL EXPENDITURES
The Company does not have any commitments for capital expenditures at this
time.
EFFECT OF INFLATION
The Company believes that inflation has not had a material effect on its
results of operation or financial condition during the last two fiscal years.
The Company has not entered long-term contracts with its customers or suppliers
and has generally been able to pass along increased costs incurred by it.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company's products and key financial and operating systems are being
reviewed. Based on its review to date, the Company believes its computer
systems and its current products will continue to function properly after
December 31, 1999. However, if such were not the case, the Year 2000 Issue
could have a material impact on the operations of the Company. Furthermore, the
Company is not dependent on the systems of other companies on which the
Company's system rely. Therefore, while it continues to evaluate the issue,
based on available information, the Company does not expect costs associated
with the Year 2000 Issue to have a material adverse impact on the Company's
financial position, results of operations or cash flows.
ITEM 7. FINANCIAL STATEMENTS
The Report of Independent Auditors, the consolidated financial statements
and related notes that are listed in the Index to Consolidated Financial
Statements are included herein on pages 21 through 39.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
12
<PAGE> 13
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The current directors and executive officers of the Company, their ages and
their positions held in the Company are as follows. Similar information is
provided with respect to the key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gerald W. Stewart 53 Chairman, Chief Executive Officer, Director
Howard Davidoff 42 Director
Eric H. Twerdahl 50 Director
<CAPTION>
Key Employees
-------------
<S> <C> <C>
Walter D. Stewart 32 Director of Operations
Kenneth R. Rowe, Jr. 30 Controller
Brian A. Mahar 39 Vice President, Sales and Marketing
Norma Gold 56 Director of Administration
</TABLE>
Each director is elected for a period of one year at the Company's annual
meeting of stockholders and serves until his or her successor is duly elected by
the stockholders. In general, vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority vote of the directors then in office.
The following is a summary of the principal occupations during the past five
years of each of the directors, executive officers and key employees named
above:
GERALD W. STEWART. Dr. Stewart was elected Chairman of the Board and Chief
Executive Officer of the Company in April, 1988 after serving as President and
Chief Executive Officer since October, 1984. Since joining the Company in 1979
as Director of the Center for Chemical and Environmental Physics, Dr. Stewart
has held several positions, including Director of Engineering and Vice President
for Strategic Planning and Development. Prior to joining the Company, Dr.
Stewart served as Chief, Supporting Research Branch at the U.S. Department of
Energy's Morgantown Energy Technology Center, where he was responsible for
developing new and improved devices for in-process monitoring and the transfer
of these technologies to the commercial sector. Dr. Stewart served as assistant
professor of chemistry at West Virginia University and as a research associate
at both the Massachusetts Institute of Technology and Washington University. Dr.
Stewart holds a Ph.D. in Physical Chemistry from the University of Idaho, an
M.S. in Physical Chemistry from South Dakota School of Mines and Technology, and
a B.S. in Chemistry from Wilmington College. Dr. Stewart is the father of Walter
D. Stewart and the husband of Norma Gold.
ERIC H. TWERDAHL. Mr. Twerdahl was elected President effective November 1,
1996, after having served as a Director since January 1996. The Company gave
notice of its intent not to renew his Employment Agreement and Mr. Twerdahl
resigned as President effective October 30, 1997. For more than 5 years prior to
joining the company, Mr. Twerdahl was Managing Director of Fox, Twerdahl,
Lehmann & Co., an international investment banking firm providing merger &
acquisition services. Also, in that capacity, he was U.S. advisor to
government-owned Austrian Industries AG, Vienna, a $17 billion conglomerate in
steel, aluminum, chemicals, petrochemicals, and large-scale engineering, where
he assisted with M&A and alliances associated with industrial processing
technologies. He holds a B.A. from Johns Hopkins University and an M.B.A. from
Boston University.
HOWARD DAVIDOFF. Since 1987, Mr. Davidoff has been Managing Director of the
Venture Capital Department of Carl Marks & Co., Inc. in New York, New York and
has served as a director of the Company since November, 1987. From February 1981
to May 1986, Mr. Davidoff was employed by The Chase Manhattan Bank (National
Association) as a corporate lending officer. Mr. Davidoff holds a B.B.S. degree
from Boston University and an M.B.A. degree from New York University. Mr.
Davidoff is Chairman of the Compensation and Audit Committees.
13
<PAGE> 14
WALTER D. STEWART. Mr. Stewart became Director of Operations in September,
1997. Mr. Stewart joined INTEC in 1993 as the General Manager of AMDEX
Industrial Computer Division. Prior to joining the Company, Mr. Stewart owned
and operated B & S Systems Consulting, a company that designed, built and
installed computer networks. Mr. Stewart has 10 years of experience working with
both mainframe, mini and PC computers and is certified by both Novell and SCO.
Mr. Stewart is the son of the Company's Chairman and CEO, Dr. Gerald W. Stewart.
KENNETH R. ROWE, JR. Mr. Rowe joined the Company in July 1997 as Controller.
He was previously employed by the public accounting firm of McGladrey and Pullen
LLP, the Company's independent auditors. Prior to joining McGladrey and Pullen
LLP in 1994, Mr. Rowe was employed by the Yale Journal Company at the Yale Law
School, Yale University. Mr. Rowe holds a B.S. Degree in Financial Accounting
from the University of New Haven.
BRIAN A. MAHAR. Mr. Mahar joined the Company in October 1996 as Vice
President, Sales and Marketing. Before joining the Company, he was Director of
International Marketing for Framatome Connectors International, a $900 million
company. Mr. Mahar was with Framatome (formerly Burndy Corporation) for 17 years
where he held prior positions in product management and sales. He holds a B.S.
degree in marketing from the University of Maine and has done post-graduate work
in marketing and management at Adelphi University.
NORMA GOLD. Ms. Gold became Director of Administration in September, 1997.
Ms. Gold joined the Company in July of 1991 as Controller of Aerodyne Products
Corp. Prior to joining the Company, she was employed as Controller of L.B. Evans
Company in Fitchburg, Massachusetts for ten years. Ms. Gold holds a B.S. degree
in Business Administration from Babson College. Ms Gold is the wife of the
Company's Chairman and CEO, Dr. Gerald W. Stewart.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's executive officers and directors and persons who beneficially
own more than ten percent of the Company's Common Stock are required under the
Securities Exchange Act of 1934, as amended, to file reports of ownership and
changes in ownership of Common Stock of the Company with the Securities and
Exchange Commission. Copies of these reports must also be furnished to the
Company. Based solely on a review of the copies of the reports and other
information furnished to the Company, the Company believes that during the
fiscal year ended September 30, 1997, all such reports were timely filed,
except: Mr. Twerdahl and Mr. Davidoff each failed to timely file one report to
report the grant of warrants and Mr. John E. McConnaughy failed to timely file
one report to report becoming a ten percent beneficial owner.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid by the
Company to each of the most highly compensated executive officers as of
September 30, 1997 whose total annual salary and bonus exceeded $100,000 during
the year then ended, for their services in all capacities to the Company and its
subsidiary during the fiscal years ended September 30, 1997, September 30, 1996
and September 30, 1995.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
NAME AND COMPENSATION SECURITIES
PRINCIPAL SALARY UNDERLYING OPTIONS
POSITION YEAR ($) (#)
(a) (b) (c) (g)
<S> <C> <C> <C>
Gerald W. Stewart 1997 $145,000 --
Chief Executive 1996 $145,000 10,000
Officer 1995 $125,000 10,000
Eric H. Twerdahl 1997 $120,083 101,000
President
</TABLE>
The following table sets forth all individual grants of stock options
granted to the individuals named in the Summary Compensation Table during the
fiscal year ended September 30, 1997. No Stock Appreciation Rights ("SARs") were
granted.
14
<PAGE> 15
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR
GRANTED FISCAL BASE PRICE EXPIRATION
(#) YEAR ($/SH) DATE
NAME DATE OF GRANT (b) (c) (d) (e)
<S> <C> <C> <C> <C> <C>
Eric H. Twerdahl 11/1/96 100,000(1) 68.4% $0.50 11/1/2003(2)
4/15/97 1,000(1) 0.7% $0.28 4/15/2004(2)
</TABLE>
- --------------------
(1) Options granted vest ratably over five (5) years starting on the date of
grant and on each of the four anniversary dates of the grant.
(2) Options lapsed unexercised.
The following table sets forth certain information concerning option
holdings as of September 30, 1997 with respect to the individuals named in the
Summary Compensation Table. No stock options were exercised by any named
executive officer during Fiscal Year 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUE
<TABLE>
<CAPTION>
(b) (c)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
(a) UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NAME OPTIONS AT FY-END (#) AT FY-END ($)
---- --------------------- -------------
EXERCISABLE UNEXERCISABLE UNEXERCISABLE EXERCISABLE
<S> <C> <C> <C> <C>
Gerald W. Stewart 96,000 14,000 $ -- $ --
Eric H. Twerdahl 20,200 80,800 $ -- $ --
</TABLE>
EMPLOYMENT AGREEMENTS
Dr. Gerald W. Stewart
The Company entered into an employment agreement (the "Employment
Agreement") with Dr. Gerald W. Stewart, as President and Chief Executive
Officer, effective January 1, 1994. The Employment Agreement provides for a
five-year term and an annual base salary of $125,000 payable in substantially
equal payments in accordance with the Company's usual practices, with
reimbursement for reasonable business expenses. The base salary was increased to
$145,000 per year as of October 1, 1995. A cash bonus determined by the Board of
Directors can be earned if the Company meets or exceeds the target goals for the
year, as set by the Board of Directors.
Dr. Stewart's employment may be terminated by the Company at any time for
"good cause" (as defined in the Employment Agreement) and Dr. Stewart may
terminate his employment at any time by providing 30 days' prior written notice
to the Company. Under either of these circumstances, the Company will be
obligated to pay Dr. Stewart his base salary plus accrued bonus and expenses
through the end of the month of termination. If the Company terminates Dr.
Stewart's employment other than for "good cause" or if Dr. Stewart terminates
his employment due to a material breach by the Company of the Employment
Agreement, Dr. Stewart shall be entitled to receive from the Company a sum equal
to the then most recent base salary, payable in 10 consecutive equal monthly
installments.
The Employment Agreement also includes non-competition provisions which
prevent Dr. Stewart from competing with the Company while employed by the
Company and which prevent Dr. Stewart, for a period of two years, from hiring
any employee of the Company or from persuading any employee, customer,
independent contractor, dealer, supplier or client of the Company from
discontinuing its relationship with the Company. If Dr. Stewart's employment is
terminated by the Company without "good cause" or by Dr. Stewart as a result of
a material breach of the Employment Agreement by the Company, the two-year
period mentioned above shall be reduced to one year.
Eric H. Twerdahl
The Company entered into an employment agreement (the "Employment
Agreement") with Mr. Eric H. Twerdahl as President of the Company, effective
November 1, 1996. The Employment Agreement provided for an initial one-year
term, automatically renewed for an additional one-year period unless either
party provided notice of its intent not to renew, and an annual
15
<PAGE> 16
base salary of $125,000 payable in substantially equal payments in accordance
with the Company's usual practices, with reimbursement for reasonable business
expenses. A cash bonus was payable if the Company met or exceeded the target
goals for the year. In addition, a grant of a qualified option to purchase
100,000 shares of Common Stock was made at the fair market value of the Common
Stock on November 1, 1996, the date of grant, exercisable for a period of seven
years from the date of grant.
Mr. Twerdahl's Employment Agreement provided that it could be terminated by
the Company at any time for "good cause" (as defined in the Employment
Agreement) and that Mr. Twerdahl could terminate his employment at any time by
providing 30 days' prior written notice to the Company. Under either of these
circumstances, the Company would have been obligated to pay Mr. Twerdahl his
base salary plus accrued bonus and expenses through the end of the month of
termination. If the Company terminated Mr. Twerdahl's employment other than for
"good cause" or if Mr. Twerdahl terminated his employment due to a material
breach by the Company of the Employment Agreement, Mr. Twerdahl would have been
entitled to receive from the Company a sum equal to the then most recent base
salary, payable in 10 consecutive equal monthly installments.
The Employment Agreement also included non-competition provisions which
prevented Mr. Twerdahl from competing with the Company while employed by the
Company and which prevent Mr. Twerdahl, for a period of two years, from hiring
any employee of the Company or from persuading any employee, customer,
independent contractor, dealer, supplier or client of the Company from
discontinuing its relationship with the Company. If Mr. Twerdahl's employment
had been terminated by the Company without "good cause" or by Mr. Twerdahl as a
result of a material breach of the Employment Agreement by the Company, the
two-year period mentioned above would have been reduced to one year.
The Company gave notice of its intent not to renew the Employment
Agreement and Mr. Twerdahl resigned effective October 30, 1997.
STOCK OPTION PLANS
The Company has previously adopted the 1985 Incentive Stock Option Plan (the
"1985 Plan"), which provides that options granted thereunder are intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
United States Internal Revenue Code, as amended (the "Code"). No further options
may be granted under the 1985 Plan, but it continues to govern options
previously issued pursuant to it.
The Company has also adopted a 1991 Stock Option Plan (the "1991 Plan"). The
1991 Plan provides for the grant of options intended to qualify as incentive
stock options within the meaning of Section 422 of the Code as well as for the
grant of nonstatutory options. Although incentive stock options are issuable
only to employees of the Company, nonstatutory options may be issued to
non-employee directors, consultants and others, as well as to employees. The
1985 Plan and the 1991 Plan are collectively referred to herein as the "Plans".
The 1985 Plan is administered by the Board of Directors and the 1991 Plan is
administered by a committee of no less than two members of the Board of
Directors, each of whom is a disinterested person within the meaning of Rule
16b-3 of the Securities Exchange Act of 1934. The Company currently has 48,455
shares of Common Stock reserved for issuance upon the exercise of options
granted under the 1985 Plan and there are 520,000 shares reserved for issuance
upon the exercise of options granted or to be granted under the 1991 Plan. The
Board of Directors and the Compensation Committee determine which individuals
shall receive options, the time period during which the options may be partially
or fully exercised, the number of shares of Common Stock that may be purchased
under each option and the exercise price thereof.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the shares of Common Stock on the date the options are
granted (110% in the case of an employee who owns, directly or indirectly, at
the time of the grant more than 10% of the total combined voting power of all
classes of capital stock of the Company (a "10% Stockholder")). The aggregate
fair market value (determined as of the date the options are granted) of the
shares of Common Stock for which an employee may be granted Incentive Stock
options in any calendar year may not exceed $100,000.
No options may be transferred by an optionee other than by will or the laws
of descent and distribution, and during the lifetime of an optionee, the option
may be exercised only by him. In the event of termination of employment other
than by death or disability, options will terminate after three months, unless
determined otherwise. Under the 1985 Plan, upon termination of employment of an
optionee by reason of death, options remain exercisable for ninety days
thereafter to the extent they were exercisable on the date of such termination.
Also under the 1985 Plan, if an employee is terminated as a result of
disability, any outstanding options, to the extent then exercisable, may be
exercised within six months. Under the 1991 Plan, upon the death of an optionee,
his options remain exercisable for one year thereafter to the extent they were
exercisable on the date of death. The 1991
16
<PAGE> 17
Plan also provides that upon termination of employment of an optionee as a
result of disability, any outstanding incentive stock options, to the extent
then exercisable, may be exercised within one year.
The exercise period of the options granted under the Plans cannot exceed 10
years from the date of grant, unless the optionee is a 10% stockholder, in which
case the period of the options may not exceed five years from the date of grant.
All options granted under the Plans provide for the payment of the exercise
price in cash or by delivery to the Company of shares of Common Stock already
owned by the optionee having fair market value equal to the exercise price of
the options being exercised, or by a combination of such methods of payment.
Therefore, an optionee may be able to tender shares of Common Stock to purchase
additional shares of Common Stock and may theoretically exercise all of his
stock options with no investment other than the consideration paid for his
original shares.
Any options granted under the 1991 Plan that expire unexercised or that
terminate become available once again for issuance. Shares issued upon exercise
of an option will rank equally with the shares then outstanding.
401(k) PLAN
On January 1, 1994, Industrial Technologies, Inc. adopted the "Intec
Retirement Plan" with an original effective date of January 1, 1986. The Plan is
a qualified 401(k) Profit Sharing Plan under the Internal Revenue Codes. The
Company made no contributions to the Plan in 1997 and 1996.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any compensation
for serving as directors. The Company has agreed to reimburse each non-employee
director for the expenses incurred to attend Board meetings and also to pay each
non-employee director, other than Mr. Davidoff, a fee of $1,200 for each meeting
attended. In addition, non-employee directors annually at the time of the
shareholders' meeting receive a warrant to purchase 6,000 shares if they have
served as a non-employee director for the entire period since the last
shareholders' meeting; the award is prorated if they have served only a portion
of such period. The exercise price of the warrant is the fair market value at
the time of grant and it remains exercisable for five years from the date of
grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 1998, the ownership of the
Company's Common Stock by (i) each person who is known by the Company to own of
record or beneficially more than five percent of the Company's Common Stock,
(ii) each of the Company's directors, (iii) each executive officer named in the
Summary Compensation Table and (iv) all directors and executive officers as a
group. Except as otherwise indicated, the stockholders listed in the table have
sole voting and investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE OF CLASS (1)
- ---------------- ------------------ ----------------------
<S> <C> <C>
CMNY Capital, L.P. (2) 845,663 14.7%
135 East 57th Street
New York, New York 10022
Howard Davidoff (2) 30,000(3) *
Carl Marks & Co., Inc.
135 East 57th Street
New York, New York 10022
Gerald W. Stewart 218,003(4)(6) 3.7%
1079 Boston Post Road
Sudbury, Massachusetts 01776
Eric H. Twerdahl 4,620(5) *
9 Lantern Ridge
New Canaan, CT 06840
All Directors and Executive Officers 252,623 4.3%
as a group (3 individuals)
John E. McConnaughy 650,000(7) 10.8%
</TABLE>
* Less than 1%
17
<PAGE> 18
(1) Pursuant to the rules of the Securities and Exchange Commission, shares
of Common Stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person shown in the table.
(2) Mr. Davidoff may be deemed to be the beneficial owner of the shares
owned by CMNY Capital, L.P. by virtue of his position as Managing
Director, Venture Capital Department for Carl Marks & Co., Inc., an
affiliate of CMNY Capital L.P., the record owner of these shares. Mr.
Davidoff disclaims beneficial ownership of the shares owned by CMNY
Capital, L.P.
(3) Includes warrants to purchase 30,000 shares of Common Stock.
(4) Includes options to purchase 97,455 shares of Common Stock.
(5) Includes warrants to purchase 4,620 shares of Common Stock.
(6) Excludes incentive stock options to purchase a total of 8,250 shares of
the Company's Common Stock at an exercise price of $0.28 to $4.50 per
share issued to Norma Gold, an employee of the Company and Dr.
Stewart's wife. Dr. Stewart disclaims any beneficial ownership to Norma
Gold's options or the shares of Common Stock issuable upon their
exercise.
(7) Includes Class C and Class D warrants to purchase 250,000 shares of
Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following exhibits required to be filed herewith are
incorporated by reference to the filings previously made by the Company as noted
below (the reference in parentheses at the end of an Exhibit indicates the
number of the Exhibit as it was filed in the document referenced below):
EXHIBIT
NO. TITLE
--- -----
3.1 Form of Amended Certificate of Incorporation. (Filed as an
Exhibit to Form 10-K for the fiscal year ended September 25,
1992, File No. 1-10790, and incorporated herein by reference.)
3.2 Form of Amended and Restated By-Laws as of February 4, 1997.
(Filed as Exhibit 3.2 to Form 10-QSB for the fiscal quarter
ended December 31, 1996, File No. 1-10790, and incorporated
herein by reference.)
4.1 Form of Amended Certificate of Incorporation, filed as Exhibit
3.1 hereto.
4.2 Form of Class C Purchase Warrants. (Filed as Exhibit No. 3(b)
to Form 10-KSB for the fiscal year ended September 30, 1995,
File No. 1-10790, and incorporated herein by reference.)
4.3 Form of Class D Purchase Warrants. (Filed as Exhibit No. 3(c)
to Form 10-KSB for the fiscal year ended September 30, 1995,
File No. 1-10790, and incorporated herein by reference.)
4.4 Letter to Class C Warrantholders, dated as of December 21,
1995. (Filed as Exhibit No. 6(m) to Form 10-KSB for the fiscal
year ended September 30, 1995, File No. 1-10790, and
incorporated herein by reference.)
4.5 Letter to Class D Warrantholders, dated as of December 21,
1995. (Filed as Exhibit No. 6(n) to Form 10-KSB for the fiscal
year ended September 30, 1995, File No. 1-10790, and
incorporated herein by reference.)
10.1* 1985 Incentive Stock Option Plan effective as of January 10,
1985. (Filed as an Exhibit to Form S-1 Registration Statement,
File No. 33-39967, and incorporated herein by reference.)
18
<PAGE> 19
10.2* 1991 Stock Option Plan, effective December 3, 1991, and
amended by vote of shareholders on April 16, 1996 to increase
the number of shares of Common Stock issuable pursuant to
options granted thereunder to 520,000. (Filed as Exhibit No.
6(b) to Form 10-KSB for the fiscal year ended September 30,
1995, File No. 1-10790, and incorporated herein by reference.)
10.3* Employment Agreement, dated as of January 1, 1994, between the
Company and Dr. Gerald W. Stewart. (Filed as Exhibit No. 6(c)
to Form 10-KSB for the fiscal year ended September 30, 1995,
File No. 1-10790, and incorporated herein by reference.)
10.4* Amendment to Employment Agreement, dated October 1, 1995,
between the Company and Dr. Gerald W. Stewart. (Filed as
Exhibit No. 6(d) to Form 10-KSB for the fiscal year ended
September 30, 1995, File No. 1-10790, and incorporated herein
by reference.)
10.5* Employment Agreement, effective as of November 1, 1996,
between the Company and Eric H. Twerdahl.
10.6 Commercial Revolving Loan, Demand Loan and Security Agreement
with American Commercial Finance Corporation, dated November
1, 1996. (Filed as Exhibit No. 10.6 to Form 10-QSB for the
fiscal quarter ended December 31, 1996, File No. 1-10790, and
incorporated herein by reference.)
10.7 Revolving Promissory Note, dated November 1, 1996. (Filed as
Exhibit No. 10.7 to Form 10-QSB for the fiscal quarter ended
December 31, 1996, File No. 1-10790, and incorporated herein
by reference.)
10.8 Demand Promissory Note, dated November 1, 1996. (Filed as
Exhibit No. 10.8 to Form 10-QSB for the fiscal quarter ended
December 31, 1996, File No. 1-10790, and incorporated herein
by reference.)
10.9 Amendment dated January 30, 1997, to the Commercial Revolving
Loan, Demand Loan and Security Agreement with American
Commercial Finance Corporation dated November 1, 1996. (Filed
as Exhibit No. 10.9 to Form 10-QSB for the fiscal quarter
ended March 31, 1997, File No. 1-1-0790, and incorporated
herein by reference.)
10.10 Term Promissory Note dated May 28, 1997. (Filed as Exhibit No.
10.10 to Form 8-K, filed July 16, 1997, File No. 1-10790, and
incorporated herein by reference.)
10.11 Letter from Industrial Technologies, Inc. and certain other
parties to American Commercial Finance Corporation, dated May
28, 1997. (Filed as Exhibit No. 10.11 to Form 8-K filed July
16, 1997, File No. 1-10790, and incorporated herein by
reference.)
10.12 Loan Participation Agreement by and between American Finance
Corporation and Connecticut Development Authority, dated May
28, 1997. (Filed as Exhibit No. 10.12 to Form 8-K filed July
16, 1997, File No. 1-10790, and incorporated herein by
reference.)
10.13 Letter to Connecticut Development Authority from Industrial
Technologies, Inc., and subsidiaries, dated May 28, 1997.
(Filed as Exhibit No. 10.13 to Form 8-K filed July 16, 1997,
File No. 1-10790, and incorporated herein by reference.)
10.14 Lease dated as of July 31, 1997 by and between Light Sources,
Inc. and Industrial Technologies, Inc.
21 Subsidiaries
27 Financial Data Schedule
* Management contract or compensation plan or arrangement
required to be filed as an exhibit to this report on Form
10-KSB.
(b) REPORTS ON FORM 8-K. A report on Form 8-K was filed on July 16, 1997 to
report certain matters under Item 5, Other Information.
19
<PAGE> 20
INDEPENDENT AUDITOR'S REPORT 21
FINANCIAL STATEMENTS
Consolidated balance sheets 22-23
Consolidated statements of operations 24
Consolidated statements of stockholders' equity (deficit) 25
Consolidated statements of cash flows 26-27
Notes to consolidated financial statements 28-39
20
<PAGE> 21
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Industrial Technologies, Inc.
Milford, Connecticut
We have audited the accompanying consolidated balance sheets of Industrial
Technologies, Inc. and subsidiary as of September 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Industrial
Technologies, Inc. and subsidiary as of September 30, 1997 and 1996 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has suffered recurring losses from operations
and its total liabilities exceeds its total assets. This raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 14. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
New Haven, Connecticut
February 3, 1998
21
<PAGE> 22
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS (Note 4)
Current assets
Cash $ 104,115 $ 298,630
Trade accounts receivable, less allowance for doubtful
accounts 1997: $105,921; 1996: $ 56,791 722,549 954,346
Inventories (Note 2) 1,454,718 1,883,838
Prepaid expenses and other current assets 90,367 44,410
---------- ----------
TOTAL CURRENT ASSETS 2,371,749 3,181,224
---------- ----------
Property and equipment, net (Note 3) 61,821 25,987
---------- ----------
Intangible and other assets
Cost in excess of net assets of business acquired, less
accumulated amortization 1997: $4,624,840; 1996: $1,358,060 -- 3,266,780
Deferred financing costs, less accumulated amortization $16,452 37,600 --
Security deposits and other 116,340 65,214
---------- ----------
153,940 3,331,994
---------- ----------
$2,587,510 $6,539,205
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE> 23
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities
Notes payable (Note 4) $ 961,231 $ 440,425
Current maturities of long-term debt (Note 5) 76,923 --
Accounts payable 1,107,200 945,216
Accrued expenses (Note 7) 934,872 864,010
Warranty and installation costs 208,583 297,860
Deferred revenue and customer deposits 271,868 430,436
Current portion of capital lease obligation (Note 6) 7,968 --
------------ ------------
TOTAL CURRENT LIABILITIES 3,568,645 2,977,947
------------ ------------
Long-term liabilities
Subordinated notes payable to stockholders (Note 5) 180,000 180,000
Long term debt, less current maturities (Note 5) 423,077 --
Capital lease obligation, less current maturities (Note 6) 29,730 --
------------ ------------
632,807 180,000
------------ ------------
Commitments and contingencies (Notes 11 and 13)
Stockholders' equity (deficit) (Notes 4, 8 and 9)
Common stock, $.01 par value, authorized 14,000,000 shares; issued and
outstanding 1997: 5,766,798 shares; 1996: 5,368,298 shares 57,667 53,682
Additional paid-in capital 13,120,397 13,048,832
Accumulated deficit (14,792,006) (9,721,256)
------------ ------------
(1,613,942) 3,381,258
------------ ------------
$ 2,587,510 $ 6,539,205
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE> 24
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Sales (Note 10) $ 6,552,332 $ 6,438,213
Cost of Goods Sold 4,553,392 3,594,515
----------- -----------
Gross Profit 1,998,940 2,843,698
----------- -----------
Operating Expenses
Selling 1,240,295 1,371,594
General and administrative 1,778,749 1,563,239
Engineering 563,175 644,337
----------- -----------
3,582,219 3,579,170
Amortization of cost in excess of net assets of business acquired 3,266,780 307,462
----------- -----------
6,848,999 3,886,632
----------- -----------
Operating loss (4,850,059) (1,042,934)
Other Income (Expense)
Interest expense (222,647) (108,854)
Interest income 1,956 8,570
----------- -----------
Other income (expense) (220,691) (100,284)
Net loss $(5,070,750) $(1,143,218)
=========== ===========
Net loss per common share $ (0.91) $ (0.22)
=========== ===========
Weighted average common shares outstanding 5,565,144 5,264,452
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE> 25
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
COMMON STOCK
<TABLE>
<CAPTION>
PAR ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES VALUE PAID-IN CAPITAL DEFICIT EQUITY (DEFICIT)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 5,218,298 $ 52,182 $ 13,194,272 $ (8,578,038) $ 4,668,416
Additional offering costs -- -- (145,440) -- (145,440)
Issuance of common stock 150,000 1,500 -- -- 1,500
Net loss -- -- -- (1,143,218) (1,143,218)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 1996 5,368,298 53,682 13,048,832 (9,721,256) 3,381,258
Issuance of common stock 398,500 3,985 71,565 -- 75,550
Net loss -- -- -- (5,070,750) (5,070,750)
------------ ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1997 5,766,798 $ 57,667 $ 13,120,397 $(14,792,006) $ (1,613,942)
============ ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
25
<PAGE> 26
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(5,070,750) $(1,143,218)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Provision for doubtful accounts 49,130 14,927
Noncash financing costs -- 1,500
Depreciation and amortization 3,288,460 320,157
Change in assets and liabilities:
Decrease in trade accounts receivable 182,668 1,110,997
Decrease (increase) inventories 429,120 (76,945)
(Increase) decrease in prepaid expenses and other assets (97,084) 21,301
Increase in deferred financing costs (54,052) --
Increase in accounts payable 318,945 175,868
Increase (decrease) in accrued expenses 70,862 (20,598)
Decrease in warranty and installation costs (89,277) (98,500)
(Decrease) increase in deferred revenue and customer deposits (158,568) 213,020
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,130,546) 518,509
----------- -----------
Cash Flows From Investing Activities
Additions to property and equipment (3,364) --
Other -- 4,150
----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (3,364) 4,150
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE> 27
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows From Financing Activities
Proceeds (payments) on notes payable 500,000 (74,000)
(Payments) proceeds from notes payable to stockholders (200,000) 200,000
Proceeds from sale of common stock, net of offering costs 75,550 (145,440)
Net borrowings (repayments) on revolving credit agreement 563,845 (419,037)
--------- ---------
Net Cash Provided By (Used In) Financing Activities 939,395 (438,477)
--------- ---------
Net (Decrease) Increase In Cash and Cash Equivalents (194,515) 84,182
Cash and cash equivalents, beginning of year 298,630 214,448
--------- ---------
Cash and cash equivalents, end of year $ 104,115 $ 298,630
========= =========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest $ 188,208 $ 90,804
========= =========
Supplemental Disclosures of Noncash Financing Activities
Common stock issued in exchange for financing costs $ -- $ 1,500
========= =========
Capital lease obligation incurred for equipment $ 37,698 $ --
========= =========
Accounts payable converted to note payable $ 156,961 $ --
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE> 28
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Industrial Technologies, Inc. and subsidiary (the "Company"), formerly Aerodyne
Products Corporation, designs, assembles and markets automated surface
inspection systems, electro-optical sensors, other laser-based equipment and
industrial computers and related products. The Company's surface inspection
group's customers include web process manufacturers of paper, plastics, film
photosensitive materials, steel, aluminum, glass, non wovens and rubber
products. The Company's industrial computer group offers a full line of
industrial-strength processors, displays and peripherals to a variety of
customers. The Company sells its products throughout the United States and
internationally, primarily Europe and the Far East. The Company extends credit
to its customers on terms that it establishes for each individual customer.
A summary of the Company's significant accounting policies follows:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Intec Corporation. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain significant estimates include the allowance for doubtful accounts,
allowance for slow moving and obsolete inventory, accrued warranty expenses and
required provisions for impairment of long-lived assets and certain intangible
assets. These estimates are susceptible to change in the near term, and these
changes could be significant.
Revenue recognition
Revenue from sales of the Company's products is recorded upon shipment of
products or performance of services.
Cash
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on its cash deposits.
Inventories
Inventories are carried at the lower of cost or market. Cost is determined using
the first-in, first out (FIFO) method. Work in process and finished goods
include materials, labor and allocated overhead.
Property and equipment
Property and equipment is stated at cost. Depreciation is computed by the
straight-line and accelerated methods over the following estimated useful lives:
28
<PAGE> 29
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
YEAR
------
Leasehold improvements 5
Machinery and test equipment 3 - 7
Furniture and office equipment 3 - 7
Leasehold improvements are depreciated over the term of the lease. Expenditures
for maintenance and repairs are charged to operations.
Cost in excess of net assets of business acquired
Cost in excess of net assets of business acquired is the difference between
the purchase price and the amounts assigned to the assets of a business acquired
accounted for by the purchase method of accounting. This intangible was
generally amortized by the Company over 15 years. The Company's policy is to
review the carrying amount of this intangible if facts and circumstances suggest
that it may be impaired. The Company evaluates the recoverability of the
intangible asset by measuring the carrying amount of the intangible asset
against the undiscounted cash flows associated with the intangible asset. If
this review indicates that the undiscounted cash flows are not sufficient to
recover the carrying value of the intangible asset, the intangible asset is
adjusted to fair value.
During the fourth quarter of 1997, management of the Company reviewed this
intangible asset and wrote off the balance as there is currently estimated to be
no continuing fair value associated with the intangible asset. Amortization in
the amount of $3,266,780 was charged against operations for the year ended
September 30, 1997.
Deferred Financing Costs
Deferred financing costs represent costs incurred in connection with obtaining
debt and are being amortized over three years.
Estimated warranty expenses
The Company sells its products with a warranty that provides for repairs or
replacements of any defective parts for a six to twelve month period after the
sale. At the time of the sale, the Company accrues an estimate of the cost of
providing the warranty based on prior experience.
Deferred taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Research and development expense
The Company incurred research and development expense for fiscal years 1997 and
1996 of approximately $297,000 and $169,000, respectively.
Net loss per share
The net loss per common share is computed by dividing the net loss by the
weighted average number of shares of common stock. Common stock equivalents have
been excluded from the computation of net loss per common share because the
inclusion of such equivalents is anti-dilutive.
29
<PAGE> 30
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
Fair value of financial instruments
The fair value of cash, notes payable and long-term debt approximate the
carrying amount because of the short maturity of those instruments or they are
at rates currently available to the Company.
Newly Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued Statement No. 128,
"Earnings Per Share," ("SFAS No. 128") which becomes effective for the Company's
year ending September 30, 1998. SFAS No. 128 establishes standards for computing
and presenting earnings per share and requires restatement of all prior earnings
per share data presented. The Company does not anticipate that the adoption of
this standard will have a significant impact on earnings per share in the
financial statements.
The FASB has issued Statement No. 129, "Disclosure of Information About Capital
Structure," ("SFAS No. 129") which becomes effective for the Company's year
ending September 30, 1999. SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure. The Company does not anticipate
that the adoption of this standard will have a significant impact.
The FASB has issued Statement No. 130, "Reporting Comprehensive Income," ("SAFS
No. 130") which becomes effective for the Company's year ending September 30,
1999. Comprehensive income, as defined by SFAS No. 130, is the change in equity
of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of financial statements with the same prominence as the Company's other
financial statements. However, comprehensive income is not required to be
reported by a Company that does not have any items of comprehensive income other
than net income. The Company does not expect that comprehensive income will be
required to be reported because it anticipates that net income will be the only
item of comprehensive income.
The FASB has issued Statement No. 131, "Disclosures About Segments of an
Enterprise and Related Information," ("SFAS No. 131") which becomes effective
for the Company's year ending September 30, 1999. SFAS No. 131 establishes
standards for reporting certain information about operating segments in both
annual and interim financial reports provided to shareholders. The information
required to be disclosed for an entity's operating segments consists not only of
financial information, but also certain related disclosures of the segment's
products and services, geographic areas, and major customers. The Company does
not anticipate the adoption of this standard will have a significant impact.
The FASB has issued Statement No. 132, "Employers' Disclosures About Pensions
and Other Postretirement Benefits" ("SFAS No. 132") which becomes effective for
the Company's year ending September 30, 1999. SFAS No. 132 revises existing
disclosure requirements by standardizing the disclosure requirements for
pensions and other postretirement benefits. Since the Company does not sponsor a
defined benefit pension plan or have other postretirement benefits subject to
this statement, this standard will have no impact on the Company.
NOTE 2. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw materials and subassemblies $ 1,228,853 $ 1,341,073
Work in process 225,865 435,156
Finished goods - 107,609
------------- ------------
$ 1,454,718 $ 1,883,838
============= ============
</TABLE>
30
<PAGE> 31
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of September 30, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Furniture and office equipment $ 255,047 $ 217,349
Machinery and test equipment 771,401 771,401
Leasehold improvements 3,364 15,733
----------- -----------
1,029,812 1,004,483
Less accumulated depreciation
and amortization 967,991 978,496
----------- -----------
$ 61,821 $ 25,987
=========== ===========
</TABLE>
NOTE 4. NOTES PAYABLE
Notes payable consist of the following at September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revolving loan and demand loan, American
Commercial Finance Corporation, interest at
prime plus 4% (12.5% at September 30, 1997),
due on demand. Demand loan is payable in
monthly installments of $16,666 plus
interest $804,270 $ --
Note payable to attorney, interest at 8%, due on demand 156,961 --
Revolving loan, Boston Financial and Equity Corporation,
interest at 15%, due on demand -- 240,425
Note payable to stockholder, interest at 8%, due
November 1, 1996 -- 200,000
-------- --------
$961,231 $440,425
======== ========
</TABLE>
On November 1, 1996, the Company entered into an agreement with American
Commercial Finance Corporation (ACFC) for a revolving loan of $1,500,000 and a
demand loan of $500,000. The revolving loan requires interest to be paid monthly
and has a maximum borrowing base of: the lesser of $1,500,000 or the aggregate
of (1) 80% of the Company's eligible domestic accounts receivable and (2) the
lesser of 80% of the Company's eligible foreign accounts receivable or $500,000.
The demand loan has a maximum borrowing amount of the lesser of 30% of the
domestic inventory or $500,000. From November 1996 through April 1997 payments
were interest only. The August, September, and October 1997 installments have
been deferred by the lender to September 1, 1999. In conjunction with the
financing agreement, ACFC was issued warrants to purchase up to 100,000 shares
of the Company's common stock at $0.50 per share, exercisable until October 31,
2003. Borrowings under the financing agreement are secured by substantially all
the Company's assets. Significant covenants limit substantially the obtainment
of any additional debt without the prior approval of ACFC and the payment of
dividends. The covenants also require audited financial statements to be
submitted within 90 days of year end. The Company is not in compliance with the
covenant that pertains to the timely submission of audited financial statements.
31
<PAGE> 32
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
The weighted average interest rate on outstanding short-term debt at September
30, 1997 and 1996 was 13.5% and 11.8% respectively.
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following as of September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Term note payable to the Connecticut Development
Authority, due in quarterly installments of
$19,231, plus interest at the prime rate plus
6%, 14.5% at September 30, 1997 secured by
substantially all assets of the Company $500,000 $ -
-------- --------
Less current maturities 76,923 -
-------- --------
$423,077 $ 0
======== ========
</TABLE>
The annual required principal payments on the long-term debt are as follows:
<TABLE>
<S> <C>
1998 $ 76,923
1999 76,923
2000 76,923
2001 76,923
2002 76,923
Thereafter 115,385
---------
Total $ 500,000
=========
</TABLE>
The Company has three subordinated notes payable to a stockholder which
represent an aggregate $180,000 line of credit. The line of credit accrues
interest at 10% and the principal and accrued interest are payable on demand. In
November 1996, the three notes payable were subordinated through October 1999 to
all borrowings made pursuant to the financing agreement. Therefore, at September
30, 1997 and 1996, the notes payable to stockholder are classified as a
long-term liability.
NOTE 6. CAPITAL LEASE OBLIGATION
The Company leases telephone equipment under a noncancelable lease. This lease
has been reflected as a capitalized lease and is included in the accompanying
balance sheets under the caption property and equipment for the following
amounts:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Property and Equipment $ 37,698 $ -
Less accumulated amortization 628 -
-------- --------
$ 37,070 $ -
======== ========
</TABLE>
32
<PAGE> 33
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
Future minimum lease payments, by years and in the aggregate, under these
capital leases, consisted of the following at September 30, 1997:
<TABLE>
<S> <C>
1998 $ 12,464
1999 9,971
2000 9,971
2001 9,971
2002 7,478
-----------
49,855
Less amount representing interest 12,157
-----------
Present value of future
minimum lease payments 37,698
Less current maturities 7,968
-----------
$ 29,730
===========
</TABLE>
NOTE 7. ACCRUED EXPENSES
Accrued expenses at September 30, 1997 and 1996 consist of:
<TABLE>
<CAPTION> 1997 1996
---- ----
<S> <C> <C>
Accrued payroll and vacation $ 147,156 $ 135,948
Accrued commissions 161,962 195,335
Accrued professional fees 79,981 136,683
Accrued taxes 147,962 64,629
Accrued interest 81,338 46,899
Accrued royalties 3,881 21,023
Reserve for customer settlements 135,780 165,780
Other 176,812 97,713
---------- ----------
934,872 864,010
========== ==========
</TABLE>
NOTE 8. STOCKHOLDERS' EQUITY
During 1995 and 1996, the Company received $1,119,496, net of offering expenses,
from a private offering for an aggregate of 2,000,000 units of its securities at
$.80 per unit. Each unit consists of one share of common stock, one Class C
warrant, and one Class D warrant. Under the terms of the private offering, the
Company was required to file a Registration Statement for all of the securities
comprising the units. The Company also distributed 200,000 units to the two
placement agents who assisted the Company with the offering.
Each Class C and D warrant entitles the holder to purchase one-half share of
common stock for a period of three years commencing on December 1, 1995. After
January 23, 1996, the exercise price of the warrants are discounted by $.05 for
each month, or part thereof, until a Registration Statement becomes effective.
The Registration Statement has been filed and became effective May 31, 1996. The
initial exercise price of the Class C warrants was $2.75 per common share. The
initial exercise price of the Class D warrants was $3.75 per common share. The
warrants are subject to redemption by the Company after the first exercise date
at $.01 per share on 30 days written notice if the bid price of the common stock
for a period of 10 consecutive trading days prior to such notice equals or
exceeds $3.025 per share.
The initial exercise price for the Class C warrants is subject to a downward
adjustment for each quarter in fiscal year 1995. The adjustment is determined by
multiplying the percentage that actual operating profit in the respective
quarter is to the projected
33
<PAGE> 34
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
operating profit times the exercise price on the first day of the quarter. There
is no adjustment upward. Based on actual results for the year ended September
30, 1995, the initial exercise price of the Class C warrants has been adjusted
to $0.11 per share.
The initial exercise price for the Class D warrants is subject to a downward
adjustment by the amount which is equal to multiplying the percentage that
actual operating profit for fiscal year 1995 is to $1.2 million times the
initial exercise price. There is no adjustment upward. Based on actual results
for the year ended September 30, 1995, the initial exercise price of the Class D
warrants has been adjusted to $1.56 per share.
In July 1991, the Company sold 690,000 Units for $6.50 per Unit in an Initial
Public Offering (the "IPO") of its stock. Each Unit sold consisted of one share
of Common Stock, $.01 par value, one Class A Common Stock Purchase Warrant and
one Class B Common Stock Purchase Warrant. These warrants expired unexercised on
September 30, 1997.
During the year ended September 30, 1997, 398,500 shares of stock at an
aggregate price of $75,550, net of offering costs, were issued, of which 392,500
shares were issued upon conversion of Class C and Class D Warrants.
NOTE 9. STOCK OPTION AND WARRANT PLANS
The Company's 1991 Stock Option Plan (the "1991 Plan") provides for the granting
of incentive stock options to purchase a total of 520,000 shares of common stock
to key employees as determined by the Board of Directors. Incentive options are
granted at a price equal to or greater than the fair market value of the
Company's common stock at the grant date and expire up to ten years from the
date of grant, or upon termination of employment. The 1991 Plan also permits the
Company to issue nonqualified stock options. The exercise price of these stock
options is not limited and may be below fair market value.
The Company's 1985 Incentive Stock Option Plan (the "1985 Plan") governs
outstanding Incentive Stock Options to purchase 48,455 shares of common stock.
No further options may be granted under the 1985 Plan.
The Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation"("SFAS No. 123"), on October 1, 1996.
SFAS No. 123 established new standards for stock-based compensation plans under
which employees receive shares of stock or other equity instruments, such as
stock options, of the employer. This Statement established a fair value based
method of expense recognition for stock-based compensation plans and encouraged,
but did not require, entities to adopt that method in place of existing
generally accepted accounting principles. As permitted by SFAS No. 123, for
options granted where the exercise price at date of grant is equal to or exceeds
the fair market value of the Company's stock, the Company has elected to
continue under existing generally accepted accounting principles and to account
for the options granted under APB Opinion No. 25, and accordingly, no
compensation cost has been recognized in the statements of operations for grants
under the option plan. Had compensation cost for the stock option plan been
recognized based on the grant date fair values of awards, the method described
in SFAS No. 123, the reported net loss would have been increased to the pro
forma amounts shown below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net loss:
Pro forma $ 5,086,429 $ 1,158,060
============ =============
As Reported $ 5,070,750 $ 1,143,218
============ =============
Net loss per share:
Pro forma $ (0.91) $ (0.22)
============ =============
As Reported $ (0.91) $ (0.22)
============ =============
</TABLE>
34
<PAGE> 35
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
The fair value of each grant used to determine the proforma net loss above, is
estimated at the grant date using the fair value option-pricing model with the
following weighted average assumptions for grants awarded during the years ended
September 30, 1997, and 1996, respectively:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Dividend rate 0.0% 0.0%
Risk free annual yield 6.0% 6.0%
Weighted average expected lives, in years 6 5.1
Price volatility 10.0% 10.0%
</TABLE>
The weighted-average grant date fair value per option of options granted during
the year ended September 30, 1997 was $0.12.
A summary of the status of the Company's stock option plans at September 30,
1997 and 1996, and changes during the years ended on those dates, is as follows:
<TABLE>
<CAPTION> Weighted
Average
Shares Options Exercise
Reserved Outstanding Price
-------- -------- --------
<S> <C> <C> <C>
Balance, September 30, 1995 362,500 316,400 $ 1.41
Canceled -- (121,100) $ 1.32
Granted -- 231,500 $ 1.20
Exercised -- -- --
-------- -------- --------
Balance, September 30, 1996 582,500 426,800 $ 1.32
Canceled -- (204,750) $ 1.26
Granted -- 145,500 $ 0.47
Exercised -- -- --
-------- -------- --------
Balance, September 30, 1997 568,455 367,550 $ 1.02
======== ======== ========
</TABLE>
At September 30, 1997 and 1996, 198,550 and 260,640 of the outstanding options
were exercisable, respectively.
A further summary of options outstanding at September 30, 1997, is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------ ---------------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (In Years) Price Exercisable Price
- ----------------------- --------------------- --------------------- ---------------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
$ .28 to $4.50 367,550 4.9 $1.02 198,550 $1.26
</TABLE>
35
<PAGE> 36
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
Stock Warrants
The following table summarizes warrants outstanding at September 30, 1997, and
the changes in the warrants during the years then ended:
<TABLE>
<CAPTION>
Weighted
Warrants Average
Shares Outstanding Exercise
Reserved (Per Share) Price
---------- ---------- ---------
<S> <C> <C> <C>
Balance, September 30, 1995 3,878,807 3,878,807 $ 4.52
Canceled -- (85,694) $ 7.41
Granted -- 12,000 $ 0.81
Exercised -- -- --
---------- ---------- ---------
Balance, September 30, 1996 3,805,113 3,805,113 $ 4.44
Canceled -- (1,451,113) $ 10.10
Granted -- 167,755 $ 0.38
Exercised -- (392,500) $ 0.54
---------- ---------- ---------
Balance, September 30, 1997 2,129,255 2,129,255 $ 0.98
========== ========== =========
</TABLE>
A further summary of warrants outstanding at September 30, 1997, is as follows:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
------------------------------------------------------------------ ----------------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (In Years) Price Exercisable Price
- ----------------------- --------------------- --------------------- ---------------------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
$ .16 to $2.00 2,111,255 1.6 $ .91 2,111,255 $ .91
$8.69 18,000 0.1 $8.69 18,000 $8.69
</TABLE>
NOTE 10. EXPORT SALES
Export sales represented 58% and 60% of sales for the years ended September 30,
1997 and 1996, respectively.
NOTE 11. OPERATING LEASES
The Company leases buildings, automobiles, a computer and other office equipment
under noncancelable operating leases. Future minimum lease payments under these
leases are as follows:
<TABLE>
<S> <C>
1998 $ 279,780
1999 270,092
2000 285,487
2001 265,784
2002 261,461
Thereafter 199,844
-----------
Total $1,562,448
===========
</TABLE>
Rent expense was approximately $362,000 and $392,000 for the years ended
September 30, 1997 and 1996, respectively.
36
<PAGE> 37
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
NOTE 12. INCOME TAXES
The net deferred tax asset consisted of the following at September 30, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,858,000 $ 3,443,000
Inventory reserves 494,000 625,000
Other, net 241,000 253,000
Valuation allowance (4,593,000) (4,321,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
For financial reporting purposes, a valuation allowance of $4,593,000 and
$4,321,000 has been recognized as of September 30, 1997 and 1996, respectively,
to reflect the estimated amount of operating loss carryforwards and temporary
differences which may not be realized.
For the years ended September 30, 1997 and 1996, there was no current tax
provision due to the Company's net loss.
At September 30, 1997, the Company has net federal operating loss carryforwards
of approximately $12,000,000 attributable to Industrial Technologies, Inc. and
subsidiary and $1,275,000 attributable to Intec Corp., which expire from 1998
through 2012. However, the ability of the Company to realize future tax benefit
from its net operating loss carryforwards is significantly limited under
Internal Revenue Code Section 382 because of a series of greater than 50% stock
ownership changes. In addition, the net operating loss carryforwards
attributable to Intec Corp. will be further limited by the separate return
limitation year (SRLY) rule.
Due to a greater than 50% change in stock ownership during the three-year period
ended in March 1989, the amount of the net operating loss carryforwards as of
March 1989 which may be utilized in each year will be limited to $157,000 per
year. Due to a greater than 50% change in stock ownership during the period
March 1989 through July 1991, the amount of net operating loss carryforwards
generated during that period which may be utilized in future years will be
limited to $439,000 per year. Due to a greater than 50% change in stock
ownership in May 1992 from the Intec acquisition, the amount of net operating
loss carryforwards since that acquisition which may be utilized in future years
will be limited to $85,000 per year.
.
NOTE 13. COMMITMENTS AND CONTINGENCIES
On January 1, 1994, the Company adopted the "Intec Retirement Plan" with an
original effective date of January 1, 1986. The Plan is a qualified 401k Profit
Sharing Plan under the Internal Revenue Code. The Company is not required to and
has made no contributions to the Plan in 1997 or 1996.
The Company has entered into employment agreements with certain officers of the
Company. The agreements are for terms ranging from one year to five years and
provide for a base salary and certain benefits which are specified in each of
the agreements. Each of the agreements also provide for severance pay for
termination under certain circumstances which are defined in the agreements.
Intec Corp. is currently working with the Department of Environmental protection
of the State of Connecticut (CT-DEP) to review, and to clear, all adverse
findings with respect to the Tetrachloroethylene Analysis performed in May 1992.
This analysis was performed in conjunction with the CT-DEP Property Transfer
Program. A follow-up analysis was made as recently as June 1997. Although the
levels of the contaminant have decreased substantially, they still remain above
acceptable levels. Appropriate methods are being employed to lower these levels.
Tests will continue until compliance levels have been met. The Company has
expended approximately $35,000 to date. The Company believes the resolution of
this matter will not have a material impact on the financial position, results
of operations and cash flows of the Company.
During 1996, the Company entered into a licensing agreement whereby the licensor
will allow the Company to utilize certain proprietary technology over ten years.
Royalties of 5% of the selling price of all products designated by the agreement
are payable
37
<PAGE> 38
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
semiannually with a minimum royalty of $170,000 due for the first five years.
NOTE 14. LIQUIDITY AND GOING CONCERN UNCERTAINTIES
The Company has experienced significant financial difficulties including
recurring operating losses which have resulted in a working capital deficiency
and total liabilities which exceed its total assets as of September 30, 1997.
The Company's plans with regard to these deficiencies include instituting
processes that can streamline operations and reduce operating costs. Subsequent
to September 30, 1997, management has significantly reduced operating costs with
temporary staffing reductions. However, there can be no assurances that the
Company will be successful at streamlining or improving operating results.
At February 3, 1998, the Company's backlog of customer orders was approximately
$4,073,000 compared to $3,037,000 at December 9, 1996. The Company's ability to
fulfill these orders is largely dependent upon the Company's ability to maintain
its borrowing capacity and improve its liquidity.
NOTE 15. SEGMENT INFORMATION
The Company is principally engaged in two business segments: the Surface
Inspection Division Segment ("Inspection") and the Amdex Industrial Computer
Division Segment ("Amdex"). Both businesses are engaged in marketing their
products internationally and domestically. Inspection includes the development,
manufacturing, and marketing of a family of standard web inspection systems used
in industry for both the control of intermediate processes and for the final
inspection of finished material. Amdex is engaged in the development,
manufacturing and marketing of a full line of industrial computers, monitors and
peripherals which operate under harsh temperature, humidity, shock and other
adverse industrial conditions. The Company's industrial computers are also
incorporated into the Company's inspection systems.
Operating loss is total revenue less operating expenses, excluding other income
or expense. Identifiable assets of each segment are the assets used by that
segment in its operations, excluding general corporate assets. General corporate
assets are principally cash, prepaids and other current assets.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
---- ----
<S> <C> <C>
REVENUES
Amdex $ 1,207,747 $ 974,846
Inspection 5,676,501 5,677,715
Intersegment sales/transfers (331,915) (214,349)
----------- -----------
TOTAL OPERATING REVENUES $ 6,552,333 $ 6,438,212
=========== ===========
OPERATING INCOME (LOSS)
Amdex $ (90,082) $ (200,720)
Inspection (3,776,157) 256,246
General corporate expenses (983,820) (1,098,460)
----------- -----------
TOTAL OPERATING INCOME (LOSS) $(4,850,059) $(1,042,934)
OTHER INCOME (EXPENSE) (220,691) (100,284)
----------- -----------
NET INCOME (LOSS) $(5,070,750) $(1,143,218)
=========== ===========
ASSETS
Amdex $ 830,808 $ 782,706
Inspection 1,669,881 5,478,809
General corporate expenses 86,821 277,690
----------- -----------
TOTAL ASSETS $ 2,587,510 $ 6,539,205
=========== ===========
</TABLE>
38
<PAGE> 39
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1997
<TABLE>
<S> <C> <C>
DEPRECIATION AND AMORTIZATION
Amdex -- --
Inspection $3,288,460 $ 320,157
---------- ----------
$3,288,460 $ 320,157
========== ==========
CAPITAL EXPENDITURES
Amdex $ -- $ --
Inspection $ 3,364 $ --
---------- ----------
$ 3,364 $ 0
========== ==========
</TABLE>
Depreciation and amortization includes depreciation of capital assets and
amortization of deferred financing costs and goodwill. Certain amounts in the
1996 segment information have been reclassified to conform with the 1997
presentation.
39
<PAGE> 40
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized, on July 24, 1998.
INDUSTRIAL TECHNOLOGIES, INC.
By: /s/ Gerald W. Stewart
Gerald W. Stewart, Chief Executive Officer and
Chief Financial Officer
In accordance with the Securities Exchange Act of 1934, this Report has been
signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ Gerald W. Stewart Chairman, July 24, 1998
- ----------------------- Chief Executive Officer and
Gerald W. Stewart Chief Financial Officer
Director July 24, 1998
- -----------------------
Eric H. Twerdahl
/s/ Howard Davidoff Director July 24, 1998
- -----------------------
Howard Davidoff
/s/ Kenneth R.Rowe Jr. Controller July 27, 1998
- ----------------------- (Chief Accounting Officer)
Kenneth R. Rowe Jr.
</TABLE>
40
<PAGE> 1
EXHIBIT 10.5
INTEC
Industrial Technologies, Inc.
October 31, 1996
Mr. Eric H. Twerdahl
9 Lantern Ridge Road
New Canaan CT 06840
Dear Eric:
This Letter (the "Agreement") is to confirm the agreement between you and
Industrial Technologies Inc. (the Company) regarding the terms of your
employment with the Company.
1. POSITION
Your engagement shall be to serve the Company as President and Chief Operating
Officer. Your duties will be specified by the By-Laws of the Company and as
otherwise specified from time to time by the Chief Executive Officer of the
Company. You shall report to the Chief Executive Officer of the Company. Your
employment shall be on a full-time basis. You agree to carry out your duties and
responsibilities to the best of your ability.
2. COMPENSATION AND OTHER BENEFITS
You shall be entitled to compensation for your services as follows:
a) During the term of your employment with the Company, you shall be entitled
to a base salary at the annual rate of $125,000, payable in substantially
equal installments in accordance with the Company's usual practice, but no
less frequently than bi-weekly.
It is our mutual expectation that this base salary will be reviewed at
least annually and increased to reflect changes in living costs and the
performance of the Company to the extent such factors are not taken into
account through bonuses.
b) You will be entitled to receive family medical coverage through the
medical insurance plan provided by the Company, enroll in group life
insurance programs and to participate in all other benefit programs that
the Company establishes and makes available to management employees
generally, on the same basis as other management employees.
During the term of your employment, you will be entitled to payment or
reimbursement by the Company for reasonable ordinary and necessary
business
<PAGE> 2
Eric H. Twerdahl
October 31, 1996
Page 2
expenses incurred by you in connection with the performance of your
duties hereunder.
d) You will be entitled to paid vacation up to four (4) weeks per year and
otherwise in accordance with the Company's existing vacation policy.
e) In addition to the foregoing, the Company will pay you a cash bonus award
if earned, the payment and amount of which will depend upon the
achievement of certain target goals of Industrial Technologies, Inc.
and its subsidiary(s). (see Addendum A).
f) You will be granted options on 100,000 shares of Intec stock, under the
terms and conditions of the Employee Stock Option Plan. Price per share
will be at the close of business November 1, 1996. Terms and conditions of
the stock plan are enclosed for your renew.
g) You will be allowed a car allowance (see Addendum B) or a company
provided car, of a level commensurate with the position.
3. PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
You agree to abide by the employee proprietary rights and confidentiality
policies of the Company and to execute upon request an agreement which specifies
these policies and your duties and obligations under them.
4. NON-COMPETITION
a) During the term of your employment by the Company you will not be an
employee or director or officer of, or be a stockholder, partner or
otherwise have an interest in or be associated with any entity involved
in planning, engineering, producing, marketing or financing activities
with respect to any product or business that is or may be competitive
with any product or business planned, engineered, produced or marketed
by the Company, except through ownership of not more than 5% of the
stock of a publicly traded corporation engaged in such activities.
b) For two years following termination of your employment with the
Company, you will refrain, directly or indirectly, whether on your own
behalf or on behalf of another person or entity, (i) from hiring any
person or who was an employee of the Company at any time during the
last twelve months of your employment with the Company or during the
180 days following termination of your employment, and (2) from
enticing or in any other manner persuading or attempting to persuade
any employee, independent contractor, dealer, supplier, client or
customer (as customer is defined below) of the Company to discontinue
his, her or its relationship with the Company or violate any agreements
he, she or it may
<PAGE> 3
Eric H. Twerdahl
October 31, 1996
Page 3
have with the Company, whether as an employee, independent contractor,
dealer, supplier, client or customer, as the case may be. Notwithstanding
the foregoing to the contrary, if the Company terminates your employment
for other than good cause, or if you terminate your employment with the
Company for Good Reason (as that term is defined in subsection "e" of
Section 5), the two-year period herein above shall be inapplicable, and a
one-year period shall apply instead. As used above, "customer" shall mean
any customer of the Company existing at the time of such termination and
any potential customer being actively solicited by the Company at the time
of such termination.
5. TERMINATION
a) Unless sooner terminated in accordance with the provisions of
subsections (b), (c), (d) or (e) below, this Agreement and your
employment hereunder shall be for an initial period of one (1) year
from the date of this document. Such Agreement shall be automatically
renewed for an addition one (1) year period thereafter unless written
notice of intent to terminate is provided to the other party by
registered or certified mail, return receipt requested, at least thirty
(30) days prior to the termination of such initial period.
b) You may terminate your employment without cause by delivering 30 days
written notice to the Company. After the effective date of such
termination, you shall not be entitled to receive any further compensation
from the Company.
c) Your employment may be terminated by the Company for good cause only.
"Good cause" shall be limited to material breach of this Agreement,
death, willful neglect of duties, fraud, embezzlement, conviction of a
felony, or physical or mental disability as determined by a physician
of the Company's selection acceptable to you (you agree that your
acceptance of such a physician will not be unreasonably withheld). If
your employment is terminated for good cause, the Company shall be
obligated to pay your then base salary only through the end of the
month during which such termination occurs, plus such other sums as are
payable to you under this Agreement and which have accrued as of the
end of such month.
d) Notwithstanding the above, if the Company terminates your employment
for other than good cause, or if you terminate your employment with the
Company for Good Reason (as that term is defined in subsection "e"
below), you shall be entitled to receive from the Company the sum of
one years then current base salary payable in ten consecutive equal
monthly installments. It is anticipated that any payment made in
accordance with the foregoing shall be paid to and received by you as
liquidated damages and not as penalties, and you shall be entitled to
receive no further sums under this Agreement except such as have
accrued as of the date of such termination. Notwithstanding the above
to the contrary, if (i)
<PAGE> 4
Eric H. Twerdahl
October 31, 1996
Page 4
the Company terminates your employment alleging that such termination is
for "good cause" or if you terminate your employment, alleging "good
reason," and (ii) a final judgment of a court of competent jurisdiction
shall have found the Company's allegations to be wrong thereby entitling
you to receive payments under this subsection (d), then you shall be
entitled to receive a lump sum payment of two (2) years salary, instead of
the one (1) year hereinafter recited.
e) "Good reason" as used in this Section, shall mean a material breach of
this Agreement by the Company. Material terms and conditions of this
Agreement shall be deemed to include, without limitation, the provisions
of Section 1 of this Agreement.
6. NO CONFLICT
You represent and warrant to the Company that you are not now under any
obligations of a contractual or quasi-contractual nature to any person, firm,
corporation or other organization which is inconsistent or in conflict with this
Agreement or which would prevent, or substantially limit or impair your
performance of your obligation hereunder.
7. AMENDMENT AND WAIVER
No provision of this Agreement may be amended, waived or discharged unless such
amendment or discharge is agreed to in writing and signed by you and an officer
or director of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
8. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with respect to
your employment by and compensation from the Company. This Agreement supersedes
all prior agreements and understandings between the parties with respect to its
subject matter.
9. GOVERNING LAW
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Connecticut.
10. SEVERABILITY
The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity and enforceability of any other
provisions of this Agreement, which other provisions shall remain in full force
and effect.
<PAGE> 5
Eric H. Twerdahl
October 31, 1996
Page 5
11. SUCCESSORS: BINDING AGREEMENT: ASSIGNMENT
This agreement shall be binding upon and shall inure to the benefit of the
Company and any successor or successors in interest of the Company through
consolidation, merger or sale of its business. This Agreement is a personal
employment contract and may not be assigned, pledged or otherwise transferred by
you or the Company except by the Company through consolidation, merger or sale
of its business.
Please indicate your agreement with the foregoing by signing the enclosed copy
of this letter and returning it to the Company, whereupon this letter shall
constitute a binding Agreement between us as of the date first written above.
Very truly yours,
INDUSTRIAL TECHNOLOGIES, INC.
by: /s/ G. W. Stewart
------------------------
President/CEO
Agreed to and Accepted:
/s/ Eric H. Twerdahl
----------------------------
Date: 11/20/96
------------------------
<PAGE> 6
Eric H. Twerdahl
October 31, 1996
Page 6
ADDENDUM A: BONUS STRUCTURE
In addition to your base salary, you shall be entitled to a bonus on the
following basis:
a) 3% (three percent) of the annual (fiscal year basis) net profits (after
corporate allocations and before tax) of the Intec Inspection Division
(U.S.) (not including Intec Europe Limited), plus
b) 2% (two percent) of the annual (fiscal year basis) before tax net
profits of Industrial Technologies, Inc.,
The bonus will be based upon the profits of each fiscal year (ending September
30) and will be paid on the following basis:
- - 60% upon the conclusion of each of the first three fiscal quarters
- - the remainder will accrue and will be offset and adjusted for quarterly
losses, if any, upon the conclusion of the 4th quarter (the fiscal year)
- - payments will be made within 31 days after the end of each fiscal quarter
The bonus structure will be reviewed annually and changes made to reflect the
performance of the Company. All bonus statements will be at the sole discretion
of the Board of Directors.
ADDENDUM B: CAR ALLOWANCE
A monthly car allowance of $500.00.
<PAGE> 1
LEASE AGREEMENT EXHIBIT 10.14
THIS LEASE AGREEMENT (the "LEASE") is made and entered into as of the
31st day of July, 1997, by and between LIGHT SOURCES, INC., a Connecticut
corporation with its principal place of business at 37 Robinson Boulevard,
Orange, Connecticut ("LANDLORD") and INDUSTRIAL TECHNOLOGIES, INC., a Delaware
corporation with its principal place of business at 70 Cascade Boulevard,
Milford, Connecticut 06460 ("TENANT");
1. LEASE SUMMARY
1.1 PREMISES
The premises leased by Tenant (the "PREMISES") are commonly known as 70
Cascade Boulevard in Milford, Connecticut. The Premises contains a freestanding
building (the "BUILDING") having approximately 35,000 +/- usable square feet and
two (2) parking lots. The Premises are more particularly described in EXHIBIT
A-1, attached hereto.
<TABLE>
<S> <C> <C>
1.2 INITIAL TERM
. Commencement Date: October 1, 1997
. Termination Date: September 30, 2002
1.3 RENEWAL TERM
. Commencement Date: October 1, 2002
. Termination Date: September 30, 2007
1.4 BASE RENT
. 10/1/97 - 9/30/99 - $192,500.00 per annum
. 10/1/99 - 9/30/02 - $210,000.00 per annum
. 10/1/02 - 9/30/07 - Market Base Rental Rate
1.5 MONTHLY PAYMENTS
. 10/1/97 - 9/30/99 - $16,041.00 per month
. 10/1/99 - 9/30/02 - $17,500.00 per month
. 10/1/02 - 9/30/07 - Market Base Rental Rate
1.6 SECURITY DEPOSIT - $48,123.00
1.7 PERMITTED USE - Manufacturing facility or any lawful use
</TABLE>
<PAGE> 2
2. PREMISES
In consideration of the rents and covenants hereof, Landlord hereby
leases to Tenant upon and subject to the terms and conditions of this Lease and
those items if any enumerated in EXHIBIT A-2, and Tenant hereby takes from
Landlord the Premises and the Building, together with the items of personalty
described in EXHIBIT A-4 (hereinafter referred to collectively as the
"PREMISES") as reasonably necessary for the conduct of Tenant's activities as
allowed under SECTION 16.
3. TERM
3.1 INITIAL TERM. The initial term (the "INITIAL TERM") of this Lease
commences upon October 1, 1997 (the "COMMENCEMENT DATE") and will end on
September 30, 2002, or such earlier date pursuant to any of the provisions of
this Lease or pursuant to law (the "TERMINATION DATE"). Notwithstanding the
above, Landlord agrees that Tenant may enter the Premises prior to the
Commencement Date, on or about September 1, 1997, for the purpose of beginning
alterations or modifications to the Premises as provided for in SECTION 5.1.
Tenant shall provide Landlord with the appropriate evidence of insurance
coverage, including but not limited to, liability insurance, workers'
compensation insurance, etc., as provided for by the terms of this Lease.
3.2 RENEWALS.
A. As long as Tenant is not in material default in the
performance of its covenants under this Lease, Tenant is hereby granted the
option to renew the term of this lease for a period of five (5) additional years
("RENEWAL TERM"), to commence at the expiration of the Initial Term of this
Lease. Tenant shall exercise its option to renew by delivering written notice of
such election to Landlord at least six (6) months prior to the expiration of the
Initial Term of this Lease, time being of the essence (the "TENANT ELECTION").
The renewal of this Lease shall be upon the same terms and conditions of this
Lease, except (1) the Base Rent during the Renewal Term shall be the prevailing
Market Base Rental Rate (hereinafter defined) at the time the Renewal Term
commences, but in no event less than the Base Rent that Tenant is then paying
under the terms of this Lease, (2) Tenant shall have no option to renew this
Lease beyond the expiration of the Renewal Term, (3) Tenant shall not have the
right to assign its renewal rights to any sublessee of the Premises or assignee
of this Lease, nor may any such sublessee or assignee exercise such renewal
rights, without Landlord's consent given at the time of such assignment, and (4)
the Premises will be provided in its then existing condition (on an "as is"
basis) at the time the Renewal Term commences, provided, however, the foregoing
shall not limit Landlord's obligations to maintain and repair the Premises as
set forth in SECTION 5.2 herein.
B. As used in this Lease, the term "MARKET BASE RENTAL RATE"
shall mean the average of the annual rental rates then being charged in Milford,
Connecticut by no fewer than three (3) different commercial landlords for space
comparable to the space for which the Market Base Rental Rate is being
determined (taking into consideration use, location and/or floor level within
the applicable building, definition of net rentable area, leasehold improvements
provided by the Landlord and excluding any provided by the Tenant, quality, age
and location of the applicable
<PAGE> 3
building, rental concessions [such as abatements or lease assumptions] and the
time the particular rate under consideration became effective). It is agreed
that bona fide written offers made to Landlord by third parties (at
arm's length) to lease the Premises may be used by Landlord as an indication of
Market Base Rental Rate.
C. If, within thirty (30) days of the Tenant Election, the
Landlord and Tenant cannot agree as to the Market Base Rental Rate, each shall
retain, at its own expense, a qualified real estate appraiser familiar with
office rental rates in the City of Milford. If such appraisers agree as to the
Market Base Rental Rate, their determination shall be binding upon Landlord and
Tenant for purposes of establishing the rental payable under this Lease for the
Renewal Term. If such appraisers cannot agree as to the Market Base Rental Rate,
they shall jointly select a third qualified real estate appraiser familiar with
office rental rates in the City of Milford, whose fees and expenses shall be
shared equally by Landlord and Tenant. This third appraiser's determination of
the Market Base Rental Rate shall be similarly binding upon Landlord and Tenant.
If the Market Base Rental Rate has not been determined on or before September
30, 2002, the Rent will be adjusted retroactively when it has been finally
determined.
4. RENT
4.1 BASE RENT. During the Initial Term and the Renewal Term, Tenant
agrees to pay Landlord at the address provided in SECTION 26, or at such other
place or to such other person as Landlord may designate, as annual base rent for
the Premises, the sums specified in SECTION 1.4 (the "BASE RENT") payable in
advance on the first day of each month in equal installments as specified in
SECTION 1.5. At the termination or expiration of the Initial and/or the Renewal
Term, the rental payment for any fractional month will be prorated.
4.2 ADDITIONAL RENT. All amounts other than Base Rent which Tenant is
required to pay pursuant to this Lease, including any payments to third parties,
together with interest, costs, fines and penalties which may be added for
nonpayment or late payment, shall constitute additional rent ("ADDITIONAL
RENT"). Base Rent and Additional Rent shall sometimes be collectively referred
to as "RENT".
4.3 INTEREST. Tenant shall also pay to Landlord, on demand, as
Additional Rent, interest at the rate of twelve percent (12%) per annum or the
then highest rate allowable under law on all overdue installments of Rent which
are not received within ten (10) days after the same are due until paid in full,
together with all costs of collection thereof, including a reasonable attorney's
fee.
4.4 GROSS LEASE. This Lease is a "gross lease," it being understood
that the Rent payable under this Lease to or on behalf of Landlord includes
operating expenses (as hereinafter defined). The Base Rent will be adjusted on
an annual basis, utilizing the period of September 1, 1996 through September 1,
1997 as the base year for purposes of computing increases to operating expenses
(which term includes only real estate taxes and the reasonable and ordinary
expenses incurred by Landlord for snow and ice removal expenses, landscaping and
insurance in connection with the ownership and operation of the Premises) and
any increase shall be paid by Tenant as Additional Rent. Landlord shall provide,
at Tenant's request, a copy of statements
<PAGE> 4
and/or invoices relating to operating expenses. Rent shall be paid without
notice or demand, and without set-off, counterclaims, abatement, suspension,
deduction or defense except as specifically provided otherwise in this Lease.
Tenant shall pay to Landlord such Additional Rent as required to be
paid pursuant to this SECTION 4.4, within thirty (30) days after Landlord's
submission to Tenant of a bill therefore. Landlord shall have the right to bill
Tenant hereunder upon the basis of reasonable estimates prepared by Landlord.
Tenant agrees to pay to Landlord, together with the Base Rent, one-twelfth
(1/12) of such estimates and if such actual costs shall be more than the amounts
paid by Tenant to Landlord for such period, Tenant agrees to pay such deficiency
to Landlord within thirty (30) days after receipt by Tenant of such statement.
If the amount paid by Tenant for such preceding calendar year of the estimated
annual costs shall be greater than such annual costs for such period, Landlord
agrees to reimburse Tenant within thirty (30) days for such excess. If this
Lease shall terminate prior to an anniversary date of any year, then the annual
costs payable by Tenant in the year of such termination shall be adjusted on the
basis of the number of months of such calendar year in which this lease shall be
in effect.
5. MAINTENANCE, REPAIRS, ADDITIONS, REPLACEMENTS.
5.1 TENANT'S CONSTRUCTION OF IMPROVEMENTS. It is anticipated that
Tenant shall initially perform renovation work (the "INITIAL WORK") upon the
Premises, all as more particularly described on EXHIBIT A-3 to allow Tenant to
use the Premises pursuant to SECTION 16. Subject to the terms and conditions of
this SECTION 5, Landlord will permit entry of Tenant and its contractors onto
the Premises for the purpose of performing the Initial Work, prior to the
Commencement Date and thereafter during the Term. All such Initial Work, the
contractor performing same and the insurance coverage provided in connection
therewith shall be subject to Landlord's right of prior written approval, which
shall not be unreasonably withheld. Landlord shall, at the time it gives its
approval for a particular improvement, indicate to Tenant whether or not the
particular improvement is to be removed at the end of the Term of the Lease.
During the performance of the Initial Work, Tenant shall remove all garbage and
debris from the Premises daily and place same into garbage dumpsters provided by
and at the sole cost of Tenant. Tenant shall indemnify and hold harmless
Landlord from and against any and all losses, damage, costs (including costs of
suit and attorney's fees), liabilities, or causes of action arising out of or
relating to the Initial Work, including, but not limited to, mechanics',
materialmen's or other liens or claims (and all costs or expenses associated
therewith) asserted, filed or arising out of any work performed by them in
connection with the Initial Work.
5.2 LANDLORD'S OBLIGATIONS
A. Landlord shall maintain the structural soundness of the
roof, foundation and interior and exterior walls of the Premises (but not the
windows) in good repair, reasonable wear and use and maintenance occasioned by
Tenant's misuse or negligence excepted. In the event of repairs contemplated in
SECTIONS 11 AND 12 with respect to Casualty Damage and Condemnation, the
provisions of those Sections shall control. The current HVAC system (which
Landlord warrants for a period of six (6) months from Tenant's occupancy) as
well as all other
<PAGE> 5
building systems (i.e., lighting, heating, plumbing and electrical) shall be in
good working order and repair upon Tenant's occupancy of the Premises;
thereafter, it shall be Tenant's responsibility to perform routine maintenance
and repair of all building systems. Landlord represents and warrants the current
HVAC system for six months from the date of occupancy. If during the term of the
Lease, a building system needs to be replaced, the cost of such replacement
shall be apportioned between Landlord and Tenant on the basis of a five year
amortization schedule as of the date of the replacement. By way of example, in
year four, on a $1,000 cost item, Tenant would pay $200 and Landlord would pay
$800.
B. Landlord agrees to comply with all of the requirements of
the Americans with Disabilities Act ("ADA") of 1990, as amended, 42
U.S.C. Section 12,101 et. seq. and hereby agrees to indemnify and hold Tenant
harmless from any and all claims, liabilities, losses, damages, costs and
expenses including attorney's fees incurred as a result of any violation or
alleged violation of Title III of the ADA or any other provision thereof under
which the Landlord may be obligated.
C. Landlord warrants and represents that:
1. Landlord has fee simple
title to the Premises.
2. Landlord has full
authority to enter into the Lease, and no
other person, firm or corporation need join
in the execution of the Lease to make the
Landlord's execution complete or
appropriate.
3. Landlord represents and
warrants the Premises is in material
compliance with all applicable environmental
laws and regulations, and that Landlord is
taking and will continue to take all steps
necessary to comply with the terms and
requirements of Consent Order No. HM811,
pertaining to closure of former hazardous
waste storage areas.
D. Prior to Tenant's occupancy, Landlord agrees to replace all
burned out or missing bulbs at the Premises with new bulbs and to repair all
light fixtures not functioning properly.
E. Landlord shall perform all snow removal and plowing at the
Premises and shall maintain all landscaping.
5.3 TENANT OBLIGATIONS
Tenant shall supply all services which Landlord is not
specifically obligated to provide pursuant to SECTION 5.2 including, without
limitation, the following services:
A. Tenant shall be responsible for cost and the installation
of an air conditioning system servicing the manufacturing area if Tenant elects
to install such a system. In
<PAGE> 6
addition, Tenant shall be responsible for the routine maintenance and repair of
the central heat and air conditioning units located at the Premises pursuant to
a maintenance contract satisfactory to Landlord providing for inspections and/or
preventative maintenance of the units at least as frequently as required under
applicable law or insurance company guidelines, but not less than annually in
any event. Tenant shall also maintain, repair and replace all other heating,
ventilation and air conditioning systems servicing the Project.
B. Janitorial, cleaning, vacuuming, dusting, and trash and
rubbish removal service and interior and exterior window cleaning. Tenant shall
pay the entire cost of all janitorial and cleaning services, including the
parking areas and sidewalks.
C. Routine maintenance, repair and replacement as needed to
supply electric lighting service and fluorescent and incandescent fixture and
bulb replacement for the Premises. No storage or trash shall be permitted in or
outside the Building or the Premises in such a manner as to permit the spread of
fire or encouragement of vermin. No accumulation of rubbish, debris or unsightly
materials shall be permitted at or on the Premises except in trash storage
containers.
D. Equipment and personnel to limit access to the Premises
during and after normal business hours. By undertaking to provide such security,
Tenant agrees that Landlord shall have no responsibility to prevent, and shall
not be liable to Tenant for and shall be indemnified by Tenant against,
liability or loss to Tenant or Tenant's Guests (as defined herein) arising out
of losses due to theft, burglary, or damage or injury to persons or property
caused by persons gaining access to the Premises, and Tenant hereby releases
Landlord from all liability relating thereto. Tenant shall pay all costs for the
security services to be provided by Tenant pursuant to this SECTION 5.3.D.
E. Routine maintenance and repair of all plumbing (including
the sprinkler system) and electrical distribution systems, fixtures and
apparatus located on the Premises. The maintenance of the sprinkler system shall
be pursuant to a maintenance contract satisfactory to Landlord providing for
inspections and/or preventative maintenance of the system at least as frequently
as required under applicable law or insurance company guidelines, but not less
than annually in any event.
F. Routine maintenance and repair as needed to supply
electric, gas, steam, water, telephone service and other utilities made
available to the Premises. Landlord represents that such utilities are available
to the Premises, but Tenant shall have the sole responsibility of obtaining such
utility service from, and paying the cost thereof to, the applicable utility
companies. Landlord shall have no obligation whatsoever to obtain the supply of
such utilities or maintain the service or conduits thereto. Tenant shall pay the
cost of all utilities servicing the Premises. Tenant shall make arrangements
with the applicable utility suppliers for direct billing for such utilities to
Tenant. Tenant shall also be solely responsible for and pay any security
deposits required in connection with the supply of such utility services.
G. Failure by the applicable utility companies to service, or
any interruption in such services to, the Premises shall not render Landlord
liable in any respect for damages to either person or property, nor be construed
as an eviction of Tenant, nor work an abatement of Rent, nor relieve Tenant from
fulfillment of any covenant or agreement hereof. In addition to the
<PAGE> 7
foregoing, should any of Tenant's equipment or machinery break down, or for any
cause cease to function properly because of an interruption in service, Tenant
shall have no claim for rebate of Rent or damages on account thereof.
5.4 ALTERATIONS. Tenant may, upon receipt of the prior written approval
and consent of Landlord, which approval and consent shall not be unreasonably
withheld, at its option and at its own cost and expense, at any time and from
time to time, make such alterations, changes, replacements, improvements and
additions in and to the Premises and the Building as are appropriate for its use
of the Premises specified in SECTION 16. The Initial Work, any subsequent
alterations by Tenant, and all such work required in connection therewith, shall
be performed in compliance with all laws, statutes, ordinances, rules,
regulations and orders ("LAWS") applicable thereto, in a first class and
workmanlike manner, shall not lessen the market value of the Premises and shall
conform to the orders, rules and regulations of private insurance rating
bureaus, or any body hereafter constituted exercising similar functions. Tenant
shall promptly pay for all such work and shall discharge any and all liens
arising out of such alterations filed against the Premises and any improvements
thereon. Upon the request of Landlord or the holder of any mortgage on the
Premises (all of such mortgages being hereinafter collectively referred to as
"MORTGAGE" or "MORTGAGES" and the holder(s) thereof as "MORTGAGEE(S)"), Tenant
shall obtain and deposit with Landlord a surety bond or other security
satisfactory to Landlord or such Mortgagee to assure the completion of any such
work, except for work estimated to cost less than $100,000. Tenant shall procure
and pay for all required permits, certificates and licenses in connection with
such alterations.
5.5 OWNERSHIP OF IMPROVEMENTS. Until the expiration or sooner
termination of this Lease, title to any building equipment and other items
installed in the Building by Tenant and any alteration, change or addition
thereto shall remain solely in Tenant; and Tenant alone shall be entitled to
deduct all depreciation on Tenant's income tax returns for any such building
equipment and/or other items, additions, changes or alterations. Provided, all
permanently attached additions, non-trade fixtures and improvements, in or upon
the Premises, whether placed thereon by Tenant or by Landlord, shall become
Landlord's property and shall remain upon the Premises at the termination of
this Lease without compensation, allowance or credit to Tenant, unless Landlord
had advised Tenant at the time of the construction or installation of the
improvement that such item would have to be removed at the end of the Term of
this Lease, in which event, Tenant shall cause such removal at Tenant's expense.
All other improvements and trade fixtures installed by Tenant may be removed by
Tenant prior to the termination of this Lease if Tenant so elects and such
property or any portion thereof will be removed if previously required by
Landlord; upon any such removal Tenant will restore the Premises to their
original condition, reasonable wear and tear excepted. Any such property
remaining on the Premises after termination shall become the property of
Landlord.
5.6 SIGNS. Any sign erected and/or maintained on the Premises by the
Tenant must comply with the zoning regulations of the City of Milford. Landlord
will remove its signs from the Premises and will clean any graffiti on the
Building prior to the Commencement Date.
<PAGE> 8
6. TAXES
6.1 CHANGE IN METHOD OF TAXATION. If at any time during the Term, the
present method of taxation is changed so that, in lieu of or in addition to any
Taxes, there is levied, assessed or imposed on Landlord by any governmental or
quasi-governmental authority a capital levy or other tax directly on this Lease
or the Rent received here from and/or a franchise tax assessment, levy or charge
measured by or based, in whole or in part, upon such Rent from the Premises or
any other tax or assessment, levied or assessed in lieu of or in addition to any
present Taxes, then all such taxes, assessments, levies, or charges (other than
income taxes) will be deemed to be included within the term "Taxes" for the
purposes hereof. If the entire amount of any such new Taxes cannot legally be
paid or reimbursed to Landlord by Tenant, Landlord shall have the option to
terminate this Lease.
6.2 PERSONAL PROPERTY TAXES.
A. Tenant shall pay, prior to delinquency, all taxes assessed
against and levied upon any trade fixtures, furnishings, equipment and all other
personal property of Tenant contained in or upon the Premises or elsewhere
("TAXES"). Tenant shall use reasonable efforts to cause the Improvements, trade
fixtures, furnishings, equipment and all other personal property to be assessed
and billed in Tenant's name, separately from the real property of Landlord.
B. If any of Tenant's said personal property shall be assessed
with Landlord's real property, Tenant shall pay Landlord the taxes attributable
to Tenant's property within ten (10) days after receipt of a written statement
setting forth the Taxes applicable thereto. Landlord will furnish Tenant upon
request a copy of a receipted tax bill for any such taxes paid by Tenant.
6.3 PROOF OF PAYMENT. Tenant covenants to furnish to Landlord promptly
after demand therefor, proof of the payment of any Taxes which are payable by
Tenant as provided in this SECTION 6.
7. SECURITY DEPOSIT
7.1 DEPOSIT. Upon the execution of this Lease, Tenant agrees to deposit
with Landlord the sum of FORTY-EIGHT THOUSAND ONE HUNDRED TWENTY-THREE DOLLARS
($48,123.00) to be retained as a security deposit (the "SECURITY DEPOSIT"). If
Tenant fails to pay Rent or other charges due hereunder, or otherwise defaults
with respect to any provisions of this Lease, Landlord may use, apply or retain
all or any portion of the Security Deposit for the payment of any Rent or other
charge in default or for the payment of any sum to which Landlord may become
obligated by reason of Tenant's default, or to compensate Landlord for any loss
or damage Landlord may suffer thereby. If Landlord so uses or applies all or any
portion of the Security Deposit, the Tenant shall within ten (10) days after
written demand therefor, deposit cash with Landlord equal to the amount so
applied, so that there shall always be not less than the amount of the initial
Security Deposit on deposit, and Tenant's failure to do so will constitute a
default under this Lease.
<PAGE> 9
7.2 BANKRUPTCY. In the event of a bankruptcy or other creditor-debtor
proceeding against Tenant, the Security Deposit shall be deemed to be applied
first to the payment of Rent due for all periods prior to the filing of such
proceedings.
7.3 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale or lease of
the Premises, or any portion thereof, Landlord shall have the right to transfer
the balance of said deposit to the vendee and Landlord shall thereupon be
released by Tenant from all liability for the return of the Security Deposit;
and Tenant agrees to look solely to the new landlord for the return of said
Security Deposit.
7.4 CUSTODY AND RETURN OF DEPOSIT. If Tenant performs all of Tenant's
obligations hereunder, the Security Deposit, or so much as has not been applied
by Landlord, will be returned to Tenant within thirty (30) days of the
Termination Date. Landlord will retain the Security Deposit in a separate escrow
account with interest thereon accruing to Tenant's benefit.
8. ESTOPPEL STATEMENTS.
Tenant shall, at any time upon not less than ten (10) working days
prior written notice from Landlord, execute, acknowledge and deliver to Landlord
an estoppel statement in form and substance reasonably satisfactory to Landlord.
Any such statement may be conclusively relied upon by any third party purchaser,
Mortgagee or assignee, or any other party, and their respective successors and
assigns.
9. UTILITIES
Tenant will pay directly all charges incurred for all utility services
used and separately metered on or from the Premises and any maintenance charges
for said utilities. Landlord will in no event be required to furnish or be
liable for any interruption or failure of any utility services on the Premises.
10. INSPECTION
Landlord and Landlord's agents and representatives will have the right
to enter and inspect the Premises at any reasonable time during normal business
hours after one (1) day's oral or written notice to Tenant, or at any time in
case of emergency, for the purpose of ascertaining the condition of the
Premises, curing any default on the part of Tenant, making repairs to the
Premises or showing the Premises to prospective tenants (during the final six
months of the Term of this Lease) or purchasers or to any Mortgagee.
11. CASUALTY DAMAGE
11.1 DUTY TO REPAIR
Subject to the subsequent provisions of this SECTION 11, in
the event of a fire or other casualty in the Premises, Tenant shall immediately
give notice thereof to Landlord. If the
<PAGE> 10
Premises shall be partially destroyed by fire or other casualty so as to render
the Premises untenantable in whole or in substantial part, the Base Rent shall
abate thereafter as to the portion of the Premises rendered untenantable until
such time as the Premises are made tenantable as reasonablely determined by
Landlord. For the purpose of this SECTION 11, "SUBSTANTIAL PART" shall mean
twenty-five percent (25%) of the floor area of the Premises. In the event that
there is no Substantial Damage (as hereinafter defined), or if there is
Substantial Damage, but Landlord does not elect to terminate this Lease pursuant
to SECTION 11.2, then Landlord agrees to commence and prosecute the repair of
such damage promptly with reasonable diligence.
11.2 LANDLORD'S TERMINATION RIGHTS
In the event of a Substantial Damage as defined in SECTION
11.3, Landlord, if it decides not to repair the Premises, shall notify Tenant
within sixty (60) calendar days after such Substantial Damage of Landlord's
election to terminate this Lease. Thereafter, Tenant shall pay to Landlord all
Rent owed up to the time of such Substantial Damage, Landlord shall return the
Security Deposit, or the remainder thereof, to Tenant and after such payments
this Lease shall terminate.
11.3 SUBSTANTIAL DAMAGE
"SUBSTANTIAL DAMAGE" shall mean:
A. The Premises being untenantable in whole or in substantial
part for a period reasonably estimated by Landlord to be one hundred eighty
(180) days or longer after Landlord's insurance settlement.
B. The total or substantial damage or destruction of the
Premises or the remainder of the Building as reasonably determined by Landlord.
C. The Premises being untenantable in whole or in substantial
part for any period of time, if such damage occurs during the Renewal Term or at
such time during the Initial Term when Tenant's option to renew under SECTION
3.2 has expired without being exercised.
11.4 LIMITATION OF LANDLORD'S OBLIGATIONS
A. Landlord shall have no obligation to repair the damage to
the Premises if Landlord or any Mortgagee shall be unable to collect the
insurance proceeds (including rent insurance proceeds) applicable to such damage
because of some action or inaction on the part of Tenant, or Tenant's Guests,
and the cost of repairing such damage shall be paid by Tenant and there shall be
no abatement of Rent.
B. Landlord shall have no obligation to restore or replace
Tenant's trade fixtures, equipment, merchandise or any improvements or
alterations made by Tenant to the Premises.
<PAGE> 11
C. Landlord shall only be required to repair such damage to
the extent necessary to restore the Premises, as nearly as possible, to the
condition thereof immediately prior to such damage or destruction, subject to
reasonable wear and tear suffered to the date of such casualty.
D. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from such damage or the repair thereof. Tenant understands that Landlord will
not carry insurance of any kind on Tenant's furniture or furnishings or on any
fixtures or equipment removable by Tenant under the provisions of this Lease,
and that Landlord shall not be obligated to repair any damage thereto or replace
the same.
11.5 ARBITRATION
In the event Tenant disputes the decision of Landlord as to
the occurrence of Substantial Damage or the untenantability of a substantial
part of the Premises or the remainder of the Building after a taking or
condemnation, it may, within ten (10) days after receipt of notice of Landlord's
decision, demand that said question be arbitrated before a licensed architect
reasonably acceptable to Landlord with at least five (5) years experience in
designing commercial, retail and service buildings. Said arbitration proceeding
shall be conducted in Hartford, Connecticut, within thirty (30) days after
selection of such arbitrator. Said proceedings and selection shall be in
accordance with the commercial rules of the American Arbitration Association.
The costs of said proceeding, including said arbitrator's fee, shall be paid by
the losing party. The award or decision of said arbitrator shall be final,
binding and enforceable in a court of competent jurisdiction.
12. CONDEMNATION
12.1 LEASE TERMINATION. If the whole of the Premises and the Building
shall be taken for any public or quasi-public use under any statute or by right
of eminent domain or by private purchase ("OR PURCHASE") in lieu thereof, then
this Lease shall automatically terminate as of the date that possession has been
taken. In the event of a partial taking (or purchase) of the Premises and the
Building pursuant to which more than fifteen percent (15%) of the Building is
taken (or purchased) or so much of the parking lot servicing the Tenant is taken
(or purchased) as to render impossible the conduct of Tenant's business at the
Premises, then Tenant shall have the right, but not the obligation, to terminate
this Lease by giving written notice of such termination to Landlord on or prior
to the date one hundred and eighty (180) days after the date of such taking (or
purchase). Upon the giving of such notice, the Termination Date under this Lease
shall be the last day of the calendar month in which such notice is given.
12.2 APPLICATION OF AWARD. In the event of a taking (or purchase)
resulting in the termination of this Lease pursuant to the provisions of SECTION
12.1, the parties hereto agree to cooperate in applying for and in prosecuting
any claim for such taking and further agree, that the aggregate net award, after
deducting all expenses and costs, including attorneys' fees, incurred in
connection therewith, payable to both Landlord and Tenant shall be paid to
Landlord (of if required, to any Mortgagee) and distributed as follows:
<PAGE> 12
A. So much of such net award as is available for distribution
shall first be paid to any Mortgagee to the extent of the then unpaid principal
amount on any Mortgage.
B. All proceeds designated for the land constituting the
Premises, as opposed to the Building, shall be paid to and belong exclusively to
Landlord.
C. The balance (herein called the "FUND") of the net award, if
any remains, shall be divided between Landlord and Tenant as follows:
(1) Tenant shall be paid an amount out of the Fund
equal to "Tenant's Share" (as defined in SUBPARAGRAPH (2) of this SUBSECTION C.)
and Landlord shall be paid the entire balance thereof remaining after such
payment to Tenant.
(2) The term "TENANT'S SHARE", as used in this
SUBSECTION C., shall mean an amount equal to Tenant's unamortized cost of all
Building improvements, including equipment and trade fixtures not compensated
for by insurance, incurred and paid in connection with the Premises (hereinafter
"TENANT'S BUILDING COSTS"), less the total net proceeds of any award previously
received and retained by Tenant from any prior partial takings (or purchases).
For purposes of computing the Tenant's Share, the Building improvements
installed and paid for by Tenant shall have an amortization period of thirty
(30) years. All the equipment, trade fixtures and other improvements
constituting personal property on the Premises shall have an amortization period
of fifteen (l5) years. Tenant expressly waives all claims for entitlement for
the value of this Lease, its leasehold interest or its business operated at the
Premises.
12.3 PARTIAL TAKING. In the event of a partial taking (or purchase) not
resulting in the termination of this Lease, pursuant to the provisions of
SECTION 12.1, Landlord shall make all Restoration to the Building and other
improvements affected by such taking (or purchase) to the extent necessary to
restore the same to a complete architectural unit. Provided, however, that
Landlord shall not be obligated to expend an amount in excess of the proceeds of
the net award (together with any insurance proceeds) available to Landlord for
such purposes. In the event of such partial taking, this Lease shall continue,
provided that the Base Rent due hereunder shall be equitably reduced.
13. EXEMPTION OF LANDLORD FROM LIABILITY, LANDLORD'S DEFAULT AND TENANT'S
LIMITATION OF REMEDIES
13.1 EXEMPTION. Tenant hereby agrees that Landlord shall not be liable
for injury to Tenant's business or any loss of income therefrom or for damage to
the property of Tenant or Tenant's subtenants, agents, employees, customers,
invitees, licensees and independent contractors ("GUESTS") nor, shall Landlord
be liable for injury to the person of Tenant or Tenant's Guests, whether such
damage or injury is caused by or results from any cause whatsoever, unless
through its gross negligence or willful misconduct.
13.2 DEFAULT BY LANDLORD. Landlord shall not be in default hereunder
unless Landlord fails to perform obligations required of Landlord within a
reasonable time, but in no event until
<PAGE> 13
thirty (30) days after written notice by Tenant to Landlord specifying therein
the obligation which Landlord has failed to perform; provided, however, that if
the nature of Landlord's obligation is such that more than thirty (30) days are
required for performance, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
14. INSURANCE
14.1 TENANT LIABILITY INSURANCE. Tenant, at its own expense, shall
provide and keep in force a single limit comprehensive general liability
insurance policy against liability for bodily injury and property damage in the
amount of not less than One Million Dollars ($1,000,000.00) with respect to
injuries to or death of more than one person in any one occurrence, such limits
to be for any greater amounts as may be reasonably indicated by circumstances
from time to time existing. Such insurance shall include an endorsement of the
Insurance Services Office broad form general liability or its equivalent. In
addition, Tenant shall maintain in full force and effect, Workers' Compensation
insurance as required by all applicable Laws, including an All-States
endorsement. Tenant shall furnish Landlord and/or any Mortgagee with
certificates of such policies on or before the Commencement Date of this Lease
and whenever reasonably required shall satisfy Landlord that such policies are
in full force and effect.
14.2 HAZARD INSURANCE. Landlord shall maintain in full force and effect
on the Building and other improvements a policy or policies of fire and extended
coverage insurance with standard coverage vandalism, malicious mischief, special
extended perils (all risk) endorsements to the extent of the replacement value
thereof. Such insurance shall include a loss of rental endorsement providing
coverage equal to not less than twelve (12) months Rent under this Lease. Tenant
shall maintain during any period of construction upon the Premises such
insurance as builder's risk, completed value, non-reporting form, with
permission to complete and occupy and worker's compensation coverage for the
benefit of Landlord, Tenant and any Mortgagee, as their interests may appear,
with the coverages approved in advance by Landlord.
14.3 TENANT PERSONAL PROPERTY INSURANCE. Tenant, at its own cost and
expense, shall provide and keep in force and effect on its own furniture,
furnishings, fixtures and equipment located in the Building, with companies
acceptable to Landlord, policies of fire and extended coverage insurance with
standard coverage vandalism, malicious mischief, special extended perils (all
risk) and difference in conditions coverages and against such other risks or
hazards and in such amounts as Landlord and any Mortgagee shall reasonably
require from time to time.
14.4 REPLACEMENT COST; ADDITIONAL INSURANCE. The insurance specified in
SECTION 14.3 above shall be maintained by Tenant during the entire Term for a
sum not less than 100% of the full replacement cost (without deduction for
depreciation or obsolescence) of Tenant's interest in such property. Tenant
shall immediately give notice to Landlord and/or any Mortgagee of the
acquisition of any additional insurance or the increasing of any of the amounts
of insurance in excess of the minimum requirements set forth in this SECTION 14
and agrees that all such additional insurance or increased amounts of insurance
shall be governed by the requirements contained in this Lease. Landlord shall
not carry any insurance concurrent in coverage and contributing in the event of
loss with any insurance required to be furnished by Tenant hereunder if the
effect of such
<PAGE> 14
separate insurance would be to reduce the protection or the payment to be made
under Tenant's insurance.
14.5 MISCELLANEOUS REQUIREMENTS. All insurance provided for in this
SECTION 14 shall be effected under valid and enforceable policies issued by
insurers of recognized responsibility which are licensed to do business in the
State of Connecticut and which have been approved in writing by Landlord, and/or
any Mortgagee, as to the qualifications of insurers and the amounts of insurance
to be written by each. Upon the execution of this Lease, and thereafter not less
than thirty (30) days prior to the expiration dates of the expiring policies
heretofore furnished pursuant to this SECTION 14 or pursuant to SECTION 5,
originals of the policies, or certificates thereof in the case of bodily injury
and property damage liability insurance, bearing notations evidencing the
payment of premiums or accompanied by other evidence of such payment, shall be
delivered by Tenant to the person or entity entitled to approve any insurance
company as provided above in this Section.
14.6 INSURANCE ENDORSEMENT. Each policy mentioned in this SECTION 14
shall name Landlord and any Mortgagee as an additional insured, shall be primary
and non-contributing with any insurance carried by Landlord, and shall have
attached thereto endorsements (i) that such policy shall not be canceled,
modified, reduced or surrendered accepted without at least ten (10) days' prior
written notice to Landlord and/or any Mortgagee; and (ii) that no act or
omission of Tenant shall invalidate the interest of such person or entity
entitled to such notice.
15. WAIVER OF SUBROGATION
Landlord and Tenant hereby mutually waive any and all rights of
recovery against one another for real or personal property loss or damage
occurring to the Premises or any personal property therein from perils insured
against under the insurance policies existing for the benefit of the respective
parties and will assure that such insurance permits waiver of liability and
contains a waiver of subrogation. Nothing herein contained shall relieve
Landlord and Tenant from any liability to each other in connection with any
uninsured damage to the Premises by fire or other casualty if the other shall be
legally liable in such respect.
16. USE; COMPLIANCE WITH LAW
16.1 USE. The Premises shall be used and occupied only for the
operation of a manufacturing business and related uses or any use permitted by
the zoning rules and regulations applicable to the Premises.
16.2 COMPLIANCE WITH LAW AND RESTRICTIVE COVENANTS. Tenant shall, at
Tenant's expense, comply promptly with, and shall not use the Premises in
violation of any Laws, insurance company requirements and restrictive covenants
identified by Landlord regulating the use by Tenant of the Premises and shall,
at Tenant's expense, obtain and comply with the terms of any and all licenses
and permits necessary for any such use. Tenant shall not use or permit the use
of the Premises in any manner that will tend to create waste or a public or
private nuisance. Tenant shall not use or permit the Premises to be used for any
purpose which would render the insurance thereon void or cause an increase in
the premiums for such insurance.
<PAGE> 15
16.3 OTHER RESTRICTIONS ON USE
A. Tenant shall not overload the floor of the Building or use,
keep or permit to be used or kept any foul or noxious gas or substance on the
Premises.
B. Tenant shall not use, keep or dispose of on the Premises or
in the Building, except in compliance with all applicable laws and regulations,
any kerosene, gasoline or inflammable or combustible fluid or material or
corrosive, flammable or other toxic or hazardous wastes.
16.4 HAZARDOUS MATERIALS
A. As used herein, the term Hazardous Materials shall mean
(in) any hazardous or toxic wastes, materials or substances, and any other
pollutants or contaminants, which are or may become regulated by any applicable
local, state or federal laws, including but not limited to, 33 U.S.C.
Section 1251 et seq., 42 U.S.C. Section 6901 et seq., 42 U.S.C. Section 7401 et
seq., 42 U.S.C. Section 9601 et seq., 49 U.S.C. Section 1802 et seq., 15 U.S.C.
Section 2601 et seq., Title 22a of the Connecticut General Statutes, any
regulations adopted pursuant to any of the foregoing statutes or any
successor(s) thereto (collectively "ENVIRONMENTAL LAWS"); (ii) petroleum; (iii)
asbestos; (iv) polychlorinated biphenyl; and (v) radioactive materials.
B. Tenant agrees that during the Term of this Lease, there
shall be no use, presence, disposal, storage, generation (collectively
"HAZARDOUS USE"), Release, as defined in 42 U.S.C. Section 9601 (22), or any
successor(s) thereto, or threatened Release, or Spill, as defined in Connecticut
General Statutes Section 22a-452c, or any successor(s) thereto, or threatened
spill of Hazardous Materials on, from or under the Premises except to the extent
that, and in accordance with such conditions as, Landlord may have previously
approved in writing. It is further agreed that Tenant shall be entitled to use
and store only those Hazardous Materials which are necessary for Tenant's
business, provided that such usage and storage is in full compliance with
Environmental Laws, and all judicial and administrative decisions pertaining
thereto. Tenant shall not be entitled to install any tanks under, on or about
the Premises for the storage of Hazardous Materials without the express written
consent of Landlord, which may be given or withheld in Landlord's sole arbitrary
judgment.
C. Tenant shall submit to Landlord a written report with
respect to Hazardous Materials ("REPORT") in such form as may be prescribed from
time to time by Landlord:
(i) At any time within ten (10) days after
written request by Landlord;
(ii) Within ten (10) days after the Termination
Date;
(iii) At any time when there has been or is
planned any condition which constitutes or
would constitute a change in the
information submitted in the most recent
Report; and
<PAGE> 16
(iv) Immediately upon receipt of any notice of
violation of Environmental Laws received
from any governmental agency.
D. If at any time during the Term Tenant knows or believes
that any Release of any Hazardous Materials has come or will come to be located
upon, about, or beneath the Premises, then Tenant shall, as soon as reasonably
possible, either prior to the Release or following the discovery thereof by
Tenant, give verbal and follow up written notice of that condition to Landlord.
Tenant covenants to investigate, clean up and otherwise remediate any Release of
Hazardous Materials caused by the acts or omissions of Tenant, or its agents,
employees, representatives, invitees, licensees, subtenants, customers or
contractors at Tenant's cost and expense; such investigation, clean up and
remediation shall be performed only after Tenant has obtained Landlord's written
consent, which shall not be unreasonably withheld; provided, however, that
Tenant shall be entitled to respond immediately to an emergency without first
obtaining Landlord's written consent. All clean up and remediation shall be done
to the applicable DEP clean-up standard, or, if no such standard is available,
to the reasonable satisfaction of Landlord.
E. Landlord shall have the right at all times during the Term
of this Lease to (in) inspect the Premises, and to (ii) conduct tests and
investigations, but no more frequently than once every two years unless Landlord
has reason to believe that a condition exists which requires immediate
investigation, to determine whether Tenant is in compliance with the provisions
of this Section. Except in case of emergency, Landlord shall give reasonable
notice to Tenant before conducting any inspections, tests or investigations. The
cost of all such inspections, tests and investigations shall be borne by Tenant,
if Landlord reasonably believes them to be necessary.
F. Tenant shall indemnify, defend and hold Landlord harmless
from and against any and all claims, judgments, damages, penalties, fines,
liabilities, losses, suits, administrative proceedings and costs (including, but
not limited to, attorney's and consultant's fees) arising from or related to
Hazardous Use or Release of Hazardous Materials on or about the Premises caused
by the acts or omissions of Tenant, its agents, employees, representatives,
invitees, licensees, subtenants, customers or contractors. Landlord shall
indemnify, defend and hold Tenant harmless from and against any and all claims,
judgments, damages, penalties, fines, liabilities, losses, suits, administrative
proceedings and costs (including, but not limited to, attorney's and
consultant's fees) arising from or related to Hazardous Use or Release of
Hazardous Materials on or about the Premises caused by the acts or omissions of
Landlord, its agents, employees, representatives, invitees, licensees, tenants,
subtenants, customers or contractors, prior to the date of Tenant's occupancy of
the Premises.
17. LIENS AND ENCUMBRANCES
Tenant will not cause, suffer or permit any liens or encumbrances on,
nor do any act which will in any way encumber or impair, the title of Landlord
in and to the Premises. Any claim to, or lien upon the Premises arising from any
act or omission of Tenant, including, but not limited to, any mechanics' or
materialmen's liens, will accrue only against the leasehold estate of Tenant and
will be subject and subordinate to the paramount title and rights of Landlord in
and to the
<PAGE> 17
Premises. Landlord may, but will not be obligated to, procure the discharge of
any such lien. Any amount so paid by Landlord, and all reasonable legal and
other expenses of Landlord in defending any such action or procuring the
discharge of such lien, shall become due and payable as Additional Rent on the
date of Landlord's notice to Tenant of such payment or deposit.
18. SUBORDINATION; ATTORNMENT
18.1 SUBORDINATION. Tenant accepts this Lease subject and subordinate
in all respects to any Mortgage which may now or hereafter be placed on or
affect the fee interest in the Premises, and to each advance made, or hereafter
to be made, under any such Mortgage, and to all renewals, modifications,
consolidations, replacements, extensions and substitutions of and for such
Mortgage. This SECTION 18.1 shall be self-operative and no further instrument of
subordination shall be required. In confirmation of such subordination, however,
Tenant shall execute and deliver promptly any certificate that Landlord and/or
any Mortgagee or their respective successors in interest may request. Landlord
shall use its best efforts to obtain a nondisturbance agreement in form
satisfactory to Tenant from any existing or future Mortgagee.
18.2 ATTORNMENT. If any foreclosure proceedings are brought under any
Mortgage or any Mortgagee obtains possession of the Premises by deed or lease in
lieu of foreclosure, or if any underlying lessor shall obtain possession of the
Premises, or in any other such similar matter, Tenant, at the request of any
such party obtaining possession will attorn to and recognize them as Landlord
under this Lease. Tenant shall, at the request of Landlord, execute a document
in form proper for recording confirming such agreement to attorn.
19. ASSIGNMENT AND SUBLETTING
19.1 ASSIGNMENT OR SUBLEASE. Tenant may assign, sublet or otherwise
transfer this Lease to subsidiaries of Tenant without the prior written consent
of Landlord. Tenant shall not assign, sublet, mortgage or otherwise transfer
this Lease, the Premises, or any part hereof or thereof to any entity not
affiliated with Tenant without the prior written consent of Landlord, which
consent shall not be unreasonably withheld.
19.2 SUBTENANT RENTALS. In the event of a default by Tenant hereunder,
if the Premises or any part thereof are then sublet, Landlord may at its option
collect directly from such subtenant all rents becoming due to Tenant under such
sublease and apply such rent against any sums due to it by Tenant hereunder,
without thereby waiving or releasing Tenant from the further performance of its
obligations hereunder.
20. DEFAULT
20.1 EVENT OF DEFAULT. The occurrence of any one or more of the
following events will constitute a default hereunder:
A. Tenant fails to make any payment within ten (10) days after
the same is due hereunder.
<PAGE> 18
B. Tenant voluntarily assigns this Lease or subleases the
Premises, or any part thereof, without the prior written approval of Landlord,
except as expressly provided in SECTION 19 hereof.
C. Tenant fails to observe or perform any of the other
covenants, conditions or provisions of this Lease and Tenant fails to cure such
default within thirty (30) days after notice thereof in writing to Tenant;
provided, however, that if the nature of Tenant's obligation is such that more
than thirty (30) days are required for performance, then Tenant shall not be in
default if Tenant commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
D. Tenant files a petition in bankruptcy or for reorganization
or for an arrangement pursuant to the Bankruptcy Act of the United States or
shall be adjudicated a bankrupt or shall admit in writing its inability to pay
its debts generally as they become due, or if a petition or answer proposing the
adjudication of Tenant as a bankrupt pursuant to the Bankruptcy Act of the
United States or any similar federal or state law is filed and such petition or
answer shall not be discharged or denied within sixty (60) calendar days after
the date of filing thereof.
E. A receiver, trustee or liquidator of Tenant or of all or
substantially all the property of Tenant or of its interest in the Premises
shall be appointed in any proceeding brought by Tenant, or if any such receiver,
trustee or liquidator shall be appointed in any proceeding brought against
Tenant and if such receiver, trustee or liquidator shall not be discharged
within sixty (60) calendar days after such appointment.
F. The Premises shall have been abandoned or left unoccupied
for thirty (30) consecutive calendar days.
G. The occurrence of any other event which is defined as a
default elsewhere in this Lease, together with the passage of the applicable
grace period, if any, without cure.
21. REMEDIES
Upon the occurrence of any one or more such events of default, Landlord
may at its election, either terminate this Lease or terminate Tenant's right to
possession only, without terminating this Lease, pursuant to the following
provisions:
21.1 TERMINATION OF LEASE.
A. Landlord shall have the right, at its election, to
terminate this Lease on a date specified in a notice from Landlord to Tenant. On
such Termination Date, all right, title and interest of Tenant hereunder shall
expire, and Tenant shall then peaceably and quietly quit the Premises and
surrender the same to Landlord, but Tenant shall remain liable as hereafter
provided. If any such notice is given, Landlord shall have the immediate right
of re-entry and possession of the Premises and the right, pursuant to the
provisions of SECTION 21.3, to remove all persons and other property therefrom.
<PAGE> 19
B. Upon termination of this Lease, Landlord at its option
shall be entitled to recover as liquidated damages, in lieu of all other claims
for damages on account of the termination of this Lease, an amount equal to the
total of:
(1) all Rent and Additional Rent due and payable by
Tenant through the Termination Date; plus
(2) an amount equal to the value of Rent and
Additional Rent to be paid by Tenant for the residue of the stated term hereof,
less the fair rental value of the Premises for the remainder of the stated term
(taking into account all time and expenses necessary to obtain the replacement
tenant or tenants); and
(3) the cost of performing any other covenants to be
performed by Tenant hereunder.
Tenant's economic obligations under this SECTION 21.1.B. shall survive
the termination of this Lease. Said amount shall be due and payable by Tenant
immediately upon demand by Landlord.
21.2 TERMINATION OF POSSESSION.
A. Landlord shall have the right at its election to terminate
Tenant's right of possession only, without terminating this Lease, on a date
specified in a notice from Landlord to Tenant, and on such date, all rights of
Tenant with respect to possession of the Premises shall expire. Upon such date,
Landlord may, at its option, repossess the Premises pursuant to the provisions
of SECTION 21.3, without terminating this Lease or releasing Tenant, in whole or
in part, from any of Tenant's obligations hereunder, including the payment of
Rent hereunder for the full Term.
B. Landlord will make a reasonable attempt to relet all or any
part of the Premises for such rent and upon terms satisfactory to Landlord. If
Landlord does not relet the Premises, Tenant will periodically pay Landlord when
due all Rent and other amounts due from Tenant to Landlord under this Lease for
the remainder of the Lease Term. If the Premises are relet and a sufficient sum
is not realized from such reletting (after paying all of the reletting costs and
the collection of the rental accruing therefrom) to satisfy the Rent for the
remainder of the Lease Term, Tenant will be liable for the difference in Rent
and shall pay same upon demand to Landlord. Tenant agrees that Landlord may
commence successive actions to recover any sums falling due under the terms of
this SECTION 21.2.B., or may, upon such reletting, terminate this Lease pursuant
to SECTION 21.1 and proceed against Tenant in one action for liquidated damages
thereunder. Landlord shall not be liable or responsible for failure to relet the
Premises, or if the Premises are relet, for failure to collect the rent thereof
under such reletting.
21.3 REPOSSESSION OF PREMISES. Upon termination of this Lease or upon
termination of Tenant's possession, Landlord may peacefully reenter the Premises
without process of law and remove all persons, fixtures, chattels, signs, and
other evidence of tenancy therefrom and Landlord will not be liable for any
damages resulting therefrom unless caused by Landlord's gross
<PAGE> 20
negligence or willful misconduct. Upon such repossession, Landlord may again
have and enjoy the same as if this Lease had not been made, and in any such
event, neither Tenant nor any person claiming through or under Tenant shall be
entitled to possession of the Premises, but shall immediately quit and surrender
the Premises. Tenant shall pay to Landlord, upon demand, any and all expenses
incurred in such removal and all storage charges for such property so long as
the same shall be in Landlord's possession or under Landlord's control. Landlord
may thereafter, for the purpose of reletting the Premises at its option under
SECTION 21.1, or as such attempt is required under SECTION 21.2, make any
repairs, changes, alterations or additions in or to the Premises and incur
reasonable reletting costs as may be necessary, in Landlord's sole discretion.
21.4 MISCELLANEOUS REMEDY PROVISIONS:
A. Nothing herein shall limit or prejudice the right of
Landlord to prove and obtain the maximum damages allowed by any statute or rule
of law in any proceedings for bankruptcy or insolvency, whether or not the
amount be greater than the amount of damages otherwise allowed under this
SECTION 21.
B. Landlord may collect and receive any Rent due from Tenant,
and the payment thereof shall not: (1) constitute a waiver of or affect any
notice or demand given, suit instituted or judgment obtained by Landlord; (2)
serve to reinstate, continue or extend the Lease Term; or (3) be held to waive,
affect, change, modify or alter the rights or remedies which Landlord has
against Tenant in equity or at law or by virtue of this Lease, unless any such
rights are specifically waived by Landlord in writing.
C. If Tenant at any time fails to make any payment or perform
any of its obligations hereunder, Landlord may, but shall not be obligated to
make such payment or performance and in connection therewith to pay reasonable
expenses and employ counsel. All sums so paid by Landlord shall be deemed
Additional Rent and shall be payable upon demand, and Landlord shall have the
same rights and remedies for the nonpayment thereof as in the case of default in
the payment of Rent. Unless caused by Landlord's gross negligence or willful
misconduct, Landlord shall not in any event be liable for any damages caused by
reason of Landlord's performance hereunder.
22. LANDLORD'S LIEN
Landlord agrees to execute such lessor's agreements as, Tenant's
lender(s) may reasonably require within twenty (20) days following Tenant's
request. Without limiting the foregoing, Landlord shall execute in favor of
Tenant's current lender an agreement in the form of EXHIBIT A-5 attached hereto.
23. SURRENDER
Upon the Termination Date, Tenant shall at once peaceably surrender the
Premises to Landlord in the same condition in which the same were received from
Landlord at the Commencement Date, ordinary wear and tear and items to be
repaired by Landlord excepted. All
<PAGE> 21
property situated on the Premises which is not owned by Landlord shall be
disposed of and be deemed owned by the applicable parties in accordance with the
provisions of SECTION 5.4.
24. HOLDING OVER
Any holding over by Tenant of the Premises after the Termination Date
will operate and be construed to be a tenancy from month to month only at a
monthly rental of one hundred fifty percent (150%) of the last monthly Base Rent
plus all other Additional Rent payable hereunder, and upon the terms hereof
applicable to month-to-month tenancy. Nothing contained herein is to be
construed to give Tenant the right to hold over at any time and Landlord may
exercise any and all remedies at law or in equity to recover possession of the
Premises and damages resulting from any such holding over.
25. QUIET ENJOYMENT
Tenant, provided it is not in default hereunder, shall peaceably and
quietly hold, occupy, and enjoy the Premises for the Lease Term without
hindrance, ejection, or interruption by Landlord, or persons lawfully or
equitably claiming under Landlord (except as provided under SECTIONS 10 AND
30.12).
26. NOTICES
All notices required or permitted hereunder or required by law shall be
in writing and either served personally upon the party or an officer of the
party to whom the notice is addressed or sent via United States Mail, postage
prepaid, certified mail, return receipt requested, addressed to the parties
hereto at their respective addresses set forth below or as they have heretofore
specified by written notice delivered in accordance herewith and shall be deemed
given when received or upon refusal to accept, or upon return because of
impossibility to deliver.
The mailing address of Landlord and Tenant are:
LANDLORD TENANT
Light Sources, Inc. Industrial Technologies, Inc.
37 Robinson Boulevard 70 Cascade Boulevard
Orange, Connecticut 06477 Milford, Connecticut 06460
ATTN: Christian L. Sauska, ATTN: Gerald Stewart
President Chief Executive Officer
with a copy to: with a copy to:
Pepe & Hazard LLP Shipman & Goodwin LLP
30 Jelliff Lane One American Row
Southport, Connecticut 06490 Hartford, Connecticut 06103
ATTN: Suzanne E. Baldasare, Esq. ATTN: Stephen J. Geissler, Esq.
<PAGE> 22
Any notice by either party hereto to the other which relates to a
default which, if not cured within the applicable grace period, would give rise
to termination rights by either party shall be simultaneously given to any
Mortgagee or underlying lessor of the Premises.
27. RECORDING
Tenant shall not record this Lease and any such recordation shall be a
default hereunder. Concurrently with the execution of this Lease, Landlord and
Tenant may, at the request of either party, execute a short form "memorandum" of
this Lease prepared by Landlord in form suitable for recording which Tenant may,
at its cost, record; provided that Tenant shall, if it records such memorandum,
furnish a copy bearing the recorder's stamp to Landlord. Upon the termination of
this Lease, Tenant shall, at the request of Landlord, execute and deliver to
Landlord a lease cancellation instrument in form suitable for recording.
28. RIGHT OF FIRST REFUSAL
28.1 Provided and on the condition that this Lease is not previously
canceled or terminated, and, further, provided that Tenant is not then in
material default under the terms and provisions of this Lease, if and when
Landlord desires to sell the Premises, Tenant is hereby given the right of first
refusal with respect to the Premises, subject to the further terms and
provisions set forth in this SECTION 28.
28.2 If Landlord receives an offer to sell the premises from a third
party purchaser and it intends to accept the offer, or if Landlord decides to
make an offer to sell the Premises, Landlord shall give a written copy of the
offer to Tenant. In the event Tenant then desires to proceed with the purchase
of the Premises, Tenant shall provide a return written notice to such effect to
Landlord, within fifteen (15) days of Tenant's receipt of Landlord's notice. If
Tenant accepts the offer, Tenant will be bound to purchase the Premises strictly
in accordance with the terms of the third party offer. If Tenant does not accept
the offer, Landlord may proceed to sell the Premises, at Landlord's sole
discretion, in accord with the terms of the third party offer.
28.3 If Tenant accepts the offer, the closing of title shall take place
on the date as set forth in the third party offer. Prepaid rent shall not be
credited against the purchase price.
28.4 The parties shall act in good faith, and cooperate fully to effect
the closing. At the closing, the Landlord shall deliver to the Tenant a warranty
deed, in usual Connecticut form, to the Premises conveying title thereto free
and clear of all liens and encumbrances except those shown on EXHIBIT B, any
Notice of Lease recorded hereunder, any recorded encumbrance created solely as a
result of Tenant's interest in the Premises, and any unpaid liens or other
encumbrances as to which Tenant is financially responsible. The Landlord shall
also deliver, at the closing, checks sufficient to pay the conveyance taxes with
respect to said sale and such other items customarily paid by a seller at the
time of closing. All customary closing and conveyancing practices then
applicable to a sale and transfer of real property in Milford, Connecticut shall
also apply.
<PAGE> 23
28.5 In the event that the closing of title does not take place because
of the inability of Landlord to convey title in conformity with this SECTION 28
notwithstanding that Landlord has, in good faith, attempted to resolve any title
defect and to effect said closing, including, without limitation, the payment of
such reasonable sums (not to exceed $25,000 in the aggregate) as may be required
to resolve such defect, the sole obligation of the Landlord shall be to bear the
expense of the title search disclosing such defects. Tenant, however, may accept
such title as the Landlord may be able to convey, without any reduction in
price, provided, however, that Tenant will have the right to deduct from the
purchase price the reasonable sum required to resolve any such title defect and
liens or encumbrances of a definite or ascertainable amount that it paid or will
actually pay as a part of the closing and that Landlord does not contest as
being invalid or not equal to the amount claimed. In the event of a dispute as
to the foregoing, that portion of the offset deemed by the Landlord to be
invalid or not equal to the amount claimed will be paid over by Landlord to a
party reasonably agreeable to both Landlord and Tenant to hold, in escrow, in an
interest-bearing account, pending resolution or further definition of the cost
to cure said defect.
If, pursuant to the terms of this Lease, the Premises are at any time
sold to a third party and closed subject to such title defect, this right of
first refusal shall be deemed waived by Tenant. If, however, such title defect
is cured or to be cured, then Tenant's right of first refusal hereunder shall
apply, once again, and the terms and provisions of this SECTION 28 shall be
fully applicable.
28.6 All customary adjustments related to a closing in the Milford,
Connecticut area shall also be made, as necessary, at the time of closing.
28.7 The provisions of this SECTION 28 shall not apply in any of the
following transactions: (1) sale of the Premises to a related entity (as
hereinafter defined); (2) sale of the Premises by foreclosure or deed-in-lieu of
foreclosure by any Mortgagee; and (3) any offer after the first one which
Landlord gives Tenant. The term "related entity" means any corporation or other
business entity that (A) owns eighty percent (80%) or more of the voting stock
of Landlord; (B) eighty percent (80%) of its stock or interest is owned by
Landlord; or (c) eighty percent (80%) or more of whose stock is owned by a
corporation that also owns fifty percent (50%) or more of the voting stock of
Landlord.
28.8 The rights granted by this SECTION 28 are personal to Tenant and
may not be assigned by Tenant in connection with an assignment of this Lease or
otherwise (except for a permitted assignment to Tenant's affiliates as provided
in SECTION 19 or as Landlord may otherwise agree) and Tenant's rights hereunder
may not be exercised by anyone other than Tenant. Any attempted assignment of
Tenant's rights in this paragraph will be of no effect, and will terminate these
rights as of the date of the purported assignment.
29. BROKER
Tenant covenants, warrants and represents that there is no broker
involved in this Lease except CB Commercial Real Estate Group, Inc. Landlord
agrees to be responsible for the broker's fees due said identified broker, if
any. Tenant agrees to indemnify and hold harmless Landlord against and from any
claims for any brokerage commissions and all costs, expenses and liabilities in
connection therewith, including, without limitation, attorneys' fees and
expenses,
<PAGE> 24
arising out of any conversations or negotiations had by Tenant with any broker
other than the broker identified above.
30. MISCELLANEOUS
30.1 DEFINITIONS. Words of any gender used in this Lease will be
construed to include any other gender and words in the singular number shall
include the plural unless the context requires otherwise. The term "person" when
used in this Lease shall mean any individual, corporation, partnership, limited
partnership, firm, trust, joint venture, business association, syndicate,
combination, organization or any other person or entity. The term "business day"
when used in this Lease shall mean any day other than Saturday, Sunday or any
legal holiday under the laws of the United States or the State of Connecticut.
30.2 BINDING EFFECT. The terms, provisions, covenants and conditions
contained in this Lease will apply and, inure to the benefit of, and be binding
upon, the parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise herein expressly provided.
30.3 INTEREST RATE. Except as expressly herein provided, any amount due
to Landlord or Tenant not paid when due shall bear interest from the date due at
the rate of twelve percent (12%) or the highest rate permitted by law, whichever
is less.
30.4 CAPTIONS. The table of contents, if any, preceding this Lease and
the headings to the Sections of this Lease are for convenience only and do not
define, limit or otherwise describe the scope or intent of this Lease or any
provision hereof nor affect the interpretation of this Lease.
30.5 ENTIRE AGREEMENT. This Lease and the Exhibits hereto contain all
agreements of the parties with respect to any matter mentioned herein or
therein. No prior agreement or understanding pertaining to any such matter shall
be effective. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification.
30.6 TIME OF THE ESSENCE. Time is of the essence with respect to the
due performance of the terms, covenants and conditions herein contained.
30.7 SEPARABILITY. If any term or provision of this Lease is to any
extent held invalid or unenforceable, the remaining terms and provisions of this
Lease will not be affected thereby, but each term and provision of this Lease
will be valid and be enforceable to the fullest extent permitted by law.
30.8 NON-EXCLUSIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive, but shall wherever possible, be cumulative with all other
remedies at law or in equity.
30.9 NO WAIVER. No waiver by Landlord or Tenant of any provision hereof
shall be deemed a waiver of any other provision hereof or of any subsequent
breach of the same or any other provision. Landlord's or Tenant's consent to or
approval of any act shall not be deemed to render unnecessary the obtaining of
consent to or approval of any subsequent act.
<PAGE> 25
30.10 NO MERGER. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at
the option of Landlord, terminate all or any existing subtenancies or may, at
the option of Landlord, operate as an assignment to Landlord of any or all of
such subtenancies. There shall be no merger of this Lease or of the leasehold
estate hereby created with the fee estate in the Premises or any part hereof by
reason of the fact that the same person may acquire or hold all or part of both
such estates.
30.11 GOVERNING LAW. This Lease shall be construed and enforceable in
accordance with the laws of the State of Connecticut.
30.12 ASSIGNMENT BY LANDLORD. Nothing in this Lease is to be deemed to
limit or affect the right of Landlord to sell, assign, encumber, transfer, lease
or otherwise dispose of any or all of Landlord's interest in any portion or all
of the Premises. From and after the date of any such transfer, Landlord shall be
relieved of all liability for Landlord's obligations thereafter to be performed
hereunder.
30.13 EXHIBITS. All Exhibits referred to in and attached to this Lease
are hereby made a part of this Lease.
30.14 PARTIAL PAYMENT. No receipt or acceptance by Landlord from Tenant
of less than the monthly Rent herein stipulated shall be deemed to be other than
a partial payment on account for any due and unpaid Rent; no endorsement or
statement on any check or any letter or other writing accompanying any check or
payment of Rent to Landlord shall be deemed an accord and satisfaction, and
Landlord may accept and negotiate such check or payment without prejudice to
Landlord's rights to recover the remaining balance of such unpaid Rent or pursue
any other remedy provided in this Lease.
30.15 REQUESTED AMENDMENTS. Tenant agrees to execute any amendments to
this Lease required by a lender to enable Landlord to obtain financing for the
Premises or to enable Landlord to effectuate a sale of the Premises or any
portion thereof so long as Tenant's rights hereunder are not materially
adversely affected thereby.
30.16 INJUNCTIVE RELIEF. In addition to the other remedies provided in
this Lease, Landlord shall be entitled to injunctive relief in case of the
violation, or attempted or threatened violation, of any of the covenants,
agreements, conditions or provisions of this Lease or to a decree compelling
performance of any of the covenants, agreements, conditions or provisions of
this Lease.
30.17 AVOIDANCE OF LEASE. Landlord may take any action to terminate,
rescind or avoid this Lease, notwithstanding bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding-up
or other proceedings affecting Tenant and notwithstanding any action with
respect to this Lease which may be taken by any trustee or receiver of Tenant or
by any court in any such proceeding.
<PAGE> 26
30.18 WAIVER OF RIGHTS. TENANT HEREBY WAIVES FOR ITSELF AND ALL THOSE
CLAIMING UNDER IT, ANY RIGHTS WHICH IT MAY HAVE UNDER ANY PRESENT OR FUTURE
CONSTITUTION, STATUTE OR RULE OF LAW: () TO REDEEM THE PREMISES AFTER
TERMINATION OF TENANT'S RIGHT OF OCCUPANCY BY ORDER OR JUDGMENT OF ANY COURT OR
BY ANY LEGAL PROCESS OR WRIT; () WHICH EXEMPTS PROPERTY FROM LIABILITY FOR DEBT
OR FOR DISTRESS FOR RENT; () WHICH ENTITLES TENANT TO NOTICE OR HEARING PRIOR TO
LANDLORD OBTAINING ANY PREJUDGMENT REMEDY; IN CONNECTION HEREWITH, TENANT WAIVES
AND RELINQUISHES ALL RIGHTS TO NOTICE AND HEARING UNDER CONNECTICUT GENERAL
STATUTES SECTION 52-278A ET SEQ.; AND () WHICH ENTITLES TENANT TO RECEIVE ANY
PRIOR NOTICE TO QUIT AS A CONDITION PRECEDENT TO LANDLORD'S FILING OF A
COMPLAINT AND SUMMONS FOR IMMEDIATE POSSESSION OR OCCUPANCY OF THE PREMISES, ALL
AS PROVIDED IN CHAPTER 832 OF THE CONNECTICUT GENERAL STATUTES, AS AMENDED.
30.19 EXPENSES AND ATTORNEYS FEES.
A. If Tenant shall be in default in the performance of any of
its obligations hereunder, Tenant shall pay to Landlord all the costs and
expenses incurred in connection therewith, including without limitation,
reasonable attorney's fees, whether or not resort is had to judicial
proceedings. If Landlord shall be in default in the performance of any of its
obligations hereunder and Tenant has prevailed in enforcing the terms of this
Lease in a court of competent jurisdiction, then Landlord shall pay to Tenant
all costs and expenses incurred in connection therewith, including without
limitation, reasonable attorney's fees.
B. If Landlord shall, without fault on its part, be made a
party to any litigation commenced against Tenant and if Tenant shall fail to
provide Landlord with counsel approved by Landlord (such approval not to be
unreasonably withheld), Tenant shall pay all costs and reasonable attorney's
fees incurred or paid by Landlord in connection with such litigation. If Tenant
shall, without fault on its part, be made a party to any litigation commenced
against Landlord and if Landlord shall fail to provide Tenant with counsel
approved by Tenant (such approval not to be unreasonably withheld), Landlord
shall pay all costs and reasonable attorney's fees incurred or paid by Tenant in
connection with such litigation.
30.20 POWER OF ATTORNEY. Tenant hereby appoints Landlord, its
successors and assigns, as Tenant's attorney-in-fact to execute and deliver any
and all certificates required to be executed by Tenant hereunder, including,
without limitation, those certificates described in SECTIONS 8, 18.1, 18.2 AND
27, if Tenant has failed to execute and deliver such certificates after ten (10)
days written notice.
30.21 NON RECOURSE. Tenant shall look solely to the estate and interest
of Landlord, its successors and assigns in the Premises for the collection of a
judgment (or other judicial process) requiring the payment of money by Landlord
in the event of any default by Landlord hereunder, and no other property or
assets of Landlord shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Tenant's remedies under or with respect to
either
<PAGE> 27
this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use
and occupancy of the Premises.
31. INDEMNIFICATION
Subject to the waiver of subrogation provisions of SECTION 15, Landlord
and Tenant (as applicable, the "INDEMNITOR") agree to indemnify and save
harmless the other (the "INDEMNITEE") from and against any and all liabilities,
damages, costs, expenses (including any and all reasonable attorney's fees and
expenses of the other), causes of action, suits, claims, demands or judgments of
any nature whatsoever arising from (1) any work or thing done in, on or about
the Premises or any part thereof by or at the request or direction of the
Indemnitor, any subtenant or their respective Guests, (2) injury to, or the
death of, persons or damage to property at the Premises or upon adjoining
sidewalks, streets, alleys, curbs, vaults, spaces or ways, or in any manner
growing out of or connected with the use, non-use, condition, possession,
operation, maintenance, management or occupation of the Premises or resulting
from the condition thereof or of adjoining sidewalks, streets, alleys, curbs,
vaults, spaces or ways which is not caused by the gross negligence or willful
misconduct of the Indemnitee, (3) any negligence on the part of the Indemnitor,
any subtenant or their respective Guests and (4) violation of any agreement or
condition of this Lease and of conditions, agreements, restrictions, or Laws
affecting the Premises or the ownership, occupancy or use thereof including any
Laws regulating the production, storage or disposal of toxic or hazardous wastes
or other environmental matters.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
Witnesses:
LIGHT SOURCES, INC.
__________________________ By:_____________________________
Christian L. Sauska
Its President
__________________________
TENANT:
INDUSTRIAL TECHNOLOGIES, INC.
__________________________ By:_____________________________
Gerald Stewart
Its Chief Executive Officer
__________________________
<PAGE> 28
EXHIBIT A-1
PREMISES
Parcel 1
All that certain piece or parcel of land with the improvements thereon,
located in the Town of Milford, County of New Haven and State of Connecticut,
being Lots #5 and #7 as delineated on a certain map made by R.W. Waldo titled
"North-East Industrial Park", Scale 1" = 100' dated May 27, 1977, revised June
7, 1977 August 8, 1977, which map is filled in the Milford Town Clerk's Office,
and which said premises are more particularly bounded and described as follows:
SOUTHEASTERLY: by Cascade Boulevard, 455.77 feet;
WESTERLY: by Lot No. 9 on said map, 365.66 feet;
NORTHERLY: by the Orange/Milford town line, 541.60 feet.
Parcel 2
All that certain piece or parcel of land, with any improvements
thereon, situated in the Town of Milford, County of New Haven and State of
Connecticut, being lot #9 on a map entitled "Record Map - Subdivision Northeast
Industrial Park Section 2 Located in the City of Milford, Connecticut Scale
1" = 100' Owner and Developer, F.G. Brodman, Trustee, 99 Cherry Street, Milford,
Conn. 06460, County Investors, Inc., 394 Boston Post Rd., Orange, Conn. 06477"
by Russell W. Waldo, P.E. & L.S., on file in the Milford Town Clerk's office,
said premises being bounded:
NORTHEASTERLY: by a portion of Lot #1 on said map, 60 feet;
EASTERLY: by Lot #7 on said map, 365.66 feet;
SOUTHERLY: by Cascade Boulevard, 130.00 feet;
WESTERLY: by Lot #11 on said map, 322.24 feet;
NORTHWESTERLY: by Lot #15 on said map, 94.27 feet.
<PAGE> 29
EXHIBIT A-2
PERMITTED ENCUMBRANCES
1. Any lien, or right to a lien, for services, labor, or material
heretofore or hereafter furnished, imposed by law and not shown by the
public records.
2. Encroachments, overlaps, easements not shown by the public records and
any other state of facts which an accurate survey or an inspection of
the premises would disclose.
3. Taxes or special assessments which are not shown as existing liens by
the land records.
4. City of Milford taxes on the list of October 1, 1996. First Half due
July 1997. Second Half due January 1998.
5. City of Milford taxes on the list of October 1, 1996. First Half due
July, 1997. Second Half due January 1998.
6. Water use Charges to the South Central Connecticut Regional Water
Authority.
7. Notice of Air Management Order dated June 8, 1993 and recorded June 15,
1993 in Volume 1976 at Page 110 of the Milford Land Records.
8. Easement in favor of The Southern New England Telephone Company as set
forth in Volume 932 at Page 54 of the Milford Land Records.
9. UCC-1 Financing Statement in favor of Center Capital Corporation as
recorded January 18, 1991 in Volume 1809 at Page 377 of the Milford
Land Records.
10. UCC-1 Financing Statement in favor of Center Capital Corporation as
recorded February 11, 1991 in Volume 1812 at Page 258 of the Milford
Land Records.
11. Mortgage from Light Sources, Inc. to Carousel Associates in the amount
of $400,000.00 dated December 28, 1988 and recorded December 30, 1988
in Volume 1603 at Page 202, which Mortgage was assigned to The
Connecticut National Bank n/k/a Shawmut Bank by an Assignment dated
December 27, 1988 and recorded December 30, 1988 in Volume 1693 at Page
211 and subordinated by a Subordination Agreement from Carousel
Associates to The Connecticut National Bank dated December 27, 1988 and
recorded on December 30, 1988 in Volume 1693 at Page 113 in the Milford
Land Records. Said Mortgage was assigned by Assignment of Mortgage from
Shawmut Bank Connecticut, N.A. f/k/a the Connecticut National Bank to
Carousel Associates by Assignment dated November 30, 1993 and recorded
December 6, 1993 in Volume 2017 at Page 384 of the Milford Land
Records. Said Mortgage was further subordinated by Subordination
Agreement recorded on December 6, 1993 in Volume 2017 at Page 457 of
the Milford Land Records.
<PAGE> 30
12. Conditional Assignment of Rents and Leases between Light Sources, Inc.
and The Chase Manhattan Bank of Connecticut, N.A. dated December 2,
1993 and recorded December 6, 1993 in Volume 2017 at Page 412 of the
Milford Land Records.
13. UCC between Light Sources, Inc. and The Chase Manhattan Bank of
Connecticut, N.A. recorded on December 6, 1993 in Volume 2017 at Page
421 of the Milford Land Record.
14. Mortgage in the amount of $2,600,000.00 from Light Sources, Inc. to
Chase Manhattan Bank of Connecticut, NA dated December 2, 1993 and
recorded December 6, 1993 in Volume 2017 at Page 385 of the Milford
Land Records.
15. Assignment of Leases from Light Sources, Inc. to Chase Manhattan Bank
of Connecticut NA dated December 2, 1993 and recorded December 6, 1993
in Volume 2017 at Page 412 of the Milford Land Records.
16. UCC-1 Financing Statement from Light Sources, Inc. to Chase Manhattan
Bank of Connecticut NA recorded December 6, 1993 in Volume 2017 at Page
421 of the Milford Land Records.
17. Mortgage in the amount of $1,500,000.00 from Light Sources, Inc. to
Chase Manhattan Bank of Connecticut NA dated December 2, 1993 and
recorded December 6, 1993 in Volume 2017 at Page 424 of the Milford
Land Records, as modified by Mortgage Modification Agreement dated
September 14, 1995 and recorded in Volume 2138 at Page 513 of the
Milford Land Records. Said Mortgage was amended by Third Loan Extension
and Mortgage Modification Agreement dated May 7, 1997 and recorded May
9, 1997 at 3:49 p.m. of the Milford Land Records.
18. Notice by the State of Connecticut Department of Environmental
Protection dated April 22, 1994 and recorded in Volume 2048 at Page 238
of the Milford Land Records
19. Notice by the State of Connecticut Department of Environmental
Protection dated April 21, 1994 and recorded in Volume 2049 at Page 41
of the Milford Land Records.
<PAGE> 31
EXHIBIT A-3
TENANT'S INITIAL WORK
<PAGE> 32
EXHIBIT A-4
PERSONAL PROPERTY REMAINING
IN BUILDING
1. Racks - to be determined
2. Phone System
3. Air dryer and air lines
4. Alarm system and time clock
5. Structure over existing oven and fencing
6. Furniture and office partitioning
7. Fencing in manufacturing area
8. All loading docks and one overhead door
9. Computer network cabling and fittings
10. Internal electrical distribution and network
<PAGE> 1
Exhibit 21
Subsidiaries of Registrant
Name State of Incorporation
Intec Corp. Delaware
Intec Europe, Ltd. Delaware - (wholly-owned subsidiary of Intec Corp.)
Intec Overseas, Inc. Delaware - (wholly-owned subsidiary of Intec Corp.)
41
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