UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS Under
Section 12(b) or 12(g) of The Securities Exchange Act of
1934
Electronic Control Security Inc.
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(Name of Small Business Issuer in its charter)
New Jersey 22-2138196
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
790 Bloomfield Avenue, Clifton, New Jersey 07012
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (973) 574-8555
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Securities to be registered pursuant to Section 12(b) of the Act
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Title of each class Name of each exchange on which registered
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Securities to be registered pursuant to Section 12(g) of the Act.
Common Stock, par value $.001 per share
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(Title of Class)
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(Title of Class)
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PART I
Item 1. DESCRIPTION OF BUSINESS.
Introduction.
Electronic Control Security Inc. ("we" or "us") was incorporated under the
laws of the State of New Jersey in 1976. We and our wholly owned subsidiaries
design, manufacture and market security detection equipment for correctional,
commercial and industrial use and provide consulting and advisory services with
respect to risk assessment, including threat, vulnerability and criticality
analysis. Our product line includes:
o perimeter detection equipment (pulsed infrared, fiber-optic, thermal
and video detection);
o high-speed data communications network equipment which integrates
access control, perimeter infra-red detection systems, video
assessment, and video badging systems;
o computer security systems which detect entry into a computer
network;
o vehicle and vessel tracking devices;
o asset tracking devices; and
o a personal identification and location system.
Many of our products are designed to protect a site against terrorism,
theft and arson. We market our products to large correctional facilities,
government facilities such as military bases, nuclear power stations, airports
and private corporations including international oil producers and high
technology companies desiring to protect trade secrets and prevent intrusion
into facilities.
Risk Factors.
Set forth below are certain risks and uncertainties relating to our
business. These are not the only risks and uncertainties we face. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business. If any of the following risks actually
occur, our business, operating results or financial condition could be
materially adversely affected.
WE REQUIRE ADDITIONAL FUNDS TO IMPLEMENT OUR CURRENT PLANS AND FINANCE FUTURE
GROWTH
We have developed a business plan to grow our company which assumes that
we will have additional capital available to us. Our business model encompasses:
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o the engagement of additional marketing and sales personnel;
o product development;
o software development;
o adding dealers-installer worldwide; and
o the acquisition of laboratory and testing equipment.
In addition, we plan to repay certain outstanding accounts and to retain
cash for working capital. We anticipate that we will require approximately
$1,050,000 to implement fully our business plan and growth strategy.
We will seek to obtain additional funds through sales of equity and/or
debt, or other external financing in order to fund our current operations and to
achieve our business plan. We cannot assure that any additional capital
resources will be available to us, or, if available, will be on terms that will
be acceptable to us. Any additional equity financing will dilute the equity
interests of existing security holders. If adequate funds are not available or
are not available on acceptable terms, our ability to execute our business plan
and our business could be materially and adversely affected.
WE MAY FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS, INVESTMENTS, STRATEGIC
PARTNERSHIPS OR OTHER VENTURES, INCLUDING WHETHER SUCH TRANSACTIONS CAN BE
LOCATED, COMPLETED AND THE OTHER PARTY INTEGRATED WITH OUR BUSINESS ON FAVORABLE
TERMS
As part of our long-term growth strategy, we may seek to acquire or make
investments in complementary businesses, technologies, services or products or
enter into strategic relationships with parties who can provide access to those
assets, if appropriate opportunities arise. From time to time, we may enter into
discussions and negotiations with companies regarding our acquiring, investing
in, or partnering with their businesses, products, services or technologies. We
may not identify suitable acquisition, investment or strategic partnership
candidates, or if we do identify suitable candidates, we may not complete those
transactions on commercially acceptable terms or at all. Acquisitions often
involve a number of special risks, including the following:
o we may experience difficulty integrating acquired operations,
products, services and personnel;
o the acquisition may disrupt our ongoing business;
o we may not be able to successfully incorporate acquired technology
and rights into our service offerings and maintain uniform
standards, controls, procedures, and policies;
o we may not be able to retain the key personnel of the acquired
company;
o the businesses we acquire may fail to achieve the revenues and
earnings we anticipated; and
o we may ultimately be liable for contingent and other liabilities,
not previously disclosed to us, of the companies that we acquire.
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We may not successfully overcome problems encountered in connection with
potential future acquisitions. In addition, an acquisition could materially
adversely affect our operating results by:
o diluting your ownership interest;
o causing us to incur additional debt; and
o forcing us to amortize expenses related to goodwill and other
intangible assets.
Any of these factors could have a material adverse effect on our business.
These difficulties could disrupt our ongoing business, distract our management
and employees and increase our expenses. Furthermore, we may incur indebtedness
or issue equity securities to pay for any future acquisitions.
WE DEPEND ON OUR RELATIONSHIPS WITH OUR STRATEGIC PARTNERS TO GENERATE A PORTION
OF OUR BUSINESS AND REVENUES AND OUR BUSINESS COULD SUFFER IF THESE
RELATIONSHIPS ARE TERMINATED
We have entered into strategic partnerships or teaming arrangements with
several large multinational corporations that promote our products and services
and incorporate our products into their projects. These strategic partners
include The Aerospace Corporation, Allied Signal Corporation, Analytical Systems
Engineering Corp., Duke Engineering & Services, Inc., Harris Corp./Electronic
Systems Sector, Honeywell Corp., KDN, Kopec, Lau Technologies, Engineered
Professional Services, Science Applications International Corporation, Secure
Applications Inc., and TRW Systems Integration Group. In the event that we are
unable to maintain these strategic relationships for any reason, our business,
operating results and financial condition could be materially adversely
affected.
OUR SERVICES AND REPUTATION MAY BE ADVERSELY AFFECTED BY PRODUCT DEFECTS OR
INADEQUATE PERFORMANCE
We believe that we offer state-of-the art products that are reliable and
competitively priced. In the event that our products do not perform to
specifications or are defective in any way, our reputation may be materially
adversely affected and we may suffer a loss of business and a corresponding loss
in revenues.
IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES OR HIRE NEW QUALIFIED PERSONNEL, OUR
BUSINESS WILL BE ADVERSELYAFFECTED
Our success greatly depends on our ability to attract and retain key
technical, sales, marketing, information systems, and financial and executive
personnel. We are especially dependent on the continued services of our senior
management team, particularly Arthur Barchenko and Mark Barchenko, our
President, and Vice President, respectively, and our key
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marketing personnel. The loss of either of these persons could have a materially
detrimental effect on us. We have not entered into employment agreements with
either of these persons. We do not maintain key person life insurance on any of
our personnel. If we fail to attract, hire or retain the necessary personnel, or
if we lose the services of any member of our senior management team, our
business could be adversely affected.
RISKS OF DOING BUSINESS IN FOREIGN COUNTRIES
During 1998 and 1999, we generated approximately 40% and 60% of our
business from projects which were performed outside the United States. Certain
risks attach to operations in foreign countries, some of which are described
below:
Physical Risks
Many of our projects are undertaken in comparatively dangerous geographic
locations such as the Middle East, East Asia and other less developed areas of
the world that are subject to political and economic instability. Moreover, our
projects generally require us to provide security detection equipment and
consulting and advisory services with respect to risk assessment, including
threat, vulnerability and criticality analysis to sensitive facilities and
installations. Consequently, some of these projects may be the subject of
terrorism which may prevent us from completing the project and obtaining payment
for our services. Any failure to collect amounts due to us on projects would
have a materially adverse affect on our business as we would lose capital and
time expended on such projects without the ability to recapture the costs
associated therewith.
Enforcement of Contractual Rights
We may not be able to enforce all of our contractual rights under certain
contracts we enter into with governments or private organizations located in
some of the geographic in which we transact business. Any inability to enforce
contracts or collect payment from clients located in these areas would have
material adverse effect on our business and our results of operations.
Currency Exchange Rate Fluctuation
Some of the overseas contracts by which we provide products and services
are denominated in currencies other than United States Dollars. As a result, we
are subject to the effects of exchange rate fluctuations with respect to any of
these currencies. We have not entered into agreements or purchase instruments to
hedge our exchange rate risks although we may do so in the future.
Currency Repatriation Restrictions
Some of the foreign countries in which our clients are located have or may
enact laws
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which restrict conversion of their currencies into United States Dollars. Any
inability to convert the entire amount received from contracts performed
overseas may limit our ability to utilize revenue generated in such currencies
outside of that jurisdiction and restrict us to fund our business activities
outside those countries
COMPETITION AND TECHNOLOGICAL ALTERNATIVES
The industry in which we operate is highly competitive and has become more
so over the last several years as security issues and concerns have become a
primary consideration at both government and private facilities worldwide.
Competition is intense among a wide ranging group of product and service
providers, most of which are larger than us and possess significantly greater
assets, personnel, sales and financial resources. The principal factors
affecting competition in the industry include applied technology, product
performance, price and customer service. Any one or more of our competitors or
other enterprises not presently known to us could develop technologies and/or
products which are superior to ours, significantly underprice our products and
technologies and/or more successfully market existing, new or competing products
and technologies. To the extent that our competitors are able to achieve any of
the foregoing, our ability to compete could be materially adversely affected. We
can offer no assurance that we will be able to compete successfully against any
of our competitors now existing or which enter the market in the future.
RISKS RELATING TO OUR STOCK
NO LIQUIDITY FOR COMMON STOCK OR WARRANTS
Neither our common stock nor warrants are listed for trading on any
exchange. Consequently, holders of shares of common stock and/or warrants have
no means of liquidating theses securities should they desire to do so. We intend
to seek to have our class of common stock listed for trading on the electronic
bulletin board of the over-the-counter market at such time as this Form 10-SB is
declared effective by the Securities and Exchange Commission. No assurance can
be given that we will be able successful in causing the class of common stock to
be listed for trading on any market. If we are unsuccessful in obtaining a
listing for the shares of common stock, persons holding said shares may have to
dispose of the shares in private transactions, hence liquidity would be
extremely limited and the price obtained for the shares would not reflect market
forces.
POSSIBLE DELISTING OF OUR SECURITIES FROM TRADING ON THE ELECTRONIC BULLETIN
BOARD
Currently, our Units (each consisting of one share of common stock and one
redeemable common stock purchase warrant, as more fully described under the
heading DESCRIPTION OF SECURITIES) are listed on the electronic bulletin board
of the over-the-counter market. In early 1999, NASDAQ adopted regulations that
would prohibit securities that are not registered under
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the Securities Exchange Act of 1934 from trading on any market or electronic
exchange, including the electronic bulletin board. Any securities not so
registered by the date specified by NASDAQ would be "delisted," that is dropped
from the electronic bulletin board from trading. This Form 10-SB is intended to
register our class of common stock under the Securities Exchange Act of 1934.
However, by law, registration statements such as this Form 10-SB do not become
effective until 60 days after filing with the Securities and Exchange
Commission. A date 60 days from the filing of this Form 10-SB would extend
beyond the current deadline and our Units would be delisted from the electronic
bulletin board. If the Units are delisted from trading on the electronic
bulletin board and holders of our common stock would have no means of
liquidating these securities. Once delisted, we cannot predict when, if ever,
the Units or any other class of securities would be re-listed for trading on the
electronic bulletin board or any other market or exchange as the approval to
re-list any such securities is subject to review by the NASD.
FACTORS OUTSIDE OF OUR CONTROL MAY AFFECT OUR OPERATING RESULTS AND CAUSE OUR
QUARTERLY RESULTS TO FLUCTUATE
Our financial results may fluctuate significantly because of several factors,
many of which are beyond our control. These factors include:
o our failure to keep pace with changing technology;
o costs associated with developing new products and services;
o cost associated with marketing our products and services may
increase significantly;
o government regulations may be enacted which effect how we do
business and the products which may be used at government
facilities;
o downward pressure on prices due to increased competition;
o changes in our operating expenses; and
o the effect of potential acquisitions.
Fluctuations caused by these and other factors could cause our business to
suffer.
WE HAVE NO INTENTION TO PAY DIVIDENDS
We have never paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in our business and do not
expect to pay any dividends in the foreseeable future.
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THE FUTURE SALE OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD EFFECT THE MARKET
FOR ANY OF OUR PUBLICLY TRADED SECURITIES
In the event that we are able to obtain a listing for our common stock on
an securities exchange, the market price of our common stock could fall if our
stockholders sell substantial amounts of common stock, including shares issued
upon the exercise of outstanding options. Such sales might also make it more
difficult for us to sell equity securities in the future at a time and price
that we deem appropriate. Please refer to our discussion in "Shares Eligible for
Future Sale."
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-SB may include "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. We intend the forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements in these sections. All statements
regarding our expected financial position and operating results, our business
strategy, our financing plans and the outcome of any contingencies are
forward-looking statements. These statements can sometimes be identified by our
use of forward-looking words such as "may," "believe," "plan," "will,"
"anticipate," "estimate," "expect," "intend" and other phrases of similar
meaning. Known and unknown risks, uncertainties and other factors could cause
the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions. Although we believe that our expectations
that are expressed in these forward-looking statements are reasonable, we cannot
promise that our expectations will turn out to be correct. Our actual results
could be materially different from our expectations, including the following:
- the effect of any new government regulations on our
business;
- we may not be able to secure funds to implement our
marketing strategy;
- we may not successfully integrate operations, personnel
or assets obtained through acquisitions;
- we may fail to compete with existing and new
competitors;
- we may not adequately respond to technological
developments; and
- we may not be able to find needed financing.
This list is intended to identify some of the principal factors that could cause
actual results to differ materially from those described in the forward-looking
statements included elsewhere in this report. These factors are not intended to
represent a complete list of all risks and uncertainties inherent in our
business, and should be read in conjunction with the more detailed cautionary
statements included in this prospectus under the caption "Risk Factors."
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Industry Overview.
Traditional markets for our security equipment encompassed correctional
facilities and detention centers, and sales to those markets accounted for a
significant portion of our revenues during the 1980's. As world terrorism
increased over the last ten years, security issues and concerns have become a
primary consideration at both government and private facilities. These sources
now comprise the material segment of our business and account for a material
portion of our revenues.
The increase in terrorism against United States government facilities and
private entities during the last several years has increased security
considerations. Terrorism can be perpetrated by direct physical harm to
personnel and property, including theft, and indirectly by electronic means
through intrusion into computer networks. Terrorism is now perpetrated for
political, economic, religious and environmental reasons and virtually every
government and multinational corporation is a potential target. The recent spate
of terrorism against American interests both within the United States and abroad
has heightened awareness of the need to enact countermeasures to prevent the
occurrence of such activities. The government and private entities are
implementing the safeguards necessary to avert potentially dangerous acts
against life and property. In addition, foreign governments and foreign private
industry have begun to implement measures to protect against terrorist
activities. We will continue to focus on the market, both domestic and foreign,
for security systems designed to prevent terrorist activities and expect that
this market will continue to grow during the next decade and beyond.
During our formative years, we derived the material portion of our
revenues from sales to correctional and detention facilities. This market has
been rejuvenated over the last several years as supported by Justice Department
statistics which reveal that though the number of felonies has decreased over
the last several years, the number of persons in the correctional population has
been increasing because an increased percentage of persons convicted are
sentenced to prison terms. In 1995, state prisons operated at approximately 4%
above capacity and federal prisons operated at approximately 25% above capacity.
During the period 1990 to 1995, the federal and state governments added 213
prisons and 280,000 prison beds, representing an increase of 41% in prison
capacity, which nearly kept pace with prison population growth. The United
States Attorney General's office has indicated that it will continue to build
new prison facilities to manage the increasing prison population. The growth of
the prison population and the construction of new prisons in conjunction with
increasing costs associated with maintaining a physical security staff, all
within a limited budget, necessitates a reliance on on-site security systems
such as those which we market. Therefore, we have determined to target the
Federal Bureau of Prisons and state correctional agencies to capitalize on this
opportunity in the coming years.
Completed Systems and Works in Progress.
We have completed hundreds of projects since our inception including
projects for
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foreign governments, government owned utilities and multinational corporations.
We work on a regular basis for the United States Department of Defense,
Department of Energy and nuclear regulated power stations.
Products and Services.
We market nine separate systems and products, most of which can be
adapted, integrated and configured for specific applications as required by the
customer. We market a number of these systems and products as a comprehensive,
fully integrated, building control security system with a real time, on-line
dual redundant central computer network. Our products are designed and
manufactured to be:
o reliable in harsh weather conditions and
o subject to low installation and maintenance costs.
In addition, the sensor systems comprising our products have been designed to
provide low nuisance and false alarm rates and are tailored specifically to meet
the needs of risk mitigation in high threat environments. We believe that we
offer the state-of-the-art sensor systems and data communications networks.
We work with our clients' engineers and architects, the systems
integrator, and the construction manager, to develop and design a system to
achieve a secure, yet normal environment for a facility. We employ the latest
standard off-the-shelf components to develop flexible systems that are
cost-effective and state-of-the-art.
In order to provide our clients with the highest quality and most advanced
systems, we incorporate into our projects products and technologies developed or
owned by other entities. After we evaluate a project, we will ascertain the most
effective and efficient solutions to satisfy a client's requirements. We then
examine the range of technologies and products available for the required
purpose and select the most appropriate product or technology for the project.
We frequently enter into technology transfer agreements covering the technology
or product to be used.
Products:
Infrared Perimeter Intrusion Detection System ("IPID(TM) System")
and Rapid Deployment Infrared Detection System ("RDIDS")
The IPID(TM) System consists of pulsed infrared sensors that detect an
intruder passing through the system's electronic pulsed infrared beams. Once a
beam is broken, the sensors automatically transmit an alarm signal to the
control center as to the exact zone of intrusion. The IPID(TM) System features a
self diagnostic system which differentiates environmental conditions from
intruders so that it does not trigger environmental alarms caused by snow, fog,
leaves or
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small animals and alarms only when an intruder passes through the infrared beam.
The system detects intruders up to 1,200 feet in dry climate, 400 feet in rain
and snow and up to 300 feet in average fog conditions and operates at extreme
temperature ranges. Various configurations of IPID(TM) are available and we can
tailor the systems to the particular installation. Intruder detection sensor
heads are easily affixed on extruded aluminum mounting systems and these poles
can be mounted vertically or horizontally, on buildings, at ground level, on top
of a fence for terrain following configuration, across sally ports, over water
or on roof tops. The system is tamper-proof, and spoofing and jam proof and is
impervious to nuisance alarms. The system is built to military specifications
and is covered by a 10-year warranty. IPID(TM) Systems are in use at nuclear
power facilities, the National Security Agency, the US Department of Energy, the
US Department of Defense, the US Department of Transportation, and detention
sites.
We also offer a rapid deployable stand-alone perimeter intrusion
detection system similar to the IPID(TM) System, marketed as the RDIDS, wherein
the pulsed infrared sensors are placed on portable tripods for mobile use and
rapid deployment. The RDIDS system employs a self-contained power source and
requires no interconnecting wiring. The RDIDS system is essentially impervious
to environmental conditions, standing water, small animals, waving grass and
vegetation and operates up to 1200 feet in clear weather and up to 300 feet
during average fog conditions. RDIDS is relatively simple to install, align and
maintain. RDIDS systems can be used in full stand-alone operation or may be
integrated with virtually any existing security annunciation system. The system
can operate temporarily on battery power as necessary. The system can be used
for immediate protection of exploration teams, pipeline construction sites,
military aircraft, temporary base camps, ammunition storage facilities and
special operations. All RDIDS carry a ten-year warranty against defects in
workmanship and material. These systems are in use at the US Department of
Defense sites.
Fiber Optic Intelligent Detection System ("FOIDS(R)")
Our FOIDS(R) product consists of a fiber optic sensor cable which can be
attached to any barrier, including a fence, wall or roof line, buried in the
ground or used beneath carpeting, above drop ceilings, imbedded in walls, in or
on any fixed surface. FOIDS(R) sensors are placed on reels which facilitate both
deployment and recovery of the system. The FOIDS(R) system is designed to be
flexible and zonal detection areas can be configured to extend to a length of
100 to 250 meters and can be located up to 66 kilometers from the power source.
The fiber optic sensors used in the system are immune to most external
electronic impulses such as radio frequency emissions, static electricity
(including lightning), and moisture and ambient temperature variations. Digital
processing minimizes nuisance alarms and permits the operator to set the desired
probability of detection (i.e., sensitivity to certain conditions or
intrusions). The expanded alarm discrimination and sensitivity control features
of the FOIDS(R) (and the RDIDS) systems allow the user to fine tune the system
and fully optimize the sensor to its environment. FOIDS(R) systems can be
equipped with audio "listen-in" capability from each fiber optic sensor to
permit quick assessment of alarm conditions. The system can operate temporarily
on battery power as necessary. The FOIDS(R) system can be fully integrated with
a variety of digital security
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platforms. The FOIDS(R) system was designed to provide long service life with
low maintenance requirements.
FOIDS(R) systems employed with top-of-the-fence-terrain-following-sensors
provide fiber optic intrusion detection which can create an environment whereby
an 8 foot fence provides 11 1/2 feet of vertical detection.
The FOIDS(R) and RDIDS systems can be combined to create an easily
deployable single-mode optical fiber sensor incorporating the most recent
developments in optical and electronic technologies to provide state-of-the-art
security in tactical situations where temporary barrier security is required.
The electronic and photonic components of these systems are housed in a single
enclosure to protect the system from damage or exposure to unfavorable
environmental conditions.
FOIDS(R) systems are in use at Department of Defense, Department of Energy
National Security Agency Department of Transportation and detention sites.
The FOIDS(R) and RDIDS systems incorporate certain technology which we
have licensed from each of Lucent Technologies, Inc. and Mason Hanger National,
Inc. By agreement dated as of January 15, 1997, Lucent Technologies, Inc.
granted to us a nonexclusive right to use certain technology relating to Optical
Fiber Sensing Systems covered by United States patent number 4,904,050. Lucent
also furnished to us all technical information relating to this technology. The
license extends through the term of the patent which is the subject of the
license. In consideration of the grant of the license, we (i) paid to Lucent an
aggregate of $50,000, (ii) agreed to pay Lucent a minimum continuing annual
royalty of $10,000 and (iii) an annual royalty equal to 4.4% of the gross
revenues derived from each product sold by us which incorporates the technology.
Under the terms of the license, we are entitled to sublicense this technology to
any of our subsidiaries.
By agreement dated March 5, 1997, we purchased from Mason Hanger National,
Inc. certain assets relating to the manufacture of the FIODS(R) product line for
an aggregate purchase price of $151,500. In addition, we entered into a license
agreement with Mason Hanger whereby we obtained a license to use certain
intellectual property, consisting of 3 United States patents, which it developed
in connection with the FOIDS(R) systems. In accordance with this license, we
agreed to pay to Mason Hanger a royalty equal to 5% of the net sales price
(defined as the invoice price by purchasers of products incorporating the
licensed patents less refunds, credits, taxes and normal trade discounts) for
products incorporating the patents licensed to us by Mason Hanger.
Video Motion Detection System ("VMDS") and Video Assessment Systems
("VAS")
As an adjunct to its IPID(TM), RDIDS and FIODS(R), systems, we offer video
surveillance equipment to ascertain the nature of, and monitor, the announced
threat. The sole purpose of a
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perimeter detection system is to reliably sense an intrusion into a prescribed
physical area. Once an alarm has sounded, it is the operator's function to
confirm that the breach represents a risk requiring some response. The video
aspect of the system allows the operator to make a visual corroboration of the
breach and to determine whether the breach constitutes a threat (e.g., one man
or ten men) or whether the alarm represents something less (e.g., a deer). Upon
confirmation of a threatening intrusion, the operator can deploy an appropriate
response to that threat. If the perimeter system is not complimented with some
form of assessment (i.e., video confirmation), then the response force will
follow the same established procedures whether it is a dear or a man or a group
of men. The purpose of video assessment is to help the user understand the cause
of the alarm so that an adequate and appropriate response can be initiated.
The Video Motion Detection System ("VMDS") is designed and constructed for
outdoor intrusion detection by using closed circuit television ("CCTV") cameras,
digital processing and fiber optic links. The CCTV camera field of view, up to
200 meters in length, is divided into discrete cells which remain invisible to
the operator until an intruder moves into a field. The system is configured to
react to human characteristics of size, speed and direction. Once an intrusion
occurs, the operator's attention is drawn to the monitor by graphical and
audible warnings. Any cell that has been crossed is highlighted on screen,
creating a progress indicator. Multi-directional features enable detection of
intruders moving in any direction relative to the camera. Digital processing
minimizes false and nuisance alarms caused by small animals, birds and
environmental effects such as contrast changes, cloud shadows, wind induced
camera vibration, rain and snow.
VMDS can be integrated with existing security systems and with video
motion or video assessment systems and can be used with smoke and fire detection
equipment to detect fires indoors (electrical systems) and outdoors, and in
hazardous areas under risk of explosion..
Video Assessment Systems ("VAS") are integrated with other security
measures to aid in the assessment of alarm conditions. Constant attention to
video monitors can cause security control personnel to lose effectiveness. Using
video assessment as an adjunct to intrusion detection can assist in reducing
operator fatigue, ensure appropriate response and provide a record of
intrusions.
Key features of our primary VAS include automatic camera selection based
on the specific alarm detected; storage of multiple alarm area scenes
immediately when the alarm is detected; random access retrieval of stored alarm
scenes; cameras positioned to view the same direction as the perimeter system
detectors; and real-time viewing of intruded area for comparison with stored
alarm scenes.
Gamma 2000 System
In February 1998, we entered into an agreement with Rafael Armament
Development Authority, a department of the Israeli Ministry of Defense, which
developed the GAMMA 2000
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Preemptive Intrusion System. Pursuant to this agreement, Rafael appointed us as
the exclusive marketing agent for the Gamma 2000 system in the United States for
a three-year period subject to extension for an additional three years which
extension would be granted based upon sales volume of the products which is to
be determined prior to the end of the initial term of the agreement. The Gamma
2000 system is an electronic surveillance system that detects intruders before
they reach the perimeter of a secured zone. The system's field units include a
passive infrared ("PIR") sensor, closed circuit digital camera, and projectors
for nighttime use. Spaced at regular intervals, the units relay data and
real-time video images to a central control unit. The system creates a 15-to
20-meter detection and verification band outside and parallel to a secured
perimeter. The system can operate in extreme temperature ranges and in a variety
of weather conditions.
The GAMMA 2000 system integrates with established systems, and, by
providing early warning that someone may attempt to breach a perimeter, it
increases the difficulties that terrorists or other intruders will encounter in
their efforts. The GAMMA 2000 system is suited for border control, military
bases, power stations, oil and gas storage facilities, nuclear power plants,
industrial sites, prisons and airports or other situations with high-level
security demands.
High Speed Data Communications Network
Data communications represent the heart of any security system and allow
several different systems to be integrated into a single coherent security and
detection unit. We market a comprehensive PC based high-speed data
communications network which integrates access control, perimeter IDS, video
assessment, and video badging systems and which is capable of linking multiple
buildings and multiple sites worldwide. Our system is readily expandable and
modular and can be operated by the user's own computer server. Systems are
available in Windows 95 and Windows NT software platforms and can transmit
voice, video and alarm data on a single fiber optic, copper or twisted pair
wire. Further, our systems employ hot swappable keyboards, resulting in no down
time. These systems can be configured to operate on Ethernet, dedicated
telephone lines, by radio frequency communications and satellite communication
links.
The system is in use at the World Trade Center and Brookhaven National
Laboratories, among other locations.
Architectural Security Lighting Systems
A significant component of any security system includes proper and
effective lighting of the area to be protected. As a complement to our security
systems, we offer lighting systems which can enhance a facility's security by
illuminating areas which otherwise may be subject to infiltration because of
darkness or because of their location at some distance away from a facility's
main security center. Our lighting systems can be designed for interior and
exterior use and can be integrated directly into the security system, for
example, by mounting IPID sensors into custom lighting bollards. We work with
clients to design appropriate lighting systems for a
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project and the equipment is built to design specifications. We have designed
and developed lighting systems for landscape architects, interior designers,
lighting consultants and end-users. We have completed lighting system projects
for, among others, the FBI Building in Washington, D.C., the Immigration and
Naturalization Service Building in Burlington, Vermont, and the Dartmouth
University Medical Center.
SecureLan
SecureLan is a local area network (a series of computers linked together
by a dual path fiber optic cable or copper wire and herein referred to as a
"LAN") physical security system. As more and more entities are linked to the
Internet, computer hackers are able to gain illegal access to the entities'
computer systems. We have developed a system which identifies an unauthorized
access to a LAN and annunciates the intrusion. Any unauthorized access to the
LAN will alert the user to shut down the network, thereby denying the intruder
access to sensitive or confidential information. A graphical map details the
location of the alarm and other pertinent information relating to the intrusion.
The active component of the SecureLan is its fiber optic sensor cable which can
be trained to sense unauthorized access to the LAN.
Vehicle and Vessel Protection Systems
We market systems designed to protect vehicles and vessels by installing
or affixing small global postioning system ("GPS") which tracks the position of
the item.
The StarLog 8 is a locating device which is capable of tracking a vehicle
or vessel and reporting and logging its location at user-specified intervals in
real-time or in batched download. The StarLog 8 consists of an eight channel GPS
tracking unit which is installed in the vehicle or vessel and the software
necessary to record its location based upon several available mapping options
which can be displayed to show position trails and current location. The StarLog
8 has applications in law enforcement, covert surveillance, cargo tracking,
fleet management, traffic analysis and billing verification.
Asset Protection
We market a radio frequency ("RF") unit which can be affixed to an asset
such as a computer or other valuable piece of property. Each RF unit transmits a
unique electronic signature to the owner's computer which identifies the
property. The software installed in the owner's computer system automatically
activates if the property is moved or tampered with. The device's tracking
capability displays movement of the property.
Personal Alarm Devices
We market a line of personal alarm systems which permit individuals to
signal for assistance instantly. The signal transmitted identifies and locates
the person in seconds. The
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Company hopes to market these devices to hospitals, colleges (for protection of
coeds at night), and mental health facilities.
Consulting Services.
We furnish consulting and advisory services with respect to risk
assessment, including threat, vulnerability and criticality analysis. Our
consulting services generally consist of evaluation and then the design and
specification of security systems that meet the client's operating and budgetary
requirements
Product Design, Manufacturing and Installation.
We design and develop new products based upon market requirements. We
research and assess threat and vulnerability issues at selected facilities
within our target markets and we design and engineer our products in-house, with
outside consultants as necessary, and in conjunction with joint venture partners
to meet the needs of clients within the target markets based upon the results of
such research. We purchase the individual components comprising our products
from third party suppliers, or subcontract to third parties the manufacture of
specific subsystems necessary for a particular product. We assemble and finish
our products at our facilities in New Jersey and Alabama. Various aspects of the
software programming required in connection with our computer products are
designed and written by in-house personnel. We are not dependent on any major
suppliers for the components of our products and we believe, should it become
necessary, that substitute suppliers for any of the components are readily
available.
We have engaged eighteen dealer-installers with locations in thirty-five
countries around the world. These entities serve to market our products in their
geographic area and to install our products in client facilities. Our
dealer-installers also serve as the support network for product installations.
Our major dealer-installers are strategically located in the key growth markets
of North and South America, the Asian rim and the Middle East.
Markets for Our Products.
We have identified a number of major geographic and industrial markets for
our products and have developed a marketing plan to access those markets and
industries. Generally, private industry and public and government facilities
possessing sensitive information, valuable assets or which otherwise may be
subject to terrorist threats by virtue of the nature of their business have
recognized the need to implement security measures to protect personnel and
property. In many instances, laws have been enacted and judicial mandates have
been handed down decreeing compliance with some minimum-security standards. We
target these entities as well as entities to which we can demonstrate the need
for security measures.
The following represent the primary markets which we target:
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o United States Government and Agencies. The United States Government
and many of its departments represent a significant market for our
products and has been a significant customer in the past. US
Government departments which have purchased our products in the past
and to which we currently actively market our products include:
o The United States Department of Defense and a number of its
subdivisions have been using our products for force and asset
protection at numerous sites including military bases and
installations;
o The United States Department of Energy in connection with its
clean-up program of military bases and government-owned
nuclear energy facilities, offer an expansive and varied
market for our products;
o The Department of Transportation; and
o Federal Bureau of Prisons. A traditional market for our
products has been correctional, justice and penal facilities.
Despite the decline in the number of crimes punishable by
incarceration, the prison population continues to rise as a
greater percentage of convicted felons are sentenced to prison
terms. Consequently, additional correctional and penal
facilities are constructed annually and the new facilities
represent a prime market for the Company's products and
services. The Company has made substantial sales to this
sector of the economy during its existence and will continue
to focus on sales to this industry.
In the past, we have marketed and sold products to other
United States government departments including the Immigration
and Naturalization Services and the National Aeronautic and
Space Agency. We will continue to focus on these and other
government departments in the future.
o Large Industrial Facilities and Major Office Complexes. These types
of facilities frequently house sensitive data and are the primary
locations where research and product development occur. Generally,
the management of the multinational corporations which own these
facilities are acutely aware of security requirements to protect
valuable property and data. The security systems we have installed
in these facilities in the past encompass total security packages to
create a "smart building." The technologies required to create a
smart building in today's environment must address power, lighting,
life safety, local area network and wide area network protection and
other security systems to create a normal yet secure environment for
employees, visitors and service personnel. Our fiber optic and
communications systems can be applied to create the smart building.
o Energy Facilities, Including Nuclear Plants, Power Utilities and
Petrochemical
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Pipelines. Nuclear and utility power stations which house sensitive
information and dangerous materials represent a large and lucrative
market for our products. These entities are critical to the normal
function of society and must be protected at all costs.
Petrochemical, natural gas and pipeline companies, many of which
operate in high risk and remote environments and geographic
locations, invest huge sums in the assets necessary to operate those
businesses and are taking steps to protect these investments through
the acquisition of security equipment and systems.
o Commercial Airports. Commercial airport security has been at the
forefront of security consciousness for many years. There are
approximately 1,200 facilities in the United States which the
Federal Aviation Agency has identified and mandated for security
systems upgrades to be completed over the next several years and we
will bid for the provision of products and services to these sites.
o Foreign/Export Opportunities. Government operations and private
industries in foreign countries all have similar security issues
which must be addressed and we, along with our strategic teaming
partners, continue to seek to penetrate these markets as time and
capital warrant. During 1998 and 1999, we generated approximately
40% and 60%, respectively, of our revenues from projects performed
outside the United States. We have completed projects in numerous
foreign countries including the Russian Federation, Saudi Arabia,
Korea, Ukraine, Columbia, Malaysia and Hong Kong. We currently are
working on projects in the Brazil, South Korea, Israel, Egypt,
Bahrain, Kuwait, Turkey, Greece, a number of African countries and
other nations around the world. We believe that the market for our
products is as strong or stronger than in the United States and we
intend to continue to pursue vigorously opportunities abroad.
Marketing.
We have developed a multi-tiered marketing plan which allows us to
effectively market our products to each of the separate government and industry
segments we have identified as target markets both in the United States and
internationally. Our marketing strategy highlights its products strengths as
they apply to that particular industry.
The primary goals of our marketing strategy are to
o broaden the base of potential clients to which we can market our
products and
o validate the efficacy of our product line to those not familiar with
our product offerings.
To that end, we have entered into teaming, representative and joint venture
relationships with
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major corporations in each of the industries which comprise our target markets.
These entities generally enjoy a strong market presence in their respective
industries and we believe that our association with these entities affords us
and our products with added credibility.
We have entered teaming arrangements with The Aerospace Corporation,
Allied Signal Corporation, Analytical Systems Engineering Corp., Duke
Engineering & Services, Inc., Harris Corp./Electronic Systems Sector, Honeywell
Corp., KDN, Kopec, Lau Technologies, Engineered Professional Services, Science
Applications International Corporation, Secure Applications Inc., and TRW
Systems Integration Group. Each of our teaming partners has expertise in the
different industries which we have identified as markets for our products and
assist in introducing us to potential clients and purchasers or otherwise
include our products as subsystems of a larger project.
We develop and maintain relationships with large systems integrators such
as Lockheed Martin, TRW, Honeywell, Dyne McDermott, Mason & Hanger,
Westinghouse, Sandia, Bechtel, Securacom, NISE East, MET Technology and others,
and have built a reputation among these companies as a technology resource,
technology application and support organization with respect to the security
industry. Numerous orders are generated from our association with these entities
which are among the largest in the world in their respective fields, conduct
business with other large companies in the development and construction of huge
projects and have the ability to influence project purchases.
Members of our management team have many years of experience in the field
of security. Each member of the management team is assigned an area and makes
direct contact with, and sales proposals to, government and industrial
organizations in that area. In addition, we have engaged dealers/sales
representatives (many of which also serve as installers of ours products)
throughout the United States and around the world to actively market our
products to governments and private industry.
We attempt to develop and maintain relationships and contacts with
employees of each of the major government agencies encompassing our target
markets and have cultivated such relationships in the past. In addition, we rely
on our teaming and strategic partners for introductions to appropriate personnel
at these agencies.
A significant portion of our international business is generated through
our network of independent dealer/installers. We have entered into agreements
with dealers/installers which allow us to maintain a presence in thirty five
countries worldwide. Our agreements generally extend for a period of two years
and provide the dealer/installer with discounts from current product prices as
an incentive to market our products in their geographic area. We rely on our
dealer/installer base to represent us and our product line throughout the world
and to apprise us of potential projects which can incorporate our products. In
addition, we rely on our dealers/installers to introduce our company and our
products to key government and private enterprise personnel in their respective
geographic regions.
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We also attend the major trade shows for each industry and advertise in
relevant industry publications. If additional working capital becomes available,
we will seek to increase our advertising in industry specific publications to
create greater name recognition.
Growth Strategy.
In order to achieve a sustainable and realistic growth rate, we believe
that the company must devote additional resources to marketing and product
development. Specifically, we intend to:
o Add two persons to our marketing and sales team. We will seek to add two
persons to our marketing team who have extensive sales and marketing
experience in the areas of marketing to the United States government and
the petroleum and chemical markets, as we believe these areas represent
the greatest potential for growth in the near and medium term. We believe
that additional sales and marketing personnel will allow us to access
additional markets and develop the focused marketing efforts required to
develop business in our target markets.
o Commence the development of new products and software to support the new
and existing products. We intend to develop new products and software to
up-grade the current IPID system to a microprocessor system using a Window
NT platform. We also intend to up-grade the FOIDS product line by
incorporating new hardware and software based on the Windows NT platform.
We will use the Window NT software to integrate these systems as well as
our video motion detection systems to meet our customers' requirements. We
believe that the new products and software will ad sale volume by enabling
us to expand product application capabilities, which will result in the
expansion of marketing opportunities.
o Expand our base of dealers/installers worldwide. We believe that an
effective and cost efficient means of increasing sales is to expand our
base of dealers/installers worldwide. These entities serve as our local
agents to market products and provide customer support. Furthermore, these
entities are familiar with local laws and frequently have local contacts
in government and business at decision-making levels. We will seek to
expand our international base of dealers/installers by advertising in
trade publications, though our company web site and through international
customer referrals.
o Purchase laboratory and testing equipment. We intend to purchase certain
laboratory and testing equipment which will allow us to enhance and
maintain product quality standards and support our extended warranty
program.
We anticipate that we will require approximately $1,050,000 to implement
fully our business plan and growth strategy. As yet, we have not identified a
source of such funds but will seek to place equity or debt securities to obtain
the financing to permit us to implement this plan.
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Competition.
As the government and private industry become increasingly concerned with
security issues, the security and anti-terrorism industry has grown accordingly.
Competition is intense among a wide ranging group of product and service
providers, most of which are larger than us and possess significantly greater
assets, personnel, sales and financial resources, but most of which, we believe,
specialize in only one or two products or product lines or sales to a limited
number of the industries which comprise the market for security products. The
principal factors affecting competition in the industry include applied
technology, product performance, price and customer service. We believe that we
have a competitive advantage over other product and service providers in the
industry because:
o we offer a wide range of products to meet numerous security
requirements;
o our products are flexible (many of our products can be configured to
meet specific needs and can be integrated with each other and with
and into existing security systems);
o our products are reliable;
o our products are relatively easy and inexpensive to install and
maintain;
o our products do not have high incidence of nuiasance or false
alarms, and
o we have been successful in teaming with large multinational
companies which market and incorporate the Company's products in
their product offerings, thereby lending credibility to the efficacy
of the Company's products.
Employees.
We employ eighteen (18) individuals on a full-time basis including four
(4) design and engineering staff, seven (7) manufacturing and assembly
employees, two (2) marketing employees and five (5) administrative employees. A
number of the employees serve in multiple capacities, for example, Arthur
Barchenko serves as our President but also is an integral member of the
Company's marketing team.
ITEM 2. MANAGEMENT'S DICUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Fiscal 1999 Compared to 1998
Results of Operations. Revenues in the fiscal year ended June 30, 1999 were
$2,146,722 a decline of 4% as compared to $2,244,924 for fiscal year ended June
30, 1998.
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This revenue decrease was primarily due to a Department of Defense funds
shift to cover the costs of the Bosnia and Kosovo missions.
Cost of goods sold decreased from 60.3% for the period ending June 30,
1998 to 47.3% for the period ending June 30, 1999, and gross profit increased
from 39.7% to 52.7% for the same period.
Selling, general and administrative expenses decreased from $993, 554 for
the period ending June 30, 1998 to $953,271 for the period ending June 30, 1999.
Net income increased by $19,601 to $187,000 from $167,399. Earnings per share
remained at $0.05.
Liquidity and Capital Resources. We have financed our capital requirements
through personal loans from Arthur Barchenko and his family members and
extending terms of payment from suppliers. For the fiscal year ended June 30,
1999, our working capital deficiency was reduced by $172,645 from $232,724 to
$60,079, primarily due to the decrease in cost of goods sold and increase in
gross profit.
Current assets increased by $74,539 from June 30, 1998 to June 30, 1999
and current liabilities decreased by $98,106 during the same period.
We have no material commitments for purchases or capital equipment at this
time. We believe that our working capital and sales revenues will not be
sufficient to meet our capital requirements for the foreseeable future. A bank
line of credit in the amount of $250,000 will be required to address current
needs.
Item 3. DESCRIPTION OF PROPERTY.
Our corporate headquarters are located at 790 Bloomfield Avenue, Clifton,
New Jersey where we lease approximately 10,000 square feet of space divided
among administrative (3,000 sq. feet) and manufacturing (7,000 sq. feet) space.
We have leased this space through May 1,, 2008 at a rent of $3,917 per month. We
also lease approximately 2,500 square feet of manufacturing space at 260 Finney
Drive, Huntsville, Alabama. We have leased this space through June 30, 2002 at a
rent of $1,550 per month. We believe that this space is sufficient for our
current requirements and that additional space is available on commercially
reasonable terms, if necessary.
Item - 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 25, 2000,
regarding the beneficial ownership of Common Stock of (1) each person or group
known by us to beneficially
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own 5% or more of the outstanding shares of Common Stock, (2) each director and
officer and (3) all executive officers and directors as a group. Unless
otherwise noted, the persons named below have sole voting and investment power
with respect to the shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Amount of
Name of Beneficial Percent of Outstanding
Beneficial Owner 1 Ownership Shares of Class Owned
- ------------------ --------- ---------------------
<S> <C> <C>
Arthur Barchenko 2 893,538 25.00%
Mark R. Barchenko 3 19,250 .005%
Gene Rabois 50,000 .014%
Richard Stern -0-
Eldon Moberg -0-
Natalie Barchenko 4 924,749 26.94%
All officers
and directors as a group (5 persons) 993,999 27.8%
</TABLE>
1. The address for each of the persons named in the foregoing chart is c/o
the Company.
2. Includes 93,233 shares of common stock held in a trust for the benefit of
Andrew Barchenko of which Arthur Barchenko is the trustee and over which
shares he exercises voting control and dispository power.
3. Mark Barchenko is Arthur Barchenko's son.
4. Arthur Barchenko and Natalie Barchenko are married
Item - 5 DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Name Age Title
---- --- -----
Arthur Barchenko 66 President and Director
Mark R. Barchenko 43 Vice-President and Director
Richard Stern 50 Vice-President
Eldon Moberg 47 Vice-President
Gene Rabois 55 Director
All directors hold office until the next annual meeting of stockholders
and until their successors have been elected and qualified. The Board of
Directors elects the officers annually.
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<PAGE>
Arthur Barchenko has been our President and a Director since December
1976. Mr. Barchencko also participates in the management of our subsidiaries.
From June 1952 to May 1972, he held various sales and marketing positions at
Lightolier, Inc., a company engaged in the manufacturing and marketing of
lighting fixtures. During his tenure at Lightolier, Inc., Mr. Barchenko served
as the vice president of sales and was responsible for directing a sales force
of approximately 150 persons and a support staff of approximately 50 persons.
Mr. Barchenko also served as a member of the board of directors and on the
executive committee Lightolier, Inc. Prior to organizing Electronic Control
Security Inc., Mr. Barchenko co-founded and directed the operations of Bajer
Industries, a lighting manufacturing company that was subsequently sold to the
Charter Group. He attended New York University and the New School for Social
Research.
Mark Barchenko joined us in 1993 and has served as our Vice-President of
Marketing and as a member of the Board of Director since June 1996. Mr.
Barchencko also participates in the management of our subsidiaries. Mr.
Barchenko has over 20 years experience with our company and is involved in
operations as well as marketing and business development. He has been
extensively involved in organizational development of our company as well as
with the structuring and implementation of policies and procedures in all areas
of operations. He has focused his marketing and business development efforts in
the areas of the U.S. Air Force, airports, maritime, railroads, pharmaceutical,
petrochemical facilities and site remediation. Mr. Barchenko developed a
customer base with major master systems integration firms in the government and
private market sectors. He also has been directly involved in design and
manufacturing of specialty lighting elements and systems and also with various
security sensor systems. Mr. Barchenko is active with American Defense
Preparedness Association, and American Society of Industrial Society. He served
on the Radio Technical Commission for Aeronautics Committee 183 for upgrade of
FAR 107.14(a) and (b) as a member of the special access control security task
force for the Federal Aviation Administration. Through his affiliation with
these entities, Mr. Barchenko develops and maintains contacts with the staff of
many of our clients and target clients. Mr. Barchenko holds a U.S. patent
entitled "Jet Propulsion Engine Assembly for Aircraft". Mr. Barchenko earned a
B.A. Degree form the American University, School of Government and Public
Administration in Washington, D.C. in 1978. Mark Barchekno is the son of Arthur
Barchenko, our President.
Richard Stern has served as our Vice-President-Manufacturing since
December 1, 1997. He is responsible for the overall management of our
manufacturing department, which includes supervising all manufacturing,
maintenance and test personnel; manufacturing engineering, including the review
and evaluation of new and existing product design in a manufacturing
environment; oversight of maintenance of plant equipment and facilities;
mechanical package design of new product development; quality control, including
the development of test equipment and procedures; production scheduling;
shipping and receiving and inventory of all materials and finished products,
purchasing and expediting of materials and supplies, and oversight of
manufacturing personnel, labor reports. Prior to joining us, Mr. Stern spent 25
years in the data communication and temperature processing fields. He has held
managerial positions in manufacturing, engineering, quality control, service, as
well as being involved in the design and
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development of the product lines within these fields.
Eldon Moberg joined us in 1996 as the Vice President of the FOIDS product
division and has served as our Vice-President since July 1, 1999. Mr. Moberg is
responsible for establishing the FOIDS manufacturing and test facility in
Huntsville, Alabama. His duties include planning and coordinating manufacturing
schedules and resources and the provision of technical data for security system
design and project cost analysis. Prior to joining us, Mr. Moberg was the
Production Supervisor for Mason & Hanger National, Inc. a company engaged in the
manufacture and marketing of our FOIDS product line where he initially was a
production support technician and performed optical / electronic fabrication and
testing of a fiber optic based security system and components. Thereafter, as
Production Supervisor, he was responsible for planning and scheduling personnel,
materials and equipment to support product manufacture. Other duties included
procurement, product acceptance testing QA / QC, inventory control and MRP
system operation. Before entering private industry, Mr. Moberg served for twenty
years in the United States Army where he gained experience as senior radar
repair technician for several Army Air Defense systems, team leader for missile
system direct support maintenance and training developer for newly acquired Army
missile systems.
Gene Rabois has served as our Chief Financial Officer and as a member of
our Board of Directors since October 1, 1989. He has more that thirty years of
progressive experience in accounting and finance, Securities and Exchange
Commission financial reporting, installation and management of computer systems
and control and administrative of corporate financial affairs. Mr. Rabois
currently serves as the Controller for a printing. Mr. Rabois earned a Master of
Business Administration, University of Michigan in 1967 and a Bachelor of
Business Administration, University of Michigan in 1966.
Item - 6 EXECUTIVE COMPENSATION
The following table sets forth the information regarding compensation paid
(on an annualized basis) for the Named Executive Officer for the periods
indicated.
SUMMARY COMPENSATION TABLE
Name and Principle Position Year Salary
- --------------------------- ----- ------
Arthur Barchenko-President 1999 $85, 000
No other officer, director or employee received a salary (including cash and
other compensation) during 1999 in excess of $100,000.
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Stock Options
Incentive Stock Option Plan. In 1986, we adopted an Incentive Stock Option
Plan which we renewed in 1996 for a second ten-year term. We have reserved
750,000 shares of common stock for issuance under the Stock Option Plan. Our
Board of Directors administers the Stock Option Plan but may delegate such
administration to a committee of three persons, one of whom must be a member of
the Board. The Board or the Committee has the authority to determine the number
of options to be granted, when the options may be exercised and the exercise
price of the options, provided that the exercise price may never be less than
the fair market value of the shares of the Common Stock on the date the option
is granted (110% in the case of any employee who owns more than 10% of the
combined voting power or value of all classes of stock. Options may be granted
for terms not exceeding ten years from the date of the grant, except for options
granted to person holding in excess of 5% of the common stock, in which case the
options may not be granted for a term not to exceed five years from the date of
the grant.
As of the date hereof, there are 210,000 outstanding options under the
Incentive Stock Option Plan. These options are exercisable at prices ranging
from $.06 to $.30 and expire from between 2002 to 2010.
Nonstatutory Stock Option Plan. The Company also has adopted a
nonstatutory stock option plan and has reserved 250,000 shares of common stock
for issuance to Directors, employees and nonemployees. Options granted pursuant
to this plan will be non-transferable and expire, if not exercised within five
years from the date of the grant. Options will be granted in such amounts and at
such exercise prices as the Board of Directors may determine.
As of the date hereof, there are 50,000 outstanding options under the
Nonstatutory Stock Option Plan. These options are held by one person and are
exercisable at a price of $.30 per share. These options expire on January 1,
2010.
Item - 7 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since our inception, we have relied on loans from officers, directors,
shareholders and their affiliates to assist in the funding of our operations. At
December 31, 1999, we owed certain of our officers and directors (and their
respective affiliates) an aggregate of $661,203. Of said amount, we owe
$524,591.19 to Arthur Barchenko, our President and a member of the Board of
Directors, and affiliates of Mr. Barchenko. The loans from Mr. Barchenko and his
affiliates are evidenced by a series of agreements which provide for the
repayment of the loans with interest rates ranging from no interest to interest
computed at a rate of 10% per annum. The principal amount of these loans is
repayable over a six-year period (though the lenders have, in the past, extended
the repayment dates) as follows:
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<PAGE>
Year Principal Due
---- -------------
2000 $ 84,121
2001 $114,032
2002 $150,623
2003 $145,623
2004 $134,832
2005 $ 31,972
The foregoing amounts do not provide for the payment of interest payable on the
principal to be repaid in each such year.
Item - 8 DESCRIPTIONS OF SECURITIES
General
Our authorized capital consists of 15,000,000 shares of common stock, par
value $.001 per share, and 5,000,000 shares of Preferred Stock, par value $.01
per share. At February 22, 2000 there were 3,574,000 shares of common stock and
no shares of Preferred Stock outstanding. In addition, we have outstanding
1,300,000 Redeemable Common Stock Purchase Warrants. Set forth below is a
summary description of certain provisions relating to our capital stock
contained in our Certificate of Incorporation and By-Laws and under the Business
Corporation Act of the State of New Jersey. The summary is qualified in its
entirety by reference to our Certificate of Incorporation and By-Laws and the
New Jersey corporation laws.
Units
During February 1987, we sold and issued 1,300,000 Units in connection
with a public offering of our securities pursuant to the Securities Act of 1933.
Each Unit consists of one share of Common Stock and one Redeemable Common Stock
Purchase Warrant. The Common Stock and Warrant included in each Unit are
separately transferable.
Common Stock
Each share of Common Stock entitles the holder thereof to share ratably in
dividends and distributions, if any, on the Common Stock when, as and if
declared by the Board of Directors, from funds legally available therefor. There
are no preemptive, subscription or conversion rights. Upon liquidation,
dissolution or winding up of the affairs of the company and after payment of
creditors and satisfaction of any amounts outstanding to holders of the
Preferred Stock, the assets legally available for distribution will be divided
ratably on a share-for-share basis among the
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<PAGE>
holders of the outstanding shares of Common Stock. The holders of the
outstanding shares of Common Stock are not entitled to cumulative voting and are
entitled to one vote per share with respect to all matters that are required by
law to be submitted to a vote of shareholders, including the election of
Directors. Accordingly, the holders of more than 50% of the outstanding shares
of Common Stock will have the ability to elect all of the Directors.
Preferred Stock
As yet, no shares of Preferred Stock have been designated by the Board of
Directors. The Board of Directors has the authority, without further action by
the holders of the Common Stock, to issue Preferred Stock in one or more series
and to fix as to any such series the dividend rate, redemption prices,
preferences on liquidation or dissolution, sinking fund terms, if any,
conversion rights, voting rights and any other preference or special rights and
qualifications. Shares of Preferred Stock issued by the Board of Directors could
be utilized, under certain circumstances, as a method of raising additional
capital, for possible acquisitions or for any purpose. The Board of Directors
has not authorized the issuance of any series of Preferred Stock and there are
no agreements, understandings or plans for the issuance of any Preferred Stock.
Warrants
As a part of the Units issued in our public offering, we issued 1,300,000
warrants to purchase an aggregate of up to 1,300,000 shares of Common Stock and
have reserved a like number of shares of Common Stock for issuance upon exercise
of such Warrants. Each Warrant entitles the holder to purchase one share of
Common Stock at a price of $2.50 per share until February 26, 2001. The exercise
prices are subject to adjustment under certain circumstances. The Warrants are
subject to redemption on not less than thirty days notice, at a per Warrant
price of $.10, provided, the closing price of the Common Stock exceeds $3.50 per
share (subject to adjustments for stock dividends) stock splits and the like,
for thirty consecutive business days. The closing price is defined as the last
reported sales price of the Common Stock on the Over the Counter Bulletin Board
or, in the case on any national securities exchange, or if the Common Stock is
not listed or admitted to trading on any such exchange, a representative closing
bid price in the over-the-counter market. The Warrants are exercisable only if
is a currently effective registration statement on file with the Securities and
Exchange Commission relating to the shares of Common Stock underlying the
Warrants, and only if such shares are qualified for sale under applicable state
securities or "blue sky" laws of the jurisdictions in which the various Warrant
holders reside. As of the date hereof, none of these warrants have been
exercised.
Notwithstanding the foregoing, Registrant may at its option reduce the
exercise price and extend the termination date of the Warrants.
Shares Eligible for Future Sale
Currently, only our Units are traded publicly on the Over-the-Counter
electronic bulletin
27
<PAGE>
board.
As of the date of this Form 10-SB, we have a total of 3,574,000 shares of
common stock outstanding. Of these outstanding shares, 1,374,000 shares are
freely tradable, without restriction by or further registration under the
Securities Act of 1933 by persons other than our "affiliates," as defined in
Rule 144 under the Securities Act.
All the other outstanding shares of common stock (2,200,000 shares) are
"restricted securities" for purposes of the Securities Act and may not be sold
unless they are registered under the Securities Act or unless an exemption from
registration, such as that provided by Rule 144, is available.
In addition, all of the 1,300,000 Warrants outstanding are freely tradable
without further restriction by or registration under the Securities Act.
We can make no prediction as to the effect, if any, that market sales of
shares of Common Stock or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of significant
numbers of shares of Common Stock in the public market could adversely affect
the market price of the Common Stock and could impair our future ability to
raise capital through an offering of its equity securities.
Transfer Agent
Continental Stock Transfer and Trust Company, located at 2 Broadway New
York, NY 10004, is the transfer agent and registrar for our common stock and the
warrant agent for our warrants.
PART II
Item 1. MARKET PRICE AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Price
On March 5, 2000 the closing bid price per Unit was $1.31. There is no
public trading market for the registrants Common Stock or Warrants.
The following table sets forth the quarterly high and low closing bid and
closing ask prices (in U.S. dollars) for the Units for the period June 30, 1997
through December 31, 1999:
28
<PAGE>
Closing Bid
High Low
--------------------------------
1998
JAN. 2
THRU .01 .01
MAR. 31
APR. 1
THRU .375 .01
JUNE 30
JULY 1
THRU .375 .13
SEPT. 30
OCT. 1
THRU .25 .05
DEC. 31
1999
JAN. 4
THRU .25 .0625
MAR. 31
APR. 1
THRU .25 .0625
JUNE 30
JULY 1
THRU .50 .125
SEPT. 30
OCT. 1
THRU .25 .0625
DEC. 31
Source: National Quotation Bureau, LLC
The foregoing data represents prices between dealers and does not include
retail mark-ups, mark-downs or commissions, nor does such data represent actual
transactions or adjustments for stock-splits or dividends.
29
<PAGE>
Dividends
To date, Registrant has not declared or paid dividends on its Common
Stock. Registrant presently plans to retain earnings, if any, for use in its
business.
Trading Market
The Units trade on the EBB-OTC under the symbol "EKCSU".
Principal Market-Makers
On December 31, 1999, there were four active market makers of the Units.
The principal market makers of the Units during 1999 have been Grady and Hatch,
Sharpe Capital Inc., Fordham Financial MGT, Inc., Hill Thompson Magid and Co.
Inc.
Number of Shareholders of Record
As of December 3, 1999, there were approximately 484 shareholders of
record of the Units, approximately 500 shareholders of record of the Common
Stock and approximately 484 holders of record of the Warrants.
Item 2. LEGAL PROCEEDINGS
We are not party to nor are we aware of any litigation involving the
company.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
Item 4. RECENT SALES OF UNREGISTERED SECURITIES.
During October 1999, we issued, pursuant to the exemption afforded by
Section 4(2) of the Securities Act of 1933, 100,000 shares of common stock to a
financial public relations firm in partial consideration for services to be
rendered in our behalf. The shares were issued pursuant to an agreement between
us and the public relations firm and were valued at $.0375, an amount equal to
60% of the closing bid price of the Units on the date of issuance.
Other than the foregoing securities and options issued to officers and
employees, we have not issued any securities during the last three years.
30
<PAGE>
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Certificate of Incorporation provides that none of our directors or
officers shall be personally liable to the company or any stockholder to the
full extent permitted under the corporate laws of the State of New Jersey. Under
the Business Corporation Act of the State of New Jersey, no director or officer
shall be liable for damages for breach of any duty owed to the company or its
shareholders, except that such laws do not relieve a director or officer from
liability for any breach of a duty based upon any act or omission (a) in breach
of such person's duty of loyalty to the corporation or its shareholders, (b) not
in good faith or involving a knowing violation of law or (c) resulting in the
receipt by such person of an improper personal benefit.
Additionally, our By-Laws provide for the indemnification of any of our
directors, officers and employees by reason of their serving in such capacity
against expenses and liabilities in connection with any proceeding involving
him/her by reason of his/her being or having been a corporate agent, other than
a proceeding by or in the right of the corporation, if (a) such person acted in
good faith and in a manner he/she reasonably believed to be or not opposed to
the best interest of the corporation, or (b) in a criminal proceeding, if such
person had no reasonable cause to believe that his/her conduct was unlawful. In
addition, the company may indemnify a corporate agent against expenses and
liabilities in connection with any proceeding by or in right of the corporation
if he acted in good faith and in a manner he/she reasonably believed to be in or
not opposed to the best interest of the corporation. Such indemnification is not
deemed to be exclusive of any other rights to which those indemnified may be
entitled, under any by-law, agreement, vote of stockholders or otherwise. The
foregoing provisions of our Certificate of Incorporation may reduce the
likelihood of derivative litigation against our directors and officers for
breach of their fiduciary duties, even though such action, if successful, might
otherwise benefit us and our stockholders.
31
<PAGE>
PART F/S
32
<PAGE>
Contents
- --------------------------------------------------------------------------------
Independent Auditors' Report F-1
Balance Sheets as of June 30, 1999 and 1998 F-2
Statements of Income and Deficit for the years ended
June 30, 1999 and 1998 F-3
Statements of Cash Flows for the years ended
June 30, 1999 and 1998 F-4
Notes to Financial Statements F-5 - F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Electronic Control Security Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Electronic
Control Security, Inc. and Subsidiaries as of June 30, 1999 and 1998, and the
related consolidated statements of income, deficit, and cash flow for the years
then ended. These financial statements are the responsibility of the Company's
managment. Our responsibility is to express an Opinion on these financial
statements based on our audit.
Except as discussed in the following paragraph, 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.
We did not observe the physical inventory (stated at $350,031) taken as of June
30, 1997, since that date was prior to our initial engagement as auditors of the
Company, and the Company's records do not permit adequate retroactive tests of
inventory quantities.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary in the consolidated statements of income,
deficit, and cash flows for the year ended June 30, 1998 had we been able to
observe the physical inventory taken as of June 30, 1997, the financial
statements referred to in the first paragraph present fairly, in all material
respects, the financial position of Electronic Control Security, Inc. and its
subsidiaries as of June 30, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
DEMETRIUS & COMPANY, L.L.C.
Wayne, New Jersey
October 22, 1999
F-1
<PAGE>
ELECTRONIC CONTROL SECURITY INC.
BALANCE SHEETS
JUNE 30, 1999
ASSETS
1999 1998
----------- -----------
Current assets:
Cash $ 3,032
Accounts and contracts receivable, net of allowance
for doubtful accounts of $-0- and $43,402 65,890 $ 285,584
Inventories 672,302 399,417
Deferred income taxes 27,000 60,000
Other current assets 67,310 15,994
----------- -----------
Total Current Assets 835,534 760,995
Property, equipment and purchased software at cost
net of accumulated depreciation of
$196,200 and $151,180 197,869 109,440
Intangible assets at cost, net of
accumulated amortization of $12,606 and $8,267 47,451 49,731
Deferred charges at cost, net of
accumulated amortization of $40,512 and $20,256 122,256 40,511
Due from affiliate 57,726
Deferred income taxes 349,000 290,000
Other Assets 25,086 32,226
----------- -----------
$ 1,577,196 $ 1,340,629
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
Bank overdraft $ 33,043 $ 94,079
Accounts payable and accrued expenses 646,843 641,508
Current maturities of long-term debt 24,000
Obligation under capital leases 17,558 6,510
Payroll taxes payable 74,602 81,767
Income taxes payable 15,446 32,646
Due to affiliate 10,133
Due to officers and shareholders 73,988 137,209
----------- -----------
Total Current Liabilities 895,613 993,719
Obligation under capital lease 31,902 13,710
Long term debt 38,000
Due to affiliate 192,518 202,651
Due to officers and shareholders 362,724 308,380
Other liabilities 151,795 104,525
----------- -----------
Total Liabilities 1,672,552 1,622,985
----------- -----------
Shareholders' deficiency:
Preferred stock, $.01 par value:
Authorized and none issued - 5,000,000 shares
Common stock, $.001 par value:
Authorized - 15,000,000 shares
Issued and outstanding - 3,474,000 shares 3,474 3,474
Paid-in capital 1,436,498 1,436,498
Accumulated deficit (1,535,328) (1,722,328)
----------- -----------
Total Shareholders' Deficiency (95,356) (282,356)
----------- -----------
$ 1,577,196 $ 1,340,629
=========== ===========
The accompanying notes are an integral part of the statements.
F-2
<PAGE>
ELECTRONIC CONTROL SECURITY INC.
STATEMENTS OF INCOME AND DEFICIT
YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
----------- -----------
Revenues $ 2,146,722 $ 2,244,924
Cost of sales 1,015,758 1,353,458
----------- -----------
Gross Profit 1,130,964 891,466
----------- -----------
Operating expenses and other income:
Selling, general and administrative expense 953,271 993,554
Interest expense 21,069 25,024
Other income (5,176) (307,246)
----------- -----------
Total Operating Expenses and Other Income 969,164 711,332
----------- -----------
Income before Provision for Income Taxes 161,800 180,134
Provision (credit) for income taxes (25,200) 12,735
----------- -----------
Net Income 187,000 167,399
Deficit at beginning (1,722,328) (1,889,727)
----------- -----------
Deficit at End $(1,535,328) $ 1,722,328)
=========== ===========
Basic and diluted earnings per common share $ 0.05 $ 0.05
=========== ===========
Number of weighted average
common shares outstanding 3,474,000 3,474,000
=========== ===========
The accompanying notes are an integral part of the statements.
F-3
<PAGE>
ELECTRONIC CONTROL SECURITY INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers 2,366,416 $ 2,691,421
Cash paid to vendors and employees (2,191,399) (2,659,711)
Interest paid (21,069) (25,024)
income taxes paid (18,000) (89)
Other income 5,176
----------- -----------
Net Cash Provided by Operating Activities 141,124 6,597
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (41,096) (14,567)
Software development (57,843) (7,998)
----------- -----------
Net Cash Used in Investing Activities (98,939) (22,565)
----------- -----------
Cash flows from financing activities:
Proceeds (payments) of loans 47,270 (64,751)
Increase (reduction) of bank overdraft (61,036) 92,791
Payments on notes payable (10,000)
Payments on lease obligations (6,510)
Loan payments to officers and shareholders - net (8,877) (12,072)
----------- -----------
Net Cash Provided by (Used in) Financing Activities (39,153) 15,968
----------- -----------
Net Increase (Decrease) in Cash 3,032
Cash at beginning
----------- -----------
Bank Overdraft, at End $ 3,032
=========== ===========
<CAPTION>
Supplemental schedule of non cash investing and financing:
1999 1998
----------- -----------
<S> <C> <C>
Equipment acquired under capitalized lease $ 35,750 $ 10,719
Promissory notes issued in connection with settlement
relating to investment in partnership 72,000
</TABLE>
The accompanying notes are an integral part of the statements.
F-4
<PAGE>
ELECTRONIC CONTROL SECURITY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
1. NATURE OF OPERATIONS
Electronic Control Security, Inc. (The "Company") is engaged in the
design, manufacture and marketing of electronic security and lighting
systems for high threat environments. The Company currently offers five
separate security and lighting sub-systems: Infrared Perimater Intrusion
Detection (IPID(TM)), Fiber Optic Intelligence Detection System
(FOIDS(TM)), Automatic Assessment Signal Processor (AASP); Data Comm
System/Access Control (DSA(TM)); and an Architectural Lighting Product
System. The Company also performs consulting services which consists
principally of designing security systems for correctional facilities, and
offers design services on both in-house projects and for outside clients.
The Company has customers throughout the world.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of Electronic Control
Security, Inc. and its subsidiaries, SEM Consultants III, Inc. ECSI
International, Inc., ECSI-FOIDS, Inc. and ECSI-DSA, Inc., collectively
"the Company". The statements also include one hundred percent of the
accounts of ECSI-EAG International, a joint venture until March, 1999. The
Company owned a fifty-one percent interest in this joint venture. The
remaining Forty-nine percent of ECSI-EAG International was owned by W.T.
Sports Ltd. (See Note 6) and was reflected as a minority interest. All
significant intercompany accounts and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Ending inventory is primarily composed of raw materials and
work-in-process.
Property and Equipment and Depreciation
Depreciation is provided for by straight-line and accelerated methods over
the estimated useful lives of the assets, which vary from three to ten
years. Cost of repairs and maintenance are charged to operations in the
period incurred.
Earnings Per Share
Earnings per share for the years ended June 30, 1999 and 1998 are based
upon the weighted average of common outstanding. The exercise of stock
options and warrants was not assumed as their effect would be
anti-dilutive.
Use of 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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-5
<PAGE>
ELECTRONIC CONTROL SECURITY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Software Purchased
Software purchased by the Company and utilized in providing contract
services is capitalized at cost and amortized on a straight-line basis
over three to five years.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes,"
which requires the use of the liability method of accounting for income
taxes. The liability method measures deferred income taxes by applying
enacted statutory rates in effect at the balance sheet date to the
differences between the tax bases of the assets and liabilities and their
reported amounts in the financial statements. The resulting deferred tax
asset or liability is adjusted to reflect changes in tax laws as they
occur.
Deferred income taxes reflect temporary differences in reporting assets
and liabilities for income tax and financial accounting purposes. These
temporary differences arise primarily from net operating loss
carryforwards.
Fair Value of Financial Instruments
The Company has adopted Statement or Financial Accounting Standards No.
107 (SFAS 107), "Disclosures about Fair Value of Financial Instruments"
which requires entities to disclose the fair value of financial
instruments for which it is practicable to estimate fair value.
The Company's financial instruments include cash, accounts receivable,
accounts payable, accrued expenses, other current liabilities and
long-term debt. The carrying values of cash, accounts receivable, accounts
payable, accrued expenses and other current liabilities are representative
of their fair value due to the short-term maturity of these instruments.
The carrying value of the Company's long-term debt is considered to
approximate its fair value, based on current market rates and conditions.
Intangible Assets
The cost of licenses, trademarks and software development acquired are
being amortized on the straight-line method over their useful lifes,
ranging from 5 to 15 years. Amortization expense charged to operations was
$4,339 and $4,934 for the years ended June 30, 1999 and 1998.
Start-up Costs
Deferred charges consisting of advertising, marketing and promotional
programs for the FOIDS (TM) system and the United States Military and
National Security Agency are capitalized and amortized over one to three
years. Amortization expense charged to operations was $20,255 for the
years ended June 30, 1999 and 1998.
Advertising Costs
Advertising costs are reported in selling, general and administrative
expenses, and include advertising, marketing and promotional programs.
These costs not deferred at year-end are charged to expenses in the year
in which incurred. Advertising costs for the year ended June 30, 1999 and
1998 were approximately $40,000 and $22,000, respectively.
NET INCOME PER SHARE
Basic earnings per share has been computed by dividing net income (the
numerator), by the weighted-average number of common shares (the
denominator) for the period. Such shares amounted to 3,474,000 in 1999 and
1998.
SEGMENT INFORMATION
In June 1997, Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("Statement 131"), effective for
financial statements for fiscal years beginning after December 15, 1997.
Statement 131 establishes standards for the reporting by public business
enterprises of financial and descriptive information about reportable
operating segments in annual financial statements and interim financial
reports issued by shareholders. The Company primarily provides
installation services for companies located in high threat environments in
need of security systems that are located throughout the world, and
considers all of its operations as one segment because expenses support
multiple products and services. Management uses one measurement of
profitability and does not disaggregate its business for internal
reporting.
Sales to foreign governments and agencies were approximately 60% and 40%
of revenues for the years ended June 30, 1999 and 1998, respectively.
F-6
<PAGE>
ELECTRONIC CONTROL SECURITY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain reclassifications of prior years' amounts have been made to
conform with the current year presentation.
3. SHAREHOLDERS' DEFICIENCY
Common Stock & Warrant
The Company has a total of 1,300,000 units outstanding consisting of one
share of common stock and one redeemable common stock purchase warrant.
The common stock and warrant included in each unit became separately
transferable on February 26, 1988. Each warrant entitles the holder to
purchase one share of common stock at a price of $2.50 per share until
February 26, 2001. The exercise price is subject to adjustment under
certain circumstances.
The warrants are subject to redemption by the Company, at any time after
they become separately transferable from the common stock, on not less
than thirty days notice, at $.10 per warrant, provided the closing price
of the Company's common stock shall have exceeded $3.50 per share for any
thirty consecutive business days prior to such calls from redemption.
Stock Option Plans
Pursuant to Statement of Financial Accounting Standard No. 123 (SFAS 123)
"Accounting for Stock-Based Compensation" the Company has elected to
account for its employee stock option plans under APB Opinion No. 25
"Accounting for Stock Issued To Employees". Accordingly, no compensation
cost has been recognized for these plans.
The Company's stock has not been actively traded in recent years, and
there are no market quotes available. Accordingly, it is impractical to
compute the effect on earnings, if any.
a. Incentive Stock Option Plan
During September 1986, the Company adopted an incentive stock option
plan for which 750,000 shares of common stock have been reserved.
Under the plan, incentive stock options were granted to certain
employees of the Company. These options expire ten years from the
date of grant.
The following table summarizes option plan activity:
Option
Number Price
of Shares Ranges
Outstanding at June 30, 1997 190,000 $.05 - $.125
Issued 40,000 $.10
-------
Outstanding at June 30, 1998 230,000 $.05 - $.125
Issued 30,000 $.125 - $ .25
-------
Outstanding at June 30, 1999 260,000 $.05 - $ .25
=======
b. Nonstatutory Stock Option Plan
As of June 30, 1999, the Company has a nonstatutory stock option
plan with 250,000 shares of common stock reserved as follows:
Option
Number Price
of Shares Ranges
Outstanding at June 30, 1998 0
Issued 10,000 $.25 - $.30
------
Outstanding at June 30, 1999 10,000
------
F-7
<PAGE>
ELECTRONIC CONTROL SECURITY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
4. INVENTORIES
Inventories at June 30, 1999 and 1998 consist of the following:
1999 1998
-------- --------
Raw materials $172,746 $237,013
Work-in-process 169,861 57,904
Finished goods 329,695 104,500
-------- --------
$672,302 $399,417
======== ========
5. PROPERTY EQUIPMENT AND PURCHASED SOFTWARE
Property, equipment and purchased software also consists of the following:
1999 1998
-------- --------
Furniture and fixtures $ 20,844 $ 18,185
Machinery and equipment 221,420 151,872
Improvements 9,296 1,962
Software 142,509 88,601
-------- --------
394,069 260,620
Less Accumulated
Depreciation 196,200 151,180
-------- --------
$197,869 $109,440
======== ========
Equipment under capital leases included in property, equipment and
purchased software are as follows:
Machinery and equipment $ 62,832 $ 27,082
Less Accumulated
Depreciation 13,734 6,530
-------- --------
$ 49,098 $ 20,552
======== ========
6. NOTE PAYABLE
On May 17, 1999 the Company issued a promissory note to W.T. Sports Ltd.
the former forty-nine percent owner of ECSI-EAG Interational, for $72,000.
The note payable was issued to release virtually all assets and
liabilities of the joint venture and W.T. Sports, Ltd. and its affiliates.
The note is payable in thirty-six monthly payments of $2,000 beginning
March 26, 1999. The note is non-interest bearing, and collateralized by
the IPID(TM) trademark.
7. RELATED PARTY TRANSACTIONS
The Company has loans payable to officers, shareholders and an affiliated
company which is owned by two shareholders. The loans have various payment
schedules and interest rates. Some loans are non-interest bearing and
other loans range from 8% to 12%.
Maturities of related party debt are as follows:
Years ending June 30:
2000 $ 84,121
2001 114,032
2002 150,623
2003 145,623
2004 134,832
2005 10,132
--------
$639,363
========
8. OBLIGATION UNDER CAPITAL LEASES
Future minimum lease payments for assets under capital leases at June 30,
1999
Years ending June 30:
2000 $18,880
2001 18,666
2002 9,662
2003 9,662
2004 9,662
-------
66,532
Amount representing interest 17,072
-------
Present Value of Net Minimum
Lease Payments $49,460
=======
F-8
<PAGE>
ELECTRONIC CONTROL SECURITY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30,1999
9. COMMITMENTS AND CONTINGENCIES
Lease Agreements
Future minimum annual rental payments required under noncancellable
operating leases for years after June 30, 1999 are as follows:
Year ending
-----------
2000 $44,000
2001 45,000
2002 46,000
2003 47,000
2004 48,000
Thereafter 193,000
Rent expense under all operating leases was $67,363 and $64,847 for the
years ended June 30, 1999 and 1998.
Legal Actions
The Company is currently not involved in any legal actions.
License Agreements
In March 1997, the Company acquired intellecutal property, equipment and
tooling form Mason & Hanger National, Inc. and a patent license from
Lucent Technologies, Inc. for the Fiber Optic Intelligence Detection
Systems (FOIDS(TM)). In conjunction with these acquisitions, the Company
has two license agreements whereby royalties totaling 9.4% will be paid on
revenues from the Fiber Optic Intelligence Detection System (FOIDS(TM)).
Minimum payments for these agreements are $35,000 annually through March
5, 2007. If minimum payments are not made, the agreements may be
terminated. License and royalty expenses were $39,473 and $42,845 for the
years ended June 30, 1999 and 1998.
10. INCOME TAXES
The provision for taxes for the year ended June 30, 1999 and 1998 includes
the following components.
1999 1998
-------- --------
Federal
Current $ 54,000 $ 36,846
Deferred (20,000) (15,000)
Benefits of
operating loss
carryforwards (54,000) (5,000)
State
Current 39,800 19,889
Deferred (6,000) (5,000)
Benefits of
operating loss
carryforwards (39,000) (19,000)
-------- --------
($25,200) $ 12,735
======== ========
The components of the deferred tax asset as of June 30, 1999 and 1998 are
as follows:
1999
Current Noncurrent
-------- --------
Total deferred tax assets $27,000 $582,000
Total valuation allowance (233,000)
-------- --------
Net Deferred Tax Asset $27,000 $349,000
======== ========
1998
Current Noncurrent
-------- --------
Total deferred tax assets $60,000 $677,000
Total valuation allowance (387,000)
-------- --------
$60,000 $290,000
======== ========
The deferred tax asset valuation allowance at June 30, 1997 was $259,000.
F-9
<PAGE>
ELECTRONIC CONTROL SECURITY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
10. INCOME TAXES (Continued)
The reconciliation of estimated income taxes attributed to operations at
the United States statutory tax rate to reported provision for income
taxes is as follows:
1999 1998
-------- --------
Provision for taxes
computed using alternative
minimum tax rate in 1998 $54,000 $ 36,846
State taxes, net of
Federal benefit 39,800 19,889
Utilization of net
operating loss
carryforwards:
Federal (54,000) (5,000)
State (39,000) (19,000)
Recognition of deferred
income tax asset:
Federal (20,000) (15,000)
State (6,000) (5,000)
-------- --------
Provision for
Income Taxes ($25,200) $ 12,735
======== ========
At June 30, 1999 the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $1,422,000 and
$1,593,000, respectively, expiring through 2011.
11. CASH FLOWS
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
1999 1998
Net income $ 187,000 $ 167,399
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Deferred income taxes (26,000) (20,000)
Depreciation and
amortization 69,424 61,389
Other income (307,246)
(Increase) decrease:
Accounts receivable 219,694 446,497
Inventories (272,885) (49,386)
Other current assets (51,316) (15,994)
Other assets 34,237 (86,444)
Increae (decrease):
Accounts payable and
accrued expenses 5,335 (122,025)
Payroll taxes payable (7,165) (87,985)
Income taxes payable (17,200) 32,646
Other current
liabilities (12,254)
--------- ---------
Net Cash Provided by
Operating Activities $ 141,124 $ 6,597
========= =========
12. CONCENTRATIONS AND ECONOMIC DEPENDENCY
The Company had two customers that accounted for 34% of net revenues for
the year ended June 30, 1999. One customer accounted for 43% of accounts
receivable at June 30, 1999.
The Company had two customers that accounted for 26% of net revenues for
the year ended June 30, 1998 and 58% of accounts receivable at June 30,
1998.
-11-
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Fiscal 1999 Compared to 1998
Results of Operations.
Revenues in the fiscal year ended June 30, 1999 were $2,146,722 a decline of 4%
as compared to $2,244,924 for fiscal year ended June 30, 1998.
This revenue decrease was primarily due to a Department of Defense funds shift
to cover the costs of the Bosnia and Kosovo missions.
Cost of goods sold decreased from 60.3% for the period ending June 30, 1998 to
47.3% for the period ending June 30, 1999, and gross profit increased from 39.7%
to 52.7% for the same period.
Selling, general and administrative expenses decreased from $993,554 for the
period ending June 30, 1998 to $953,554 for the period ending June 30, 1999. Net
income increased by $19,601 to $187,000 from $167,399. Earnings per share
remained at $0.05.
Liquidity and Capital Resources
The Company has financed its capital requirements through personal loans from
Arthur Barchenko family members and extending terms of payment from suppliers.
For the fiscal year ended June 30, 1999, working capital deficiency was reduced
by $172,645 from $232,724 to $60,079, primarily due to the decrease in cost of
goods sold and increase in gross profit.
Current assets increased by $74,539 from June 30, 1998 to June 30, 1999 and
current liabilities decreased by $98,106 during the same period.
The Company has no material commitments for purchases or capital equipment at
this time. Management believes that the Company's working capital and sales
revenues will not be sufficient to meet its capital requirements for the
foreseeable future. A bank line of credit in the amount of $250,000 will be
required to address current needs.
The Company Listing
The Company is not listed in the Electronic Bulletin Board.
-12-
<PAGE>
Corporate Data
Board of Directors
Arthur Barchenko
President and Chief
Executive Officer
Alexander Kloubek
Vice President, Secretary and
System Analyst
Mark R. Barchenko
Vice President,
Business Development
Gene Rabois, C.P.A.
Advisory Board
Anatole Forostenko
Account Manager, Smith Barney
Ross Kelly
President, Security Assistance and
Special Operations
John Kim
President, Unidex Group, Inc.
Corporate Auditors
Demetrius & Company, L.L.C.
Wayne Interchange Plaza I
145 Route 46 West
Wayne, New Jersey 07470-6830
Officers
Arthur Barchenko
President and Chief
Executive Officer
Alexander Kloubek
Vice President, Secretary and
System Analyst
Mark R. Barchenko
Vice President,
Business Development
Richard Stern
Vice President,
Manufacturing, ECSI
Eldon Moberg,
Vice President,
Manufacturing, FOIDS
Transfer Agent and Registrar
Continental Stock Transfer &
Trust Company
2 Broadway, 17th Floor
New York, New York 10004
Corporate Counsel
Ruffa & Ruffa, P.C.
150 East 58th Street
New York, New York 10155
Executive Office
790 Bloomfield Avenue C1
Clifton, New Jersey 07012
Phone: 973-574-8555
Fax 973-574-8562
E-mail [email protected]
Website anti-terrorism.com
Subsidiary
SEM Consultants III, Inc.
-13-
<PAGE>
PART III
Item 1. INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.1 Certificate of Incorporation of Electronic Control Security Inc.
3.2 By-Laws of Electronic Control Security Inc.
3.3 Certificate of Incorporation of SEM Consultants III, Inc.
3.4 By-Laws of SEM Consultants III, Inc.
3.5 Certificate of Incorporation of ECSI International, Inc.
3.6 By-Laws of ECSI International, Inc.
3.7 Certificate of Incorporation of ECSI FOIDS, Inc.
3.8 By-Laws of ECSI FOIDS, Inc.
3.9 Certificate of Incorporation of ECSI-DSA, Inc.
3.10 By-Laws of ECSI-DSA, Inc.
4.1 Specimen Form of Common Stock Certificate.
4.2 Form of Redeemable Common Stock Purchase Warrant issued to
public in 1987.
4.3 Form of Qualified Stock Option Certificate.
4.4 Form of Non- Qualified Stock Option Certificate.
10 Material Contracts
10.1 Patent License and Technical Information Agreement Relating to
Fiber Optic Sensing Systems dated as of January 15, 1997 between
Lucent Technologies Inc. and Electronic Control Security Inc.
33
<PAGE>
10.2 Agreement dated March 5, 1997 between Mason Hanger National,
Inc. and Electronic Control Security Inc. relating to the
purchase of certain assets relating to the FOIDS Product Line.
10.3 License dated March 5, 1997 between Mason Hanger National, Inc.
and Electronic Control Security Inc. relating to the license of
certain intellectual property used in connection with the
manufacture of the FOIDS Product Line.
10.4 Lease Agreement with 580 Brighton Road Associates for space in
Clifton New Jersey.
10.5 Lease Agreement with The Theta Group for space in Huntsville,
Alabama.
10.6 Teaming agreement with Rafael Armament Development Authority.
23.1 Consent of Demetrius & Company, L.L.C.
27.1 Financial Statement Schedule
34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned thereunto duly authorized.
ELECTRONIC CONTROL SECURITY INC.
Date: December 13, 1999 By: /s/ Arthur Barchenko
----------------- ------------------------------
Arthur Barchenko, President
35
<PAGE>
EXHIBITS TO FORM 10-SB
ELECTRONIC CONTROL SECURITY INC.,
36
Exhibit No. 3.1
Certificate of Incorporation of Electronic Control Security Inc.
<PAGE>
Certificate of Incorporation
of
ENVIRONMENTAL CONSERVATION SYSTEMS, INC.
This is to certify that, there is hereby organized a corporation under and
by virtue of N.J.S. 11A:1-1 et seq., the "New Jersey Business Corporation Act."
[ILLEGIBLE] 1. The name of the corporation is Environmental Conservation
Systems, Inc.
[ILLEGIBLE] 2. The address (and zip code) of this corporation is
250 Mill Street, Belleville, New Jersey 07109
and the name of this corporation's initial registered agent at such
address is
Alex Kloubek
[ILLEGIBLE] 3. The purpose for which this corporation is organized are:
To engage in any activity within the purposes for which
corporations may be organized under the "New Jersey Business Corporation
Act." N.J.S. 11A:1-1 et seq.
<PAGE>
[ILLEGIBLE] 4. The aggregate number of shares which the corporation shall have
authority to issue is
1,000 shares no par value
<PAGE>
[ILLEGIBLE] 5. The first Board of Directors of this corporation shall consist of
1 Director(s) and the name and address of each person who is to serve as
such Director is:
Name Address Zip Code
Alex Kloubek 250 Mill Street
Belleville, New Jersey 07109
[ILLEGIBLE] 6. The name and address of each incorporation is:
Name Address Zip Code
George J. Minish 239 Main Street
West Orange, New Jersey 07052
For Witness Whereof, each individual incorporator, each being over the age
of twenty-one years, has signed this Certificate; or if the incorporator be a
corporation, has caused this Certificate to be signed by its authorized
officers, this 14th day of May 1976.
/s/ George J. Minish
----------------------------------------
GEORGE J. MINISH
<PAGE>
FILED & RECORDED
JUN 28 1976
/S/ [ILLEGIBLE]
SECRETARY OF STATE
LICENSE FEE $35.00
FILING FEE 35.00
RECORDING
CERTIFYING COPY
SEC. OF STATE
$61.00
/s/ [ILLEGIBLE]
Certificate of Incorporation
of
ENVIRONMENTAL CONSERVATION SYSTEMS, INC.
FORWARD FOR RECORDING
AND FILING
BY:
MINISH AND BOOLEY
239 Main Street
West Orange, New Jersey 07052
(201) 736-5356
<PAGE>
I, The Secretary of State of the State Of New Jersey, DO HEREBY
CERTIFY that the foregoing is A true copy of CERTIFICATE OF Incorporation and
the endorsements thereon, as the same is taken from and compared with the
original filed in my office on the 28th day of June, A.D. 1976 and now remaining
on file and of record therein.
[SEAL] IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed
my Official Seal at Trenton, this 23rd day of April, A.D. 1984
/s/ Jane Burgio
SECRETARY OF STATE
<PAGE>
FILED
OCT 2 1986
JANE BURGIO
Secretary of State
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
ELECTRONIC CONTROL SECURITY INC.
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-2(4) and Section
14A:9-4(3), Corporations, General, of the New Jersey Statutes, the undersigned
corporation does hereby execute the following Certificate of Amendment to its
Certificate of Incorporation:
1. The name of the corporation is ELECTRONIC CONTROL SECURITY INC.
2. The following amendment to the Certificate of Incorporation was
approved by the Directors and thereafter duly adopted by the Shareholders of the
corporation on the 9th day of September, 1986.
RESOLVED, that Article SECOND of the Certificate of Incorporation be
amended to read as follows:
"SECOND: The address of this corporation's registered office
is 256 Columbia Turnpike, Columbia Commons - Suite 202, Florham Park, New Jersey
07932, and the name of this corporation's registered agent at such address is
Harvey R. Poe."
RESOLVED, that Article FOURTH of the Certificate of Incorporation be
amended to read as follows:
"FOURTH: The aggregate number of shares which the corporation
shall have authority to issue is Fifteen Million (15,000,000) shares of common
stock having a par value of one mil ($.001) each, and Five Million (5,000,000)
shares
<PAGE>
of preferred stock having a par value of one cent ($.01) each.
The designation, relative rights, preferences and limitations of the
shares of each class of stock shall be as follows:
(a) As to the common stock:
(i) Dividends. Subject to the prior dividend rights of
the holders of the preferred stock, the holders of the common stock shall be
entitled to receive such dividends as may be declared by appropriate Resolution
of the Board of Directors of the corporation out of funds legally available
therefor.
(ii) Voting Rights. Each holder of the common stock
shall be entitled to one vote per share with respect to the election of
Directors and all other matters submitted to a vote of the holders of all the
voting stock of the corporation.
(iii) Rights of Liquidation. Upon the dissolution,
liquidation or winding up of the corporation, the holders of common stock shall
be entitled to receive any assets of the corporation remaining after the full
satisfaction of the asset preference of the preferred stock.
(b) As to the preferred stock:
(i) Dividends. The holder of the preferred stock are
entitled to receive annual dividends in an amount to be decided by the
appropriate Resolution of the Board of Directors of the corporation. These
dividends shall be either cumulative or noncumulative as decided by the
appropriate Resolution of the Board of Directors of the corporation.
(ii) Voting Rights. The voting rights, if any, of the
holders of the preferred stock shall be decided by
<PAGE>
the appropriate Resolution of the Board of Directors of the corporation.
(iii) Rights in Liquidation. The preferred stock shall
be preferred over the common stock in the event of any dissolution, liquidation
or winding up of the corporation to the extent decided by the appropriate
Resolution of the Board of Directors of the corporation.
(iv) Conversation Rights. The holder of the preferred
stock shall have the right to convert any or all shares of the preferred stock
into shares of the common stock of the corporation as shall be decided by the
appropriate Resolution of the Board of Directors of the corporation.
(C) Assessment: The common stock, and preferred stock after the
amount of the subscription price, or par value, has been paid in, shall not be
subject to assessment to pay the debts of the corporation."
3. The number of shares outstanding at the time of the adoption of
the amendment was 180. The total number of shares entitled to vote thereon was
180.
4. The number of shares voting for and against such amendment is as
follows:
Number of Shares Voting Number of Shares Voting
For Amendment Against Amendment
----------------------- -----------------------
180 None
Dated this 9th day of September, 1986.
ELECTRONIC CONTROL
SECURITY INC.
By /s/ Arthur Barchenko
-------------------------------------
Arthur Barchenko, President
Exhibit No. 3.2
By-Laws of Electronic Control Security Inc.
<PAGE>
BY-LAWS
OF
ENVIRONMENTAL CONSERVATION SYSTEMS, INC.
- --------------------------------------------------------------------------------
Adopted December 15, l976
ARTICLE I
OFFICES
1. Registered Office and Agent.--The registered office of the Corporation
in the State of New Jersey is at 250 Mill Street, Belleville, New Jersey
4A 4-1
The registered agent of the Corporation at such office is Alexander
Kloubek
2. Principal Place of Business.--The principal place of business of the
Corporation is
250 Mill Street
Belleville, New Jersey
3. Other Places of Business.--Branch or subordinate places of business
or offices may be established at any time by the Board at any place or places
where the Corporation is qualified to do business.
Page B
<PAGE>
ARTICLE II
SHAREHOLDERS
[ILLEGIBLE] 5-2
14A 5-4(1)
1. Annual Meeting.--The annual meeting of shareholders shall be held upon
not less than ten nor more than sixty days written notice of the time, place,
and purposes of the meeting at 11 o'clock a.m. on the 15th day of the month of
December of each year at principal place of business of the corporation
14A 5-1
or at such other time and place as shall be specified in the notice of meeting,
in order to elect directors and transact such other business as shall come
before the meeting. If that date is a legal holiday, the meeting shall be held
at the same hour on the next succeeding business day.
14A 5-3
2. Special Meetings.--A special meeting of shareholders may be called for
any purpose by the president or the Board. A special meeting shall be held upon
not less than ten nor more than sixty days written notice of the time, place,
and purposes of the meeting.
14A. 5-6(1)
3. Action Without Meeting.--The shareholders may act without a meeting
if, prior or subsequent to such action, each shareholder who would have been
entitled to vote upon such action shall consent in writing to such action. Such
Page B
<PAGE>
written consent or consents shall be filed in the minute book.
14A 5-9(1)
4. Quorum.--The presence at a meeting in person or by proxy of the holders
of shares entitled to cast a majority of the votes shall constitute a quorum.
Page B
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
[ILLEGIBLE]
1. Number and Term of Office.--The Board shall consist of two members.
Each director shall be elected by the shareholders at each annual meeting and
shall hold office until the next annual meeting of shareholders and until that
director's successor shall have been elected and qualified.
l4A.6-10(2)
2. Regular Meetings.--A regular meeting of the Board shall be held
without notice immediately foil owing and at the same place as the annual
shareholders' meeting for the purposes of electing officers and conducting such
other business as may come before the meeting. The Board, by resolution, may
provide for additional regular meetings which may be held without notice, except
to members not present at the time of the adoption of the resolution.
l4A.6-10(2)
3. Special Meetings.--A special meeting of the Board may be called at
any time by the president or by one of the directors for any purpose. Such
meeting shall be held upon 3 days notice if given orally, (either by telephone
or in person,) or by telegraph, or by 5 days notice if given by depositing the
notice in the United States mails, postage prepaid. Such notice shall specify
the time and place of the meeting.
Page B
<PAGE>
16A 6-7(2)
4. Action Without Meeting.--The Board may act without a meeting if, prior
or subsequent to such action, each member of the Board shall consent in writing
to such action. Such written consent or consents shall be filed in the minute
book.
14A 6-7(1)
(12) 5. Quorum.--A majority of the entire Board shall constitute a quorum
for the transaction of business.
14A 6-5
6. Vacancies in Board of Directors.--Any vacancy in the Board,^13
including a vacancy caused by an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors, even
though. less than a quorum of the Board, or by a sole remaining director.
Page B
<PAGE>
ARTICLE IV
WAIVERS OF NOTICE
[ILLEGIBLE]
Any notice required by these by-laws, by the certificate of incorporation,
or by the New Jersey Business Corporation Act may be waived in writing by any
person entitled to notice. The waiver or waivers may be executed either before
or after the event with respect to which notice is waived. Each director or
shareholder attending a meeting without protesting, prior to its conclusion, the
lack of proper notice shall be deemed conclusively to have waived notice of the
meeting.
Page B
<PAGE>
ARTICLE V
OFFICERS
14A 6-15(1)
I. Election.--At its regular meeting following the annual meeting of
shareholders, the Board shall elect a president, a treasurer, a secretary, and
it may elect such other officers, including one or more vice presidents, as it
shall deem necessary. One person may hold two or more offices.
14A 6-15(2)
14A 6-15(4)
2. Duties and Authority of President.--The president shall be chief
executive officer of the Corporation. Subject only to the authority of the
Board, he shall have general charge and supervision over, and responsibility
for, the business and affairs of the Corporation. Unless otherwise directed by
the Board, all other officers shall be subject to the authority and supervision
of the president. The president may enter into and execute in the name of the
Corporation contracts or other instruments in the regular course of business or
contracts or other instruments not in the regular course of business which are
authorized, either generally or specifically, by the Board. He shall have the
general powers and duties of management usually vested in the office of
president of a corporation.
14A 6-15(4)
3. Duties and Authority of Vice President.--The vice president shall
perform such duties and have such authority as from time to time may be
delegated to him by the president
Page B
<PAGE>
or by the Board. In the absence of the president or in the event of his death,
inability, or refusal to act, the vice president shall perform the duties and be
vested with the authority of the president.
14A 6-15(4)
4. Duties and Authority of Treasurer.--The treasurer shall have the
custody of the funds and securities of the Corporation and shall keep or cause
to be kept regular books of account for the Corporation. The treasurer shall
perform such other duties and possess such other powers as are incident to that
office or as shall be assigned by the president or the Board.
14A6-15(4)
5. Duties and Authority of Secretary.--The secretary shall cause notices
of all meetings to be served as prescribed in these by-laws and shall keep or
cause to be kept the minutes of all meetings of the shareholders and the Board.
The secretary shall have charge of the seal of the Corporation. The secretary
shall perform such other duties and possess such other powers as are incident to
that office or as are assigned by the president or the Board.
Page B
<PAGE>
ARTICLE VI
AMENDMENTS TO AND EFFECT OF BY-LAWS;
FISCAL YEAR
1. Force and Effect of By-laws.--These by-laws are subject to the
provisions of the New Jersey Business Corporation Act and the Corporation's
certificate of incorporation, as it may be amended from time to time. If any
provision in these by-laws is inconsistent with a provision in that Act or the
certificate of incorporation, the provision of that Act or the certificate of
incorporation shall govern.
[ILLEGIBLE]
2. Amendments to By-laws.--These by-laws may be altered, amended or
repealed by the shareholders or the Board. Any by-law adopted, amended or
repealed by the shareholders may be amended or repealed by the Board, unless the
resolution of the shareholders adopting such by-law expressly reserves to the
shareholders the right to amend or repeal it.
3. Fiscal Year.--The fiscal year of the Corporation shall begin on the
first day of July of each year.
Page B
Exhibit No. 3.3
Certificate of Incorporation of SEM Consultants III, Inc.
<PAGE>
FILED
AUG 14 1980
DONALD LAN
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
-of-
SEM CONSULTANTS III, INC.
To: The Secretary of State
State of New Jersey
THE UNDERSIGNED, of the age of twenty-one (21) years or over , for
the purpose of forming a corporation pursuant to the provisions of Title 14A,
Corporations, General, of the New Jersey Statutes, does hereby execute the
following Certificate of Incorporation.
FIRST: The name of the corporation is SEM CONSULTANTS III, INC.
SECOND: The purpose or purposes for which the corporation is
organized are:
(a) To engage in the business of acting as a consultant to any
person, firm or corporation and to enter into any agreement or contract for such
purpose with respect to the design, and design evaluation of electronic,
electromechanical, and mechanical security systems, and similar types of systems
designed for the management of energy or process control.
(b) To engage in any activity within the purposes for which
corporations may be organized under the provisions of Title 14A, Corporations,
General, of the New Jersey Statutes.
(b) This corporation shall have the power to conduct its
business in all its branches in other states,
<PAGE>
territories and possessions of the united States, and may have one or more
offices in or outside of the State of New Jersey, and may hold, purchase,
mortgage, lease and convey real and personal property either in or outside of
the State of New Jersey.
The objects for which this corporation is formed are to do any or
all of the things herein set forth to the same extent as natural persons might
or could do, and in any part of the world, as principal, agent, through
agencies, licensees, or otherwise, and in furtherance and not in limitation of
the general powers conferred by the laws of the State of New Jersey. The
foregoing clauses shall be construed both as objects and powers.
THIRD: The aggregate number of shares which the corporation shall
have authority to issue is one thousand (1,000) shares of common stock, without
nominal or par value.
FOURTH; The address of the corporation's initial registered office
is 160 South Livingston Avenue, Livingston, New Jersey 07039 and the name of the
corporation's initial registered agent at such address is Harvey R. Poe.
FIFTH: The number of directors constituting the initial Board of
Directors shall be one; and the name and address of said director is as follows:
Carey Gage 160 South Livingston Avenue
Livingston, New Jersey 07039
SIXTH: The name and address of the incorporator is as follows:
Carey Gage 160 South Livingston Avenue
Livingston, New Jersey 07039
IN WITNESS WHEREOF, the undersigned, the incorporator
-2-
<PAGE>
of the above named corporation, has hereunto signed this Certificate of
Incorporation on the 8th day of August, 1980.
/s/ Carey Gage
----------------------------------------
Carey Gage, Incorporator
-3-
<PAGE>
State of New Jersey
[Seal]
Department of State.
14A:2-3, CORPORATIONS, GENERAL
I, the Secretary of State of the State of New Jersey, DO HEREBY
CERTIFY, that the following Corporate Name is being reserved for the applicant
for a period of 120 days from the date of this Certificate.
The Corporate Name to be reserved is SEM Consultants III, Inc.
Reserved for: Harvey R. Poe
160 So. Livingston Avenue
Livingston, N.J. 07039
[Seal] IN TESTIMONY WHEREOF, I have
hereunto set my hand and
affixed my Official Seal at
Trenton, this 1st day of
August A.D. 1990
/s/ Donald Lan
--------------------------
SECRETARY OF STATE
DONALD LAN
<PAGE>
FILED
OCT 23 1981
DONALD LAN
Secretary of State
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
SEM CONSULTANTS III, INC.
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:99-2(4) and Section
14A:9-4(3), Corporations, General, of the New Jersey Statutes, the undersigned
corporation does hereby execute the following Certificate of Amendment to its
Certificate of Incorporation which was filed on the fourteenth day of August,
1980:
1. The name of the corporation is SEM CONSULTANTS III, INC.
2. The following Amendment to the Certificate of Incorporation was
approved by the Directors and thereafter duly adopted by the Shareholders of the
corporation on the 10th day of OCT, 1981.
RESOLVED, that Article THIRD of the Certificate of Incorporation be
amended to read as follows:
"THIRD: The aggregate number of shares which the corporation
shall have the authority to issue is one thousand two hundred fifty
(1,250) shares of common stock, without nominal or par value."
3. The number of shares outstanding at the time of the adoption of
the Amendment was 1,000. The total number of shares entitled to vote thereon was
1,000.
<PAGE>
4. The number of shares voting for and against such amendment is as
follows:
Number of Shares Voting Number of Shares Voting
For Amendment Against Amendment
----------------------- -----------------------
1,000 None
5. The holder of the outstanding common stock of the corporation
when this Certificate of Amendment becomes effective shall exchange and convert
such common shares for one thousand (1,000) shares of the common stock, and the
remaining shares of the common stock of the corporation shall be held by the
corporation as treasury stock.
Dated this 10th day of OCT, 1981.
SEM CONSULTANTS III, INC.
By /s/ Arthur Birch
-------------------------------------
Arthur Birch, President
ATTEST:
/s/ Alexander Kloubek
- ----------------------------
Alexander Kloubek, Secretary
-2-
Exhibit No. 3.4
By-Laws of SEM Consultants III, Inc.
<PAGE>
BY-LAWS
OF
SEM CONSULTANTS III, INC.
- --------------------------------------------------------------------------------
Adopted September 2 ,1980
ARTICLE I
OFFICES
1. Registered Office and Agent.--The registered office of the Corporation
in the State of New Jersey is at 160 South Livingston Avenue, Livingston, New
Jersey.
14A:4-1
The registered agent of the Corporation at such office is Harvey R. Poe.
2. Principal Place of Business.--The principal place of business of the
Corporation is 250 Mill Street, Belleville, New Jersey.
3. Other Places of Business.--Branch or subordinate places of business or
offices may be established at any time by the Board at any place or places where
the Corporation is qualified to do business.
Page B
<PAGE>
ARTICLE II
SHAREHOLDERS
14A:5-2
14A:5-4(1)
1. Annual Meeting.--The annual meeting of shareholders shall be held upon
not less than ten nor more than sixty days written notice of the time, place,
and purposes of the meeting at 10 o'clock a.m. on the first day of the month of
September of each year at 250 Mill Street, Belleville, New Jersey
14A:5-1
or at such other time and place as shall be specified in the notice of meeting,
in order to elect directors and transact such other business as shall come
before the meeting. If that date is a legal holiday, the meeting shall be held
at the same hour on the next succeeding business day.
14A:5-3
2. Special Meeting.--A special meeting of shareholders may be called for
any purpose by the president or the Board. A special meeting shall be held upon
not less than ten nor more than sixty days written notice of the time, place,
and purposes of the meeting.
14A:5-6(1)
3. Action Without Meeting.--The shareholders may act without a meeting if,
prior or subsequent to such action, each shareholder who would have been
entitled to vote upon such action shall consent in writing to such action. Such
Page B
<PAGE>
written consent or consents shall be filed in the minute book.
14A:5-9(1)
4. Quorum.--The presence at a meeting in person or by proxy of the holders
of shares entitled to cast(9) a majority of the votes shall constitute a quorum.
Page B
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
14A:6-2
14A:6-3
1. Number and Term of Office.--The Board shall consist of(10) three
members. Each director shall be elected by the shareholders at each annual
meeting and shall hold office until the next annual meeting of shareholders and
until that director's successor shall have been elected and qualified.
14A:6-10(2)
2. Regular Meetings.--A regular meeting of the Board shall be held without
notice immediately following and at the same place as the annual shareholders'
meeting for the purposes of electing officers and conducting such other business
as may come before the meeting. The Board, by resolution, may provide for
additional regular meetings which may be held without notice, except to members
not present at the time of the adoption of the resolution.
14A:6-10(2)
3. Special Meetings.--A special meeting of the Board may be called at any
time by the president or by three directors for any purpose. Such meeting shall
be held upon five days notice if given orally, (either by telephone or in
person,) or by telegraph, or by seven days notice if given by depositing the
notice in the United States mails, postage prepaid. Such notice shall specify
the time and place of the meeting.
Page B
<PAGE>
14A:6-7(2)
4. Action without Meeting.--The Board may act without a meeting if, prior
or subsequent to such action, each member of the Board shall consent in writing
to such action. Such written consent or consents shall be filed in the minute
book.
14A:6-7(1)
(11)5. Quorum.--A majority of the entire Board shall constitute a quorum
for the transaction of business.
14A:6-5
6. Vacancies in Board of Directors.--Any vacancy in the Board(12),
including a vacancy caused by an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors, even
though less than a quorum of the Board, or by a sole remaining director.
Page B
<PAGE>
ARTICLE IV
WAIVERS OF NOTICE
14A:5-5(1)
14A:6-10(2)
Any notice required by these by-laws, by the certificate of incorporation,
or by the New Jersey Business Corporation Act may be waived in writing by any
person entitled to notice-. The waiver or waivers may be executed either before
or after the event with respect to which notice is waived. Each director or
shareholder attending a meeting without protesting, prior to its conclusion, the
lack of proper notice shall be deemed conclusively to have waived notice of the
meeting.
Page B
<PAGE>
ARTICLE V
OFFICERS
14A:6-15(1)
1. Election.-At its regular meeting following the annual meeting of
shareholders, the Board shall elect a president, a treasurer, a secretary, and
it may elect such other officers, including one or more vice presidents, as it
shall deem necessary. One person may hold two or more offices.
14A:6-15(2)
14A:6-15(4)
2. Duties and Authority of President.--The president shall be chief
executive officer of the Corporation. Subject only to the authority of the
Board, he shall have general charge and supervision over, and responsibility
for, the business and affairs of the Corporation. Unless otherwise directed by
the Board, all other officers shall be subject to the authority and supervision
of the president. The president may enter into and execute in the name of the
Corporation contracts or other instruments in the regular course of business or
contracts or other instruments not in the regular course of business which are
authorized, either generally or specifically, by the Board. He shall have the
general powers and duties of management usually vested in the office of
president of a corporation.
14A:6-15(4)
3. Duties and Authority of Vice President.--The vice president shall
perform such duties and have such authority as from time to time may be
delegated to him by the president
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<PAGE>
or by the Board. In the absence of the president or in the event of his death,
inability, or refusal to act, the vice president shall perform the duties and be
vested with the authority of the president.
14A:6-15(4)
4. Duties and Authority of Treasurer.--The treasurer shall have the
custody of the funds and securities of the Corporation and shall keep or cause
to be kept regular books of account for the Corporation. The treasurer shall
perform such other duties and possess such other powers as are incident to that
office or as shall be assigned by the president or the Board.
14:A6-15(4)
5. Duties and Authority of Secretary.--The secretary shall cause notices
of all meetings to be served as prescribed in these by-laws and shall keep or
cause to be kept the minutes of all meetings of the shareholders and the Board.
The secretary shall have charge of the seal of the Corporation. The secretary
shall perform such other duties and possess such other powers as are incident to
that office or as are assigned by the president or the Board.
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<PAGE>
ARTICLE VI
AMENDMENTS TO AND EFFECT OF BY-LAWS;
FISCAL YEAR
l. Force and Effect of By-laws.--These by--laws are subject to the
provisions of the New Jersey Business Corporation Act and the Corporation's
certificate of incorporation, as it may be amended from time to time. If any
provision in these by-laws is inconsistent with a provision in that Act or the
certificate of incorporation, the provision of that Act or the certificate of
incorporation shall govern.
2. Wherever in these by-laws references are made to more than one
incorporator, director or shareholder, they shall, if this is a sole
incorporator, director, shareholder corporation, be construed to mean the
solitary person; and all provisions dealing with the quantum of majorities or
quorums shall be deemed to mean the action by the one person constituting the
corporation.
14A:2-9(1)
3. Amendments to By--laws.--These by-laws may be altered, amended or
repealed by the shareholders or the Board. Any by-law adopted, amended or
repealed by the shareholders may be amended or repealed by the Board, unless the
resolution of the shareholders adopting such by-law expressly reserves to the
shareholders the right to amend or repeal it.
4. Fiscal Year.--The fiscal year of the Corporation shall begin on the
first day of July of each year.
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Exhibit No. 3.5
Certificate of Incorporation of ECSI International, Inc.
<PAGE>
FILED
Certificate of Incorporation
March 15 1996
of
Lonna R. Hooks
ECSI INTERNATIONAL, INC. Secretary of State
This is to certify that, there is hereby organized a corporation under and
by virtue of N.J.S. 14A:1-1 et seq., the "New Jersey Business Corporation Act."
14A:2-7 (1) (a)
1. The name of the corporation is ECSI INTERNATIONAL, INC.
14A:2-7 (1) (g)
2. The address (and zip code) of this corporation's initial registered
office is
190 Moore Street, Hackensack, New Jersey 07601
and the name of this corporation's initial registered agent at such address is
RICHARD T. RAPONE, ESQ.
14A:2-7 (1) (b)
3. The purposes for which this corporation is organized are:
To engage in any activity within the purposes for which corporations
may be organized under the "New Jersey Business Corporation Act." N.J.S. 14A:1-1
et seq.
<PAGE>
14A:2-7 (1) (c)
4. The aggregate number of shares which the corporation shall have
authority to issue is
2,500 no par value
<PAGE>
14A:2-7 (1) (h)
5. The first Board of Directors of this corporation shall consist of
two Director(s) and the name and address of each person who is to
serve as such Director is:
Name Address Zip Code
Arthur Barchenko 7 Belair Terrace, Wayne, New Jersey 07470
Mark Barchenko 7 Belair Terrace, Wayne, New Jersey 07470
14A:2-7 (i) (i)
6. The name and address of each incorporator is:
Name Address Zip Code
Patricia A. Oakley 190 Moore Street, Hackensack, New Jersey 07601
In Witness Whereof, each individual incorporator, each being over the age
of eighteen years, has signed this Certificate; or if the incorporator be a
corporation, has caused this Certificate to be signed by its authorized
officers, this 7th day of March 1996
/s/ PARTICIA A. OAKLEY
- --------------------------- ---------------------------
PARTICIA A. OAKLEY
- --------------------------- ---------------------------
<PAGE>
------------------------------------
Certificate of Incorporation
of
ECSI INTERNATIONAL, INC.
------------------------------------
FORWARDED FOR RECORDING
AND FILING
BY: (INCLUDE ADDRESS AND ZIP CODE)
RICHARD T RAPONE, ESQ.
NASHEL, KATES, NUSSMAN, RAPONE & ELLIS
190 Moore Street
Hackensack, New Jersey 07601
Exhibit No. 3.6
By-Laws of ECSI International, Inc.
<PAGE>
BY-LAWS
OF
ECSI INTERNATIONAL, INC.
-----------------------------
ARTICLE I - OFFICES
The registered office of the Corporation in the State of New Jersey shall be
located as designated in the Certificate of Incorporation. The Corporation may
also maintain offices at such other places within or without the State of New
Jersey and the United States as the Board of Directors may, from time to time,
determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section 1 - Annual Meetings:
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Section 2 - Special Meetings:
Special meetings of the shareholders may be called at any time by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten per cent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of Title 14A, Corporations General, of the New Jersey
Statutes, or any successor thereto (the "Statute").
Section 3 - Place of Meetings:
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
Section 4 - Notice of Meetings:
(a) Except as otherwise provided by Statute, written notice of each meeting of
shareholders, whether annual or special, stating the time when and place where
it is to be held, shall be served either personally or by mail, not less than
ten or more than sixty days before the meeting, upon each shareholder of record
entitled to vote at such
By-Laws - 1
<PAGE>
meeting, and to any other shareholder to whom the giving of notice may be
required by law. Notice of a special meeting shall also state the purpose or
purposes for which the meeting is called, and shall indicate that it is being
issued by, or at the direction of, the person or persons calling the meeting.
If, at any meeting, action is proposed to be taken that would, if taken, entitle
shareholders to receive payment for their shares pursuant to Statute, the notice
of such meeting shall include a statement of that purpose and to that effect. If
mailed, such notice shall be directed to each such shareholder at his address,
as it appears on the records of the shareholders of the Corporation, unless he
shall have previously filed with the Secretary of the Corporation a written
request that notices intended for him be mailed to some other address, in which
case, it shall be mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 5 - Quorum:
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Certificate and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), at all meetings
of shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote, shall be necessary and sufficient to constitute a quorum for
the transaction of any business. The withdrawal of any shareholder after the
commencement of a meeting shall have no effect on the existence of a quorum,
after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
at the meeting as originally called if a quorum had been present.
By-Laws - 2
<PAGE>
Section 6 - Voting:
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of stock
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the date of its
execution, unless the persons executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be exhibited to
the Secretary at the meeting and shall be filed with the records of the
Corporation.
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number, Election and Term of Office:
(a) The number of the directors of the Corporation (other than the First Board
of Directors named in the Certificate of Incorporation) shall be (2), unless and
until otherwise determined by a majority of the entire Board of Directors.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares, present in person or by
proxy, entitled to vote in the election.
By-Laws - 3
<PAGE>
(c) Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
Section 2 - Duties and Powers:
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings; Notice:
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders at the place of such annual
meeting of shareholders.
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) Section 4 of this Article III, with respect to special meetings,
unless such notice shall be waived in the manner set forth in paragraph (c) of
such Section 4.
Section 4 - Special Meetings; Notice:
(a) Special meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Except as otherwise required by Statute, notice of special meetings shall be
mailed directly to each director, addressed to him at his residence or usual
place of business, at least two (2) days before the day on which the meeting is
to be held, or shall be sent to him at such place by telegram, mailgram, or
cable, or shall be delivered to him personally or given to him orally, not later
than the day before the day on which the meeting is to be held. A notice, or
waiver of notice, except as required by Section 8 of this Article III, need not
specify the purpose of the meeting.
By-Laws - 4
<PAGE>
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
At all meetings of the Board of Directors, the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
Directors shall preside.
Section 6 - Quorum and Adjournments:
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the Certificate
of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or by these By-Laws, the action of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. Any action authorized in writing, by all of the directors
entitled to vote thereon and filed with the minutes of the Corporation shall be
the act of the Board of Directors with the same force and effect as if the same
had been passed by unanimous vote at a duly called meeting of the Board.
Section 8 - Vacancies:
Unless otherwise provided in the Certificate of Incorporation, any vacancy in
the Board of Directors occurring by reason of an increase in the number of
directors, or by reason of the death, resignation, disqualification, removal
(unless a vacancy created by the removal of a director by the shareholders shall
be filled by the shareholders at the
By-Laws - 5
<PAGE>
meeting at which the removal was effected) or inability to act of any director,
or otherwise, shall be filled for the unexpired portion of the term by a
majority vote of the remaining directors, though less than a quorum, at any
regular meeting or special meeting of the Board of Directors called for that
purpose.
Section 9 - Resignation:
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
Section 10 - Removal:
Any director may be removed with or without cause at any time by the affirmative
vote of shareholders holding of record in the aggregate at least a majority of
the outstanding shares of the Corporation at a special meeting of the
shareholders called for that purpose, and may be removed for cause by action of
the Board.
Section 11 - Salary:
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving reasonable compensation therefor.
Section 12 - Contracts:
(a) Unless otherwise provided by Statute, no contract or other transaction
between this Corporation and any other Corporation shall be impaired, affected
or invalidated nor shall any director be liable in any way by reason of the fact
that any one or more of the directors of this Corporation is or are interested
in, or is a director or officer, or are directors or officers of such other
Corporation, provided that such facts are disclosed or made known to the Board
of Directors.
(b) Unless otherwise provided by Statute, any director, personally and
individually, may be a party to or may be interested in any contract or
transaction of this Corporation, and no director shall be liable in any way by
reason of such interest, provided that the fact of such interest be disclosed or
made known to the Board of Directors, and provided that the Board of Directors
shall authorize, approve or ratify such contract or transaction by the vote (not
counting the vote of any such director) of a majority of a quorum,
By-Laws - 6
<PAGE>
notwithstanding the presence of any such director at the meeting at which such
action is taken. Such director or directors may be counted in determining the
presence of a quorum at such meeting. This Section shall not be construed to
impair or invalidate or in any way affect any contract or other transaction
which would otherwise be valid under the law (common, statutory or otherwise)
applicable thereto.
Section 13 - Committees:
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they may deem
desirable, each consisting of one or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
Section 1 - Number, Qualifications, Election and Term of Office:
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation.
Except as otherwise provided by Statute, any two or more offices may be held by
the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
By-Laws - 7
<PAGE>
Section 3 - Removal:
Any officer may be removed, either with or without cause, and a successor
elected by a majority vote of the Board at any time.
Section 4 - Vacancies:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by a majority of the vote of the Board of
Directors.
Section 5 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as may be set forth in these
by-laws, or may from time to time be specifically conferred or imposed by the
Board of Directors. The President shall be the chief executive officer of the
Corporation.
Section 6 - Sureties and Bonds:
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
By-Laws - 8
<PAGE>
ARTICLE V - SHARES OF STOCK
Section 1 - Certificate of Stock:
(a) The certificates representing shares of the Corporation shall be in such
form as shall be adopted by the Board of Directors, and shall be numbered and
registered in the order issued. They shall bear the holder's name and the number
of shares, and shall be signed by (i) the Chairman of the Board or the President
or a Vice President, and (ii) the Secretary or Assistant Treasurer, and shall
bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) To the extent permitted by law, the Board of Directors may authorize the
issuance of certificates for fractions of a share which shall entitle the holder
to exercise voting rights, receive dividends and participate in liquidating
distributions, in proportion to the fractional holdings; or it may authorize the
payment in cash of the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined; or it may authorize the
issuance, subject to such conditions as may be permitted by law, of scrip in
registered or bearer form over the signature of an officer or agent of the
Corporation, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a shareholder, except as therein
provided.
Section 2- Lost or Destroyed Certificates:
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
By-Laws - 9
<PAGE>
Section 3 - Transfers of Shares:
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding sixty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
ARTICLE VI - DIVIDENDS
Subject to applicable law, and except as may otherwise be provided in the
Certificate of Incorporation, dividends may be declared and paid out of any
funds available therefor, as often, in such amounts, and at such time or times
as the Board of Directors may determine.
By-Laws - 10
<PAGE>
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal shall be in such form as shall be approved from time to time
by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - By Shareholders:
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by the affirmative vote of shareholders holding of record
in the aggregate at least a majority of the outstanding shares entitled to vote
in the election of directors at any annual or special meeting of shareholders,
provided that the notice or waiver of notice of such meeting shall have
summarized or set forth in full therein, the proposed amendment. The
shareholders may prescribe that any by-law made by them may not be altered or
repealed by the Board of Directors.
Section 2 - By Directors:
Except as otherwise provided in the Certificate of Incorporation, the Board of
Directors shall have power to make, adopt, alter, amend and repeal, from time to
time, by-laws of the Corporation; provided, however, that the shareholders
entitled to vote with respect thereto as in this Article IX above-provided may
alter, amend or repeal by-laws made by the Board of Directors, except that the
Board of Directors shall have no power to change the quorum for meetings of
shareholders or of the Board of Directors, or to change any provisions of the
by-laws with respect to the removal of directors or the filling of vacancies in
the Board resulting from the removal by the shareholders. If any by-law
regulating an impending election of directors is adopted, amended or repealed by
the Board of Directors, there shall be set forth in the notice of the next
meeting of shareholders for the election of directors, the by-law so adopted,
amended or repealed, together with a concise statement of the changes made.
By-Laws - 11
<PAGE>
ARTICLE X - INDEMNITY
(a) Except as prohibited by Statute or as otherwise provided in the Certificate
of Incorporation, any person made a party to any action, suit or proceeding, by
reason of the fact that he, his testator or intestate representative is or was a
director, officer or employee of the corporation, or of any Corporation in which
he served as such at the request of the Corporation, or otherwise acted as a
corporate agent, as defined by Statute, shall be indemnified by the Corporation
against the reasonable expenses, including attorney's fees, actually and
necessarily incurred by him in connection with the defense of such action, suit
or proceedings, or in connection with any appeal therein, except in relation to
matters as to which it shall be adjudged in such action, suit or proceeding, or
in connection with any appeal therein that such officer, director or employee is
liable for negligence or misconduct in the performance of his duties.
(b) The foregoing right of indemnification shall not be deemed exclusive of any
other rights to which any officer or director or employee may be entitled apart
from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be entitled
shall be fixed by the Board of Directors, except that in any case where there is
no disinterested majority of the Board available, the amount shall be fixed by
arbitration pursuant to the then existing rules of the American Arbitration
Association.
By-Laws - 12
Exhibit No. 3.7
Certificate of Incorporation of ECSI FOIDS, Inc.
<PAGE>
FILED
OCT 24 1996
[ILLEGIBLE]
Secretary of State
CERTIFICATE OF INCORPORATION
of
ECSI-FOIDS INC.
This is to certify that, there is hereby organized a corporation
under and by virtue of N.J.S. 11A:1-1 et seq., the "New Jersey Business
Corporation Act."
14A:2.7(1)(a) 1. The name of the corporation is ESCI-FOIDS INC.
14A:2.7(1)(g) 2. The address (and zip code) of this corporation is
190 Moore Street, Suite 306, Hackensack, New Jersey 07601
and the name of this corporation's initial registered agent of such
address is
Richard T. Rapone, Esq.
14A:2-7(1)(b) 3. The purposes for which this corporation is organized are:
To engage in any activity within the purposes for which
corporations may be organized under the "New Jersey Business Corporation
Act." N.J.S. 11A:1-1 et seq.
<PAGE>
14A:2-7(1)(c) 4. The aggregate number of shares which the corporation shall have
authority to issue is
2,500 no par
<PAGE>
14A:2-7(1)(h) 5. The first Board of Directors of this corporation shall consist
of 3 Director(s) and the name and address of each person who is to serve
as such Director is:
Name Address Zip Code
Arthur Barchenko Seven Belair Terrace, Wayne, New Jesey 07470
Mark Barchenko Seven Belair Terrace, Wayne, New Jersey 07470
Larry Porter 4206 County Road #38, Section, Alabama 35771
14A:2-7(1)(i) 6. The name and address of each incorporator is:
Name Address Zip Code
Richard T. Rapone, Esq. 190 Moore Street, Hackensack, New Jersey 07601
In Witness Whereof, each individual incorporator, each being over the age
of twenty-one years, has signed this Certificate; or if the incorporator be a
corporation, has caused this Certificate to be signed by its authorized
officers, this 23rd day of October 1996.
/s/ Richard T. Rapone
----------------------------------------
Richard T. Rapone
<PAGE>
============================
Certificate of Incorporation
of
ESCI-FOIDS INC.
============================
FORWARDED FOR RECORDING
AND FILING
BY: (INCLUDE ADDRESS AND ZIP CODE)
RICHARD T. RAPONE, ESQ.
NASHEL, KATES, NUSSMAN, RAPONE & ELLIS
190 Moore Street, Suite 306
Hackensack, New Jersey 07601
Exhibit No. 3.8
By-Laws of ECSI FOIDS, Inc.
<PAGE>
BY-LAWS
OF
ECSI-FOIDS INC.
--------------------
A New Jersey Corporation
ARTICLE I - OFFICES
The registered office of the Corporation in the State of New Jersey shall be
located in the City and State designated in the Certificate of Incorporation.
The Corporation may also maintain offices at such other places within or without
the State of New Jersey as the Board of Directors may, from time to time,
determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section 1 - Annual Meetings: (Section 14A:5-2*)
The annual meeting of the shareholders of the Corporation shall be held at the
time fixed, from time to time, by the Directors, at the time fixed from time to
time by the Directors, provided that the first annual meeting shall be held on a
date written thirteen months after the organization of the Corporation, and each
successive annual meeting shall be held on a date within thirteen months after
the date of the preceding annual meting. If any reason the Directors shall fail
to fix the time for an annual meeting, such meeting shall be hold on the first
Tuesday of ______ (month).
Section 2 - Special Meetings: (Section 14A:5-3)
Special meetings of the shareholders shall be held within or without the State
of New Jersey. Such meetings may be called at any time by the Board of Directors
or by the President, and shall be called by the President or the Secretary at
the written request of the holders not less than ten per cent (10%) of the
shares then outstanding and entitled to vote thereat.
Section 3 - Place of Meetings: (Section 14A:5-2)
Meetings of shareholders shall be held at the registered office of the
Corporation, or at such other places, within or without the State of New Jersey
as the Directors may from time to time fix.
* Unless otherwise stated herein, all references to Sections here refer to those
sections in TItle 14A of the New Jersey Business Corporations Act.
By-Laws - 1
<PAGE>
Section 4 - Notice of Meetings: (Section 14A:5-4)
(a) Written or printed notice of each meeting of shareholders whether annual or
special stating the time when and place where it is to be held, shall be served
either personally or by mail, by or at the direction of the president, the
secretary, or the officer or the person calling the meeting, not less than ten
or more than sixty days before the date of the meeting, unless the lapse of the
prescribed time shall have been waived before or after the taking of such
action, upon each shareholder of record entitled to vote at such meeting, and to
any other shareholder to whom the giving of notice may be required by law.
Notice of a special meeting shall also state the business to be transacted or
the purpose or purposes for which the meeting is called, and shall indicate that
it is being issued by, or at the direction of, the person or persons calling the
meeting. If, at any meeting, action is proposed to be taken that would, if
taken, entitle shareholders to dissent and receive payment for their shares
pursuant to the Business Corporation Act, the notice of such meeting shall
include a statement of that purpose and to that effect. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the shareholder as it appears on the share transfer records of the
corporation, unless he shall have previously filed with the Secretary of the
Corporation a written request that notices intended for him be mailed to some
other address, in which case, it shall be mailed to the address designated in
such request, with the postage thereon prepaid.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, without
protesting the lack of notice thereof, or to any shareholder who, in person or
by proxy, submits a signed waiver of notice either before or after such meeting.
Notice of any adjourned meeting of shareholders need not be given, unless
otherwise required by statute.
Section 5 - Quorum: (Section 14A:5-9)
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), or for meetings
ordered by the Superior Court called pursuant to Sections 14A:5-2 and 14A:5-3 of
the New Jersey Business Corporations Act, a quorum shall be present at all
meetings of shareholders of the Corporation, if the holders of a majority of the
shares entitled to vote on that matter ar represented at the meeting in person
or by proxy. The subsequent withdrawal of any shareholder from the meeting,
after the commencement of a meeting, or the refusal of any shareholder
represented in person or by proxy to vote, shall have no effect on the existence
of a quorum, after a quorum has been established at such meeting.
By-Laws - 2
<PAGE>
(b) Despite the absence of a quorum at any meeting of shareholders, the
shareholders present may adjourn the meeting.
Section 6 - Voting: (Sections 14A:5-10 and 14A:5-19)
(a) Except as otherwise provided by statute, the Certificate of Incorporation,
or these bylaws, any corporate action, other than the election of directors or a
matter for which the affirmative vote of the holders of a specified portion of
the shareholder entitled to vote is required by statute, to be taken by vote of
the shareholders, shall be authorized by an affirmative vote of the majority of
shares entitled to vote on that matter and represented either in person or by
proxy at a meeting of shareholders at which a quorum is present shall be the act
of the shareholders of the Corporation.
(b) Except as otherwise provided by statute, the Certificate of Incorporation,
or these bylaws, at each meeting of shareholders, each shareholder of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so either in person or by proxy, so long as such proxy is
executed in writing by the shareholder himself or by his attorney-in-fact
thereunto duly authorized in writing. Every proxy shall be revocable at will
unless it is irrevocable as provided for in Section 14A:5-19 of the New Jersey
Business Corporation Act. A proxy shall not be revoked by the death or
incapacity of the shareholder, but the proxy shall continue to be in force until
revoked by the personal representative or the guardian of the shareholder. The
presence at any meeting of any shareholder who has given a proxy does not revoke
the proxy unless the shareholder files written notice of the revocation with the
Secretary of the meeting prior to the voting the proxy or votes the shares
subject to the proxy by written ballot. A person named in a proxy as the
attorney or agent of a shareholder may, if the proxy so provides, substitute
another person to act in his place, including any other person named as an
attorney or agent in the same proxy. The substitution shall not be effective
until an instrument effecting such substitution is filed with the Secretary of
the Corporation. A telegram, telex, cablegram, or similar transmission by the
shareholder, or as a photographic, photostatic, facsimile, or similar
reproduction of a writing executed by the shareholder shall be treated as a
valid proxy. No proxy shall be valid after the expiration of eleven months from
the date of its execution, unless otherwise provided in the proxy. Such
instrument shall be exhibited to the Secretary at the meeting and shall be filed
with the records of the Corporation.
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
By-Laws - 3
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number, Election and Term of Office: (Section 14A:6-1)
(a) The first Board of Directors and all subsequent Boards of the Corporation
shall consist of (), unless and until otherwise determined by vote of a majority
of the entire Board of Directors. The number of Directors shall not be less than
three, unless all of the outstanding shares are owned beneficially and of record
by less than three shareholders, in which event the number of Directors shall
not be less than the number of shareholders. The Board of Directors shall have
the power, in the interim between annual and special meetings of the
shareholders, to increase or decrease their number within the minimum herein
before prescribed.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares entitled to vote in the
election.
(c) The first Board of Directors shall hold office until the first annual
meeting of shareholders and until their successors have been duly elected and
qualified. Thereinafter, Directors will be elected at the annual meeting of
shareholders and shall hold office until the annual meeting of the shareholders
next succeeding his election or until his prior death, resignation or removal.
Section 2 - Duties and Powers: (Section 14A:6-1)
The Board of Directors shall be responsible for the control and management of
the business and affairs, property and interests of the Corporation, and may
exercise all powers of the Corporation, except as are in the Certificate of
Incorporation or by statute expressly conferred upon or reserved to the
shareholders.
Section 3 - Annual Meetings: Notice: (Section 14A:6-1O)
(a) An annual meeting of the Board of Directors shall be held either within or
without the State of New Jersey at such time and at such place as the Board
shall fix; so long as such meeting immediately follows the annual meeting of the
shareholders and is at the place of such annual meeting of shareholders. In the
absence of the Board fixing such time and place, such meeting shall be held at
noon on the first Tuesday of ______(month).
(b) No notice shall be required of any regular meeting of the Board of Directors
and, if given, need not specify the purpose of the meeting; provided, however,
that in case the Board of Directors shall fix or change the time or place of any
regular meeting when such time and place was fixed before such change, notice of
such action shall be given to each director who shall not have been present at
the meeting at which such action was taken within the time limited, and in the
manner set forth in paragraph (b) of Section 4 of this
By-Laws - 4
<PAGE>
Article III, with respect to special meetings, unless such notice shall be
waived in the manner set forth in paragraph (c) of such Section 4.
Section 4 - Special Meetings: Notice: (Section 14a:6-10)
(a) Special meetings of the Board of Directors shall be held at such time and
place as may be specified in the respective notices or waivers of notice
thereof.
(b) Except as otherwise required statute, notice of special meetings shall be
mailed directly to each director, addressed to him at his residence or usual
place of business, at least two (2) days before the day on which the meeting is
to be held, or shall be sent to him at such place by telegram, radio or cable,
or shall be delivered to him personally or given to him orally, not later than
the day before the day on which the meeting is to be held. A notice, or waiver
of notice, except as required by Section 8 of this Article III, need not specify
the business to be transacted at or the purposes or purposes of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
Director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairperson: (Section 14A:6-15)
The Chairperson of the Board, if any and if present, shall preside at all
meetings of the Board of Directors. If there shall be no Chairperson, or he or
she shall be absent, then the President shall preside, and in his absence, any
other director chosen by the Board of Directors shall preside.
Section 6 - Quorum and Adjournments: (Section 14A:6-7)
(a) At all meetings of the Board of Directors, or any committee thereof, the
presence of a majority of the entire Board, or such committee thereof, shall
constitute a quorum for the transaction of business, except as otherwise
provided by law, by the Certificate of Incorporation, or by these ByLaws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting: (Section 14A:6-7 & 6-10)
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
By-Laws - 5
<PAGE>
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or these ByLaws, action approved by a majority of the votes of
the Directors present at any meeting of the Board or any committee thereof, at
which a quorum is present shall be the act of the Board of Directors or any
committee thereof. Any action authorized in writing made prior or subsequent to
such action, by all of the Directors entitled to vote thereon and filed with the
minutes of the Corporation shall be the act of the Board of Directors, or any
committee thereof, and have the same force and effect as if the same had been
passed by unanimous vote at a duly called meeting of the Board or committee for
all purposes and may be stated as such in any certificate or document filed with
the Secretary of the State of New Jersey.
(c) Where appropriate communications facilities are reasonably available, any or
all directors shall have the right to participate in any Board of Directors
meeting, or a committee of the Board of Directors meeting, by means of
conference telephone or any means of communications by which all persons
participating in the meeting are able to hear each other.
Section 8 - Vacancies: (Section 14A:6-5)
(a) Any vacancy in the Board of Directors occurring by reason of an increase in
the number of Directors, or by reason of the death, resignation,
disqualification, removal (unless a vacancy created by the removal of a Director
by the shareholders shall be filled by the shareholders at the meeting at which
the removal was effected) or inability to act of any director, or other cause,
shall be filled by an affirmative vote of a majority of the remaining directors,
though less than a quorum of the Board or by a sole remaining Director, at any
regular meeting or special meeting of the Board of Directors called for that
purpose.
(b) Unless otherwise provided for by statute, the Certificate of Incorporation
or these Bylaws, when one or more directors shall resign from the board and such
resignation is effective at a future date, a majority of the directors, then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote otherwise to take effect when such resignation or
resignations hall become effective.
Section 9 - Resignation: (Section 14A:6-3)
A Director may resign at any time by giving written notice to the Corporation.
Such resignation shall be effective upon receipt thereof by the Corporation, or
at such subsequent time as shall be specified in such resignation.
Section 10 - Removal: (Section 14A:6-6)
One or more or all the Directors of the Corporation may be removed with or
without cause at any time by the shareholders, at a special meeting of the
shareholders called for that purpose, and may be removed for cause by action of
the Board.
By-Laws - 6
<PAGE>
Section II - Salary: (Section 14A:6-6)
The Board of Directors may authorize and establish reasonable compensation of
the Directors for services to the Corporation as Directors, including, but not
limited to attendance at any annual or special meeting of the Board.
Section 12 - Contracts: (Section 14A:6-8)
(a) Any contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated nor shall any Director be
liable in any way by reason of the fact that any one or more of the Directors of
this Corporation is or are interested in, or is a Director or officer or are
Directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors before the Board of Directors
approves or ratifies such contract or other transaction, and provided that the
Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such Director at the
meeting at which such action is taken. Such Director or Directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
(b) Any actions taken at a meeting of any such committee provided for herein
shall be reported to the Board at its next meeting following such committee
meeting; except that, when the meeting of the Board is held within two days
after the committee meeting, such report shall, if not made at the first
meeting, be made to the Board at its second meeting following such committee
meeting.
(c) The designation of any such committee and the delegation thereto of
authority shall not operate to relieve the Board, or any member thereof, of any
responsibility imposed by law.
Section 13 - Committees: (Section 14A:6-9)
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board and,
unless otherwise stated by law, the Certificate of Incorporation of the
Corporation or these Bylaws, shall be governed by the rules and regulations
stated herein regarding the Board of Directors.
ARTICLE IV - OFFICERS
Section 1 - Number. Qualifications. Election and Term of Office (Section
14A:6-15)
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairperson of the Board of
Directors, and one or more Vice Presidents,
By-Laws - 7
<PAGE>
as the Board of Directors may from time to time deem advisable. Any officer
other than the Chairman of the Board of Directors may be, but is not required to
be, a director of the Corporation. Any two or more offices may be held by the
same person, except the offices of President and Secretary.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, subject to earlier termination by his or her death,
resignation or removal.
(d) Each officer shall have the authority to perform such duties as may be
provided for in these ByLaws or as may be determined, from time to time, by
resolution of the Board not inconsistent with these ByLaws.
(e) Any two or more offices may be held by the same person, but no officer shall
execute, acknowledge or verify any instrument in more than one capacity if such
instrument is required by law or these ByLaws to be executed, acknowledged, or
verified by two or more officers.
Section 2 - Resignation: (Section 14A:6-16)
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
Section 3 - Removal: (Section 14A:6-16)
Any officer elected by the Board of Directors may be removed, either with or
without cause, and a successor elected by the Board at any time. Any officer
elected by the shareholders may be removed, with or without cause, only be vote
of the shareholders, but his authority to act as an officer may be suspended by
the Board of Directors for cause.
Section 4 - Vacancies: (Section 14A:6-5)
(a) A vacancy, however caused, occurring in the Board and any newly created
Directorships resulting from an increase in the authorized number of Directors
may be filled by the Board of Directors, even though there is less than a quorum
of the Board, or by the sole remaining Director.
(b) Whenever one or more Directors shall resign from the Board effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have the power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective.
By-Laws - 8
<PAGE>
(c) Any directorship not filled by the Board, may be filled by the shareholders
of the corporation at any annual or special meeting called for that purpose.
(d) If the Corporation has, for any reason, no Directors in office, any
shareholder or executor or administrator of a deceased shareholder my call a
special meeting of shareholders for the election of Directors.
Section 5 - Duties of Officers: (Section 14A:6-1)
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such authority and perform such duties as generally pertain
to their respective offices as well as such powers and duties as may be set
forth in these ByLaws, or may from time to time be specifically conferred or
imposed by the Board of Directors, not inconsistent with these Bylaws.
Section 7 - Shares of Other Corporations: (Section 14A:6-15)
The President, any Vice President, or such other person as the Board of
Directors may authorize, may execute any proxy, consent, or right to vote
possessed by the Corporation in shares of stock owned by the Corporation,
subject to the direction of the Board of Directors.
Section 8 - Compensation: (Section 14A:6-8)
The Compensation of the officers of the Corporation, shall be fixed from time to
time by the Board of Directors.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificate of Stock: (Section 14A:7-11 & 14A:7-13)
(a) The shares of the Corporation shall be represented by certificates or shall
be uncertificated shares. The certificates representing shares of the
Corporation shall bear the holder's name and the number of shares, and;
(i) shall be signed in the name of the Corporation by the Chairperson or
Vice-Chairperson of the Board or the President, and may be countersigned by the
Treasurer or the Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation; and
(ii) shall state upon the face thereof that the Corporation is organized
under the laws of New Jersey; the name of the person to whom issued; and the
number and class of shares, and the designation of the series, if any, which
such certificate represents; and
(iii) may bear the corporate seal or a facsimile thereof.
In case any officer who has signed or whose facsimile signature has been
placed upon such certificate shall have ceased to be such officer before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if he were an officer at the date of its issue.
By-Laws - 9
<PAGE>
Within a reasonable time after the issuance of by the Board or the transfer of
uncertificated shares, the Corporation shall send to the registered owner
thereof a written notice containing the information required to be set forth or
states on certificates by this subsection of these Bylaws.
Except as otherwise provided by law, the rights and obligations of the
holders of uncertificated shares and the rights and obligations of the holders
of certificates representing shares of the same class and series shall be
identical.
(b) If the Corporation is authorized in its Certificate of Incorporation to
issue shares of more than one class and such shares are certificated, such
certificate shall set forth upon or the back thereof, a full statement:
(i) of the designations, relative rights, preferences and limitation s of
the shares of each class and series authorized to be issued, so far as the same
has been determined; and
(ii) of the authority of the Board to divide the shares into classes or
series and to determine and change the relative rights, preferences and
limitation s of any class or series; or
(iii) shall set forth that the Corporation shall furnish to any
shareholder, upon request and without charge, such a full statement.
(c) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(d) The Board of Directors may authorize the issuance of certificates for
fractions of a share which shall entitle the holder to exercise voting rights,
receive dividends and participate in liquidating distributions, in proportion to
the fractional holdings; or it may authorize the payment in cash of the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined; or it may authorize the issuance, subject to such
conditions as may be permitted by law, of scrip in registered or bearer form
over the signature of an officer or agent of the Corporation, exchangeable as
therein provided for full shares, but such scrip shall not entitle the holder to
any rights of a shareholder, except as therein provided.
Section 2 - Lost or Destroyed Certificates: ((Section 12A:8-405)
The Board of Directors may direct a new certificate or certificates to be issued
in place of any certificate or certificates to be issued in place of any
certificate or certificates, theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed if the owner:
(a) so requests before the Corporation has notice that the shares have
been acquired by a bona fide purchaser,
(b) files with the Corporation a sufficient indemnity bond; and
(c) satisfies such other requirements, including evidence of such loss,
theft or destruction, as may be imposed by the Corporation.
By-Laws - 10
<PAGE>
Section 3 - Transfers of Shares: (Section 14A:7-12)
(a) Upon surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon the Record Books of the
Corporation.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date: (Section 14A:5-7)
(a) The Board of Directors may fix, in advance, a date not exceeding sixty days,
nor less than ten days, as the record date for the determination of shareholders
entitled to receive notice of, or to vote at, any meeting of shareholders, or to
consent to any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividends, or allotment of any
rights, or for the purpose of any other action. If no record date is fixed, the
record date for a shareholders entitled to notice of meeting shall be at the
close of business on the day next preceding the day on which notice is given,
or, if no notice is given, the day on which the meeting is held; the record date
for determining shareholders for any other purpose shall be at the close of
business
(b) If no record date is fixed, the record date for determining shareholders
entitled to consent to corporate action in writing without a meeting, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation by delivery to its
registered office in this State, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of shareholders are recorded.
ARTICLE VI - DIVIDENDS (Section 14A:7-14)
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine so long as after the payment of such dividend
the Corporation:
(a) is still able to pay its debts as they become due in the ordinary
course of business; and
(b) the Corporation's total assets are greater than its total liabilities.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
changed by the Board of Directors from time to time, subject to applicable law.
By-Laws - 11
<PAGE>
ARTICLE VIII - CORPORATE SEAL [Section 14A:3-1(c)]
The corporate seal, if any, shall be in such form as shall be prescribed and
altered, from time to time, by the Board of Directors.
ARTICLE IX - AMENDMENTS (Section 14A:2-9)
Section 1 - Initial Bylaws:
The initial Bylaws of the Corporation shall be adopted by the Board of Directors
at its organizational meeting.
Section 2 - By Shareholders:
All Bylaws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of directors.
Section 3 - By Directors:
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, Bylaws of the Corporation; however, Bylaws made by the Board
may be altered or repealed, and new Bylaws made by the shareholders.
ARTICLE X - INDEMNITY (Section 14A:3-5)
(a) To the extent permitted by law: the Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he/she is or was a Director, Officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expense,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him/her in connection with such action, suit
or proceeding if he/she acted in good faith and in a manner he/she reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his/her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he/she reasonably
believed to be in or not opposed to be best interests of the Corporation and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his/her conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he/she is or was a Director, Officer,
By-Laws - 12
<PAGE>
employee or agent of the Corporation, or is or was serving at the request of the
Corporation, as a Director, Officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred by him/her in
connection with the defense or settlement of such action or suit if he/she acted
in good faith and i a manner he/she reasonably believed to be in or not opposed
to the best interests of the Corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his/her duty to the Corporation unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) To the extent that a Director, Officer, employee or agent of a Corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding refereed to in subsection (a) and (b) of this Article and Section, or
in defense of any claim, issue or matter therein, he/she shall be indemnified
against expenses, including attorneys" fees actually and reasonably incurred by
him/her in connection therewith.
(d) Any indemnification under subsections (a) or (b) of this Article and
Section, unless ordered by a court, shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, Officer, employee or agent is proper in the circumstances because
he/she has met the applicable standard of conduct set forth in subsections (a)
or (b) of this Article and Section. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of Directors who
were not parties to such action, suit or proceeding, or (ii) if such pa quorum
is not obtainable, or, even if obtainable as a quorum of disinterested Directors
so directs, by independent legal counsel in a written opinion, or (iii) by the
shareholders of the Corporation.
(e) Expenses, including attorneys' fees, incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized the
manner provided in subsection (d) of this Article and Section upon receipt of an
undertaking by or on behalf of the Director, Officer, employee or agent to repay
such amount unless it shall ultimately e determined that he/she is entitled to
be indemnified by the Corporation as authorized in this Article and Section.
(f) The indemnification provided by this Article and Section shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of shareholders or disinterested Directors or
otherwise, but has to action in his/her official capacity nd as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, Officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
By-Laws - 13
Exhibit No. 3.9
Certificate of Incorporation of ECSI-DSA, Inc.
<PAGE>
FILED
OCT 30 1996
LONNA R. HOOKS
Secretary of State
CERTIFICATE OF INCORPORATION
of
ECSI-DSA INC.
This is to certify that, there is hereby organized a corporation
under and by virtue of N.J.S. 14A:1-1 et seq., the "New Jersey Business
Corporation Act."
14A:2-7(1)(a) 1. The name of the corporation is ECSI-DSA INC.
14A:2.7(1)(g) 2. The address (and zip code) of this corporation's initial
registred office is
190 Moore Street, Suite 306, Hackensack, New Jersey
and the name of this corporation's initial registered agent at such
address is
Richard T. Rapone, Esq.
14A:2-7(1)(b) 3. The purposes for which this corporation is organized are:
To engage in any activity within the purposes for which
corporations may be organized under the "New Jersey Business Corporation
Act." N.J.S. 14A:1-1 et seq.
<PAGE>
14A:2-7(1)(c) 4. The aggregate number of shares which the corporation shall have
authority to issue is
2,500 no par value
<PAGE>
14A:2-7(1)(h) 5. The first Board of Directors of this corporation shall consist
of two Director(s) and the name and address of each person who is to serve
as such Director is:
Name Address Zip Code
Arthur Barchenko 7 Belair Terrace, Wayne, New Jesey 07470
Mark Barchenko 7 Belair Terrace, Wayne, New Jersey 07470
14A:2-7(1)(i) 6. The name and address of each incorporator is:
Name Address Zip Code
Richard T. Rapone, Esq., 190 Moore Street, Hackensack, New Jersey 07601
In Witness Whereof, each individual incorporator, each being over the age
of eighteen years, has signed this Certificate; or if the incorporator be a
corporation, has caused this Certificate to be signed by its authorized
officers, this 29th day of October 1996.
/s/ Richard T. Rapone
----------------------------------------
Richard T. Rapone
<PAGE>
============================
Certificate of Incorporation
of
ECSI-DSA INC.
============================
FORWARDED FOR RECORDING
AND FILING
BY: (INCLUDE ADDRESS AND ZIP CODE)
Richard T. Rapone, Esq.
Nashel, Kates, Nussman, Rapone & Ellis
190 Moore Street, Suite 306
Hackensack, New Jersey 07601
Exhibit No. 3.10
By-Laws of ECSI-DSA, Inc.
<PAGE>
BY-LAWS
ECSI-DSA INC.
--------------------------
A New Jersey Corporation
ARTICLE I - OFFICES
The registered office of the Corporation in the State of New Jersey shall be
located in the City and State designated in the Certificate of Incorporation.
The Corporation may also maintain offices at such other places within or without
the State of New Jersey as the Board of Directors may, from time to time,
determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section 1 - Annual Meetings: (Section l4A:5-2*)
The annual meeting of the shareholders of the Corporation shall be held at the
time fixed, from time to time, by the Directors, at the time fixed from time to
time by the Directors, provided that the first annual meeting shall be held on a
date written thirteen months after the organization of the Corporation, and each
successive annual meeting shall be held on a date within thirteen months after
the date of the preceding annual meting. If any reason the Directors shall fail
to fix the time for an annual meeting, such meeting shall be hold on the first
Tuesday of Nov. (month).
Section 2 - Special Meetings: (Section 14A:5-3)
Special meetings of the shareholders shall be held within or without the State
of New Jersey. Such meetings may be called at any time by the Board of Directors
or by the President, and shall be called by the President or the Secretary at
the written request of the holders not less than ten per cent (10%) of the
shares then outstanding and entitled to vote thereat.
Section 3 - Place of Meetings: (Section 14A:5-2)
Meetings of shareholders shall be held at the registered office of the
Corporation, or at such other places, within or without the State of New Jersey
as the Directors may from time to time fix.
* Unless otherwise stated herein, all references to Sections here refer to those
sections in Title 14A of the New Jersey Business Corporations Act.
By-Laws - 1
<PAGE>
Section 4 - Notice of Meetings: (Section 14A:5-4)
(a) Written or printed notice of each meeting of shareholders, whether annual or
special, stating the time when and place where it is to be held, shall be served
either personally or by mail, by or at the direction of the president, the
secretary, or the officer or the person calling the meeting, not less than ten
or more than sixty days before the date of the meeting, unless the lapse of the
prescribed time shall have been waived before or after the taking of such
action, upon each shareholder of record entitled to vote at such meeting, and to
any other shareholder to whom the giving of notice may be required by law.
Notice of a special meeting shall also state the business to be transacted or
the purpose or purposes for which the meeting is called, and shall indicate that
it is being issued by, or at the direction of, the person or persons calling the
meeting. If, at any meeting, action is proposed to be taken that would, if
taken, entitle shareholders to dissent and receive payment for their shares
pursuant to the Business Corporation Act, the notice of such meeting shall
include a statement of that purpose and to that effect. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the shareholder as it appears on the share transfer records of the
corporation, unless he shall have previously filed with the Secretary of the
Corporation a written request that notices intended for him be mailed to some
other address, in which case, it shall be mailed to the address designated in
such request, with the postage thereon prepaid.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, without
protesting the lack of notice thereof, or to any shareholder who, in person or
by proxy, submits a signed waiver of notice either before or after such meeting.
Notice of any adjourned meeting of shareholders need not be given, unless
otherwise required by statute.
Section 5 - Quorum: (Section 14A:5-9)
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), or for meetings
ordered by the Superior Court called pursuant to Sections 14A:5-2 and 14A:5-3 of
the New Jersey Business Corporations Act, a quorum shall be present at all
meetings of shareholders of the Corporation, if the holders of a majority of the
shares entitled to vote on that matter are represented at the meeting in person
or by proxy. The subsequent withdrawal of any shareholder from the meeting,
after the commencement of a meeting, or the refusal of any shareholder
represented in person or by proxy to vote, shall have no effect on the existence
of a quorum, after a quorum has been established at such meeting.
By-Laws - 2
<PAGE>
Section 4 - Notice of Meetings: (Section 14A:5-4)
(a) Written or printed notice of each meeting of shareholders, whether annual or
special, stating the time when and place where it is to be held, shall be served
either personally or by mail, by or at the direction of the president, the
secretary, or the officer or the person calling the meeting, not less than ten
or more than sixty days before the date of the meeting, unless the lapse of the
prescribed time shall have been waived before or after the taking of such
action, upon each shareholder of record entitled to vote at such meeting, and to
any other shareholder to whom the giving of notice may be required by law.
Notice of a special meeting shall also state the business to be transacted or
the purpose or purposes for which the meeting is called, and shall indicate that
it is being issued by, or at the direction of, the person or persons calling the
meeting. If, at any meeting, action is proposed to be taken that would, if
taken, entitle shareholders to dissent and receive payment for their shares
pursuant to the Business Corporation Act, the notice of such meeting shall
include a statement of that purpose and to that effect. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the shareholder as it appears on the share transfer records of the
corporation, unless he shall have previously filed with the Secretary of the
Corporation a written request that notices intended for him be mailed to some
other address, in which case, it shall be mailed to the address designated in
such request, with the postage thereon prepaid.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, without
protesting the lack of notice thereof, or to any shareholder who, in person or
by proxy, submits a signed waiver of notice either before or after such meeting.
Notice of any adjourned meeting of shareholders need not be given, unless
otherwise required by statute.
Section 5 - Quorum: (Section 14A:5-9)
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), or for meetings
ordered by the Superior Court called pursuant to Sections 14A:5-2 and 14A:5-3
of the New Jersey Business Corporations Act, a quorum shall be present at all
meetings of shareholders of the Corporation, if the holders of a majority of the
shares entitled to vote on that matter are represented at the meeting in person
or by proxy. The subsequent withdrawal of any shareholder from the meeting,
after the commencement of a meeting, or the refusal of any shareholder
represented in person or by proxy to vote, shall have no effect on the existence
of a quorum, after a quorum has been established at such meeting.
By-Laws - 2
<PAGE>
(b) Despite the absence of a quorum at any meeting of shareholders, the
shareholders present may adjourn the meeting.
Section 6 - Voting: (Sections 14A:5-10 and 14A:5-19)
(a) Except as otherwise provided by statute, the Certificate of Incorporation,
or these bylaws, any corporate action, other than the election of directors or a
matter for which the affirmative vote of the holders of a specified portion of
the shareholder entitled to vote is required by statute, to be taken by vote of
the shareholders, shall be authorized by an affirmative vote of the majority of
shares entitled to vote on that matter and represented either in person or by
proxy at a meeting of shareholders at which a quorum is present shall be the act
of the shareholders of the Corporation.
(b) Except as otherwise provided by statute, the Certificate of Incorporation,
or these bylaws, at each meeting of shareholders, each shareholder of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so either in person or by proxy, so long as such proxy is
executed in writing by the shareholder himself, or by his attorney-in-fact
thereunto duly authorized in writing. Every proxy shall be revocable at will
unless it is irrevocable as provided for in Section 14A:5-19 of the New Jersey
Business Corporation Act. A proxy shall not be revoked by the death or
incapacity of the shareholder, but the proxy shall continue to be in force until
revoked by the personal representative or the guardian of the shareholder. The
presence at any meeting of any shareholder who has given a proxy does not revoke
the proxy unless the shareholder files written notice of the revocation with the
Secretary of the meeting prior to the voting the proxy or votes the shares
subject to the proxy by written ballot. A person named in a proxy as the
attorney or agent of a shareholder may, if the proxy so provides, substitute
another person to act in his place, including any other person named as an
attorney or agent in the same proxy. The substitution shall not be effective
until an instrument effecting such substitution is filed with the Secretary of
the Corporation. A telegram, telex, cablegram, or similar transmission by the
shareholder, or as a photographic, photostatic, facsimile, or similar
reproduction of a writing executed by the shareholder shall be treated as a
valid proxy. No proxy shall be valid after the expiration of eleven months from
the date of its execution, unless otherwise provided in the proxy. Such
instrument shall be exhibited to the Secretary at the meeting and shall be filed
with the records of the Corporation.
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
By-Laws - 3
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number. Election and Term of Office: (Section 14A:6-l)
(a) The first Board of Directors and all subsequent Boards of the Corporation
shall consist of ( ), unless and until otherwise determined by vote of a
majority of the entire Board of Directors. The number of Directors shall not be
less than three, unless all of the outstanding shares are owned beneficially and
of record by less than three shareholders, in which event the number of
Directors shall not be less than the number of shareholders. The Board of
Directors shall have the power, in the interim between annual and special
meetings of the shareholders, to increase or decrease their number within the
minimum herein before prescribed.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares entitled to vote in the
election.
(c) The first Board of Directors shall hold office until the first annual
meeting of shareholders and until their successors have been duly elected and
qualified. Thereinafter, Directors will be elected at the annual meeting of
shareholders and shall hold office until the annual meeting of the shareholders
next succeeding his election or until his prior death, resignation or removal.
Section 2 - Duties and Powers: (Section 14A:6-l)
The Board of Directors shall be responsible for the control and management of
the business and affairs, property and interests of the Corporation, and may
exercise all powers of the Corporation, except as are in the Certificate of
Incorporation or by statute expressly conferred upon or reserved to the
shareholders.
Section 3 - Annual Meetings: Notice: (Section 1 4A:6- 10)
(a) An annual meeting of the Board of Directors shall be held either within or
without the State of New Jersey at such time and at such place as the Board
shall fix; so long as such meeting immediately follows the annual meeting of the
shareholders and is at the place of such annual meeting of shareholders. In the
absence of the Board fixing such time and place, such meeting shall be held at
noon on the first Tuesday of Nov. (month).
(b) No notice shall be required of any regular meeting of the Board of Directors
and, if given, need not specify the purpose of the meeting; provided, however,
that in case the Board of Directors shall fix or change the time or place of any
regular meeting when such time and place was fixed before such change, notice of
such action shall be given to each director who shall not have been present at
the meeting at which such action was taken within the time limited, and in the
manner set forth in paragraph (b) of Section 4 of this
By-Laws - 4
<PAGE>
Article III, with respect to special meetings, unless such notice shall be
waived in the manner set forth in paragraph (c) of such Section 4.
Section 4 - Special Meetings: Notice: (Section 14a:6-l0)
(a) Special meetings of the Board of Directors shall be held at such time and
place as may be specified in the respective notices or waivers of notice
thereof.
(b) Except as otherwise required statute, notice of special meetings shall be
mailed directly to each director, addressed to him at his residence or usual
place of business, at least two (2) days before the day on which the meeting is
to be held, or shall be sent to him at such place by telegram, radio or cable,
or shall be delivered to him personally or given to him orally, not later than
the day before the day on which the meeting is to be held. A notice, or waiver
of notice, except as required by Section 8 of this Article III, need not specify
the business to be transacted at or the purposes or purposes of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
Director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairperson: (Section 14A:6-15)
The Chairperson of the Board, if any and if present, shall preside at all
meetings of the Board of Directors. If there shall be no Chairperson, or he or
she shall be absent, then the President shall preside, and in his absence, any
other director chosen by the Board of Directors shall preside.
Section 6 - Quorum and Adjournments: (Section 14A:6-7)
(a) At all meetings of the Board of Directors, or any committee thereof, the
presence of a majority of the entire Board, or such committee thereof, shall
constitute a quorum for the transaction of business, except as otherwise
provided by law, by the Certificate of Incorporation, or by these ByLaws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the sane from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting: (Section 14A:6-7 & 6-10)
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
By-laws-5
<PAGE>
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or these ByLaws, action approved by a majority of the votes of
the Directors present at any meeting of the Board or any committee thereof, at
which a quorum is present shall be the act of the Board of Directors or any
committee thereof. Any action authorized in writing made prior or subsequent to
such action, by all of the Directors entitled to vote thereon and filed with the
minutes of the Corporation shall be the act of the Board of Directors, or any
committee thereof, and have the same force and effect as if the same had been
passed by unanimous vote at a duly called meeting of the Board or committee for
all purposes and may be stated as such in any certificate or document filed with
the Secretary of the State of New Jersey.
(c) Where appropriate communications facilities are reasonably available, any or
all directors shall have the right to participate in any Board of Directors
meeting, or a committee of the Board of Directors meeting, by means of
conference telephone or any means of communications by which all persons
participating in the meeting are able to hear each other.
Section 8 - Vacancies: (Section 14A:6-5)
(a) Any vacancy in the Board of Directors occurring by reason of an increase in
the number of Directors, or by reason of the death, resignation,
disqualification, removal (unless a vacancy created by the removal of a Director
by the shareholders shall be filled by the shareholders at the meeting at which
the removal was effected) or inability to act of any director, or other cause,
shall be filled by an affirmative vote of a majority of the remaining directors,
though less than a quorum of the Board or by a sole remaining Director, at any
regular meeting or special meeting of the Board of Directors called for that
purpose.
(b) Unless otherwise provided for by statute, the Certificate of Incorporation
or these Bylaws, when one or more directors shall resign from the board and such
resignation is effective at a future date, a majority of the directors, then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote otherwise to take effect when such resignation or
resignations hall become effective.
Section 9 - Resignation: (Section 14A:6-3)
A Director may resign at any time by giving written notice to the Corporation.
Such resignation shall be effective upon receipt thereof by the Corporation, or
at such subsequent time as shall be specified in such resignation.
Section 10- Removal: (Section 14A:6-6)
One or more or all the Directors of the Corporation may be removed with or
without cause at any time by the shareholders, at a special meeting of the
shareholders called for that purpose, and may be removed for cause by action of
the Board.
By-laws-6
<PAGE>
Section II - Salary: (Section 14A:6-6)
The Board of Directors may authorize and establish reasonable compensation of
the Directors for services to the Corporation as Directors, including, but not
limited to attendance at any annual or special meeting of the Board.
Section 12 - Contracts: (Section 14A:6-8)
(a) Any contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated nor shall any Director be
liable in any way by reason of the fact that any one or more of the Directors of
this Corporation is or are interested in, or is a Director or officer or are
Directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors before the Board of Directors
approves or ratifies such contract or other transaction, and provided that the
Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such Director at the
meeting at which such action is taken. Such Director or Directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
(b) Any actions taken at a meeting of any such committee provided for herein
shall be reported to the Board at its next meeting following such committee
meeting; except that, when the meeting of the Board is held within two days
after the committee meeting, such report shall, if not made at the first
meeting, be made to the Board at its second meeting following such committee
meeting.
(c) The designation of any such committee and the delegation thereto of
authority shall not operate to relieve the Board, or any member thereof, of any
responsibility imposed by law.
Section 13 - Committees: (Section 14A:6-9)
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board and,
unless otherwise stated by law, the Certificate of Incorporation of the
Corporation or these Bylaws, shall be governed by the rules and regulations
stated herein regarding the Board of Directors.
ARTICLE IV - OFFICERS
Section I - Number. Qualifications. Election and Term of Office (Section
14A:6-15)
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairperson of the Board of
Directors, and one or more Vice Presidents,
By-Laws-7
<PAGE>
as the Board of Directors may from time to time deem advisable. Any officer
other than the Chairman of the Board of Directors may be, but is not required to
be, a director of the Corporation. Any two or more offices may be held by the
same person, except the offices of President and Secretary.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, subject to earlier termination by his or her death,
resignation or removal.
(d) Each officer shall have the authority to perform such duties as may be
provided for in these ByLaws or as may be determined, from time to time, by
resolution of the Board not inconsistent with these ByLaws.
(e) Any two or more offices may be held by the same person, but no officer shall
execute, acknowledge or verify any instrument in more than one capacity if such
instrument is required by law or these ByLaws to be executed, acknowledged, or
verified by two or more officers.
Section 2 - Resignation: (Section 14A:6-16)
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
Section 3 - Removal: (Section 14A:6-16)
Any officer elected by the Board of Directors may be removed, either with or
without cause, and a successor elected by the Board at any time. Any officer
elected by the shareholders may be removed, with or without cause, only be vote
of the shareholders, but his authority to act as an officer may be suspended by
the Board of Directors for cause.
Section 4 - Vacancies: (Section 14A:6-5)
(a) A vacancy, however caused, occurring in the Board and any newly created
Directorships resulting from an increase in the authorized number of Directors
may be filled by the Board of Directors, even though there is less than a quorum
of the Board, or by the sole remaining Director.
(b) Whenever one or more Directors shall resign from the Board effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have the power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective.
By-Laws-8
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(c) Any directorship not filled by the Board, may be filled by the shareholders
of the corporation at any annual or special meeting called for that purpose.
(d) If the Corporation has, for any reason, no Directors in office, any
shareholder or executor or administrator of a deceased shareholder my call a
special meeting of shareholders for the election of Directors.
Section 5 - Duties of Officers: (Section 14A:6-l)
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such authority and perform such duties as generally pertain
to their respective offices as well as such powers and duties as may be set
forth in these ByLaws, or may from time to time be specifically conferred or
imposed by the Board of Directors, not inconsistent with these Bylaws.
Section 7- Shares of Other Corporations: (Section 14A:6-15)
The President, any Vice President, or such other person as the Board of
Directors may authorize, may execute any proxy, consent, or right to vote
possessed by the Corporation in shares of stock owned by the Corporation,
subject to the direction of the Board of Directors.
Section 8 - Compensation: (Section 14A:6-8)
The Compensation of the officers of the Corporation, shall be fixed from time to
time by the Board of Directors.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificate of Stock: (Section 14A:7-11 & 14A:7-13)
(a) The shares of the Corporation shall be represented by certificates or shall
be uncertificated shares. The certificates representing shares of the
Corporation shall bear the holder's name and the number of shares, and;
(i) shall be signed in the name of the Corporation by the Chairperson or
Vice-Chairperson of the Board or the President, and may be countersigned by the
Treasurer or the Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation; and
(ii) shall state upon the face thereof that the Corporation is organized
under the laws of New Jersey; the name of the person to whom issued; and the
number and class of shares, and the designation of the series, if any, which
such certificate represents; and
(iii) may bear the corporate seal or a facsimile thereof.
In case any officer who has signed or whose facsimile signature has been
placed upon such certificate shall have ceased to be such officer before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if he were an officer at the date of its issue.
By-Laws-9
<PAGE>
Within a reasonable time after the issuance of by the Board or the transfer of
uncertificated shares, the Corporation shall send to the registered owner
thereof a written notice containing the information required to be set forth or
states on certificates by this subsection of these Bylaws.
Except as otherwise provided by law, the rights and obligations of the
holders of uncertificated shares and the rights and obligations of the holders
of certificates representing shares of the same class and series shall be
identical.
(b) If the Corporation is authorized in its Certificate of Incorporation to
issue shares of more than one class and such shares are certificated, such
certificate shall set forth upon or the back thereof, a full statement:
(i) of the designations, relative rights, preferences and limitation s of
the shares of each class and series authorized to be issued, so far as the same
has been determined; and
(ii) of the authority of the Board to divide the shares into classes or
series and to determine and change the relative rights, preferences and
limitation s of any class or series; or
(iii) shall set forth that the Corporation shall furnish to any
shareholder, upon request and without charge, such a full statement.
(c) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(d) The Board of Directors may authorize the issuance of certificates for
fractions of a share which shall entitle the holder to exercise voting rights,
receive dividends and participate in liquidating distributions, in proportion to
the fractional holdings; or it may authorize the payment in cash of the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined; or it may authorize the issuance, subject to such
conditions as may be permitted by law, of scrip in registered or bearer form
over the signature of an officer or agent of the Corporation, exchangeable as
therein provided for full shares, but such scrip shall not entitle the holder to
any rights of a shareholder, except as therein provided.
Section 2 - Lost or Destroyed Certificates: ((Section 12A:8-405)
The Board of Directors may direct a new certificate or certificates to be issued
in place of any certificate or certificates to be issued in place of any
certificate or certificates, theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed if the owner:
(a) so requests before the Corporation has notice that the shares have
been acquired by a bona fide purchaser,
(b) files with the Corporation a sufficient indemnity bond; and
(c) satisfies such other requirements, including evidence of such loss,
theft or destruction, as may be imposed by the Corporation.
By-Laws-10
<PAGE>
Section 3 - Transfers of Shares: (Section 14A:7-12)
(a) Upon surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon the Record Books of the
Corporation.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date: (Section 14A:5-7)
(a) The Board of Directors may fix, in advance, a date not exceeding sixty days,
nor less than ten days, as the record date for the determination of shareholders
entitled to receive notice of, or to vote at, any meeting of shareholders, or to
consent to any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividends, or allotment of any
rights, or for the purpose of any other action. If no record date is fixed, the
record date for a shareholders entitled to notice of meeting shall be at the
close of business on the day next preceding the day on which notice is given,
or, if no notice is given, the day on which the meeting is held; the record date
for determining shareholders for any other purpose shall be at the close of
business
(b) If no record date is fixed, the record date for determining shareholders
entitled to consent to corporate action in writing without a meeting, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation by delivery to its
registered office in this State, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of shareholders are recorded.
ARTICLE VI- DIVIDENDS (Section 14A:7-l4)
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine so long as after the payment of such dividend
the Corporation:
(a) is still able to pay its debts as they become due in the ordinary
course of business; and
(b) the Corporation's total assets are greater than its total liabilities.
ARTICLE VII- FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
changed by the Board of Directors from time to time, subject to applicable law.
By-Laws-11
<PAGE>
ARTICLE VIII- CORPORATE SEAL [Section 14A:3-l(c)]
The corporate seal, if any, shall be in such form as shall be prescribed and
altered, from time to time, by the Board of Directors.
ARTICLE IX - AMENDMENTS (Section 14A:2-9)
Section 1 - Initial Bylaws:
The initial Bylaws of the Corporation shall be adopted by the Board of Directors
at its organizational meeting.
Section 2 - By Shareholders:
All Bylaws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of directors.
Section 3 - By Directors:
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, Bylaws of the Corporation; however, Bylaws made by the Board
may be altered or repealed, and new Bylaws made by the shareholders.
ARTICLE X - INDEMNITY (Section 14A:3-5)
(a) To the extent permitted by law: the Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he/she is or was a Director, Officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expense,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him/her in connection with such action, suit
or proceeding if he/she acted in good faith and in a manner he/she reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his/her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he/she reasonably
believed to be in or not opposed to be best interests of the Corporation and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his/her conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he/she is or was a Director, Officer,
By-Laws-12
<PAGE>
employee or agent of the Corporation, or is or was serving at the request of the
Corporation, as a Director, Officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred by him/her in
connection with the defense or settlement of such action or suit if he/she acted
in good faith and in a manner he/she reasonably believed to be in or not opposed
to the best interests of the Corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his/her duty to the Corporation unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) To the extent that a Director, Officer, employee or agent of a Corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding refereed to in subsection (a) and (b) of this Article and Section, or
in defense of any claim, issue or matter therein, he/she shall be indemnified
against expenses, including attorneys" fees actually and reasonably incurred by
him/her in connection therewith.
(d) Any indemnification under subsections (a) or (b) of this Article and
Section, unless ordered by a court, shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, Officer, employee or agent is proper in the circumstances because
he/she has met the applicable standard of conduct set forth in subsections (a)
or (b) of this Article and Section. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of Directors who
were not parties to such action, suit or proceeding, or (ii) if such pa quorum
is not obtainable, or, even if obtainable as a quorum of disinterested Directors
so directs, by independent legal counsel in a written opinion, or (iii) by the
shareholders of the Corporation.
(e) Expenses, including attorneys' fees, incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized the
manner provided in subsection (d) of this Article and Section upon receipt of an
undertaking by or on behalf of the Director, Officer, employee or agent to repay
such amount unless it shall ultimately e determined that he/she is entitled to
be indemnified by the Corporation as authorized in this Article and Section.
(f) The indemnification provided by this Article and Section shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of shareholders or disinterested Directors or
otherwise, but has to action in his/her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, Officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
By-Laws - 13
Exhibit No. 4.1
Specimen Form of Common Stock Certificate
<PAGE>
Specimen Stock Certificate of
Electronic Control Security Inc.
Incorporated under the Laws of the State of New Jersey
<PAGE>
Specimen Form of Common Stock Certificate
Exhibit No. 4.2
Form of Redeemable Common Stock Purchase Warrant Issued to Public in 1987
<PAGE>
[Specimen of Redeemable Warrant Certificate of
Electronic Control Security Inc.]
[SPECIMEN OMITTED]
<PAGE>
[Reverse of Specimen of Redeemable Warrant Certificate of
Electronic Control Security Inc.]
[REVERSE OF SPECIMEN OMITTED]
Exhibit No. 4.3
Form of Qualified Stock Option Certificate
<PAGE>
ELECTRONIC CONTROL SECURITY INC.
INCENTIVE STOCK OPTION CERTIFICATE
For valuable consideration, receipt of which is hereby acknowledged,
ELECTRONIC CONTROL SECURITY INC., a New Jersey corporation (hereinafter called
the "Company"), hereby grants to JOYCE SUNSHINE whose address is 20 Mt.
Washington Drive, Clifton, NJ 07013 (hereinafter called the "Optionee"), an
Incentive Stock Option (the "Option"), subject to the terms and conditions
hereof, to purchase from the Company an aggregate of twenty thousand (20,000)
shares of the common stock, par value $.001 per share, (the "Common Stock") of
the Company, subject to adjustment as provided for in Section 7 of this
Incentive Stock Option Certificate. The Option is granted upon all of the terms
and conditions set forth in this Incentive Stock Option Certificate and is
subject to all of the terms of the Electronic Control Security Inc. Incentive
Stock Option Plan adopted on September 16, 1986 (the "Plan").
1. Purchase Price.
The option price for the shares of Common Stock which may be
acquired upon the exercise of the Option shall be $.10 per share, subject to
adjustment as provided in Section 7 hereof. The option price is not less than
the fair market value of a share of the Common Stock of the Company on the date
of this Incentive Stock Option Certificate.*
2. Exercise of Option
Except as provided in Sections 5 and 6 hereof, the Option may be
exercised only prior to the expiration of ten (10) years from the date hereof**,
and as to the following respective number of shares of Common Stock of the
Company:
1
<PAGE>
provisions of Section 6 hereof; provided that any such termination of the Option
under the foregoing provisions of this Section 4 will not prejudice any rights
or remedies which the Company or any subsidiary of the Company may have under
the Plan or this Incentive Stock Option Certificate or otherwise.
5. Exercise Upon Cessation of Employment
Except as otherwise provided in Section 6, any Option granted to
Optionee, which is otherwise exercisable, shall expire immediately if such
Optionee voluntarily terminates his employment with the Corporation without the
written consent of the Corporation. Any Option granted to Optionee, which is
otherwise exercisable, shall terminate upon involuntary termination of
employment of an Optionee or voluntarily termination with the written consent of
the Company. Notwithstanding the foregoing, the Option will not be affected by
any change of duties or position of the Optionee so long as the Optionee
continues to be an employee of the Company or any subsidiary of the Company. If
the Optionee is granted a temporary leave of absence, such leave of absence
shall be deemed a continuation of the employment of the Optionee by the Company
or any subsidiary thereof for the purposes of this Option Certificate during the
term of such authorized leave of absence, but only if and so long as the Company
or the subsidiary which employs the Optionee consents to such authorized leave
of absence.
6. Exercise Upon the Death, Retirement or Disability of the Optionee
(a) If the Optionee dies while in the employ of the Company or any
subsidiary of the Company, the Option may, subject to the provisions of Sections
4 and 5 hereof, be exercised as to all the shares of Common Stock subject to the
Option by the executor or administrator of such deceased Optionee or by such
other person at the time entitled by law to the rights of such deceased Optionee
under the Option, at any time within six (6) months after death, but in no event
after the expiration of the term of the Option pursuant to Section 3.
4
<PAGE>
(b) In the event that the employment of the Optionee by the Company
or a subsidiary of the Company is terminated by reason of the "disability" of
the Optionee, the Option may be exercised as to all shares subject to the Option
by the Optionee at any time within one (1) year after the date of such
termination of employment, but in no event after the expiration of the term of
the Option. For purposes of the Plan, the term "disability" shall mean a
physical or mental disability as defined in Section 105 of the Code.
(c) In the event that the employment of the Optionee by the Company
or a subsidiary of the Company is terminated by reason of the retirement of the
Optionee, the Option may be exercised by the Optionee (to the extent otherwise
exercisable on the date of the retirement of the Optionee) at any time within
three (3) months after the date of such retirement, but in no event after the
Termination Date specified in Section 4 of this Incentive Stock Option
Certificate.
7. Adjustments
If (a) the Company shall at any time be involved in a transaction to
which subsection (a) of Section 425 of the Internal Revenue Code is applicable;
(b) the Company shall declare a dividend payable in, or shall subdivide or
combine, its Common Stock; or (c) any other event shall occur which in the
judgment of the Committee or the Board of Directors of the Company necessitates
action by way of adjusting the terms of the outstanding options, the Committee
shall recommend to the Board of Directors of the Company any such action as in
its judgment it deems necessary to preserve to the Optionee rights substantially
proportionate to the rights existing prior to such event. The determination of
the Board of Directors of the Company with respect to any such adjustment shall
be conclusive and binding upon the Optionee. No adjustments made pursuant to the
provisions of this Section 7 shall constitute a modification of the Option
within the meaning of Section 425(h) of the Code.
5
<PAGE>
8. Registration and Resale
(a) The shares of Common Stock subject to, and issuable upon the
exercise of, the Option may be issued to the Optionee without registration under
the Securities Act of 1993, as amended (the "Securities Act") and, if required
upon the request of counsel to the Company, the Optionee shall give a
representation as to his investment intent with respect to such shares prior to
their issuance as set forth in Section 9.
(b) Upon any sale or transfer of the Common Stock purchased upon
exercise of the Option, the Optionee shall, if requested by the Company, deliver
to the Company an opinion of counsel satisfactory to counsel to the Company to
the effect that either (i) the shares of Common Stock to be so sold or
transferred have been registered under the Securities Act and that there is in
effect a current prospectus meeting the requirements of Section 10(a) of the
Securities Act which is being or will be delivered to the purchaser or
transferee at or prior to the time of delivery of the certificates evidencing
the Common Stock to be sold or transferred, or (ii) such shares of Common Stock
may then be sold without violating Section 5 of the Securities Act.
(c) If required by counsel for the Company the certificates
representing shares of Common Stock issued upon exercise of the Option shall
bear the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
THEY HAVE FIRST BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNLESS, IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH
REGISTRATION IS NOT REQUIRED.
9. Method of Exercise of Option
Subject to the provisions of the Plan and this Option Certificate,
the Option may be exercised by written notice to the Company from the person or
persons entitled to exercise the Option, stating the number of shares with
respect to which it is being exercised and accompanied by payment of the Option
Price by (a) certified or bank cashier's check payable to the order of the
Company, (b) shares of Common Stock of the Company owned by the Optionee or (c)
any other consideration
6
<PAGE>
acceptable to the Committee or, in the absence of a Committee, to the Board of
Directors. If required by counsel to the Company, the notice of exercise shall
be accompanied by representation and agreements to investment intent, in form
satisfactory to counsel to the Company. As soon as practicable after receipt of
such notice and payment, the Company shall, without transfer or issue tax or
other incidental expense to the Optionee, deliver to the Optionee at 20 Mt.
Washington Drive, Clifton, NJ 07013 or such other place as may be mutually
acceptable, or, at the election of the Committee, by first-class insured mail
addressed to the Optionee at the address of the Optionee as indicated in the
employment records of the Company, a certificate or certificates for such shares
of Common Stock of the Company or reacquired shares of its Common Stock, as the
Company may, in its sole discretion elect.
The Company may postpone the time of delivery of certificates for
shares of its Common Stock for such additional time as the Company shall deem
necessary or desirable to enable it to comply with the listing requirements of
any securities exchange upon which the shares of Common Stock of the Company may
be listed or the requirements of the Securities Act or the Securities and
Exchange Act of 1934, as amended, or any rules or regulations of the Securities
and Exchange Commission promulgated under either of said Acts or the
requirements of applicable state laws relating to authorization, issuance or
sale of securities.
If the Optionee fails to accept delivery of and pay for all or any
part of the number of shares specified in such notice upon tender of delivery
thereof, the right of the Optionee to exercise the Option with respect to such
undelivered shares may be terminated at the discretion of the Company. The
Option may be exercised only with respect to full shares, and no fractional
shares will be issued upon exercise of the Option.
10. Right to Terminate Employment
The right of the Company or a subsidiary to terminate (whether by
dismissal, discharge, retirement or otherwise) the employment of the Optionee by
the Company or the
7
<PAGE>
subsidiary at any time at will or as otherwise provided by any agreement between
the Company or any subsidiary and the Optionee is specifically reserved and is
not affected by the grant of the Option. Neither the Optionee nor any person
entitled to exercise the rights of the Optionee in the event of the death of the
Optionee shall have any of the rights of a stockholder with respect to the
shares subject to the Option, except to the extent that the Option has been
exercised.
11. Notice to the Company Upon Disposition of Shares Acquired Upon
Exercise of the Option
In the event that the Optionee disposes (whether by sale, exchange,
gift or otherwise) of any shares of Common Stock acquired by the Optionee
pursuant to the exercise of the Option within two years from the date hereof or
within one year after the transfer of such shares to the Optionee upon the
exercise of the Option, the Optionee shall notify the Company of such
disposition no later than 30 days after the date of such disposition.
12. Amendment
Notwithstanding anything to the contrary contained in this Incentive
Stock Option Certificate, the Option may be amended by the Company retroactively
and at any time to conform to the provisions of the Internal Revenue Code and
the Treasury Regulations promulgated thereunder in order that the Option and the
other options under the Plan may qualify as "Incentive Stock Options" within the
meaning of Section 422A of the Internal Revenue Code, and no such amendment
shall be considered prejudicial to the rights of the Optionee.
13. Termination
The Option shall be wholly void and of no effect after Termination
Date specified in Section 3 hereof
8
<PAGE>
IN WITNESS WHEREOF, Electronic Control Security Inc., has caused
this Option Certificate to be executed by its officers, thereunto duly
authorized, as of the 2nd day of January, 1998.
ATTEST: ELECTRONIC CONTROL SECURITY INC.
- -------------------------- --------------------------------
Arthur Barchenko
President and CEO
ACCEPTED AND AGREED TO:
- --------------------------
(the Optionee)
Exhibit No. 4.4
Form of Non-Qualified Stock Option Certificate
<PAGE>
NONSTATUTORY STOCK OPTION AGREEMENT
UNDER
ELECTRONIC CONTROL SECURITY INC.
NONSTATUTORY STOCK OPTION PLAN
AGREEMENT made this 16th day of November, 1999 between ELECTRONIC CONTROL
SECURITY INC., (the "Company") a New Jersey corporation, and GENE RABOIS, 29
Jonathan Drive, Edison, NJ 08820 (the "Optionee"), a consultant to the Company
or one of its parent or subsidiary corporations.
WHEREAS, the Board of Directors of the Company has determined to grant the
option provided for herein to the Optionee, and the Optionee has accepted the
same within thirty days of the date first above written as evidenced by his
dated signature hereafter.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed between the parties hereto as follows:
1. Grant of Option.
The Company grants to the Optionee the right and option to purchase
from the Company, on the terms and conditions hereinafter set forth, all or any
part of an aggregate of fifty thousand (50,000) shares of the authorized but
unissued Common Stock of the Company, at the purchase price of $.30 per share,
as the Optionee may from time to time elect, exercisable at the time for the
number of shares as follows:
(a) on or after January 2, 2000 to and including January 1, 2001,
25,000 shares;
(b) on or after January 2, 2001 to and including January 1, 2002,
25,000 shares;
(c) on or after ________, _____ to and including ____________,
___________ _________ shares; and
1
<PAGE>
(d) on or after ______________, _______ to and including
______________ _______ (hereinafter referred to as the "terminal date") 50,000
shares. Except as otherwise provided herein, if the Optionee does not purchase
in a specified period the full number of shares to which he is entitled, he may
purchase such shares in the subsequent period in addition to the shares which he
would otherwise be entitled to purchase in such subsequent period. No partial
exercise of such option shall be for less than 1,000 full shares and in no event
shall the Company be required to issue fractional shares. Anything contained
herein to the contrary notwithstanding, if the Optionee shall be, as of the date
hereof, a non-employee director of the Company, options granted hereunder shall
not be exercisable earlier than one year from the date hereof; thereafter, such
options may be exercised only in installments of no more than 25% per year and
such options shall be exercisable only within five years from the date hereof.
2. Method of Exercise.
The option granted hereunder shall be exercisable from time to time,
as hereinabove provided, by payment to the Company in cash of the purchase price
of the shares which the Optionee shall then elect to purchase or pursuant to
Rule 16b-3 of the Securities Exchange Act of 1934, by delivery to the Company of
such number of shares of the Company's Common Stock having a fair market value
(as determined by the Committee) equal to said purchase price. The Company shall
not be required to issue or deliver any certificate or certificates for shares
of the Company's Common Stock purchased from time to time upon exercise of the
option granted hereunder until the conditions set forth in Paragraph 8 hereof
are satisfied. In addition, the Optionee shall promptly pay upon notification of
the amount due and prior to, or concurrently with, the delivery to the Optionee
of a certificate representing such shares any amount necessary to satisfy
applicable federal, state or local tax requirements. Payment for the shares
shall be accompanied by a written request for the shares to be purchased and
such payment and written request shall be directed to the Treasurer of the
Company.
2
<PAGE>
3. Termination of Option.
The option an all rights granted hereunder, to the extent such
rights have not been exercised, shall terminate and become null and void on the
terminal date or sooner upon the Optionee's ceasing to be a consultant to the
Company, its parent or subsidiary corporations (or by a corporation or
subsidiary of such corporation issuing a new stock option or assuming such stock
option in a transaction to which Section 425 of the Code is applicable), unless
(i) such cessation shall be because of (a) involuntary termination which the
Board of Directors in its sole discretion shall determine to be without cause,
(b) voluntary resignation (which must be with the consent of the Board of
Directors) or (c) retirement in accordance with and as permitted by the terms
and conditions of a retirement plan adopted by the Company, its parent or
subsidiary corporations, in which case the option shall be exercisable within a
period of three months following the cessation date, or (ii) such cessation
shall be because of disability or death (or death shall occur within three
months of such cessation), in which case the option shall be exercisable within
a period of one year following the cessation date by the Optionee, his guardian
of legal representative in the case of disability, or the estate of the Optionee
or by the person or persons to whom the Optionee's rights under the option shall
pass by the Optionee's will or the laws of descent and distribution in the case
of death; provided, however, that an option may be exercised only to the extent
it was exercisable by the Optionee on the date of his ceasing to be a director
or employee and in no event may an option be exercised after the expiration date
thereof.
4. Limitation upon Transfer.
During the lifetime of the Optionee the option and all rights
granted hereunder shall be exercisable only by the Optionee or by his guardian
or legal representative and except as otherwise provided in Paragraph 3 hereof,
the option and all rights granted hereunder shall not be assigned, transferred,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall
3
<PAGE>
not be subject to execution, attachment or similar process. Upon any attempt to
assign, transfer, pledge, hypothecate, or otherwise dispose of such option or of
such rights contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon such option or such rights, such option and
such rights shall immediately become null and void.
5. Adjustments in Case of Changes in Stock.
In the event there is any change in the Common Stock of the Company
by reason of a stock dividend paid with respect to the Common Stock of the
Company, or a recapitalization, a reclassification, a stock split or a
combination of shares with respect to such Common Stock, or if the outstanding
Common Stock of the Company should, by reason of a merger, consolidation,
acquisition of stock or property, separation, reorganization or liquidation to
which the Company is a party, be exchanged for other shares of the Company or of
another corporation which is a party to such transaction, the number of shares
which may be made subject to option and issued under the Plan shall be adjusted
as the Board of Directors of the Company shall determine to be appropriate to
reflect the change or exchange. In the event of any such change or exchange, the
option which has been granted hereunder shall apply to the shares into or for
which the Common Stock covered by the options would have been changed, and the
option price per share shall be adjusted, as the Committee shall determine to be
appropriate.
6. Listing and Registration of Shares.
The Company shall not be required to issue or deliver any shares of
stock upon the exercise of this option prior to (a) the admission or such shares
to listing on any stock exchange on which the Company's Common Stock may then be
listed, and (b) the completion of such registration or other qualification of
such shares under any state or federal law, rule or regulation, as the Company
shall determine to be necessary or advisable. The Company shall not be required
to issue or deliver
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any shares of stock upon the exercise of an option free of transfer
restrictions, of any kind or character, imposed under applicable state or
federal law, rules or regulations.
7. Stock as Investment.
By accepting this option, the Optionee acknowledges for himself, his
heirs, and legatees that any and all shares purchased hereunder shall be
acquired for investment and not for distribution, and prior to the issuance and
delivery of any or all of the shares subject to the option granted hereunder,
the Optionee's or his heirs or legatees receiving such shares, shall, if the
Optionee shall so request, deliver to the Optionee a representation in writing
that such shares are being acquired in good faith for investment and not for
distribution.
8. Rights as Shareholder.
Neither the Optionee's nor is heirs, legatees, guardians or legal
representatives shall be or have any rights or privileges of a shareholder of
the Company in respect of shares to be issued and delivered upon exercise of the
option granted hereunder unless and until certificates representing such shares
shall have been issued, executed, delivered and registered on the Company's
transfer books.
9. Interpretation.
In the event of any conflict between the terms of this Agreement and
the terms of the Plan, the terms of the Plan shall control. This Agreement shall
not be effective unless and until the Plan is effective.
10. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Optionee and the Company and its successors if executed by the Optionee within
thirty days after the date first above
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<PAGE>
written which date first above written is the date of the granting of the option
by the Committee. If the Optionee shall fail to execute this Agreement within
said thirty day period, his option shall automatically be terminated.
Nothing herein contained shall confer upon the Optionee any right
with respect to continuous employment by, or service as a director or
consultants of, the Company or its parent or subsidiary corporations, nor
interface in any way with the right of the Company or its parent or subsidiaries
to terminate the Optionee's employment or change his compensation at any time.
IN WITNESS WHEREOF, the Company had caused this Agreement to be
executed by its President or one of its Vice Presidents and the same has been
ratified by a member of the Committee, all as of the day and year first above
written.
ELECTRONIC CONTROL SECURITY, INC.
By: /s/ [Illegible]
------------------------------
President
Optionee:
/s/ Gene Rabois
----------------------------------
Name: Gene Rabois
Address: 29 Jonathan Drive
Edison, NJ 08820
6
Exhibit No. 10.1
Patent License and Technical Information Agreement Relating to Fiber Optic
Sensing Systems dated as of January 15, 1997 between Lucent Technologies Inc.
and Electronic Control Security Inc.
<PAGE>
PATENT LICENSE AND TECHNICAL INFORMATION AGREEMENT
between
LUCENT TECHNOLOGIES INC.
and
ELECTRONIC CONTROL SECURITY iNC.
Effective as of January 15, 1997
Relating to Fiber Optic Sensing Systems
<PAGE>
PATENT LICENSE AND TECHNICAL INFORMATION AGREEMENT TABLE OF CONTENTS
ARTICLE I - GRANTS OF LICENSES
1.01 Grant
1.02 Duration
1.03 Scope
1.04 Ability to Provide Licenses
1.05 Warranty
ARTICLE II - TRANSFER AND USE OF TECHNICAL INFORMATION
2.01 Furnishing of Information
2.02 Non-Transmission
2.03 U.S. Export Control
2.04 Grant
2.05 Procurement
2.06 Accuracy
2.07 Nothing Construed
2.08 ECSI's Duties
ARTICLE III ROYALTY AND PAYMENTS
3.01 Royalty Calculation
3.02 Accrual
3.03 Exclusions
3.04 Records and Adjustments
3.05 Reports and Payments
ARTICLE IV - TERMINATION
4.01 Termination for Breach
4.02 Voluntary Termination
4.03 Survival
ARTICLE V - MISCELLANEOUS PROVISIONS
5.01 Disclaimer
5.02 Publicity
5.03 Nonassignability
5.04 Address
5.05 Taxes
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5.06 Choice of Law
5.07 Integration
5.08 Agreement Prevails
5.09 No Patent License
5.10 Dispute Resolution
DEFINITIONS APPENDIX
1
<PAGE>
PATENT LICENSE AND TECHNICAL INFORMATION AGREEMENT
This Patent License and Technical Information Agreement ("Agreement"), effective
as of January 15, 1997, is between the following Parties: LUCENT TECHNOLOGIES
INC., a Delaware corporation ("LUCENT"), having an office at 600 Mountain
Avenue, Murray Hill, New Jersey 07974, and ELECTRONIC CONTROL SECURITY INC., a
New Jersey corporation ("ECSI"), having an office at 23 Just Road, Fairfield,
New Jersey 07004. The Parties agree as follows:
ARTICLE I
GRANTS OF LICENSES
1.01 Grant
LUCENT grants to ECSI under LUCENT's PATENT personal, nonexclusive and
nontransferable licenses to make, have made, use, lease, sell offer for sale and
import OPTICAL FIBER SENSING SYSTEMs.
1.02 Duration
All licenses granted herein shall continue for the entire unexpired term of
LUCENT's PATENT.
1.03 Scope
(a) Licenses granted under this Article I are not to be construed either (i) as
consent by LUCENT to any act which may be performed by ECSI, except to the
extent impacted by LUCENT's PATENT, or (ii) to include licenses to
contributorily infringe or induce infringement under U.S. law.
(b) The grant of each license under this Article I includes the right of ECSI
to grant sublicenses within the scope of such license to ECSI's SUBSIDIARIES
for so long as they remain its SUBSIDIARIES. Any such sublicense may be made
effective retroactively, but not prior to the effective date hereof, nor prior
to the sublicensee's becoming a SUBSIDIARY of ECSI.
- ---------------------------
*Any term in capital letters which is defined in the Definitions Appendix shall
have the meaning specified therein.
<PAGE>
1.04 AbIlity to Provide Licenses
LUCENT's failure to meet any obligation hereunder, due to the assignment of
title to any invention or patent, or the granting of any licenses, to the United
States Government or any agency or designee thereof pursuant to a statute or
regulation of, or contract with, such Government or agency, shall not constitute
a breach of this Agreement.
1.05 Warranty
LUCENT warrants to ECSI that LUCENT is the owner of LUCENTs PATENT and that it
has the right to grant to ECSI the license described herein.
ARTICLE II
TRANSFER AND USE OF TECHNICAL INFORMATION
2.01 Furnishing of Information
(a) LUCENT agrees to allow ECSI to obtain TECHNICAL INFORMATION.
(b) Section 2.01(a) does not apply to any TECHNICAL INFORMATION previously
furnished for limited use to ECSI. Any and all such previously furnished
information shall be deemed also furnished hereunder to ECSI as of the effective
date hereof.
(c) ECSI shall, without charge to LUCENT, disclose and furnish promptly to
LUCENT any and all information derived from the TECHNICAL INFORMATION relating
to OPTICAL FIBER SENSING SYSTEMs, and developed by ECSI's personnel solely or
jointly with anyone prior to the expiration of five (5) years following the last
furnishing of any TECHNICAL INFORMATION to ECSI under this Agreement.
(d) LUCENT and/or its SUBSIDIARlES shall have unrestricted, nonexclusive,
fee-free rights (including nonexclusive, fee-free license rights for any
patentable inventions) for all purposes to reproduce, use, and have used, in
whole or in part, such information disclosed and furnished pursuant to Section
2.01(c), as well as articles made therewith or incorporating the inventive
concepts thereof, (and to disclose any such information in connection with the
reproduction, sale, use, making or the having made, of such article) without
accounting to ECSI or any assignee or beneficiary thereof.
(e) ECSI shall use its best efforts to acquire rights to such information
disclosed and furnished pursuant to Section 2.01(c), so that LUCENT and its
SUBSIDIARIES shall receive the rights provided in this Section 2.01.
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<PAGE>
2.02 Non-Transmission
ECSI agrees that it will not, without the prior written consent of LUCENT,
transmit, directly or indirectly, TECHNICAL INFORMATION or any portion thereof
to any country outside of the United States.
2.03 U.S. Export Control
ECSI hereby assures LUCENT that it does not intend to and will not knowingly,
without the prior written consent, if required, of the Office of Export
Licensing of the U.S. Department of Commerce, P.O. Box 273, Washington, D.C.
20044, transmit directly or indirectly:
(i) any TECHNICAL INFORMATION; or
(ii) any immediate product (including processes and services) produced
directly by the use of TECHNICAL INFORMATION; or
(iii) any commodity produced by such immediate product if the immediate
product of TECHNICAL INFORMATION is a plant or a major component of
a plant;
to (1) Haiti, Iran, Iraq, the People's Republic of China, Syria, those areas of
the Republic of Bosnia and Herzegovina that continue under the control of
Bosnian-Serb military forces, or to any Group Q, S, Y or Z country specified in
Supplement No. 1 to Part 770 of the Export Administration Regulations issued by
the U.S. Department of Commerce or (2) any national or resident of the foregoing
countries.
In addition, if the immediate product of any of TECHNICAL INFORMATION is a plant
or a major component of a plant, ECSI hereby assures LUCENT that any and all
requirements of the Export Administration Regulations (including obtaining
necessary assurances or licenses) will be satisfied with respect to any
controlled commodity produced by such plant.
2.04 Grant
(a) LUCENT grants to ECSI a personal and nonexclusive right to use the TECHNICAL
INFORMATION solely in the United States and solely for the manufacture in ECSI's
factories of OPTICAL FIBER SENSING SYSTEMs and of maintenance parts therefor.
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<PAGE>
(b) ECSI may grant to ECSI's SUBSIDIARIES, for so long as they remain its
SUBSIDIARIES, rights within the scope of the rights granted to ECSI by LUCENT
under this Article II. The grant of any such rights may be made effective
retroactively, but not prior to the effective date of this Agreement, nor prior
to the date of the grantee's becoming a SUBSIDIARY of ECSI.
2.05 Procurement
(a) LUCENT grants to ECSI a personal and nonexclusive right, as an attribute of
the right granted in Section 2.04, to disclose to any supplier or prospective
supplier in the United States only those portions of TECHNICAL INFORMATION which
are necessary for the procurement by ECSI of parts and subassemblies for OPTICAL
FIBER SENSING SYSTEMs.
(b) ECSI agrees that it will not make any part of TECHNICAL INFORMATlON
available to any such supplier or prospective supplier except on the agreement
in writing (of which a copy will be furnished to LUCENT promptly upon its
request) of such supplier or prospective supplier that it accepts as its own
ECSI's commitments under Sections 2.02 and 2.03 and the confidentiality
obligations of Section 2.08, that it will use all information received from ECSI
only for the purpose of supplying to ECSI items of the type to be procured by
ECSI pursuant to Section 2.05(a) and that it will promptly return or destroy
each and every part of TECHNICAL INFORMATION as directed by ECSI.
2.06 Accuracy
LUCENT believes that the TECHNICAL INFORMATION is true and accurate, but LUCENT
and its SUBSIDIARIES shall not be held to any liability for errors or omissions
therein. LUCENT warrants to ECSI that LUCENT is the owner of the TECHNICAL
INFORMATION and it has the right to grant to ECSI the licenses described herein.
2.07 Nothing Construed
Neither the execution of this Agreement nor anything in it or in the TECHNlCAL
INFORMATION shall be construed as:
(i) an obligation upon LUCENT or its SUBSIDIARIES to furnish any person
or entity, including ECSI, any assistance of any kind whatsoever, or
any information other than the TECHNICAL INFORMATION, or to revise,
supplement or elaborate upon the TECHNICAL INFORMATION; or
4
<PAGE>
(ii) providing or implying any arrangement or understanding that LUCENT
or its SUBSIDIARIES will make any purchase, lease, examination or
test or give any approval.
2.08 ECSI's Duties
ECSI agrees:
(i) that ECSI will not use any TECHNICAL INFORMATION except as
authorized herein;
(ii) that ECSI shall hold all of the TECHNICAL INFORMATION in confidence
for LUCENT, shall not make any disclosure of any or all of such
TECHNICAL INFORMATION to anyone, except to employees of ECSI who
have a need to know and to any others to whom such disclosure may be
expressly authorized hereunder and is necessary to implement the use
for which rights are granted hereunder, and that ECSI shall
appropriately notify each person to whom any such disclosure is made
that such disclosure is made in confidence and shall be kept in
confidence by such person; provided that ECSI shall not be required
so to do in respect of portions of the TECHNICAL INFORMATION, if
any, (a) which LUCENT agrees in writing were previously known to
ECSI free of any obligations to keep confidential, or (b) which ECSI
demonstrates to LUCENT's satisfaction have become generally known to
the public, provided that such public knowledge was not the result
of any act attributable to ECSI, or (c) which LUCENT otherwise
explicitly agrees in writing need not be kept confidential;
(iii) that, unless otherwise agreed to in writing by LUCENT, ECSI will
continue to pay fees and perform recordkeeping and reporting
obligations, in accordance with the provisions of this Agreement,
with respect to OPTICAL FIBER SENSING SYSTEMs, notwithstanding any
applicability of any exception of Section 2.08(ii) to any or all of
the TECHNICAL INFORMATION;
(iv) that ECSI will not, without LUCENT's, express written permission,
make or have made, or permit to be made, more copies of any of the
furnished TECHNICAL INFORMATION than are necessary for its use
hereunder, and that each such copy shall contain the same
proprietary notices or legends which appear on the furnished
TECHNICAL INFORMATION; and
(v) that all TECHNICAL INFORMATION shall be deemed the property of
LUCENT, and upon any termination of all rights granted to ECSI
5
<PAGE>
hereunder pursuant to Article IV of this Agreement, ECSI shall
immediately cease all use of TECHNICAL INFORMATION and shall, as
directed by LUCENT, promptly destroy or deliver to LUCENT each and
every part specified by LUCENT of TECHNICAL INFORMATION then under
ECSI's control.
ARTICLE III
ROYALTY AND PAYMENTS
3.01 Royalty Calculation
(a) ECSI shall pay to LUCENT the sum of fifty thousand United States dollars
(U.S. $ 50,000.00). Such sum shall be paid to LUCENT in three installments as
follows: a first installment of twenty thousand United States dollars (U.S.
$20,000.00) shall be paid within ninety (90) days after the execution of this
Agreement by both Parties; a second installment of fifteen thousand United
States dollars (U.S. $15,000.00) shall be paid within thirty (30) days of July
1, 1997; and a third installment of fifteen thousand United States dollars (U.S.
$15,000.00) shall be paid within thirty (30) days of November 1,1997.
(b) Thereafter, ECSI shall make minimum annual royalty payments of ten thousand
United States dollars (U.S. $ 10,000.00) within sixty (60) days after each
annual period beginning on January 1st, commencing with the annual period
beginning on January 1, 1998. Each such minimum annual royalty payment shall be
credited with respect to royalties that may become payable pursuant to Section
3.01(c) for each respective annual period ending on the following December 31st.
In no event shall any minimum annual royalty payments made under this Section
3.01(b) or any portion thereof be refunded to ECSI.
(c) Royalty shall be payable to LUCENT at the rate of four and four-tenths
percent (4.4%) on each REPORTABLE PRODUCT which is sold, leased or put into use
by ECSI, or any of its SUBSIDIARIES. Such royalty rate shall be applied, except
as otherwise provided in this Article III, to the FAIR MARKET VALUE of such
REPORTABLE PRODUCT.
3.02 Accrual
(a) Royalty shall accrue on any OPTICAL FIBER SENSING SYSTEM upon its first
becoming a REPORTABLE PRODUCT and shall become payable upon the first sale,
lease or putting into use of such REPORTABLE PRODUCT. (Rebuilding or enlarging
any product shall be deemed to be a first putting into use of such product).
Obligations to pay accrued royalties shall survive
6
<PAGE>
termination of licenses and rights pursuant to Article IV and the expiration of
LUCENT's PATENT.
(b) When a company ceases to be a SUBSIDIARY of ECSI, royalties which have
accrued with respect to any products of such company, but which have not been
paid, shall become payable with ECSI's next scheduled royalty payment.
(c) Notwithstanding any other provisions hereunder, royalty shall accrue and be
payable only to the extent that enforcement of ECSI's obligation to pay such
royalty would not be prohibited by applicable law.
3.03 Exclusions
An OPTICAL FIBER SENSING SYSTEM, which is a REPORTABLE PRODUCT, may be treated
by ECSI as not licensed and not subject to royalty with respect to sales of such
OPTICAL FIBER SENSING SYSTEM if the purchaser is licensed under the same patent
to have said OPTICAL FIBER SENSING SYSTEM made and/or imported and if purchaser
has the same rights as ECSI to use TECHNICAL INFORMATION, and the purchaser
advises ECSI, in writing at or prior to the time of such sale, that it is
exercising its own license under such patent and its own rights under TECHNICAL
INFORMATION with respect to such manufacture and/or importation.
3.04 Records and Adjustments
(a) ECSI shall keep full, clear and accurate records with respect to all
REPORTABLE PRODUCTs and shall furnish any relevant information which LUCENT may
reasonably prescribe from time to time to enable LUCENT to ascertain the proper
royalty due hereunder on account of OPTICAL FIBER SENSING SYSTEMs sold, leased
and put into use by ECSI or any of its SUBSIDIARIES. ECSI shall retain such
records with respect to each REPORTABLE PRODUCT for at least seven (7) years
from the sale, lease or putting into use of such OPTICAL FIBER SENSING SYSTEM.
LUCENT shall have the right through its accredited auditors to make an
examination, during normal business hours, of all records and accounts bearing
upon the amount of royalty payable to it hereunder. Prompt adjustment shall be
made to compensate for any errors or omissions disclosed by such examination.
(b) Independent of any such examination, LUCENT will credit to ECSI the amount
of any overpayment of royalties made in error which is identified and fully
explained in a written notice to LUCENT delivered within twelve (12) months
after the due date of the payment which included such alleged overpayment,
provided that LUCENT is able to verify, to its own satisfaction, the existence
and extent of the overpayment.
7
<PAGE>
(c) No refund, credit or other adjustment of royalty payments shall be made by
LUCENT except as provided in this Section 3.04. Rights conferred by this Section
3.04 shall not be affected by any statement appearing on any check or other
document, except to the extent that any such right is expressly waived or
surrendered by a Party having such right and signing such statement.
3.05 Reports and Payments
(a) Within sixty (60) days after the end of each semiannual period ending on
June 30th or December 31st, commencing with the semiannual period during which
this Agreement becomes effective, ECSI shall furnish to LUCENT at the address
specified in Section 5.04 a statement certified by a responsible official of
ECSI or its SUBSIDIARIES showing in a manner acceptable to LUCENT:
(i) all REPORTABLE PRODUCTs which were sold, leased or put into use
during such semiannual period;
(ii) the FAIR MARKET VALUEs of such REPORTABLE PRODUCTs;
(iii) the amount of royalty payable thereon without regard to any credit
available pursuant to Section 3.01 and the net amount payable after
application of such credit; and
(iv) all exclusions from royalty pursuant to Section 3.03.
If no REPORTABLE PRODUCT has been so sold, leased or put into use, the statement
shall show that fact.
(b) Within such sixty (60) days ECSI shall pay in United States dollars to
LUCENT at the address specified in Section 5.04 the royalties payable in
accordance with such statement. Any conversion to United States dollars shall be
at the prevailing rate for bank cable transfers as quoted for the last day of
such semiannual period by leading United States banks in New York City dealing
in the foreign exchange market.
(c) Overdue payments hereunder shall be subject to a late payment charge
calculated at an annual rate of three percentage points (3%) over the prime rate
or successive prime rates (as posted in New York City) during delinquency. If
the amount of such charge exceeds the maximum permitted by law, such charge
shall be reduced to such maximum.
8
<PAGE>
ARTICLE IV
TERMINATION
4.01 TerminatIon for Breach
In the event of a breach of this Agreement by ECSI, LUCENT may, in addition to
any other remedies that it may have, at any time terminate all licenses and
rights granted by it hereunder by not less than two (2) months' written notice
specifying such breach, unless within the period of such notice all breaches
specified therein shall have been remedied.
4.02 Voluntary Termination
By written notice to LUCENT, ECSI may voluntarily terminate all or a specified
portion of the licenses and rights granted to it hereunder. Such notice shall
specify the effective date (not more than six (6) months prior to the giving of
said notice) of such termination and shall clearly specify any affected
invention or product. In the event LUCENT's PATENT expires or becomes
unenforceable or if ECSI surrenders one or more rights granted to it under
Article I, LUCENT agrees to consider renegotiating royalties and payments due
under Article III.
4.03 Survival
Any termination of licenses and rights of ECSI under the provisions of this
Article IV shall not affect ECSI's licenses, rights and obligations with respect
to any OPTICAL FIBER SENSING SYSTEM made prior to such termination. The rights,
licenses and obligations which, by their nature would continue beyond
termination of this Agreement, including but not limited to ECSI's obligations
under Sections 2.01, 2.02, 2.03 and 2.08, shall survive and continue after any
such termination of this Agreement.
ARTICLE V
M1SCELLANEOUS PROVISIONS
5.01 Disclaimer
Neither LUCENT nor any of its SUBSIDIARIES, expressly or impliedly, makes any
representations, extends any warranties of any kind (except as provided in
Section 1.05), assumes any responsibility or obligations whatever, or confers
any right by implication, estoppel or otherwise, other than the licenses and
rights herein expressly granted.
By way of example but not of limitation, LUCENT and its SUBSIDIARIES make no
representations or warranties of merchantability or fitness for any
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<PAGE>
particular purpose, or that the use of the TECHNICAL INFORMATION or any of it
will not infringe any patent or other intellectual property right. LUCENT and
its SUBSIDIARIES shall not be held to any liability with respect to any claim by
ECSI or any third party on account of, or arising from, the use of the TECHNICAL
INFORMATION or any of it. LUCENT represents that as of execution of this
Agreement, it has no knowledge of any claims against it for infringement related
to use of the TECHNICAL INFORMATION to make OPTICAL FIBER SENSING SYSTEMs.
5.02 Publicity
ECSI agrees that no right is granted to ECSI in this Agreement to use any
identification (such as, but not limited to, trade names, trademarks, trade
devices, service marks or symbols, and abbreviations, contractions or
simulations thereof) owned by or used to identify LUCENT or any or its
SUBSIDIARIES or any of its or their products, services or organizations, and
that ECSI agrees it will not, without the prior written permission of LUCENT,
(i) use any such identification in advertising, publicity, packaging, labeling
or in any other manner to identify itself or any of its products (including
OPTICAL FIBER SENSING SYSTEMs), services or organizations or (ii) represent
directly or indirectly that any product, service or organization of ECSI is a
product, service or organization of LUCENT or any of its SUBSIDIARIES, or that
any product or service of ECSI is made in accordance with or utilizes any
information of LUCENT or any of its SUBSIDIARIES,
5.03 Nonassignability
(a) LUCENT has entered into this Agreement in contemplation of personal
performance by ECSI and it is LUCENT's intention that a transfer of ECSI's
licenses or rights not occur without LUCENT's express written consent.
(b) Neither this Agreement nor any licenses or rights hereunder, in whole or in
part, shall be assignable or transferable by ECSI (by operation of law or
otherwise) without LUCENT's express written consent.
(c) Any purported assignment or transfer of this Agreement or licenses or rights
hereunder by ECSI without LUCENT's necessary consent shall be void (without
affecting any other licenses or rights hereunder).
5.04 Address
(a) Any notice or other communication hereunder shall be sufficiently given to
ECSI when sent by certified mail addressed to the office specified above or to
LUCENT when sent by certified mail addressed to Contract Administrator,
Intellectual Property Division, Lucent Technologies lnc., 2333 Ponce de Leon
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<PAGE>
Boulevard - Suite 511, Coral Gables, Florida 33134, United States of America.
Changes in such addresses may be specified by written notice.
(b) Payments by ECSI shall be made to LUCENT at Sun Trust, P.O. Box 913021,
Orlando, Florida, 32891-3021, United States of America. Alternatively, payments
to LUCENT may be made by bank wire transfers to LUCENT's account: Lucent
Technologies Licensing, Account No. 910-2-568475, at Chase Manhattan Bank, N.A.,
Four Chase Metrotech Center, Brooklyn, New York 11245, United States of America.
Changes in such address or account may be specified by written notice.
5.05 Taxes
ECSI shall pay any tax, duty, levy, customs fee, or similar charge ("taxes"),
including interest and penalties thereon, however designated, imposed as a
result of the operation or existence of this Agreement, including taxes which
ECSI is required to withhold or deduct from payments to LUCENT, except (i) net
income taxes imposed upon LUCENT by any governmental entity within the United
States (the fifty (50) states and the District of Columbia), and (ii) net income
taxes imposed upon LUCENT by jurisdictions outside the United States which are
allowable as a credit against the United States Federal income tax of LUCENT or
any of its SUBSIDIARIES. In order for the exception in (ii) to be effective,
ECSI must furnish to LUCENT evidence sufficient to satisfy the United States
taxing authorities that such taxes have been paid. Such evidence must be
furnished to LUCENT within thirty (30) days of issuance by the local taxing
authority.
5.06 Choice of Law
The Parties are familiar with the principles of New York commercial law, and
desire and agree that the law of New York, exclusive of its conflict of laws
provisions, shall apply in any dispute arising with respect to this Agreement.
5.07 Integration
This Agreement sets forth the entire agreement and understanding between the
Parties as to the subject matter hereof and merges all prior discussions between
them. Neither of the Parties shall be bound by any warranties, understandings or
representations with respect to such subject matter other than as expressly
provided herein or in a writing signed with or subsequent to execution hereof by
an authorized representative of the Party to be bound thereby.
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5.08 Agreement Prevails
This Agreement shall prevail in the event of any conflicting terms or legends
which may appear on the TECHNICAL INFORMATION.
5.09 No Patent License
Except as explicitly provided in Article I, nothing contained herein shall be
construed as conferring by implication, estoppel or otherwise any license or
right under any patent, whether or not the exercise of any right herein granted
necessarily employs an invention of any existing or later issued patent.
5.10 Dispute Resolution
(a) If a dispute arises out of or relates to this Agreement, or the breach,
termination or validity thereof, the Parties agree to submit the dispute to a
sole mediator selected by the Parties or, at any time at the option of a Party,
to mediation by the American Arbitration Association ("AAA"). If not thus
resolved, it shall be referred to a sole arbitrator selected by the Parties
within thirty (30) days of the mediation, or in the absence of such selection,
to AAA arbitration which shall be governed by the United States Arbitration Act.
(b) Any award made (i) shall be a bare award limited to a holding for or against
a Party and affording such remedy as is deemed equitable, just and within the
scope of the Agreement; (ii) shall be without findings as to issues (including
but not limited to patent validity and/or infringement) or a statement of the
reasoning on which the award rests; (iii) may in appropriate circumstances
(other than patent disputes) include injunctive relief; (iv) shall be made
within four (4) months of the appointment of the arbitrator; and (v) may be
entered in any court.
(c) The requirement for mediation and arbitration shall not be deemed a waiver
of any right of termination under this Agreement and the arbitrator is not
empowered to act or make any award other than based solely on the rights and
obligations of the Parties prior to any such termination.
(d) The arbitrator shall determine issues of arbitrability but may not limit,
expand or otherwise modify the terms of the Agreement.
(e) The place of mediation and arbitration shall be New York City.
(f) Each Party shall bear its own expenses but those related to the compensation
and expenses of the mediator and arbitrator shall be borne equally.
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(g) A request by a Party to a court for interim measures shall not be deemed a
waiver of the obligation to mediate and arbitrate.
(h) The arbitrator shall not have authority to award punitive or other damages
in excess of compensatory damages and each Party irrevocably waives any claim
thereto.
(i) The Parties, their representatives, other participants and the mediator and
arbitrator shall hold the existence, content and result of mediation and
arbitration in confidence.
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
in duplicate originals by its duly authorized representatives on the respective
dates entered below.
LUCENT TECHNOLOGIES
By /s/ M. R. Greene
----------------------------
M. R. Greene
Vice President - Intellectual Property
Date: 1-22-97
-------------------------
ELECTRONIC CONTROL SECURITY INC.
By /s/ ARTHUR BIRCH
----------------------------
Title Pres.
-------------------------
Date Jan. 14, 1997
--------------------------
THIS AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY
IN ANY MANNER UNLESS DULY EXECUTED BY AUTHORIZED
REPRESENTATIVES OF BOTH PARTIES
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DEFINITIONS APPENDIX
FAIR MARKET VALUE means, with respect to any item sold, leased or put into use,
the greater of (1) the selling price which a seller would realize from an
unaffiliated buyer in an arm's length sale of an identical item in the same
quantity and at the same time and place as such sale, lease or putting into use,
or (ii) the selling price actually obtained for such product in the form in
which it is sold, whether or not assembled (and without excluding therefrom any
components or subassemblies thereof which arc included in such selling price).
In determining 'selling price' the following shall be excluded:
(a) usual trade discounts actually allowed to unaffiliated persons or
entities;
(b) packing costs;
(c) costs of insurance and transportation; and
(d) import, export, excise, sales and value added taxes, and customs
duties.
LUCENT's PATENT means U.S. Patent 4,904,050 and any reissue thereof.
OPTICAL FIBER means a filamentary body of optical transmission material of a
design primarily adapted for transmitting electromagnetic WAVES having a
frequency in excess of three hundred (300) GHz, along a desired path extending
longitudinally therethrough and to which such WAVES are substantially confined
by the refraction of reflection (or both) of such WAVES.
OPTICAL FIBER SENSING SYSTEM means any instrumentality or aggregate of
instrumentalities of a type for sensing any intrusion into an OPTICAL FIBER or a
network of OPTICAL FIBER and includes all auxiliary apparatus associated
therewith and involved in performing the function thereof.
REPORTABLE PRODUCT means any OPTICAL FIBER SENSING SYSTEM, or replacement part
therefor,
(a) the manufacture, importation, sale, lease or use of which by ECSI or
any of its SUBSIDIARIES would but for licenses or rights under this
Agreement, constitute (i) infringement of LUCENT's PATENT by ECSI or
its SUBSIDIARIES, or (ii) any other violation of applicable law by
ECSI or its SUBSIDIARIES for which LUCENT or any of its SUBSIDIARIES
would be entitled to compensation or other remedy on account of such
patent, or
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(b) which is manufactured with the use of any of the TECHNICAL
INFORMATION (including any such article, and any maintenance part
therefor, manufactured with manufacturing facilities made with the
use of any of the TECHNICAL INFORMATION), other than (i)
demonstration models and articles and maintenance parts produced in
the course of, or intended for use in connection with, research,
development and or experimental undertakings controlled by ECSI, and
(ii) articles and maintenance, parts therefor furnished to LUCENT or
any of its SUBSIDIARIES.
SUBSIDIARY of a company means a corporation or other legal entity (i) the
majority of whose shares or other securities entitled to vote for election of
directors (or other managing authority) is now or hereafter controlled by such
company either directly or indirectly; or (ii) which does not have outstanding
shares or securities but the majority of the equity interest in which is now or
hereafter owned and controlled by such company either directly or indirectly,
but any such corporation or other legal entity shall be deemed to be a
SUBSIDIARY of such company only as long as such control or ownership and control
exists.
TECHNICAL INFORMATION means certain informative material (including all copies
derived from material furnished hereunder) relating to OPTICAL FIBER SENSING
SYSTEMs and the term also means the information available from such material,
such material including but not limited to information previously supplied under
license to Mason and Hanger National, Inc.
WAVES means all impulses, alternations or other variation with time, of
electric, magnetic, electromagnetic (including light), acoustic or mechanical
magnitudes or combinations thereof.
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Agreement
This agreement is made and entered into this 5th day of March, 1997 by
and among Mason & Hanger National, Inc., a Delaware corporation with offices at
260 Finney Drive, Huntsville, AL 35724 (MHN) and ECSI-FOIDS, Inc. a New Jersey
corporation with offices at 23 Just Road, Fairfield, NJ 07004 (ECSl) and Arthur
Birch whose address is 23 Just Road Fairfield, NJ 07004 (Birch).
Recitals
The shareholders and Board of Directors of MHN have authorized the
closure and wind up of MHN;
ECSI, a sales representative of MHN, desires to continue the manufacture
of MHN's FOlDs product line and has offered to purchase certain of MHN's
inventory and secure the necessary licenses from MHN and its licenser Lucent;
MHN is willing to sell certain of its inventory, license its patents and
agree to other related matters on the following terms and conditions;
For and in consideration of the promises set out below, the parties agree
as follows:
1. License. MHN and ECSI agree to enter into the license agreement
attached and made a part hereof as Attachment A. MHN also agrees to grant to
ECSI source code, PCB drawings, schematics, and trade secrets as described in
Attachment E. In return for the use of the MHN trade secrets as described in
attachment E, ECSI agrees that any patent that is applied for based upon these
trade secrets will be a patent jointly owned by ECSI and MHN or MHN's successor
in interest. In addition, the source codes provided are considered trade secrets
by MHN. ECSI agrees that if this source code or any code based upon this source
code is copyrighted it will be a copyright jointly owned by ECSI and MHN or
MHN's successor in interest
2. Lucent License. MHN agrees to assist ECSI in securing the necessary
related license from Lucent by responding to reasonable requests related to
Lucent's license. Should MHN no longer employ anyone who can respond to the
request at the time ECSI or Lucent makes an inquiry, MHN shall not be obligated
to assist further.
3. Sale of Materials. MHN agrees to sell and ECSI agrees to purchase the
assets described in enclosures 1, 2 and 3 to Attachment B attached and made a
part hereof for a total purchase price of $151,500 in seven lots. The first lot
shall be purchased for $25,000. After the initial purchase of the first lot on
the effective date of this agreement, ECSI shall purchase one lot each thirty
(30) days thereafter for a purchase price of $21,083.33 per lot, with the first
thirty day period beginning thirty days after the effective date of this
Agreement. Fifty percent (50%) of the purchase price for each lot must be paid
by cashier's or certified check delivered at the time of receipt of the lot and
the balance must be paid by cashier's or certified check within 30 days of
receipt of the lot.
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If ECSI does not pay for a lot in full during a thirty (30) day period, MHN
shall have the right to increase the price of said lot by 20%, if the lot is
sold to ECSI within 15 days of lot procurement date. ECSI's obligation to
purchase the lots shall not be contingent on the making of any potential sales
and MHN's identification of the above shall not constitute a representation or
guarantee of future sales. MHN MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND
REGARDING THE ITEMS TRANSFERRED ABOVE (INCLUDING BUT NOT LIMITED TO ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE). THE ITEMS ARE
TRANSFERRED TO ECSI "AS IS."
4. Other Items Purchased by ECSI. MHN agrees to sell and ECSI agrees to
purchase the assets described in enclosures 4 and 5 to Attachment B as described
below and attached and made a part hereof for the consideration set forth next
to each enclosure item, with the consideration to be paid in full at closing by
certified or cashier's check:
a) Enclosure 4 to attachment B - Marketing and Production items -
$9,500; and
b) Enclosure 5 to Attachment B - Research and Development equipment,
tools and files - $16,000
MHN MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE ITEMS
TRANSFERRED ABOVE (INCLUDING BUT NOT LIMITED TO ANY REPRESENTATION OR WARRANTY
OF MERCHANTABILITY OR FITNESS FOR USE). THE ITEMS ARE TRANSFERRED TO ECSI "AS
IS."
5. Sublease. MHN agrees to sublease the portion of its premises located at
260 Finney Drive, Huntsville, AL 35824 described on Attachment C, attached and
made a part hereof to ECSI for a period of 90 days after the effective date of
this Agreement. ECSI shall pay MHN at the beginning of each 30 day period
$1,400. ECSI shall pay all expenses as described on Attachment C within 10 days
of receiving the bill. Prior to taking possession of the designated premises,
ECSI shall provide MHN with evidence of premises liability coverage (naming MHN
as an additional insured). ECSI's possession of the premises shall be subject to
the same terms and conditions as set forth in MHN's lease attached and made a
part hereof as Attachment D except as modified by this paragraph or Attachment
C.
6. Notices. No sooner than the effective date as hereinafter defined, MHN
shall provide ECSI with names and addresses of its customers, sales
representatives distributors, end users and key suppliers for ECSI to prepare a
joint letter advising them of ECSI's license. MHN shall approve the terms of the
letter and ECSI shall bear all costs related to the mailing.
7. Effective Date. This agreement shall not be effective until the
happening of all of the following which must occur by December 6, 1996 for the
obligations of the parties to remain in effect:
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a) ECSI's payment in full of its open account with MHN in the
amount of $18,307.31 (invoices number 1579, 1580, and 1625).
b) ECSI's payment of $25,000 good faith money which shall also be
consideration for the first lot of inventory, as described in
enclosure 1 to Attachment B.
c) ECSI's payment of $25,500 for the items described in
enclosures 4 and 5 of Attachment B.
d) ECSI's payment of the first 30 days rent in the amount of $
1,400.
e) Birch's guarantee of ECSI's performance under this agreement
as evidenced by his signature to this agreement under the
statement, "I fully guarantee the performance of ECSI."
f) ECSI's securing of a necessary license from Lucent and
delivery of evidence of such license to MHN in form
satisfactory to MHN.
g) MHN's securing of its landlord's permission to sublease a
portion of the premises to ECSI.
h) ECSI's delivery of the required evidence of insurance naming
MHN as an additional insured, including product liability
insurance as required in the License included as Attachment A.
i) ECSI's delivery of the required evidence that it has entered
into a nondisclosure agreement with Scientific Approaches
relating to the Graphic Link protocol, in a form satisfactory
to MHN.
j) ECSI's delivery of an executed License Agreement substantially
in the form of Attachment A.
8. Events of Default. Each of the following shall constitute an Event of
Default under this Agreement:
a) The failure of ECSI to pay, promptly when due, any payment due under
this Agreement or under any Attachment hereto if such failure shall
continue unremedied for ten (10) days after receipt of written
notice of such failure; or
b) MHN reasonably determines that the books and records of ECSI or
the sales reports required by the License Agreement attached as
Attachment A are not accurate and such inaccuracy is not cured
within ten (10) days of receipt of written notice of such
inaccuracy.
c) ECSI defaults, breaches or fails to perform, observe or meet any
covenant, statement, agreement, stipulation, term or condition made
in the Agreement or
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any Attachment to the Agreement hereunder, with no prior demand
therefor or notice by MHN necessary except to the extent, if any,
required under the express terms of the Agreement or Attachment to
the Agreement governing such default; or
d) The happening of any of the following (a) insolvency of ECSI or the
Guarantor, (b) filing of a voluntary petition in bankruptcy by ECSI
or Guarantor, (c) filing of a involuntary petition in bankruptcy
against ECSI or Guarantor, (d) appointment of a receiver or trustee
for ECSI or Guarantor, (e) execution of an assignment for the
benefit of creditor by ECSI or Guarantor, provided that such
petition, appointment, assignment is not vacated or nullified within
fifteen (15) days of such event; or
e) ECSI fails to maintain and keep in force the insurance required
under this Agreement or any Attachment to the Agreement, with no
prior demand therefor or notice by MHN necessary after notice to
cure.
9. Remedies upon Default. Notwithstanding any contrary provision or
inference herein or elsewhere:
a) MHN's Right to Declare a Default in its Sole Discretion. If any
Event of Default referred to in Article 8 of this Agreement shall
occur or begin to exist, MHN may, declare a default hereunder in
its sole discretion, after any requisite cure period has expired.
b) Termination and Reversion. Immediately upon a declaration of a
default pursuant to this Agreement, MHN is entitled to become the
sole owner of all of the assets described in paragraph 1 of this
Agreement and the License Agreement shall be deemed to be
terminated. MHN may also terminate other provisions of this
Agreement and the Attachments hereto as it sees fit, in its sole
discretion. The Items listed in Attachment E of this Agreement shall
revert back to MHN or MHN's successor in interest with MHN (or its
successor in interest) being the sole owner. Any patents or
copyrights jointly owned by ECSI and MHN or MHN's successor in
interest shall revert to be owned solely by MHN or MHN's successor
in interest; and
c) Rights Cumulative. All of the rights and remedies of MHN upon
occurrence of an Event of Default hereunder shall be cumulative to
the greatest extent permitted by law and shall be in addition to all
those rights and remedies afforded MHN at law or in equity or
bankruptcy.
10. Miscellaneous.
a) Birch shall be the point of contact for ECSI. Cliff Cizan, 2355
Harrodsburg Road, Lexington, KY 40504 (phone 606-223-2277) shall be
the point of contact for MHN.
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b) Kentucky law shall govern this agreement and the parties by their
execution hereto submit to the personal jurisdiction of the Fayette
Circuit Court located in Lexington, KY.
c) Should litigation arise from this agreement, the prevailing party
shall be entitled to recover costs and reasonable attorneys fees
from the losing party.
d) No party may assign its/his interests under this agreement without
the prior written consent of the other parties. Approval of an
assignment by ECSI shall be contingent on, among other things,
Birch's guarantee of the assignee's performance.
e) In the event that any one or more provisions contained in this
Agreement or any Attachment hereto shall be held by a court of
competent jurisdiction to be invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be
affected or impaired thereby.
IN WITNESS WHEREOF, the parties have executed this agreement the day and
year above written.
MASON & HANGER NATIONAL, INC.
By: /s/ [ILLEGIBLE] Date 3-7-97
------------------------------------------------ -----------------------
Title: Treasurer
ECSI-FOIDS, INC.
By: /s/ Arthur Birch Date 11-29-96
------------------------------------------------ -----------------------
Title: Pres.
I fully guarantee the performance of ECSI-Foids, Inc. under this agreement.
/s/ Arthur Birch Date 11-29-96
- --------------------------------------------------- ----------------------
Arthur Birch
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ATTACHMENT A
The License agreement between MHN and ECSI is attached.
<PAGE>
LICENSE AGREEMENT
This LICENSE AGREEMENT is made and entered into by and between MASON &
HANGER NATIONAL, Inc., a Delaware corporation, having its principal office and
place of business at 260 Finney Drive, Huntsville, Alabama 35824, (hereinafter
the Licensor), and ECSI International, Inc., a New Jersey company, having its
principal office and place of business at 23 Just Road, Fairfield, New Jersey
07004, (hereinafter the Licensee).
WITNESSTH
WHEREAS, Licensor is the owner by Assignments recorded in the United
States Patent Office of the Licensed Patents listed in Section 1 below; and
WHEREAS, the parties hereto desire that Licensor grant Licensee a License
to manufacture, use and sell products, hereinafter referred to as "Licensed
Products", and to practice the inventions described and claimed within the
Licensed Patents.
NOW THEREFORE, in consideration of the promises and mutual covenants cited
herein, and other good and valuable consideration, the receipt thereof which is
hereby acknowledged, and subject to Licensee obtaining a Licensing agreement
from Lucent, the parties do hereby agree as follows:
1. LICENSED PATENTS:
As used in this Agreement, the phrase "Licensed Patents" shall mean and
include:
A) U.S. Patent 5,355,208, entitled: "DISTRIBUTED FIBER OPTIC SENSOR FOR
LOCATING AND IDENTIFYING REMOTE DISTURBANCES", inventors: Brian B. Crawford,
Robert J. Prenovost, Jimmy L. Reil and Jeff C. Robinson and any reissues,
reexaminations or extensions thereof;
B) U.S. Patent 5,373,487, entitled: "DISTRIBUTED ACOUSTIC SENSOR",
inventors: Brian B. Crawford, Robert J. Prenovost, Judy K. Burden, Jeff C.
Robinson and Axis Tanone and any reissues, reexaminations or extensions thereof;
and
C) U.S. Patent 5,567,933 (issuing 10/22/96) entitled: "OPTICAL FIBER
DETECTION SYSTEM WITH DISTURBANCE AND POSITIVE CUT-LOOP DETECTION CAPABILITIES",
inventors: Jeffrey C. Robinson and Brian B. Crawford and any reissues,
reexaminations or extensions thereof.
2. LICENSED PRODUCTS
As used in this Agreement, the phrase "Licensed Products"
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shall mean goods, systems, structures and/or installations and components
thereof, the manufacture, use, or sale of which would constitute an infringement
or a contributory infringement with respect to one or more of the claims of the
Licensed Patents and including equivalents thereof and improvements thereon.
3. GRANT OF LICENSE:
Licensor agrees to and does hereby grant to Licensee, upon and subject to
the terms and conditions hereinafter set forth, including Section 7, an
Exclusive License to make, use and sell Licensed Products covered by the
Licensed Patents within the geographic area described in Section 5 hereof.
Licensor specifically retains the right to make, use and sell the License
Products covered by the Licensed Patents within the geographic area described in
Section 5 hereof.
4. TERM:
This Agreement and the License granted under it shall expire ten (10)
years from the effective date of this Agreement which shall be March 5, 1997
unless sooner terminated under the provisions hereof.
5. GEOGRAPHIC AREA.
The rights granted to Licensee hereunder shall be exercised by Licensee
world wide.
6. DEFINITION OF "NET SALES PRICE":
As used herein the term "Net Sales Price" shall mean the invoice price
charged by Licensee for Licensed Products sold by Licensee less:
A) Refunds, credits and allowances actually made or allowed to customers
for returned Licensed Products;
B) Any sales, or similar, taxes set forth as part of the invoice price;
C) Trade discounts and allowances that would normally be incurred in
Licensee's business exclusive of anticipations afforded to and actually taken by
customers in payment of Licensed Products; and
D) Any freight charges.
If Licensee sells Licensed Products to a related marketing organization or
any individual or company in whole or in part controlled or owned by Licensee,
the invoice price used to determine the "Net Sales Price" hereunder shall be, if
greater than Licensee's "Net Sales Price", the invoice price at which the
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Licensed Products are sold by such related entity to any unrelated customer in
an arms length transaction.
7. ROYALTIES:
For the License herein granted with respect to the Licensed Patents,
Licensee shall pay to Licensor royalties in the sum equal to five percent (5%)
of the "Net Sales Price" for Licensed Products sold.
Should Licensor not be paid royalties of at least $25,000.00 for a full
license year, beginning the first license year of this agreement, Licensor shall
have the right at any time during the succeeding license year to declare this
exclusive license to be a non-exclusive license or to terminate the license, at
Licensor's option. In such event Licensor may grant licenses to any other
persons or entities on terms and conditions as Licensor deems appropriate.
Licensee may retain the exclusive license by paying to Licensor, in addition to
the royalties actually paid for any full license year, the difference between
the sum of $25,000.00 and such royalties. Such payments must be made within
thirty (30) days of the end of the license year. Licensor must notify Licensee,
in writing, within ninety (90) days of the end of such license year of any
termination or change in the status of the license to a non-exclusion license
for failure to pay Licensee the minimum royalties recited herein.
8. LICENSEE'S RECORDS:
Licensee shall keep and maintain at its regular place of business complete
books and records of business transactions by Licensee in connection with the
Licensed Products covered by the Licensed Patents, including, but not limited
to, books and records relating to the "Net Sales Price" and orders for such
products. Licensee's accounting records of sales, shipments, installations and
returns of Licensed Products shall be maintained separately from accounting
records relating to other items manufactured or sold by Licensee. Such books and
records shall be maintained in accordance with generally accepted accounting
procedures. Licensor, or its duly authorized agents or representatives, shall
have the right to inspect such books and records at Licensee's premise during
regular business hours, provided that Licensor shall give Licensee at least ten
(10) days advance written notice of its intention to do so and provided that
such inspections will be limited to one inspection per calendar year. In the
event that Licensee has understated "Net Sales Price" or underpaid royalties in
excess of ten percent (10%) of said net shipments for the calendar year,
Licensee shall forthwith and upon written demand also pay Licensor's costs, fees
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and expenses incurred in conducting an audit with respect to books and
records kept with respect to the Licensed Products. Should any audit disclose
that the royalties paid exceed the actual royalties due, Licensee shall be
entitled to a credit equal to such excess royalties against the royalties next
accruing under this Agreement. In the event no further royalties will be
accruing under this Agreement, then to the extent such audit discloses that the
royalties paid exceeded the actual royalties due, the excess shall be paid to
Licensee.
9. LICENSEE'S MONTHLY REPORTS OF SALES AND ROYALTY PAYMENTS:
On or before the first day of each month during the term hereof, Licensee
shall deliver to Licensor written statements certified to be true and correct by
the Chief Financial Officer of Licensee, setting forth the sales and "Net Sales
Prices" of Licensed Products for the proceeding month together with a check
payable to Licensor in full payment of the earned royalties shown on such
statement to be due under Section 7 hereof.
10. BEST EFFORTS OF LICENSEE:
Licensee shall use its best efforts and skills to make, use and sell the
Licensed Products. In the event Licensee fails to sell Licensed Products using
such best efforts and skills, Licensor shall have the right to cancel and
terminate this Agreement by giving written, notice of such termination to
Licensee.
11. RESTRICTIONS UPON SUBCONTRACTS:
Licensee shall only have the right to enter into subcontracts including
imports for the manufacture, use and sale of Licensed Products upon written
consent of Licensor. Any subcontracts by Licensee shall be governed and
condition on the same rights, privileges, restrictions and requirements
including payment of royalties, right to inspect, and to take accountings as
provided elsewhere in this Agreement.
12. ASSIGNMENT AND TRANSFERS:
No assignment, transfer, sale, sub-license, or conveyance of any of
Licensee's rights, duties or interest in this Agreement shall be made without
Licensor's prior written consent and shall be subject to the provisions of this
Agreement, including royalties, right to inspect, accountings, termination and
rights of Licensor unless otherwise agreed to in writing between the parties.
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13. PRESERVATION OF THE PATENTS:
Licensee shall cause to appear on all Licensed Products and/or on all
materials used in connection with the sale thereof such legends, markings and
notices as may be required by laws governing the geographic area in order to
give appropriate notice of all patent rights granted and pertaining to the
Licensed Patents. Such products or materials associated with the Licensed
Product should bear the mark "Patented" and the Patent Number(s) of the Licensed
Patent(s).
14. INFRINGEMENT AND OTHER LITIGATION:
Licensor represents that it is the sole owner of all rights to the
Licensed Patents exclusive of the rights of all others. The Licensor has no
present knowledge or belief that any of the claims of the Licensed Patents are
not valid and enforceable and that Licensor has the absolute right to grant this
License.
In order to protect rights of each party under this Agreement, each party
will keep the other fully informed of the infringement of any Licensed Patent by
third parties. The Licensor shall have the right to be represented by counsel at
Licensor's expense in any legal action taken to enforce any patent rights with
respect to the Licensed Patents against a third party infringer. Responsibility
for the cost and expenses of such legal action shall be mutually agreed upon in
writing between the Licensor and Licensee prior to the institution of any such
legal action. In any action by Licensor or Licensee whether by original
petition, complaint, or by counterclaim against a third party for violation of
patent rights in the Licensed Patents, each party shall be entitled to retain
any settlement, recovery, and/or awarded damages in proportion to the agreed
upon percentage of the cost and expenses of such action. Absent any agreement
for maintaining such a legal matter to enforce the Patent Rights, Licensor
shall, in its own judgment, take whatever action it deems necessary at its own
expense.
With respect to any third party suit or action against Licensee whether by
original petition, complaint, or by counterclaim, seeking to declare invalid
and/or unenforceable all or any of the claims of any of the Licensed Patents,
the defense fees, cost, and expenses shall be agreed upon by the parties hereto
as soon as reasonably practical after the commencement of such third party suit
or action. If Licensor refuses to participate in any such third party suit or
action, the Licensee may defend and prosecute such action and, in such event,
shall be entitled to the entire amount of any award of damages, settlement or
recover,
5
<PAGE>
exclusive of royalties otherwise due to the Licensor.
15. DEFAULTS BY LICENSEE:
Except as otherwise expressly provided for in this Agreement, in the event
Licensee shall default in the performance of any of the terms and conditions to
be performed hereunder, including the payment of royalties, and the same shall
not be cured within ten days (10) after written notice to Licensee, Licensor
may, at its option, or any time thereafter, cancel and terminate this Agreement.
16. LICENSOR'S RIGHT UPON TERMINATION:
In the event this Agreement is cancelled or terminated, Licensee shall
assign and transfer any and all rights of Licensee to all Licensed Patents and
Licensed Products to Licensor and shall not thereafter use the same in any
manner. Upon cancellation or termination, all Licensee's stock of Licensed
Products on hand may be purchased at cost by Licensor.
17. INSURANCE
Licensee does indemnify and hold harmless Licensor for any liability or
claim thereof based upon the manufacture, use and sale by Licensee of the
Licensed Products. To this end, Licensee and its Sub-Licensees, if any, agree to
carry product liability insurance with respect to License Products. Such
insurance may be obtained in conjunction with product liability insurance which
covers products other than the Licensed Products. Licensee shall deliver to
Licensor, at Licensor's request, a certificate evidencing the existence of such
insurance policies promptly upon written request by Licensor.
18. ATTORNEY'S FEES AND APPLICABLE LAW:
In the event Licensor or Licensee shall commence any action or proceeding
against the other by reason of any breach or claimed breach of the performance
of any of the terms or conditions of this Agreement, or to seek a judicial
declaration or rights hereunder, the prevailing party of such action or
proceeding shall be entitled to reasonable attorney's fees to be fixed by the
court or the applicable hearing officer(s). In any legal action or proceeding
brought in which any right or obligation arising from this Agreement is at
issue, the law applicable hereunder shall be the law of the State of Kentucky.
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19. NO AGENCY OF PARTIES:
This Agreement does not make Licensee the agent or legal representative of
Licensor nor Licensor the agent or legal representative of Licensee for any
purpose whatsoever. Except as otherwise provided herein, Licensee is not granted
any right or authority to assume or to create any obligation or responsibility,
express or implied, on behalf of, or in the name of, Licensor or to bind
Licensor in any manner or thing whatsoever; nor, except as otherwise provided
herein, is Licensor granted any right or authority to assume or create any
obligation or responsibility, express or implied, on behalf of, or in the name
of, Licensee or to bind Licensee in any manner or thing whatsoever. No joint
venture or partnership between Licensor and Licensee is intended nor shall be
inferred.
20. ADDRESS FOR NOTICE:
All notices between the Licensor and Licensee shall be in writing
addressed to Licensee or Licensor at the respect address set forth below and
shall be effective upon receipt if mailed by first class mail.
Licensor: Richard A. Nathan
2355 Harrodsburg Road
Lexington, Kentucky 40504
Licensee: c/o Arthur Birch, President and COO
ECSI International, Inc.
23 Just Road
Fairfield, New Jersey 07004
If any of the parties hereto shall during the term of this Agreement
change address, then, upon given written notice to the other party of the new
address, the new address shall be the address for notice hereunder.
21. WAIVER BY LICENSOR:
In the event Licensor shall at any time waive any of its rights hereunder
this Agreement or the performance by Licensee of any of its obligations
hereunder, such waiver shall not be construed as a continuous waiver of the same
rights or obligations or a waiver of any other rights or obligations.
22. SEPARABILITY:
Any provision of this Agreement which shall be, or is
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<PAGE>
determined to be, invalid, shall be effective, but such invalidity shall not
affect the remaining provisions hereof.
23. BINDING UPON SUCCESSOR:
This Agreement shall be binding upon and shall enure in order to the
benefit of the parties hereto and their respective heirs, successors and
assigns.
FOR LICENSOR:
MASON & HANGER NATIONAL, INC.
By: [ILLEGIBLE] its Treasurer
--------------------------------
3/7/97
--------------------------------
Date
FOR LICENSEE:
ECSI INTERNATIONAL, INC.
By: /s/ Arthur Birch its Pres.
--------------------------------
11-26-96
--------------------------------
Date
8
Exhibit No. 10.2
Agreement dated March 5, 1997 between Mason Hanger National, Inc. and
Electronic Control Security Inc. relating to the purchase of certain assets
relating to the FOIDS Product Line
<PAGE>
AGREEMENT
This agreement is made and entered info this 5th day of March, 1997 by and
among Mason & Illanger National, Inc., a Delaware corporation with offices at
260 Finney Drive, Huntsville, AL 35724 (MHN) and ECSI-FOIDS, Inc. a New Jersey
corporation with offices at 23 Just Road, Fairfield, NJ 07004 (ECSI) and Arthur
Birch whose address is 23 Just Road Fairfield, NJ 07004 (Birch).
Recitals
The shareholders and Board of Directors of MHN have authorized the closure
and wind up of MHN;
ECSI, a sales representative of MHN, desires to continue the manufacture
of MHN's FOIDs product line and has offered to purchase certain of MHN's
inventory and secure the necessary licenses from MHN and its licenser Lucent;
MHN Is willing to sell certain of its inventory, license its patents and
agree to other related matters on the following terms and conditions;
For and in consideration of the promises set out below, the parties agree
as follows:
1. License. MHN and ECSI agree to enter into the license agreement
attached and made a part hereof as Attachment A. MI-IN also agrees to grant to
ECSI source code, PCB drawings, schematics, and trade secrets as described in
Attachment E. In return for the use of the MHN trade secrets as described in
attachment E, ECSI agrees that any patent that is applied for based upon those
trade secrets will be a patent jointly owned by ECSI and MHN or MHN's successor
in interest. In addition, the source codes provided are considered trade secrets
by MHN. ECSI agrees that if this source code or any code based upon this source
code is copyrighted it will be a copyright jointly owned by ECSI and MHN or
MHN's successor in interest
2. Lucent License. MHN agrees to assist ECSI in securing the necessary
related license from Lucent by responding to reasonable requests related to
Lucents license. Should MHN no longer employ anyone who can respond to the
request at the time ECSI or Lucent makes an inquiry, MHN shall not he obligated
to assist further.
3. Sale of Materials. MHN agrees to sell and ECSI agrees to purchase the
assets described in enclosures 1, 2 and 3 to Attachment B attached and made a
part hereof for a total purchase price of $151,500 in seven lots. The first lot
shall be purchased for $25,000. After the initial purchase of the first lot on
the effective date of this agreement, ECSI shall purchase one lot each thirty
(30) days thereafter for a purchase price of $21,083.33 per lot, with the first
thirty day period beginning thirty days after the effective date of this
Agreement. Fifty percent (50%) of the purchase price for each lot must be paid
by cashier's or certified check delivered at the time of receipt of the lot and
the balance must be paid by cashier's or certified check within 30 days of
receipt of the lot.
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<PAGE>
If ECSI does not pay for a lot in full during a thirty (30) day period, MHN
shall have the right to increase the price of said lot by 20%, If the lot is
sold to ECSI within 15 days of lot procurement date. ECSI's obligation to
purchase the lots shall not be contingent on the making of any potential sales
and MHN's identification of the above shall not constitute a representation or
guarantee of future sales. MHN MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND
REGARDING THE ITEMS TRANSFERRED ABOVE (INCLUDING BUT NOT LIMITED TO ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE). THE ITEMS ARE
TRANSFERRED TO ECSI "AS IS."
4. Other Items Purchased by ECSI. MHN agrees to sell and ECSI agrees to
purchase the assets described in enclosures 4 and 5 to Attachment B as
described below and attached and made a part hereof for the consideration set
forth next to each enclosure item, with the consideration to be paid in full at
closing by certified or cashier's check:
a) Enclosure 4 to attachment B - Marketing and Production items -
$9,500; and
b) Enclosure 5 to Attachment B - Research and Development equipment,
tools and files - $16,000
MHN MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE ITEMS
TRANSFERRED ABOVE (INCLUDING BUT NOT LIMITED TO ANY REPRESENTATION OR WARRANTY
OF MERCHANTABILITY OR FITNESS FOR USE). THE ITEMS ARE TRANSFERRED TO ECSI "AS
IS."
5. Sublease. MHN agrees to sublease the portion of its premises located at
260 Finney Drive, Huntsville, AL 35824 described on Attachment C, attached and
made a part hereof to ECSI for a period of 90 days after the effective date of
this Agreement. ECSI shall pay MHN at the beginning of each 30 day period
$1,400. ECSI shall pay all expenses as described on Attachment C within 10 days
of receiving the bill. Prior to taking possession of the designated premises,
ECSI shall provide MHN with evidence of premises liability coverage (naming MHN
as an additional insured). ECSI's possession of the premises shall be subject to
the same terms and conditions as set forth in MHN's lease attached and made a
part hereof as Attachment D except as modified by this paragraph or Attachment
C.
6. Notices. No sooner than the effective date as hereinafter defined, MHN
shall provide ECSI with names and addresses of its customers, sales
representatives distributors, and users and key suppliers for ECSI to prepare a
joint letter advising them of ECSI's license. MHN shall approve the terms of the
letter and ECSI shall bear all costs related to the mailing.
7. Effective Date. This agreement shall not be effective until the
happening of all of the following which must occur by December 6, 1996 for the
obligations of the parties to remain in effect:
2
<PAGE>
a) ECSI's payment in full of its open account with MHN in the
amount of $18,307.31 (invoices number 1579, 1580, and 1625).
b) ECSI's payment of $25,000 good faith money which shall also be
consideration for the first lot of inventory, as described in
enclosure 1 to Attachment B.
c) ECSI's payment of $25,500 for the items described in
enclosures 4 and 5 of Attachment B.
d) ECSI's payment of the first 30 days rent in the amount of $
1,400.
e) Birch's guarantee of ECSI's performance under this agreement
as evidenced by his signature to this agreement under the
statement, "I fully guarantee the performance of ECSI."
f) ECSI's securing of a necessary license from Lucent and
delivery of evidence of such license to MHN in form
satisfactory to MHN.
g) MHN's securing of its landlord's permission to sublease a
portion of the premises to ECSI.
h) ECSI's delivery of the required evidence of insurance naming
MHN as an additional insured, including product liability
insurance as required in the License included as Attachment A.
i) ECSI's delivery of the required evidence that it has entered
into a nondisclosure agreement with Scientific Approaches
relating to the Graphic Link protocol, in a form satisfactory
to MHN.
j) ECSI's delivery of an executed License Agreement substantially
in the form of Attachment A.
8. Events of Default. Each of the following shall constitute an Event of
Default under this Agreement:
a) The failure of ECSI to pay, promptly when due, any payment due
under this Agreement or under any Attachment hereto if such
failure shall continue unremedied for ten (10) days after
receipt of written notice of such failure; or
b) MHN reasonably determines that the books and records of ECSI
or the sales reports required by the License Agreement
attached as Attachment A are not accurate and such inaccuracy
is not cured within ten (10) days of receipt of written notice
of such Inaccuracy.
c) ECSI defaults, breaches or fails to perform, observe or meet
any covenant, statement, agreement, stipulation, term or
condition made in the Agreement or
3
<PAGE>
any Attachment to the Agreement hereunder, with no prior
demand therefor or notice by MHN necessary except to the
extent, if any, required under the express terms of the
Agreement or Attachment to the Agreement governing such
default; or
d) The happening of any of the following (a) insolvency of ECSI
or the Guarantor, (b) filing of a voluntary petition in
bankruptcy by ECSI or Guarantor, (c) filing of a involuntary
petition in bankruptcy against ECSI or Guarantor, (d)
appointment of a receiver or trustee for ECSI or Guarantor,
(e) execution of an assignment for the benefit of creditor by
ECSI or Guarantor, provided that said petition, appointment,
assignment is not vacated or nullified within fifteen (15)
days of such event; or
e) ECSI fails to maintain and keep in force the insurance
required under this Agreement or any Attachment to the
Agreement, with no prior demand thereof or notice by MHN
necessarily after notice to cure.
9. Remedies upon Default. Notwithstanding any contrary provision or
inference herein or elsewhere:
a) MHN's Right to Declare a Default in its Sole Discretion if any
Event of Default referred to in Article 8 of this Agreement
shall occur or begin to exist, MHN may, declare a default
hereunder in its sole discretion, after any requisite cure
period has expired.
b) Termination and Reversion. Immediately upon a declaration of a
default pursuant to this Agreement, MHN is entitled to become
the sole owner of all of the assets described in paragraph 1
of this Agreement and the License Agreement shall be deemed to
be terminated. MHN may also terminate other provisions of this
Agreement with the Attachments hereto as it sees fit, in its
sole discretion. The Items listed in Attachment E of this
Agreement shall revert back to MHN or MHN's successor in
interest with MHN (or its successor in interest) being the
sole owner. Any patents or copyrights jointly owned by ECSI
and MHN or MHN's successor in interest shall revert to be
owned solely by MHN or MHN's successor in interest; and
c) Rights Cumulative. All of the rights and remedies of MHN upon
occurrence of an Event of Default hereunder shall be
cumulative to the greatest extent permitted by law and shall
be in addition to all those rights and remedies afforded MHN
at law or in equity or bankruptcy.
10. Miscellaneous.
a) Birch shall be the point of contact for ECSI. Cliff Cizan,
2355 Harrodsburg Road, Lexington, KY 40504 (phone
606-223-2277) shall be the point of contact for MHN.
4
<PAGE>
ATTACHMENT A
The License agreement between MHN and ECSI is attached.
Exhibit No. 10.3
License dated March 5, 1997 between Mason Hanger National, Inc. and
Electronic Control Security Inc. relating to the license of certain intellectual
property used in connection with the manufacture of the FOIDS Product Line
<PAGE>
LICENSE AGREEMENT
This LICENSE AGREEMENT is made and entered into by and between MASON &
HANGER NATIONAL, Inc., a Delaware corporation, having its principal office and
place of business at 260 Finney Drive, Huntsville, Alabama 35824, (hereinafter
the Licensor), and ECSI International, Inc., a New Jersey company, having its
principal office and place of business at 23 Just Road, Fairfield, New Jersey
07004, (hereinafter the Licensee).
WITNESSETH
WHEREAS, Licensor is the owner by Assignments recorded in the United
States Patent Office of the Licensed Patents listed in Section 1 below; and
WHEREAS, the parties hereto desire that Licensor grant Licensee a License
to manufacture, use and sell products, hereinafter referred to as "Licensed
Products", and to practice the inventions described and claimed within the
Licensed Patents.
NOW THEREFORE, in consideration of the promises and mutual covenants cited
herein, and other good and valuable consideration, the receipt thereof which is
hereby acknowledged, and subject to Licensee obtaining a Licensing agreement
from Lucent, the parties do hereby agree as follows:
1. LICENSED PATENTS:
As used in this Agreement, the phrase "Licensed Patents" shall mean and
include:
A) U.S. Patent 5,355,208, entitled: "DISTRIBUTED FIBER OPTIC SENSOR FOR
LOCATING AND IDENTIFYING REMOTE DISTURBANCES", inventors: Brian B. Crawford,
Robert J. Prenovost, Jimmy L. Reil and Jeff C. Robinson and any reisssues,
reexaminations or extensions thereof;
B) U.S. Patent 5,373,487, entitles: "DISTRIBUTED ACOUSTIC SENSOR",
inventors: Brian B. Crawford, Robert J. Prenovost, Judy K. Burden, Jeff C.
Robinson and Aris Tanone and any reissues, reexaminations or extensions thereof;
and
C) US. Patent 5,567,933 (issuing 10/22/96) entitled: "OPTICAL FIBER
DETECTION SYSTEM WITH DISTURBANCE AND POSITIVE CUT-LOOP DETECTION CAPABILITIES",
inventors; Jeffrey C. Robinson and Brian B. Crawford and any reissues,
reexaminations or extensions thereof.
2. LICENSED PRODUCTS
As used in this Agreement, the phrase "Licensed Products"
1
<PAGE>
shall mean goods, systems, structures and/or installations and components
thereof, the manufacture, use or sale of which would constitute an infringement
or a contributory infringement with respect to one or more of the claims of the
Licensed Patents and including equivalents thereof and Improvements thereon.
3. GRANT OF LICENSE:
Licensor agrees to and does hereby grant to Licensee, upon and subject to
the terms and conditions hereinafter set forth, including Section 7, an
Exclusive License to make, use and sell Licensed Products covered by the
Licensed Patents within the geographic area described in Section 5 hereof.
Licensor specifically retains the right to make, use and sell the License
Products covered by the Licensed Patents within the geographic area described in
Section 5 hereof.
4. TERM:
This Agreement and the License granted under it shall expire ten (10)
years from the effective date of this Agreement which shall be March 5, 1997
unless sooner terminated under the provisions hereof.
5. GEOGRAPHIC AREA:
The rights granted to Licensee hereunder shall be exercised by Licensee
world wide.
6. DEFINITION OF "NET SALES PRICE":
As used herein the term "Net Sales Price" shall mean the invoice price
charged by Licensee for Licensed Products sold by Licensee less:
A) Refunds, credits and allowances actually made or allowed to customers
for returned Licensed Products;
B) Any sales, or similar, taxes set forth as part of the invoice price;
C) Trade discounts and allowances that would normally be incurred in
Licensee's business exclusive of anticipations afforded to and actually taken
by customers in payment of Licensed Products; and
D) Any freight charges.
If Licensee sells Licensed Products to a related marketing organization or
any individual or company in whole or in part controlled or owned by Licensee,
the invoice price used to determine the "Net Sales price" hereunder shall be, if
greater than Licensee's "Net Sales Price", the invoice price at which the
2
<PAGE>
Licensed Products are sold by such related entity to any unrelated customer in
an arms length transaction.
7. ROYALTIES:
For the License herein granted with respect to the Licensed Patents,
Licensee shall pay to Licensor royalties in the sum equal to five percent (5%)
of the "Net Sales Price" for Licensed Products sold.
Should Licensor not be paid royalties of at least $25,000.00 for a full
license year, beginning the first license year of this agreement, Licensor shall
have the right: at any time during the succeeding license year to declare this
exclusive license to be a non-exclusive license or to terminate the license, at
Licensor's option. In such event Licensor may grant licenses to any other
persons or entities on terms and conditions as Licensor deems appropriate.
Licensee may retain the exclusive license by paying to Licensor, in addition to
the royalties actually paid for any full license year, the difference between
the sum of $25,000.00 and such royalties. Such payments must be made within
thirty (30) days of the end of the license year. Licensor must notify Licensee,
in writing, within ninety (90) days of the end of such license year of any
termination or change in the status of the license to a non-exclusion license
for failure to pay Licensee the minimum royalties recited herein.
8. LICENSEE'S RECORDS:
Licensee shall keep and maintain at its regular place of business complete
books and records of business transactions by Licensee in connection with the
Licensed Products covered by the Licensed Patents, including, but not limited
to, books and records relating to the "Net Sales Price" and orders for such
products. Licensee's accounting records of sales, shipments, installations and
returns of Licensed Products shall be maintained separately from accounting
records relating to other items manufactured or sold by Licensee. Such books and
records shall be maintained in accordance with generally accepted accounting
procedures. Licensor, or its duly authorized agents or representatives, shall
have the right to inspect such books and records at Licensee's premise during
regular business hours, provided that Licensor shall give Licensee at least ten
(10) days advanced written notice of its intention to do so and provided that
such inspections will be limited to one inspection per calendar year. In the
event that Licensee has understated "Net Sales Price" or underpaid royalties in
excess of ten percent (10%) of said net shipments for the calendar year,
Licensee shall forthwith and upon written demand also pay Licensor's costs, fees
3
<PAGE>
and expenses incurred in conducting an audit with respect to books and records
kept with respect to the Licensed Products. Should any audit disclose that the
royalties paid exceed the actual royalties due, Licensee shall be entitled to a
credit equal to such excess royalties against the royalties next accruing under
this Agreement. In the event no further royalties will be accruing under this
Agreement, then to the extent such audit discloses that the royalties paid
exceeded the actual royalties due, the excess shall be paid to Licensee.
9. LICENSEE'S MONTHLY REPORTS 0F SALES AND ROYALTY PAYMENTS:
On or before the first day of each month during the term hereof, Licensee
shall deliver to Licensor written statements certified to be true and correct by
the Chief Financial Officer of Licensee, setting forth the sales and "Net Sales
Prices" of Licensed Products for the proceeding month together with a check
payable to Licensor in full payment of the earned royalties shown on such
statement to be due under Section 7 hereof.
10. BEST EFFORTS OF LICENSEE:
Licensee shall use its best efforts and skills to make, use and sell the
Licensed Products. In the event Licensee fails to sell Licensed Products using
such best efforts and skills, Licensor shall have the right to cancel and
terminate this Agreement by giving written notice of such termination to
Licensee.
11. RESTRICTIONS UPON SUBCONTRACTS:
Licensee shall only have the right to enter into subcontracts including
imports for the manufacture, use and sale of Licensed Products upon written
consent of Licensor. Any subcontracts by Licensee shall be governed and
condition on the same rights, privileges, restrictions and requirements
including payment of royalties, right to inspect, and to take accountings as
provided elsewhere in this Agreement.
12. ASSIGNMENT AND TRANSFERS:
No assignment, transfer, sale, sub-license, or conveyance of any of
Licensee's rights, duties or interest in this Agreement shall be made without
Licensor's prior written consent and shall be subject to the provisions of this
Agreement, including royalties, right to inspect, accountings, termination and
rights of Licensor unless otherwise agreed to in writing between the parties.
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<PAGE>
13. PRESERVATION OF THE PATENTS:
Licensee shall cause to appear on all Licensed Products and/or on all
materials used in connection with the sale thereof such legends, markings and
notices as may be required by laws governing the geographic area in order to
give appropriate notice of all patent rights granted and pertaining to the
Licensed Patents. Such products or materials associated with the Licensed
Product should bear the mark "Patented" and the Patent Number(s) of the Licensed
Patent(s).
14. INFRINGEMENT AND OTHER LITIGATION:
Licensor represents that it is the sole owner of all rights to the
Licensed Patents exclusive of the rights of all others. The Licensor has no
present knowledge or belief that any of the claims of the Licensed Patents are
not valid and enforceable and that Licensor has the absolute right to grant this
License.
In order to protect rights of each party under this Agreement, each party
will keep the other fully informed of the infringement of any Licensed Patent
by third parties. The Licensor shall have the right to be represented by council
at Licensor's expense in any legal action taken to enforce any patent rights
with respect to the Licensed Patents against a third party infringer.
Responsibility for the cost and expenses of such legal action shall be mutually
agreed upon in writing between the Licensor and Licensee prior to the
institution of any such legal action. In any action by Licensor or Licensee
whether by original petition, complaint, or by counterclaim against a third
party for violation of patent rights in the Licensed Patents, each party shall
be entitled to retain any settlement, recovery, and/or awarded damages in
proportion to the agreed upon percentage of the cost and expenses of such
action. Absent any agreement for maintaining such a legal matter to enforce the
Patent Rights, Licensor shall, in its own judgment, take whatever action it
deems necessary at its own expense.
With respect to any third party suit or action against Licensee whether by
original petition, complaint, or by counter-claim, seeking to declare invalid
and/or unenforceable all or any of the claims of any of the Licensed Patents,
the defense fees, cost, and expenses shall be agreed upon by the parties hereto
as soon as reasonably practical after the commencement or such third party suit
or action. If Licensor refuses to participate in any such third party suit or
action, the Licensee may defend and prosecute such action and, in such event,
shall be entitled to the entire amount of any award of damages, settlement or
recover,
5
<PAGE>
exclusive of royalties otherwise due to the Licensor.
15. DEFAULTS BY LICENSEE:
Except as otherwise expressly provided for in this Agreement, in the event
Licensee shall default in the performance of any of the terms and conditions to
be performed hereunder, including the payment of royalties, and the same shall
not be cured within ten days (10) after written notice to Licensee, Licensor
may, at its option, or any time thereafter, cancel and terminate this Agreement.
16. LICENSOR'S RIGHT UPON TERMINATION:
In the event this Agreement is cancelled or terminated, Licensee shall
assign and transfer any and all rights of Licensee to all Licensed Patents and
Licensed Products to Licensor and shall not thereafter use the same in any
manner. Upon cancellation or termination, all Licensee's stock of Licensed
Products on hand may be purchased by Licensor.
17. INSURANCE
Licensee does indemnify and hold harmless Licensor for any liability or
claim thereof based upon the manufacture, use and sale by Licensee of the
Licensed products. To this end, Licensee and its Sub-Licensees, if any, agree to
carry product liability insurance with respect to License Products. Such
insurance may be obtained in conjunction with product liability insurance which
covers products other than the Licensed Products. Licensee shall deliver to
Licensor, at Licensor's request, a certificate evidencing the existence of such
insurance policies promptly upon written request by Licensor.
18. ATTORNEY'S FEES AND APPLICABLE LAW:
In the event Licensor or Licensee shall commence any action or proceeding
against the other by reason of any breach or claimed breach of the performance
of any of the terms or conditions of this Agreement, or to seek a judicial
declaration or rights hereunder, the prevailing party of such action or
proceeding shall be entitled to reasonable attorney's fees to be fixed by the
court or the applicable hearing officer(s). In any legal action or proceeding
brought in which any right or obligation arising from this Agreement is at
issue, the law applicable hereunder shall be the law of the State of Kentucky.
6
<PAGE>
19. NO AGENCY OF PARTIES:
This Agreement does not make Licensee the agent or legal representative
of Licensor nor Licensor the agent or legal representative of Licensee for any
purpose whatsoever. Except as otherwise provided herein, Licensee is not granted
any right or authority to assume or to create any obligation or responsibility,
express or implied, on behalf of, or in the name of, Licensor or to bind
Licensor in any manner or thing whatsoever; nor, except as otherwise provided
herein, is Licensor granted any right or authority to assume or create any
obligation or responsibility, express or implied, on behalf of, or in the name
of, Licensee or to bind Licensee in any manner or thing whatsoever. No joint
venture or partnership between Licensor and Licensee is intended nor shall be
inferred.
20. ADDRESS FOR NOTICE
All notices between the Licensor and Licensee shall be in writing
addressed to Licensee or Licensor at the respect address set forth below and
shall be effective upon receipt if mailed by first class mail.
Licensor: Richard A. Nathan
2355 Harrodsburg Road
Lexington, Kentucky 40504
Licensee: c/o, Arthur Birch, President and COO
ECSI International, Inc.
23 Just Road
Fairfield, New Jersey 07004
If any of the parties hereto shall during the term of this Agreement
change address, then, upon given written notice to the other party of the new
address, the new address shall be the address for notice hereunder.
21. WAIVER BY LICENSOR:
In the event Licensor shall, at any time waive any of its rights hereunder
this Agreement or the performance by Licensee of any of its obligations
hereunder, such waiver shall not be construed as a continuous waiver or the same
rights or obligations or a waiver of any other rights or obligations.
22. SEPARABILITY:
Any provision of this Agreement which shall be, or is
7
<PAGE>
determined to be, invalid, shall be effective, but such invalidity shall not
affect the remaining provisions hereof.
23. BINDING UPON SUCCESSOR:
This Agreement shall be binding upon and shall enure in order to the
benefit it of the parties hereto and their respective heirs, successors and
assigns.
FOR LICENSOR
MASON & HANGER NATIONAL, INC.
By: [ILLEGIBLE] its TREASURER
-------------------------------
3/7/97
-------------------------------
Date
FOR LICENSEE;
ECSI INTERNATIONAL, INC.
By: Arthur Birch its Pres.
----------------------------------
11/29/96
----------------------------------
Date
Exhibit No. 10.4
Lease Agreement with 580 Brighton Road Associates
for space in Clifton, New Jersey
<PAGE>
This Lease Agreement, made the ___ day of March 6th 1998,
Between 580 BRIGHTON ROAD ASSOCIATES
Landlord
located at 50 Mt. Prospect Avenue
in the City of Clifton in the County of
Passaic and State of New Jersey, herein designated as the Landlord,
And ECSI INTERNATIONAL
Tenant
located at 23 Just Road
in the Borough of Fairfield in the County of
Essex and State of , herein designated as the Tenant;
Premises
Witnesseth that, the Landlord does hereby lease to the Tenant and the
Tenant does hereby rent from the Landlord, the following described premises:
Approximately 9,600 square feet of Office and Warehouse space as set forth on
the attached Site Plan. Said Office and Warehouse space is located at 790
Bloomfield Avenue, Clifton, New Jersey, a/k/a: Block: #5607, Lot: #15 on the Tax
Map of the City of Clifton, New Jersey.
Term
for a term of TEN (10) YEARS commencing on May 1, 1998, and ending on April 30,
2008, to be used and occupied only and for no other purpose than Office,
Assembly, Warehouse and Distribution of Electronic Components.
Use
Upon the following Conditions and Covenants:
1st: The Tenant covenants and agrees to pay to the Landlord, as rent for
and during the term hereof, the sum of ($473,025.00) FOUR HUNDRED SEVENTY THREE
THOUSAND AND TWENTY FIVE DOLLARS. in the following manner:
Payment of Rent
SEE ATTACHED PAYMENT OF RENT SCHEDULE "A"
Repairs and Care
2nd: The Tenant has examined the premises and has entered into this lease
without any representation on the part of the Landlord as to the condition
thereof. The Tenant shall take good care of the premises and shall at the
Tenant's own cost and expense, make all repairs, including painting and
decorating, and shall maintain the premises in good condition and state of
repair, and at the end or other expiration of the term hereof, shall deliver up
the rented premises in good order and condition, wear and tear from a reasonable
use thereof, and damage by the elements not resulting from the neglect or fault
of the Tenant, excepted. The Tenant shall neither encumber nor obstruct the
sidewalks, driveways, yards, entrances, hallways and stairs, but shall keep and
maintain the same in a clean condition, free from debris, trash, refuse, snow
and ice.
Glass, etc. Damage Repairs
3rd: In case of the destruction of or any damage to the glass in the
leased premises, or the destruction of or damage of any kind whatsoever to the
said premises, caused by the carelessness, negligence or improper conduct on the
part of the Tenant or the Tenant's agents, employees, guests, licensees,
invitees, subtenants, assignees or successors, the Tenant shall repair the said
damage or replace or restore any destroyed parts of the premises, as speedily as
possible, at the Tenant's own cost and expense.
Alterations
Improvements
4th: No alterations, additions or improvements shall be made, and no
climate regulating, air conditioning, cooling, heating or sprinkler systems,
television or radio antennas, heavy equipment, apparatus and fixtures, shall be
installed in or attached to the leased premises, without the written consent of
the Landlord. Unless otherwise provided herein, all such alterations, additions
or improvements and systems, when made, installed in or attached to the said
premises, shall belong to and become the property of the Landlord and shall be
surrendered with the premises and as part thereof upon the expiration or sooner
termination of this lease, without hindrance, molestation or injury.
Signs
5th: The Tenant shall not place nor allow to be placed any signs of any
kind whatsoever, upon, in or about the said premises or any part thereof, except
of a design and structure and in or at such places as may be indicated and
consented to by the Landlord in writing. In case the Landlord or the Landlord's
agents, employees or representatives shall deem it necessary to remove any such
signs in order to paint or make any repairs, alterations or improvements in or
upon said premises or any part thereof, they may be so removed, but shall be
replaced at the Landlord's expense when the said repairs, alterations or
improvements shall have been completed. Any signs permitted by the Landlord
shall at all times conform with all municipal ordinances or other laws and
regulations applicable thereto.
Utilities
6th: The Tenant shall pay when due all the rents or charges for water or
other utilities used by the Tenant, which are or may be assessed or imposed upon
the leased premises or which are or may be charged to the Landlord by the
suppliers thereof during the term hereof, and if not paid, such rents or charges
shall be added to and become payable as additional rent with the installment of
rent next due or within 30 days of with respect to the Leased Premises demand
therefor, whichever occurs sooner.
Compliance with Laws etc.
7th: The Tenant shall promptly comply with all laws, ordinances, rules,
regulations, requirements and directives of the Federal, State and Municipal
Governments or Public Authorities and of all their departments, bureaus and
subdivisions, applicable to and affecting the said premises, their use and
occupancy, for the correction, prevention and abatement of nuisances, violations
or other grievances in, upon or connected with the said premises, during the
term hereof; and shall promptly comply with all orders, regulations,
requirements and directives of the Board of Fire Underwriters or similar
authority and of any insurance companies which have issued or are about to issue
policies of insurance covering the said premises and its contents, for the
prevention of fire or other casualty, damage or injury, at the Tenant's own cost
and expense.
Liability Insurance
Indemnification
8th: The Tenant, at Tenant's own cost and expense, shall obtain or provide
and keep in full force for the benefit of the Landlord, during the term hereof,
general public liability insurance, insuring the Landlord against any and all
liability or claims of liability arising out of, occasioned by or resulting from
any accident or otherwise in or about the leased premises, for injuries to any
person or persons, for limits of not less than $1,000,000 for injuries to one
person and $1,000,000 for injuries to more than one person, in any one accident
or occurrence, and for loss or damage to the property of any person or persons,
for not less than $500,000. The policy or policies of insurance shall be of a
company or companies authorized to do business in this State and shall be
delivered to the Landlord, together with evidence of the payment of the premiums
therefor, not less than fifteen days prior to the commencement of the term
hereof or of the date when the Tenant shall enter into possession, whichever
occurs sooner. At least fifteen days prior to the expiration or termination date
of any policy, the Tenant shall deliver a renewal or replacement policy with
proof of the payment of the premium therefor. The Tenant also agrees to and
shall save, hold and keep harmless and indemnify the Landlord from and for any
and all payments, expenses, costs, attorney fees and from and for any and all
claims and liability for losses or damage to property or injuries to persons
occasioned wholly or in part by or resulting from any acts or omissions by the
Tenant or the Tenant's agents, employees, guests, licensees, invitees,
subtenants, assignees or successors, or for any cause or reason whatsoever
arising out of or by reason of the occupancy by the Tenant and the conduct of
the Tenant's business.
<PAGE>
RENT SCHEDULE "A"
-----------------
The Rent is payable in advance on the first (1st) day of each month as follows:
5/1/1998 to 4/30/1999 - $3,600.00 Per Month ($43,200) Per Annum
5/1/1999 to 4/30/2000 - $3,672.00 Per Month ($44,064) Per Annum *
5/1/2000 to 4/30/2001 - $3,745.41 Per Month ($44,945) Per Annum *
5/1/2001 to 4/30/2002 - $3,820.33 Per Month ($45,844) Per Annum *
5/1/2002 to 4/30/2003 - $3,896.75 Per Month ($46,761) Per Annum *
5/1/2003 to 4/30/2004 - $3,974.66 Per Month ($47,696) Per Annum *
5/1/2004 to 4/30/2005 - $4,054.16 Per Month ($48,650) Per Annum *
5/1/2005 to 4/30/2006 - $4,135.12 Per Month ($49,623) Per Annum *
5/1/2006 to 4/30/2007 - $4,217.91 Per Month ($50,615) Per Annum *
5/1/2007 to 4/30/2008 - $4,302.25 Per Month ($51,627) Per Annum *
* RENT REFLECTS A 2% ANNUAL INCREASE
<PAGE>
Assignment
9th: The Tenant shall not, without the written consent of the Landlord,
assign, mortgage or hypothecate this lease, nor sublet or sublease the premises
or any part thereof.
Restriction of Use
10th: The Tenant shall not occupy or use the leased premises or any part
thereof, nor permit or suffer the same to be occupied or used for any purposes
other than as herein limited, nor for any purpose deemed unlawful, disreputable,
or extra hazardous, on account of fire or other casualty.
Mortgage Priority
11th: This lease shall not be a lien against the said premises in respect
to any mortgages that may hereafter be placed upon said premises. The recording
of such mortgage or mortgages shall have preference and precedence and be
superior and prior in lien to this lease, irrespective of the date of recording
and the Tenant agrees to execute any instruments, without cost, which may be
deemed necessary or desirable, to further effect the subordination of this lease
to any such mortgage or mortgages. A refusal by the Tenant to execute such
instruments shall entitle the Landlord to the option of cancelling this lease,
and the term hereof is hereby expressly limited accordingly.
Condemnation
Eminent Domain
12th: If the land and premises leased herein, or of which the leased
premises are a part, or any portion thereof, shall be taken under eminent domain
or condemnation proceedings, or if suit or other action shall be instituted for
the taking or condemnation thereof, or if in lieu of any formal condemnation
proceedings or actions, the Landlord shall grant an option to purchase and or
shall sell and convey the said premises or any portion thereof, to the
governmental or other public authority, agency, body or public utility, seeking
to take said land and premises or any portion thereof, then this lease, at the
option of the Landlord, shall terminate, and the term hereof shall end as of
such date as the Landlord shall fix by notice in writing; and the Tenant shall
have no claim or right to claim or be entitled to any portion of any amount
which may be awarded as damages or paid as the result of such condemnation
proceedings or paid as the purchase price for such option, sale or conveyance in
lieu of formal condemnation proceedings; and all rights of the Tenant to
damages, if any, are hereby assigned to the Landlord. The Tenant agrees to
execute and deliver any instruments, at the expense of the Landlord, as may be
deemed necessary or required to expedite any condemnation proceedings or to
effectuate a proper transfer of title to such governmental or other public
authority, agency, body or public utility seeking to take or acquire the said
lands and premises or any portion thereof. The Tenant covenants and agrees to
vacate the said premises, remove all the Tenant's personal property therefrom
and deliver up peaceable possession thereof to the Landlord or to such other
party designated by the Landlord in the aforementioned notice. Failure by the
Tenant to comply with any provisions in this clause shall subject the Tenant to
such costs, expenses, damages and losses as the Landlord may incur by reason of
the Tenant's breach thereof.
Fire and other Casualty
13th: In case of fire or other casualty, the Tenant shall give immediate
notice to the Landlord. If the premises shall be partially damaged by fire, the
elements or other casualty, the Landlord shall repair the same as speedily as
practicable, but the Tenant's obligation to pay the rent hereunder shall not
cease. If, in the opinion of the Landlord, the premises be so extensively and
substantially damaged as to render them untenantable, then the rent shall cease
until such time as the premises shall be made tenantable by the Landlord.
However, if in the opinion of the Landlord, the premises be totally destroyed or
so extensively and substantially damaged as to require practically a rebuilding
thereof, then the rent shall be paid up to the time of such destruction and then
and from thenceforth this lease shall come to an end. In no event however, shall
the provisions of this clause become effective or be applicable, if the fire or
other casualty and damage shall be the result of the carelessness, negligence or
improper conduct of the Tenant or the Tenant's agents, employees, guests,
licensees, invitees, subtenants, assignees or successors. In such case, the
Tenant's liability for the payment of the rent and the performance of all the
covenants, conditions and terms hereof on the Tenant's part to be performed
shall continue and the Tenant shall be liable to the Landlord for the damage and
loss suffered by the Landlord. If the Tenant shall have been insured against any
of the risks herein covered, then the proceeds of such insurance shall be paid
over to the Landlord to the extent of the Landlord's costs and expenses to make
the repairs hereunder, and such insurance carriers shall have no recourse
against the Landlord for reimbursement.
Reimbursement of Landlord
14th: If the Tenant shall fail or refuse to comply with and perform any
conditions and covenants of the within lease, the Landlord may, if the Landlord
so elects, carry out and perform such conditions and covenants, at the cost and
expense of the Tenant, and the said cost and expense shall be payable on demand,
or at the option of the Landlord shall be added to the installment of rent due
immediately thereafter but in no case later than one month after such demand,
whichever occurs sooner, and shall be due and payable as such. This remedy shall
be in addition to such other remedies as the Landlord may have hereunder by
reason of the breach by the Tenant of any of the covenants and conditions in
this lease contained.
Inspection and Repair
15th: The Tenant agrees that the Landlord and the Landlord's agents,
employees or other representatives, shall have the right to enter into and upon
the said premises or any part thereof, at all reasonable hours, for the purpose
of examining the same or making such repairs or alterations therein as may be
necessary for the safety and preservation thereof. This clause shall not be
deemed to be a covenant by the Landlord nor be construed to create an obligation
on the part of the Landlord to make such inspection or repairs.
Right to Exhibit
16th: The Tenant agrees to permit the Landlord and the Landlord's agents,
employees or other representatives to show the premises to persons wishing to
rent or purchase the same, and Tenant agrees that on and after next
preceding the expiration of the term hereof, the Landlord or the Landlord's
agents, employees or other representatives shall have the right to place notices
on the front of said premises or any part thereof, offering the premises for
rent or for sale; and the Tenant hereby agrees to permit the same to remain
thereon without hindrance or molestation.
Increase of Insurance Rates
17th: If for any reason it shall be impossible to obtain fire and other
hazard insurance on the buildings and improvements on the leased premises, in an
amount and in the form and in insurance companies acceptable to the Landlord,
the Landlord may, if the Landlord so elects at any time thereafter, terminate
this lease and the term hereof, upon giving to the Tenant fifteen days notice in
writing of the Landlord's intention so to do, and upon the giving of such
notice, this lease and the term thereof shall terminate. If by reason of the use
to which the premises are put by the Tenant or character of or the manner in
which the Tenant's business is carried on, the insurance rates for fire and
other hazards shall be increased, the Tenant shall upon demand, pay the
Landlord, as rent, the amounts by which the premiums for such insurance are
increased. Such payment shall be paid with the next installment of rent but in
no case later than one month after such demand, whichever occurs sooner.
Removal of Tenant's Property
18th: Any equipment, fixtures, goods or other property of the Tenant, not
removed by the Tenant upon the termination of this lease, or upon any quitting,
vacating or abandonment of the premises by the Tenant, or upon the Tenant's
eviction, shall be considered as abandoned and the Landlord shall have the
right, without any notice to the Tenant, to sell or otherwise dispose of the
same, at the expense of the Tenant, and shall not be accountable to the Tenant
for any part of the proceeds of such sale, if any.
Remedies upon Tenant's Default
19th: If there should occur any default on the part of the Tenant in the
performance of any conditions and covenants herein contained, or if during the
term hereof the premises or any part thereof shall be or become abandoned or
deserted, vacated or vacant, or should the Tenant be evicted by summary
proceedings or otherwise, the Landlord, in addition to any other remedies herein
contained or as may be permitted by law, may either by force or otherwise,
without being liable for prosecution therefor, or for damages, re-enter the said
premises and the same have and again possess and enjoy; and as agent for the
Tenant or otherwise, re-let the premises and receive the rents therefor and
apply the same, first to the payment of such expenses, reasonable attorney fees
and costs, as the Landlord may have been put to in re-entering and repossessing
the same and in making such repairs and alterations as may be necessary; and
second to the payment of the rents due hereunder. The Tenant shall remain liable
for such rents as may be in arrears and also the rents as may accrue subsequent
to the re-entry by the Landlord, to the extent of the difference between the
rents reserved hereunder and the rents, if any, received by the Landlord during
the remainder of the unexpired term hereof, after deducting the aforementioned
expenses, fees and costs; the same to be paid as such deficiencies arise and are
ascertained each month.
Termination on Default
20th: Upon the occurrence of any of the contingencies set forth in the
preceding clause, or should the Tenant be adjudicated a bankrupt, insolvent or
placed in receivership, or should proceedings be instituted by or against the
Tenant for bankruptcy, insolvency, receivership, agreement of composition or
assignment for the benefit of creditors, or if this lease or the estate of the
Tenant hereunder shall pass to another by virtue of any court proceedings, writ
of execution, levy, sale, or by operation of law, the Landlord may, if the
Landlord so elects, at any time thereafter, terminate this lease and the term
hereof, upon giving to the Tenant or to any trustee, receiver, assignee or other
person in charge of or acting as custodian of the assets or property of the
Tenant, five days notice in writing, of the Landlord's intention so to do. Upon
the giving of such notice, this lease and the term hereof shall end on the date
fixed in such notice as if the said date was the date originally fixed in this
lease for the expiration hereof; and the Landlord shall have the right to remove
all persons, goods, fixtures and chattels therefrom, by force or otherwise,
without liability for damages.
[ILLEGIBLE] on-Liability of Landlord
21st: The Landlord shall not be liable for any damage or injury which may
be sustained by the Tenant or any other person, as a consequence of the failure,
breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or
soil pipes, roof, drains, leaders, gutters, valleys, downspouts or the like or
of the electrical, gas, power, conveyor, refrigeration, sprinkler,
airconditioning or heating systems, elevators or hoisting equipment; or by
reason of the elements; or resulting from the carelessness, negligence or
improper conduct on the part of any other Tenant or of the Landlord or the
Landlord's or this or any other Tenant's agents, employees, guests, licensees,
invitees, subtenants, assignees or successors; or attributable to any
interference with, interruption of or failure, beyond the control of the
landlord, of any services to be furnished or supplied by the Landlord.
[ILLEGIBLE] on-Waiver [ILLEGIBLE] Landlord
22nd: The various rights, remedies, options and elections of the Landlord,
expressed herein, are cumulative, and the failure of the Landlord to enforce
strict performance by the Tenant of the conditions and covenants of this lease
or to exercise any election or option, or to resort or have recourse to any
remedy herein conferred or the acceptance by the Landlord of any installment of
rent after any breach by the Tenant, in any one or more instances, shall not be
construed or deemed to be a waiver or a relinquishment for the future by the
Landlord of any such conditions and covenants, options, elections or remedies,
but the same shall continue in full force and effect.
<PAGE>
Non-Performance by Landlord
23rd: This lease and the obligation of the Tenant to pay the rent
hereunder and to comply with the covenants and conditions hereof, shall not be
affected, curtailed, impaired or excused because of the Landlord's inability to
supply any service or material called for herein, by reason of any rule, order,
regulation or preemption by any governmental entity, authority, department,
agency or subdivision or for any delay which may arise by reason of negotiations
for the adjustment of any fire or other casualty loss or because of strikes or
other labor trouble or for any cause beyond the control of the Landlord.
Validity of Lease
24th: The terms, conditions, covenants and provisions of this lease shall
be deemed to be severable. If any clause or provision herein contained shall be
adjudged to be invalid or unenforceable by a court of competent jurisdiction or
by operation of any applicable law, it shall not affect the validity of any
other clause or provision herein, but such other clauses or provisions shall
remain in full force and effect.
Notices
25th: All notices required under the terms of this lease shall be given
and shall be complete by mailing such notices by certified or registered mail,
return receipt requested, to the address of the portion as shown at the head of
this lease, or to such other address as may be designated in writing, which
notice of change of address shall be given in the same manner.
Title and Quiet Enjoyment
26th: The Landlord covenants and represents that the Landlord is the owner
of the premises herein leased and has the right and authority to enter into,
execute and deliver this lease; and does further covenant that the Tenant on
paying the rent and performing the conditions and covenants herein contained,
shall and may peaceably and quietly have, hold and enjoy the leased premises for
the term aforementioned.
Entire Contract
27th This lease contains the entire contract between the parties. No
representative, agent or employee of the Landlord has been authorized to make
any representations or promises with reference to the within letting or to vary,
alter or modify the terms hereof. No addition, changes or modifications,
renewals or extensions hereof, shall be binding unless reduced to writing and
signed by the Landlord and the Tenant.
Tax Increase
28th: If in any calendar year during the term and of any renewal or
extension of the term hereof, the annual municipal taxes assessed against the
land and improvements leased hereunder or of which the premises herein leased
are a part, shall be greater than the municipal taxes assessed against the said
lands and improvements for the calendar year 19 , which is hereby designated as
the base year, then, in addition to the rent herein fixed, the Tenant agrees to
pay a sum equal to ________ of the amount by which said tax exceeds the annual
tax for the base year, inclusive of any increase during any such calendar year.
The said sum shall be considered as additional rent and shall be paid in as many
equal installments as there are months remaining in the calendar year in which
said taxes exceed the taxes for the base year, on the first day of each month
in advance, during the remaining months of that year. If the term hereof shall
commence after the first day of January or shall terminate prior to the last day
of December in any year, then such additional rent resulting from a tax increase
shall be proportionally adjusted for the fraction of the calendar year involved.
Mechanics' Liens
29th: If any mechanics' or other liens shall be created or filed against
the leased premises by reason of labor performed or materials furnished for the
Tenant in the erection, construction, completion, alteration, repair or addition
to any building or improvement, the Tenant shall upon demand, at the Tenant's
own cost and expense, cause such lien or liens to be satisfied and discharged of
record together with any Notices of Intention that may have been filed. Failure
so to do, shall entitle the Landlord to resort to such remedies as are provided
herein in the case of any default of this lease, in addition to such as are
permitted by law.
Waiver of Subrogation Rights
30th: The Tenant waives all rights of recovery against the Landlord or
Landlord's agents, employees or other representatives, for any loss, damages or
injury of any nature whatsoever to property or persons for which the Tenant is
insured. The Tenant shall obtain from Tenant's insurance carriers and will
deliver to the Landlord, waivers of the subrogation rights under the respective
policies.
Security
31st: The Tenant has this day deposited with the Landlord the sum of
$10,800.00* as security of the payment of the rent hereunder and the full and
faithful performance by the Tenant of the covenants and conditions on the part
of the Tenant to be performed. Said sum shall be returned to the Tenant, without
interest, after the expiration of the term hereof, provided that the Tenant has
fully and faithfully performed all such covenants and conditions and is not in
arrears in rent. During the term hereof, the Landlord may, if the Landlord so
elects, have recourse to such security, to make good any default by the Tenant,
in which event the Tenant shall, on demand, promptly restore said security to
its original amount. Liability to repay said security to the Tenant shall run
with the reversion and title to said premises, whether any change in ownership
thereof be by voluntary alienation or as the result of judicial sale,
foreclosure or other proceedings, or the exercise of a right of taking or entry
by any mortgagee. The Landlord shall assign or transfer said security, for the
benefit of the Tenant, to any subsequent owner or holder of the reversion or
title to said premises, in which case the assignee shall become liable for the
repayment thereof as herein provided, and the assignor shall be deemed to be
released by the Tenant from all liability to return such security. This
provision shall be applicable to every alienation or change in title and shall
in no wise be deemed to permit the Landlord to retain the security after
termination of the Landlord's ownership of the reversion or title. The Tenant
shall not mortgage, encumber or assign said security without the written consent
of the Landlord.* - It is expressly understood that the Landlord will return to
the Tenant $3,600.00 reducing Security Deposit to $7,200 at the end of the 5th
year (May 1, 2003).
Conformation with Laws and Regulations
The Landlord may pursue the relief or remedy sought in any invalid clause,
by conforming the said clause with the provisions of the statutes or the
regulations of any governmental agency in such case made and provided as if the
particular provisions of the applicable statutes or regulations were set forth
herein at length.
In all references herein to any parties, persons, entities or corporations
the use of any particular gender or the plural or singular number is intended to
include the appropriate gender or number as the text of the within instrument
may require. All the terms, covenants and conditions herein contained shall be
for and shall inure to the benefit of and shall bind the respective parties
hereto, and their heirs, executors, administrators, personal or legal
representatives, successors and assigns.
In Witness Whereof, the parties hereto have hereunto set their hands and
seals, or caused these presents to be signed by their proper corporate officers
and their proper corporate seal to be hereto affixed, the day and year first
above written.
Signed, Sealed and Delivered 580 BRIGHTON ROAD ASSOCIATES
in the presence of
or Attested by By: /s/ Thomas A. Cupo
-------------------------------
/s/ Victoria Ramos Thomas A. Cupo Landlord
- ------------------------------- Managing General Partner
ECSI INTERNATIONAL
-------------------------------
Tenant
By: /s/ Arthur Birch
-------------------------------
Arthur Birch
President
<PAGE>
State of New Jersey, County of ss.:
I Certify that on , 19 ,
personally came before me
and acknowledged under oath, to my satisfaction, that this person (or if more
than one, each person):
(a) is named in and personally signed this document; and
(b) signed, sealed and delivered this document as his or her act and deed.
_________________________________________
(Print name and title below signature)
State of New Jersey, County of ss.:
I Certify that on , 19 ,
personally came before me, and this person acknowledged under oath, to my
satisfaction, that:
(a) this person is the secretary of
the corporation named in this document;
(b) this person is the attesting witness to the signing of this document
by the proper corporate officer who is the
President of the corporation;
(c) this document was signed and delivered by the corporation as its
voluntary act duly authorized by a proper resolution of its Board of
Directors;
(d) this person knows the proper seal of the corporation which was
affixed to this document; and
(e) this person signed this proof to attest to the truth of these facts.
Signed and sworn to before me on _________________________________________
, 19 . (Print name of attesting witness below
signature)
__________________________________
Lease
==============================================
580 BRIGHTON ROAD ASSOCIATES
TO
ECSI INTERNATIONAL
==============================================
Dated, March , 1998
==============================================
Expires, April 30, 2008
Rent, $473,025.00
Prepared by:
ASSIGNMENT OF LEASE
For one dollar and other good and valuable consideration, the Tenant as
Assignor, assigns this Lease and all the Assignor's rights and privileges
therein, including any and all monies deposited with the Landlord as security,
subject to all the terms, covenants and conditions contained therein; and the
Assignee accepts this Assignment of Lease and assumes and agrees to comply with
and be bound by the terms, covenants and conditions in said Lease contained. The
signature of the Landlord hereto is evidence of the Landlord's consent to and
acceptance of this Assignment of Lease.
__________________________________ __________________________________
Assignee Assignor
__________________________________
Landlord
<PAGE>
RIDER TO LEASE
BETWEEN
580 BRIGHTON ROAD ASSOCIATES
AND
ECSI INTERNATIONAL
For premises located at
790 BLOOMFIELD AVENUE, CLIFTON, NEW JERSEY
The provisions contained in the paragraphs in this Rider shall control to the
extent that they are inconsistent with provisions contained in paragraphs 1st
through 31A.
32. REPAIRS: The Tenant shall, at its sole expense, make all necessary repairs
to the leased premises, including but not limited to the boiler, heating
system, plumbing system, electrical system, sewage system and other
utility systems and equipment, windows, window glass, fixtures, and all
appliances, and their appurtenances, and all equipment used in connection
with the leased premises, except for repairs to the roof, structural walls
and parking lot. Repairs to the roof, structural walls and parking lot
shall be the responsibility of the Tenant, only in the event that the
roof, structural walls or parking lot is damaged as a result of the
Tenant's operations or negligence. Such repairs, ordinary as well as
extraordinary, shall be made promptly as and when necessary. All repairs
shall be in quality and class at least equal to the original work.
Repairs, alterations and improvements shall be done using workmanlike
standards. All work shall be performed in compliance with all applicable
laws, ordinances, codes, rules and regulations. The Tenant shall be
responsible for maintaining the painting and decoration of the interior of
the leased premises. On default of the Tenant in making such repairs the
Landlord may, but shall not be required to make such repairs and
replacements, for the Tenant's account, and the expense thereof, together
with 1 1/2% interest per month thereon shall constitute and be collectable
as additional rent. Landlord shall provide Tenant with written notice of
default and a twenty (20) day period to cure prior to Landlord undertaking
said repairs. The Landlord represents that the condition of the mechanical
systems in the premises are in good working order and will be maintained
by the Landlord at the Landlord's sole expense for the first year of this
Lease. Thereafter, all repairs will be the sole responsibility of the
Tenant. However, replacements of the heating, ventilation or air
conditioning systems will be prorated between the Landlord and the Tenant
as follows: The Tenant shall pay that proportion of the replacement equal
to the number of years it has been a tenant at the premises divided by the
age of the failed mechanical system. For example if the heater needs to be
replaced after four years following the commencement of the Tenant's
tenancy hereunder and the heater was 16 years old at that time, the Tenant
will pay twenty-five (25%) percent (4 divided by 16) of the heater
replacement.
33-A IMPROVEMENTS TO LEASEHOLD PREMISES:
(a) Subject to the representation set forth in Paragraph 33B, the Landlord
will complete the following improvements:
The Landlord shall build Office Space per attached plan. All offices to be
painted, carpeted, air-conditioned. Landlord shall install a new entrance
on side of the building. All expenses incurred for improvements by
Landlord. See Schedule "B".
The Landlord shall construct the leased premises in accordance to the
Plans prepared by J. Thomas Camlet & Sons. Plans shall be approved prior
to commencement of construction by both the Landlord and the Tenant.
(b) All alterations being constructed by the Landlord to the leased
premises pursuant to this Lease shall be done in a good and workmanlike
manner and substantially completed prior to the commencement of the term
of this Lease. Landlord reserves the right to extend the time period to
complete for thirty days provided the work is started and substantially
completed before the commencement date. In the event the Landlord fails to
complete the work prior to the expiration of the extension period,
Landlord shall be in default and tenant may elect to terminate the lease.
Tenants' election to terminate shall be provided to Landlord, in writing,
within ten (10) days after the expiration date of the applicable time
period for completion or such right of termination shall be waived.
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(c) Notwithstanding the provisions of paragraph four (4) of this Lease,
all trade fixtures, equipment and movable furniture of the Tenant shall at
all times, remain the properties of the Tenant and can be removed by
Tenant at any time, provided that the same can be removed without damage
to the leased premises, and the leased premises are restored to their
original condition or better.
33-B. Landlord represents that all of the systems, equipment, windows, glass,
roof, fixtures, and all appliances shall be in good working order as of
the commencement date of the lease.
34. TENANTS OBLIGATION TO PAY RENT: Under no condition shall the Tenant fail
to pay rent when due and owing under the provision of this lease. Any
claims, which the Tenant may have against the Landlord, shall not be
offset against rent or additional rent herein provided to be paid by the
Tenant. If the Tenant shall fail or refuse to comply with and perform any
conditions and covenants of this Lease, the Landlord, if the Landlord so
elects, may, but shall not be obligated to, carry out and perform such
conditions and convenants at the cost and expense of the Tenant, plus
interest at the rate of one-and-one half percent (1.5%) for each month
due. The said costs and expenses shall be payable on demand, or, at the
option of the Landlord, shall be added to the installment of rent due
immediately thereafter but in no case later than one (1) month after such
demand, whichever occurs sooner. This remedy shall be in addition to any
other remedies, which the Landlord may have by reason of the breach by the
Tenant of any of the convenants and conditions contained in this lease.
The Landlord shall have the right to commence summary proceeding or such
other legal actions against Tenant for non-payment or other deficiencies
or defaults by the Tenant under this Lease.
35. ISRA COMPLIANCE: Tenant shall, at Tenant's own expense, comply with the
Environmental Cleanup Responsibility Act, N.J.S.A 13.lk-6 et seq. and the
regulations promulgated thereunder ("ISRA") and all applicable
Environmental Laws, Regulations, Codes and Standards including but not
limited to the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11
and the Environmental Rights Act, N.J.S.A. 2A:35A-1. Tenant shall, at
Tenant's own expense, make all submissions to, provide all information to,
and comply with all requirements of, the Bureau of Industrial Site
Evaluation (the "Bureau") of the New Jersey Department of Environmental
Protection (NJDEP") and any and all applicable Federal Laws. Should the
Bureau or any other division of NJDEP or the Federal Government determine
that a cleanup plan be prepared, and/or that a cleanup be undertaken
because of any spills or discharges of hazardous or toxic substances or
wastes at the premises which occur during the term of this Lease, then
Tenant shall, at Tenant's own expense, prepare and submit the required
plans and financial assurances and carry out the approved plans. Landlord
shall be responsible for all pre existing conditions; Tenant has right to
review our files in reference to NJDEP.
Tenant's obligations under this paragraph shall arise if there is any
closing, terminating or transferring of its operations at the premises
pursuant to ISRA or applicable Federal Laws, whether triggered by Landlord
or by the Tenant. At no expense to Landlord, Tenant shall promptly provide
all information, affidavits, testing or sampling of the demised premises
as requested by Landlord or NJDEP in connection with any ISRA submission
by Landlord.
Should Tenant's operation at the premises be outside of those industrial
operations covered by ISRA, Tenant shall, at Tenant's own expense, obtain
a letter of non-applicability from NJDEP prior to the termination of the
Lease term and shall promptly provide non-applicability submission and the
NJDEP non-applicability letter to Landlord.
Tenant shall commence its ISRA submission to the NJDEP in anticipation of
the end of the Lease term no later than one (1) year prior to the
expiration of the Lease term. Tenant shall promptly furnish the Landlord
true and complete copies of all documents, submissions and correspondence
provided by Tenant to NJDEP and all documents, reports, directives and
correspondence provided by NJDEP to Tenant. Tenant shall also promptly
furnish to Landlord true and complete copies of all sampling and test
results and reports obtained and prepared from samples and tests taken at
and around the Premises.
Prior to the termination of the Lease, Tenant shall obtain either i) a
non-applicability letter, ii) a negative declaration, or (iii) final
approval of cleanup from NJDEP.
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Tenant shall indemnify defend and save harmless Landlord from all fines,
suits, procedures, claims and actions of any kind arising out or of in any
way connected with any spills or discharges of hazardous or toxic
substances or wastes at the premises which occur due to Tenant's use or
occupancy, and from all fines, suits, procedures, claims and actions of
any kind arising out of Tenant's failure to provide all information, make
all submissions and take all action required by the ISRA, the Bureau, or
any other division of NJDEP or the Federal government arising out of the
Tenant's use and occupancy of the Premises.
Tenant's obligation and liabilities under this paragraph shall continue so
long as Landlord remains responsible for any spills or discharges of
hazardous or toxic substances or wastes at the premises which occur during
the term of this Lease. Tenant's failure to abide by the terms of this
paragraph shall be restrainable by injunction. Tenant's default under this
paragraph shall constitute a material default and conditional limitation
hereunder.
Tenant agrees that this Lease may be terminated upon ninety (90) days'
notice that Tenant's use violates the Environmental provisions of this
lease or fails to comply with any applicable Environmental Law, Regulation
or Code, and is not curable, in Landlord's reasonable opinion within said
ninety (90) day period. Tenant shall, in any event, remain liable for all
costs and liabilities incurred as a result of its operations or the
cessation thereof, which liability shall survive the expiration or sooner
termination of this Lease.
Tenant shall not be responsible for any liabilities which arise or may
arise as a result of any activities or occurrences at or about the demised
premises, which occurred prior to Tenant's occupancy and shall be
responsible only for such liabilities as may arise as a result of or
relating to Tenant's use. Landlord represents that there are no known
spills or discharges of hazardous substances within Tenants space.
Landlord and Tenant acknowledge that the entire property is subject to on
going ECRA/ISRA clean up. The tenant shall not be responsible for any
costs regarding said ECRA/ISRA clean up.
In the event that there shall be filed a lien against the Premises by the
New Jersey Department of Environmental Protection ("Department"), pursuant
to and in accordance with the provisions of the Spill Compensation and
control Act (N.J.S.A. 58:10-23.11 et seq.), as a result of the chief
executive of the New Jersey Spill Compensation Fund having expended monies
from said fund to pay for "Damages", as such term is defined in N.J.S.A.
58:10-23.11g, and/or "Cleanup and Removal Costs" as such term is defined
in N.J.S.A. 58:10-2311b(d), arising from an intentional or unintentional
action or omission or Tenant resulting in the releasing, spilling,
pumping, pouring, emitting, emptying or dumping of "Hazardous Substances",
as such term is defined in N.J.S.A. 58:100-23111 b(k), into the waters of
the State of New Jersey or onto lands from which it might flow or drain
into said waters, then Tenant shall, within thirty (30) days after the
date that Tenant is given notice that the lien has been placed against the
Premises or within such shorter period of time in the event that the State
of New Jersey has commenced steps to cause the Premises to be sold
pursuant to the lien, either (A) pay the claim and remove the lien from
the Premises, or (B) furnish a bond, letter of credit, cash or other
security reasonably satisfactory to Landlord in an amount sufficient to
discharge the claim out of which the lien arises.
In the event that the Department shall serve upon Tenant a directive to
remove or arrange for the removal of discharge of any hazard substances on
the Premises, and Tenant shall not comply with the directive within thirty
(30) days from its date or such other period as described therein, to the
satisfaction of the Department, such noncompliance shall constitute an
event of default, unless Tenant shall furnish a bond, letter of credit,
cash or other security reasonably satisfactory to Landlord in an amount
sufficient to pay the costs of taking the actions required by said
directive.
36. ENVIRONMENTAL COMPLIANCE AND WARRANTIES:
(a) (i) "Hazardous Substances" include any pollutants, dangerous
substances, toxic substances, hazardous wastes, hazardous materials, or
hazardous substances as defined in or pursuant to the Environmental
Cleanup Responsibility Act, as amended, N.J.S.A. 13:1K-6, et seq.
("ISRA"); the Spill Compensation and Control Act, as amended, N.J.S.A.
58:10-23.11, et seq. ("SPILL ACT"); the Solid Waste Management Act, as
amended, N.J.S.A. 13:1E-1, et seq.; the Resource and Conservation Recovery
Act, as amended, 42 U.S.C. |_|6901, et seq. ("RCRA"); the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, 42
U.S.C. |_|9601 ("CERCLA") or any other present or future federal, state or
local environmental law, ordinance, rule or regulation.
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(ii) "Release" means releasing, spilling, leaking, pumping, pouring,
omitting, emptying, discharging, injecting, leaching, disposing or
dumping.
(iii) "Notice," means any summons, citation, directive, order, claim,
litigation, investigation, proceeding, judgment, letter or other
communication, written or oral, actual or threatened from the New Jersey
Department of Environmental Protection and Energy ("NJDEPE"), the United
States Environmental Protection Agency ("USEPA"), or other federal, state
or local agency or authority, or any other entity or any individual,
concerning any act or omission resulting or which may result in the
Releasing of Hazardous Substances into the waters or onto the lands of the
State of New Jersey, or into waters outside the jurisdiction of the State
of New Jersey, or into the environment, as such terms are defined in
CERCLA.
(iv) "Environmental Laws" shall include (A) CERCLA; (B) RCRA; (C) ISRA;
(D) the Spill Act; (E) New Jersey Underground Storage of Hazardous
Substances Act, as amended, N.J.S.A. 58:10A-21, et seq; (F) the New Jersey
Water Pollution Control Act, as amended, N.J.S.A., 58:10A-1, et seq.
("WPCA"); (G) the Air Pollution Control Act, as amended, N.J.S.A.,
26:2C-1, et seq. ("APCA"); and (H) any and all present or future laws,
statutes, ordinances, regulations and executive orders, federal and state
and local in any way related to the protection of human health or the
environment.
(b) Except in connection with the Tenant's permitted use of the demised
premises under this Lease, the demised premises shall not be used or
occupied by the Tenant to generate, manufacture, refine, transport, treat,
store, handle, dispose, transfer, or process any Hazardous Substances,
except on written permission of the Landlord, which permission may be
arbitrarily withheld. Nothing in this lease shall prohibit the Tenant from
using Hazardous Substances in amounts which are customary and necessary in
connection with the Tenants permitted use of the demised premises, in
which case the Tenant shall comply with all laws in connection with such
use. In no case shall the demised premises be used by the Tenant in such
manner that it is considered a Major Facility as that term is defined
under the Spill Act.
(c) Tenant shall indemnify, defend and hold the Landlord harmless from and
against any and all liabilities, losses and costs or claims by third
parties, including all governmental authorities, including the Landlord's
reasonable counsel fees which the Landlord may incur related to Tenant's
violation of Environmental Laws arising out of or incident to Tenant's use
of the demised premises. Tenant convenants and agrees to notify the
Landlord within a reasonable amount of time of any Notice served upon it
with respect to any such claim that the Tenant has violated Environmental
Laws. Tenant further warrants and represents that upon Notice of such
violations it will take reasonable steps to halt, remedy or cure the
violations which have been caused solely by the Tenant, by its use of the
demised premises.
(d) The Landlord represents and warrants there exists no Notice related to
Hazardous Substances or contamination in connection with the demised
premises.
(e) Tenant warrants and represents that its Standard Industrial
Classification ("SIC") number which most closely describes the Tenant's
anticipated operations at the demised premises, as defined by the most
recent edition of the Standard Industrial Classification Manual published
by the Federal Executive Office of the President, Office of Management and
Budget is 3699-3665 which is not that of an industrial establishment as
defined under ISRA and agrees that it will not change its business
operations in any manner so as to render Tenant's anticipated operation
subject to ISRA without the prior written consent oF Landlord.
(f) At all times after the effective date of the Lease, the Tenant shall,
at its sole cost and expense, fulfill, observe and comply with, and keep
its operations and the demised premises, in compliance with any and all
Environmental Laws relating to Tenant's operations. Tenant shall be
responsible for obtaining all permits required pursuant to any
Environmental Laws relating to its operations. The Landlord shall be
solely responsible for the condition of the demised premises as of the
effective date of the Lease, including, but not limited to, the presence
of Hazardous Substances on the demised premises and any Hazardous
Substances affecting the demised premises during the term of the Lease
caused by the Landlord, its agents, employees or invitees, including
contractors and Subcontractors. The Tenant shall be responsible for any
Hazardous Substances affecting the demised premises caused by Tenant's
operations during the term of the Lease. Notwithstanding anything herein,
in the event of the presence of Hazardous Substances on the demised
premises, the Tenant and the Landlord shall make reasonable measures to
mitigate damages to the demised premises to the extent the Tenant and the
Landlord are capable of doing so.
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(g) Notwithstanding anything to this lease to the contrary, Tenant shall
not be responsible for the cleanup or remediation of any Hazardous
Substances on the demised premises prior to the commencement date of this
lease. Tenant shall co-operate with Landlord in Landlord's compliance with
ISRA and other environmental laws, statutes, ordinances, rules and
regulations.
37. LANDLORD'S CONSENT: Wherever herein the Landlord's consent is required for
any action by the Tenant, such consent shall not be unreasonably withheld.
38. LANDLORDS LIABILITY/INDEMNIFICATION: It is expressly agreed that the
Landlord shall not be liable for any damage or injury to person or
property how-so-ever caused which may be sustained by the Tenant or other
person, including, without limitation, any damage or injury caused by or
resulting from fire, explosion, steam, gas, electricity, water, rain, snow
or leaks from any part of the Building or from the pipes, appliances or
plumbing works or from the roof, street or sub-surface or from any other
place or by dampness or caused by or resulting from any act or failure to
act on the part of other tenants or persons in said building or from any
other cause of what-so-ever nature, unless caused by or due to the
intentional or tortious act of Landlord or its agents.
Neither Landlord nor any of its agents, employees, licensees and/or
invitees shall be liable for any damage to property of Tenant or other
entrusted to employees of the building; or for loss of or damage to any
property of Tenant by theft or otherwise, or for any injury or damage to
persons or property resulting from any cause of what-so-ever nature,
including the negligence of Landlord, unless caused by or due to the
intentional or tortious act of Landlord or its agents. Landlord or its
agents will not be liable for any such damage caused by other tenants or
persons in, upon or about said building or caused by operations in
construction of any private, public or quasi-public work.
Tenant covenants and agrees to indemnify and save Landlord harmless
against and from any and all claims by or on behalf of any person, firm,
corporation or other entity or entities arising from or in connection with
Tenant's use of or from any work or thing what-so-ever done in or about
the demised premises or any part thereof during the term of this Lease,
other than those based on the intentional or tortious act of Landlord or
its agents. Tenant shall further indemnify and save harmless Landlord
against and from all liabilities, obligations, damages, penalties, claims,
costs and expenses for which Landlord shall not be reimbursed by
insurance, including reasonable attorney's fees and disbursements paid,
suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees or licensees, of any covenant or
condition of this Lease, or the carelessness, negligence or improper or
tortious conduct of Tenant, Tenant's agents, contractors, employees,
invitees, or licensees, Tenant's liability under this Lease extends to the
acts and omissions of any subtenant, and any agent, contractor, employee,
invitee or licensee of any subtenant. In case any action or proceeding is
brought against Landlord by reason of any such claim, Tenant, upon written
notice from Landlord, will, at Tenant's expense, resist or defend such
action or proceeding by counsel appointed by Tenant's insurer or by
counsel approved by Landlord in writing, such approval not to be
unreasonably withheld.
The liability of Landlord for Landlord's obligations under this Lease
shall not exceed and shall be limited to Landlord's interest in the
Buildings and the real property located at 790 Bloomfield Avenue, Clifton,
New Jersey of which it forms a part, and Tenant shall not look to any
other property or assets of Landlord in seeking either to enforce
Landlord's obligations under this Lease or to satisfy a judgment for
Landlord's failure to perform such Obligations. No other property or
assets of Landlord shall be subject to levy, execution or other
enforcement procedure.
39. LATE CHARGES AND PERFORMANCE BY LANDLORD OF TENANT OBLIGATIONS: If Tenant
shall fail to pay all or any part of any installment of the Base Monthly
Rent or Additional Rent for more than ten (10) days after the same shall
have become due and payable, Tenant shall pay as Additional Rent to
Landlord a late charge of four and one-half (4-1/2) cents for each dollar
of the amount of such rent and/or Additional Rent which shall not have
been paid to Landlord within such ten (10) days after having become due
and payable.
The late charge payable pursuant to this paragraph shall be; (a) payable
on demand and (b) without prejudice to any of Landlord's rights and
remedies hereunder or at law or in equity for
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non-payment or late payment of rent or other sum and shall be in addition
to any such rights and remedies.
No Failure by Landlord to insist upon the strict performance by Tenant of
Tenant's obligations to pay late charges as provided in this paragraph
shall constitute a waiver by Landlord of its right to enforce the
provisions of this paragraph in any instance thereafter occurring. The
provisions of this paragraph shall not be construed in any way to extend
the grace periods, if any, or notice periods provided for in any other
paragraphs of this Lease.
If the Tenant shall default in the performance of any covenant, agreement
term, provision or condition herein contained, Landlord, without thereby
waiving such default, may, but shall not be obligated to, perform the same
for the account and at the expense of Tenant without notice in the case of
emergency and in other cases if such default continues after five (5)
business days from the date of the giving by Landlord to Tenant of written
notice of such intention. Any reasonable expense incurred by Landlord in
connection with any such performance by Landlord on account of Tenant
shall be immediately due and payable by Tenant as Additional Rent under
this Lease, together with interest thereon at the rate of eighteen percent
(18%) per annum.
40. SUBORDINATION. FINANCIAL STATEMENT AND NON-DISTURBANCE CLAUSE: This Lease
is subject and subordinate to all mortgages which may now or hereafter
affect such leases or the real property of which the demised premises are
a part and to all renewals, modifications, consolidations, replacements
and extensions of any such underlying mortgages. This clause shall be
self-operative, and no further instrument of subordination shall be
required by any mortgage affecting any lease or the real property of which
the demised premises are a part. In confirmation of such subordination,
Tenant shall execute, within five (5) days of receipt, any certificate or
document that Landlord may request. Upon Tenant's failure to execute any
such certificate within said five (5) days, Tenant hereby appoints
Landlord as Tenant's irrevocable attorney-in-fact to execute any such
document on behalf of Tenant. Tenant's default hereunder shall constitute
a material default under the Lease entitling Landlord to all available
remedies including, but not limited to, termination of Tenant's interest
in and under this Lease. Upon the request of Landlord and as required by
any financial institution with which Landlord is dealing, Tenant shall
provide, at its expense, current financial statements to the Landlord,
which statements, if required, shall be submitted to Lenders in regard to
renewals, modifications, consolidations, replacements and/or extensions of
Landlord's mortgages and/or loans.
41. COMMON CHARGES:
a) In addition to the base rent, the Tenant shall pay to Landlord during
the term of this Lease the following additional rents, without deduction,
set off unless otherwise provided for purposes of the additional rents
listed in i) and ii) below the lessee's Proportionate Share shall be
10.40%.
(i) "Real Estate Taxes" - The Tenant agrees to pay as additional rent its
Proportionate Share of any and all real estate taxes assessed, imposed, or
levied against the building and land located at Block #5607 and lot 15 for
any period during the term, within five (5) days of the Landlord's
delivery of copies of any bills for same, or the Landlord's estimated bill
for same. If the Landlord bills the Tenant on an estimated basis, the
Landlord may do so monthly. Adjustments shall be made upon the landlord's
receipt of all appropriate bills. Any underpayment shall be payable by the
Tenant to the Landlord as additional rent within five (5) days after the
Landlord's delivery of any bill to the Tenant, and any overpayment shall
be credited to Tenant's next required payment of rent. The term "tax"
shall include the following; real estate taxes and all other taxes which
may be levied in lieu of or in addition to real estate taxes, assessments,
taxes on personal property owned by the Landlord and used on the building,
taxes or any other levy assessed against the Landlord on account of rent
(except for income taxes), and all other governmental charges or levies of
any kind and nature for public improvements, services or benefits which
are assessed, levied or become payable during the term of this Lease,
including any tax directly substituted for any real property taxes, and
all the cost and expenses of contesting such taxes. Any payments owed for
partial calendar years shall be calculated based on the number of months
this Lease is in effect for that calendar year. The Landlord represents to
the Tenant that real estate taxes for the calendar year 1998 are estimated
in the amount of $64,509.76 and the Tenant's Proportionate Share is 10.40%
if the lease term fully encompassed such tax year.
(ii) "Operation and Maintenance Expenses" - The Tenant shall pay to the
Landlord an amount equal to the Tenant's Proportionate Share multiplied by
the Landlord's operating and maintenance expenses in connection with the
building and land. The term "operation and
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maintenance expense" shall mean all costs of operating, maintaining and
managing the building and land on which it is located, including, but not
limited to, costs of snow removal and insurance. Any work required under
this Paragraph 41-a-(ii) which is building-wide or a replacement of a
system servicing the leased premises shall be performed by Landlord, and
Tenant shall pay its Proportionate Share in the manner determined by
multiplying such expenses by a fraction, the numerator of which is the
number of years of the Term remaining ("Balance of Term") (including any
exercised renewal), and the denominator of which is the item's useful life
("Useful Life") for depreciation purposes pursuant to Internal Revenue
Code Regulations, as amended. For Example, if at the commencement of the
third year of a six year Lease, the Landlord is required to install an
additional sprinkler system throughout the Building at a cost of
$40,000.00 and a Useful Life of 20 years, and Tenant's Proportionate Share
is 35 % the amount Tenant shall pay for such installation, shall be as
follows:
Proportionate Share x (Balance of Term x Cost)=
-----------------------------------------------
Useful Life
35% x (3 years) x $40,000=
--------------------------
20 years
35% x (.15 x $40.000) = $2,100.00
If Tenant exercises the option in Paragraph 46, an additional cost of
$5,600.00 (calculated as [3 years + 5 years/20 years] x $40,000 x 35%)
shall be due on renewal.
b) Tenant agrees to pay as additional rent its proportionate share of
standby fire line charges.
c) The provisions of this paragraph 41 shall survive termination of this
Lease.
42. BROKERS: Tenant represents and warrants that it has not dealt with any
broker in connection with this Lease, other than Cupo Realty Company, Inc.
and Tenant does hereby agree to indemnify and hold Landlord harmless from
and against any and all loss, costs, damage or expense (including, without
limitation, brokerage commissions or finder's fee claims or other
compensation, and attorney's fees and disbursements) which may be incurred
by the Landlord by reason of any claim of or liability to any other broker
or entity who shall claim to have dealt with the Tenant in connection with
this lease.
43. INSURANCE: In addition to the insurance provisions set forth in paragraph
8 of this Lease, the Landlord shall keep the building, of which the
demised premises is a part, insured against fire, accident or other
damage, all risk at replacement cost. Tenant, as additional rental, and as
provided above, shall reimburse the Landlord for cost of such insurance to
the extent it is increased because of Tenant's use of the demised
premises. It is understood and agreed that the Tenant shall, at its own
expense, insured its fixtures, equipment, furnishings and other personal
effects at the demised premises and that the Landlord shall have no
Liability thereof or for any loss or damage thereto.
The Tenant's insurance policy pursuant to paragraph 8 of the Lease shall
contain the express provisions naming Landlord as an insured party in
stating that (a) no act or omission of the Tenant shall affect or limit
the obligation of the insurance company to pay the amount of any loss
sustained; and (b) such policy shall be non-cancellable or terminate with
respect to the Landlord without 30 days prior notice to the Landlord by
certified mail, return receipt requested, which notice shall contain the
policy number and the names of the insured and certificate holder.
Landlord represents that it maintains general liability insurance covering
the leased premises in amounts customary for similar businesses.
44. ASSIGNMENT SUBLEASING: Paragraph 9 of the Lease is modified as follows:
(a) This Lease may not be subleased or assigned, without the prior written
consent of the Landlord, which consent shall not be unreasonably withheld
or delayed. The Tenant shall notify the Landlord in writing of the
proposed assignment or sublease, which notice shall include the names of
the proposed assignee or sub lessee (if not a public corporation, the
names of all shareholders or partners); a detailed description of the
nature of the business of the proposed assignee or sub lessee; a detailed
description of all terms and conditions of the proposed assignment or
sublease; and financial statements of the proposed assignee or sub lessee.
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(b) The Landlord shall have the right to reject the sublease or assignment
if it is not reasonably satisfied with the financial condition of any
proposed assignee or sub lessee and/or the terms and conditions of any
proposed assignment or sublease.
(c) Any and all consideration received by the Tenant from the proposed
assignee or sublease shall be paid to the Landlord to the extent rent is
due under this lease.
(d) Not-with-standing the Landlord's consent to the proposed assignment or
sublease, the Tenant shall remain liable for all obligations arising under
this Lease; and
(e) Not-with-standing the forgoing, upon receipt of the written notice
from the Tenant of its intention to assign or sublease the entire portion
of the leased premises which has not been previously sublet or assigned,
the Landlord shall have 15 days in which to elect to recapture the entire
leased premises and release the Tenant from its future obligations under
this Lease, except for any obligation which has accrued or is intended to
survive termination of this Lease.
45. (DELETED)
46. RENEWAL TERM: The Tenant shall have the right, to be exercised as
hereinafter provided, to renew the term of this lease for one (1) period
of Five (5) years on the following terms and conditions:
(a) No default by Tenant is existing or continuing in the performance of
any of the terms of this Lease and no event has occurred which with the
giving of notice or passage of time, or both, would constitute an event of
default.
(b) The renewal term shall be on the same terms, covenants and conditions
as provided in this lease, with exception of rental payments.
(c) The Tenant shall exercise its right to renew in the following manner:
at least six (6) months prior to the expiration of the initial term, the
Tenant shall notify the Landlord in writing, by certified mail, return
receipt requested, of its election to exercise the right to renew the
terms of this Lease for the renewal term. Time is of the essence with
respect to exercising of this right. Upon the Landlord's receipt of such
notice of election, this lease and the terms thereof, subject to the term
of this provision shall be deemed to be renewed for a period of five (5)
years from the date of expiration of the initial terms without the
execution of any further lease or instrument.
(d) The annual rent for the first year and all subsequent years of the
renewal term shall be established in accordance with Fair Market rental
for comparable commercial properties at the expiration of the initial
term. In the event the Landlord and the Tenant are unable to negotiate a
fair market rental for the renewal term, the Landlord and Tenant each
shall select a licensed appraiser, who shall then select a mutually
agreeable third licensed appraiser and they collectively shall establish
fair market rental for the renewal period, which determination shall be
binding upon both the Landlord and the Tenant. Notwithstanding the above,
rent for the renewal term shall not be less than the rent paid in the
final year of the initial lease period.
(e) The Landlord and the Tenant, respectively, shall be responsible for
the fees and expenses of the appraiser they have selected under paragraph
(d) herein. The Landlord and the Tenant shall share equally the fees and
expenses of the third appraiser.
47. CERTIFICATE OF OCCUPANCY: The Tenant, at it's own cost and expense, shall
apply for a Certificate of Occupancy from the City of Clifton to operate
its business on the leased premises. The Tenant shall diligently take all
steps required to obtain a Certificate of Occupancy. The Landlord shall
cooperate with the Tenant, at the Tenant's expense, to the extent
necessary; to perfect any applications required to obtain a Certificate of
Occupancy, including the execution of all papers and documents pertaining
thereto. Landlord shall make any repairs necessary to obtain the
Certificate of Occupancy except the repair or installation of improvements
specifically required because of the operation of the tenant's business.
8
<PAGE>
48. ACCESS: The Landlord shall be entitled to access to the leased premises,
upon reasonable notice to the Tenant, to conduct appraisals, environmental
tests and environmental clean-up or remediation.
49. RESTRICTIONS ON USE: The Tenant shall not do or permit anything to be done
in or about the leased premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the building or
injure or annoy them, or use or allow the leased premises to be used for
any immoral, unlawful objectionable purposes. No loudspeakers or other
similar device, system or apparatus which can be heard outside the leased
premises shall, without the prior written approval of the Landlord, be
used in or at the leased premises. The Tenant shall not commit, or suffer
to be committed, any waste upon the leased premises or any nuisance
(public or private) or other act or thing of any kind whatsoever that may
disturb the quiet enjoyment or cause unreasonable annoyance of any other
tenant in the building.
50. COMPLIANCE WITH LAWS: The landlord represents that to the best of its
knowledge, it has not received notice of any violation of any law,
regulation or ordinance affecting the leased premises.
51. ADDITIONAL AGREEMENT: Landlord shall allow tenant access into the leased
premises prior to the commencement date for the purpose of installing
equipment. However, tenant shall provide all insurance coverage required
under this lease, as a condition to obtain access to the lease premises.
52. The Floor Plan contained in Schedule "B" is amended to reflect that a
kitchen sink and cabinets are to be installed in the dining room.
IN WITNESS WHEREOF, this Rider to Lease has been executed on behalf of the
Landlord and Tenant on March, 6th 1998.
WITNESS: 580 BRIGHTON ROAD ASSOCIATES
/s/ [ILLEGIBLE] BY: /s/ Thomas A. Cupo
- ------------------------ -------------------------------------
Thomas A. Cupo
Managing General Partner
ATTEST: ECSI INTERNATIONAL
BY: /s/ Arthur Birch
- ------------------------ -------------------------------------
Arthur Birch
President
9
Exhibit No. 10.5
Lease Agreement with The Theta Group for space in Huntsville, Alabama
<PAGE>
REAL ESTATE LEASE
This Lease Agreement (this "Lease") is made effective as of May 1, 1997, by and
between Theta Group, Inc., ("Landlord"), and ECSI-FOIDS, Inc. ("Tenant"). The
parties agree as follows:
PREMISES. Landlord, in consideration of the lease payments provided in this
Lease, leases to Tenant the office on the NW corner of the property, the
manufacturing area on the SW corner of the property, and the office adjacent to
the break room. Also, upon availability the office immediately outside the
manufacturing area space. In addition, ECSI will have full access to the loading
dock, use of the fork lift (for trained personnel only), a facsimile machine,
and a copier. Theta will also provide receptionist services to answer the ECSI
phone lines. Secretarial services are provided and will be billed separately on
a monthly basis, (the "Premises") located at 260 Finney Drive, Huntsville, AL
35824.
A sketch of the Premises subject to this Lease is attached as an exhibit.
TERM. The lease term will begin on May 1, 1997 and will terminate on April 30,
1999.
LEASE PAYMENTS. Tenant shall pay to Landlord monthly payments of $1,400.00 per
month, payable in advance on the first day of each month, for a total annual
lease payment of $16,800.00. Lease payments shall be made to the Landlord at 260
Finney Drive, Huntsville, AL 35824, as may be changed from time to time by
Landlord.
LATE PAYMENTS. Tenant shall pay a late fee equal to $46.67 per day, beginning
with the day after the due date for each payment that is not paid within 5 days
after the due date for such late payment.
NON-SUFFICIENT FUNDS. Tenant shall be charged $20.00 for each check that is
returned to Landlord for lack of sufficient funds.
POSSESSION. Tenant shall be entitled to possession on the first day of the term
of this Lease, and shall yield possession to Landlord on the last day of the
term of this Lease, unless otherwise agreed by both parties in writing.
USE OF PREMISES. Tenant may use the Premises only for the purpose of
manufacturing security systems and associated equipment. The Premises may be
used for any other purpose only with the prior written consent of Landlord,
which shall not be unreasonably withheld. Tenant shall notify Landlord of any
anticipated extended absence from the Premises not later than the first day of
the extended absence.
<PAGE>
MAINTENANCE. Tenant shall have the responsibility to maintain the Premises in
good repair at all times.
ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent (which shall not be
unreasonably withheld), Landlord shall have the right to enter the Premises to
make inspections, provide necessary services, or show the unit to prospective
buyers, mortgagees, tenants or workers. As provided by law, in the case of an
emergency, Landlord may enter the Premises without Tenant's consent.
UTILITIES AND SERVICES. Tenant shall be responsible for the following utilities
and services in connection with the Premises:
- - telephone service
- - Any special services not covered by this agreement.
Tenant acknowledges that Landlord has fully explained to Tenant the utility
rates, charges and services for which Tenant will be required to pay (if any),
other than those to be paid directly to the utility company furnishing the
service.
Landlord shall be responsible for the following utilities and services in
connection with the Premises:
- - electricity
- - water and sewer
- - gas
- - heating
- - garbage and trash disposal
- - janitorial services
PROPERTY INSURANCE. Landlord and Tenant shall each be responsible to maintain
appropriate insurance for their respective interests in the Premises and
property located on the Premises.
INDEMNITY REGARDING USE OF PREMISES. Tenant agrees to indemnify, hold harmless,
and defend Landlord from and against any and all losses, claims, liabilities,
and expenses, including reasonable attorney fees, if any, which Landlord may
suffer or incur in connection with Tenant's use or misuse of the Premises.
DANGEROUS MATERIALS. Tenant shall not keep or have on the Premises any article
or thing of a dangerous, inflammable, or explosive character that might
substantially increase the
Page 2 of 5
<PAGE>
danger of fire on the Premises, or that might be considered hazardous by a
responsible insurance company, unless the prior written consent of Landlord is
obtained and proof of adequate insurance protection is provided by Tenant to
Landlord.
MECHANICS LIENS. Neither the Tenant nor anyone claiming through the Tenant shall
have the right to file mechanics liens or any other kind of lien on the Premises
and the filing of this Lease constitutes notice that such liens are invalid.
Further, Tenant agrees to (1) give actual advance notice to any contractors,
subcontractors or suppliers of goods, labor, or services that such liens will
not be valid, and (2) take whatever additional steps that are necessary in order
to keep the premises free of all liens resulting from construction done by or
for the Tenant.
DEFAULTS. Tenant shall be in default of this Lease, if Tenant fails to fulfill
any lease obligation or term by which Tenant is bound. Subject to any governing
provisions of law to the contrary, if Tenant fails to cure any financial
obligation within 90 days (or any other obligation within 90 days) after written
notice of such default is provided by Landlord to Tenant, Landlord may take
possession of the Premises without further notice, and without prejudicing
Landlord's rights to damages. In the alternative, Landlord may elect to cure any
default and the cost of such action shall be added to Tenant's financial
obligations under this Lease. Tenant shall pay all costs, damages, and expenses
suffered by Landlord by reason of Tenant's defaults. All sums of money or
charges required to be paid by Tenant under this Lease shall be additional rent,
whether or not such sums or charges are designated as "additional rent".
ASSIGNABILITY/SUBLETTING. Tenant may not assign or sublease any interest in the
Premises, nor effect a change in the majority ownership of the Tenant (from the
ownership existing at the inception of this lease), without the prior written
consent of Landlord, which shall not be unreasonably withheld.
TERMINATION UPON SALE OF PREMISES. Notwithstanding any other provision of this
Lease, Landlord may terminate this lease upon 60 days written notice to Tenant
that the Premises have been sold.
NOTICE. Notices under this Lease shall not be deemed valid unless given or
served in writing and forwarded by mail, postage prepaid, addressed as follows:
LANDLORD:
Name: Theta Group, Inc.
Address: 260 Finney Drive
Huntsville, AL
35824
Page 3 of 5
<PAGE>
TENANT:
Name: ECSI-FOIDS, Inc.
Address: 23 Jost Road
Fairfield, NJ
07004
Such addresses may be changed from time to time by either party by providing
notice as set forth above.
ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire agreement
of the parties and there are no other promises or conditions in any other
agreement whether oral or written. This Lease may be modified or amended in
writing, if the writing is signed by the party obligated under the amendment.
SEVERABILITY. If any portion of this Lease shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Lease is
invalid or unenforceable, but that by limiting such provision, it would become
valid and enforceable, then such provision shall be deemed to be written,
construed, and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of this Lease
shall not be construed as a waiver or limitation of that party's right to
subsequently enforce and compel strict compliance with every provision of this
Lease.
CUMULATIVE RIGHTS. The rights of the parties under this Lease are cumulative,
and shall not be construed as exclusive unless otherwise required by law.
GOVERNING LAW. This Lease shall be construed in accordance with the laws of the
State of AL.
ADDITIONAL PROVISIONS. The lease payments shall increase to $1,550.00 per month
upon occupancy of the office space immediately outside the manufacturing area.
This additional space is expected to become available no later than September 1,
1997.
Page 4 of 5
<PAGE>
LANDLORD:
Theta Group, Inc.
/s/ Robert Burt
- -------------------------------
Robert S. Casebolt, or Bob Burt
TENANT:
ECSI-FOIDS, Inc.
/s/ Larry Porter
- -------------------------------
Mr. Larry Porter
Page 5 of 5
Exhibit No. 10.6
Teaming agreement with Rafael Armament Development Authority
<PAGE>
TEAMING AGREEMENT
Agreement made the 3rd day of FEB 1998, by and between ECSI International, Inc.,
23 Just Road, Fairfield, New Jersey 07004 USA, (hereinafter "ECSI") and RAFAEL
Armament Development Authority, P.O. Box 2250, Haifa, Israel (hereinafter
"RAFAEL").
WHEREAS RAFAEL is the developer of GAMMA 2000, Pre-emptive Intrusion Prevention
System (hereinafter "System") retains rights therein, including but not limited
to patents pending, and
WHEREAS, ECSI is in the Security Business with expertise in Infrared Perimeter
Intrusion Detection (IPID)systems, Fiber Optic Intelligence Detection Systems
(FOIDS), and the marketing and sales thereof to military and paramilitary forces
in the United States and worldwide; and
WHEREAS, in the manner described in this Agreement, the parties desire to team
together on an exclusive basis for the United States for the purpose of
marketing and selling the System; and
WHEREAS the parties desire to define and record the terms and conditions of
their teaming arrangement.
NOW THEREFORE, in consideration of the terms, conditions and mutual covenants
herein contained, the parties hereto agree as follows:
1. Preamble and Annexes
The preamble to this Teaming Agreement and all annexes attached hereto
form an integral part hereof.
2. Formation and Purpose
2.1 The parties hereby associate themselves together and team up on an
exclusive basis for the purpose of marketing and selling the System
in the United States. Further, in conjunction with this purpose, the
parties shall prepare proposals for submission to prospective
purchasers of the System. Nothing herein shall be deemed to confer
any rights or impose any obligation or restriction on either party,
except as set forth in this Teaming Agreement.
/s/ J.N.
1
<PAGE>
2.2 Each party shall bear its own costs and expenses arising out of the
fulfillment of the terms of this Teaming Agreement. RAFAEL and ECSI
shall at all times remain independent contractors and the team shall
not constitute a joint venture, partnership or other business
association. Nothing contained in this Agreement shall be construed
as providing for the sharing of profits or losses arising out of the
efforts of the parties hereunder.
3. Marketing of the System and Division of Responsibilities
3.1 ECSI shall be responsible for the creation of marketing
opportunities for the System and shall acquire Request for Proposals
for the System in the United States (hereinafter "RFP"). ECSI shall
deliver copies of the RFP to RAFAEL and recommend actions by RAFAEL
for the preparation and submittal of the proposals for the System to
prospective purchasers in the United States.
3.2 Unless otherwise agreed by the parties, ECSI shall act as the
Contractor to the purchaser and RAFAEL shall act as ESCI's supplier
in connection with the projects arising from the RFPs proposals
pursuant to the provisions of Clause 3.1 (when agreed upon by ESCI
and RAFAEL), and in accordance with the workshare as set forth
below.
3.3 ECSI shall lead all marketing efforts for the System in the United
States. RAFAEL shall assist ECSI in the marketing of the System in
the United States in accordance with an agreed marketing plan to be
developed within 3 months of the date of this Agreement. In
accordance with the aforesaid marketing plan each party will make
available appropriate management and technical personnel for
meetings and other contacts with the prospective purchaser of the
System in an effort to win contract award. Each party shall provide
relevant marketing information to the other so as to assist in the
marketing effort.
/s/ J.N.
/s/ [ILLEGIBLE]
3.4 The workshare division of responsibilities between the parties shall
be in accordance with the following principles:
a) The System is assembled from several Sub-Systems:
b) RAFAEL shall produce all the Sub-Systems and provide the
technical support required for the System, and ECSI shall
provide application engineering, site design, System assembly
and installation, testing, field supervision, maintenance and
training in relation to the System.
c) In accordance with a training plan and license, which shall be
attached hereto as Annex B, RAFAEL shall provide training
/s/ J.N.
2
<PAGE>
material and train ESCI personnel and license ECSI for the
purpose of final System assembly and testing, installation and
field testing, maintenance and provision of training in
relation to the System.
4. Proposal Preparation and Subcontract Negotiation
4.1 In response to an RFP or where the parties have agreed to submit an
unsolicited proposal to a prospective purchaser; ESCI shall prepare
it's part of the proposal (based on its workshare) and shall be
responsible for the integration of the RAFAEL Proposal (see Clause
4.2, below) and the submission of the integrated proposal to the
prospective purchaser (hereinafter "Proposal"). In addition, ESCI
shall present to RAFAEL for review and comment the Proposal prior to
its submission to the prospective purchaser. Finally, a copy of the
Proposal actually submitted to the prospective purchaser shall be
provided by ESCI to RAFAEL.
4.2 RAFAEL shall prepare that part of the proposal relating to its
assigned workshare (hereinafter, "RAFAEL Proposal"). ESCI shall
identify RAFAEL in the Proposal, and in all negotiations and
discussions in connection thereto, as its team member and the
respective areas of responsibility of the parties. ESCI shall not
make any changes to the RAFAEL Proposal without RAFAEL's prior
written approval.
4.3 In order to accomplish the purpose of this Agreement it may be
necessary for the parties to exchange between them proprietary
information. Proprietary Information shall be treated in accordance
with the Non Disclosure Agreement signed between the parties and
attached to this Agreement as Annex A. The Non Disclosure Agreement
shall survive the termination or expiration of this Agreement.
4.4 Negotiations shall be led by ESCI, but RAFAEL shall have the right
to actively participate in all such negotiations. ESCI shall not
enter into a Contract based on a Proposal prior to the agreement of
ESCI and RAFAEL as to its terms.
4.5 Upon the award of a Contract based on a Proposal, ESCI shall issue
and RAFAEL shall accept a contract which shall be flow down from the
obligations contained in the Contract and which shall be based on
the RAFAEL Proposal to the extent included in the Contract.
4.6 Each party shall bear its own costs and expenses in preparation and
presentation of a proposal, and subsequent contract negotiations.
/s/ J.N.
3
<PAGE>
5. Exclusivity
The parties hereto agree that during the term of this Teaming Agreement,
neither party will participate in any other team efforts, or assist in any
way, directly or indirectly, any competitor in the Preemptive Intrusion
Prevention System area in the United States.
6. Validity, Duration and Termination
6.1 This Teaming Agreement shall be effective as of the date of the last
party to sign said Agreement and shall be valid for a period of
three (3) years therefrom, but shall be extended for the period of
the validity of any Proposal issued in accordance with the terms of
this Agreement with respect to said Proposal only. The Agreement
shall be extended for another period of three (3) years is RAFAEL's
sales volume in the first three (3) years period will reach the
amount agreed upon in the marketing plan.
/s/ J.N.
/s/ [ILLEGIBLE]
6.2 Notwithstanding the aforesaid, this Agreement may be terminated by
either party under any of the following circumstances:
(i) In the event the other party ceases to conduct its operations
in the normal course of business, or if a proceeding under any
bankruptcy or insolvency law is brought by or against that
party, or if a receiver for said party is appointed or applied
for, or shall commence winding-up by reason of insolvency or
shall make assignment for the benefit of creditors; or
(ii) In the event that one party hereto shall be in breach of any
material obligation hereunder and shall, after having received
written notice from the other party, fail within thirty (30)
days of receipt of such notice to remedy such breach.
(iii) In the event the parties cannot agree on the terms of the ECSI
training plan and license within 120 days from signature of
this Agreement.
7. Notices and Correspondence
Any notice, consent, demand or request, required or permitted by this
Agreement, shall be in writing, and shall be given, and deemed to have
been given, as follows: when personally delivered, upon date of delivery;
or when mailed, ten (10) days after deposit in the United States mail or
Israeli mail, respectively, postage prepaid, registered, return receipt
requested; or when telefaxed, upon receipt of answer-back confirmation;
all addressed as follows:
/s/ J.N.
4
<PAGE>
RAFAEL ARMAMENT DEVELOPMENT AUTHORITY
P.O. Box 2250
Haifa, Israel
Attn:
Telefax:
ECSI
23 Just Road
Fairfield, NJ 07004
USA
Attn:
Telefax:
All correspondence and communication between the parties shall be in the
English language.
8. Governing Law and Dispute Resolution
8.1 This Teaming Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to
the State's conflict of laws principles.
8.2 Any and all disputes arising under or related to this Agreement
shall be referred to the Head of the RAFAEL Platforms Directorate
and the President of ECSI for amicable resolution. In the event that
the parties cannot so amicably resolve said dispute then the matter
shall be resolved by final and binding arbitration, pursuant to the
then rules and regulations of the American Arbitration Association
(AAA) in New York, New York, USA.
9. Miscellaneous
9.1 Neither party to this Teaming Agreement shall have the right to bind
or to make commitments or obligations of any kind for or on behalf
of the other party without the prior written consent of the other
party.
9.2 This Teaming Agreement is severable so that any term or provision
hereof which is held by a Court having competent jurisdiction
thereof to be void or illegal under applicable law shall not affect
the validity and enforceability of the remainder of said Agreement.
/s/ J.N.
5
<PAGE>
9.3 Neither party shall sell, assign, or in any manner transfer its
rights, duties or obligations under this Teaming Agreement without
obtaining prior written consent of the other party, which shall not
be unreasonably withheld. Notwithstanding the aforesaid RAFAEL shall
be entitled to assign its obligations to RAFAEL Armament Development
Ltd.
9.4 Titles of articles in this Teaming Agreement are for reference only
and shall not be construed in determining the intent or construction
of such articles.
9.5 Any failure of either party to enforce any provision of this
Agreement shall not constitute a waiver of such provision or
prejudice the right of that party to enforce said provision at any
subsequent time.
10. Complete Agreement
This Teaming Agreement expresses the complete, final and only agreement of
the parties as of the date of signature hereof, and hereby supersedes any
and all previous agreements, undertakings or understandings (whether
written, oral or implied) between the parties relating to the subject
matter of this Teaming Agreement. This Agreement may be varied or modified
only by an instrument in writing of subsequent date hereto duly executed
by authorized representatives of the parties.
IN WITNESS WHEREOF THE PARTIES HAVE SET THEIR HANDS:
The State of Israel/ ECSI International, Inc.
Ministry of Defense/
Armament Development
Authority - RAFAEL
By By /s/ Arthur Birch
Name Name ARTHUR BIRCH
Title Title PRES. + CEO
Date Date 2-3-98
By
Name
Title
Date
/s/ J.N.
6
Exhibit No. 23.1
Consent of Demetrius & Company, L.L.C.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on form 10-Sb of our
report dated October 22, 1999, on our audits of the consolidated financial
statements of Electronic Control Security, Inc. We also consent to the
references to our firm under the caption "Experts".
/s/ DEMETRIUS & COMPANY, L.L.C.
Wayne, New Jersey
March 13, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,032
<SECURITIES> 0
<RECEIVABLES> 65,890
<ALLOWANCES> 0
<INVENTORY> 672,302
<CURRENT-ASSETS> 835,534
<PP&E> 394,069
<DEPRECIATION> (196,200)
<TOTAL-ASSETS> 1,577,196
<CURRENT-LIABILITIES> 895,613
<BONDS> 0
0
0
<COMMON> 3,474
<OTHER-SE> (98,830)
<TOTAL-LIABILITY-AND-EQUITY> 1,577,196
<SALES> 2,146,722
<TOTAL-REVENUES> 2,151,898
<CGS> 1,015,758
<TOTAL-COSTS> 1,990,098
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,069
<INCOME-PRETAX> 161,800
<INCOME-TAX> (25,200)
<INCOME-CONTINUING> 187,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 187,000
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
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