<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _______ to _________
Commission file number: 000-28112
MOTORVAC TECHNOLOGIES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
STATE OF DELAWARE 33-0522018
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1431 S. VILLAGE WAY
SANTA ANA, CALIFORNIA 92705
(Address of Principal Executive Offices)
(714) 558-4822
(Issuer's Telephone Number, Including Area Code)
N/A
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Title Date Outstanding
Common Stock, $.01 par value June 30, 1999 4,491,437
Transitional Small Business Disclosure Format (check one);
Yes [ ] No [X]
<PAGE> 2
Part I. Financial Information
Item I. Financial Statements
MOTORVAC TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,657,053 $ 1,632,605
Accounts Receivable, net of allowance for doubtful accounts
of $78,416 (June 30, 1999) and $84,662 (December 31, 1998) 1,768,802 866,357
Inventories, net of reserve of $325,782 (June 30, 1999)
and $63,099 (December 31, 1998) 1,847,058 1,667,333
Other Current Assets - (including deposits with vendors of $145,858 at
June 30, 1999, and $196,030 at December 31, 1998) 266,073 275,245
------------ ------------
Total Current Assets 5,538,986 4,441,540
PROPERTY AND EQUIPMENT, net 330,468 242,666
INTANGIBLE ASSETS, net of accumulated amortization of
$1,353,637 (June 30, 1999) and $1,185,155 (December 31, 1998) 570,806 639,288
OTHER ASSETS 17,227 17,227
------------ ------------
$ 6,457,487 $ 5,340,721
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Other Current Liabilities $ 1,288,707 $ 954,567
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 10,000,000 shares authorized;
4,491,437 issued and outstanding (June 30, 1999) and 4,453,918 (Dec. 31, 1998) 44,914 44,539
Additional paid-in capital 16,509,957 16,467,788
Employee Stock Loans (80,783) (78,432)
Accumulated Deficit (11,305,308) (12,047,741)
------------ ------------
Total Stockholders' Equity 5,168,780 4,386,154
------------ ------------
$ 6,457,487 $ 5,340,721
============ ============
</TABLE>
(See Accompanying Notes to Financial Statements)
<PAGE> 3
MOTORVAC TECHNOLOGIES, INC.
Statements of Operations
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
NET SALES $4,229,398 $2,494,464 $8,283,158 $5,578,079
COST OF SALES $2,553,852 1,400,782 $5,163,282 3,120,993
----------- ----------- ---------- -----------
GROSS PROFIT 1,675,546 1,093,682 3,119,876 2,457,086
OPERATING EXPENSES $ 1,235,055 1,375,509 $2,405,823 2,687,729
----------- ----------- ---------- -----------
OPERATING INCOME (LOSS) 440,491 (281,827) 714,053 (230,643)
INTEREST INCOME, NET $ 17,100 14,994 $ 28,458 31,240
----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 457,591 (266,833) 742,511 (199,403)
INCOME TAX (BENEFIT) PROVISION $ (972) 2,150 $ 78 5,650
----------- ----------- ---------- -----------
NET INCOME (LOSS) $ 458,563 $ (268,983) $ 742,433 $ (205,053)
=========== =========== ========== ===========
BASIC EARNINGS (LOSS) PER SHARE $ 0.10 $ (0.06) $ 0.17 $ (0.05)
=========== =========== ========== ===========
WEIGHTED AVERAGE SHARES USED TO CALCULATE BASIC
EARNINGS (LOSS) PER SHARE 4,491,437 4,517,918 4,478,178 4,514,918
=========== =========== ========== ===========
DILUTED EARNINGS (LOSS) PER SHARE $ 0.10 $ (0.06) $ 0.16 $ (0.05)
=========== =========== ========== ===========
WEIGHTED AVERAGE SHARES USED TO CALCULATE DILUTED
EARNINGS (LOSS) PER SHARE 4,532,909 4,517,918 4,503,389 4,514,918
=========== =========== ========== ===========
</TABLE>
(See Accompanying Notes to Financial Statements)
<PAGE> 4
MOTORVAC TECHNOLOGIES, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 458,563 $ (268,983) 742,433 $ (205,053)
Adjustments to reconcile net income (loss) to net cash provided by:
used in operating activities:
Depreciation and amortization 126,797 104,352 239,396 209,029
Loss (gain) on disposal of fixed assets (15,353) 34,647
Net change in operating assets and liabilities:
Accounts receivable 683,824 859,354 (902,445) 500,457
Inventories 278,528 (599,780) (179,725) (543,607)
Other Current Assets 114,227 85,537 9,172 (474)
Accounts payable and other current liabilities (873,222) 145,617 334,140 76,398
----------- ----------- ----------- -----------
Net cash provided by operating activities 773,364 326,097 277,618 36,750
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (67,843) (28,712) (193,397) (70,125)
Purchase of Intangible Assets (99,966) (99,966)
----------- ----------- ----------- -----------
Net cash used in Investing activities (167,809) (28,712) (293,363) (70,125)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock 31,544 42,544
Advances to employees for stock purchases (1,191) (12,073) (2,351) (30,003)
Net (repayment) borrowing on line of credit (650,000) (240,000) 0 85,000
----------- ----------- ----------- -----------
Net cash provided by financing activities (619,647) (252,073) 40,193 54,997
----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (14,092) 45,312 24,448 21,622
CASH AND CASH EQUIVALENTS, beginning of period 1,671,145 1,641,430 1,632,605 1,665,120
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,657,053 $ 1,686,742 $ 1,657,053 $ 1,686,742
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 5,672 $ 3,360 $ 9,819 $ 10,679
=========== =========== =========== ===========
Income taxes paid $ 3,850 $ 1,050 $ 7,200
=========== =========== =========== ===========
</TABLE>
(See Accompanying Notes to Financial Statements)
<PAGE> 5
Notes to Unaudited Financial Statements
(for the Three- and Six-Month Periods Ended June 30, 1999):
1. Basis of Presentation
The information set forth in these financial statements as of June 30,
1999 is unaudited and may be subject to normal year-end adjustments. In
the opinion of management, the unaudited financial statements reflect
all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of MotorVac
Technologies, Inc. (the "Company" or "MTI") for the period indicated.
Results of operations for the interim three- and six-month periods ended
June 30, 1999 are not necessarily indicative of the results of
operations for the full fiscal year.
Certain information normally included in footnote disclosures to the
financial statements has been condensed or omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
2. Inventories
Inventories, which include materials, supplies, labor and manufacturing
overhead, are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Materials and supplies $ 1,178,835 $ 878,548
Work in process 31,903 45,731
Finished product 962,102 806,153
Reserve (325,782) (63,099)
----------- -----------
$ 1,847,058 $ 1,667,333
=========== ===========
</TABLE>
3. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," applicable to entities with other comprehensive
income. This pronouncement was effective for the year beginning January
1, 1998. The Company had no items of other comprehensive income, as
defined, for the three- or six-month periods ended June 30, 1999.
<PAGE> 6
4. Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information," which requires that the Company report certain information
about operating segments. This pronouncement was effective for the year
beginning January 1, 1998.
Approximately 72% and 71% of the Company's net sales were made to one
customer during the three months ended June 30, 1999 and 1998,
respectively, and 73% and 79% for the six-month periods ending June 30,
1999 and 1998, respectively.
The Company sells its products through distributors in the domestic
(defined as U.S. and Canada) and the international marketplace. The
Company sells three types of products (percentages of sales for the six
months ended June 30, 1999 and 1998 are indicated): vehicle engine
decarbonizing machines (35% and 42%), detergent for use in the
decarbonizing machines (15% and 20%), and vehicle transmission flush
machines (47% and 34%); an additional 3% of sales is for machine parts.
The sales process is structured geographically between domestic and
international sales. All machine products are produced at, or
distributed from, the same plant. The Company's major customers
typically purchase all three product types. The Company uses information
based on products and geographic location; however, the business
activities are managed as a single segment. For the three and six months
ended June 30, 1999 and 1998, net sales by region were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998
------------------ ------------------
<S> <C> <C>
North America $3,903,998 $1,790,727
South and Central America 95,518 31,623
Europe 80,486 280,226
Middle East and Africa 4,953 22,430
Asia 144,443 369,458
---------- ----------
$4,229,398 $2,494,464
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998
---------------- ----------------
<S> <C> <C>
North America $7,714,758 $4,099,342
South and Central America 148,525 102,165
Europe 103,369 376,140
Middle East and Africa 21,213 34,846
Asia 295,293 965,586
---------- ----------
$8,283,158 $5,578,079
========== ==========
</TABLE>
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
MotorVac Technologies, Inc. (the "Company") designs, develops,
assembles, markets and sells the MotorVac CarbonClean System for the diagnosis,
maintenance and repair of internal combustion engine fuel systems, the TRANSTECH
System for the replacement of automatic transmission fluid, and the Leakchek
System for diagnosing fluid and vapor leaks. The Company's Automotive Solutions
division markets and sells the Carbon Tune System for the rapid cleaning of
engine fuel systems, primarily for the automotive aftermarket quick service
industry, and the TRANSTECH System to National accounts. The Company markets and
sells its machines and detergents through various distribution channels, both in
the United States and Canada ("Domestic") under the trade names MotorVac,
TRANSTECH and Carbon Tune, and outside the United States and Canada
("International") under the trade name CarbonClean.
The following discussion and analysis addresses the results of the
Company's operations for the three- and six-month periods ended June 30, 1999,
as compared to the Company's results of operations for the same periods ended
June 30, 1998.
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
the Company intends that such forward-looking statements be subject to the safe
harbors created thereby. The Company may experience significant fluctuations in
future operating results due to a number of factors, including, among other
things, the size and timing of customer orders, new or increased competition,
delays in new product enhancements and new product introductions, quality
control difficulties, changes in market demand, market acceptance of new
products, product returns, seasonality in product purchases by distributors and
end users, pricing trends in the automotive after-market industry in general and
in the specific markets in which the Company is active, as well as those
discussed in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998, as filed with the Securities and Exchange Commission. Any of
these factors could cause operating results to vary significantly from prior
periods. Significant variability in orders during any period may have a material
adverse impact on the Company's cash flow or work flow, and any significant
decrease in orders could have a material adverse impact on the Company's results
of operations and financial condition. As a result, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as any indication of future
performance. Fluctuations in the Company's operating results could cause the
price of the Company's Common Stock to fluctuate substantially.
Assumptions relating to the foregoing involve judgments with respect to,
among other things, future economic, competitive and market conditions, all of
which are difficult or impossible to predict accurately, and many of which are
beyond the control of the Company. In addition, the business and operations of
the Company are subject to substantial risks which increase the uncertainty
inherent in the forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1999 and 1998
Net Sales. Net sales for the three months ended June 30, 1999 increased
$1,734,934 (approximately 70%) to $4,229,398 from $2,494,464 for the three
months ended June 30, 1998. This sales increase was due
<PAGE> 8
primarily to higher domestic sales of gas and TRANSTECH machines, and to sales
from the Automotive Solutions division, which had nominal revenues in 1998,
partially offset by a decrease in international sales.
For the three months ended June 30, 1999, Domestic sales were
approximately $3,148,000, International sales were approximately $380,000 and
Automotive Solutions sales were approximately $701,000. For the three months
ended June 30, 1998, Domestic sales were approximately $1,782,000, International
sales were approximately $704,000, and Automotive Solutions' sales were
approximately $8,000. International sales declined due to a slowdown in certain
international economies, primarily in the Far East region; Domestic sales
increased due to growth in TRANSTECH sales, which benefited from an updated
model which provides enhanced capability.
Cost of Sales. Cost of sales for the three months ended June 30, 1999
increased by $1,153,070 (approximately 82%) to $2,553,852 from $1,400,782 for
the three months ended June 30, 1998. The primary reason for the increase was
increased costs related to the sales increases described above; also
contributing to the increase was product mix and increased inventory reserve
costs discussed under Gross Profit.
Gross Profit. Gross profit for the three months ended June 30, 1999
increased by $581,864 to $1,675,546 from $1,093,682 for the three months ended
June 30, 1998. Gross profit, as a percentage of sales, decreased 4.2% from 43.8%
for the quarter ended June 30, 1998. The decrease in gross margin percentage was
due to a lower mix of detergent sales and higher inventory reserve costs for
obsolescence for the quarter ended June 30, 1999, compared to the comparable
period in 1998. While detergent sales increased 2% from the quarter ended June
30, 1998, they were 15% of sales in the current quarter compared to 24% of sales
in the 1998 quarter. This percentage decline was due to proportionately smaller
sales to the Company's largest customer. The Company is exploring alternate
sales strategies with this customer for detergent as well as other distribution
channels in order to achieve a higher proportion of detergent sales.
Operating Expenses. Operating expenses decreased by $140,454
(approximately 10%) from $1,375,509 for the three months ended June 30, 1998, to
$1,235,055 for the three months ended June 30, 1999. The decrease in expenses
for the current quarter primarily reflects lower advertising costs; the quarter
ended June 30, 1998 included an $84,000 expense for a diesel machine test.
Operating Income. As a result of the above, operating income for the
three months ended June 30, 1999 of $440,491 increased by $722,318 from an
operating loss of $281,827 for the three months ended June 30, 1998.
Comparison of Six Months Ended June 30, 1999 and 1998
Net Sales. Net sales for the six months ended June 30, 1999 increased
$2,705,079 (approximately 48%) to $8,283,158 from $5,578,079 for the six months
ended June 30, 1998. This sales increase was due primarily to higher domestic
sales of gas and TRANSTECH machines, and to sales from the Automotive Solutions
division, which had minimal revenues in 1998, partially offset by a decrease in
International sales.
For the six months ended June 30, 1999, Domestic sales were
approximately $6,462,000, International sales were approximately $629,000, and
Automotive Solutions' sales were approximately $1,192,000. For the six months
ended June 30, 1998, Domestic sales were approximately $4,091,000, International
sales were approximately $1,478,000, and Automotive Solutions sales were
approximately $9,000. International sales declined due to lower sales in the Far
East region; Domestic sales increased due to growth in TRANSTECH sales.
Cost of Sales. Cost of sales for the six months ended June 30, 1999
increased by $2,042,289 (approximately 65%) to $5,163,282 from $3,120,993 for
the six months ended June 30, 1998. The primary reason for the increase was
increased costs related to the sales increases and to product mix changes and
increased inventory reserve costs described above.
<PAGE> 9
Gross Profit. Gross profit for the six months ended June 30, 1999
increased by $662,790 to $3,119,876 from $2,457,086 for the six months ended
June 30, 1998. Gross profit, as a percentage of sales, decreased 6.3% from 44.0%
for the six months ended June 30, 1998. Approximately 2.3 percentage points of
the decrease were due to an increase in sales of lower-margin products for the
six months ended June 30, 1999, compared to the six months ended June 30, 1998,
and approximately 2.3 percentage points of the decline in gross margin were due
to increased inventory reserve. Higher margin detergent sales increased 10% for
the six months ended June 30, 1999, from the same period in 1998; detergent
sales were 15% of total sales in 1999 compared to 20% of sales for the six
months ended June 30, 1998. This percentage decline was due to proportionately
smaller sales to the Company's largest customer. The Company is exploring
alternate sales strategies with this customer for detergent as well as other
distribution channels in order to achieve a higher proportion of detergent
sales.
Operating Expenses. Operating expenses decreased by $281,906
(approximately 10%) from $2,687,729 for the six months ended June 30, 1998, to
$2,405,823 for the six months ended June 30, 1999. The decrease in expenses for
the first six months of 1999 reflects cost reduction in several expense areas,
primarily sales costs and advertising.
Operating Income. As a result of the above, operating income for the six
months ended June 30, 1999 of $714,053 increased by $944,696 from an operating
loss of $230,643 for the six months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the Three Months Ended June 30, 1999
The Company's cash balance at June 30, 1999 was $1,657,053. Cash of
$773,364 was provided by operating activities for the three months ended June
30, 1999. Cash used for investing activities was $167,809 for purchases of fixed
and intangible assets. Cash flow used in financing activities for the quarter
was $619,647, primarily reflecting repayment on a note payable to a bank. The
net result was a decrease in cash of $14,092 from the beginning of the quarter.
Working capital as of June 30, 1999, at $4,250,279, increased by $763,306 from
the beginning of the quarter.
On August 4, 1999, the Company obtained from a bank a $1,000,000
revolving line of credit, at prime plus 1.5%, expiring August 2, 2000. The
credit availability is subject to a credit agreement which requires the Company
to maintain certain financial ratios and levels for working capital, as well as
other covenants, conditions and restrictions. Credit advances, should they be
drawn down, will be secured by receivables, inventory, equipment and other
operating assets. This line replaces a facility of $1,500,000 which was secured
by a certificate of deposit of like amount.
The Company presently expects that current cash resources and the
available capacity under the line of credit, together with cash generated from
operations, will be sufficient to meet its operating and capital requirements
for the next twelve months. There can be no assurances that additional capital
will be available to the Company on favorable terms or at all.
INFORMATION SYSTEMS AND THE YEAR 2000 ISSUE
The Company is preparing for the impact of the arrival of the Year 2000
on its business, as well as on the businesses of its customers, suppliers and
business partners. The "Year 2000 Issue" is a term used to describe the problems
created by systems that are unable to accurately interpret dates after December
31, 1999. These problems are derived predominantly from the fact that many
software programs have historically categorized the "year" in a two-digit
format. The Year 2000 issue creates potential risks for the Company with respect
to its business information system. The Company may also be exposed to risks
from third parties with
<PAGE> 10
whom the Company interacts who fail to adequately address their own Year 2000
issues. The Company does not use any other date-sensitive system in its business
operation. None of the Company's products incorporate date-sensitive devices.
The Company has made an assessment of the ability of its primary
information systems to properly utilize dates beyond year 1999. The results of
this review indicate these systems are Year 2000 compliant, and that no material
system design or correction effort will be required.
The Company has retained an information technology consultant to perform
tests to validate Year 2000 compliance on its primary accounting and business
systems. These tests have validated compliance. The Company has also tested its
desktop computer environment and related network structure. These tests have
identified certain routine upgrades which will achieve compliance, and the
Company is proceeding to implement the upgrades. Because the accounting software
system the Company employs is so widely used, and because compliance tests have
been positive, the Company, at this time, does not anticipate any significant
problems in being compliant with respect to its systems, nor will it require
significant expenditures to effect compliance.
There can be no assurance that the Company will be completely successful
in its efforts to address Year 2000 issues. If these issues are not successfully
addressed, there could be impairment to Management information systems which
could result in lost revenue and negative impacts to profitability.
The Company has contacted its major vendors and customers to assure that
their systems are Year 2000 compliant. These parties have responded that they
all intend to be Year 2000 compliant. There is no assurance that any of these
parties will not have compliance problems. The Company has one customer that has
represented, and is expected to continue to represent, over 50% of its sales,
and has several key vendors whose source and supply may not be easily replaced.
A Year 2000 compliance problem incurred by this customer or key vendors could
have a materially adverse effect on the Company's business.
The Company is evaluating the need for certain contingency plans to
address situations that may result if the Company or any of the third parties
upon which the Company is dependent is unable to achieve Year 2000 readiness.
The Company is also evaluating the need for increasing inventory levels of key
components of its manufactured products.
STOCK REPURCHASE PROGRAM
On September 24, 1998, the Board of Directors announced approval of the
repurchase and cancellation of up to 451,492 shares of the Company's Common
Stock, which, at that time, constituted approximately 10% of the Company's
outstanding shares. New shares of Common Stock were reserved for issuance under
a stock compensation plan pursuant to which participating directors may elect to
receive shares of Common Stock of the Company in lieu of such directors' annual
retainer and meeting attendance fees, and for an employee stock purchase plan
for participating employees and officers of the Company. Stock purchases under
the repurchase program commenced October 2, 1998, and through December 31, 1998,
an aggregate of 61,000 shares of Common Stock have been repurchased for
aggregate consideration of $56,375. There were no stock purchases during the
quarter and six months ended June 30, 1999.
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Net proceeds from the Company's Initial Public Offering effective as of
April 25, 1996 (File No.: 333-1866-LA) totaled $5,153,474. Through June
30, 1999, such proceeds were used as follows:
<TABLE>
<CAPTION>
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning Direct or
10% or more of any class of Indirect
equity securities of the issuer Payment to
and to affiliates of the issuer. Others
(X if estimate) (X if estimate) Total
-------------------------------- --------------- ---------
<S> <C> <C> <C>
Repayment of
Indebtedness 123,572 1,500,000 1,623,572
Working Capital 1,036,421 1,036,421
Repayment of Interest
on Indebtedness 836,428 836,428
Investments:
- - Short Term CD's 1,500,000 1,500,000
- - Other Cash and
Cash Equivalents 157,053 157,053
---------
Total 5,153,474
=========
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of MotorVac Technologies, Inc. (the
"Annual Meeting") was held on May 13, 1999 in Irvine, California. The matters
voted upon at the Annual Meeting and the voting of stockholders with respect
thereto were as follows:
PROPOSAL 1 - ELECTION OF DIRECTORS
Each of the candidates listed below was duly elected to the Board of
Directors at the Annual Meeting by the tally indicated.
<TABLE>
<CAPTION>
Candidate Votes in Favor Votes Withheld
--------- -------------- --------------
<S> <C> <C>
Grant Ferrier 4,052,383 14,700
Stephen L. Greaves 4,052,383 14,700
Lee W. Melody 4,052,283 14,800
Ronald J. Monark 4,052,283 14,800
Gerald C. Quinn 4,022,383 44,700
Daniel P. Whelan 4,052,383 14,700
</TABLE>
<PAGE> 12
PROPOSAL 2 - APPROVAL OF 1998 EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
Votes For Votes Against Abstain Broker Non-Votes
--------- ------------- ------- ----------------
<S> <C> <C> <C>
3,339,229 62,605 14,350 650,899
</TABLE>
PROPOSAL 3 - APPROVAL OF 1998 STOCK COMPENSATION PLAN
<TABLE>
<CAPTION>
Votes For Votes Against Abstain Broker Non-Votes
--------- ------------- ------- ----------------
<S> <C> <C> <C>
3,325,479 80,305 10,400 650,899
</TABLE>
PROPOSAL 4 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The selection of Deloitte & Touche LLP as independent auditors of the
Company for its fiscal year ending December 31, 1999 was ratified by the
tally indicated.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
<S> <C> <C>
4,028,683 33,400 5,000
</TABLE>
ITEM 5. OTHER INFORMATION
Pursuant to a recent change to the Securities and Exchange Commission's
proxy rules, unless a stockholder who wishes to bring a matter before the
stockholders at the Company's 2000 annual meeting of stockholders notifies the
Company of such matter prior to February 28, 2000, management will have
discretionary authority to vote all shares for which it has proxies in
opposition to such matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Credit Agreement with Imperial Bank dated August 4, 1999.
10.2 Master Distributor Agreement dated as of April 1, 1999
between the Company and Global Leak Detection (U.S.A.),
Inc. (Portions of this Exhibit have been omitted, based on
a request for confidential treatment, and have been filed
with the Securities and Exchange Commission pursuant to
rule 24b-2 of the Exchange Act.)
10.3 Assembly Agreement dated as of April 1, 1999 between the
Company and Global Leak Detection (U.S.A.), Inc. (Portions
of this Exhibit have been omitted, based on a request for
confidential treatment, and have been filed with the
Securities and Exchange Commission pursuant to rule 24b-2
of the Exchange Act.)
11.1 Statement of Calculation of Basic and Diluted Net Income
Per Share.
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1999.
<PAGE> 13
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MOTORVAC TECHNOLOGIES, INC.,
a Delaware corporation
By: s/ Lee W. Melody
-------------------------------------
Lee W. Melody, President and
Chief Executive Officer
Date: August 11, 1999
By: s/ David P. Nelson
-------------------------------------
David P. Nelson
Chief Financial Officer
Date: August 11, 1999
<PAGE> 14
MOTORVAC TECHNOLOGIES, INC.
EXHIBIT INDEX
10.1 Credit Agreement with Imperial Bank dated August 4, 1999.
10.2 Master Distributor Agreement dated as of April 1, 1999 between
the Company and Global Leak Detection (U.S.A.), Inc.
10.3 Assembly Agreement dated as of April 1, 1999 between the Company
and Global Leak Detection (U.S.A.), Inc.
11.1 Statement of Calculation of Basic and Diluted Net Income Per
Share.
27.1 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10.1
CREDIT AGREEMENT
This Credit Agreement ("Agreement") is made and entered into on August 4, 1999,
by and between MotorVac Technologies, Inc. a Delaware corporation ("Borrower")
and Imperial Bank, a California banking corporation, ("Bank").
Subject to the terms and conditions of this Agreement, any security agreement(s)
executed by Borrower in favor of Bank, any note(s) executed by Borrower in favor
of Bank, or any other agreements executed in conjunction therewith
(collectively, the "Loan Documents"), Bank shall make the loans and or advances
(individually a "Loan" and collectively "Loans") referred to below to Borrower.
In consideration of mutual covenants and conditions hereof, the parties hereto
agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.01 [INTENTIONALLY OMITTED]
1.02 [INTENTIONALLY OMITTED]
1.03 [INTENTIONALLY OMITTED]
1.04 [INTENTIONALLY OMITTED]
1.05 [INTENTIONALLY OMITTED]
1.06 DOMESTIC ASSET BASED LINE OF CREDIT COMMITMENT
(a) LINE OF CREDIT - ACCOUNTS RECEIVABLE BORROWING BASE CONSTRAINED.
Subject to all the terms and conditions of this Agreement, provided that no
event of default then has occurred and is continuing, Bank shall upon Borrower's
request, make advances ("ABL Loans") to Borrower, from time to time and in such
amounts as Borrower shall request up to an aggregate principal amount
outstanding not to exceed:
Eighty percent (80%) of Eligible Accounts ("Borrowing Base"), and in no
event more than One Million Dollars ($1,000,000.00) (the "ABL Line of Credit"),
as may be adjusted from time to time as provided for under Section 4.23 hereof.
If at any time or for any reason, the outstanding principal amount of
the ABL Loan Account (as defined below) is greater than the lessor of: (x) the
Borrowing Base or (y) the ABL Line of Credit, Borrower shall immediately pay to
Bank, in cash, the amount of such excess. Any commitment of Bank, pursuant to
the terms of this Agreement, to make ABL Loans shall expire on the ABL Maturity
Date (as hereinafter defined), subject to Bank's right to renew said commitment
in its sole and absolute discretion at Borrower's request. Any such renewal of
said commitment shall not be binding upon Bank unless it is in
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<PAGE> 2
writing and signed by an officer of Bank. Provided that no Event of Default (as
hereinafter defined) has occurred and is continuing, all or any portion of the
ABL Loans advanced by Bank which are repaid by Borrower shall be available for
reborrowing in accordance with the terms hereof. Borrower promises to pay to
Bank the entire outstanding unpaid principal balance (and all accrued unpaid
interest thereon) of the ABL Loan Account on the earlier of acceleration in
accordance with the terms herein by Bank or August 2, 2000 ("ABL Maturity
Date").
(b) LIMITATION ON ADVANCE OF ANY ABL LOANS. Notwithstanding any of the
provisions contained in Section 1.06 (a) hereof, prior to the first advance of a
ABL Loan, a representative of Bank shall have conducted an audit of Borrower's
books and records relating to the Accounts and Inventory and any other
Collateral for the ABL Loans and made extracts therefrom, and arranged for
verification of the Accounts, directly with the account debtors or otherwise,
and of the Inventory all with results satisfactory to Bank, the cost of such
audit of which shall be at Borrower's sole expense. Based on Bank's review of
such audit, and prior to the advance of an ABL Loan in accordance with the terms
of this hereof, Bank may adjust the Borrowing Base percentage, in its sole and
reasonable discretion, as provided for under Section 4.23 hereof.
(c) LOAN LEDGER ACCOUNT; USE OF PROCEEDS. The amount of each ABL Loan made
by Bank to Borrower hereunder shall be debited to the loan ledger account of
Borrower maintained by Bank for the ABL Line of Credit (herein called the "ABL
Loan Account") and Bank shall credit the ABL Loan Account with all loan
repayments in respect thereof made by Borrower.
(d) ABL LOANS INTEREST. Borrower further promises to pay to Bank from the
date of the advance of the initial ABL Loan through the ABL Maturity Date, on or
before the first day of each month, interest on the unpaid balance of the ABL
Loan Account at a rate of interest equal to one and one-half percent (1.50%) per
annum in excess of the rate of interest which Bank has announced as its prime
lending rate (the "Prime Rate"), which shall vary concurrently with any change
in the Prime Rate. Interest shall be computed at the above rate on the basis of
the actual number of days during which the principal balance of the ABL Loans
are outstanding divided by 360, which shall for interest computation purposes be
considered one (1) year.
(e) APPLICATION OF RECEIPTS. All sums received by Bank including but not
limited to those sums Take out whether received from Borrower or from Borrower's
account debtors shall be applied to the outstanding ABL Loan balance immediately
upon receipt thereof by the Bank. The Borrower will be charged, on a monthly
basis, for the uncollected balance fees.
(f) CERTAIN DEFINITIONS. As used herein the following terms shall have the
following meanings:
"Accounts" means any right to payment for goods sold or leased, or
rented, or to be sold or to be leased, or to be rented, or for services rendered
or to be rendered no matter how evidenced, including accounts receivable,
contract rights, chattel paper, instruments, purchase orders, notes, drafts,
acceptances, general intangibles and other forms of obligations and receivables.
"Collateral" means any and all property of Borrower which is assigned or
hereafter is assigned to Bank as security or in which Bank now has or hereafter
acquires a security interest.
2
<PAGE> 3
"Eligible Accounts" Eligible Accounts shall only include such accounts
as Bank in its sole discretion shall determine are eligible from time to time.
"Eligible Accounts" shall also NOT include any of the following:
(1) All Accounts under which payment is not received within 90 days
from any invoice date;
(2) All Accounts against which the account debtor or any other person
obligated to make payment thereon asserts any defense, offset, counterclaim or
other right to avoid or reduce the liability represented by the Account;
(3) Any Accounts if the account debtor or any other person liable in
connection therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or whose
credit standing is unacceptable to Bank and Bank has so notified Borrower.
(4) [INTENTIONALLY OMITTED]
(5) Credit balances greater than 90 days from invoice date.
(6) Accounts due from a debtor if 25% or more of the aggregate amount
of accounts of such debtor have at that time remained unpaid for more than 90
days from invoice date.
(7) For accounts representing more than 20% of Borrower's total
accounts receivable, the balance in excess of the 20% is not eligible, with the
exception of those accounts owed from Snap-on Incorporated and its subsidiaries
and affiliates, which shall be allowed 60% on a combined basis.
(8) Accounts owed by any foreign account debtors other than Canadian
account debtors or unless with respect to international transactions such
accounts are insured by an insurance company acceptable to the Bank or covered
by letters of credit issued or confirmed by a bank acceptable to the Bank. Bank,
in its sole discretion, may deem as eligible amounts due from major, publicly
owned foreign companies.
(9) Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
(10) Accounts where the account debtor is a seller to Borrower,
whereby a potential offset (contra) exists.
(11) Consignment or guaranteed sales.
(12) Bill and hold accounts, except those accounts subject to an
agreement satisfactory to Bank.
(13) Collection accounts.
(14) C.O.D. accounts.
3
<PAGE> 4
(15) Salesmen's accounts for promotional purposes.
(16) Accounts owed by any United States federal government account
debtor or by any municipal account debtor, unless formally assigned to the Bank.
(17) Accounts representing billings for service or maintenance
contracts or for inventory or equipment on rent to the account debtor.
(18) Deferred revenues.
(19) Pre-billings.
(g) REQUESTS FOR ABL LOANS. Requests for ABL Loans hereunder shall be in
writing duly executed by Borrower in a form satisfactory to Bank and shall
contain a certification setting forth the matters referred to in Section 1,
which shall disclose that Borrower is entitled to the amount of loan being
requested.
(h) [INTENTIONALLY OMITTED]
(i) [INTENTIONALLY OMITTED]
(j) LATE CHARGE. If any installment payment, interest payment, principal
payment or principal balance due under the ABL Line of Credit is delinquent
twenty (20) or more days, Borrower agrees to pay Bank a late charge in the
amount of five percent (5%) of the payment so due and unpaid, in addition to the
payment; but nothing in this paragraph is to be construed as any obligation on
the part of the Bank to accept payment of any payment past due or less than the
total unpaid principal balance after maturity. All payments, at Bank's sole
discretion, shall be applied first to any late charges owing, then to interest
and the remainder, if any, to principal.
(k) DEFAULT RATE. If an Event of Default occurs hereunder, then during the
continuance thereof at the Bank's option, the interest rate shall be five
percent (5%) per year in excess of the rate otherwise applicable.
(l) INTEREST CALCULATIONS. The term "Prime Rate" shall mean the rate that
the Bank has announced as its prime lending rate, which shall vary concurrently
with any change in the Prime Rate. Interest based on the Prime Rate shall vary
concurrently with any change in the Prime Rate. All interest shall be computed
at the rate specified in any note on the basis of the actual number of days
during which the principal balance of the corresponding Loans are outstanding
divided by 360, which shall for interest computation purposes be considered one
(1) year.
1.07 [INTENTIONALLY OMITTED]
1.08 [INTENTIONALLY OMITTED]
1.09 LOAN FEES.
4
<PAGE> 5
(a) COMMITMENT FEE. In addition to any other amounts due, or to become
due, concurrent with the execution hereof, in connection with the ABL Line of
Credit Borrower shall pay to Bank a commitment fee of Five Thousand Dollars
($5,000), representing one-half percent (0.50%) of the ABL Line of Credit.
(b) NON-USAGE FEE. Borrower shall pay to Bank a fee on the unused portion
of the ABL Line of Credit equal to one percent (1.00%) per annum payable
quarterly in arrears.
1.10 DOCUMENTATION FEE, COSTS AND EXPENSES. In addition to any other
amounts due, or to become due, concurrently with the execution hereof, Borrower
agrees to pay to Bank a documentation fee in the amount of One Thousand Dollars
($1,000), and all other costs and expenses incurred by the Bank in the
preparation of this Agreement, the other Loan Documents and the perfection of
any security interest granted to Bank by Borrower.
1.11 COLLATERAL. Borrower shall grant or cause to be granted to Bank a
first priority lien on any and all personal property assets of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now has
or hereafter acquires a security interest or pursuant to the terms of any
security agreement, or otherwise as security for all of Borrower's obligations
to Bank, all as may be subject to Section 5.03 herein.
1.12 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
interest, fees, costs, and/or expenses due under this Agreement by charging
Borrower's demand deposit account number 08-215-510 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit account
to pay all such sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower.
2. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
2.01 EXISTENCE AND RIGHTS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of Delaware, ;
Borrower is authorized and in good standing to do business in the state of its
incorporation; Borrower has the appropriate powers and adequate authority,
rights and franchises to own its property and to carry on its business as now
conducted, and is duly qualified and in good standing in each state in which the
character of the properties owned by it therein or the conduct of its business
makes such qualification necessary; and Borrower has the power and adequate
authority to make and carry out this Agreement. Borrower has no investment in
any other business entity unless specified in writing to Bank.
2.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement and the Loan Documents are duly authorized and do not require the
consent or approval of any governmental body or other regulatory authority; are
not in contravention of or in conflict with any law or regulation or any term or
provision of Borrower's articles of incorporation, by-laws, or similar document
as the case may be, and this Agreement is the valid, binding and legally
enforceable obligation
5
<PAGE> 6
of Borrower in accordance with its terms; subject only to bankruptcy, insolvency
or similar laws affecting creditors rights generally and general equitable
principles.
2.03 NO CONFLICT. The execution, delivery and performance of this Agreement
and the Loan Documents are not in contravention of or in conflict with any
agreement, indenture or undertaking to which Borrower is a party or by which it
or any of its property may be bound or affected, and do not cause any lien,
charge or other encumbrance to be created or imposed upon any such property by
reason thereof.
2.04 LITIGATION. Except as disclosed in writing to Bank by Borrower, there
is no litigation or other proceeding pending or threatened against or affecting
Borrower which if determined adversely to Borrower or its interest would have a
material adverse effect on the financial condition of Borrower, and Borrower is
not in default with respect to any order, writ, injunction, decree or demand of
any court or other governmental or regulatory authority.
2.05 FINANCIAL CONDITION. The balance sheet of Borrower as of June 30,
1999, and the related profit and loss statement for the six month period ended
as of that date, a copy of which has heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing by Borrower to
Bank in connection with this request for credit are true and correct, and said
balance sheet truly presents the financial condition of Borrower as of the date
thereof, and has been prepared in accordance with generally accepted accounting
principles on a basis consistently maintained. Since such date there have been
no material adverse changes in the financial condition or business of Borrower.
Borrower has no knowledge of any liabilities, contingent or otherwise, at such
date not reflected in said balance sheet, and Borrower has not entered into any
special commitments or substantial contracts which are not reflected in said
balance sheet, other than in the ordinary and normal course of its business,
which may have a materially adverse effect upon its financial condition,
operations or business as now conducted.
2.06 TITLE TO ASSETS. Borrower has good title to its assets, and the same
are not subject to any liens or encumbrances other than those permitted by
Section 5.03 hereof.
2.07 TAX STATUS. Borrower has no liability for any delinquent state, local
or federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
2.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
2.09 REGULATION U. None of the proceeds of any Loan shall be used to
purchase or carry margin stock (as defined within Regulation U of the Board of
Governors of the Federal Reserve system).
2.10 ERISA. All defined benefit pension plans as defined in the Employees
Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet,
as of the date hereof, the
6
<PAGE> 7
minimum funding standards of Section 302 of ERISA, and no Reportable Event or
Prohibited Transaction as defined in ERISA has occurred with respect to any such
plan.
2.11 YEAR 2000 COMPLIANCE. Borrower and its subsidiaries, as applicable,
have reviewed the areas within their operations and business which could be
adversely affected by, and have developed or are developing a program to address
on a timely basis, the Year 2000 Problem and have made related appropriate
inquiry of material suppliers and vendors, and based on such review and program,
the Year 2000 Problem will not have a material adverse effect upon its financial
condition, operations or business as now conducted. "Year 2000 Problem" means
the possibility that any computer applications or equipment used by Borrower may
be unable to recognize and properly perform date sensitive functions involving
certain dates prior to and any dates one or after December 31, 1999.
3. CONDITIONS PRECEDENT TO LOAN
Prior to Bank being obligated to make any Loan pursuant to this
Agreement, Bank must receive all of the following, each of which must be in form
and substance satisfactory to Bank:
3.01 [INTENTIONALLY OMITTED]
3.02 SECURITY AGREEMENT. Original, executed security agreement covering the
personal property collateral securing the Loans.
3.03 FINANCING STATEMENT. Financing statement(s) executed by Borrower and
any grantor of a security interest.
3.04 [INTENTIONALLY OMITTED]
3.05 INSURANCE. Borrower shall have delivered to Bank evidence of insurance
coverage required pursuant to that Agreement to Provide Insurance executed by
Borrower, in form, substance, amounts, covering risks and issued by companies
satisfactory to Bank, and where required by Bank, with loss payable endorsements
in favor of Bank.
3.06 ORGANIZATIONAL DOCUMENTS. Copies of the articles of incorporation or
similar document as the case may be, of Borrower.
3.07 AUTHORIZATIONS. Certified copies of all action taken by Borrower to
authorize the execution, delivery and performance of the Loan Documents.
3.08 GOOD STANDING . Good standing certificates from the appropriate
secretary of state of the state in which Borrower is organized and in each state
in which it is required to be qualified to do business.
3.09 [INTENTIONALLY OMITTED]
3.10 ADDITIONAL DOCUMENTS. Such other documents as Bank may reasonably
deem necessary.
7
<PAGE> 8
4. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under borrowings, or
other indebtedness, or so long as Bank has any obligation to extend credit to
Borrower it will, unless Bank shall otherwise consent in writing:
4.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
4.02 USE OF PROCEEDS. Use the proceeds of the Loans only for purposes
specified in Section1 of this Agreement.
4.03 INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment, and as required by that Agreement to Provide Insurance executed by
Borrower, with the Bank to be shown as Lenders Loss Payee on such policies.
4.04 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate proceedings
in such manner as not to cause any materially adverse effect upon its financial
condition or the loss of any right of redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it to be adequate
with respect thereto.
4.05 RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times and
upon reasonable notice during normal business hours; and furnish Bank:
(a) MONTHLY FINANCIAL STATEMENT. As soon as available, and in any event
within thirty (30) days after the close of each month, a balance sheet, profit
and loss statement and reconciliation of Borrower's capital balance accounts as
of the close of such period and covering operations for the portion of
Borrower's fiscal year ending on the last day of such period, all in reasonable
detail and reasonably acceptable to Bank, in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower and
certified by an appropriate officer of Borrower.
(b) ANNUAL FINANCIAL STATEMENT. As soon as available, and in any event
within ninety (90) days after and as of the close of each fiscal year of
Borrower, a report of audit of Company, all in
8
<PAGE> 9
reasonable detail, audited by an independent certified public accountant
selected by Borrower and reasonably acceptable to Bank, in accordance with
generally accepted accounting principles on a basis consistently maintained by
Borrower and certified by an appropriate officer of Borrower;
(c) OFFICER'S CERTIFICATE. Within forty-five (45) days after the end of
each quarter and fiscal year of Borrower, a certificate of the chief financial
officer of Borrower, stating that Borrower has performed and observed each and
every covenant contained in this Agreement to be performed by it and that no
event has occurred and no condition then exists which constitutes an event of
default hereunder or would constitute such an event of default upon the lapse of
time or upon the giving of notice and the lapse of time specified herein; or, if
any such event has occurred or any such condition exists, specifying the nature
thereof, with such certificate to be completed in the form of Exhibit 4.05 (c)
attached hereto.
(d) AUDIT REPORTS. Promptly after the receipt thereof by Borrower, copies
of any detailed audit reports submitted to Borrower by independent accountants
in connection with each annual or interim work on the accounts of Borrower made
by such accountants;
(e) ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AGINGS; Within ten (10) days
from each month-end, deliver to Bank a detailed accounts receivable aging
reconciled to the general ledger of Borrower, and a detailed accounts payable
aging reconciled to the Borrower's general ledger and setting forth the amount
of any book overdraft or the amount of checks issued but not sent. All the
foregoing will be in a form and with such detail as Bank may request from time
to time.
(f) [INTENTIONALLY OMITTED]
(g) TRANSACTION REPORTS. Deliver to Bank (i) daily transaction reports
beginning three (3) days prior to the first advance and daily thereafter,
together with payments in kind, including Collateral activity and appropriate
loan activity, certified by an authorized signer of Borrower. The daily reports
delivered to Bank include the following Bank forms: AC-1 Accounts Receivable And
Inventory Transaction Report, AC-2 Schedule of Accounts Receivable Assigned, and
AC-3 Schedule of Collections; and (ii) monthly transaction reports, including
Collateral activity and appropriate loan activity, certified by an authorized
signer of Borrower. The monthly reports delivered to Bank include the following
Bank forms: AC-1 Accounts Receivable and Inventory Transaction Report, AC-11
Computation of Ineligible Accounts Receivable, and AC-12 Monthly Accounts
Receivable Reconciliation.
(h) LIST OF CUSTOMERS. On a quarterly basis or more frequently if
requested by Bank, provide Bank with an alphabetized list of customers including
addresses.
(i) SEC REPORTS. Promptly after the same are available, copies of all such
proxy statements, financial statements and reports as Borrower or any subsidiary
shall send to its members or stockholders as appropriate, if any, and copies of
all reports which Borrower or any subsidiary may file with the Securities and
Exchange Commission, with Borrower's 10-Q and 10-K reports to be submitted
within forty-five and ninety days after the end of the respective financial
period as applicable.
(j) OTHER INFORMATION. Such other information relating to the affairs of
Borrower as the Bank reasonably may request from time to time.
9
<PAGE> 10
4.06 [INTENTIONALLY OMITTED]
4.07 WORKING CAPITAL. Maintain at all times Working Capital, meaning total
current assets minus total current liabilities (including all amounts due to
stockholders, officers and affiliates) of not less than Two Million Dollars
($2,000,000).
4.08 QUICK RATIO. Maintain at all times a Quick Ratio of cash and accounts
receivable to current liabilities of at least 1.50 to 1.00.
4.09 [INTENTIONALLY OMITTED]
4.10 DEBT TO TANGIBLE NET WORTH. Maintain at all times a ratio of total
liabilities to Tangible Net Worth (defined as stockholder's equity less any
value for goodwill, trademarks, patents, copyrights, leaseholds, organization
expense and other similar intangible items, and any amounts due from or
investments in stockholders, officers and affiliates), of not greater than 0.75
to 1.00.
4.11 ACCOUNTS RECEIVABLE TURNOVER. Maintain on a monthly basis A/R Turnover
of not greater than 75 days, wherein A/R Turnover shall be calculated as net
accounts receivable divided by the product of net sales for the last three
months, through and including the given period, divided by ninety.
For example, if Borrower's net accounts receivable was $1,000,000, and net sales
for the last three months including the given period were $2,500,000, then A/R
Turnover would be calculated as $1,000,000/($2,500,000/90), the product of which
would be equal to 36.00.
4.12 QUARTERLY LOSSES. Maintain quarterly losses of less than minus two
hundred thousand dollars (-$200,000), and not incur two consecutive quarterly
losses.
4.13 ANNUAL PROFITABILITY. Maintain an annual net profit after taxes of at
least $1.
4.14 [INTENTIONALLY OMITTED]
4.15 [INTENTIONALLY OMITTED]
4.16 [INTENTIONALLY OMITTED]
4.17 ERISA. Cause all defined benefit pension plans, as defined in ERISA,
of Borrower to, at all times, meet the minimum funding standards of Section 302
of ERISA, and ensure that no Reportable Event or Prohibited Transaction, as
defined in ERISA, will occur with respect to any such plan.
4.18 LAWS. At all times comply with, or cause to be complied with, all
laws, statues, rules, regulations, orders and directions of any governmental
authority having jurisdiction over Borrower or Borrower's business.
4.19 GAAP. Compliance with all financial covenants shall be calculated
based on generally accepted accounting principles applied on a consistent basis
as maintained by Borrower.
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<PAGE> 11
4.20 YEAR 2000 COMPLIANT. Borrower shall perform all acts reasonably
necessary to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors whose
compliance is likely to be material to Borrower's business, become Year 2000
Compliant in a timely manner. Such acts shall include, without limitation,
performing a comprehensive review and assessment of all Borrower's systems and
adopting a detailed plan, with itemized budget, for the remediation, monitoring
and testing of such systems. As used in this paragraph, "Year 2000 Compliant"
shall mean, in regard to any entity, that all software, hardware, firmware,
equipment, goods or systems utilized by or material to the business operations
or financial condition of such entity, will properly perform date sensitive
functions before, during and after the year 2000. Borrower shall, immediately
upon request, provide to Agent such certifications or other evidence of
Borrower's compliance with the terms of this paragraph as Bank may from time to
time require.
4.21 OPERATING ACCOUNTS. Maintain all primary accounts and banking
relationship with the Bank. Maintain, or cause to be maintained, on deposit with
Bank, non-interest bearing demand deposit balances sufficient to compensate Bank
for all services provided by Bank. Balances shall be calculated after reduction
for the reserve requirement of the Federal Reserve Board and uncollected funds.
Any deficiencies shall be charged directly to the Borrower on a monthly basis.
4.22 NOTICES. Promptly notify Bank in writing of (i) the occurrence of any
Event of Default hereunder or any event which upon notice and lapse of time
would be an Event of Default; (ii) all litigation affecting Borrower where the
amount is one hundred thousand dollars ($100,000) or more; any substantial
dispute which may exist between Borrower and any governmental regulatory body or
law enforcement authority; any change in Borrower's name or principal place of
business; or any other matter which has resulted or is likely to result in a
material adverse change in Borrower's financial condition or operations.
4.23 AUDITS. Permit representatives of Bank to conduct audits of Borrower's
books and records relating to the Accounts, Inventory and other Collateral and
make extracts therefrom, with results satisfactory to Bank, provided that Bank
shall use its best efforts to not interfere with the conduct of Borrower's
business, and to the extent possible to arrange for verification of the Accounts
directly with the account debtors obligated thereon or otherwise, all under
reasonable procedures acceptable to Bank and at Borrower's sole expense;
provided further that prior to an Event of Default, Borrower shall not be
responsible for the expense of more than two (2) audits in any fiscal year.
Notwithstanding any of the provisions contained in Section 1.06 A hereof,
Borrower hereby acknowledges and agrees that upon completion of any such audit
Bank shall have the right to adjust the Borrowing Base percentage, in its sole
and reasonable discretion, based on its review of the results of such collateral
audit.
4.24 COVENANTS RELATING TO COLLATERAL. In addition to any covenants in any
Loan Document relating to any Collateral the Borrower agrees:
(a) To execute and deliver to Bank such assignments, including Bank's
standard forms of Specific or General Assignment covering individual Accounts,
notices, financing statements, and other documents and papers as Bank may
require in order to affirm, effectuate or further assure the assignment to Bank
of the Collateral or to give any third party, including the account debtors
obligated on the Accounts, notice of Bank's interest in the Collateral.
11
<PAGE> 12
(b) Until Bank exercises its rights to collect the Accounts and Inventory
proceeds pursuant to Section 4.24 (e), Borrower will collect with diligence all
Borrower's Accounts and Inventory proceeds. Any collection of Accounts or
Inventory proceeds by Borrower, whether in the form of cash, checks, notes, or
other instruments for the payment of money (properly endorsed or assigned where
required to enable Bank to collect same), shall be in trust for Bank, and
Borrower shall keep all such collections separate and apart from all other funds
and property so as to be capable of identification as the property of Bank and
deliver said collections, together with the proceeds of all cash sales, daily to
Bank in the identical form received. The proceeds of such collections when
received by Bank may be applied by Bank directly to the payment of Borrower's
Loan Account or any other obligation secured hereby. Any credit given by Bank
upon receipt of said proceeds shall be conditional credit subject to collection.
Returned items at Bank's option may be charged to Borrower's general account.
All collections of the Accounts and Inventory proceeds shall be set forth on an
itemized schedule, showing the name of the account debtor, the amount of each
payment and such other information as Bank may request.
(c) That until Bank exercises its rights to collect the Accounts or
Inventory proceeds pursuant to Section 4.24 (e), Borrower may continue its
present policies with respect to returned merchandise and adjustments. However,
Borrower shall, within fifteen (15) days of the end of each month notify Bank of
all cases involving returns, repossessions, and loss or damage of or to
merchandise represented by the Accounts or constituting Inventory and of any
credits, adjustments or disputes arising in connection with the goods or
services represented by the Accounts or constituting Inventory and, in any of
such events, Borrower will immediately pay to Bank from its own funds (and not
from the proceeds of Accounts or Inventory) for application to Borrower's Loan
Account or any other obligation secured hereby the amount of any credit for such
returned or repossessed merchandise and adjustments made to any of the Accounts.
Until payment is made as provided herein or until release by Bank from its
security interest, all merchandise returned to or repossessed by Borrower shall
be set aside and identified as the property of Bank and Bank shall be entitled
to enter upon any premises where such merchandise is located and take immediate
possession thereof and remove same.
(d) To promptly notify Bank of any attachment or other legal process levied
against any of the Collateral and any information received by Borrower relative
to the Collateral, including the Accounts, the account debtors or other persons
obligated in connection therewith, which may in any way affect the value of the
Collateral or the rights and remedies of Bank in respect thereto
(e) That Bank may at any time, without prior notice to Borrower, collect the
Accounts and Inventory proceeds and may give notice of assignment to any and all
account debtors, and Borrower does hereby make, constitute and appoint Bank its
irrevocable, true and lawful attorney with power to receive, open and dispose of
all mail addressed to Borrower from account debtors, to endorse the name of
Borrower upon any checks or other evidences of payment that may come into the
possession of Bank upon the Accounts or as proceeds of Inventory; to endorse the
name of the undersigned upon any document or instrument relating to the
Collateral; in its name or otherwise, to demand, sue for, collect and give
acquittances for any and all moneys due or to become due upon the Accounts; to
compromise, prosecute or defend any action, claim or proceeding with respect
thereto; and to do any and all things necessary and proper to carry out the
purpose herein contemplated.
12
<PAGE> 13
(f) To do all acts necessary to maintain, preserve, and protect the
Inventory, keep all Inventory in good condition and repair and not to cause any
waste or unusual or unreasonable depreciation thereof.
(g) In the event any unpaid balance of Borrower's Loan Account shall exceed
the maximum amount of outstanding Loans to which the Borrower is entitled under
Section 1 hereof, Borrower shall immediately pay to Bank for credit to
Borrower's Loan Account the amount of such excess.
4.25 [INTENTIONALLY OMITTED]
5. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, or so long as Bank has
any obligation to extend credit to Borrower, it will not, without Bank's written
consent:
5.01 TYPE OF BUSINESS; CHANGE IN CONTROL. Make any substantial change in
the character of its business; or permit Erin Mills International Investment
Corporation to maintain less than fifty-one percent (51%) ownership of Borrower.
5.02 OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than (i) Loans from the Bank, (ii)
Permitted Indebtedness, (iii) obligations now existing as shown in the
Borrower's financial statement dated June 30, 1999, (iv) future outside
indebtedness not to exceed One Hundred Thousand Dollars ($100,000) in the
aggregate during the term of this Agreement, excluding those obligations being
refinanced by Bank, or sell or transfer, either with or without recourse, any
accounts or notes receivable or any moneys due or to become due. The term
"Permitted Indebtedness" means indebtedness to trade creditors in the ordinary
course of business and endorsements for collection or deposit in the ordinary
course of business.
5.03 LIENS AND ENCUMBRANCES. Create, incur, permit to exist, or assume any
mortgage, pledge, encumbrance, lien or charge of any kind upon any asset now
owned or hereafter acquired by it, other than Permitted Liens. The term
"Permitted Liens" means: (a) liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings; (b) liens imposed by law, such as
matierialmen's, mechanics, carriers', landlords', workmen's and repairmen's
liens and other similar liens arising in the ordinary course of business; (c)
liens (other than those imposed under ERISA), pledges or deposits in connection
with workmen's compensation, unemployment insurance or social security
obligations, provided in each case that the obligation secured is not overdue;
(d) liens to secure the performance of bids, trade contracts, leases, surety or
appeal bonds and other obligations of like nature incurred in the ordinary
course of business; (e) liens on equipment or software leased by Borrower
pursuant to an operating or capital lease in the ordinary course of business (
including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such equipment or software; (f) easements,
reservations, rights-of-way, restrictions, minor defects or irregularities in
title and other similar charges or encumbrances affecting real property; (g)
liens in favor of customs duties in connection with the importation of goods;
(h) liens constituting rights of set-off of a customary nature or banker's liens
with respect to amounts on deposit, whether arising by operation of law or by
contract, in connection with arrangements entered into with banks in the
ordinary course of business; (i) liens arising from judgments, decrees or
attachments in
13
<PAGE> 14
circumstances not constituting an Event of Default hereunder; and (j) liens in
favor of Bank created pursuant to the Agreement.
5.04 LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than Permitted Investments. The term "
Permitted Investments" means: (a) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State or subdivision thereof maturing within two (2) years from the date of
acquisition thereof; (b) corporate commercial paper, corporate notes and bonds,
master notes, medium term notes, bankers acceptances, certificates of deposit
and repurchase agreements which, if short term, have a minimum credit rating of
A-1 or P-1 or, if long term, by Standard & Poor's Ratings Group, a division of
The McGraw Hill company, or Moody's Investors Service, Inc.; and (c) investments
consisting of (i) compensation of employees, consultants, officers and directors
of Borrower, (ii) travel advances, employee relocation loans and other employee
loans and advances in the ordinary course of business, and (iii) loans to
employees, officers or directors relating to the purchase of equity securities
of Borrower.
5.05 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity in excess
of $100,000 in any one year; or liquidate, dissolve, merge or consolidate, or
commence any proceedings therefor; or sell any assets except in the ordinary and
normal course of its business as now conducted; or sell, lease, assign, or
transfer any substantial part of its business or fixed assets, or any property
or other assets necessary for the continuance of its business as now conducted,
including without limitation the selling of any property or other asset
accompanied by the leasing back of the same.
5.06 CAPITAL EXPENDITURES. Make or incur obligations for fixed , intangible
or capital assets, which includes purchase money indebtedness or capital lease
obligations in excess of Six Hundred Thousand Dollars ($600,000) in any given
fiscal year of Borrower.
5.07 [INTENTIONALLY OMITTED]
5.08 DIVIDENDS AND DISTRIBUTIONS. Declare or pay any dividend or make any
other distribution on any of its capital stock now outstanding or hereafter
issued or purchase, redeem or retire any of such stock other than in dividends
or distributions payable in Borrower's capital stock, except for the repurchase
of Borrower's capital stock from officers, directors, employees or consultants
of Borrower upon termination of their employment with or rendering of service to
Borrower.
5.09 SUBORDINATED LIABILITIES. Make any payments on any Borrower's
obligation subordinated to the obligations to Bank, other than in accordance
with the provisions of any subordination agreement executed by the Bank and the
subordinated debt holder.
6. EVENTS OF DEFAULT
The occurrence of any of the following events of default ("Events of Default")
shall, at Bank's option, terminate Bank's commitment to lend and make all sums
of principal and interest then remaining unpaid on all Borrower's indebtedness
to Bank immediately due and payable, all without demand, presentment or notice,
all of which are hereby expressly waived:
14
<PAGE> 15
6.01 FAILURE TO PAY. Failure to pay any installment of principal or of
interest on any indebtedness of Borrower to Bank within, five (5) days of its
due date.
6.02 BREACH OF COVENANTS. Failure of Borrower to perform any other terms or
conditions of this Agreement or any Loan Document binding upon Borrower,
provided that any breach of Section 4.04 shall continue for a period of 30
days..
6.03 BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be materially false or
misleading in any respect.
6.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
6.05 JUDGMENTS, ATTACHMENTS. Any money judgment in excess of $50,000, writ
or warrant of attachment, or similar process shall be entered or filed against
Borrower or any of its assets and shall remain unvacated, unbonded or unstayed
for a period of thirty (30) days or in any event later than five (5) days prior
to the date of any proposed sale thereunder.
6.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall not be dismissed within thirty (30) days
thereafter.
6.07 REVOCATION OF GUARANTEE OR SUBORDINATION AGREEMENT. Any guarantee or
subordination agreement required hereunder is breached or becomes ineffective;
or any Guarantor or subordination creditor disavows or attempts to revoke or
terminate such guarantee or subordination agreement.
6.08 [INTENTIONALLY OMITTED]
6.09 CESSATION OF BUSINESS. Borrower shall voluntarily suspend its
business.
6.10 ADVERSE CHANGE. Any change which, in the reasonable opinion of the
Bank, is likely to be materially adverse to the financial condition of Borrower
or any Guarantor; or should the Bank reasonably believe that it is likely that
the prospect of Borrower's payment or performance hereunder or under any other
agreement or instrument with Bank be materially impaired.
6.11 [INTENTIONALLY OMITTED]
6.12 OTHER DEFAULTS. Borrower, or any Guarantor of Borrower's obligations
to Bank, shall commit or do or fail to commit or do any act or thing which would
constitute an event of default under any of the terms of any other agreement,
document or instrument executed or to be executed by it concerning the
obligation to pay money.
15
<PAGE> 16
6.13 ADVANCES. Notwithstanding anything to the contrary contained herein,
Bank shall have no duty to make advances while any event of default exists
notwithstanding any cure period provided for herein.
7. MISCELLANEOUS PROVISIONS
7.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Bank or any holder of notes issued hereunder, in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this Agreement or any note (s) issued in
connection with a Loan that Bank may make hereunder, are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
7.02 COUNTERPARTS; ENTIRE AGREEMENT. This Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement, and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any prior agreements, written or oral, with respect thereto.
7.03 ATTORNEY'S FEES. Borrower will pay promptly to Bank without demand
after notice, with interest thereon from the date of expenditure at the rate
applicable to the Loan, reasonable attorneys' fees and all costs and expenses
paid or incurred by Bank in collecting or compromising the Loan after the
occurrence of an Event of Default, whether or not suit is filed. If suit is
brought to enforce any provision of this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees and court costs in
addition to any other remedy or recovery awarded by the court.
7.04 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.05 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower.
7.06 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the state of California, to the jurisdiction
of whose courts the parties hereby agree to submit.
7.07 OFFSET. In addition to and not in limitation of all rights of offset
that Bank or other holder of the Loan may have under applicable law, Bank or
other holder of any note issued hereunder shall, upon the occurrence of any
Event of Default or any event which with the passage of time or notice would
constitute such an Event of Default, have the right to appropriate and apply to
the payment of the Loan any and all balances, credits, deposits, accounts or
monies of Borrower then or thereafter with Bank or other holder, within ten (10)
days after the Event of Default, and notice of the occurrence of any Event of
Default by Bank to Borrower.
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<PAGE> 17
7.08 SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
7.09 TIME OF THE ESSENCE. Time is hereby declared to be of the essence of
this Agreement and of every part hereof.
7.10 ACCOUNTING. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
7.11 REFERENCE PROVISION.
(a) Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this Credit
Agreement, any security agreement executed by Borrower in favor of Bank or any
note executed by Borrower in favor of Bank or any other agreement or instrument
issued in favor of Bank by Borrower (collectively in this Section, the
"Agreement") which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "Claim Date" (defined as the date on which a
party subject to this Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such controversy,
dispute or claim is subject to the reference proceeding and except as set forth
above, the parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court in the
County where the Real Property, if any, is located or Los Angeles County if none
(the "Court"). The referee shall be a retired Judge of the Court selected by
mutual agreement of the parties, and if they cannot so agree within forty-five
(45) days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP Section170.6. The referee shall (a) be requested to set the
matter for hearing within sixty (60) days after the date of selection of the
referee and (b) try any and all issues of law or fact and report a statement of
decision upon them, if possible, within ninety (90) days of the Claim Date. Any
decision rendered by the referee will be final, binding and conclusive and
judgment shall be entered pursuant to CCP Section644 in any court in the state
of California having jurisdiction. Any party may apply for a reference
proceeding at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Agreement shall be
completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of a
party's refusal to provide requested discovery for any reason whatsoever,
17
<PAGE> 18
including, without limitation, legal objections raised to such discovery or
unavailability of a witness due to absence or illness. No party shall be
entitled to "priority" in conducting discovery. Depositions may be taken by
either party upon seven (7) days written notice, and request for production or
inspection of documents shall be responded to within ten (10) days after
service. All disputes relating to discovery which cannot be resolved by the
parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Superior Court is empowered to issue temporary and/or provisional remedies,
as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the state of California. The rules
of evidence applicable to proceedings at law in the state of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
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7.12 This Agreement may be modified only by a writing signed by
all parties hereto.
This Agreement is executed on behalf of the parties by duly authorized officers
as of the date first above written.
IMPERIAL BANK MOTORVAC TECHNOLOGIES, INC.
("BANK") ("BORROWER")
By: s/ Clinton Anderson By: s/ Lee W. Melody
---------------------------- --------------------------------
Its: Vice President Its: President & CEO
--------------------------- -------------------------------
By: s/ David P. Nelson
--------------------------------
Its: C.F.O.
-------------------------------
19
<PAGE> 1
EXHIBIT 10.2
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80 (B) (4),
200.83 AND 240.24B-2
MASTER DISTRIBUTOR AGREEMENT
THIS MASTER DISTRIBUTOR AGREEMENT ("Agreement") made as of the 1st day
of April, 1999 (the "Effective Date"), by and between GLOBAL LEAK DETECTION
(U.S.A.), INC., a Nevada, U.S.A. corporation with its principal offices at Las
Vegas, Nevada, U.S.A. (herein called "MANUFACTURER"), and MOTORVAC TECHNOLOGIES,
INC., a Delaware, U.S.A. corporation with its principal office at Santa Ana,
California, U.S.A. (the "MASTER Distributor").
RECITALS:
WHEREAS
A. Manufacturer and its parent corporation, Global Leak Detection Corp.,
an Alberta, Canada corporation ("PARENT"), have rights as licensee of Graminia
Developments Ltd. of proprietary methodology, processes and machinery for the
manufacture of and have the right to distribute certain proprietary products for
the detection of leaks in automotive, commercial, industrial, marine or
residential applications, including any modifications, changes, updates,
replacements, or improvements thereto, which shall be deemed part of the
Products for purposes of this Agreement and including any and all patents
related thereto ("PRODUCTS," as defined below), which Products include a
combined apparatus, casing, and appurtenances for the detection of leaks in
automotive systems (the "AUTOMOTIVE UNIT"), which Automotive Unit contains vapor
generation capability housed in a sealed canister (the "AUTOMOTIVE CANISTER").
B. Manufacturer and Parent continue to carry out research and
development programs in respect of the Products and their manufacture.
C. Master Distributor desires to become the exclusive distributor in the
Trading Area, as defined herein, of the Automotive Unit or a unit similar in
form and function which it will assemble, containing the Automotive Canister,
and Manufacturer desires to appoint Master Distributor as such exclusive
distributor, in the Trading Area (as defined herein) . This Agreement initially
covers the distribution of only the Automotive Canister in the Automotive Unit
(whether assembled by Manufacturer or by Master Distributor). Master Distributor
also desires from time to time to become the exclusive distributor of other
Products, and to that extent Master Distributor shall have a right of first
refusal to distribute the Products, this Agreement will serve as an umbrella or
master agreement for that purpose and other Products may be added from time to
time to the list of Products for distribution by Master Distributor.
D. Manufacturer and Master Distributor both desire to enhance sales in
the Trading Area through the Master Distributor's broadbased distribution
network.
1.
<PAGE> 2
E. Whereas the following additional provisions attached as Schedules
hereto shall form part of this Agreement:
<TABLE>
<S> <C>
Schedule A Description of Products and Prices
Schedule B Description of Trading Area
Schedule C Initial and Minimum Purchase of Products
Schedule D-1 Confidentiality and Non-disclosure Agreement (Manufacturer)
Schedule D-2 Confidentiality and Non-Disclosure Agreement (Master Distributor)
Schedule E Non-Competition Agreement
Schedule F Dispute Resolution
</TABLE>
NOW THEREFORE in consideration of the mutual promises and covenants
herein the parties agree as follows:
1. APPOINTMENT AND GRANT OF LICENSE.
(a) Manufacturer hereby appoints and grants Master Distributor an
exclusive right and license to market, sell and distribute ("DISTRIBUTE") the
Products specified on SCHEDULE A attached hereto (as incorporated into the
Automotive Unit or otherwise), in the Trading Area for the Term of this
Agreement, and Master Distributor hereby accepts such grant, upon the terms and
conditions of this Agreement. Manufacturer shall terminate all of its sales of
Products in the Trading Area by May 30, 1999. New territories may be added to
the Trading Area in accordance with, and subject to the provisions relating to
the determination of minimum purchases as contemplated in, Section 20. The
distribution Trading Area is as set out on SCHEDULE B hereto, as it may be
amended from time to time upon agreement of the parties.
(b) The rights granted under paragraph (a) above include the
right to sublicense such rights through multiple tiers of distributors,
including, without limitation, the right to sublicense to Snap-On Canada Inc. or
any of its affiliates ("SNAP-ON"), subject to compliance with Section 18.
(c) Master Distributor shall pay to the Manufacturer the sum of
[...***...] of the United States of America upon execution of this Agreement,
plus order and pay for all Products as and when required hereunder to secure and
maintain its exclusive right to Distribute the Products in the Trading Area.
* CONFIDENTIAL TREATMENT REQUESTED
2. PRODUCTS.
(a) The Products which are covered by this Agreement are set out
on SCHEDULE A hereto. Additions or deletions to the list of Products on SCHEDULE
A may be made from time to time by written agreement of the parties and are then
subject to the terms of this Agreement.
(b) Manufacturer will provide, at its expense, a master copy of
documentation related to the Products (e.g. technical and commercial manuals) to
Master Distributor. Manufacturer will promptly disclose to Master Distributor
any improvements to the Products,
2.
<PAGE> 3
and all subsequent improvements to any documentation related thereto, developed
by Manufacturer or Parent during the Term. Master Distributor shall own
exclusively, without obligation to Manufacturer or any third party, all Products
purchased from Manufacturer and paid for pursuant to this Agreement.
3. TERM. This Agreement shall be in effect for an initial term of five (5) years
commencing on the Effective Date ("TERM"), and provided that Master Distributor
has not failed to cure any material default under this Agreement following the
notice required under Section 25, the Term of this Agreement shall automatically
renew for a renewal term of five (5) years.
4. INITIAL PURCHASE. Master Distributor hereby agrees to make an initial
purchase pursuant to a purchase order as specified in SCHEDULE C hereto on or
before (and subject to) execution of this Agreement and the Assembly Agreement
by all parties hereto and thereto), with shipment and payment in accordance with
the terms and conditions specified thereon (which shall not be inconsistent with
the terms of this Agreement). Such initial purchase is a condition precedent to
this Agreement, which condition may be waived or extended by Manufacturer in its
sole unfettered discretion.
5. SALES AND MARKETING. Master Distributor shall develop a marketing plan,
including a monthly, non-binding, rolling 90-day market projection, which will
reflect Master Distributor's then current good-faith estimate of future sales of
Products in the Trading Area, and provide a copy of the plan to Manufacturer.
These forecasts are for information only and are not guarantees Master
Distributor will purchase or sell in such volumes or at all.
6. MINIMUM PURCHASES.
(a) Master Distributor shall purchase as and when required all of
the volumes of Products stipulated herein as being required, shall use
commercially reasonable efforts to advertise and promote the sale of the
Products within the Trading Area and shall use its commercially reasonable
efforts to maximize sales of the Products in the Trading Area in excess of the
minimum sales volume required.
(b) Annual minimum purchases by Master Distributor of Products
for each calendar year and each territory in the Trading Area shall be as set
out on SCHEDULE C hereto or as otherwise agreed in writing from time to time.
7. FAILURE TO PURCHASE THE MINIMUM AMOUNT. In the event that Master Distributor
fails to purchase and pay for the minimum volume of Products in a calendar year,
its rights as to exclusivity of Distribution of the Products under this
Agreement shall at Manufacturer's option (the exercise of which shall require
thirty (30) days prior written notice to Master Distributor), be reduced to
non-exclusive license as to Distribution of the Products in the Trading Area. In
the event Manufacturer validly executes its rights under this Section 8 to
remove the exclusivity, no such ongoing business shall be construed as affirming
or re-establishing the exclusive nature of the Distribution rights unless in
writing signed by Manufacturer.
8. PRICE AND DISCOUNT. Manufacturer shall sell the Products to the Master
Distributor at the price set out on SCHEDULE A. Manufacturer agrees to provide
Master Distributor with the most favored pricing for Products so long as Master
Distributor is entitled to exclusivity under this
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Agreement. So long as the Master Distributor is entitled to exclusivity, should
Manufacturer sell Products or substantially similar products to a third party
(based on equivalent lot size and quantity pricing), at less than the applicable
prices set forth in SCHEDULE A (as it may be modified or amended from time to
time), then Manufacturer shall adjust the prices set forth in SCHEDULE A to the
same level as such sales to the third party, effective as of the date that
Manufacturer offered such lower prices to the third party. Notwithstanding
anything contained herein to the contrary, in the event Manufacturer does not
own a valid patent in the United States and Canada relating to the technology
incorporated in the Products or it becomes reasonably apparent that patents will
not be awarded upon the pending patent applications related to such technology,
Master Distributor shall only be obligated to pay the base price for the
Products and shall not pay any sliding percentage, gross percentage or other
royalties as described on SCHEDULE A.
9. PRICE CHANGES. Unless otherwise specified herein, prices for the Products
shall be unilaterally set by Manufacturer from time to time in recognition of
various factors such as the increase in the cost of materials and labor. If
Manufacturer intends to charge a higher price than provided in SCHEDULE A,
Manufacturer shall substantiate such increase in price to the reasonable
satisfaction of Assembler as resulting from an actual increase in the cost of
materials or labor to Manufacturer such that Manufacturer is hereby maintaining
its margins and shall permit Master Distributor to order a quantity of the older
Products sufficient for Master Distributor's reasonable needs for a period of
three (3) months. Master Distributor may, at its option exercised by notice in
writing to Manufacturer within thirty (30) days of written receipt of notice
from Manufacturer of a proposed price increase for the Products and prior to any
purchases of the particular Product(s) which price has been increased,
immediately terminate the Distribution of the particular Product(s) which price
has increased by more than [...***...] per annum (the "Maximum Price"),
excluding currency exchange. If Master Distributor terminates Distribution of a
particular Product, then its rights in respect of exclusive or non-exclusive
Distribution of that particular Product shall cease, and any subsequent sales
shall not restore, extend or renew such rights unless in writing signed by
Manufacturer; provided, however, that if any such Product is, within twelve (12)
months of termination of such Product, subsequently sold by Manufacturer or
through a licensee of Manufacturer, at a price less than the Maximum Price, such
Product shall, at the Master Distributor's sole option, be deemed to be a
Product hereunder, subject to the exclusivity obligations and requirements for
minimum purchase.
* CONFIDENTIAL TREATMENT REQUESTED
10. NEW PRODUCTS. Unless otherwise specified by Master Distributor, Manufacturer
shall supply the newest version or enhancement of the Product to Master
Distributor determined as of the date of the order by Master Distributor.
Manufacturer reserves the right at any time to make changes in specifications,
construction or design of the Products; provided, however, that any changes
shall meet the requirements and conform to the specifications of Master
Distributor as set forth in this Agreement. Manufacturer shall provide not less
than 90 days prior written notification of any proposed changes. Any Products so
changed shall be accepted by Master Distributor as standard Products conforming
to existing orders so long as they do not adversely affect physical or
functional interchangeability or performance of the particular Product.
Manufacturer shall not be obligated to furnish Master Distributor or its
wholesale or retail customers with changes on Products previously delivered to
Master Distributor except in accordance with the warranty of such Products.
4.
<PAGE> 5
11. CONTINUING AVAILABILITY. Manufacturer shall offer for sale to Master
Distributor, for a period of eighteen (18) months (unless a longer period is
required pursuant to any applicable statute or regulation, in which case this
provision shall apply for such longer period) after the termination of this
Agreement, functionally equivalent maintenance, replacement and repair parts for
Products. Such parts shall be available at the lower of (i) the price for such
parts immediately prior to the termination of this Agreement or (ii) the then
current contract price for other customers, or if no such contract exists, at a
price agreed upon by Manufacturer and Master Distributor.
12. NO PRICE PROTECTION FOR PRIOR PRODUCT. In the event Manufacturer releases an
upgraded or enhanced version of a Product which is not yet listed as a Product
pursuant to this Agreement, then Master Distributor may acquire such upgraded or
enhanced Product subject to the terms of this Agreement. Master Distributor
shall not have any right or obligation to return previously ordered Products nor
to receive any refund, rebate or offset in price in respect of previously
ordered Products solely as a result of the released new Products.
13. ORDER, ACCEPTANCE, CANCELLATIONS, AND RETURNS.
(a) PURCHASE ORDER. All purchases are subject to acceptance by
Manufacturer and orders must reference this Agreement. Products shall be ordered
by Master Distributor through the issuance of purchase orders, which shall be
subject to and governed by this Agreement. Master Distributor shall submit
written purchase orders to Manufacturer from time to time during the Term of
this Agreement. The terms and conditions of this Agreement will supersede and
take precedence over any additional or different terms on the face or reverse
side of any such purchase order. Any such additional or different terms are
deemed to be material alterations to the terms and conditions of this Agreement
and will not be binding even if there is a signed acknowledgment or confirmation
by Manufacturer of such purchase order, unless the acknowledgement or
confirmation is by an executive officer of the Manufacturer.
(b) QUANTITY, DELIVERY DATE. Each such purchase order of Master
Distributor will specify the type and quantity of Products being ordered,
delivery terms, and the requested delivery date. Time is of the essence in
delivery of all Products.
(c) SHIPPING. Prices and fees are C.I.F. Master Distributor's
warehouse. The Manufacturer will prepay and add applicable freight, insurance
costs, duties, rates, charges and other shipping charges to the invoice. All
Products shall be packed for shipment and storage in accordance with standard
commercial practices and adequately insured by Manufacturer or the carrier. All
risk of loss or damage will pass to Master Distributor upon delivery to Master
Distributor's warehouse. Manufacturer will deliver Products according to the
delivery dates specified in Master Distributor's purchase orders, such delivery
dates being not later than ninety (90) days after the date such order is
received by Manufacturer. Manufacturer will notify Master Distributor
immediately and in writing of any anticipated failure of Manufacturer to be able
to deliver Products according to such delivery dates, and in such event Master
Distributor shall have the right to: (I) reschedule such delivery dates to
mutually-agreed dates in the future; or (II) cancel, in whole or in part, the
purchase orders applicable to such Products, without further liability to
Manufacturer (except as may otherwise specifically be required hereunder); or
(III) consider such anticipated failure to deliver according to applicable
delivery dates to be a material
5.
<PAGE> 6
breach of the Agreement. No shipment will be deemed complete until all ordered
units have been delivered.
(d) ALLOCATION OF INVENTORY. So long as Master Distributor is entitled
to exclusivity under this Agreement, if at any time the purchase orders of
Master Distributor together with all other orders received by Manufacturer for
the Products exceed the then current available inventory of Manufacturer and
foreseeable production within thirty (30) days, then Manufacturer shall fill
Master Distributor's purchase order before filling part or all of any purchase
order from any third party.
(e) INSPECTION AND ACCEPTANCE OF PRODUCTS; INVOICES. Master Distributor
will inspect all Products for obvious physical damage promptly upon receipt
thereof and may reject any Products that fail in any material respect to meet
any product specifications or for Products which are obviously damaged. Master
Distributor shall notify Manufacturer of any nonconformity and shall in good
faith discuss with Manufacturer acceptable alternative curative efforts prior to
returning a rejected shipment at Manufacturer's expense. Any Products not
properly rejected within fifteen (15) business days of receipt of such Products
by Master Distributor will be deemed accepted. Master Distributor will return
all rejected Products to Manufacturer promptly, and at Manufacturer's expense,
and Manufacturer shall within ten (10) days re-ship to Master Distributor
Products which do conform to their product specifications. Invoices shall be
issued after the Products listed on the invoice have been delivered to Master
Distributor. Freight charges, insurance costs, duties, rates, charges and other
shipping charges will be added as a separate item to Manufacturer's invoice.
(f) OTHER RESPONSIBILITIES OF MANUFACTURER. Manufacturer will provide
Manufacturer's two (2) days standard training course and materials for the
Products to the marketing and technical support personnel of Master Distributor
at Master Distributor's place of business at the equally shared expense of
Master Distributor and Manufacturer. This training will include Manufacturer's
standard course material regarding installation, operation and maintenance of
the Products and will be sufficient to enable Master Distributor's employees to
incorporate the Products into any other equipment as described in this Agreement
or the Assembly Agreement and training and/or develop further training for the
end users. Manufacturer will provide, at no charge to Master Distributor, a
complete set of all training materials and documentation.
14. PAYMENT. Manufacturer will invoice Master Distributor at the time of
shipment for each Product order. Each such invoice will include the aggregate
price for the Product shipment plus freight, insurance, taxes, duties and other
costs prepaid by Manufacturer. All payments shall be made in U.S. dollars. Full
payment of the amounts invoiced for each shipment will be paid within forty-five
(45) days of the later of (i) the date of Master Distributor's receipt of such
invoice or (ii) the date of delivery of such Products to Master Distributor. Any
invoice not paid when due, as provided in this section will be subject to a
monthly charge of one percent (1.0%) of the unpaid portion thereof from invoice
date.
6.
<PAGE> 7
15. LIMITED LIABILITY AND LIMITED WARRANTY.
(a) Master Distributor hereby agrees to give on behalf of Manufacturer
to any purchaser or user of the Products no warranty other than the written
limited Manufacturer's warranty of Manufacturer in respect of the Products
provided to Master Distributor by Manufacturer, subject to statutory warranties
which may be necessarily implied and not capable of being reduced or eliminated
by contract in certain jurisdictions. Manufacturer shall have the right to prior
approval of the form and content of any other warranty provided by Master
Distributor in respect of any Product. The Master Distributor is not authorized
to grant, extend or assume for Manufacturer any additional warranty or other
obligations concerning the Products. Master Distributor shall make the limited
warranty of Manufacturer an integral part of all sales of the Products, and
shall process warranty claims and make warranty repairs or replacements of all
the Products in the Trading Area as stipulated by Manufacturer. In the event
Master Distributor processes warranty claims or makes warranty repairs or
replacements, Manufacturer shall reimburse Master Distributor for the cost of
its labor and materials upon reasonable rates previously agreed upon by
Manufacturer and Master Distributor. Master Distributor shall not return any
Products for repair or replacement to Manufacturer except as specifically set
out herein. Failure by Master Distributor to make the terms of the then
applicable Manufacturer's warranty an integral part of a particular sale shall
have the effect of relieving Manufacturer from any warranty obligations
hereunder in respect of such sale as between Manufacturer and Master
Distributor, and Master Distributor shall be responsible for satisfying, at its
expense, any warranty claims related to any such sale.
(b) Manufacturer warrants to Master Distributor and end users of the
Products that at the time of Distribution to end users and for a period of one
(1) year thereafter the Products are of commercial quality, free of defects in
materials and workmanship, and that operation of the Product conform to the
Products' specifications in effect at the time of distribution. Manufacturer's
warranty obligation under this subsection (b) shall not apply to Housings or
Automotive Canisters, if any, that are manufactured by Master Distributor under
the Assembly Agreement.
(c) Manufacturer shall, at its option, either repair or replace a
defective part within the period stipulated by Manufacturer after the date of
purchase, upon proof of purchase and delivery of the Product to an authorized
service center as designated by Manufacturer.
(d) Manufacturer represents and warrants that the Products do not and
will not infringe or misappropriate any third party's copyright, patent, trade
secret, trademark, or other proprietary or intellectual property rights, and
that Manufacturer has the unencumbered right, title and interest to distribute
the Products to Master Distributor.
(e) All warranties under this Agreement shall survive inspection,
delivery, acceptance or payment by Master Distributor, and will be extended
directly to end users purchasing the Products as part of Master Distributor's
equipment.
(f) NO PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL,
INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES INCLUDING WITHOUT LIMITATION,
LOST PROFITS, SAVINGS, OR INCOME,
7.
<PAGE> 8
REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING
NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF IT HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
(g) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, MANUFACTURER DOES
NOT MAKE ANY REPRESENTATION OR WARRANTY TO THE MASTER DISTRIBUTOR OF ANY KIND,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
16. SERVICE IS THE RESPONSIBILITY OF MASTER DISTRIBUTOR. It is the
responsibility of the Master Distributor to provide purchasers and users of the
Products which it has sold efficient repair and replacement parts and service
(other than services to be provided by Manufacturer pursuant to the
Manufacturer's warranties hereunder). Manufacturer shall provide to Master
Distributor the information for adequately servicing the Products, and Master
Distributor shall be responsible for the adequate training of persons selling or
servicing the Products. Master Distributor may obtain replacement parts without
charge during the limited warranty period described in Section 16(b) provided by
Manufacturer in respect of the Products.
17. NO WARRANTY CONCERNING IMPORT TARIFFS. Master Distributor shall be liable
for all duties, rates and charges respecting the importation of the Products
into the Trading Area by Manufacturer or otherwise, except that Master
Distributor shall not be liable for any duties or material changes resulting
from any Products returned to Manufacturer under warranty. Master Distributor
accepts all risks and costs whatever in respect of the importation of the
Products. Manufacturer does not represent or warrant that the Products are
eligible for any favorable treatment or tariff reduction pursuant to any
applicable treaty or legislation or regulation and Master Distributor relies
upon its own knowledge in that regard.
18. PERMITTED SUB-DISTRIBUTORS. Master Distributor shall be permitted to
establish subdistributors within the Trading Area provided:
(a) Manufacturer receives a copy of the proposed arrangement;
(b) Manufacturer receives detailed information about the
subdistributors; and
(c) Manufacturer gives prior approval in writing of such
subdistributors and all arrangements therefor, which approval
shall not be unreasonably withheld.
Notwithstanding the foregoing, Manufacturer hereby specifically approves
the appointment by Master Distributor of Snap-On Canada, Inc. or its parent
corporation or any affiliate as a sub-distributor of the Products in the Trading
Area.
19. STANDARD OF CONDUCT OF THE PARTIES. The parties hereby agree to deal with
each other in good faith and provide their commercially reasonable efforts in
the supply, manufacture and support of quality Products and Distribution of
those Products in the Trading Area. The parties agree to keep each other
reasonably and currently informed with respect to the Products and Distribution
of the Products in the Trading Area.
8.
<PAGE> 9
20. UNDEVELOPED DISTRIBUTION AREA. Manufacturer shall refer to Master
Distributor all leads or inquiries which it knows of and/or come to its
attention in respect of the Products which are the subject of this Agreement and
sub-distributors. Master Distributor shall have discretion to exclusively
distribute Products in any such new territory. Except for the minimum numbers to
be determined pursuant to the provisions of part 2.D of SCHEDULE C, Manufacturer
and Master Distributor shall negotiate in good faith to agree on the minimum
volume of sales for such territory for subsequent periods on or before the first
anniversary of the date sales by Master Distributor began in such territory. The
determination of such minimum number shall not be subject to the Dispute
Resolution provisions of Schedule F.
21. CERTAIN TECHNOLOGY RIGHTS. Master Distributor hereby acknowledges that,
subject to the provisions of its Assembly Agreement with Manufacturer, all
intellectual property, including know how and proprietary rights relating to the
Products (but excluding the Housing), including without limitation, the
Automotive Canister, is the property of Manufacturer or its affiliates (such
acknowledgement based upon representations made by Manufacturer) and does not
belong to Master Distributor. Subject to the provisions of the Assembly
Agreement, any enhancements, improvements, discoveries or developments
("IMPROVEMENTS") made or done whatever by Master Distributor relating to the
Automotive Canister or other Products, or the process of manufacturing the
Products, or products derived, in whole or in part, therefrom or similar thereto
in function or design shall belong to Master Distributor, and Master Distributor
shall fully inform Manufacturer in writing within thirty (30) days of any such
enhancements, improvements, discoveries or developments. Manufacturer shall be
entitled to use such Improvements (other than Improvements related to the
Housing) without additional royalties for the purposes of this Agreement without
further license or fees and Manufacturer shall have a perpetual, non-exclusive,
royalty-free license to use or sublicense such Improvements following
termination of this Agreement or exclusivity thereof. Notwithstanding anything
to the contrary contained herein, if any Improvements made solely by Master
Distributor are utilized by Manufacturer and result in any cost reduction of
materials used or direct labor in the production of Products, Master Distributor
shall receive the benefit of such cost reduction of materials used or direct
labor as of the date of notification of such Improvements to Manufacturer
through a reduction in the purchase price for such Product.
22. NON-DISCLOSURE AND NON-COMPETITION COVENANTS. The Non-Disclosure Agreements
attached hereto as SCHEDULE D-1 AND SCHEDULE D-2, and the Non-Competition
Agreement attached hereto as SCHEDULE E are hereby incorporated herein as part
of this Agreement.
23. INTELLECTUAL PROPERTY INDEMNIFICATION.
(a) THIRD PARTY CLAIMS. Manufacturer shall defend at its own expense any
claim, suit, threat or legal proceeding (collectively, a "CLAIM") brought
against Master Distributor, its officers, directors, employees, stockholders,
customers, distributors and agents insofar as such Claim is based on a claim
that any of the Products provided by Manufacturer or Parent pursuant to this
Agreement infringes the patent, copyright, trade secret, mask work rights or any
other intellectual property rights or misappropriate any trade secret of any
third party, so long as Master Distributor notifies Manufacturer promptly in
writing of such Claim and gives Manufacturer sole control over and information
and cooperation reasonably necessary (at Manufacturer's expense) for the defense
thereof. Manufacturer shall fully indemnify, defend,
9.
<PAGE> 10
hold harmless and pay damages, costs (including attorneys' fees), expenses, and
liabilities finally awarded to third parties against or otherwise incurred by
Master Distributor, its officers, directors, employees, stockholders, customers,
and agents or incurred pursuant to a Claim or a bona fide settlement in any such
Claim.
(b) REMEDY. In the event that Manufacturer has reason to believe or
receives notification that any Manufacturer copyright, trademark, service mark,
patent or trade secret may infringe or misappropriate the intellectual property
rights of a third party, Manufacturer shall obtain the right for Master
Distributor to continue to exercise the rights granted under this Agreement, to
substitute the Products with substantially similar ones, or to modify the
Products so that they no longer infringe, but have substantially similar
operating capabilities and fit, form and function, subject to the express
written approval of Master Distributor, and/or obtain a license to grant such
rights as may be required to make the Products non-infringing while still
complying with the representations and warranties of this Agreement. Master
Distributor's failure to provide prompt notice of infringement or allegation of
infringement shall not void provisions of this Section.
24. INDEMNIFICATION.
(a) MANUFACTURER INDEMNIFICATION. Manufacturer will fully defend,
indemnify, and hold Master Distributor and its officers, directors and employees
in respect of lawful acts, harmless from any claim, suit, threat or legal
proceeding and all damages, costs, expenses, and other liabilities arising from
any of the foregoing (including attorneys' fees) resulting from Manufacturer's
breach of its warranty obligations, the use of the Products or from product
liability claims alleging defects in the Products (other than the Housing or
Automotive Canisters manufactured by Master Distributor under the Assembly
Agreement, if any).
(b) MASTER DISTRIBUTOR INDEMNIFICATION. Subject to Manufacturer 's
obligations set forth in this Agreement, Master Distributor will defend,
indemnify, and hold Manufacturer harmless from any claim, suit, threat or legal
proceeding and all damages, costs, expenses, and other liabilities arising from
any of the foregoing (including attorney's fees) resulting from Master
Distributor's breach of its warranty obligations related to the Housing or
Automotive Canisters that it manufactures under Section 2.1 of the Assembly
Agreement, if any.
(c) NOTIFICATION. Each party agrees to notify the other party promptly
in writing of each claim, suit, threat or legal proceeding, and to give such
other party sole control over and information and reasonable cooperation (at
such other party's expense) for the defense thereof.
25. TERMINATION
(a) TERMINATION FOR CAUSE. Either party may terminate this Agreement for
the material breach of this Agreement or any purchase order by the other party
which material breach has remained uncured for a period of thirty (30) days from
the date of delivery of written notice thereof to such breaching party, which
notice shall specify the curative or remedial action to be taken by the other
party. In such case, termination shall become effective after the end of the
thirtieth day from such notice. For purposes of this Agreement, material breach
shall include, without limitation, the occurrence of any of the following: (i)
any proceedings in bankruptcy,
10.
<PAGE> 11
insolvency, receivership or liquidation are taken or instituted against a party;
or (ii) a party makes an assignment for the benefit of creditors or commits an
act of bankruptcy or insolvency.
(b) EFFECT OF TERMINATION.
(i) DISTRIBUTION. Upon termination of this Agreement, Master
Distributor may continue to Distribute the Products and any equipment
incorporating the Products until its inventory of Products existing at the date
of termination and any Products for which Master Distributor has submitted a
Purchase Order and which Purchase Order has been accepted by Manufacturer is
depleted. Upon depletion of such Product inventory, Master Distributor shall
cease distributing the Products.
(ii) SURVIVAL. Either Party's obligations under this Agreement
which by their nature would continue beyond termination, expiration or
cancellation of this Agreement shall survive termination, expiration or
cancellation of this Agreement. Upon expiration or termination of this
Agreement, all sub-distributors shall have the right to continue distribution of
Products until their inventories at the time of termination are depleted.
(iii) The termination shall not affect the rights or liabilities
of the parties with respect to Products previously sold under this Agreement or
with respect to any indebtedness then owing by either party to the other.
(iv) The acceptance of any order for the sale of any Products to
Master Distributor after the termination of this Agreement shall not be
construed as a renewal or extension of this Agreement, or as a waiver of
termination, but in the absence of a new written agreement signed by the
parties, all such transactions shall be governed in the same manner as are
ordinary purchase orders placed with Manufacturer by Master Distributor pursuant
to this Agreement.
26. INDEPENDENT CONTRACTOR STATUS. This Agreement does not constitute Master
Distributor as a legal representative, joint venturer, partner, employee,
servant or agent of Manufacturer for any purpose whatever. Master Distributor is
an independent contractor buying and distributing Products and carrying on
business solely on its own behalf and is in no way authorized to make any
contract, agreement, warranty or representation on behalf of Manufacturer, or to
create any obligation, express or implied, on behalf of Manufacturer, other than
as expressly set out herein.
27. NO ASSIGNMENT. This Agreement may not be assigned, sold or encumbered
without the prior written consent of the other party. Any purported assignment,
sale or encumbrance shall be void and of no force and effect.
28. DISPUTE RESOLUTION. The parties agree to resolve disputes without litigation
and in accordance with the dispute resolution and arbitration provisions set out
in SCHEDULE F hereto which are hereby incorporated herein as part of this
Agreement.
29. MISCELLANEOUS.
(a) INTERPRETATION. Wherever the singular or masculine is used in this
Agreement the same shall be interpreted as including the plural, feminine or
neuter wherever the context so
11.
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requires. The captions and headings are inserted for convenience of reference
only, form no part of this Agreement and in no way define, describe or limit the
scope or intent of this Agreement or any provision hereof.
(b) FURTHER ACTS. In order to fulfill the intent of the parties hereto,
they shall execute from time to time all reasonable documents and do all such
things as may be necessary or desirable to more completely and effectively carry
out the terms and intentions of this Agreement, to implement it in all respects
or to fulfill consequential aspects thereof, which any other party may request
from time to time at the expense, if any, of the party so requesting.
(c) SEVERABILITY. If a Court or duly constituted arbitrator would
declare that all or any portion of the provisions of this Agreement are void or
unenforceable in the circumstances, this Agreement shall, automatically and
without further act on the part of the parties hereto, be reduced in scope to
such an extent as to be valid and enforceable in the circumstances. The
invalidity of any provision of this Agreement or any covenant contained herein
on the part of any party shall not affect the validity of any other provision or
covenant herein, which shall remain in fun force and effect
(d) GOVERNING LAW. Subject to the procedures set out in the Dispute
Resolution provisions set out in Schedule F, this Agreement shall be governed by
and construed pursuant to and in accordance with, including the enforcement
thereof, the laws of the State of California and the laws of United States of
America applicable therein without reference to conflict of laws principles and
excluding the United Nations Convention on Contracts for the International Sale
of Goods. Any disputes under this Agreement shall be subject to the exclusive
jurisdiction and venue of the California state courts and the Federal courts
located in Orange County, California, and the parties hereby consent to the
personal and exclusive jurisdiction and venue of these courts.
(e) ENTIRE AGREEMENT. This Agreement, including the Schedules attached
hereto, and the Assembly Agreement, constitute the entire agreement between the
parties. reflects all the agreements, understandings, representations,
conditions and warranties by and between the parties, and any prior
understanding or representation of any kind preceding the Effective Date shall
not be binding upon either party unless expressly stated herein in writing or
clearly and expressly incorporated by reference herein in writing. The execution
of this Agreement has not been induced by, nor do any of the parties hereto rely
upon or regard as material, any representations or promises whatever except to
the extent expressly granted herein in writing or clearly and expressly
incorporated by reference herein in writing. No party shall be liable for any
representation made or omitted unless it is expressly set forth in this
Agreement.
(f) AMENDMENT OF THIS AGREEMENT. Any amendment or modification of this
Agreement or additional obligation assumed by any party in connection with this
Agreement shall be binding only if evidenced in writing signed by each party or
an authorized representative of each party. Any alteration, amendment or
qualification of this Agreement shall be null and void and shall not bind any
party unless made in writing.
(g) NOTICE. All notices contemplated or required to be given hereunder
shall be effective if sent by prepaid mail, facsimile transfer or delivered
personally to any of the parties at
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the address listed below or at such other address as the party to whom such
notice is to be given otherwise directs in writing. Any notice delivered
aforesaid shall be effective on the date of facsimile transfer or delivery and
any notice mailed as aforesaid shall be effective three (3) business days after
the mailing thereof, provided that where interruption of mail services is likely
by reason of any strike or other labor dispute, notice shall be by personal
delivery only to the person or to the address as aforesaid.
To Manufacturer at: c/o 7717-67 Street
Edmonton, Alberta Canada T6B 2K4
Attn: Gerald Vanberg
Fax: (780) 448-3610
With a copy to: Nichols & Company
#2020, 10123-99 Street
Edmonton, Alberta Canada T5J 3H1
Attn: Neil W. Nichols
Fax: (780) 497-7799
To Master Distributor at:
Lee W. Melody
1431 S. Village Way
Santa Ana, CA 92705
Fax: (714) 558-0370
With a copy to: Jeremy D. Glaser, Esq.
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Fax: (619) 453-3555
(h) TIME OF ESSENCE. Time shall be of the essence of this Agreement.
(i) WAIVER. Any waiver of any term, provision or condition of this
Agreement to be effective must be in writing and signed by the party waiving
such term, provision or condition stating with specificity the particular
provision or provisions being waived and for what event or period of time. No
waiver of any one or more provisions shall be deemed to be a further waiver or
continuing waiver of such terms, provisions or conditions or any other term
provisions or conditions unless the waiver specifically so states.
(j) FORCE MAJEURE. No right of any party hereto shall be prejudiced by
events beyond a party's reasonable control and without negligence of the party
charged with performance hereunder, including without limitation pressures or
delays from outside parties, labor disputes, the exigencies of nature,
governments, regulatory authorities and acts of God, particularly as they may
affect the performance of this Agreement. All times herein provided for shall be
extended by the period necessary to cure any such event and the party affected
shall use all reasonable means to do so promptly.
13.
<PAGE> 14
(k) WARRANTY OF AUTHORITY. Any such execution of this Agreement is a
representation and warranty to the other party that the party so signing has
full authority in all requisite capacities to do so.
(l) ENUREMENT. This Agreement shall be binding upon and enure to the
benefit of the Parties and their respective successors and permitted assigns.
(m) COUNTERPARTS AND FAX COPIES. This Agreement may be executed in
counterpart and may be delivered by fax copies thereof and when the whole is so
executed and delivered it shall constitute a valid and binding agreement among
the parties so executing and delivering the agreement effective as of the
Effective Date. Fax Signatures shall be deemed to be accepted as original.
(n) ATTORNEYS' FEES. In any proceeding between the parties arising from
or related to the interpretation, construction or enforcement of this Agreement,
subject to the Dispute Resolution provisions set forth in SCHEDULE F, the
prevailing party shall, in addition to recovering all costs of suit, be entitled
to an award of actual attorneys' fees incurred, whether in an original action or
on appeal.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement
as of the day and year first above written.
GLOBAL LEAK DETECTION (U.S.A.), INC.
s/ Gerald Vanberg
----------------------------------------
Gerald Vanberg, President
MOTORVAC TECHNOLOGIES, INC.
s/ Lee W. Melody
----------------------------------------
Lee W. Melody, President
14.
<PAGE> 15
SCHEDULES AND EXHIBITS NOT INCLUDED
1.
<PAGE> 1
EXHIBIT 10.3
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80 (B) (4),
200.83 AND 240.24B-2
ASSEMBLY AGREEMENT
THIS ASSEMBLY AGREEMENT ("Agreement") made as of the 1st day of April,
1999 (the "EFFECTIVE DATE") by and between GLOBAL LEAK DETECTION (U.S.A.), INC.,
a Nevada, U.S.A. Corporation with its principal offices at Carson City, Nevada,
U.S.A. (herein called "MANUFACTURER"), and MOTORVAC TECHNOLOGIES, INC., a
Delaware, U.S.A. Corporation with its principal office at Santa Ana, California,
U.S.A. (the "ASSEMBLER").
RECITALS:
WHEREAS
A. Manufacturer and Global Leak Detection Corp., an Alberta, Canada
corporation ("PARENT") have developed proprietary methodology, processes and
machinery for the manufacture of and have the right to manufacture certain
proprietary products for the detection of leaks in automotive, commercial,
industrial, marine or residential applications (the "PRODUCTS"), which Products
include in particular a combined apparatus, casing, and appurtenances for the
detection of leaks in automotive systems (the "AUTOMOTIVE UNIT"), which Product
in particular contains vapour generation capability housed in a sealed canister
(the "AUTOMOTIVE CANISTER").
B. Manufacturer and Parent continue to carry out research and
development programs in respect of the Products and their manufacture;
C. Assembler desires to assemble the Automotive Unit by incorporating
the Automotive Canister. The parties acknowledge that this Agreement is limited
to enabling the assembly of only those Products as may be specified hereunder
from time to time and the terms thereof in respect of each Product from time to
time.
D. Assembler desires to make the Housing (as defined herein) to house
the Automotive Canister, which together with the Automotive Canister shall form
the Automotive Unit, which shall be distributed by Assembler, as Master
Distributor, pursuant to that certain Master Distributor Agreement between the
parties executed concurrently herewith.
F. Whereas the following additional provisions attached as Schedules
hereto shall form part of this Agreement:
<TABLE>
<S> <C>
Schedule A Trading Area
Schedule B-1 Litigation (Manufacturer)
</TABLE>
1.
<PAGE> 2
<TABLE>
<S> <C>
Schedule B-2 Litigation (Assembler)
Schedule C Dispute Resolution
Schedule D-1 Confidentiality and Non-Disclosure Agreement (Manufacturer)
Schedule D-2 Confidentiality and Non-Disclosure Agreement (Assembler)
Schedule E Non-Competition Agreement
</TABLE>
NOW THEREFORE in consideration of the mutual promises and covenants
herein the parties agree as follows:
1. APPOINTMENT AND GRANT OF LICENSE.
1.1 Manufacturer hereby appoints Assembler as the exclusive assembler of
Automotive Units in the Trading Area, and Assembler hereby accepts such
appointment, upon the terms and conditions of this Agreement. For purposes of
this Agreement, the Trading Area shall consist of the territories included on
SCHEDULE A (which Trading Area is identical to the Trading Area under the Master
Distributor Agreement of even date hereunder, as it may be amended from time to
time (the "Master Distributor Agreement")). Notwithstanding anything herein to
the contrary, in the event Assembler's exclusivity under the Master Distributor
Agreement is terminated in accordance with the terms of such agreement, then
Manufacturer shall have the right to terminate the exclusivity of Assembler's
rights hereunder immediately upon delivery of written notice of such termination
to Assembler.
1.2 Subject to the terms and conditions of this Agreement, Manufacturer
hereby grants to Assembler an exclusive right and license to assemble Automotive
Units, pursuant to the external specifications of the Automotive Canister as
provided by Manufacturer in writing, and permanently incorporate the Automotive
Canister for integrated assembly into a merchantable unit or Product as
described herein. Assembler shall not sub-contract the right to assemble all or
any part of the Automotive Units without the prior written consent of
Manufacturer.
1.3 Manufacturer shall provide the external specifications for the
Automotive Canister to Assembler hereunder, in writing, as and when available
and free of cost. The agreed upon specifications may be changed: (i) upon thirty
(30) days advance written notice to Assembler; and (ii) so long as any such
change does not adversely affect physical or functional interchangeability for
performance of the Automotive Canister as incorporated into the Housing.
2. MANUFACTURER PROVIDES AUTOMOTIVE CANISTERS.
2.1 Manufacturer shall be the exclusive supplier of Automotive Canisters
to Assembler for purposes of Assembler's performance of this Agreement;
provided, however, that Assembler shall have the right to produce Automotive
Canisters for assembly of Automotive Units hereunder if Manufacturer is unable
to satisfy Assembler's projected demand for Automotive Canisters, as set forth
in this Section 2.1 below.
(a) On one or more occasions, Assembler shall be entitled to
request, in writing, of Manufacturer the grant of a temporary license to produce
the Automotive Canisters provided all of the following conditions have been
fulfilled:
2.
<PAGE> 3
(i) that Assembler in its capacity as Master Distributor
pursuant to the Master Distributor Agreement has provided Manufacturer not fewer
than three consecutive monthly 90-day rolling projections, each of which
demonstrate the forecast requirement for Automotive Canisters in respect of
which Assembler alleges a shortfall or insufficiency in the supply of Automotive
Canisters;
(ii) Assembler has issued purchase orders in respect of
each of those periods and for the number of units not less than the number of
units forecast; and
(iii) that Assembler has not failed to cure any material
default within the requisite period following receipt of a notice to cure under
the Master Distribution Agreement,
(iv) that Assembler has not failed to cure any material
default within the requisite period following receipt of a notice to cure under
the Assembly Agreement.
(b) If all such conditions under subsection (a) above are
satisfied, then upon thirty (30) days prior notice in writing by Assembler to
Manufacturer requesting a temporary license pursuant hereto, the following shall
apply;
(i) Manufacturer shall grant to Assembler a temporary
non-exclusive license for the manufacture of a fixed number of Automotive
Canisters having regard to the shortfall or projected shortfall in supply of
Automotive Canisters, but in any event not exceeding [...***...] units, provided
that for purposes of this section, any purchase order in excess of [...***...]
units shall be deemed to be divided into separate orders each for [...***...]
units (or any lesser remainder amount);
(ii) Manufacturer shall provide Assembler with the plans
and specifications for the internal components of the Automotive Canister;
(iii) Assembler shall manufacture the Automotive Canister
only in accordance with Manufacturer's then prevailing specifications for the
Automotive Canister and shall mark each canister with a unique identifier
approved by Manufacturer for the purpose of indicating that the unit was
manufactured by Assembler; and
(iv) Notwithstanding any other provision of this Agreement
and the Master Distributor Agreement, Assembler shall, and hereby does, accept
all liability whatever, for warranty claims, service and repair, in respect of
the Automotive Canister units which it produces hereunder, and Manufacturer's
liability to Assembler or end-users shall accordingly be eliminated to that
extent for purposes of this Agreement and the Master Distributor Agreement;
provided, however, that Assembler's liability hereunder shall not extend to, and
Manufacturer's liability will continue with respect to, any such claims that are
related to the design, specifications or other aspects of the Automotive
Canister over which Assembler has no control or authority.
* CONFIDENTIAL TREATMENT REQUESTED
3.
<PAGE> 4
2.2 Assembler shall purchase Automotive Canisters from Manufacturer upon
purchase order, at a per unit base price of [...***...] plus applicable freight,
insurance, duties, charges and other shipping charges. The initial order for
Automotive Canisters shall be for at least [...***...] units, effective
immediately upon execution by all parties of this Agreement and the Master
Distributor Agreement between Manufacturer and Assembler. All subsequent orders
for Automotive Canisters shall be for a minimum of [...***...] units per order.
The terms for purchase of Automotive Canisters shall be the same as those terms
(as modified to reflect the correct purchasing and selling parties) set forth in
Sections 5.4 through 5.7 below.
* CONFIDENTIAL TREATMENT REQUESTED
2.3 Assembler shall provide Manufacturer a rolling, non-binding, 90-day
forecast of its projected demand for Automotive Canisters to assist Manufacturer
with its planning needs.
2.4 Manufacturer shall provide a one-year warranty for all Automotive
Canisters, substantially equivalent to the warranty provided by the Manufacturer
to the Master Distributor Agreement.
3. ASSEMBLER PROVIDES HOUSING. The Assembler shall, at its sole cost, design and
manufacture a housing, case and appurtenances in accordance with the criteria
and specifications provided in writing to Assembler (which shall be provided to
Assembler as soon as practicable following execution of this Agreement), (the
"HOUSING") for the purpose of accommodating and incorporating the Automotive
Canister in accordance with the agreed upon specifications.
4. ASSEMBLER ASSEMBLES AUTOMOTIVE UNIT. Assembler shall at its own cost assemble
the Automotive Canister into the Housing to form the integrated and fully
functional Automotive Unit.
5. PURCHASE OF HOUSING UNITS BY MANUFACTURER.
5.1 ASSEMBLER PROVIDES HOUSING UNIT. Assembler hereby agrees to sell to
Manufacturer the completed Housing units capable of accommodating the Automotive
Canister so as to make the Automotive Unit.
5.2 PRICE OF HOUSING. The price of each Housing is hereby fixed at the
amount of Cost plus a gross profit margin of [...***...], where "Cost" means all
of the direct costs of manufacturing the Housing in respect of the components
and materials only, including all direct labor, but excluding amortized capital
or equipment costs and excluding allocated general and administrative expense.
* CONFIDENTIAL TREATMENT REQUESTED
5.3 MANUFACTURER'S RESTRICTIONS ON SALE. Manufacturer acknowledges that
so long as Assembler's rights as Master Distributor are exclusive under the
Master Distributor Agreement, Manufacturer cannot sell or offer to sell any
Automotive Canisters or Automotive Units: (i) in the Trading Area (as defined in
the Master Distributor Agreement); or (ii) to Snap-On Canada Ltd. or any
affiliate thereof.
4.
<PAGE> 5
5.4 PURCHASE ORDER. All purchase orders must reference this Agreement.
Housing units, if and when ordered by Manufacturer, shall be ordered by
Manufacturer through the issuance of purchase orders, which shall be subject to
and governed by this Agreement. Manufacturer may submit written purchase orders
to Assembler from time to time during the Term of this Agreement. Except with
respect to quantity and delivery terms on any purchase order of Manufacturer,
the terms and conditions of this Agreement will supersede and take precedence
over any additional or different terms on the face or reverse side of any such
purchase order. Any such additional or different terms are deemed to be material
alterations to the terms and conditions of this Agreement and will not be
binding even if there is a signed acknowledgment or confirmation by Assembler of
such purchase order unless such acknowledgment or confirmation is by an
executive officer of Assembler.
5.5 QUANTITY, DELIVERY DATE. Each such purchase order of Manufacturer
will specify the quantity of Housing units being ordered, delivery terms, and
the requested delivery date.
5.6 SHIPPING. Prices and fees to Manufacturer are C.I.F. Manufacturer's
warehouse. The Assembler will prepay and add applicable freight, insurance,
duties, rates, charges and other shipping charges to the invoice. All Products
shall be packed for shipment and storage in accordance with standard commercial
practices. All risk of loss or damage will pass to Manufacturer upon delivery to
the Manufacturer's warehouse. Assembler will deliver the Products according to
the delivery dates specified in Manufacturer's purchase orders. Assembler will
notify Manufacturer immediately and in writing of any anticipated failure of
Assembler to be able to deliver Products according to such delivery dates, and
in such event Assembler shall have the right to: (I) reschedule such delivery
dates to mutually-agreed dates in the future; or (II) cancel, in whole or in
part, the purchase orders applicable to such Products, without further liability
to Manufacturer.
5.7 PAYMENT. Assembler will invoice Manufacturer at the time of shipment
for each Housing units order. Each such invoice will include the aggregate price
for the Housing units shipment plus freight, taxes, duties and other costs
prepaid by Assembler. All payments shall be made in U.S. dollars. Full payment
of the amounts invoiced for each shipment will be paid within forty five (45)
days of the date of Manufacturer's receipt of such invoice (which shall be no
sooner than the date of delivery of such Housing units). Any Housing units not
properly rejected within fifteen (15) business days of receipt of such Housing
units by Manufacturer will be deemed accepted. Any invoice not paid when due, as
provided in this section will be subject to a monthly charge of one percent
(1.0%) of the unpaid portion thereof from the date of delivery.
5.8 SITUS OF SALE. For purposes of taxation determination, the situs of
the sale of the Housings to Manufacturer shall be Carson City, Nevada.
6. TERM. Unless earlier terminated in accordance with this Agreement, this
Agreement shall be in effect for an initial term of five (5) years from the
Effective Date ("TERM"), and provided that Assembler has not failed to cure any
material default under this Agreement following Manufacturer's notice to cure as
required under Section 9.1, such Term shall automatically renew for a renewal
term of an additional five (5) years.
5.
<PAGE> 6
7. REPRESENTATIONS AND WARRANTIES OF THE MANUFACTURER.
7.1 CORPORATE POWER. Manufacturer hereby represents and warrants that it
is duly organized and validly existing under the laws of the jurisdiction of its
incorporation and has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof.
7.2 DUE AUTHORIZATION. Manufacturer hereby represents and warrants that
it is duly authorized to execute and deliver this Agreement and to perform its
obligations hereunder.
7.3 BINDING OBLIGATION. Manufacturer hereby represents and warrants that
this Agreement is a legal and valid obligation binding upon it and is
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by Manufacturer does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a party
or by which it may be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having authority over it nor
result in the creation or imposition of any encumbrance upon any of the
Products.
7.4 OWNERSHIP OF PRODUCTS. Manufacturer hereby represents and warrants
that (a) it is the duly authorized and exclusive licensee and beneficial owner
of all such rights under such licenses with respect to the Products, (b) it has
not granted any license under the Products in the Trading Area to any third
party and is under no obligation to grant any such license, except to Assembler,
and (c) there are no outstanding liens, encumbrances, agreements or
understandings of any kind, either written, oral or implied, regarding the
Products which are inconsistent or in conflict with this Agreement.
7.5 INFRINGEMENT; MISAPPROPRIATION. Manufacturer hereby represents and
warrants that the Products provided to Assembler under this Agreement do not to
its knowledge (a) infringe any patent, copyright, trademark, trade dress, trade
secret or other proprietary right of any third party, or (b) misappropriate any
trade secret of any third party.
7.6 DISCLAIMER OF WARRANTIES. Except as expressly set forth in this
Agreement, Manufacturer does not make any representation or warranty to the
Assembler of any kind, express or implied, including, without limitation, any
warranty of merchantability or fitness for a particular purpose.
7.7 INTELLECTUAL PROPERTY. The Products, including without limitation
the Automotive Canister, and including any registered and unregistered
trademarks, trade names, copyrights, registered or unregistered user rights,
patents, patent applications pending, inventions and know-how, are validly and
beneficially licensed by the Manufacturer from Parent (and licensed by Parent
from Graminia Developments Ltd. ("Graminia")) with full right to use and
sub-license the same and are in good standing and, where appropriate, duly
registered in all appropriate offices in the State of Nevada or elsewhere in the
U.S.A. or Canada where so required to preserve the rights thereof and thereto.
Such marks, names, copyrights, registered user rights, patents and inventions do
not misappropriate or infringe upon the trademarks, trade names, copyrights,
registered user rights, patents and inventions, or other proprietary right,
6.
<PAGE> 7
domestic or foreign, of any other person or third party or misappropriate any
trade secret of any third party.
7.8 LICENSES. The licenses and rights from Graminia to Parent and from
Parent to Manufacturer for the Products are in full force and effect and the
parties are not in breach thereunder, under no threat of cancellation by any of
the parties thereto and to the extent set out in this Agreement is assignable or
capable of sub-license to the Assembler. The foregoing license is exclusive and
transferable by the Manufacturer with the consent of Parent and Graminia, which
consent shall have been obtained and provided to Assembler in writing prior to
the execution and effectiveness of this Agreement.
7.9 LITIGATION. Except as disclosed in SCHEDULE B-1, there are no
actions, suits, grievances or proceedings (whether or not purportedly on behalf
of the Manufacturer) pending or threatened against Manufacturer, Graminia or
Parent, before or by any federal, state, municipal or other governmental court,
department, commission, board or agency or instrumentality, domestic or foreign
which materially adversely affect or which could materially adversely affect the
Products, the Patents or the rights granted to Assembler hereunder.
8. REPRESENTATIONS AND WARRANTIES OF THE ASSEMBLER.
8.1 CORPORATE POWER. Assembler hereby represents and warrants that it is
duly organized and validly existing under the laws of the jurisdiction of its
incorporation and has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof.
8.2 DUE AUTHORIZATION. Assembler hereby represents and warrants that it
is duly authorized to execute and deliver this Agreement and to perform its
obligations hereunder.
8.3 BINDING OBLIGATION. Assembler hereby represents and warrants that
this Agreement is a legal and valid obligation binding upon it and is
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by Assembler does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a party or by which
it may be bound, nor violate any law or regulation of any court, governmental
body or administrative or other agency having authority over it, except that
Assembler has entered into a non-competition agreement with EmiTech as
previously disclosed to Manufacturer.
8.4 DISCLAIMER OF WARRANTIES. Except as expressly set forth in this
Agreement, Assembler does not make any representation or warranty to the
Manufacturer of any kind, express or implied, including, without limitation, any
warranty of non-infringement, merchantability or fitness for a particular
purpose.
8.5 INTELLECTUAL PROPERTY. Assembler acknowledges that, except as to
rights identified as belonging to Assembler under Section 12 below and except
for the license and other rights granted in this Agreement, it has no right to
ownership in any of the intellectual property rights relating to Products,
including any registered and unregistered trademarks, trade names, copyrights,
registered or unregistered user rights, patents, patent applications pending,
inventions and know-how relating primarily to the Products, including without
limitation the Automotive Unit and the Automotive Canister.
7.
<PAGE> 8
8.6 OWNERSHIP OF THE HOUSING. Assembler hereby represents and warrants
that it will be the beneficial owner or licensee of all right, title and
interest in the Housing.
8.7 INFRINGEMENT; MISAPPROPRIATION. Assembler hereby represents and
warrants that the Housing will be an original work of Assembler (without any
unauthorized third party contribution or contents) and will not to its knowledge
(a) infringe any patent, copyright, trademark, trade dress, trade secret or
other proprietary right of any third party, or (b) misappropriate any trade
secret of any third party.
8.8 SECURITY INTEREST. Assembler acknowledges that Manufacturer has a
continuing beneficial security interest in all Automotive Canisters, continuing
even after the canisters are assembled in the Housing and integrated in the
Automotive Unit, and the Assembler, as Assembler or Master Distributor, shall
hold all canisters and all proceeds derived from the sale of the Automotive
Units in trust for the sole use and benefit of Manufacturer until all liability
to Manufacturer in respect of the purchase of the Automotive Canisters is
satisfied in full. Manufacturer's security interest shall extend to other
property acquired with the proceeds from such sales and to proceeds of such
sales.
8.9 LITIGATION. Except as disclosed on SCHEDULE B-2, there are no
actions, suits, grievances or proceedings (whether or not purportedly an behalf
of the Assembler) pending or threatened against Assembler which have a material
adverse effect upon or which may reasonably be expected to have a material
adverse effect upon, Assembler's performance or Manufacturer's rights under this
Agreement, or any products assembled hereunder, before or by any federal, state,
municipal or other governmental court, department, commission, board or agency
or instrumentality, domestic or foreign, whether or not insured, and which might
involve the possibility of any lien, charge, encumbrance or other right of
another against any Products or Assembler intellectual property used by
Assembler hereunder.
9. TERMINATION.
9.1 TERMINATION FOR CAUSE. Either party may terminate this Agreement for
the material breach of this Agreement or any purchase order by the other party
which material breach has remained uncured for a period of thirty (30) days from
the date of delivery of written notice thereof to such breaching party, which
notice shall specify the curative or remedial action to be taken by the other
party. In such case, termination shall become effective after the end of the
thirtieth day from such notice. For purposes of this Agreement, material breach
shall include, without limitation, the occurrence of any of the following: (i)
any proceedings in bankruptcy, insolvency, receivership or liquidation are taken
or instituted against a party; or (ii) a party makes an assignment for the
benefit of creditors or commits an act of bankruptcy or insolvency.
9.2 AUTOMATIC TERMINATION. This Agreement shall automatically terminate,
without more and without notice, if either party attempts to assign, sell or
encumber this Agreement in any manner whatever without the prior written consent
of the other party in violation of Section 16.
8.
<PAGE> 9
9.3 EFFECT OF TERMINATION. Either party's obligations under this
Agreement which by their nature would continue beyond termination, expiration or
cancellation of this Agreement shall survive termination, expiration or
cancellation of this Agreement.
10. NEW PRODUCTS. Unless otherwise specified by Assembler, Manufacturer shall
supply the specifications for the newest version or enhancement of (and, except
as otherwise required pursuant to Section 2.1, limited to the external
specifications of) the Automotive Canister, to Assembler. Manufacturer reserves
the right at any time to make changes in specifications, construction or design
of the Products; provided, however, that any changes shall meet the requirements
and conform to the specifications of Assembler in respect of the Housing as set
forth pursuant to this Agreement. Manufacturer shall present not less than 90
days prior written notification of any proposed changes. Any Products so changed
shall be accepted by Assembler as standard Products conforming to existing
orders so long as they do not adversely affect physical or functional
interchangeability for performance of the Automotive Canister, the Housing or
the Automotive Unit.
11. STANDARD OF CONDUCT OF THE PARTIES. The parties hereby agree to deal with
each other in good faith and provide their commercially reasonable efforts in
the supply, manufacture, assembly and support of the Automotive Canister,
Housing and Automotive Unit. The parties agree to keep each other reasonably and
currently informed with respect to the Products and any improvements or
enhancements to them or derivatives therefrom.
12. CERTAIN TECHNOLOGY RIGHTS. Manufacturer hereby acknowledges that all
intellectual property, including know-how and proprietary rights and the rights
to obtain patents, copyrights, trade marks and other rights relating to the
Housing shall belong to the Assembler. The provisions of Section 21 of the
Master Distributor Agreement are incorporated herein by reference.
13. INDEPENDENT CONTRACTOR STATUS.
13.1 This Agreement does not constitute Assembler as a legal
representative, joint venturer, partner, employee, servant or agent of
Manufacturer for any purpose whatever. Assembler is an independent contractor
assembling the Automotive Canister (and in the event it invokes a temporary
license to do so, manufacturing the Automotive Canister), Housing and Automotive
Units and carrying on business solely on its own behalf and is in no way
authorized to make any contract, agreement, warranty or representation on behalf
of Manufacturer, or to create any obligation, express or implied, on behalf of
Manufacturer, other than as expressly set out herein, in the Master Distributor
Agreement or in the Manufacturer's written limited warranty.
13.2 Assembler shall not be held responsible for any act, omission,
opinion or other obligation of the Manufacturer.
14. CONSEQUENTIAL DAMAGES WAIVER/ LIMITATION OF LIABILITY. NO PARTY SHALL BE
LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR
EXEMPLARY DAMAGES INCLUDING WITHOUT LIMITATION, LOST PROFITS, SAVINGS, OR
INCOME, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
9.
<PAGE> 10
CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE,
EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
15. INDEMNIFICATION.
15.1 MANUFACTURER INDEMNIFICATION. Manufacturer will fully defend,
indemnify, and hold Assembler and its officers, directors and employees, to the
extent of their lawful acts, harmless from any claim, suit, threat or legal
proceeding and all damages, costs, expenses, and other liabilities arising from
any of the foregoing (including attorneys' fees) resulting from the inaccuracy
of any representations or warranties of Manufacturer or Manufacturer's breach of
any of its warranty obligations hereunder.
15.2 ASSEMBLER INDEMNIFICATION. Assembler will fully defend, indemnify,
and hold Manufacturer and its officers, directors and employees, to the extent
of their lawful acts, harmless from any claim, suit, threat or legal proceeding
and all damages, costs, expenses, and other liabilities arising from any of the
foregoing (including attorney's fees) resulting from the inaccuracy of any
representations or warranties of Assembler or Assembler's breach of its warranty
obligations hereunder.
15.3 NOTIFICATION. Each party seeking indemnification under this
Agreement agrees to notify the other party promptly in writing of each claim,
suit, threat or legal proceeding, and to give such other party sole control over
and information and reasonable cooperation (at such other party's expense) for
the defense thereof.
16. NO ASSIGNMENT. This Agreement may not be assigned, sold or encumbered by
either party without the prior written consent of the other party, which consent
may be arbitrarily withheld.
17. NO BROKER. Each of the parties to this Agreement represents and warrants to
the other that all negotiations relating to this Agreement and the transactions
contemplated by this Agreement have been carried on between them directly,
without the intervention of any other party in such manner as to give rise to
any valid claim against any of the parties for a brokerage commission, finder's
fee or other like payment.
18. NON-WAIVER. No investigations made by or on behalf of the one party at any
time shall have the effect of waiving or diminishing the scope of or otherwise
affecting any representation, warranty or indemnity made by or imposed upon the
other party in or pursuant to this Agreement. No waiver by a party of any
condition, in whole or in part, shall operate as a waiver of any other
condition.
19. DISPUTE RESOLUTION. The parties agree to resolve disputes without litigation
and in accordance with the dispute resolution and arbitration provisions set out
in SCHEDULE C hereto which are hereby incorporated herein as part of this
Agreement.
20. FURTHER NEGOTIATION. The parties shall cooperate and negotiate in good faith
as to the following: (i) by November 15, 1999, the parties shall have made a
determination as to Assembler's participation in the assembly and/or
distribution, sale and marketing of the Global
10.
<PAGE> 11
Leak Heavy Duty Truck Machine; and (ii) Manufacturer shall provide Assembler an
equal opportunity to bid on the exclusive assembly rights of other Products,
including without limitation, the Marine Model and the Instrumentation Machine,
and the exclusive assembly rights and marketing, distribution and sale rights
for the Heat Exchanger Machine.
21. RIGHT OF FIRST REFUSAL. Except as otherwise may be agreed by the parties,
Manufacturer, Parent or any affiliate of either of them (collectively, "GLDI")
shall not sell or in any manner, except in a non-arm's length transaction with
an affiliate of Manufacturer as part of a reorganization or restructuring of
Manufacturer and its affiliates, transfer ("TRANSFER") any of the shares of or
other equity interest in Manufacturer, or any other right or interest therein
(any of such shares or other equity interest, or any other right or interest
therein, ("SHARES"), or any patents or other proprietary rights in connection
with the Products and which are the subject of this other Agreement or the
Master Distributor Agreement ("PATENTS"), whether voluntarily, by operation of
law or upon a change in control, for consideration or by gift or otherwise,
except by a Transfer which meets the requirements hereinafter set forth in this
section and except for a transfer of Shares to an entity affiliated with GLDI
pursuant to a reorganization of GLDI as described above.
21.1 If GLDI desires to Transfer any Shares or Patents, GLDI shall first
give written notice thereof to Assembler. Such notice shall indicate the
relevant terms and conditions of the proposed Transfer, name the proposed
transferee, and state the number of Shares (or the extent and nature of the
interest) or the Patents proposed to be Transferred, the proposed consideration
including timing and form thereof, and all other material terms and conditions
of the proposed Transfer.
21.2 For thirty (30) days following receipt of such notice, Assembler
shall have the exclusive option to purchase all of the Shares or Patents
described in the notice at the price and upon the terms set forth in such
notice. In the event Assembler elects to purchase all of the Shares or Patents
described in the notice, it shall give written notice to Manufacturer of its
election to purchase.
21.3 Notwithstanding anything contained herein to the contrary,
Assembler may assign its rights under this section upon the prior written
consent of Manufacturer, which consent may be arbitrarily withheld; provided
that no consent shall be required for an assignment in a non-arm's length
transaction with an affiliate of Assembler as part of a reorganization or
restructuring of Assembler and its affiliates.
21.4 Assembler shall have the option to elect to pay for said Shares or
Patents on substantially the same terms and conditions set forth in the notice
from GLDI regarding the proposed Transfer of such Shares or Patents.
21.5 In the event Assembler does not elect to acquire all of such Shares
or Patents, GLDI may, within the sixty-day period following the expiration of
the option rights granted to Assembler herein, Transfer the Shares or Patents as
specified in the notice, provided such Transfer is on the terms set forth in the
notice to Assembler.
11.
<PAGE> 12
21.6 The foregoing exclusive right of first refusal shall terminate as
of the date one (1) year following the expiration or termination of the later to
expire of this Agreement or the Master Distributor Agreement.
22. CONFIDENTIALITY, NON-DISCLOSURE AND NON-COMPETITION COVENANTS. The
Confidentiality and Non-Disclosure Agreements attached hereto as SCHEDULE D-1
and SCHEDULE D-2 hereto, and the Non-Competition Agreement attached hereto as
SCHEDULE E hereto, are hereby incorporated herein as part of this Agreement.
23. MISCELLANEOUS.
23.1 INTERPRETATION. Wherever the singular or masculine is used in this
Agreement the same shall be interpreted as including the plural, feminine or
neuter wherever the context so requires. The captions and headings are inserted
for convenience of reference only, form no part of this Agreement and in no way
define, describe or limit the scope or intent of this Agreement or any provision
hereof.
23.2 FURTHER ACTS. In order to fulfill the intent of the parties hereto,
they shall execute from time to time all reasonable documents and do all such
things as may be necessary or desirable to more completely and effectively carry
out the terms and intentions of this Agreement, to implement it in all respects
or to fulfill consequential aspects thereof, which any other party may request
from time to time at the expense, if any, of the party so requesting.
23.3 SEVERABILITY. If a Court or duly constituted arbitrator would
declare that all or any portion of the provisions of this Agreement are void or
unenforceable in the circumstances, this Agreement shall, automatically and
without further act on the part of the parties hereto, be reduced in scope to
such an extent as to be valid and enforceable in the circumstances. The
invalidity of any provision of this Agreement or any covenant contained herein
on the part of any party shall not affect the validity of any other provision or
covenant herein, which shall remain in fun force and effect
23.4 GOVERNING LAW. Subject to the procedures set out in the Dispute
Resolution provisions set out in SCHEDULE C hereto, this Agreement shall be
governed by and construed pursuant to and in accordance with, including the
enforcement thereof, the laws of the State of California and the laws of United
States of America applicable therein without reference to conflict of laws
principles and excluding the United Nations Convention on Contracts for the
International Sale of Goods. Any disputes under this Agreement shall be subject
to the exclusive jurisdiction and venue of the California state courts and the
Federal courts located in Orange County, California, and the parties hereby
consent to the personal and exclusive jurisdiction and venue of these courts.
23.5 ENTIRE AGREEMENT. This Agreement, including the Schedules attached
hereto, and the Assembly Agreement, constitute the entire agreement between the
parties. reflects all the agreements, understandings, representations,
conditions and warranties by and between the parties, and any prior
understanding or representation of any kind preceding the Effective Date shall
not be binding upon either party unless expressly stated herein in writing or
clearly and expressly incorporated by reference herein in writing. The execution
of this Agreement has not
12.
<PAGE> 13
been induced by, nor do any of the parties hereto rely upon or regard as
material, any representations or promises whatever except to the extent
expressly granted herein in writing or clearly and expressly incorporated by
reference herein in writing. No party shall be liable for any representation
made or omitted unless it is expressly set forth in this Agreement.
23.6 AMENDMENT OF THIS AGREEMENT. Any amendment or modification of this
Agreement or additional obligation assumed by any party in connection with this
Agreement shall be binding only if evidenced in writing signed by each party or
an authorized representative of each party. Any alteration, amendment or
qualification of this Agreement shall be null and void and shall not bind any
party unless made in writing.
23.7 NOTICE. All notices contemplated or required to be given hereunder
shall be effective if sent by prepaid mail, facsimile transfer or delivered
personally to any of the parties at the address listed below or at such other
address as the party to whom such notice is to be given otherwise directs in
writing. Any notice delivered aforesaid shall be effective on the date of
facsimile transfer or delivery and any notice mailed as aforesaid shall be
effective three (3) business days after the mailing thereof, provided that where
interruption of mail services is likely by reason of any strike or other labor
dispute, notice shall be by personal delivery only to the person or to the
address as aforesaid.
To Manufacturer at: c/o 7717-67 Street
Edmonton, Alberta Canada T6B 2K4
Attn: Gerald Vanberg
Fax: (780) 448-3610
With a copy to: Nichols & Company
#2020, 10123-99 Street
Edmonton, Alberta Canada T5J 3H1
Attn: Neil W. Nichols
Fax: (780) 497-7799
To Assembler at:
Lee Melody
1431 S. Village Way
Santa Ana, CA 92705
Fax: (714) 558-0370
With a copy to: Jeremy D. Glaser, Esq.
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Fax: (619) 453-3555
23.8 TIME OF ESSENCE. Time shall be of the essence of this Agreement.
13.
<PAGE> 14
23.9 WAIVER. Any waiver of any term, provision or condition of this
Agreement to be effective must be in writing and signed by the party waiving
such term, provision or condition stating with specificity the particular
provision or provisions being waived and for what event or period of time. No
waiver of any one or more provisions shall be deemed to be a further waiver or
continuing waiver of such terms, provisions or conditions or any other term
provisions or conditions unless the waiver specifically so states.
23.10 FORCE MAJEURE. No right of any party hereto shall be prejudiced by
events beyond a party's reasonable control and without negligence of the party
charged with performance hereunder, including without limitation pressures or
delays from outside parties, labor disputes, the exigencies of nature,
governments, regulatory authorities and acts of God, particularly as they may
affect the performance of this Agreement. All times herein provided for shall be
extended by the period necessary to cure any such event and the party affected
shall use all reasonable means to do so promptly.
23.11 WARRANTY OF AUTHORITY. Any such execution of this Agreement is a
representation and warranty to the other party that the party so signing has
full authority in all requisite capacities to do so.
23.12 ENUREMENT. This Agreement shall be binding upon and enure to the
benefit of the Parties and their respective successors and permitted assigns.
23.13 COUNTERPARTS AND FAX COPIES. This Agreement may be executed in
counterpart and may be delivered by fax copies thereof and when the whole is so
executed and delivered it shall constitute a valid and binding agreement among
the parties so executing and delivering the agreement effective as of the
Effective Date. Fax Signatures shall be deemed to be accepted as original.
23.14 ATTORNEYS' FEES. In any proceeding between the parties arising
from or related to the interpretation, construction or enforcement of this
Agreement, subject to the Dispute Resolution provisions of SCHEDULE C, the
prevailing party shall, in addition to recovering all costs of suit, be entitled
to an award of actual attorneys' fees incurred, whether in an original action or
on appeal.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement
as of the day and year first above written.
GLOBAL LEAK DETECTION (U.S.A.), INC.
s/ Gerald Vanberg
----------------------------------------
Gerald Vanberg, President
MOTORVAC TECHNOLOGIES, INC.
s/ Lee W. Melody
----------------------------------------
Lee W. Melody, President
14.
<PAGE> 15
SCHEDULES AND EXHIBITS NOT INCLUDED
<PAGE> 1
Exhibit 11.1
MOTORVAC TECHNOLOGIES, INC.
CALCULATION OF BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 458,563 $ (268,983) $ 742,433 $ (205,053)
============================================================
Basic Net Income Per Share
Weighted Average Outstanding Common Shares 4,491,437 4,517,918 4,478,178 4,514,918
============================================================
Basic Net Income per share $ 0.10 $ (0.06) $ 0.17 $ (0.05)
============================================================
Diluted net income per share
Weighted Average Outstanding Common Shares 4,491,437 4,517,918 4,478,178 4,514,918
Incremental Shares, assuming exercise of options grants
outstanding at June 30, 1999 and June 30, 1998
(eliminated if dilutive to EPS) 41,472 0 25,211 0
Weighted Average Outstanding Common and
Common Equivalent Shares 4,532,909 4,517,918 4,503,389 4,514,918
============================================================
Diluted net income per share $ 0.10 $ (0.06) $ 0.16 $ (0.05)
============================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MOTORVAC TECHNOLOGIES,INC. FOR THE QUARTER
ENDED JUNE, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,657,053
<SECURITIES> 0
<RECEIVABLES> 1,847,218
<ALLOWANCES> 78,416
<INVENTORY> 1,847,058
<CURRENT-ASSETS> 5,538,986
<PP&E> 678,128
<DEPRECIATION> 347,660
<TOTAL-ASSETS> 6,457,487
<CURRENT-LIABILITIES> 1,288,707
<BONDS> 0
0
0
<COMMON> 44,914
<OTHER-SE> 5,123,866
<TOTAL-LIABILITY-AND-EQUITY> 6,457,487
<SALES> 4,229,398
<TOTAL-REVENUES> 4,229,398
<CGS> 2,553,852
<TOTAL-COSTS> 2,553,852
<OTHER-EXPENSES> 1,235,055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,100
<INCOME-PRETAX> 457,591
<INCOME-TAX> (972)
<INCOME-CONTINUING> 458,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 458,563
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
