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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K SB/A No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 1996 Commission File No. 0-26998
ALCOHOL SENSORS INTERNATIONAL, LTD.
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(Exact name of Small Business Issuer as specified in its charter)
New York 11-3104480
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. Number)
11 Oval Drive
Islandia, New York 11722
(Address of principal executive offices) (Zip Code)
Issuer's telephone number
including area code: (516) 342-1515
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
Class "A" and Class "B" Common Stock Purchase Warrants
(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-SB or any amendment to this Form 10-SB. [X]
Issuer's revenues for its most recent fiscal year: $40,586.00
Aggregate market value of voting stock held by non-affiliates of registrant as
of March 31, 1997: $22,976,474.
Number of shares outstanding of each of the issuer's classes of common stock,
as of the latest practicable date: Common Stock, $.001 par value 8,416,018
outstanding as of April 10, 1997.
Documents incorporated by reference: Issuer Prospectus dated November 9, 1995
filed pursuant to Rule 424 (b) of the Securities Act of 1933. (Part I)
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Item 1. Business
BACKGROUND
ALCOHOL SENSORS INTERNATIONAL, LTD. ("ASI" and the "Company") was
incorporated in February, 1992 to market and sell its patent pending line of
ignition interlock devices to the corporate/commercial and individual markets
under the SENS-O-LOCK(TM) brand name. The Company's equipment is designed to
detect, evaluate and assist in the prevention of an alcohol impaired driver
from operating a vehicle. (See "Patents and Technology".)
Since inception, ASI has been engaged primarily in research and
development. In late 1995, the Company's Sens-O-Lock(TM) unit was certified to
be in compliance with National Highway Traffic Safety Administration ("NHTSA")
guidelines and several individual states including New York, California and
Texas. In early Spring of 1996, the Company began shipping its first series of
SENS-O-LOCK(TM). In the late Spring of 1996, the Company became aware of
inconsistencies in certain integral components manufactured for the Company
and other manufacturing, and quality control problems. Despite field testing,
these problems were primarily of the type and nature that were not detectable
until the product was out in the field in a variety of environments and uses.
As a result, in late spring 1996, the Company discontinued manufacturing of
the Sens-O-Lock(TM) units.
Up until the Company had discontinued production, the Company had
sold approximately 700 units over a two month period. The Company still has
several of its original units in the market that are still in operation today.
ASI has recalled the units which have been sold, but not all those units which
had been sold were returned.
While the Company had been manufacturing its initial SENS-O-LOCK(TM),
its engineers were conducting research and development on what the Company
believed would be its next and improved technology. Management believed that
this new technology would antiquate all others that were being utilized at
that time, both by its competitors and itself. Rather than re-visiting the
present technology and attempting to solve the manufacturing and production
difficulties it had experienced, management chose to pursue the path of the
new technology since it believed that this would ultimately place the Company
in a far better position with regard to its competitors and the overall
marketplace of its products. This resulted in the Company writing down
inventory in the second quarter of 1996 in the amount of approximately
$556,000.00.
As a result of halting production of its original series, the Company
stopped selling its product which resulted in the cessation of revenues.
Management determined that the best use of the Company's limited resources
would be to research and develop the new technology.
The development of this new technology, alcohol specific technology
("AST"), which was developed in cooperation with a third party with whom the
Company has signed an exclusive contract, has taken much longer than had been
anticipated. The technology will need to be refined to meet the Company's
strictest requirements, before being placed into the production process.
In determining to pursue this new technology for long term
competitive advantages, management considered that the alcohol specific
technology would not be available for a number of months. The Company,
therefore, spent funds on research and development it previously believed
would not be necessary. However, management believes the decision it made was
in the long term best interest of the Company. Concurrently, management
reduced the Company's workforce and other operating expenses, including
deferring management's salaries by approximately 50% until the Sens-O-Lock(TM)
is ready for production.
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The new technology for the advanced Sens-O-Lock(TM) product is in the
final stages of development. However, during pre-production testing in the
earlier part of this year, additional research and development was found to be
necessary. This ultimately resulted in a delay in production currently
estimated to be several months. The delay period has also allowed engineering
time to enhance software requirements for foreign markets bringing these on
line concurrent with domestic production.
The Company continues to evaluate other sensing technologies
currently in the industry primarily to ensure that ASI's proprietary
technology remains cutting edge and at the forefront of breath alcohol
detection.
Once research and development is completed the Company will begin
conducting various tests upon the prototypes that will be built. Afterwards,
the product will undergo certification testing. Management believes that a
product will be available in the second half of 1997.
Management believes that Alcohol Sensors International, Ltd.'s
products as currently designed will be superior in performance to those of its
competitors in many respects, including an alcohol specific sensing technology
which remains calibrated, is more accurate and employs a multi-lingual speech
guide for user operation.
The Company is establishing a network of independent representatives
and dealers covering most of the Continental United States to sell, install
and service its products. The Company's business strategy will concentrate on
penetrating three markets - the mandate market by obtaining approval in states
which require convicted drunk drivers to install an ignition interlock device
after one or more convictions; the voluntary market which includes parents of
teenage drivers; and the commercial market comprising fleet owners of truck,
buses and taxi fleets.
RECENT DEVELOPMENTS
In December, 1996 ASI entered into an agreement with American
International Insurance Company ("AIIC"), a subsidiary of American
International Group, Inc. ("AIG"). Pursuant to the terms of this Convertible
Series A Preferred Stock and Warrant Purchase Agreement, AIIC purchased for
$2.5 million, 833,333 shares of Series A Convertible Preferred Stock and
833,333 Warrants to purchase the Company's Common Stock.
The Series A Preferred Stock is convertible into 555,556 shares of
Common Stock (a conversion price of $4.50 per share). The Series A Preferred
Stock requires the payment of a dividend of 9%, payable semi-annually in June
and December, to AIIC. ASI has the discretion to pay the first four dividend
payments in cash or common stock equivalent. Additionally, AIIC received a
warrant to purchase 833,333 shares of Common Stock exercisable at any time
prior to December 20, 1998 at a purchase price of $5.50 per share.
Management believes that entering this Agreement with AIIC is
significant in that it provided the Company with capital necessary to continue
its development of its alcohol specific technology as well as the
introductions to insurance companies with which it hopes to develop marketing
relationships.
In October, 1996 the Company, along with Michael Ghazarian, formed a
European subsidiary, Alcohol Sensors Europe, Plc ("ASE") for the supervision
of all of its manufacturing needs. Mr. Ghazarian is a Director of ASI, as well
as the managing director of Digital Vehicle Security Systems, the company that
had signed an agreement with ASI to be the exclusive distributor of ASI's
products in Europe. With the formation of ASE, Digital Vehicle Security
Systems has assigned to ASE its exclusive distribution rights with ASI. ASI is
the owner of 80% of ASE, with Mr. Ghazarian owning the remaining 20%.
Mr. Ghazarian is also the director/owner of Scarico UK, Ltd., which
manufactures electronic components in a manufacturing cooperative located in
Varese, Italy. It is the intention of the Company to have its products
manufactured by Scarico.
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In November, 1996 the Company received an inquiry letter form the
Securities and Exchange Commission, Division of Enforcement ("SEC"). The SEC
sought the voluntary cooperation of the Company in providing information to
the Commission. In December, 1996 the Company responded to the SEC and has not
received any further comments or a response.
GENERAL DESCRIPTION OF COMPANY'S PRODUCTS
SENS-O-LOCK(TM)
The SENS-O-LOCK(TM) is an IGNITION INTERLOCK device intended for use
in motor vehicles to prevent a person from drinking and driving. The driver of
the SENS-O-LOCK(TM) equipped vehicle is required to provide a breath sample
before and during the operation of the vehicle. This is accomplished by
requiring an Initial Breath Test to start the car, and requiring one or more
subsequent breath tests (rolling retests) while operating the vehicle. Should
the initial (start-up) breath test FAIL, indicating the driver's breath
contains an unsafe level of alcohol, the vehicle ignition will remain locked
(engine immobilized). If a test is failed while ROLLING, SENS-O-LOCK(TM) will
ask the driver to stop the vehicle. After issuing a repeated warning, a
sufficient time is allowed for the operator to pull the vehicle over to the
side of the road. If the driver continues operating the vehicle, the system
will enter the alarm mode, requiring the driver to pull over, STOP the
vehicle, and turn the ignition key to the "OFF" position in order to terminate
the alarm.
THE EQUIPMENT
The SENS-O-LOCK(TM) system consists of three components installed in
a vehicle. One is the CPU (Central Processing Unit), one is the CCM (Car
Control Module) and the third and only major component visible in the vehicle,
is the compact and streamlined sensor head which performs breath alcohol
analysis. In most installations a small LED display will also be mounted on
the dashboard.
The SENS-O-LOCK(TM) is capable of providing messages in five
different languages (English, British English, French, German and Spanish)
selectable at the time of installation. The messages are:
1. Please Wait 6. Rolling Retest Passed, Thank You
2. Please Provide a Sample 7. You May Not Start the Vehicle
3. You May Start the Vehicle 8. Emergency Override, You May Start the Vehicle
4. Please Stop the Vehicle 9. Invalid Sample, Please Wait
5. Please Return For Service 10. Vehicle is Now Locked Out, Call For Service
Three models will be available, the mandatory unit (model 1100), the
voluntary unit (2100) and the commercial unit (model 3100).
DEFINITIONS AND FEATURES OF SENS-O-LOCK(TM)
1. Turn the ignition key to the ON position and you will hear a voice command
from your radio's speaker, "PLEASE PROVIDE A SAMPLE." The LED will display a
RED light.
2. You will hear two BEEPS and the LED will flash GREEN with each beep (RED
remains on) which is your signal to proceed.
3. First, take a DEEP BREATH, then place your lips completely around the
mouthpiece and exhale a steady, forceful stream of air. As you are doing this,
you will hear a steady tone and the LED will display a corresponding steady
GREEN light (RED remains on). CONTINUE TO EXHALE CONTINUOUSLY UNTIL THE STEADY
TONE STOPS AND YOU HEAR TWO BEEPS, INDICATING THE BREATH SAMPLE WAS
ACCEPTABLE. The LED will flash GREEN with each beep and then turn off. (RED
remains on.)
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4. If you PASS, the voice will say, "YOU MAY START THE VEHICLE." You may then
turn the key to the start position and drive the vehicle. If you FAIL, the
voice will say, "YOU MAY NOT START THE VEHICLE" and you will not be able to
start. However, after returning the key to the OFF position you will be able
to try again immediately by repeating steps 1 through 4.
SENS-O-LOCK(TM) 1100 ONLY: The failure of a breath test at start-up
will be recorded in the DATA LOGGER and, depending on state law, may
constitute a violation of interlock regulations even though SENS-O-LOCK(TM)
will not permit you to start.
5. It is important to exhale a steady, forceful stream of air continuously
until the steady tone stops and you hear the two beeps. If you stop exhaling
before the tone stops, or your steady stream of air is interrupted, you will
hear, "INVALID SAMPLE, PLEASE WAIT." This will immediately be followed by the
voice command, "PLEASE PROVIDE A SAMPLE." You will hear two BEEPS and may
proceed to repeat steps 3 through 4.
6. Free Restart Allowance:
Once you pass your initial breath test, you will be able to start and
operate your vehicle. If the engine stalls or is temporarily shut off, you may
restart the engine within two minutes without the need to provide a new breath
sample. However, if the alarm mode is entered due to the failure of a rolling
retest, then no free restart will be allowed. The normal start-up sequence
must be followed.
7. Rolling Retests:
Once you have passed the initial breath test at startup, you will be
required to pass at least one rolling retest while driving. SENS-O-LOCK(TM)
1100 ONLY: depending on interlock regulations in your state, one or more
rolling retests at fixed or random intervals may be required after you begin
driving. SENS-O-LOCK(TM) 2100 ONLY: a rolling retest will occur at a random
interval during the first 30 minutes of driving.
When the rolling retest is requested, you will hear a voice command
from your radio's speaker, "PLEASE PROVIDE A SAMPLE," as when you first start
your vehicle. You will hear two BEEPS and the LED will flash GREEN with each
beep (RED remains on) which is your signal to proceed.
You have up to thirty seconds to provide the sample. Take a DEEP
BREATH and place your lips completely around the mouthpiece. Then exhale a
steady, forceful stream of air, just as you would on initial start-up. As you
are doing this, you will hear a steady tone and the LED will display a
corresponding steady GREEN light (RED remains on). CONTINUE TO EXHALE
CONTINUOUSLY UNTIL THE STEADY TONE STOPS AND YOU HEAR TWO BEEPS, INDICATING
THE BREATH SAMPLE WAS ACCEPTABLE. The LED will flash GREEN with each beep then
turn off. (RED remains on.)
Should you not be able to provide a sample within thirty seconds, or
your breath sample is not accepted, you will hear "INVALID SAMPLE, PLEASE
WAIT." This will immediately be followed by the voice command, "PLEASE PROVIDE
A SAMPLE." You will hear two BEEPS and may proceed to try again, but ONLY ONE
TIME. If you provide another invalid sample during the rolling retest, or
ignore the voice command, SENS-O-LOCK(TM) will direct you to stop driving. You
will hear, "PLEASE STOP THE VEHICLE," and SENS-O-LOCK(TM) will allow you
sufficient time to safely pull over and turn off the ignition. However, if you
continue to drive SENS-O-LOCK(TM) will enter the ALARM MODE, which causes the
vehicle's lights to flash and the horn to sound repeatedly until the vehicle
is pulled over and the key turned to the OFF position.
SENS-O-LOCK(TM) 1100 ONLY: The failure of a rolling retest for any
reason will be recorded in the DATA LOGGER as a violation of interlock
regulations and may subject you to a permanent ignition lockout within five
days.
You will hear a warning message at each startup following such a
violation, "PLEASE RETURN FOR SERVICE."
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WHEN YOU PASS THE ROLLING RETEST: you will hear, "THANK-YOU!" and
may continue driving.
IF YOU FAIL THE ROLLING RETEST: you will hear, "PLEASE STOP THE
VEHICLE," and SENS-O-LOCK(TM) will allow you sufficient time to safely pull
over and shut off the ignition.
8. Emergency Override:
If permitted by the interlock regulations in your state,
SENS-O-LOCK(TM) has an Emergency Override capability for use in
life-threatening emergencies only, allowing the driver to start immediately
upon entering the vehicle without providing a breath sample. Under these
special circumstances, turn the key to the "ON" position, then press the
Emergency Override switch located either under the dash, depending on the
installation in your vehicle. You will hear the system acknowledge this
action, "EMERGENCY OVERRIDE", "YOU MAY START THE VEHICLE", and may start the
vehicle and drive. However, within two minutes of starting your vehicle,
SENS-O-LOCK(TM) will request a rolling retest. Failing the rolling retest or
ignoring the request will activate the ALARM MODE. Ask your SENS-O-LOCK(TM)
dealer if the system is active in your vehicle and for the location of the
Emergency Override switch in your installation.
SENS-O-LOCK(TM) 1100 ONLY: USE OF THE EMERGENCY OVERRIDE WILL BE
RECORDED IN THE DATA LOGGER. This feature should be used only in the event of
a life-threatening emergency, and you will be required to show documentation,
such as a hospital bill, etc., in order to justify its use to your interlock
supervisor.
SENS-O-LOCK(TM) 1100 ONLY: LOCKOUTS
Depending on state law, there are various events that may result in
an ignition lockout:
1. FAILURE TO RETURN FOR DATA DOWNLOADING ON SCHEDULE. You have a seven-day
grace period. Warning messages will be heard at each startup during this time,
"PLEASE RETURN FOR SERVICE," and you should return to have the data
downloaded. If you fail to do so by the seventh day, beyond your state's
mandatory download schedule, the ignition will temporarily lock out and you
will not be able to start your vehicle. When you insert the key and turn it to
the ON position, you will hear, "VEHICLE IS NOW LOCKED OUT, CALL FOR SERVICE."
It will be necessary to have a certified SENS-O-LOCK(TM) technician visit your
vehicle, download the data as required by law, and re-enable your ignition.
There will be an additional charge for this service. It is your responsibility
to properly schedule and keep your download appointments.
2. FAILURE TO RETURN FOR DATA DOWNLOADING WITHIN FIVE DAYS OF INTERLOCK
VIOLATION. You have a five day grace period following a violation of interlock
rules, such as failing or ignoring the request for a rolling retest, (see #7,
above). Warning messages will be heard at each startup following the
violation, "PLEASE RETURN FOR SERVICE," and you should make arrangements to
have the data downloaded immediately, regardless of when your last download
was performed. (Since this is not a regularly scheduled download, there may be
an additional charge for this service.) If you fail to do so, by the fifth day
following the violation, the ignition will permanently lock out and you will
not be able to start your vehicle. When you insert the key and turn it to the
ON position, you will hear, "VEHICLE IS NOW LOCKED OUT, CALL FOR SERVICE." It
will be necessary to have a certified SENS-O-LOCK(TM) technician visit your
vehicle, download the data as required by law, and re-enable your ignition.
There will be an additional charge for this service.
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RADIO MUTE FEATURE
When SENS-O-LOCK(TM) requests a breath sample, the BEEPS come from the
hand-held sensor head, but the VOICE is routed through the speakers* used by
your vehicle's audio system (radio, cassette player, etc.) The SENS-O-LOCK(TM)
voice is self-amplified and does not require you to have the radio turned on
in order to be heard. However, if your audio system is playing,
SENS-O-LOCK(TM) will automatically mute it (reduce volume to zero) so that the
voice commands can be heard and understood. Muting will continue through each
operational sequence until completed. For example, on startup your radio will
be muted when the request to "PLEASE PROVIDE A SAMPLE" is heard until the
breath test is passed and you hear, "YOU MAY START THE VEHICLE," after which
audio output will be restored.
*Note: If the vehicle does not have a radio, or the speakers are inoperative,
it will be necessary to install a small speaker in order to hear the voice
commands.
SLEEP MODE
In order to preserve battery power, SENS-O-LOCK(TM) is equipped with a "sleep
mode" feature that reduces power consumption to less than 20 ma. when the
vehicle is not in use. This is particularly important when the vehicle will be
out of service for extended periods of time. Several minutes after you shut
off the ignition, the RED LED will turn off, which indicates the system has
entered the sleep mode. As soon as the key is turned to the ON position, the
system will return to full operational mode as indicated by the glowing RED
LED.
LED DISPLAY
In most SENS-O-LOCK(TM) installations, the LED display will be mounted on or
just under the dash. Except when in sleep mode, the RED LED will glow at all
times, indicating the system is powered and fully operational. The GREEN LED
flashes in synchronization with the "beeps" from the sensor head, and glows
steadily corresponding to the steady tone heard when providing a proper breath
sample. This provides visual reinforcement to the audio signals and is an aid
to the hearing impaired. Once the breath test is passed, the GREEN LED will
turn off.
PRODUCT MODELS
(A) SENS-O-LOCK(TM) 1100 SERIES - MANDATED INSTALLATION
The Company intends to market a Breath Alcohol Ignition Interlock
Device, which meets or exceeds issued standards published by the National
Highway Traffic Safety Administration and certification standards in thirteen
states including the New York pilot program and the California mandate
program. The SENS-O-LOCK(TM) device is trademarked as a brand name and ASI is
the assignee of a filed patent application currently pending in the U.S.
Patent and Trademark Office for its alcohol sensing device. Although
management believes a patent will issue, there is no assurance that such
patent will issue or that upon issuance such patent will sufficiently protect
it from competitors or that its technology will not be challenged by existing
competitive patents issuable in the future.
ASI's SENS-O-LOCK(TM) 1100 limits the ability of impaired drivers to
start their vehicles and helps to keep them off the road. This product series
was designed for state mandated use by convicted -- driving while intoxicated
("DWI") -- offenders who are court ordered to install the interlock device in
their auto and maintain monitoring of data stored in the device every 60 days
or subject to the requirements of the respective jurisdiction. More than half
the states have enacted laws requiring mandated installations following DWI
conviction.
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(B) SENS-O-LOCK(TM) 2100 SERIES - VOLUNTARY INSTALLATIONS
This model is a variation of the 1100 Series and is designed for
individuals who voluntarily desire the equipment's protection. Aside from the
safety and moral considerations, in the future a SENS-O-LOCK(TM) installation
may afford car insurance premium discounts as some carriers are currently
considering promoting discounts for drivers who install an interlock device.
The main difference between this unit and the 1100 Series is that the data
logger is optional in the 2100 Series.
(C) SENS-O-LOCK(TM) 3100 SERIES - COMMERCIAL INSTALLATIONS
This model also varies from the 1100 Series because it has been
designed for the corporate/commercial market, particularly operating fleets of
road vehicles including trucks, taxis, car rentals, company cars, ships,
trains, worksites and other similar groups. All of the same advantages as in
the other series including possible insurance benefits are applicable to
commercial installations.
Based on the strong interest that SENS-O-LOCK(TM) has received at
trade shows, solicitations from foreign and domestic sources for distribution
licenses, and its presentations to departments of transportation in many
states management believes it can capture significant percentages of the
ignition interlock market. (See "Government Regulation".)
MANUFACTURING AND MATERIALS
The Company will utilize the services of its European subsidiary,
Alcohol Sensors Europe, Plc. ("ASE"), which was formed in October, 1996 (see
"Marketing and Distribution"), for the supervision of all of its manufacturing
needs. The manufacturing process consists of component assembly and systems
integration of electronic and mechanical parts, which are then encased in a
high impact plastic package. Component availability is subject to various lead
times. The Company has also designed and developed the software necessary for
the operation of its ignition interlock system. ASI maintains internal product
controls which consist primarily of prototype production, test engineering,
materials purchasing and quality control of its prototypes. The Company
believes that its manufacturing arrangements are sufficient to satisfy
anticipated future demands.
The Company purchases and organizes the purchase of sensing
components for its interlock system from third party vendor suppliers, who
then ship the materials to ASE. The components are then assembled and packaged
into the final product for shipment to end users pursuant to the Company's
instructions.
Having ASE supervising the manufacturing process will provide ASI
with quality control. The manufacturing will be performed by Scarico UK, Ltd.
Michael Ghazarian, a Director of ASI is also the director/owner of Scarico.
ASI believes high product quality will be an integral part of its
products ultimate success in the voluntary and commercial markets and a
prerequisite for approval by states in the mandate market. The Company's
subsidiary, ASE, will be responsible for production and quality control. The
Company will periodically test manufactured products on a random basis, at its
distribution facilities or where it believes necessary and proper testing can
be accomplished.
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INSTALLATION AND SERVICE
ASI has established a network of 15 independent representatives
covering most of the United States which is divided into 16 exclusive
territories. The representatives are responsible for the selection of entities
who will act as the Company's State Operations and Certification Centers
("SOCC") (see "SOCC" discussion). The representative's responsibilities also
include the recruitment and appointment of qualified, authorized independent
dealers. All appointments within their territories are in accordance with the
Company's instructions and specifications. Each appointed dealer signs an
agreement with the Company which designates the dealer as either "Certified"
or "Retail". Certified dealers are specifically equipped to sell, install and
service the Company's products to the mandate market in addition to ASI's
other target markets. Retail dealers have no mandate market responsibility and
are limited to marketing and installation solely in the voluntary and
commercial markets. All SOCC entities also sign ASI's Certified Dealer
Agreement with an added Supplement which further defines their role beyond the
regular activities of a certified dealer. (See "Marketing and Distribution".)
State Operations and Certification Centers ("SOCC") - These entities
will play a key role and assume major responsibilities in maintaining
communications and providing assistance to authorized ASI dealers and the
Motor Vehicle Departments or other appropriate authorities in its state of
operation. They will obtain, review and provide explanation of the respective
state laws concerning interlock device installation, updating knowledge and
data bases and keeping authorized dealers abreast of current information.
The SOCC is charged with responsibility to train all dealer/installer
personnel in the knowledge, application and explanation of the product,
applicable state laws, and the installation, downloading and servicing of
SENS-O-LOCK(TM) in accordance with ASI guidelines and state laws. SOCC
personnel will conduct training on its premises to installers and other
employees of authorized dealers within its territory using a curriculum and
materials developed by ASI.
SOCC will initiate procedures necessary to have an interlock
installed in a motor vehicle after receiving notification from the court or
probation department. These procedures will include notifying the installing
dealer and the probationer, facilitating an appointment to install the device
and train the driver(s) about the proper use of the interlock device,
notification to ASI and state authorities upon completion of installation, and
the keeping of accurate and permanent data records and serial numbers for each
device installed within its territory.
SOCC will collect data downloaded by authorized dealers from vehicles
within its territory and will be responsible to transmit this data to the
appropriate state authorities. This data is deemed confidential and is
furnished only to designated state authorities and/or ASI headquarters. This
data is encrypted and only SOCC's have translation software.
SOCC will be expected to maintain an inventory of spare parts,
instruction and installation manuals and other applicable components required
to support the dealers and anticipated installations within its territory.
These will be provided by ASI and will also include specialized training
equipment and proprietary information to assist SOCC in the performance of its
duties with ASI bearing the reasonable cost of any special training and
equipment. The SOCC trains the dealers in their respective territories at
their cost.
SOCC shall receive a fee for each installed SENS-O-LOCK(TM) 1100
Series within its territory from its mandate dealer network as an
administrative fee. The SOCC may concurrently operate as a certified installer
dealer if it also elects to act in that capacity.
The Company presently has twelve operation centers in ten states.
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Authorized Dealer Installation Locations - All authorized dealer
locations are selected and certified by ASI. Certification requires that they
be financially sound and responsible with a successful history of automotive
aftermarket installations. The SENS-O-LOCK(TM) is installed only by ASI's
trained and certified installers who have completed a comprehensive course
given by the Company's SOCC either at the dealer's location or at the SOCC
site as part of their dealer agreement. The installation process, by ASI
trained and certified installers, should take approximately one hour.
These locations are equipped with the necessary equipment to ensure
proper installation and the installation area is secured to prevent
unauthorized persons from observing or accessing secured items such as tamper
seals and installation instructions. Prior to installation, the vehicle is
screened for mechanical and electrical conditions that may interfere with
device's functioning. The installation site maintains all records of their
interlock customers, which are sent to the SOCC.
The Company provides support to the states and the
dealer/representatives through its SOCC in the following manner:
(1) Operating a communication system via a long distance telephone
carrier with a modern digital telephone switch network to communicate by
electronic mail with the installation centers, the probation departments and
others interested in the automotive interlock program.
(2) Providing educational information and documents to the courts,
installers, probationers and their families, to create awareness that an
automotive interlock device may prevent DWI.
(3) Providing probation departments with a decoding program for
downloading encrypted information.
(4) Acting as an intermediary between the probation departments,
probationers and installers with bi-directional communication among all
parties.
(5) Maintaining national TOLL FREE NUMBERS twenty-four (24) hours a
day, seven (7) days a week.
MARKETING AND DISTRIBUTION
The Company's marketing strategy will initially concentrate on
product sales to the voluntary and mandate markets. Thereafter the Company
will attempt to penetrate the commercial vehicle markets. According to the
U.S. Department of Justice - Bureau of Judicial Statistics - there were
approximately 1,250,000 U.S. DWI convictions during 1992 including first time
convictions and repeat offenders.
The Company intends to market and sell its products through an
independent Dealer-Representative Network and direct sales. The Company has
not conducted any test marketing programs to date. The Company has entered
into exclusive ignition interlock Representative Agreements with 15
independent representative firms covering specific territories throughout the
United States, which the Company believes affords sufficient sales coverage in
most states. Their responsibilities include the selection of entities for the
Company's State Operations and Certification Center, appointment of dealers
including automotive chains, auto stores, repair stations, auto specialty
retail stores and alarm and radio installers, all of whom would sign Dealer
Agreements, and thereafter receive Company training to sell, service and
install the SENS-O-LOCK(TM) system in customers' vehicles. These agreements
generally contain provisions for a one year term with annual renewable,
terminable without cause upon 30 days written notice by either party and
automatically terminable for cause if the representative breaches various
specific contract conditions. Representatives will receive 5% net commissions
against gross sales on all product sales made in the representatives'
territory through dealers.
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The Company has entered into agreements with dealers nationwide who
were recruited by their territorial representative and/or ASI directly. ASI or
its SOCC's trains all dealers to sell, install and service its products.
Dealers are designated as either "Certified" or "Retail". (See "Installations
and Service".)
The Company intends to continue its participation in trade shows,
advertise in trade journals, hold seminars and prepare a variety of
instructional aids to introduce its products and to educate potential users,
representatives and dealers.
The Company has prepared judicial/legal information packages and
video tapes for distribution as permitted by state regulatory authorities to
court officers. These include the American Association of Motor Vehicle
Administrators, the National Association of Governors Highway Safety
Representative, the National District Attorney Association and the American
Probation and Parole Association. The Company has continuing contact with
organizations interested in improving highway safety.
The Company will provide a renewable one full year warranty for parts
and labor on SENS-O-LOCK(TM) for mandate market installations. A full product
warranty on parts and labor for the voluntary and commercial markets is given
for 90 days from installation by an authorized dealer. Servicing for the
systems during and beyond the warranty period will be provided by the
Company's authorized dealers. There is no assurance that dealers will provide
satisfactory service.
ASI signed an exclusive Dealer/Distributor Agreement with a United
Kingdom company, Digital Vehicle Security Systems ("DVSS"), in October, 1993
to cover potential marketing and sales in the European market which agreement
was re-affirmed in May, 1996 and subsequently assigned to ASE. The Company
intends to identify and pursue the same markets in Europe as it has done
domestically. The Company is unaware of foreign government regulatory
compliance requirements, if any, at this time.
ASE was formed in October, 1996 by ASI and Michael Ghazarian (a
member of the Company's Board of Directors), and the managing director of
Digital Vehicle Security Systems. ASE is owned 80% by ASI and 20% by Michael
Ghazarian. ASE was formed primarily as an opportunity for ASI to supervise its
own manufacturing and distribution processes.
Michael Ghazarian in July, 1996 executed a consulting agreement with
the Company whereby Mr. Ghazarian was to assume responsibility for all mold
making and tooling for the Sens-O-Lock(TM) and the production process; from
establishing the final design through the manufacturing of initial and ongoing
production of Sens-O-Lock(TM) devices. Mr. Ghazarian is also a director/owner
of Scarico U.K., Ltd. At present, it is the intention of the Company to have
its products manufactured by Scarico. The term of this agreement was for six
(6) months with a consulting fee of $100 per month. All inventions and patents
developed by Mr. Ghazarian during the term of this agreement were to be
assigned to ASI. The Company would own all molds and tooling upon payment to
Mr. Ghazarian.
WEATHEREYE(TM) HEADLIGHT MANAGEMENT SYSTEM
In August, 1996, the Company entered into an agreement with a
corporation that is owned by Joseph M. Lively, Esq., a member of the Company's
Board of Directors. Mr. Lively, along with others, invented a certain
technology which automatically turns on the headlights of automobiles to
varying capacities, daytime running lights, as well as automatically putting
on the vehicles headlights and taillights on at full capacity when the
windshield wipers are turned on. The Company is marketing this technology
under the name of WeatherEye(TM) Intelligent Headlight Management System.
Pursuant to the terms of this agreement the Company has the right to
modularize the original system which was developed. ASI was granted the
exclusive right to distribute the products to the new and used car dealers in
the United States as well as the non-exclusive right to distribute in other
world-wide markets.
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The Company will pay the corporation owned by Mr. Lively a royalty on
each modularized unit sold ranging from $0.19 to $2.00 depending on the unit
sold.
In its attempt to expand its market potential, the Company has
modularized the various components that comprise the WeatherEye(TM)
Intelligent Headlight Management System. The rationale was that certain
features of the WeatherEye(TM), such as daytime running lights, were being
included on newer car models.
Believing that consumers would be reluctant to purchase a headlight
management system that contained a feature that was standard equipment on
their vehicle was the catalyst for the modulazation of WeatherEye(TM).
The consumer now has the ability to select certain or all of the
features which the WeatherEye(TM) Intelligent Headlight Management System can
provide, by way of a modular system.
Daytime running lights have been proven as an effective means in
reducing accidents. Insurance companies have realized this and many offer
premium discounts to drivers whose autos are equipped with this feature.
Many states require the headlights and taillights to be put on when
the windshield wipers are in use. The WeatherEye(TM) puts these lights on
automatically when the windshield wipers are turned on and turns them off
automatically when the wipers are turned off.
Additionally, since WeatherEye(TM) "thinks" for itself, you will not
have to be concerned about discovering a dead battery as a result of leaving
your lights on. When the ignition is turned off, all the vehicle's lights are
automatically shut off. According to the American Automobile Association, they
made 27.5 million service calls due to dead batteries in 1995.
WeatherEye(TM) Intelligent Headlight Management System is a system
which provides the safety of daytime running lights not just in daytime, but
around the clock, automatically adapting to the safest setting for any driving
condition. It automatically performs all the following function:
o in daylight, headlights are on at reduced power whenever the vehicle is
running;
o at dusk, headlights are raised to full brightness, dash and taillights
are on;
o when wipers are switched on, headlights are raised to full brightness,
dash and taillights are on;
o when wipers are switched off, headlights are raised to full
brightness and all others automatically adjust to appropriate
intensity;
o when the ignition is turned off, all lights go off and
o valet - lights remain on for 45 seconds after vehicle is turned off.
GOVERNMENT REGULATION
The Company intends that its Sens-O-Lock(TM) products comply with the
Federal Department of Transportation's issued standards published by NHTSA and
varying state certification standards where its breath interlock devices will
be certified. On April 7, 1992 NHTSA published a notice which set forth its
newest model specifications for the performance and testing of breath
interlock devices. The Company's original SENS-O-LOCK(TM) device had been
certified as meeting the government's standards. More than thirty five (35)
states including the largest populated states such as California, Texas and
New York have either passed interlock legislation or administrative
directives. ASI's first series of SENS-O-LOCK(TM) devices had received
certification in twelve (12) states - California, Florida, Georgia, Kansas,
Maryland, Michigan, Minnesota, Nebraska, New York, Oklahoma, Utah and
Missouri. The Company's primary marketing efforts will focus on California,
New York metropolitan area and Texas. Certification standards vary by
jurisdiction and are only applicable to the products installed pursuant to
court ordered installations.
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RESEARCH AND DEVELOPMENT
The Company believes that it must enhance its existing products and
develop new products in order to maintain its competitive position. The
Company's ongoing product research activities will include refinement and
improvement of current products and the development of new product options and
features. The Company intends to continue to provide for research and
development, including the hiring of additional qualified engineering,
production and technical personnel and setting up laboratory facilities. During
1996, ASI spent approximately $913,000 on research and development.
PATENTS AND TRADEMARKS
On November 24, 1994 and March 8, 1995 the Company acquired all
rights, title and interest from the inventors, its in-house engineers, of the
ignition interlock technology, its methodology, design and two pending patent
applications, covering such methodology and design. These patents were filed
in November, 1994 and January, 1995, respectively covering the Company's
products. The Company has agreements with its engineers that any and all
technologies, design and methodologies will be assigned to the Company. While
ASI believes that the applications relate to patentable devices or concepts,
there can be no assurance that patents will issue, or that any patents issued
can be successfully defended. The Company has also obtained trademarks to
protect the SENS-O-LOCK(TM) brand name of its products. ASI relies on a
combination of patent, trademark, trade secret laws, confidentiality,
non-disclosure and other contractual agreements and technical measures to
protect its proprietary rights. There can be no assurance that the Company's
efforts to protect such rights will be successful.
INSURANCE
The Company maintains liability insurance with coverage limits of
$1,000,000 for each occurrence and $2,000,000 in the aggregate along with an
additional $7,000,000 umbrella policy. The Company believes that such coverage
is adequate for its products, and although it does not anticipate any
liability claims, there is no assurance that claims will not arise in the
future, or that any damages or costs associated with these claims will not
exceed the available insurance coverage limits.
COMPETITION
The industries and markets in which the Company operates are highly
competitive. Some of the Company's competitors may have substantially greater
financial resources, larger research, development and sales staffs and greater
name recognition than the Company, and who may introduce new or improved
products in the future.
Market participants must compete on many fronts, including
development time, engineering expertise, product quality, performance and
reliability, price, name recognition, customer support and access to
distribution channels. While the Company believes that it will be able to
compete favorably primarily through product quality, technical excellence and
customer service, there is no assurance that the Company will be able to
compete successfully or develop competitive products in the future.
EMPLOYEES
As of December 31, 1996, the Company had 14 full time employees,
including its officers, 3 administrative personnel and 2 sales personnel. None
of the Company's employees is represented by a collective bargaining agreement
nor has the Company experienced any work stoppage. The Company believes its
relationship with its employees is satisfactory.
14
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Item 2. Properties
The Company leases a 10,000 square foot facility pursuant to a five
year lease with a five year option to renew, at an annual rental of $85,000
for the first year with yearly five (5%) percent increases thereafter.
Item 3. Legal Proceedings and Settled Litigation
The Company was named as a defendant in an action commenced in the
United States District Court for the Eastern District of New York in July
1996. The plaintiff is seeking $9 million in damages plus 100,000 shares of
Company's stock, alleging he performed certain work for the Company as an
independent contractor and was never compensated for the services he
performed. The Company's position is that the plaintiff in this action failed
to provide the services as contracted and was not entitled to receive any
payment. Defendant has submitted it answer and management believes the claims
alleged in this lawsuit are frivolous and is defending the action vigorously.
At this time, it is too early to determine the outcome of this action and,
therefore, the Company has not made any provision in its financial statement.
The Company and certain of its officers were named as defendants in an
action commenced in the Supreme Court of the State of New York, Orange County,
by two individuals claiming an equity interest in the Company, as well as
damages of $18.5 million, based upon a purported agreement with another
company, Alcohol Sensors, Inc., with which the claimants, certain officers of
the Company and others were affiliated in 1989, and a claim that one of the
individuals is the inventor of the technology that the Company is using.
Management agreed to settle this action in February, 1997, subject to the
approval of the Court, for a total of 315,000 shares of the Company's common
stock and certain members of management have agreed to donate their private
shares to provide for the settlement. At December, 1996, the Company has
accrued approximately $1,144,000 in connection with this settlement.
The Company and certain of its officers were named as defendants in an
action commenced in the United States District Court for the Eastern District
of New York in March 1996, by a stockholder seeking $2 million in alleged
damages as a result of the Company's handling of a prior action, BARRY BEYER,
et al V. ALCOHOL SENSORS INTERNATIONAL, LTD., et al. This previous action was
settled for a total of $382,675. In connection therewith, certain members of
management contributed 55,672 of their private shares of stock to the Company
along with $107,642. As a result of the Beyer settlement, management believes
this settlement renders the claims of the present action without merit and is
vigorously defending the action.
This Company was served with a Demand to Arbitrate and a Statement of
Claim by a former individual who had performed engineering services for the
Company on a consulting basis. Claimant was seeking $650,000 and 114,449
shares of stock in damages. The Company settled this matter in a Mediation
Conference and has agreed to transfer to Claimant 27,500 shares of stock in
full satisfaction of all claims in this action. This matter was settled in
April 1997 and the Company has accrued approximately $65,000 at December 31,
1996.
The Company was recently served with a Demand to Arbitrate by a
former employee. Claimant is seeking $75,000 and approximately 36,000 stock
options as damages. The Company has recently filed its answer to this demand.
At this time, it is too early to determine the outcome of this action and
therefore the Company has not made any provision in its financial statements.
Item 4. Submission of Matters to a Vote of Securities Holders
*None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since January 1, 1996, the Company's Units comprised of two shares of
common stock and one Class "A Warrant and 1/2 Class "B" Warrant, have been
traded on the Nasdaq SmallCap Market ("Nasdaq"). The common stock and warrants
did not trade separately until August 9, 1996 when same became detachable. The
following table sets forth the high and low prices for the Units during the
period indicated:
PERIOD ENDED HIGH LOW
January 1, 1996 through
March 31, 1996 18 1/4 12
PERIOD ENDED HIGH LOW
April 1, 1996 through
June 30, 1996 20 11 3/4
PERIOD ENDED HIGH LOW
July 1, 1996 through
August 8, 1996 15 3/4 8
On August 8, 1996, the closing price of the Units was $9.19
Following the separation of the Unit, the shares of common stock and
Class A and Class B Warrants were individually traded on the Nasdaq SmallCap
Exchange. The table set forth below indicates the highs and lows for the
common stock, A and B Warrants.
PERIOD ENDED HIGH LOW
August 9, 1996 through
September 30, 1996
Common Stock 4 7/8 2 13/16
A Warrant 2 5/8 5/8
B Warrant 1 3/8 1/2
PERIOD ENDED HIGH LOW
October 1, 1996 through
December 31, 1996
Common Stock 4 5/16 2 5/8
A Warrant 2 1/8 13/16
B Warrant 1 9/16 1/2
PERIOD ENDED HIGH LOW
January 1, 1997 through
March 31, 1997
Common Stock 7 1/4 3 3/8
A Warrant 3 3/8 1
B Warrant 2 3/8 7/8
Common Stock shareholders of record on March 31, 1997, excluding the
exact number of beneficial owners whose securities are held in street name,
are approximately 400, including holders in street name.
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Dividend Policy
No dividends have been declared on the Company's common stock through
March 31, 1997 and the Board of Directors has no current intention to declare
or pay dividends on the common stock in the foreseeable future. The Company
will pay a dividend of 9% semi-annually in June and December on its Series A
Preferred Stock payable in cash or in stock, which was issued to American
International Insurance Company pursuant to the terms of the Convertible
Preferred Stock and Warrant Purchase Agreement, dated December 20, 1996.
Item 6. Management's Discussion and Analysis Results of Operations
and Financial Condition
GENERAL
Since the Company's founding in February, 1992 it has been engaged
primarily in the research, development and design of an innovative
technologically advanced ignition interlock system to detect various
intoxication levels of motor vehicle drivers.
In late 1995, the Company's Sens-O-Lock(TM) unit was certified to be
in compliance with National Highway Traffic Safety administration ("NHTSA"
Guidelines). In the early Spring 1996, the Company began shipping its first
series of Sens-O-Lock(TM). At a point in the late spring, ASI became aware of
inconsistencies in certain integral components manufactured for the Company
and other manufacturing and quality control problems. These were problems
which ASI did not become aware of until the units were actually in the field
and being used. After verifying these problems, the Company immediately
suspended production and instituted a recall.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 and December 31, 1995
The Company had revenues for the year ended December 31, 1996 of
$40,586. The Company had revenues for the year ended December 31, 1995 of
$68,559.
The Company's loss from operations for the year ended December 31,
1996 was $6,161,934 as compared to $3,370,307 for the year ended December 31,
1995, an increase of $2,791,627, or 82%. Expenditures on research and
development increased to $913,456 for the period compared to $894,793 for the
prior period, an increase of $18,663, or 2%. General and administrative
expenses increased to $3,101,571 for the period compared to $1,512,938 for the
prior period, an increase of $1,588,633 or 105%. The increase in general and
administrative expenses are a result of the Company's efforts to develop a
distribution network, begin marketing efforts for its Sens-O-Lock(TM) products
and for the relocation and expansion of its corporate offices. The Company
incurred costs relating to the hiring of marketing and selling personnel and
other marketing costs, increased rental costs and administrative personnel in
its corporate offices and an increase in overhead costs such as insurance,
telephone and utilities.
For the year ended December 31, 1996 the Company recorded litigation
settlement expenses of $1,591,496, which were substantially funded by shares
donated by the principal shareholders as compared with $990,000 for the year
ended December 31, 1995.
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In connection with problems encountered with the contract
manufacturer of its initial Sens-O-Lock(TM) units, the Company wrote off
certain inventory, aggregating approximately $556,000. The Company presently
has an inventory of approximately $287,000, after all writedowns. The Company
is now placing its efforts and resources toward the manufacturing of its new
Alcohol Specific Technology Sens-O-Lock(TM) ("AST"); representing the
Company's future.
Interest income for the year ended December 31, 1996 was $82,538
resulting from investing the net proceeds of the Company's initial public
offering as compared with $22,028 from the previous year. The Company incurred
interest expenses of $41,747 in 1996 as compared to $276,608 in the prior
year, resulting from the debt reduction of discounts and deferred financing
fees related to its private placement in 1995.
LIQUIDITY AND CAPITAL RESOURCES
From inception through September 30, 1995, the Company financed its
operations primarily from private placements of equity and debt securities
totaling approximately $2,500,000. On November 9, 1995, the Company
successfully completed its initial public offering selling 1,000,000 Units,
each comprised of two shares of common stock, one redeemable Class "A" common
stock purchase warrant exercisable after November 9, 1996 at $3.75 per share
and 1/2 redeemable Class "B" common stock purchase warrant exercisable after
November 9, 1996 at $5.00 per share. On December 19, 1995 the Underwriters'
overallotment option of 150,000 Units was exercised in full. The Company's net
proceeds from its initial public offering were approximately $5,800,000. In
1996, the Company received $436,000 from the exercise of warrants. The Company
has loans and accrued interest to officers of approximately $300,000 which it
intends to repay from cash generated from operations. The Company has obtained
a $500,000 line of credit with Bank of New York at 5.25% as secured by a
$500,000 Certificate of Deposit.
As a result of the Company's decision to halt production and shipment
of its original interlock series, ASI had, in effect, no stream of revenues.
The Company halted production due to problems and anomalies that were
encountered during the manufacturing process, performed by third party
contractors. The Company wrote off approximately $556,000 of inventory in the
second quarter of 1996 as a result of these problems. This, coupled with the
cost of the research and development of the alcohol specific technology,
created a strain on the Company's financial situation.
In approximately October, 1996, the Company found it necessary to
look for additional funding. It was management's original intent to raise $2.5
million by means of a 506 offering. ASI had taken significant steps in
obtaining raising the necessary capital by this route when it was presented
with the unique opportunity to obtain this funding from a large insurance
company.
In December 1996, the Company completed a transaction with American
International Insurance Company ("AIIC"), a subsidiary of American
International Group, Inc., whereby AIIC made a $2.5 million investment in ASI
in return for Convertible Preferred Stock and Warrants.
This capital infusion has allowed the Company to continue its
research and development with regard to the alcohol specific technology and to
purchase components for the manufacture of the Company's products and to
continue Company operations.
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Management believes that its current cash investments and future
funds from the sale of its WeatherEye(TM) products will be sufficient to
operate the Company through the end of 1997. In order to preserve its cash,
management substantially reduced its operating expenses and deferred
approximately 50% of management's salaries.
The Company has established a plan of operations in which it intends
to purchase raw materials, components and manufacturing services to complete
units which will be sold to the Company's dealer network. The Company intends
to fund research and development, including engineering personnel costs,
laboratory equipment purchases and rental costs and independent laboratory
testing services. The Company may find the need to raise additional capital
for purposes of continuing operations, to obtain components parts and for
manufacturing. Management believes that this subject should be addressed at
the completion of the research and development stage of the interlock device.
There can be no assurance that such capital will be available on terms
acceptable to the Company on a timely basis or at all.
The Company has completed its renovation for office space,
furnishings and equipment, as well as having established a networked
management, inventory control, and customer and fulfillment information
systems. The Company's efforts subsequent to the initial public offering have
been focused toward the setting up of Company systems and personnel to assist
the Company in fulfilling its business plan and to capitalize on the
opportunities available to it.
Item 7 Financial Statements
See Financial Statements annexed.
Item 8. Changes and Disagreement with Accountants on Accounting and
Financial Disclosure
Not applicable.
19
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The following table lists the current directors and executive
officers of the Company:
NAME AGE POSITION
Robert B. Whitney 56 Chief Executive Officer, President and
Director
John T. Ruocco 49 Sr. Executive Vice President and Director
Michael A. Sylvester 58 Vice President, Chief Financial Officer,
Treasurer and Director
Steven A. Martello 41 Vice President, Chief Operating Officer and
Director
Michael Ghazarian 33 Director of Production and Manufacturing
and Director
Joseph M. Lively 41 Corporate Counsel and Director
J. Ernest Hansen 58 Director
Each director is elected for a one year term or until his successor
is elected and shall have qualified. The Board serves as a nominating
committee for new directors and as a compensation committee. Each officer of
the Company is elected by the Board of Directors.
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ROBERT B. WHITNEY, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR
Robert B. Whitney has been Chief Executive Officer, President and a
Director of the Company since inception. Mr. Whitney along with John T. Ruocco
developed and filed a patent application on ASI's alcohol sensing device. From
1985 through January, 1987, Mr. Whitney was vice president and a founder of
Nycom Telecommunications, Inc., a New York based public company engaged in
selling long distance operator assisted telephone services. From January, 1987
through 1989 he was a director of marketing and sales for United Artists
Telecommunications, Inc. From 1992 to the present he has been engaged in the
development of ASI's business and technology as an officer of the Company.
JOHN T. RUOCCO, SR. EXECUTIVE VICE PRESIDENT AND DIRECTOR
John T. Ruocco has been Executive Vice President and Director of the
Company since inception. From 1985 through January, 1987 he was President and
a founder of Nycom Telecommunications, Inc. From January, 1987 through 1989 he
was employed by United Artists Telecommunications, Inc., assisting that
company in its entry to the New York telecommunications industry. From 1992 to
present he has been engaged in the development of ASI's business and
technology as an officer of the Company.
MICHAEL A. SYLVESTER, VICE PRESIDENT, CHIEF FINANCIAL OFFICER, TREASURER AND
DIRECTOR
Michael A. Sylvester has been an Officer and Director of the Company
since inception. From 1983 through 1995 he had been CEO and President of M & S
Chevrolet. At present he remains President of M & S Chevrolet and an officer
of Morning Star Ford and a partner in the real estate firm of Perry Realty,
all located in Highland, New York.
DR. STEVEN A. MARTELLO, VICE PRESIDENT, CHIEF OPERATING OFFICER AND DIRECTOR
Dr. Steven A. Martello has served in the capacity of Chief Operating
Officer and a Director since July, 1992. From 1984 to 1990 he was engaged as a
deputy to the Director of Presidential Advance Operations with the White
House. He has held various corporate management positions including that of
Vice President at Worldlink Information Systems, Inc. and at companies
including General Mills, Inc. and Dr. Martello has served as a director of the
Industry Advisory Board to the American Association of Motor Vehicle
Administrators ("AAMVA") , assisting in liaison with Department of Motor
Vehicle Commissioners and industry.
MICHAEL GHAZARIAN, DIRECTOR OF PRODUCTION AND MANUFACTURING AND DIRECTOR
Mr. Ghazarian is Managing Director of Digital Vehicle Security
Systems in Chesham Bucks, U.K. Digital Vehicle Security Systems is a
Manufacturer/Distributor of Name Brand and O.E.M. electronics products for the
Automotive Industry, including Security Systems, and automotive components. In
addition to systems sold under Digital's own brands GUARDIAN and FIGHTER, and
distributed in twenty seven countries, Digital provides product on an O.E.M.
basis to Toyota, Ford, BMW, LDV, Daewoo, Suoda, Philips and Proton. Mr.
Ghazarian also holds the position of Managing Director of Scarico, U.K., Ltd.
Scarico is a Manufacturer/Distributor of key sub-assemblies and components for
the White Goods (electric appliances) Industry, such as motors, switch panels,
doors, locking assemblies. These products are sold on an O.E.M. basis to major
appliance manufacturers including Whirlpool, Zanussi, Vailiant, Creda and
Ariston. Mr. Ghazarian currently holds the position of Managing Director of
ASE, Plc.
JOSEPH M. LIVELY, CORPORATE COUNSEL, DIRECTOR
Mr. Lively has served as the Company's Corporate Counsel since
October 1995, originally as an outside counsel. Mr. Lively was in private
practice prior to becoming the Company's in-house counsel. He is admitted to
practice in New York and the federal courts for the Southern and Eastern
Districts of New York.
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J. ERNEST HANSEN, DIRECTOR
J. Ernest Hansen is President of American International Insurance
Company, American International Insurance Company of California, Inc.,
Minnesota Insurance Company, AIG Marketing, Inc. and New Hampshire Insurance
Services, Inc. He has worked for twenty-five years within the property and
casualty insurance industry. Most recently, before joining AIG in 1990, he was
part of the Tillinghast management consulting practice and, prior to that,
managed the National General Insurance Company, a mass marketing personal
lines insurer. His career includes work in commercial insurance and
reinsurance, domestic and overseas, as well as personal lines.
Item 10. Executive Compensation
The following table summarizes the compensation earned by the Chief
Executive Officer and one other executive officer who earned compensation of
approximately $100,000 for the last fiscal year:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------ ----------- ------------------ ----------- --------------------- ---------------------
Salary Bonus Other Annual Long Term
Name and Principal Position Year ($) ($) Compensation Compensation
- ------------------------------------------ ----------- ------------------ ----------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Robert B. Whitney, CEO 1996 $99,944 - - -
- ------------------------------------------ ----------- ------------------ ----------- --------------------- ---------------------
John T. Ruocco, Sr. Exec. VP 1996 $99,944 - - -
- ------------------------------------------ ----------- ------------------ ----------- --------------------- ---------------------
</TABLE>
EMPLOYMENT AGREEMENTS
Robert B. Whitney and John T. Ruocco are each employed under a
three-year agreement, effective January 1, 1996, with a base annual salary of
$99,944. The term may be extended an additional two years by mutual consent.
They may each also receive annual bonuses at the sole discretion of the Board
of Directors of the Company, based upon the financial and operating
performance of the Company. The Board has not authorized any bonuses as of
this time. Both officers have executed non-competition and non-solicitation
agreements with the Company covering the two years following termination of
employment.
1995 STOCK OPTION PLAN
In 1996, the Company has adopted, the Company's 1995 Incentive Stock
Option Plan ("Plan") . The Board believes that the Plan is desirable to
attract and retain executives and other key employees of outstanding ability.
Under the Plan, options to purchase an aggregate of not more than 600,000
shares of Common Stock may be granted from time to time, of which 300,000 are
allocated for employees and 300,000 options are allocated for outside
directors and consultants to the Company.
The Plan is administered by the Board of Directors which may empower
a committee of directors to administer the Plan. The Board is generally
empowered to interpret the Plan, prescribe rules and regulations relating
thereto, determine the terms of the option agreements, amend them with the
consent of the optionee, determine the employees to whom options are to be
granted, and determine the number of shares subject to each option and the
exercise price thereof. The per-share exercise price for incentive stock
options ("ISO") and for non-qualified stock options ("NQSO") will not be less
than 100% of the fair market value of a share of the Common Stock on the date
the option is granted (110% of fair market value on the date of grant of an
ISO if the optionee owns more than 10% of the Common Stock of the Company).
Upon exercise of an option, the optionee may pay the purchase price with
previously acquired securities of the Company, or at the discretion of the
Board, the Company may loan some or all of the purchase price to the optionee.
22
<PAGE>
Options will be exercisable for a term determined by the Board, which
will be not greater than ten years from the date of grant. Options may be
exercised only while the original grantee has a relationship with the company
which confers eligibility to be granted options or within three months after
termination of such relationship with the Company, or up to one year after
death or total and permanent disability. In the event of the termination of
such relationship between the original grantee and the Company for cause (as
defined in the Plan), all options granted to that original optionee terminate
immediately. In the event of certain basic changes in the Company, including a
change in control of the Company (as defined in the Plan) , in the discretion
of the Committee, each option may become fully and immediately exercisable.
ISOs are not transferable other than by will or the laws of descent and
distribution. NQSOs may be transferred to the optionee's spouse or lineal
descendants, subject to certain restrictions. Options may be exercised during
the holder's lifetime only by the holder, his or her guardian or legal
representative.
Options granted pursuant to the Plan may be designated as ISOs, with
the attendant tax benefits provided under Section 421 and 422 of the Internal
Revenue Code of 1986. Accordingly, the Plan provides that the aggregate fair
market value (determined at the time an ISO is granted) of the Common Stock
subject to ISOs exercisable for the first time by an employee during any
calendar year (under all plans of the Company and its Subsidiaries) may not
exceed $100,000. The Board may modify, suspend or terminate the Plan;
provided, however, that certain material modifications affecting the Plan must
be approved by the stockholders, and any change in the Plan must be approved
by the stockholders, and any change in the Plan that may adversely affect an
optionee's rights under an option previously granted under the Plan requires
the consent of the optionee.
23
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial
ownership of the Company's Common Stock entitled to vote as of December 31,
1996 and March 31, 1996 by (i) each person known by the Company to be the
beneficial owner of more than five percent of the outstanding Common Stock,
(ii) each director and executive officer of the Company individually, and
(iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
OPTIONS/WARRANTS PERCENT OWNERSHIP OF THE CAPITAL
NUMBER OF SHARES OF COMMON STOCK EXERCISABLE FOR STOCK
OWNED (ON A FULLY DILUTED BASIS)
COMMON STOCK OWNED
NAME & ADDRESS AS OF 12/31/96 AS OF 3/31/97 AS OF 12/31/96 AS OF 3/31/97
-------------- -------------- ------------- ------------------ -------------- -------------
(1) (1) (4) (1) (1) (4)
<S> <C> <C> <C> <C> <C>
Robert B. Whitney
11 Oval Drive
Islandia, NY 11722 646,082 566,260 7.41% 6.73%
John T. Ruocco
11 Oval Drive
Islandia, NY 11722 646,082 566,260 7.41% 6.73%
Michael A. Sylvester
11 Oval Drive
Islandia, NY 11722 646,082 566,260 7.41% 6.73%
Dr. Steven A. Martello
11 Oval Drive
Islandia, NY 11722 150,000 110,888 1.72% 1.32%
Ariel Enterprises (3)
11 Oval Drive
Islandia, NY 11722 180,000 180,000 100,000 3.17% 3.33%
Joseph M. Lively
11 Oval Drive
Islandia, NY 11722 39,850 39,850 140,000 2.03% 2.10%
Michael Ghazarian
11 Oval Drive
Islandia, NY 11722 5,000 5,000 100,000 1.19% 1.23%
J. Ernest Hansen (2)
505 Carr Road
Wilmington, DE 19809 0 0 0 0 0
American International
Insurance Company (2)
505 Carr Road
Wilmington, DE 19809 555,556 555,556 833,333 13.74% 14.16%
------- ------- ------- ------ ------
TOTALS 2,868,652 2,590,074 1,173,333 40.85% 39.24%
========= ========= ========= ====== ======
</TABLE>
All officers and directors as a group are seven.
Michael A. Sylvester and John T. Ruocco, officers and directors of the Company
are brothers-in-law.
(1) The Company presently has 8,721,018 and 8,416,018
common shares outstanding as of December 31, 1996 and March 31, 1997
respectively.
(2) J. Ernest Hansen is President of American International
Insurance Company ("AIIC"), who is the beneficial owner of the Company shares
as a result of a Convertible Preferred Stock and Warrant Purchase Agreement
with the Company dated December 20, 1996. Pursuant to the terms of this
Agreement, 555,556 shares of Common Stock may be issued upon conversion of the
Preferred Stock and 833,333 shares of Common Stock may be issued upon the
exercise of the Warrants. The Agreement grants AIIC anti-dilution rights, and
provides for dividend payments of 9% paid semi-annually, in June and December.
This dividend payment may be paid in the form of cash or stock for the first
two years of the Agreement. Therefore, the Company has reserved 833,333 shares
of Common Stock in the event the dividends are to be paid in the form of
stock.
(3) Ariel Enterprises is a trust that has been established for the
benefit of the Martello family.
(4) Gives effect to the contribution of
315,000 shares of Common Stock by certain officers in connection with a
litigation settlement.
24
<PAGE>
Item 12. Certain Relationships and Related Transactions
For the period commencing February, 1992 through December, 1994
Messrs. Whitney and Ruocco accrued $90,000 in salaries. The Company borrowed
$40,000 from an unaffiliated third party with the aggregate indebtedness
including other officers amounting to approximately $300,000. The Company
repaid approximately $166,000 to officers from the proceeds of its initial
public offering and repaid the note with the unaffiliated third party.
Berger & Paul, the Company's former SEC counsel, were issued 270,000
common shares at par value in consideration of unpaid legal services rendered
to the Company between December, 1992 and July, 1994.
Any future transactions with officers, directors or principal
stockholders will be on terms no less favorable than could be obtained from
unaffiliated third parties and will be approved by a majority of the directors
disinterested in the transaction.
Some of the officers were named as parties to some of the litigation
actions both settled and currently pending. These officers have donated a
portion of their personal stock holdings toward the settlement of certain
actions. (See "Legal Proceedings and Settled Litigation".)
Michael Ghazarian, a Director of the Company, is the managing
director of Digital Vehicle Security Systems ("Digital"), the company that had
signed an agreement with ASI to be the distributor of its products in Europe.
Mr. Ghazarian is also a 20% owner of Alcohol Sensors Europe, Plc.,
a subsidiary of the Company. The agreement ASI had with Digital was
subsequently assigned to ASE.
Mr. Ghazarian is also the director/owner of Scarico UK, Ltd., which
manufactures electronic components in a manufacturing cooperative located in
Varese, Italy. At present, it is the intention of the Company to have its
products manufactured by Scarico.
In 1996, the Company was charged approximately $174,000 for molds,
tooling and operating expenses from Digital and Scarico UK, Ltd.
Michael Ghazarian originally entered into an agreement with ASI in
October, 1993 with an anticipated delivery of Sens-O-Lock product to begin in
April, 1994. The Company entered into this agreement with Michael Ghazarian
because of his knowledge and experience in the automotive aftermarket industry
as well as the ability to capitalize on his European distribution
capabilities.
In May, 1996, the Company and Mr. Ghazarian re-affirmed their prior
agreement of October, 1993.
The Company, after experiencing the problems associated with its
initial product launch as well as recognizing Mr. Ghazarian's vast experience
as an aftermarket product manufacturer, elected to enter into a consulting
agreement with Mr. Ghazarian. The consulting agreement was for a duration of
six (6) months with a fee to be paid by ASI of $100 per month, plus
pre-approved expenses. Mr. Ghazarian assumed total responsibility for building
molds and tooling for the Sens-O-Lock(TM) and completing the Company's
proprietary air tube design. ASI would retain ownership of the molds aNd
tooling upon conveyance of the final payment to Mr. Ghazarian. Mr. Ghazarian
would convey all rights, title and interests to all inventions and patents
produced and developed in accordance with this agreement. In consideration of
Mr. Ghazarian's successful completion of the tasks under the Consulting
Agreement, the Company awarded him 100,000 stock options at a strike price of
$3.00.
25
<PAGE>
Subsequent to the consulting agreement, the Company believed that it
was in its interest, particularly in light of the importance that the
Sens-O-Lock be manufactured properly, that Mr. Ghazarian receive a substantial
vested interest in the manufacturing of the Company's products. Therefore, the
Company formed a subsidiary, ASE, owned 80% by ASI and 20% by Mr. Ghazarian,
to supervise the final research and development and industrialization of the
new technology and manufacturing and quality assurance of ASI's Sens-O-Lock(TM)
products. ASE shall supervise the manufacturing To be performed by
Mr. Ghazarian's company, Scarico UK, in Varese, Italy.
Joseph Lively, a director and the Company's Corporate Counsel, is one
of the inventors of the product that eventually became the Company's
WeatherEye(TM) series. He is the sole shareholder of a company that was
assigned the pateNt rights to this product. This company and ASI entered into
an agreement in August, 1996 whereby ASI was provided with certain exclusive
marketing and manufacturing rights to the product. The Company is obligated to
pay a royalty of between $0.19 and $2.00 per unit.
26
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ALCOHOL SENSORS INTERNATIONAL, LTD.
Dated: April 15, 1997 By: ______________________________________
Robert B. Whitney, CEO
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: April 15, 1997 _________________________________________
Robert B. Whitney
Dated: April 15, 1997 _________________________________________
John T. Ruocco
Dated: April 15, 1997 _________________________________________
Steven A. Martello
Dated: April 15, 1997 _________________________________________
Michael A. Sylvester
Dated: April 15, 1997 _________________________________________
Michael Ghazarian
Dated: April 15, 1997 _________________________________________
Joseph M. Lively
Dated: April 15, 1997 _________________________________________
J. Ernest Hansen
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Alcohol Sensors International, Ltd.
Islandia, New York
We have audited the accompanying consolidated balance sheet of Alcohol
Sensors International, Ltd. and subsidiary as at December 31, 1996 and the
related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years ended December 31, 1996 and December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements enumerated above
present fairly, in all material respects, the financial position of Alcohol
Sensors International, Ltd. and subsidiary as at December 31, 1996 and the
results of their operations and their cash flows for the years ended December
31, 1996 and December 31, 1995, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A, the Company
has suspended manufacturing, expects substantial losses and may deplete its
working capital and equity before it is able to generate positive cash flow.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note A. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
As described more fully in Note L, the Company is a defendant in
litigation, the ultimate outcome of which cannot be presently determined.
Richard A. Eisner & Company, LLP
New York, New York
March 18, 1997
With respect to Note L
April 3, 1997
F-1
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (Notes B<1> and E) ................................. $ 3,042,051
Accounts receivable .......................................................... 16,392
Inventory (Note B<3>)......................................................... 287,462
Prepaid expenses ............................................................. 138,295
--------------
Total current assets........................................................ 3,484,200
Fixed assets--at cost (less accumulated depreciation of $91,921)
(Notes B<6> and C)............................................................ 367,618
Other assets .................................................................. 23,084
--------------
TOTAL ...................................................................... $ 3,874,902
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 703,955
Accrued expenses ............................................................. 215,802
Due to related party (Note H<1>) ............................................. 153,513
Loans payable and accrued interest to officers/stockholders (Note D) ........ 282,880
Note payable (Note E)......................................................... 500,000
Deposits ..................................................................... 10,000
--------------
Total current liabilities .................................................. 1,866,150
--------------
Accrued litigation settlement cost (Note L) ................................... 1,208,813
--------------
Commitments, contingencies and other matters (Notes I and L)...................
Stockholders' equity (Notes A, F and L):
Series A nonredeemable, 9% cumulative preferred stock--3,000,000 shares
authorized, 833,333 issued and outstanding (liquidation value $2,506,875) .. 2,500,000
Common stock--$.001 par value; 25,000,000 shares authorized, 8,776,690 issued 8,777
Additional paid-in capital ................................................... 11,419,483
Accumulated deficit .......................................................... (12,900,000)
Accumulated foreign currency translation adjustment .......................... (5,633)
--------------
Total ...................................................................... 1,022,627
Less treasury stock, at cost, 55,672 shares of common stock ................... (222,688)
--------------
Total stockholders' equity ................................................. 799,939
--------------
TOTAL ...................................................................... $ 3,874,902
==============
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-2
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Net sales ................................................... $ 40,586 $ 68,559
Cost of goods sold .......................................... 39,971 41,135
-------------- --------------
Gross profit ................................................ 615 27,424
-------------- --------------
Expenses:
Research and development ................................... 913,456 894,793
Selling, general and administrative ........................ 3,101,571 1,512,938
Litigation settlement expense (Note L) ..................... 1,591,496 990,000
Cost of goods sold--inventory write-off .................... 556,026
-------------- --------------
Total .................................................... 6,162,549 3,397,731
-------------- --------------
Loss from operations ........................................ (6,161,934) (3,370,307)
Interest income ............................................. 82,538 22,028
Interest expense (including amortization of debt discount
and deferred financing fees of $189,300 in 1995) .......... (41,747) (276,608)
-------------- --------------
NET LOSS .................................................... $(6,121,143) $(3,624,887)
============== ==============
Net loss per common share (Note A<8>) ....................... $(.73) $(.56)
============== ==============
Weighted average number of shares outstanding ............... 8,430,960 6,458,486
============== ==============
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-3
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(NOTES A, F AND L)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
PREFERRED STOCK (PAR VALUE $.001) AT COST
--------------------- -------------------- ---------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT
--------- ---------- ----------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance--January 1, 1995 ............... 7,214,245 $ 7,214
Issuance of common stock for services .. 194,125 194
Issuance of warrants for services .....
Issuance of stock options for services
Issuance of common stock in private
placement (net of $11,700 legal fees) . 258,500 259
Warrants issued with debt in private
placements ............................
Issuance of units from initial public
offering .............................. 2,300,000 2,300
Contribution of common stock from
officers .............................. (1,000,000) (1,000)
Cancellation of shares issued for prior
services .............................. (850,000) (850)
Net loss ...............................
Unrealized gain on marketable
securities ............................
----------- -------
Balance--December 31, 1995 ............. 8,116,870 8,117
Issuance of preferred stock and
warrants .............................. 833,333 $2,500,000
Issuance of stock and stock options for
services .............................. 3,844 4
Issuance of common stock for litigation
settlement ............................ 300,000 300
Exercise of warrants ................... 355,976 356
Contribution of common stock and cash
by certain officers and stockholders . 55,672 $(222,688)
Net loss ...............................
Unrealized loss on marketable
securities ............................
Accumulated foreign currency
translation adjustment ................
--------- ---------- ----------- ------- --------- ----------
BALANCE--DECEMBER 31, 1996.............. 833,333 $2,500,000 8,776,690 $ 8,777 55,672 $(222,688)
========= ========== =========== ======= ========= ==========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ACCUMULATED
UNREALIZED FOREIGN
ADDITIONAL GAIN (LOSS) CURRENCY
PAID-IN ACCUMULATED ON MARKETABLE TRANSLATION
CAPITAL DEFICIT SECURITIES ADJUSTMENT TOTAL
--------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance--January 1, 1995 ............... $ 2,510,705 $ (3,153,970) $ (636,051)
Issuance of common stock for services .. 407,181 407,375
Issuance of warrants for services ..... 238,800 238,800
Issuance of stock options for services 80,000 80,000
Issuance of common stock in private
placement (net of $11,700 legal fees) . 246,541 246,800
Warrants issued with debt in private
placements ............................ 88,000 88,000
Issuance of units from initial public
offering .............................. 5,825,277 5,827,577
Contribution of common stock from
officers .............................. 1,000 -0-
Cancellation of shares issued for prior
services .............................. 850 -0-
Net loss ............................... (3,624,887) (3,624,887)
Unrealized gain on marketable
securities ............................ $ 83 83
----------- ------------- ------------- -----------
Balance--December 31, 1995 ............. 9,398,354 (6,778,857) 83 2,627,697
Issuance of preferred stock and
warrants .............................. 2,500,000
Issuance of stock and stock options for
services .............................. 265,996 266,000
Issuance of common stock for litigation
settlement ............................ 989,700 990,000
Exercise of warrants ................... 435,283 435,639
Contribution of common stock and cash
by certain officers and stockholders . 330,150 107,462
Net loss ............................... (6,121,143) (6,121,143)
Unrealized loss on marketable
securities ............................ (83 ) (83)
Accumulated foreign currency
translation adjustment ................ $(5,633) (5,633)
----------- ------------- ------------- ----------- -----------
BALANCE--DECEMBER 31, 1996.............. $11,419,483 $(12,900,000) $ -0 - $(5,633) $ 799,939
=========== ============= ============= =========== ===========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-4
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................................... $(6,121,143) $(3,624,887)
Adjustments to reconcile net loss to net cash (used in)
operating activities:
Depreciation and amortization ................................. 82,147 9,271
Amortization of debt discount ................................. 88,000
Amortization of bond discount ................................. (7,210)
Common stock issued for services .............................. 16,000 407,375
Common stock issued for litigation settlement ................. 990,000
Warrants issued for services .................................. 238,800
Options issued for services ................................... 250,000 80,000
Other ......................................................... (5,633)
Changes in operating assets and liabilities:
(Increase) in accounts receivable ............................ (16,392)
(Increase) in inventory ...................................... (144,572) (142,890)
Decrease (increase) in prepaid expenses ...................... 51,404 (154,699)
(Increase) in other assets ................................... (23,084)
Increase in accounts payable ................................. 473,346 102,154
Increase in accrued expenses ................................. 150,755
Increase in due to related party ............................. 153,513
Increase in accrued litigation settlement cost ............... 218,813 990,000
(Decrease) increase in deposits .............................. (39,036) 39,036
-------------- --------------
Net cash (used in) operating activities ..................... (3,940,798) (1,998,134)
-------------- --------------
Cash flows from investing activities:
Acquisition of fixed assets .................................... (82,101) (371,821)
Purchases of marketable securities ............................. (2,324,101) (2,817,025)
Sales of marketable securities ................................. 4,304,402 843,935
(Increase) decrease in restricted cash ......................... 1,017,317 (1,017,317)
-------------- --------------
Net cash provided by (used in) investing activities ........ 2,915,517 (3,362,228)
-------------- --------------
Cash flows from financing activities:
Proceeds from sale of common stock and units ................... 6,074,377
Proceeds from sale of preferred stock and warrants ............ 2,500,000
Proceeds from exercise of warrants ............................. 435,639
Contribution of capital by certain officers/stockholders ...... 107,462
Proceeds from notes payable .................................... 1,000,000
Payments of notes payable ...................................... (500,000) (196,050)
-------------- --------------
Net cash provided by financing activities ................... 3,543,101 5,878,327
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................... 2,517,820 517,965
Cash and cash equivalents--beginning of year .................... 524,231 6,266
-------------- --------------
CASH AND CASH EQUIVALENTS--END OF YEAR .......................... $ 3,042,051 $ 524,231
============== ==============
Supplemental disclosure of cash flow information:
Interest paid during the year .................................. $ 37,594 $ 59,781
Supplemental schedule of noncash financing activities:
During 1996, certain officers/stockholders contributed 55,672 shares of common stock to the
Company valued at $222,688 and are held in treasury.
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-5
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(NOTE A) -- THE COMPANY AND BASIS OF PRESENTATION:
Alcohol Sensors International, Ltd. (the "Company") was formed for the
development and commercial exploitation of a breath alcohol ignition
interlock device ("SENS-O-LOCK"). In October 1996, the Company incorporated a
subsidiary in the United Kingdom ("UK"), Alcohol Sensors Europe, PLC ("ASE"),
of which it owns 80% of the outstanding common stock. The consolidated
financial statements include the accounts of the Company and ASE. Significant
intercompany balances and transactions have been eliminated in consolidation.
In 1995, the Company prepared its financial statements as a development
stage company. During the first quarter of 1996 when the Company commenced
shipping SENS-O-LOCK, the Company determined that it was no longer a development
stage company. During the second quarter of 1996 the Company experienced
substantial returns of its product due to manufacturing difficulties. As a
result, the Company suspended manufacturing and resumed its research and
development on a new technology. This development has taken longer than
anticipated and must still go through a period of testing before
manufacturing can be resumed. There is no assurance that the product will be
successful or that shipping will resume. Further, there is no assurance that
the Company will be able to market its product.
Although the Company had working capital at December 31, 1996, a
substantial portion has been used in the continuing research and development
and its resources may be depleted before shipment of its product can be
resumed, which the Company believes will be followed by a positive cash flow.
The Company has taken steps to reduce its operating costs and postpone cash
outflow. However, the Company anticipates that losses will continue at least
until the shipment of product and maybe thereafter.
(NOTE B) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Cash equivalents:
The Company considers all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents.
[2] Marketable securities:
Securities classified as available-for-sale are carried at market value
with unrealized gains or losses reported as a separate component of
stockholders' equity. Securities classified as held-to-maturity are carried
at amortized cost.
[3] Inventory:
Inventory consisting of electronic components, is stated at the lower of
cost (first-in, first-out basis) or market.
[4] Patent costs:
Patent application costs are charged to expense as incurred.
[5] Research and development:
Research and development costs are charged to expense as incurred.
[6] Depreciation:
Fixed assets are recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives from three to five years
of the depreciable assets. Molds and tooling are depreciated on the
straight-line basis over the shorter of three years or the estimated units of
production. Amortization of leasehold improvements is provided over the
shorter of the lease term or the estimated useful life of the asset.
F-6
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE B) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
[7] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[8] Loss per share of common stock:
Net loss per share of common stock is based on the weighted average number
of shares outstanding excluding 1,000,000 shares contributed to the Company
by certain officers in conjunction with the initial public offering. Options
and warrants have been excluded since they would be anti-dilutive. Common
stock, options and warrants issued within twelve months of the Company's
initial public offering are considered outstanding through June 30, 1995
using the treasury stock method.
[9] Fair value of financial instruments:
The Company considers its financial instrument obligations, which are
carried at cost, to approximate fair value due to the near term repayment due
dates.
[10] Accumulated foreign currency translation adjustment:
Assets and liabilities are translated to United States dollars at year-end
exchange rates. Income and expense items are translated at average rates of
exchange prevailing during the period of operations of ASE. Gains or losses
from translation adjustments are accumulated in a separate component of
stockholders' equity.
Condensed financial information of the Company's UK subsidiary as at and
for the year ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Assets .................... $ 53,281
Liabilities .............. 195,506
Stockholders' deficiency (142,225)
Revenue .................. -0-
Net loss ................. (156,592)
</TABLE>
[11] Revenue recognition:
The Company recognizes revenue when a product is shipped.
(NOTE C) -- FIXED ASSETS:
Fixed assets as at December 31, 1996 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures ....... $153,749
Equipment .................... 126,616
Leasehold improvements ....... 120,993
Molds and tooling ............ 58,181
----------
Total ........................ 459,539
Less accumulated
depreciation................. 91,921
----------
Total ...................... $367,618
==========
</TABLE>
(NOTE D) -- LOANS PAYABLE TO OFFICERS/STOCKHOLDERS:
Loans payable to officers/stockholders of $132,782 at December 31, 1996
bear interest at 10% per annum and are due on demand. Interest accrued on
such loans aggregated $150,098 at December 31, 1996.
F-7
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Loans due to officers/stockholders includes amounts for services rendered to
the Company. Interest expense on these obligations for the years ended
December 31, 1996 and December 31, 1995 was $12,091 and $32,262,
respectively.
(NOTE E) -- NOTES PAYABLE:
The Company has a credit facility of $500,000 with a bank and the note is
due on June 30, 1997. The loan bears interest at 5.25% and is collateralized
by the Company's $500,000 certificate of deposit.
(NOTE F) -- STOCKHOLDERS' EQUITY:
[1] The Company issued common stock in connection with services rendered
and settlement of litigation as follows:
<TABLE>
<CAPTION>
FAIR VALUE OF SHARES
ISSUED FOR
NUMBER -----------------------------------------
OF RESEARCH GENERAL ACCRUED
YEAR ENDED SHARES AND AND LITIGATION
DECEMBER 31, ISSUED DEVELOPMENT ADMINISTRATION SETTLEMENT TOTAL
- -------------- --------- ------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1995 .......... 194,125 $300,000 $107,375 $ 407,375
1996 .......... 303,844 16,000 $990,000 1,006,000
</TABLE>
In connection with research and development costs, the Company issued
shares to engineering consultants primarily for the design and development of
the SENS-O-LOCK. In connection with general and administrative costs, the
Company
issued shares primarily for legal services, marketing consultants and trade
advertising expenditures. The Company valued such shares at fair value which
was determined by the selling price of the most recent private placement in
effect at the time of issuance or by the market price of the Company's stock
with a 30% discount.
[2] In September 1996, the Company issued 213,500 options to purchase the
Company's stock for consulting and legal services. The options are
exercisable at $3.00 and expire in September 2001. The Company recorded an
expense of $250,000 in connection with the issuance of these options.
[3] In connection with a litigation settlement (see Note L) in October
1996, certain officers and stockholders contributed approximately $107,000 in
cash and 55,672 shares of common stock to the Company. The shares are held in
treasury at December 31, 1996.
[4] In December 1996, the Company was authorized to issue 3,000,000 shares
of Series A nonredeemable, cumulative preferred stock. In December 1996, the
Company issued 833,333 shares of nonredeemable, cumulative Series A preferred
stock and warrants, expiring in December 1998, to purchase 833,333 shares of
common stock at an exercise price of $5.50 per share for an aggregate of
$2,500,000. The Series A preferred stock is convertible into to 556,556
shares ($4.50 per share) of common stock as at December 31, 1996. Dividends
accrue on the Series A nonredeemable, cumulative preferred stock at 9% per
annum (compounded semi-annually on any accrued and unpaid dividends).
F-8
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE F) -- STOCKHOLDERS' EQUITY: (Continued)
[5] The Company has the following warrants outstanding at December 31,
1996:
<TABLE>
<CAPTION>
EXERCISE
DESCRIPTION SHARES PRICE EXPIRATION DATE
- ---------------------------------------- -------------- ---------- ----------------
<S> <C> <C> <C>
Warrants issued in connection with debt 523,999(a) $ 1.50 November 2000
Warrants issued in connection with debt 396,000(a) 1.50 May 2000 through
September 2000
Compensatory warrants ................... 150,000(b) 1.00 December 2000
Class A warrants ........................ 1,150,000(c) 3.75 November 2000
Class B warrants ........................ 575,000(c) 5.00 November 2000
Warrants issued with preferred stock ... 833,333(d) 5.50 December 1998
Underwriters' warrants .................. 100,000(e) 10.00 November 1999
</TABLE>
(a) Issued in connection with the Company's private placements of debt.
(b) Issued to consultants for services rendered in 1995 and valued by the
Company at $238,800.
(c) Issued in connection with the Company's initial public offering in
November and December 1995.
(d) Issued in connection with the sale of the Series A nonredeemable, 9%
cumulative preferred stock in December 1996.
(e) Exercisable for units consisting of 2 shares of common stock, 1 Class
A warrant and 1/2 Class B warrant.
(NOTE G) -- STOCK OPTIONS:
In 1996, the Company adopted the 1995 Incentive Stock Option Plan (the
"Plan"). Under the Plan, options to purchase an aggregate of not more than
600,000 shares of common stock may be granted from time to time, of which
300,000 are allocated for employees and 300,000 options are allocated for
outside directors and consultants to the Company. During 1996, the Company
issued 324,250 options to purchase common stock at an exercise price of $3.00
per share (market price at the date of grant) which expire in September
2001. All the options to purchase common stock are exercisable as at December
31, 1996 and the Company has 275,750 shares reserved for future issuance
under the Plan as at December 31, 1996.
During the year ended December 31, 1995, the Company granted options,
expiring from September 2000 to December 2000, to purchase 150,000 shares of
common stock to employees at $2.00 per share.
During the year ended December 31, 1995, the Company issued 30,000 options
for legal and consulting services rendered, at exercise prices ranging from
$1.00 to $3.00 per share, expiring in December 2000. In connection with the
issuance of these options, the Company recorded a charge of $80,000.
A summary of the status of the Company's stock options as at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE
- ----------------------------------- --------- ----------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year .. 180,000 $1.89
Granted ............................ 324,250 3.00 180,000 $1.89
Outstanding at end of year ......... 504,250 2.60 180,000 1.89
Options exercisable at end of year 504,250 2.60 180,000 1.89
</TABLE>
F-9
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE G) -- STOCK OPTIONS: (Continued)
The following table summarizes information about fixed stock options
outstanding as at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- --------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
NUMBER OF CONTRACT AVERAGE AVERAGE
EXERCISE OPTIONS LIFE EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- ---------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$1 25,000 4 $1 25,000 $1
$2 150,000 4 2 150,000 2
$3 329,250 5 3 329,250 3
</TABLE>
The Company applies APB 25 and related interpretations in accounting for
its options. Accordingly, no compensation cost has been recognized for its
stock option grants to employees and directors. Had compensation cost for the
Company's stock option grants been determined based on the fair value at the
grant dates for awards consistent with the method of SFAS No. 123, the
Company's net loss and loss per share would have been as indicated below. The
effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of future amounts.
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C> <C>
Net loss ........... As reported $(6,121,143) $(3,624,887)
Pro forma (6,246,974) (3,693,887)
Net loss per share As reported (.73) (.56)
Pro forma (.74) (.57)
</TABLE>
The fair value of each option grant is estimated on the date grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of zero percent
(0%), in 1996 and 1995; expected volatility of seventy percent (70%) and
forty percent (40%) in 1996 and 1995, respectively, risk-free interest rates
of 6.50% in 1996 and 5.56% in 1995 and expected life of 5 years.
(NOTE H) -- RELATED PARTY TRANSACTION:
[1] In October 1993, the Company entered into an exclusive distribution
agreement with Digital Vehicle Security Systems Limited ("Digital") to sell
SENS-O-LOCK's purchased from the Company in certain European territories. This
contract was assigned to ASE in October 1996.
In 1996, the Company was charged approximately $174,000 for molds,
tooling, and operating expenses from Digital and Scarico UK, Ltd., electronic
consumer goods manufacturers, whose managing director is a 20% owner in ASE
and a member of the Company's Board of Directors.
In July 1996, the Company entered into a consulting agreement with
Digital for $100 per month which expires on January 1, 1997. The agreement
calls for Dig ital to provide for the design of molds and tooling for the
SENS-O-LOCK and the production process. The SENS-O-LOCK will be produced
by Scarico UK, Ltd. Digital assigned to the Company the worldwide right,
title and interest to each idea, invention and improvement made by them.
[2] The Company previously leased its premises through November 1995 from
a Company, of which a principal officer was also a director of the Company, on
a month to month basis for $900 per month.
[3] In August 1996, the Company entered into a royalty agreement with a
company which is owned by a member of the Board of Directors. The Company was
granted an exclusive right to distribute Weather Eye Intelligent Headlight
Management Systems ("Weather Eye") in the United States as well as the
F-10
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE H) -- RELATED PARTY TRANSACTION: (Continued)
nonexclusive right to distribute in other worldwide markets. The Company is
obligated to pay a royalty of between $.19 and $2.00 per unit sold.
(NOTE I) -- COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
[1] In 1995 the Company entered into a Marketing Agreement with Texas
Interlock Corporation ("TIC") whereby the Company granted TIC the right to
develop, market, sell and distribute its SENS-O-LOCK device in the state of
Texas. TIC agreed to use its best efforts to assist in the certification
process of the SENS-O-LOCK device in Texas and to prepare a strategy to
obtain legislative support for statutes creating a mandated market for the
Company's product. The Company agreed to compensate TIC at the rate of $100
for each SENS-O-LOCK device leased from the Company during the term of the
agreement. No revenues were recorded in connection with such agreement.
[2] Employment contracts:
The Company has employment contracts with certain officers for aggregate
annual salaries of $400,000 which expires through December 31, 1998. The
agreements provide for annual bonuses at the discretion of the board of
directors.
The Company has employment contracts with two engineers for aggregate
annual salaries of $156,000 which expire in September 1997 and are
automatically renewed. The Company will pay a royalty of $1.00 per unit sold
for certain technology as determined in the contract.
[3] Leases:
The Company has an operating lease for office space. The following is the
future annual rental payments:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- --------------
<S> <C>
1997 .......... $ 84,000
1998 .......... 88,000
1999 .......... 92,000
2000 .......... 47,000
----------
Total ....... $311,000
==========
</TABLE>
Rent expense was approximately $100,000 and $39,000 for 1996 and 1995,
respectively.
[4] Purchase commitments:
The Company has $800,000 of purchase inventory commitments as at
December 31, 1996.
[5] Securities and Exchange Commission inquiry:
In November 1996, the Company received a letter of inquiry from the
Securities and Exchange Commission, Division of Enforcement (the "SEC")
requesting that the Company voluntarily provide certain information. In
December 1996, the Company responded to the SEC and has not received any
further comments or a response.
(NOTE J) -- INCOME TAXES:
[1] The Company has a deferred tax asset of approximately $4,182,000,
relating to a United States and state net operating loss carryforward of
approximately $10,200,000. In addition the Company has a deferred tax
F-11
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE J) -- INCOME TAXES: (Continued)
asset of $129,000, relating to accrued litigation settlement of
approximately $1,208,000 and compensatory options and warrants of
$570,000. The net operating loss carryforward expires from 2007
to 2011. The tax benefits of these deferred tax assets are fully
reserved for since the likelihood of realization of the benefit
cannot be established.
The Tax Reform Act of 1986 contains provisions which limits the net
operating loss carryforwards available for use in any given year should
certain events occur, including significant changes in ownership interests.
As a result of the Company's initial public offering, as well as other
previous ownership changes, the net operating loss carryover will be subject
to these annual limitations until the net operating loss is utilized or
expires.
[2] The tax effects of principal temporary differences and net operating
(losses) are as follows as at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Asset:
Accrued litigation and other.................... $ 729,000
Federal and state operating loss carryforwards (4,182,000)
Valuation allowance ............................ (4,911,000)
-------------
Net deferred tax asset ......................... $ -0-
=============
</TABLE>
The valuation allowance as at December 31, 1995 was approximately
$1,800,000. The differences between the statutory Federal income tax rate of
34% are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Net loss:
United States.. $(5,964,551) $(3,624,887)
Foreign ....... (156,592)
-------------- --------------
$(6,121,143) $(3,624,887)
============== ==============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Statutory rate benefit . . . (34.0)% (34.0)%
Nondeductible expenses . . . .1 .1
Valuation allowance. . . . . 33.9 33.9
--------- ---------
Effective tax rate . . . . . 0% 0%
========= =========
</TABLE>
(NOTE K) -- CONCENTRATION OF CREDIT RISKS:
The Company places its cash and cash equivalents at various financial
institutions. At times, such amounts might be in excess of the FDIC insurance
limit.
(NOTE L) -- LITIGATION:
[1] Pending litigation:
The Company was named as a defendant in an action commenced in the United
States District Court for the Eastern District of New York in July 1996. The
plaintiff is seeking $9 million plus 100,000 shares of the Company's common
stock, alleging he performed certain work for the Company as an independent
F-12
<PAGE>
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE L) -- LITIGATION: (Continued)
contractor and was never compensated for the services he performed. The
Company's position is that the plaintiff in this action failed to provide the
services as contracted and was not entitled to receive any payment. Defendant
has submitted it answer and management believes the claims alleged in this
lawsuit are frivolous and is defending the action vigorously. At this time,
it is too early to determine the outcome of this action and therefore the
Company has not made any provision in the accompanying financial statements.
The Company was recently served with a Demand to Arbitrate by a former
employee. Claimant is seeking $75,000 and approximately 36,000 stock options
as damages. The Company has recently filed its answer to this demand. At this
time, it is too early to determine the outcome of this action and therefore
the Company has not made any provision in the accompanying financial
statements.
The Company and certain of its officers were named as defendants in an
action commenced in the United States District Court for the Eastern District
of New York in March 1996, by a stockholder seeking $2 million in alleged
damages as a result of the Company's handling of a prior action, Barry Beyer,
et al v. Alcohol Sensors International, Ltd., et al. This previous action was
settled for a total of $382,675. In connection therewith, certain members of
management donated 55,672 of their private shares and cash of $107,642 to the
Company. As a result of the Beyer settlement, management believes this
settlement renders the claim of the present action without merit and is
vigorously defending this action. The Company has not made any provision in
the accompanying financial statements.
[2] Settled litigation:
The Company and certain of its officers were named as defendants in an
action commenced in the Supreme Court of the State of New York, Orange
County, by two individuals claiming an equity interest in the Company, as
well as damages of $18.5 million, based upon a purported agreement with
another company, Alcohol Sensors, Inc. with which the claimants, certain
officers of the Company and others were affiliated in 1989, and a claim that
one of the individuals is the inventor of the technology that the Company is
using. Management agreed to settle this action in February 1997 subject to
the approval of the Court, for a total of 315,000 shares of Company common
stock. Certain members of management have agreed to donate their private
shares to provide for the settlement. At December 31, 1996 the Company has
accrued $1,144,000 in connection with this settlement.
This Company was served with a Demand to Arbitrate and a Statement of
Claim by a former individual who had performed engineering services for the
Company on a consulting basis. Claimant was seeking $650,000 and 114,449
shares of stock in damages. The company settled this matter in a Mediation
Conference and has agreed to transfer to Claimant 27,500 shares of stock in
full satisfaction of all claims in this action. This matter was settled in
April 1997 and the Company has accrued $65,000 at December 31, 1996.
F-13
<PAGE>
EXHIBIT 11
ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
COMPUTATION OF LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Net loss ...................................................... $(6,121,143) $(3,624,887)
Cumulative dividend on Series A preferred .....................
nonredeemable stock ........................................... (6,875)
-------------- --------------
Net loss attributable to common stockholder ................... $(6,128,018) $(3,624,887)
============== ==============
Shares:
Weighted-average number of common shares outstanding ........ 8,430,960 7,183,156
Add common stock equivalents issued within twelve months of
an initial public offering (determined by the "treasury
stock" method)(1) ........................................... 275,330
Officers' shares contributed to the Company in conjunction
with the initial public offering ............................ (1,000,000)
-------------- --------------
Weighted-average outstanding shares .......................... 8,430,960 6,458,486
============== ==============
Loss per common share ......................................... $(.73) $(.56)
============== ==============
</TABLE>
- ------------
(1) In accordance with Securities and Exchange Commission requirements,
common shares, options and warrants issued during the twelve-month
period prior to the filing of an initial public offering have been
included in the calculation as if they were outstanding through June
30, 1995 using the treasury stock method.
F-14
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Digital Vehicle Security Systems Agreement, dated
October 21, 1993
10.2 Re-affirmation of October 21, 1993 Digital Vehicle
Security Systems Agreement, dated May 9, 1996
10.3 Digital Vehicle Security Systems and Michael
Ghazarian Consulting Agreement, dated July 1, 1996
10.4 Assignment of Digital Vehicle Security Systems
Agreement to Alcohol Sensors Europe, Plc., dated
October 30, 1996
10.5 Employment Agreement with Dr. Steven A. Martello
10.6 Employment Agreement with Michael A. Sylvester
10.7 Certificate of Incorporation ASE
10.8 Organization ASE
10.9 WeatherEye Agreement and Amendment
* 10.10 Underwriting Agreement
* 10.11 Selected Dealer Agreement
* 10.12 Certificate of Incorporation
* 10.13 Amendment to the Certificate of Incorporation
* 10.14 By-Laws
* 10.15 Certificate for Shares of Stock
* 10.16 Certificate for Redeemable Common Stock Purchase
Warrant
* 10.17 Underwriters Unit Purchase Option
* 10.18 Opinion Regarding Legality
* 10.19 Warrant Agreement
* 10.20 Scott Consulting Agreement
* 10.21 Scott Merger and Acquisition Agreement
* 10.22 Employment Agreement with Robert B. Whitney
* 10.23 Employment Agreement with John T. Ruocco
* 10.24 Lease for New York Facility
* 10.25 1995 Stock Option Plan
* 10.26 Squillante Consulting Agreement
* 10.27 Texas Interlock Marketing Agreement
* 10.28 Boyle Marketing Agreement
* 10.29 Representative Agreement
* 10.30 Certified Dealer Agreement
* 10.31 State Operations and Certification Center Agreement
* 10.32 Retail Dealer Agreement
* 10.33 Consent of Richard A. Eisner & Company, LLP
* 10.34 Consent of Counsel
*PREVIOUSLY FILED
11 Statement of Computation of Loss Per Share Amounts
21 Subsidiary of the Registrant
(b) Reports on Form 8-K
1. 12/20/96
Convertible Preferred Stock and Warrant Purchase
Agreement Shareholders Agreement
27
<PAGE>
Exhibit 21 Subsidiaries of the Registrant
1. On October 9, 1996, Alcohol Sensors Europe, Plc., a
subsidiary of the Company, was incorporated in the United
Kingdom.
The subsidiary is owned 80% by the Company and 20% by
Michael Ghazarian.
28
<PAGE>
EXHIBIT 10.1
DATED October 21, 1993
ALCOHOL SENSORS INTERNATIONAL, LTD.
- AND -
DIGITAL VEHICLE SECURITY SYSTEMS LIMITED
----------------------------------
EXCLUSIVE DISTRIBUTOR AGREEMENT
----------------------------------
<PAGE>
INDEX TO CLAUSES
1 Interpretation
2 Appointment of Distributor
3 Testing and Acceptance
4 Supply of the Products
5 Product Warranty and Returns
6 Product Recall and Epidemic Fault
7 Delivery and Liquidated Damages for Late Delivery
8 Price and Price Changes
9 Payment Terms
10 Marketing of the Products
11 Support and Training
12 Product and Service Information
13 After Sales Service and Spares
14 Continuity of Supply
15 Intellectual Property, Trade Marks & Logo
16 Warranties and Liability
17 Title and Risk
18 Confidentiality
19 Duration and Termination
20 Consequences of Termination
21 Force Majeure
22 Nature of Agreement
23 Dispute Resolution and Proper Law
24 Notices and Service
25 Notification
26 Data
Schedule 1 Products/Specifications
Schedule 2 Territory
Schedule 3 Trade marks
Schedule 4 Prices
Schedule 5 National Highway Traffic Safety Administration Docket
Schedule 6 Distributor's Equipment
Schedule 7 Purchase Order
2
<PAGE>
EXCLUSIVE DISTRIBUTOR AGREEMENT
Date: October 21, 1993
Parties:
1 ALCOHOL SENSORS INTERNATIONAL, LTD., a corporation organised and
existing under the laws of the State of New York having its principal
place of business at 90 13th Ave. Ronkonkoma, New York 11779, United
States ("THE OWNER").
2 DIGITAL VEHICLE SECURITY SYSTEMS LIMITED a company incorporated in
England, the registered office of which is situated at Unit 1B
Saxeway Business Centre, Chartridge Lane, Chesham, Buckinghamshire,
HP5 2SH, England ("THE DISTRIBUTOR").
RECITALS
(A) The Owner owns all property, title, manufacturing, sales and marketing
rights in a breath alcohol ignition interlock device ("BAIID")
currently known as Sens-O-Lock and consisting of Series 1000, 2000 and
3000.
(B) The Distributor has considerable sales and marketing experience in the
Territory and wishes to act as the Owner's exclusive distributor for
BAIIDs therein.
Operative provisions:
1 INTERPRETATION
1.1 In this Agreement, unless the context otherwise requires:
"Agreement" means the terms hereinafter contained, the Purchaser Order and all
Schedules.
"Approval Authority" means the appropriate department of H.M. Government or
other body (or equivalent department or Organisation in any country which
makes up the Territory) responsible for the granting for any type approval for
the Products or any similar products or responsible for the establishment or
testing criteria for any legally mandated Product or similar products.
"Associated Company" means any subsidiary for the time being of a party to
this Agreement or the holding company of such party or any subsidiary of any
such holding company; and the expressions "subsidiary" and "holding company"
shall mean (respectively) the holding of more than 5O% of the share capital in
a company or more than 5O% of the share capital of the company being held by
another company.
"Customer" means the purchaser of a Product from the Distributor.
"Delivery Date" means the date for delivery of the Product to the Distributor
as stated in the Purchaser Order.
"the Distributor" means Digital Vehicle Security Systems Limited.
"Distributor's Warehouse" means the warehouse at the Distributor's premises at
Chesham or such other place as shall be notified in writing to the Owner.
"Effective Date" means October 21, 1993 and is the date on which this
Agreement comes into force.
"Ex-Works" means delivery to Distributors carrier at 90 13th Ave. Ronkonkoma,
New York 11779, United States.
"Final Customer" means the first end user of the Product.
"Force Majeure" means the occurrence of any of the following:
(i) Act of God, (ii) outbreak of hostilities, riot, civil disturbance, acts of
terrorism, (iii) the act of any government or authority (including refusal or
revocation of any licence or consent), (iv) fire, explosion, flood, fog or bad
weather, (v) theft, malicious damage, strike, lockout or industrial action of
any kind.
"Guarantee Period" means in relation to any Product the period of twelve
months immediately following the installation of the Product to the Final
Customer.
<PAGE>
"Intellectual Property" means any patent, copyright, registered/ unregistered
design, trade mark, know-how or other industrial or intellectual property
right subsisting in the Territory in respect of the Products, and applications
for any of the foregoing and for the avoidance of doubt shall include
semiconductor topography within the meaning of Section 2(l) of the Design
Right (Semiconductor Topographies) Regulations 1989.
"Invoice Value" means the sums invoiced by the Owner to the Distributor in
respect of any Products, less any value added tax (or other taxes, duties or
levies) and any amounts for transport or insurance included in the invoice.
"Material Change Of Ownership" means:
(a) any disposition of not less than 30% in nominal value of the equity share
capital of the Owner by a single transaction or series of related
transactions, or
(b) in relation to the Owner which is a subsidiary of another, any disposition
of more than 50% in nominal value of the equity share capital of the Owner or
such portion of the equity share capital conferring on that other company the
right to control the composition of the board of directors/officers of the
Owner by a single transaction or series of transactions, or
3
<PAGE>
(c) in relation to the disposition of the business and assets of the Owner,
the transfer of a substantial proportion of the business and assets of the
Owner relevant to the Owner's performance of its part of this Agreement.
"Products" means such of the products listed in Schedule 1 as are at the date
of this Agreement in the range of BAIID products manufactured by or for the
Owner or sold by the Owner and all future developments thereof and any similar
or competing products and such other BAIID products as may from time to time
be agreed in writing by the parties.
"the Product Specification" means the Product description, specification, date
and drawings attached hereto as Schedule 1.
"the Purchase Order" means the Purchase Order for Products issued by the
Distributor to the Owner as detailed in Schedule 7.
"Restricted Information" means any information which is disclosed by either
party to the other pursuant to or in connection with this Agreement (whether
orally or in writing, and whether or not such information is expressly stated
to be confidential or marked as such).
"Technical Information" means in relation to the Products any methods,
techniques, discoveries, inventions (whether patentable or not), formulae,
formulations technical and product specifications, equipment descriptions,
plans, layouts, drawings, computer programs, assembly, quality control,
installation and operating procedures, operating manuals, technical and
marketing information, designs, data know-how and other information.
"Territory" means the countries listed in Schedule 2.
"Trade Marks" means:
(a) the trade marks registered in the name of the Owner of which
particulars are given in Schedule 3; and
(b) such other trade marks as are used by the Owner on or in relation to
the Products at any time during this Agreement.
"Year Of This Agreement" means the period of 12 months from the date of this
Agreement and each subsequent consecutive 12 month period of this Agreement.
1.2 Any reference in this Agreement to "writing" or cognate expressions
includes a reference to telex, cable, facsimile transmission or
comparable means of communication.
1.3 Any reference in this Agreement to any provision of a statute shall
be construed as a reference to that provision as amended, re-enacted
or extended at the relevant time.
1.4 The headings in this Agreement are for convenience only and shall not
affect its interpretation.
2 APPOINTMENT OF DISTRIBUTOR
2.1 The Owner hereby appoints the Distributor as its exclusive
distributor for the resale of the Products in the Territory as per
Schedule 2, and the Distributor agrees to act in that capacity,
subject to the terms and conditions of this Agreement.
2.2 Subject as provided in Clause 2.6, the Owner shall not:
2.2.1 appoint any other person, firm or company in the Territory
as a distributor or agent for the Products; or
2.2.2 supply to any other person, firm or company in the
Territory any of the Products.
2.3 The Distributor shall be entitled to describe itself as the Owner's
"Exclusive Distributor" for the Products, but shall not hold itself
out as the Owner's agent for sales of the Products or as being
entitled to bind the Owner in any way.
During the term of this Agreement the Distributor shall not
manufacture or distribute any products which compete directly with
the Products.
2.4 The Distributor shall be entitled to sell any of the Products which
it purchases from the Owner through sales agent(s) or sub
distributors).
2.5 This Agreement shall entitle the Distributor to:
2.5.1 the same priority of supply in relation to the Products as
that afforded to the Owner's other exclusive distributors;
and
2.5.2 be indemnified by the Owner against all reasonable and
foreseeable losses or costs suffered by the Distributor,
or any sales agent or sub distributor appointed by the
Distributor, if any of the Products are sold in or
supplied to the Territory by ASI or any Reseller appointed
by ASI. In the case of sales made by ASI Resellers, ASI
shall be allowed 30 days to rectify the situation; and
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2.5.3 10% of the invoice value of any Product which is sold
outside the Territory by the Owner, or any vendor
appointed by the Owner, for delivery in the Territory
(providing such sales have been influenced by the sales or
marketing efforts of the Distributor and/or the
Distributor has agreed to support such Product); and
2.5.4 sell the Product either inside or outside the Territory as
in Schedule 2 for delivery outside the Territory without
accounting to the Owner or any vendor appointed by the
Owner for such sales or income PROVIDED THAT the
Distributor shall not be entitled to actively seek
customers outside the Territory.
2.6 The Owner hereby agrees to offer to the Distributor on the same terms
as those of this Agreement any future updates, improvements or
further series in or of the design of the Product which may be
developed sold or licensed by the Owner, and at the Distributor's
request, to introduce any of the same into the Products by amending
the Product Specification and, where appropriate, the product price.
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2.7 in the event that the Owner at the Distributor's request agrees to
undertake product development at the expense of and/or for the
exclusive use of the Distributor then the parties will enter into
bona fide negotiations to conclude a development agreement on terms
to be agreed. The supply of all products to the Distributor by the
Owner in accordance with a product specification arising from such a
development agreement will be subject to the terms of this Agreement,
and otherwise as agreed between the parties.
3 TESTING AND ACCEPTANCE
3.1 The Owner shall carry out all necessary testing to ensure that the
Product complies with National Highway Traffic Safety Administration
("NHTSA") published requirements . The Owner shall certify prior to
delivery that each Product meets the relevant requirements.
3.2 Acceptance of the Products shall not take place until the Distributor
receives the manufacturers certificate of conformity referred to in
Clause 3.1 above.
4 SUPPLY OF THE PRODUCTS
4.1 The Owner shall use its best endeavours to supply the Products to the
Distributor in accordance with the Purchase Orders.
4.2 The Owner shall continue the manufacture, or subcontract such
manufacture, of all or any of the Products throughout the term of
this Agreement and shall not be entitled to make any alterations to
the specifications of the Products (including but not limited to the
technical specifications, size, shape or colour of the Products)
without prior consultation with the Distributor and the giving of 90
days prior written notice to the Distributor.
4.3 Any material and substantial default by the Owner in relation to any
Purchase order (and providing such default is not cured within 45
days) shall entitle the Distributor to treat this Agreement as
terminated.
4.4 The Distributor shall, in respect of each Purchase Order be
responsible for:
4.4.1 ensuring the accuracy of the Purchase Order; and
4.4.2 providing the Owner with any information which is
necessary in order to enable the Owner to fulfil any
special and reasonable requirements of the Distributor and
for the Owner to comply with all labelling, marketing and
other applicable legal requirements in the Territory; and
4.4.3 obtaining any necessary import licences, certificates or
origin or other requisite documents, and paying all
applicable customs, duties and taxes in respect of the
importation of the Products into the Territory and their
resale in the Territory.
4.5 The Owner warrants it can supply 20,000 (TWENTY THOUSAND) Products per
month.
The Distributor agrees to provide the Owner with a "120 day rolling
forecast" of the Distributor's best estimates of their Product needs.
The Distributor shall acknowledge that said forecast is in fact a
valid purchase order tendered to the Owner by the Distributor, and
the Owner shall so notify the Distributor of its acceptance of said
purchase order in writing. The Owner and the Distributor further
agree that said forecast can be increased or decreased without
penalty by a mutually agreeable percentage, estimated to be 10% of
the total order placed. The Distributor shall so inform the Owner of
said adjustment in volume(s) on a best efforts basis within 61 or
more days prior to shipment. Necessary cost adjustments shall be
identified, and where mutually agreeable, made.
After the expiry of the 12 month period following the Effective Date
the Distributor shall supply to the Owner estimates of its purchases
for the Territory for the following 6 months. The Owner recognises
that because of the uniqueness of the Products, the lack of a
mandated market and the need for the Distributor to create a market
the figures supplied can only be estimates although the Distributor
will use reasonable efforts to ensure that such figures are accurate.
4.6 Immediately upon receipt of each Purchase Order the Owner shall
inform the Distributor in writing and unless the Distributor is
notified in writing to the contrary within 7 days of receipt of any
Purchase Order the Owner shall be deemed to have accepted the same.
The Owner shall use best endeavours to meet the delivery date(s)
specified in the Distributor's Purchase Order and time of delivery
shall be of the essence and accordingly the Owner shall indemnify the
Distributor against any losses or costs the Distributor may suffer as
a result of any delay in delivery. The relevant cost shall be limited
to the late delivery provisions set out in the letter of credit for
the late order.
4.7 The title to any consignment of the Products shall pass to the
Distributor upon delivery as long as full payment has been made to
the Owner.
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4.8 Risk of loss of or damage to any consignment of the Products shall
pass to the Distributor from the time of delivery Ex-Works.
4.9 The Owner shall supply to the Distributor (at no cost to the
Distributor) on or before 18th October 1993 12 (TWELVE) fully working
pre-production devices. However, the Distributor understands that
these devices will not have data logging capability and do not meet
NHTSA guidelines for such devices.
4.10 The Owner will design, develop, produce, test to NHTSA standards and
deliver the Products to the Distributor in accordance with this
Agreement.
4.11 The Owner shall be deemed to have taken all necessary actions, to
have examined the Product Specification and to have carried out all
other work necessary to have satisfied itself with regard to the
requirements of this Agreement and the Distributor, and the
feasibility of manufacture of the Product.
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4.12 The Owner shall not be entitled to make any claim against the
Distributor for additional payments in respect of any liability,
costs and/or expenses arising out of any failure by the Owner to
acquaint itself thoroughly with details of the Products or of their
intended working conditions and requirements.
4.13 It is a condition of this Agreement that each Product shall on
delivery conform in all respects to the Product Specification, be of
merchantable quality, fit for the purpose for which it is supplied,
and manufactured with sound materials and workmanship and free from
defects all in accordance with the NHTSA guidelines as referenced in
Clause 6.2.
4.14 The Owner acknowledges and agrees to support and share equally the
costs incurred in obtaining any necessary approval from any relevant
Approval Authority for any BAIID products. The parties agree to
verify costs with appropriate and acceptable documentation.
4.15 The Owner undertakes and warrants that:
4.15.1 All of the Products to be delivered by the Owner shall
comply with the NHTSA safety guidelines and all other
relevant safety requirements, standards and regulations
issued by the relevant Approval Authority and applicable
to the Products at the date of delivery.
4.15.2 The Owner shall carry out all testing, examining of the
Products to eliminate any risk to health or safety
resulting from use of the Products or any part thereof for
the purpose for which they are designed.
4.15.3 Where conditions exist (which the Owner is or should
reasonably be aware of) under which the Product use will
or may give risk to health and safety, the Owner shall
bring such conditions to the attention of the Distributor
in writing and the Owner will provide free of cost to the
Distributor adequate information about such conditions and
the safeguards which should be observed to ensure that the
Products can be used and subsequently be disposed of
safely and without risk to health and safety.
4.16 The Distributor warrants that it is capable of achieving sales
equivalent to 1% of the number of passenger vehicles registered in
the Territory during the 24 month period following the commencement
of regular supplies of the Products.
4.17 The Owner shall effect and maintain written or computer records to
provide a permanent record of:
4.17.1 Product batch identity by indelibly stamping month and
year of manufacture onto the Product's outer cases to
provided a capability to trace the place and date of
Product manufacture and delivery to the Distributor.
4.17.2 Changes in manufacture method, equipment, materials or
personnel that may affect the appearance, performance,
quality or reliability of the Products.
5 PRODUCT WARRANTY AND RETURNS
5.1 The Owner warrants, exclusively and without limitation to
Distributor, with respect to production and manufacturing and
warranty of quality and reliability of the Products that all Products
supplied hereunder will be free of all defects in material and
workmanship and will perform in accordance with the Owner's published
specifications and expectations and the Specification for the
Guarantee Period.
5.2 The Distributor's remedy, for breach of this warranty shall include,
and be limited to the repair or replacement of any Products found to
be defective. In all cases, Owner's liability under this warranty is
subject to the following conditions:
5.2.1 The Distributor will direct its Customers to return faulty
Product to the Distributor's Warehouse. Products that
Distributor considers to be defective shall be returned at
Distributor's expense to Owner's designated facility for
examination and testing. The Owner will reimburse
Distributor for said costs provided Owner's testing and
examination discloses a manufacturing defect. Such Product
shall be despatched in consolidated monthly shipments.
5.2.2 The Owner shall not be liable under this warranty if its
testing and examination disclose that the Products have
been modified or altered in any material manner after
shipment by Owner;
5.2.3 The Owner shall not be liable under this warranty if its
testing and examination disclose that the alleged defect
in the Products does not exist or was caused by the
Distributor's or any third person's misuse, neglect,
improper installation or testing, unauthorized attempts to
repair, or any other cause beyond the range of their
intended use, including Acts of God;
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5.2.4 The Owner shall not be liable under any warranty under
this agreement with respect to any Products that are not
returned in their original shipping container or a
functionally equivalent container, or that have not been
packaged for return shipment in the exact manner described
in the instructions set forth in the applicable user
manual; and
5.2.5 If the Owner's testing and examination do not disclose a
defect warranted under this agreement then in that event
the Distributor shall not be entitled to any credits or
reimbursement and shall dispose of devices in accordance
with Owner's instructions.
5.3 The Owner will inspect all such returned Product and maintain and
provide, following any request from the Distributor, comprehensive
records of fault analysis data. The Owner will either replace with
new Products or repair and refurbish the rejected Product to a
reconditioned state by replacement of the styled outer case and
carton and any component parts as necessary to ensure the operation
in full conformity to the Product Specifications. Such repaired and
refurbished Product shall be subject to the terms of this Agreement
(including but not limited to the Guarantee Period).
5.4 The Owner and Distributor agree that their technical representatives
will meet at least once every three months to review overall warranty
return levels and the proportion of faults which can be reasonably
attributable to defective manufacture.
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5.5 The Distributor and the Owner agree to work together to improve
Product documentation in Purchase Order to reduce unnecessary
Customer rejects.
6 PRODUCT RECALL AND EPIDEMIC FAULT
6.1 If any of the Products manufactured by the Owner are found to have a
critical defect (for example failure attributable to manufacturing or
not meeting safety requirements) the Distributor shall advise the
Owner as to whether it is necessary to undertake a Product recall
programme. The Distributor as agent for the Owner (and the Owner
hereby irrevocably appoints the Distributor as its agent for such
purposes) shall carry out the Product recall programme and the Owner
shall be solely responsible for all costs incurred by the Distributor
in the course of undertaking such programme including, but not
limited to all reasonable labour, material, travelling time,
transport, inspection, advertising, printing, mailing and
administrative costs in connection therewith. Such costs shall be
paid by the Owner to the Distributor on receipt of any written demand
from the Distributor and the Owner shall also pay any payments on
account reasonably requested by the Distributor. The Distributor
shall at all times properly, reasonably and diligently act to protect
the Owner's best interests and to ensure that all costs are kept to a
minimum level.
6.2 Where more than three successive delivery consignments of the Product
are rejected by the Distributor for the same reason or where the
Distributor's service indicates a defect rate in excess of eight per
cent (8%) during the first 12 months of this Agreement (and
thereafter four per cent (4%) of the delivered quantity during the
Guarantee Period, the Owner may be required by written notice by the
Distributor to suspend production of the Products and not to deliver
any Products already produced and ready for delivery.
6.3 In the event of such suspended manufacture being required all stocks
of the Products finished and work in progress held by the Owner shall
be quarantined pending reinspection by the Distributor according to
any inspection procedure mutually agreed between the Owner and the
Distributor. The Owner shall remove and replace any stocks of
Products held by the Distributor or Customers with known good
batches, or adopt such other arrangements as may be mutually agreed
with the Distributor.
6.4 The Owner shall not, without prior written consent of the
Distributor, recommence manufacture or delivery of Products following
suspension of production pursuant to this Clause 6.
7 DELIVERY AND LIQUIDATED DAMAGES FOR LATE DELIVERY
7.1 Products ordered by the Distributor shall be delivered by the Owner
on an Ex-works basis to the Distributor's carrier.
7.2 The Owner shall give the Distributor not less than five (5) working
days notice of the readiness of each despatch for collection.
7.3 The Owner agrees that under this Agreement time is of the essence for
delivery of the Products by the delivery date specified in the
Purchase Order. In the event of any stoppage or delay in delivery,
the Owner will take all reasonable steps to overcome the stoppage or
delay and will inform the Distributor in writing immediately should
any stoppage or delay occur, the likely period of such stoppage or
delay, and when either ceases.
7.4 Subject to Clause 21 or provided that the Distributor does not
request a delay in delivery of the Products, if the Owner fails to
meet the delivery dates specified in the Distributor's Purchase Order
or any revised delivery dates agreed in writing, and if the
Distributor shall not exercise its right under this Agreement to
reject the Products so delivered late, then, provided that the
Distributor shall have notified the Owner of the late delivery within
10 days of the due date for delivery, the Owner shall pay to the
Distributor as and by way of liquidated damages in respect of such
late delivery an amount equal to one per cent (1%) of the Invoice
Value of all of the Products which the Owner is late in delivering,
for each complete week or part of a week between the Distributor's
required delivery date and the actual delivery date of the Product.
The liquidated damages due under this Clause may be satisfied (at the
absolute discretion of the Distributor) by the free issue of Products
(as may be specified by the Distributor) equivalent in value to the
amount of the liquidated damages which would otherwise have been
payable.
7.5 The Owner shall at its own expense maintain stocks of production
materials and components for the Products of an amount equivalent to
two month's forward Purchase Orders for the Products from time to
time.
7.6 Notwithstanding the provisions of Clauses 7.3 and 7.4 in the event of
there being three (3) consecutive late deliveries of consignments of
Products the Distributor shall have the right to cancel any
outstanding Purchase Order without further obligation on the part of
the Distributor to accept delivery and pay for, the whole or any part
of any unexecuted part of any Purchase Order.
7.7 Rejection of the Products for late delivery as aforesaid shall in no
way relieve either party from any other obligation under this
Agreement.
7.8 In the event of any delay in delivery as aforesaid, the Owner shall
use its best endeavours to overcome the reasons for such delay and
shall keep the Distributor fully informed of such reasons and the
likelihood of such delay continuing.
7.9 All the above terms shall be incorporated into any letter of credit
issued in accordance with Clause 9.
8 PRICE AND PRICE CHANGES
8.1 The price of the Product at the commencement of this Agreement shall
be as shown in the Purchase Order and Schedule 4 and shall be
Ex-Works. The Owner and the Distributor shall negotiate for new or
developed Product and such price shall be reasonable and, if
appropriate, be competitive with or relate to the Prices.
8.2 The Owner shall give the Distributor not less than 3 month's notice
in writing of any alteration in such list prices, and the prices as
so altered shall apply to all Products ordered on and after the
applicable date of the increase. Any increase shall not exceed more
than 2.0% of the then current price for the Product.
8.3 All prices for the Products are exclusive of any applicable United
States value added or any other sales tax, for which the Owner shall
be additionally liable.
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8.4 The Products shall be packed and sent by the method of transport
designated by the Distributor's Purchase Order in accordance with the
packing and transport requirements contained in the Product
Specification.
8.5 The price of the product shall be inclusive of packing.
8.6 The price for any additional types of the BAIID Products introduced
by the Owner that may subsequently be agreed to be included in the
Product Specification shall first be discussed and agreed between the
parties and confirmed in writing as an amendment to this Agreement
notwithstanding Clause 8.2.
8.7 In the event that during the period of this Agreement the Owner is
unable to supply at competitive prices and/or where falling market
selling prices are experienced by the Distributor then both parties
agree to consult on remedial action and future life of the Product.
8.8 All payments shall be made by the Distributor in sterling by transfer
to such bank account as the Owner may from time to time notify in
writing to the Distributor. The conversion rate for sterling shall be
deemed to be in accordance with the daily published rate in the Wall
Street Journal.
9 PAYMENT TERMS
9.1 The Distributor shall provide concurrent with its purchase order, of
the type and kind set out in Schedule 7, and 120 days prior to
delivery a letter of credit that shall be irrevocable, divisible,
assignable, and transferable upon delivery of the Products Ex-Works.
9.2 Any payment made shall be without prejudice to the Distributor's
rights under this Agreement and shall not relieve the Owner from any
of its other obligations.
9.3 The Distributor shall be entitled to offset amounts due by it to the
Owner with amounts due by the Owner to the Distributor or to any of
its Associated Companies.
10 MARKETING OF THE PRODUCTS
10.1 The Distributor shall diligently promote the sale of the Products
throughout the Territory and, subject to compliance by the Owner of
its obligations under Clause 4.1, to satisfy market demand therefor.
10.2 The Distributor shall be entitled to promote and market the Products
in the Territory in such manner as it may think fit, and in
particular shall be entitled to resell the Products to its customers
at such prices as it may determine
11 SUPPORT AND TRAINING
11.1 The Owner shall provide samples of brochures and advertising material
it may have in order to assist the Distributor in its development and
printing or manufacture of marketing and promotion materials, cost of
such materials shall be borne solely by the Distributor. In all
instances Distributor shall be solely responsible for such materials
without limitation used by or otherwise consumed by its organization
including but not limited to its dealers within the territory. Owner
may appoint a company to assist and/or develop point of purchase
products, systems or processes to increase awareness and aid in
training with regard to use and operation of the Products. The Owner
shall endeavour to answer as soon as possible any technical enquiries
concerning the Products which are made by the Distributor or its
customers.
11.2 During the first Year of this Agreement;
11.2.1 the Owner shall make available to the Distributor (at any
such time as may be mutually agreed and for a period not
exceeding 7 working days) the services of a suitably
qualified employee of the Owner to assist the Distributor
in the technical support of the Products; and
11.2.2 the Distributor shall be entitled to send to the Owner's
premises (at such time as may be agreed and for a period
not exceeding 7 working days) up to 6 suitably qualified
employees of the Distributor for training by the Owner in
matters relating to the Products and their marketing.
11.3 The services to be provided by the Owner pursuant to Clauses 11.1 and
11.2 shall be free of charge, but the Distributor shall remain liable
for all salaries and other employment costs of, and all travelling,
accommodation and other expenses incurred, by employees of the
Distributor who are sent to the Owner's premises.
11.4 In any case where employees of either party visit the premises of the
other for the purposes of this Agreement, the first mentioned party
shall:
11.4.1 procure that each such employee complies with all
security, safety and other regulations which apply to or
are in force at the other party's premises; and
11.4.2 indemnify the other party against any direct damage to
property of the other party which is caused by any act or
omission of any such employee at the other party's
premises.
11.5 The Owner shall provide similar support and training for developments
of the Product and any other BAIID product made the subject of this
Agreement. The period, location, extent and type of such training
shall be as agreed and recorded by both parties in writing.
11.6 The Distributor shall be solely responsible for the purchase of the
necessary equipment as defined in Schedule 6 in order to fulfil its
obligations under this Agreement.
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12 PRODUCT AND SERVICE INFORMATION
12.1 The Owner agrees to supply the Distributor with the following
information to enable the Distributor to service the Product and
amend documents and manuals as maybe required:
12.1.1 Service manual and service information, including photo
positive/negatives of all technical diagrams and
photographs.
12.1.2 Such other information or data which the Distributor may
reasonably require to market and service the Products.
12.1.3 Software information and schematics.
13 AFTER SALES SERVICE AND SPARES
Spares Availability
13.1 For the purpose of the provision of an after sales service and spares
resource, the Owner undertakes:
13.1.1 to the extent they are available to maintain the
availability of equipment, components, tools, jigs and
fixtures or equivalent components, for use in the service
and maintenance of the Products for a period of seven (7)
years from the date of supply of the last Product to the
Distributor.
13.1.2 with best efforts to expedite delivery of spares for the
Products and to maintain adequate stocks and facilities
for marketing and distributing the same.
13.1.3 to maintain the availability of drawings and design data
of the Products to enable spares to be specified and
manufactured.
13.1.4 to maintain during the service life of the Products
service documentation and manuals, including comprehensive
parts lists and other such information and data which may
reasonably be necessary to service and maintain Products.
13.2 The Owner shall without charge to the Distributor, provide to the
Distributor in respect of each of the Products purchased by the
Distributor pursuant to the Agreement, the first 20 copies of the
technical service documentation.
14 CONTINUITY OF SUPPLY
14.1 To enable the Distributor to have a continuous source of supply of
the Products, it is agreed that in the event that:
14.1.1 the Owner intends to cease or ceases the manufacture or
supply of the Products, whether or not in breach of its
obligations under this Agreement; or
14.1.2 there is a Material Change of Ownership of the Owner (and
providing the Distributor can demonstrate to the
reasonable satisfaction of the Owner that the
Distributor's commercial interests have been adversely
affected); or
14.1.3 any of the events described in Clauses 19.2 and 19.3 occur
in relation to the Owner; or
14.1.4 the Owner fails to meet its obligations under this
Agreement consistently to supply Products in compliance
with the Product Specification or to supply the Products
on the required delivery dates;
then, and notwithstanding any other right of action which the
Distributor may have or may have exercised under this Agreement, the
Distributor shall have the right to exercise any or all of the rights
contained in Clause 14.2.
14.2 Subject to the payment by the Distributor of a mutually agreed
royalty the Distributor shall be entitled to exercise the following
rights:
14.2.1 The right to use the Technical Information of the Owner at
its own cost to provide the Distributor with such copies
of the Technical Information as may reasonably be
necessary for the purposes of enabling the Distributor to
manufacture or have manufactured and supply the Products.
14.2.2 The right to have a licence under the Owner's Intellectual
Property to manufacture, have manufactured and supply the
Products.
14.2.3 The right to require the Owner at the Owner's cost to
procure for the Distributor the right to use any Technical
Information of any other person and a licence under any
Intellectual Property, titled to which rests in such other
person, and in respect of which and to the extent that the
Owner has been granted rights and licences, for the
purposes of enabling the Distributor to manufacture, have
manufactured and to supply the Products.
15 INTELLECTUAL PROPERTY, TRADE MARKS & LOGO
15.1 The Owner hereby authorises the Distributor to register as the Owner
of the Trade Marks in the Territory and to use the Trade Marks on or
in relation to the Products for the purposes only of exercising its
rights and performing its obligations under this Agreement and the
Owner shall not so authorise any other person, firm or company
without the prior written consent of the Distributor
15.2 The Distributor shall be entitled with the permission of the Owner to
make any modifications to the Product's packaging (such modifications
to be the property of the Distributor and such permission not to be
unreasonably withheld).
15.3 The Distributor shall, at the expense of the Owner, take all such
steps as the Owner may reasonably require to assist the Owner in
maintaining the validity and enforceability of the Intellectual
Property of the Owner during the term of this Agreement.
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15.4 The Distributor shall promptly and fully notify the Owner of any
actual or threatened infringement in or outside the Territory of any
Intellectual Property of the Owner which comes to the Distributor's
notice, and of any claim by any third party so coming to its notice
that the importation of the Products into the Territory, or their
sale therein, infringes any rights of any other person, and the
Distributor shall at the request and expenses of the Owner do all
such things as may be reasonably required to assist the Owner in
taking or resisting any proceedings in relation to any such
infringement or claim.
16 WARRANTIES AND LIABILITY
16.1 Subject as herein provided the Owner warrants to the Distributor that:
16.1.1 it owns all the Intellectual Property and all other
proprietary rights in the Products and that the Owner has
full right and authority to grant the rights given to the
Distributor under the terms of this Agreement; and
16.1.2 the Trade Marks of which registration particulars are
given in Schedule 3 are registered in the name of the
Owner and that it has disclosed to the Distributor all
trade marks and trade names used by the Owner in relation
to the Products at the date of this Agreement; and
16.1.3 there are no third party rights in the Territory which
would or might render the sale of the Products, or the use
of any of the Trade Marks on or in relation to the
Products, unlawful.
16.2 The Owner shall indemnify the Distributor against any and all losses
or costs incurred by the Distributor in the event of any breach of
the Owner's warranty in Clause 16.1.1 or any other warranty given by
the Owner in this Agreement.
16.3 The Owner shall indemnify the Distributor against product liability,
claims for loss or damage to property or injury or death to persons
arising from or caused by any manufacturing defect in any of the
Products.
16.4 The Owner shall be liable to the Distributor by reason of any
representation or implied warranty, condition or other term or any
duty at common law, or under the express terms of this Agreement, for
any foreseeable consequential loss or damage (whether for loss of
profit or economic loss) arising out of or in connection with any act
or omission of the Owner relating to the manufacture or supply of the
Products.
16.5 The Owner shall, at its own expense, defend any suit brought against
the Distributor in so far as based upon a claim that any of the
Products in the form as supplied by the Owner hereunder directly
infringes any Intellectual Property of any other person and shall
indemnify the Distributor against any final award of damages and
costs in such suit. This indemnity is conditional upon the
Distributor giving the Owner notice in writing as soon as possible of
any suit for infringement, full authority at the Owner's option to
settle or conduct the defence thereof and such reasonable assistance
at the cost of the Owner in the said defence. In the event that the
Products supplied hereunder by the Owner in the form as specified
above are in such suit held to constitute infringement and their use
is prohibited, the Owner shall, at its own expense either procure for
the Distributor the right to continue their use or shall replace
within a reasonable time period the infringing products by
non-infringing Products and such replacement Products shall comply
with any conditions issued by any Approval Authority at that time. In
the event that the Owner is unable, after using its best endeavours
to do so, to procure such right or replace such Products as
aforesaid, the Owner shall against return of such Products grant the
Distributor a credit or refund for the price paid by him thereof (at
the sole discretion of the Distributor) for the Invoice value.
16.7 The Distributor shall take all reasonable measures to ensure that its
contractors, subcontractors, agents, assigns, dealers,
representatives or any other third party appointed by the Distributor
("Resellers") properly and diligently carry out their
responsibilities (such measures to include but not be limited to
Reseller agreements which contain back to back provisions relating to
the terms of this Agreement) and the Distributor shall cooperate in
any reasonable action which the Owner might wish to take against such
Resellers for any breach of such agreements.
Neither the Owner nor the Distributor shall be responsible for any
acts or omissions of the Resellers.
The Distributor shall indemnify the Owner against any foreseeable
costs or expenses incurred by the Owner as a direct result of any
breach by the Distributor of the terms of this Agreement.
17 TITLE AND RISK
17.1 Acceptance of the Products shall not take place until the receipt by
the Distributor of the certification referred to in Clause 3.1.
17.2 Title in the Products shall pass to the Distributor on delivery
Ex-works the Owner.
<PAGE>
17.3 If the Distributor goes into liquidation, other than for the purposes
of reconstruction or amalgamation, the property in the Products, for
which payment has not been made by the Distributor, shall revert to
the Owner.
17.4 The Owner shall be responsible for the safety and protection of any
materials or other property of the Distributor which may be issued to
the Owner in connection with this Agreement and shall indemnify the
Distributor against loss or damage thereto. The Distributor shall be
similarly liable for Owner's property issued to the Distributor.
17.5 The Owner shall clearly mark all such items so delivered as the
property of the Distributor, store them separately and shall submit
stock returns thereof as and when requested by the Distributor. The
Distributor shall be similarly liable for Owner's property issued to
the Distributor.
18 CONFIDENTIALITY
18.1 Except as provided by Clauses 18.2 and 18.3 both parties shall at all
times during the continuance of this Agreement and after its
termination:
18.1.1 use their best endeavours to keep all Restricted
Information confidential and accordingly not to disclose
any Restricted Information to any other person; and
10
<PAGE>
18.1.2 not use any Restricted Information for any purpose other
than the performance of the obligations under this
Agreement.
18.2 Any Restricted Information may be disclosed by either party to:
18.2.1 any customers or prospective customers;
18.2.2 any governmental or other authority or regulatory body; or
18.2.3 any employees of the Distributor or the Owner or of any of
the aforementioned persons on a need to know basis,
to such extent only as is necessary for the purposes contemplated by
this Agreement, or as is required by law and subject in each case to
the parties using their best endeavours to ensure that the person in
question keeps the same confidential and does not use the same except
for the purposes for which the disclosure is made.
18.3 Any Restricted Information (or only part thereof if all the
Restricted Information is not needed) may be used by either party for
any purpose, or disclosed by either party to any other person, to the
extent only that:
18.3.1 it is at the date hereof, or hereafter becomes, public
knowledge through no fault of either party (provided that
in doing so neither party shall disclose any Restricted
Information which is not public knowledge); or
18.3.2 it can be shown by the receiving party, to the reasonable
satisfaction of the other, to have been known to it prior
to it being disclosed.
19 DURATION AND TERMINATION
19.1 This Agreement shall come into force on the Effective Date and,
subject as provided in Clauses 19.2 and 19.3, shall continue in force
for a fixed term of 5 years and thereafter unless or until terminated
by either party giving to the other not less than 12 months' notice
expiring on or at any times after the end of that period. SAVE THAT
if during the initial 5 year term any or all of the Products have
become mandated, or that substantial or material evidence can be
produced by the Distributor to show that any or all of the Products
are in the process of becoming mandated in any of the countries which
make up the Territory or if the Distributor achieves sales equivalent
to 1% of the number of passenger vehicles registered in the
Territory, this Agreement shall be automatically renewed on the same
terms as those specified in this Agreement for a further 5 years
following the expiry of the initial 5 year term.
The Distributor warrants that it has the resources and wherewith all
to properly and effectively sell in the Territory consistently with
this Agreement.
19.2 The Distributor shall be entitled to terminate this Agreement:
19.2.1 if the Owner is in breach of Clause 4.9; or
19.2.2 by giving not less than 90 days written notice to the
Owner (and providing the Distributor can demonstrate to
the reasonable satisfaction of the Owner that the
Distributor's commercial interests have been adversely
affected) if:
(a) there is at any times a Material Change of Ownership;
or
(b) the Owner at any time sells, licences, assigns or in
any way deals with the Intellectual Property; or
(c) if the Owner changes the manufacturer of the Products.
In addition to the above rights of termination the Distributor may
claim liquidated damages from the Owner limited to a maximum sum of
(pound)250,000 (TWO HUNDRED AND FIFTY THOUSAND POUNDS) PROVIDED THAT
the Distributor can show that deliberate steps have been taken to
damage the Distributor's commercial interests and as a result of such
steps damage has in fact been suffered by the Distributor.
19.3 Either party shall be entitled forthwith to terminate this Agreement
by written notice to the other if:
19.3.1 that other party commits any breach of any of the
provisions of this Agreement and, in the case of a breach
capable of remedy, fails to remedy the same within 30 days
after receipt of written notice giving full particulars of
the breach and requiring it to be remedied;
<PAGE>
19.3.2 if the other shall convene a meeting of its creditors or
if a proposal shall be made for a voluntary arrangement
within Part 1 of the Insolvency Act 1986 or a proposal for
any other composition, scheme or arrangement with (or
assignment for the benefit of)its creditors or it the
other shall be unable to pay its debts within the meaning
of section 123 of the Insolvency Act 1986 or if a trustee,
receiver, administrative receiver or similar officer is
appointed in respect of all or any part of the business or
assets of the other party or if a petition is presented or
a meeting is convened for the purpose of considering a
resolution or other steps are taken for a the winding up
of the other party or for the making of an administration
Purchase Order (otherwise than for the purpose of an
amalgamation reconstruction);
19.3.3 anything analogous to any of the foregoing under the law
of any jurisdiction occurs in relation to that other
party; or
19.3.4 that other party ceases, or threatens to cease, to carry
on business.
19.4 Any waiver by either party of a breach of any provision of this
Agreement shall not be considered as a waiver of any subsequent
breach of the same or any other provision thereof.
11
<PAGE>
19.5 The rights to terminate this Agreement given by this Clause shall be
without prejudice to any other right or remedy of either party in
respect of the breach concerned (if any) or any other breach.
20 CONSEQUENCES OF TERMINATION
20.1 Upon the termination of this Agreement due to the default of either
party:
20.1.1 the Owner shall be obliged (if so requested by the
Distributor) to repurchase from the Distributor all or
part of any stocks of the Products then held by the
Distributor at their Invoice Value ; provided that:
(a) the Owner shall be responsible for arranging and for
the cost of, transport and insurance; and
(b) the Distributor may sell stocks for which it has
accepted Purchase orders from customers prior to the
date of termination, or in respect of which the Owner
does not repurchase within 30 days after the date of
any request from the Distributor (such sale shall be
without prejudice to the Distributor claiming from
the Owner the price stated in Clause 20.1.1) and for
those purposes and to that extent the provisions of
this Agreement shall continue in full force and
effect;
20.1.2 the Distributor shall at the Owner's expense within 30
days send to the Owner or otherwise dispose of in
accordance with the directions of the Owner all samples of
the Products and any advertising, promotional or sales
material relating to the Products and produced by the
Owner then in the possession of the Distributor;
20.1.3 outstanding unpaid invoices rendered by the Owner in
respect of the Products shall be payable subject to the
agreed payment terms as shall those invoices in respect of
Products delivered;
20.1.4 the Distributor shall cease or to make any use of the
Trade Marks other than for the purpose of selling stock
the Owner has not repurchased;
20.1.5 the Distributor shall be entitled (subject to termination
taking place due to the fault of the Owner) to receive a
payment from the Owner for compensation for loss of
distribution rights, loss of goodwill or any similar loss
the amount of such payment shall be the equivalent to the
Invoice Value of all Purchase Orders for the 12 month
period prior to termination or (pound)250,000 (TWO HUNDRED
AND FIFTY THOUSAND POUNDS) (whichever is the greater sum).
This payment shall be made immediately following receipt
of a written demand from the Distributor;
20.1.6 subject as otherwise provided herein and to any rights or
obligations which have accrued prior to termination,
neither party shall have any further obligation to the
other under this Agreement.
20.2 Notwithstanding termination of this Agreement, Clauses 5, 6, 7, 12,
13, 14, 15, 16, 17, 18, 20, 21, 22, 23, 24 and 25 shall survive and
continue to have full effect.
21 FORCE MAJEURE
21.1 If either party is affected by Force Majeure it shall forthwith
notify the other party of the nature and extent thereof.
21.2 Neither party shall be deemed to be in breach of these terms or
otherwise be liable to the other, by reason of any delay in
performance, non-performance, or any of its obligations hereunder to
the extent that such delay or nonperformance is due to any Force
Majeure of which it has notified he other party; and the time for
performance of that obligation shall be extended accordingly.
21.3 If a condition of Force Majeure affecting a party shall continue for
a period of 3 months or shall intermittently occur for 3 months in
any period of 6 months, then the other party shall have the right to
suspend the operation of this Agreement until the condition of Force
Majeure shall have ceased or is unlikely to resume, or at its option,
to terminate this Agreement forthwith.
22 NATURE OF AGREEMENT
22.1 Subject to any express agreement to the contrary, neither party may
assign, mortgage, charge or dispose of any of its rights hereunder,
or subcontract or otherwise delegate any of its rights and
obligations under this Agreement without the prior written consent of
the other (such consent not to be unreasonably withheld).
22.2 Save as expressly agreed, nothing in this Agreement shall create, or
be deemed to create, a partnership or the relationship of principal
and agent or employer and employee between the parties.
<PAGE>
22.3 This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof, supersedes all previous
agreements and understandings between the parties with respect
thereto and may not be modified except by an instrument in writing
signed by the duly authorised representatives of the parties.
22.4 Each party acknowledges that, in entering into this Agreement, it
does not do so on the basis of, and does not rely on, any
representation, warranty or other provision except as expressly
provided herein, and all conditions, warranties or other terms
implied by statute or common law are hereby excluded to the fullest
extent permitted by law.
22.5 If any provision of this Agreement shall be found by any court or
administrative body of competent jurisdiction to be invalid or
unenforceable the invalidity or unenforceability of such provisions
shall not affect the other provisions of this Agreement and all
provisions not affected by such invalidity or unenforceability shall
remain in full force and effect. The parties hereby agree to attempt
to substitute for any invalid or unenforceable provision a valid or
enforceable provision which achieves to the greatest extent possible
the economic legal and commercial objectives of the invalid or
unenforceable provision.
12
<PAGE>
22.6 The waiver by either party of a breach or default of any of the
provisions of this Agreement by the other party shall not be
construed as a waiver of any succeeding breach of the same or other
provisions nor shall any delay or omission on the party of either
party to exercise or avail itself of any right power or privilege
that it has or may have hereunder operate as a waiver of any breach
of default by the other party.
22.7 The provisions of this Agreement, and the rights and remedies of the
other parties under this Agreement, are cumulative and are without
prejudice and in addition to any rights or remedies a party may have
at law or in equity; no exercise by a party of any one right or
remedy under this Agreement, or at law or in equity, shall (save to
the extent, if any, provided expressly in this Agreement, or at law
or in equity) operate so as to hinder or prevent the exercise by it
of any other such right or remedy.
23 DISPUTE RESOLUTION AND PROPER LAW
23.1 If any dispute is not resolved through negotiation the parties will
attempt in good faith to resolve the dispute through an ADR
Procedure. The Defendant shall be entitled to choose the country in
which the ADR procedure shall take place.
23.2 This Agreement shall be governed by and construed in all respects in
accordance with the Laws of England, and each party hereby submits to
the exclusive jurisdiction of the court selected by the Defendant.
24 NOTICES AND SERVICE
24.1 Any notice or other information required or authorised by this
Agreement to be given by either party to the other may be given by
hand or sent (by first class prepaid post, telex, cable, facsimile
transmission or comparable means of communication) to the other party
at the addressed referred to in Clause 24.4.
24.2 Any notice or other information given by recorded post pursuant to
Clause 24.4 which is not returned to the sender as undelivered shall
be deemed to have been given on the second day after the envelope
containing the same was so posted; and proof that the envelope
containing any such notice or information was properly addressed,
prepaid, registered and posted, and that it has not been so returned
to the sender, shall be sufficient evidence that such notice or
information has been duly given.
24.3 Any notice or other information sent by telex, cable, facsimile
transmission or comparable means of communication shall be deemed to
have been duly sent on that date of transmission, provided that a
confirming copy thereof is sent by first class prepaid post to the
other party at the address referred to in Clause 24.4 within 24 hours
after transmission. If notice is sent by fax or telex receipt of
transmittal must be retained.
24.4 Service of any legal proceedings concerning or arising of this
Agreement shall be effected by causing the same to be delivered to
the Company Secretary of the party to be served at its principal
place of business or its registered office, or to such other address
as may from time to time be notified in writing by the party
concerned.
25 NOTIFICATION
25.1 As soon as practicable after the execution of this Agreement the
parties shall procure that:
25.1.1 this Agreement is notified to the Commission of the
European Communities in accordance with Regulation 17 of
1962 of the Council of the European Communities; and
25.1.2 particulars of this Agreement are duly furnished to the
Director General of Fair Trading in accordance with the provisions of
the Restrictive Trade Practices Act 1976; and accordingly none of the
provisions of this Agreement other than this provision shall come
into force, and none of the parties shall give effect thereto, until
the date after both such steps have been taken.
26 DATA
26.1 In return for the supply free of charge to the Distributor of all
necessary data recovery equipment, know-how and training the
Distributor shall pay to the Owner 100. of any revenue received by
the Distributor for the sale of any data recovered from the BAIID
Products.
26.2 Such payments shall be made every calendar quarter in arrears (the
first quarter being January-March) and following receipt by the
Distributor of such revenue sums as cleared funds.
AS WITNESS the hands of the duly authorised representatives of the parties the
day and year first above written.
13
<PAGE>
SCHEDULE 1
PRODUCTS/SPECIFICATIONS
Products
SENS-0-LOCK 1000, 2000 and 3000 series.
Specification
National Highway Traffic Safety Administration Docket No. 91-07,
Notice 2, Federal Register Vol. 57, No. 67, April 7, 1992.
- ------------------------------------------------------------------
SCHEDULE 2
TERRITORY
* Austria
* Armenia
* Bulgaria
* Belgium
* Czechoslovakia
* Denmark
* Finland
* France
* Germany
* Gibraltar
* Greece
* Hungary
* Irish Republic
* Italy
* Liechtenstein
* Luxembourg
* Netherlands
* Poland
* Portugal
* Romania
* Russia
* Slovenia
* Spain
* Sweden
* Switzerland
* Turkey
* United Kingdom
All EC territories listed above shall be subject to the exclusive
appointment provisions and term provisions contained in Clauses 2 and 19 of
the Agreement.
All the * territories shall be subject to the exclusive appointment
provisions in Clause 2 of the Agreement for a period of 12 months from the
Effective Date. Should the Distributor be able to demonstrate on or before
the expiry of such 12 month period (or a 6 month notice period of the
appointment of an exclusive distributor to the relevant territory following
the expiry of such 12 month period) that it has made or there is a
reasonable prospect of it making material sales into those territories, then
those territories shall be subject to the exclusive appointment provisions
and term provisions contained in Clauses 2 and 19 of the Agreement as from
the Effective Date.
The exclusive appointment to the * territories shall continue until the
proper expiry of a 6 month notice of the appointment of an exclusive
distributor to the relevant territory or the term in Clause 19 of the
Agreement (whichever is the earlier event).
- -------------------------------------------------------------------------------
SCHEDULE 3
TRADE MARKS
Mark Country Number Class Goods for which reg'd
Sens-O-Lock
14
<PAGE>
SCHEDULE 4
PRICES
The following pricing shall be operative with regard to the Sens-O-Lock series
#1000, 2000 and 3000 with respect to the attached exclusive distributor
agreement:
The following prices are exworks (to the carrier from the manufacturers
facility).
The assumption utilized in the pricing shall be that a full container can
accommodate 6000 to 7000 Sens-O-Lock devices together with packing and
packaging and shall be packed accordingly.
The pricing discounts will increase with the number of containers shipped to
the distributor in accordance with the following schedule:
All individual units shall be sold at $250 USD plus shipping.
1 to 4 containers 5% discount (or $12.50 USD) $237.50 USD per unit
(Sens-O-Lock device).
5 to 9 containers 8% discount (or $20.00 USD) $230.00 USD per unit
(Sens-O-Lock device).
10 or more containers 10% discount (or $25.00 USD) = $225.00 USD per unit
(Sens-O-Lock device).
Any partial containers ordered will be billed out at the discount prevailing
for that entire shipment (order).
- -------------------------------------------------------------------------------
SCHEDULE 5
NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION DOCKET
15
<PAGE>
SCHEDULE 6
DISTRIBUTOR EQUIPMENT
The Sens-O-Lock Installation support package consists of the following:
A. P.C. COMPUTER SYSTEM (IBM COMPATIBLE) CONSISTING OF:
1 - 386 DX-33 PC System
2 - 4 MB RAM Memory
3 - 1.44 MB (3 1/211) Floppy Disk Drive
4 - 130 MB Hard Disk Drive
5 - Serial/Parallel Ports
6 - VGA 640 x 480 Monitor & Display Card
7 - 120 MB Tape Back-Up Drive
8 - Modem 9600
9 - Mouse or Track-Ball (Microsoft Compatible)
10 - 101-Keyboard (Enhanced)
11 - Printer, Dot Matrix
12 - Uninterruptable Power Supply (220/11OV/60 Hz)
13 - Power Auto-On Switch
14 - Noise and Surge Power Protector Plug Strip
15 - Interconnecting Cables
B. SOFTWARE
1 - MS Dos 5.0
2 - A.S.I. Proprietary Software TM (Sens-O-Lock) BAIID
3 - A.S.I. Systems Support Software Series)
C. EQUIPMENT
1 - Alcohol Breath Simulator
2 - Tamper Proof Tools
D. DOCUMENTS
1 - Installation Instructions
2 - Operation Instructions
- --------------------------------------------------------------------------------
SCHEDULE 7
PURCHASE ORDER
16
<PAGE>
SIGNED for and on behalf of Alcohol Sensors International, Ltd.:
Signed...............................................
Printed Name.........................................
Title................................................
SIGNED for and on behalf of
Digital Vehicle Security Systems
Limited
Signed...............................................
Printed Name.........................................
Title................................................
17
<PAGE>
EXHIBIT 10.2
CONTRACT AFFIRMATION
I, Michael Ghazarian, Managing Director of Digital Vehicle Security in London,
UK, hereby reaffirm the Agreement incorporated herein by reference duly
executed by me between my Company, Digital Vehicle Security and Alcohol
Sensors International, Ltd. on October 21, 1993 in its entirety including the
attached Purchase Requirements incorporated into said agreement by reference,
giving it full force and effect immediately upon my execution of this
affirmation. I hereby warrant and represent that I have full power and
authority to bind Digital Vehicle Security and reaffirm said Agreement.
Accepted and Agreed:
DIGITAL VEHICLE SECURITY
By: ____________________________________
Michael Ghazarian, Managing Director
Dated: _________________________ Notary:____________________________
I, Robert B. Whitney, President and Chief Executive Officer of Alcohol Sensors
International, Ltd. in New York, USA, hereby reaffirm the Agreement
incorporated herein by reference duly executed by me between my Company,
Alcohol Sensors International, Ltd. and Digital Vehicle Security on October
21, 1993 in its entirety including the attached Purchase Requirements
incorporated into said agreement by reference, giving it full force and effect
immediately upon my execution of this affirmation. I hereby warrant and
represent that I have full power and authority to bind Alcohol Sensors
International, Ltd. and reaffirm said Agreement.
Accepted and Agreed:
ALCOHOL SENSORS INTERNATIONAL, LTD.
By: ____________________________
Robert B. Whitney
President/Chief Executive Officer
Dated: ___________________________ Notary:___________________
18
<PAGE>
PURCHASE REQUIREMENTS
U.K. During Life Of Distribution Agreement Between
Digital Auto Security Systems
And
Alcohol Sensors International, Ltd.
<TABLE>
<CAPTION>
*1 Unit = 1 Sens-O-Lock Device
1996 1997
- ---- ----
<S> <C> <C> <C>
June - October - 1,500 Units January - December - 60,000 Units
November - 2,000 Units
December - 2,000 Units 1st Quarter - 7,500 Units
2nd Quarter - 12,500 Units
3rd Quarter - 15,000 Units
4th Quarter - 25,000 Units
1998 1999
- ---- ----
January - December - 250,000 Units January - December - 350,000 Units
1st Quarter - 35,000 Units 1st Quarter - 60,000 Units
2nd Quarter - 50,000 Units 2nd Quarter - 75,000 Units
3rd Quarter - 70,000 Units 3rd Quarter - 95,000 Units
4th Quarter - 95,000 Units 4th Quarter - 120,000 Units
2000 2001
- ---- ----
January - December - 450,000 Units January - December - 500,000 Units
1st Quarter - 85,000 Units 1st Quarter - 95,000 Units
2nd Quarter - 100,000 Units 2nd Quarter - 110,000 Units
3rd Quarter - 120,000 Units 3rd Quarter - 130,000 Units
4th Quarter - 145,000 Units 4th Quarter - 165,000 Units
TOTAL 1,615,500 UNITS
</TABLE>
19
<PAGE>
EXHIBIT 10.3
CONSULTING CONTRACT
THIS AGREEMENT MADE AS OF July 1, 1996
BETWEEN ALCOHOL SENSORS INTERNATIONAL,
LTD., a New York Corporation
having a place of business at 11
Oval Drive, Islandia, NY 11722,
hereinafter referred to as "ASI",
AND DIGITAL VEHICLE SECURITY SYSTEMS, INC. and MICHAEL GHAZARIAN,
both jointly and severally, having a place of business at Unit
1B, Saxeway Business Centre, Chartridge Lane, Chesham, Bucks
11P5 2SH, United Kingdom, hereinafter referred to as
"CONSULTANT" .
WHEREAS; ASI is engaged in the manufacture, distribution and sale of
testing and sensing equipment and other electronic products, and
WHEREAS; CONSULTANT represents and warrants that he has the requisite
skills, experience and training to complete the tasks outlined in Addendum A,
attached hereto and under this Agreement, and
WHEREAS; ASI is desirous of engaging CONSULTANT as an independent
contractor for the purposes of researching and developing the technology
described in Addendum A attached hereto, then
IN CONSIDERATION, of mutual promises between the parties it is agreed
that:
WITNESSETH THAT:
I. SCOPE OF WORK
Subject to the terms and conditions hereinafter provided, ASI engages
the CONSULTANT for furnishing of services specifically described in
Addendum A, "Statement of Work", for CONSULTANT, which is hereby
incorporated by reference, and for such other tasks as may be
reasonably required by ASI from time to time.
II. TERM
The services provided for under this Agreement shall commence on July
1, 1996, and shall continue for six (6) months or until ASI terminates
it with 10 days written notice to CONSULTANT. Termination of this
Agreement may be accomplished without penalty to either party unless
termination was for cause, gross misconduct or material breach.
III. CONSIDERATION AND PAYMENT
As consideration for such services and for assigning the rights in
invention(s), design(s), patent(s), trademark(s), and copyright(s)
without limitation or qualification as hereinafter provided, ASI agrees
to pay CONSULTANT one hundred ($100.00) dollars per month, providing
CONSULTANT substantial control over production of product he intends to
sell and payment of pre-approved out-of-pocket expenses, including
reasonable accommodations while in the United States on business for
the benefit of ASI, economy airfare, and other valuable consideration
including assisting in the development of a product(s) that CONSULTANT
agrees to sell pursuant to a distribution agreement executed between
the parties hereto.
ASI agrees to pay said invoices within ten (10) days of receipt or
within a reasonable time thereafter for services rendered and travel
performed on behalf of ASI and other pre-approved expenses. Invoices
shall be sent by the CONSULTANT to Michael Sylvester. The CONSULTANT
shall provide itemized invoices showing the amount applicable to each
project in accordance with the Statement of Work or other agreed work.
20
<PAGE>
IV. EXPENDITURE LIMITATION
All expenses for outside services must be pre-approved in writing by
ASI before they are incurred.
V. DIRECTION
The CONSULTANT shall report to and be responsible for his performance
and receive his direction from Robert Whitney or his designee.
VI. GENERAL CONDITIONS
The GENERAL CONDITIONS, set forth below, are hereby incorporated as a
material part of this Agreement:
GENERAL CONDITIONS
1.) CONFIDENTIAL MATTERS
The CONSULTANT shall keep in strictest confidence all information
relating to this Agreement which may be acquired in connection with or
as a result of this Agreement. During the term of this Agreement and
for a period of not less than three (3) years thereafter, without prior
written consent of ASI the CONSULTANT shall not publicly communicate,
divulge, disclose, or use any of such information which has been
designated as ASI proprietary property or which from the surrounding
circumstances in good conscience ought to be treated as propriety
information or property of ASI.
Proprietary information does not include information which is in the
public domain through no breach of this Agreement by CONSULTANT or
which CONSULTANT has obtained from a third party through no breach of
this Agreement. Upon termination or expiration of this Agreement or
upon demand by ASI, CONSULTANT shall immediately deliver any and all
records, data, information and other documents and all copies thereof
to ASI at its offices at the time of such delivery and such shall
remain the property of ASI. Additionally, the parties agree not to
divulge to anyone the nature of their relationship as provided for
herein. This provision shall survive any termination or expiration of
this Agreement for a period of three (3) years.
Notwithstanding the above, the CONSULTANT agrees under no circumstances
whatsoever to develop or attempt to develop any device described in
Addendum A, "the device", or any manifestation thereof in whole or in
part for any other party or entity other than ASI or its authorized
assigns or successors interest for a period of not less than five (5)
years.
2.) INDEPENDENT CONTRACTORS AND EMPLOYMENT OF CONSULTANT
The CONSULTANT shall not utilize any entities, persons or employees on
the work to be performed hereunder unless said entities, persons or
employees have executed a contract agreeing to be bound by the terms in
provisions 1, 8, 9 and 10 of the GENERAL CONDITIONS herein. The
CONSULTANT may utilize its own Confidentiality Agreement used to
protect its own business secrets and confidential information, and
CONSULTANT shall provide a copy upon execution of this Agreement for
ASI's review and approval.
3.) ASSIGNMENT
This Agreement is for PERSONAL SERVICES and shall not be transferred,
assigned, or delegated by the CONSULTANT without prior written consent
of ASI. Any unauthorized attempted transfer, assignment or delegation
shall be null and void and shall immediately terminate this Agreement.
However, the provisions relevant to confidentiality, non-competition
and/or conflict of interest shall survive the termination or expiration
of this Agreement.
21
<PAGE>
4.) CONFLICT OF INTEREST
The CONSULTANT shall not for a period of three (3) years from the date
of termination or expiration of this Agreement act as sales agent,
engineer, or in a liaison capacity as an officer, employee, agent, or
representative of any ASI suppliers or prospective supplier
(specifically exempting those CONSULTANT can verify it is already
working with at the time of the Execution of this Agreement), nor serve
in any of the foregoing capacities for any of ASI's competitors without
the prior written approval of ASI. The CONSULTANT hereby warrants that
there is no conflict of interest in CONSULTANT's full time or other
employment or avocation, if any, or other consulting contracts, if any,
with the activities to be performed hereunder and CONSULTANT shall
advise ASI if a conflict of interest arises in the future. If
applicable, the CONSULTANT certifies that the services to be performed
under this Agreement shall not, to the best of his knowledge, result in
a conflict of interest prohibited by United States government laws or
regulations or those pertaining or applicable under the articles if the
UN Convention and International Law.
5.) GENERAL RELATIONSHIP
In all matters to this Agreement the CONSULTANT shall be acting as an
independent contractor. Neither the CONSULTANT nor employees of the
CONSULTANT, if any, are employees of ASI under the meaning or
application of any Federal or State Unemployment or Insurance Laws or
Workman Compensation Laws or otherwise. The CONSULTANT shall assume all
liabilities or obligations imposed by one or more of such laws with
respect to employees, partners or agents of the CONSULTANT, if any, in
the performance of the Agreement. Notwithstanding the above, while the
CONSULTANT or its agents are on the premises of ASI while on the
business of ASI, the CONSULTANT shall assume responsibility for injury
only; to the CONSULTANT or its authorized agents, to a maximum
liability exposure of $50,000 (USD) in the aggregate, and only after
any and all contributions are made from applicable and available
insurance and other coverages and other collateral sources the
CONSULTANT may have to protect itself and its agents and employees in
the event of injury.
The CONSULTANT shall not have any authority to assume or create any
obligation, express or implied, on behalf of ASI and the CONSULTANT
shall have no authority to represent himself as an agent, employee, or
in any other capacity of ASI not specifically authorized under this
Agreement. The parties further agree that they are not partners and are
not engaged in a joint enterprise or joint venture.
6.) NON-ASSERTION OF RIGHTS
During and after the term of this Agreement, CONSULTANT shall not
assert or permit any other party to assert against ASI, its
subsidiaries, vendors, and customers both, mediate and immediate, any
patent or other rights with respect to which CONSULTANT has the right
to assert or license at the termination or expiration of this Agreement
because of the practice of any process or the manufacture, use, or sale
of any product arising out of the subject matter of this Agreement.
7.) REPORTS
The CONSULTANT, as directed by the competent authority during the term
of this Agreement, shall provide written reports indicating progress
made or lack thereof including but not limited to delays in estimated
timetables with respect to the services rendered hereinunder and
forward same to the competent authority immediately.
8.) STRICT LOYALTY
The CONSULTANT and its employees, partners or agents agree to make
their best efforts to scrupulously avoid any and all circumstances and
actions, deliberate and otherwise, which would place CONSULTANT in a
position of divided loyalty with respect to the obligations undertaken
under this Agreement.
9.) SAFETY AND SECURITY REGULATIONS
CONSULTANT shall comply with all applicable ASI security regulations.
If the CONSULTANT renders services at ASI's facility, CONSULTANT shall
not remove any property or information, proprietary or otherwise,
therefrom. The CONSULTANT, partners and agents or employees shall
comply with any and all safety regulations, whether at the facilities
of ASI or elsewhere.
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10.) INVENTIONS, PATENTS, TRADEMARKS, AND COPYRIGHTS
A) The CONSULTANT hereby assigns to ASI the worldwide right, title and
interest in and to each and every idea, invention and improvement,
patentable or otherwise, which has been or may be conceived or
developed by the CONSULTANT with respect to any substance or
compound detection technology and other business or businesses,
("other business"), ASI may be engaged in from time to time
PROVIDED THAT, CONSULTANT is not already actively engaged in such
other business, including but not limited to those projects
contemplated by or under this Agreement and pursuant to or as a
result of this Agreement or its relationship to ASI during the
performance of this Agreement or with the use of information,
materials or facilities of ASI during the period in which
CONSULTANT is retained by ASI or its successor in business or
interest under this Agreement or any extension or renewals thereof
without additional consideration except for that specifically
provided for herein. CONSULTANT further agrees to promptly execute
such additional documents as may be requested by ASI to further
document, acknowledge or record any assignment herein, such
documents to be prepared at the cost of ASI; and
B) The CONSULTANT agrees to promptly disclose to ASI all work(s),
and/or writing(s), as provided in article A) above made, conceived,
or reduced to practice or authored by the CONSULTANT, CONSULTANT's
employees, agents, and partners or successors in interest in the
course of the performance of this Agreement; and
C) The CONSULTANT shall sign, execute, and acknowledge or cause to be
signed, executed and acknowledged without cost, any and all
documents and to perform such acts as may be necessary, useful or
convenient for the purpose of securing ASI or its nominees or
successor in interest, patent, trademark, or copyright protections
throughout the world, upon all such work in the Statement of Work
or other work, as may be mutually agreed including without
limitation all work(s), writing(s), formula(s), design(s),
drawing(s), inventions et al., without limitation whether
patentable or otherwise, title to which ASI may acquire in
accordance with the provisions of this clause and article A) above;
and
D) The CONSULTANT has acquired or shall acquire from each of its
employees, partners, or agents, rights to any and all work(s),
writing(s), formula(s), design(s), invention(s), et al., and
pursuant to article A) above without limitation made by such
employees within the scope of the services under this Agreement and
to the best of the ability of the CONSULTANT to obtain the
cooperation of such employees to secure to ASI or its nominee or
successor in interest the rights to such work(s), writing(s),
drawing(s), design(s), invention(s), et al., without limitation as
ASI may acquire in accordance with this clause and the terms and
conditions of this Agreement. Further, ASI and CONSULTANT shall
each keep any Confidential Information it receives from the other
in confidence in accordance with the terms set forth.
The recipient of Confidential Information shall only use it for the
purposes of performing its obligations under this Agreement. For a
period of ten (10) years from the date this Agreement terminates,
neither party shall disclose any Source Code belonging to the
other, and for a period of three (3) years from the date this
Agreement terminates, neither party will disclose any Confidential
Information other than the Source Code it receives from the other
to any other person, firm, or corporation, or use the Confidential
Information for its own benefit except as provided in this
Agreement.
Each recipient of Confidential Information shall use reasonable
care to prevent use or disclosure of the Confidential Information,
and no less stringent degree of care to avoid disclosure or use of
such Confidential Information than it employs with respect to its
own Confidential Information which it does not wish to be
disseminated, published or disclosed.
ASI shall have the right to escrow, license, or otherwise
distribute copies of the Confidential Information including any
Source Code for any licensed Software subject to ASI's then
applicable policies.
Confidential Information shall not include any Information which:
o is not designated as Confidential Information in accordance
with the requirements of this Agreements, or
o is already known to the recipient at the time of disclosure
through lawful channels of communications; or
o is or become publicly known through no wrongful act of the
recipient; or
<PAGE>
o is rightfully received from a third party without similar
restrictions and without breach of this Agreement; or
o is independently developed by the recipient without breach of
this Agreement; or
o is furnished to a third party by the disclosing party
without a similar restriction on the third party's rights;
or
o is approved for release by written authorization of the
disclosing party.
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The recipient may, without breach of this Agreement, disclose
Confidential Information to the government by reason of a
governmental requirement or to a court by reason of operation of
law. However, the recipient shall make no disclosure under the
provisions of this subparagraph prior to giving written notice to
the disclosing party of the governmental requirement and giving the
disclosing party the opportunity to obtain a protective order from
a court of law.
The recipient shall not be liable for:
1) inadvertent disclosure or use of Confidential Information
provided that:
a) it used not less than reasonable care and the same degree
of care in safeguarding such Confidential Information as
it uses for its own Confidential Information of like
importance; and
b) upon discovery of such inadvertent disclosure or use of
such Confidential Information, it shall endeavor to
prevent any further inadvertent disclosure or use.
2) unauthorized disclosure or use of Confidential Information by
persons who are or who have been in its employ, unless it
fails to obtain a written agreement to protect the
confidentiality of Confidential Information.
To the extent the disclosing party discloses Confidential
Information to the recipient orally with the recipient's advance
written consent, the disclosing party agrees to reduce the oral
Confidential Information to writing within five (5) days of such
oral disclosure, referencing the place and date of oral disclosure
was made, and including therein a detailed description of the
Confidential Information actually disclosed.
All copies of Confidential Information delivered any the disclosing
party to the recipient pursuant to this Agreement whether in
printed, magnetic, optical, or other tangible or mechanically
reproducible form shall be conspicuously marked "CONFIDENTIAL",
shall remain the property of the disclosing party, and all such
Confidential Information, together with any copies thereof, shall
be promptly returned to the disclosing party upon written request,
or destroyed at the disclosing party's option following the
termination or expiration of this Agreement unless this Agreement
provides otherwise.
11.) OWNERSHIP OF MOLDS AND TOOLING
CONSULTANT agrees to provide the estimated costs for all molds, tooling
and electrodes as outlined in the attached Addendum A without
limitation. After approval by ASI, ASI shall pay fifty (50%) percent of
the costs of said production material upon approval. Upon completion of
the development and manufacture of said production materials and upon
acceptance of the initial batch run by ASI, ASI shall pay and the
CONSULTANT shall accept the balance (50%) for the costs of said
production materials, which shall automatically convey to ASI full
right, title and interest in and to all production materials without
limitation including, but not limited to molds, tooling, electrodes and
other collateral materials used in the development and manufacture of
ASI's products, and otherwise the subject of this provision and this
Agreement.
12.) APPLICABLE LAW
Any controversy or claim arising out of or relating to this Agreement
shall be governed by the law of the STATE OF NEW YORK. Any litigation
or dispute resolution under this Agreement, if commenced shall be in
the venue of the County of Suffolk in the State of New York.
13.) NOTICES
Any notice required to be given hereunder, if any, shall be deemed to
have been sufficiently delivered either when served personally or sent
by certified mail at the addresses set forth in this Agreement.
Ordinary first class mail shall be deemed sufficient to accomplish the
mailing to the CONSULTANT of any copies of office actions and
amendments during the prosecutions of any US Patent applications by ASI
relating to inventions by the CONSULTANT or CONSULTANT's employers,
partners, or agents relating to the work performed under this
Agreement.
14.) US PATENTS
The CONSULTANT agrees without limitation to execute limitation to
execute any and all necessary documents pursuant to the terms and
conditions described in this Agreement and verbal agreements with ASI
or its officers and in accordance with US Patent legislation, statues
and regulation.
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15.) SUPERSEDING EFFECT
This Agreement supersedes all prior oral or written agreements,
relevant to the work performed or to be performed under this Agreement
only, and constitutes the entire agreement, between the parties.
16.) TERMINATION
As provided for under the "Term" provision in this Agreement, the right
to cancel this Agreement shall commence upon ten days written notice by
certified mail. Notwithstanding the above, ASI may cancel this
Agreement immediately any time during the term of this Agreement or any
extension thereof, if it reasonably believes that to continue the
relationship with the CONSULTANT would cause damage or be materially
adverse, or pursuant to Provision two (2) above.
17.) TIME OF THE ESSENCE
The CONSULTANT acknowledges and appreciates the compelling need for the
work described in the Statement of Work to be completed in or about the
timetable and hours indicated in the Statement of Work. This is a time
of the essence Agreement.
18.) PARTS AND EQUIPMENT
The CONSULTANT indicated that it is estimated that the cost of all
materials to complete the Statement of Work will not exceed
$75,000(USD) which includes all molds, tooling, electrodes, travel and
all ancillary and collateral costs and expenses necessary to complete
the projects contemplated and or provided for in this Agreement. ASI
agrees to be responsible for the payment of these materials in excess
of $75,000, only if ASI provides CONSULTANT prior written approval for
additional materials or costs. All parts and materials will be procured
by ASI and delivered to a facility determined by ASI unless agreed
otherwise by the parties.
19.) HEADINGS
The headings are used for convenience only and shall not be evaluated
or read out of context. The attached Addendum A shall have the same
force and effect as if it was originally incorporated directly in the
body of this Agreement. The Addendum to this Agreement shall have the
full force and effect as if they were in the body of this Agreement.
20.) TITLE INFORMATION AND EQUIPMENT
All information developed under this Agreement, of whatsoever type
relating to the work performed under this Agreement shall be the
exclusive property of ASI. All machines, instruments and products
purchased, manufactured or assembled by the CONSULTANT pursuant to this
Agreement and paid for by ASI shall be the exclusive property of ASI.
Upon termination of this Agreement, CONSULTANT shall dispose of such
items as directed by ASI and or its competent authority.
21.) SEVERABILITY
If any provisions of this Agreement are found by a court of competent
jurisdiction to be unenforceable, then the remaining provisions shall
remain in full force and effect as if the unenforceable provision did
not exist.
22.) ARBITRATION
All claims, disputes, and other matters in question arising out of this
Agreement shall be decided by arbitration in the COUNTY OF SUFFOLK IN
THE STATE OF NEW YORK before any arbitrator with understanding of
computers, software, and business considerations in accordance with the
rules of the American Arbitration Association then obtaining unless the
parties mutually agree in writing otherwise. The award rendered by the
arbitrator shall be final, and judgment may be entered upon it in
accordance with applicable law in any court having proper jurisdiction.
The arbitrator shall have all remedies available both at law and in
equity to equitably settle any dispute.
23.) BINDING
The signatories to this Agreement warrant that they have the capacity
and authority to bind themselves, corporations, partners and agents to
this Agreement. This Agreement is binding upon and shall insure to the
benefit of the legal successors of the parties.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
BY: _________________________________ DATED:___________
Michael A. Sylvester, Treasurer
Alcohol Sensors International, Ltd., "ASI"
BY: _________________________________ DATED___________
Michael Ghazarian, Managing Director
Digital Vehicle Security Systems, Inc., "Digital"
BY: _________________________________ DATED:___________
Michael Ghazarian
_________________________________ DATED:___________
WITNESS
26
<PAGE>
ADDENDUM A
The CONSULTANT agrees to be responsible for the complete performance of the
following services, including those to be assigned by mutual agreement from
time to time. ASI shall be acting in reliance that CONSULTANT is performing
the following tasks and/or effectively managing the process.
I. Responsible for all mold-making and tooling for the Sens-O-Lock, and
the process from establishing final design through the manufacturing of
initial production of Sens-O-Lock devices.
II. Create a written CPM and costs from initial production for the entire
Sens-O-Lock prototype mold and tooling through manufacturing of the
initial Sens-O-Lock products, and provide same to ASI on or before July
10, 1996.
III. Provide a definitive design, both functional and aesthetic, for the
Sens-O-Lock sensor head and car control module (CCM) and outer casing
for the CPU for the Sens-O-Lock on or before July 12, 1996, for written
approval by ASI on or before July 15, 1996.
ASI shall not be proceeding on the tasks being performed by CONSULTANT,
except for providing assistance to CONSULTANT when required. CONSULTANT
agrees to be proactive with regard to the following tasks, and
CONSULTANT understands and agrees that TIME IS OF THE ESSENCE; that if
the timetable for production of the Sens-O-Lock is not initiated with
first units shipped on or before January 1, 1997, it will result in
substantial harm to ASI.
ASI agrees to be equally diligent and to respond quickly in furtherance
of meeting the production timetables required. Accordingly, in
consideration of ASI placing the process, (Addendum A), in CONSULTANT's
hands, CONSULTANT agrees to immediately pay ASI fifty thousand
($50,000.00) dollars (the value of the estimated weekly delivery
schedule for the first 60 days), as liquidated damages for each week
production is delayed which is not due to ASI causes, and/or force
majure.
IV. Provide a weekly written report to ASI indicating progress and/or
problems in meeting pre-arranged scheduling criteria and/or
pre-approved budget parameters. CONSULTANT has advised ASI that total
costs for all the acquisitions contemplated under this Agreement shall
not exceed $75,000, and ASI has relied on this warranty.
V. CONSULTANT warrants that the product manufactured will be of
merchantible quality and fit for the uses intended.
VI. CONSULTANT shall work in cooperation with ASI, but be responsible for
the design, printing and delivery of sample printing of, product
packaging boxes and materials, operations, and installation manuals as
necessary and required by the Company to support its Sens-O-Lock
product for approval by ASI. The CONSULTANT shall provide an estimate
for the out-of-pocket costs for said services in a timely manner for
the review and written approval of ASI. Upon timely approval,
CONSULTANT shall complete all required tasks thereof.
VII.
VIII. The following time line has been established between the parties for
the completion of tasks as indicated by CONSULTANT to achieve initial
production of Sens-O-Lock devices of merchantible quality and fit for
the uses intended:
CONSULTANT initial ___________
ASI initial ___________
1. If the design is not approved by ASI on or before July 15, 1996,
ASI understands and agrees that there may be as much as a one week
delay for each and every week or part thereof that ASI delays in
providing approvals or other reasonable and necessary material
support to facilitate the tasks herein set forth.
27
<PAGE>
2. PROVIDED THAT; ASI approves the final design on or before July 15,
1996, then in that event:
a) CONSULTANT shall arrive in New York at ASI on or before July
25, 1996, with a design "mock up." ASI agrees to have all PCB
Boards for the Sens-O-Lock completed on or before July 25,
1996. At that time, CONSULTANT and ASI shall work closely in
all areas of materials acquisition and availability, develop a
definitive materials list for the production of the product,
lead times, parts, substitutions, and place orders for
components as required to accommodate the required production
timetable. Marketing and other support materials will begin to
be created at this time to insure timely availability before
and concurrent with initial product delivery as required.
b) The CONSULTANT shall design final tooling and obtain ASI
approval for said tooling (said tooling will be shopped and
purchased at the lowest price) on or before August 5, 1996.
c) On or about August 8 - August 14, 1996, CONSULTANT shall
return to New York and work with Mr. Bill Going, our then
newly hired Director of Manufacturing and Procurement, to
coordinate manufacturing, materials acquisition, and manage
and monitor the tooling as required and in furtherance of
maintaining the completion criteria set forth herein. All
packaging designs will be completed, and packaging and
collateral materials ordered at that time in quantities
determined by ASI.
d) On or before August 29, 1996, ASI shall receive the first
pre-series production prototypes in the quantities determined
by ASI, parts inventories established and monitored, and
operation and installation manuals completed for editing by
ASI for the US market. Production capabilities and capacities
will be determined at this time with arrangements with one or
more manufacturers finalized.
Concurrently, between August 8 - August 29, 1996, 20 to 30
pre-series production prototypes with boards in cans will be
available for preliminary testing.
e) On or before August 29, 1996, we will know when we can
manufacture 200 to 500 pre-production test devices. CONSULTANT
will make them available for beta testing by ASI on or before
September 5, 1996. When beta testing is completed to the
satisfaction of the CONSULTANT and/or ASI, initial production
begins.
Note: Because this is a "living document", and accordingly some tasks may
happen before or after indicated in the above timeline, however, in the
aggregate the initial production timetable shall be maintained.
Accordingly, CONSULTANT reasonably projects a best case initial production
date of October 11, 1996, if everything goes right and with minimal testing.
And;
Worst case, initial production date of January 1, 1997, with problems that
must be resolved and adequate testing.
CONSULTANT initial ___________
ASI initial ___________
28
<PAGE>
EXHIBIT 10.4
ASSIGNMENT
ASSIGNMENT, made as of this 30th day of October, 1996 by and between
Digital Vehicle Security Systems Limited, (hereinafter referred to as
"Digital") a corporation formed and existing under the laws of the United
Kingdom, the registered office of which is located at Unit 1B Saxeway Business
Centre, Chartridge Lane, Buckinghamshire, HP5 2SH, England; Alcohol Sensors
Europe, Plc (hereinafter referred to as "ASE") a corporation formed and
existing under the laws of the United Kingdom, the registered office which is
located at Saxeway Business Center, Chartridge Lane, Chesham, Buckinghamshire,
HP5 2SH, England, Michael Ghazarian (hereinafter referred to as "Ghazarian")
the Managing Director of Digital Vehicle Security Systems Limited with offices
located at Unit 1B Saxeway Business Centre, Chartridge Lane, Buckinghamshire,
HP5 2SH, England and Alcohol Sensors International, Ltd. (hereinafter referred
to as "ASI") a corporation formed and existing under the laws of the State of
New York, with its principal offices located at 11 Oval Drive, Islandia, New
York 11722.
WHEREAS, Digital has previously entered into an agreement
(hereinafter referred to as "Agreement") with ASI, whereby Digital became the
Exclusive Distributor of ASI's breath alcohol ignition interlock devices in
the territories listed in that Agreement; and
WHEREAS, Digital and ASI, on May 9, 1996 executed a Contract
Affirmation whereby both Digital and ASI reaffirmed their previous Agreement,
dated October 21, 1993 and included a schedule of Purchase Requirements which
was incorporated into the original Agreement; and
WHEREAS, Ghazarian is the principal owner and Managing Director of
Digital and has full legal and corporate authority to act on behalf of
Digital; and
WHEREAS, Ghazarian and ASI formed and incorporated ASE on October 9,
1996, whereby ASI owns 80% and Ghazarian owns 20% of ASE;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree:
1. As principal owner of Digital, Ghazarian hereby assigns to ASE, all its
rights and obligations under the Agreement between Digital and ASI,
executed October 21, 1993 and reaffirmed May 9, 1996.
2. ASI consents to the assignment by Digital of its rights and obligations
pursuant to the aforementioned Agreement between Digital and ASI.
3. ASE agrees to assume all of Digital's rights and obligations contained
in the aforementioned Agreement between Digital and ASI.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be executed and accepted as of the day and year first written above.
_____________________________________________________
Michael Ghazarian, Managing Director
Digital Vehicle Security Systems Limited
_____________________________________________________
Dr. Steven A. Martello, Director
Alcohol Sensors Europe, Plc
_____________________________________________________
Robert B. Whitney, President, Chief Executive Officer
Alcohol Sensors International, Ltd.
<PAGE>
EXHIBIT 10.5
EMPLOYEE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made by and between Alcohol Sensors
International, Ltd. ("Employer") located at 11 Oval Drive, Islandia, New York
11722 and Dr. Steven A. Martello ("Employee"), residing 3752 Clarke Street,
Seaford Manor, NY 11783.
WHEREAS; The parties to this Agreement declare that:
WHEREAS; The Employer is engaged in the business of design,
development, manufacture, sale and distribution of a Breath Alcohol Ignition
Interlock Devices, and
WHEREAS; The Employee is willing to be employed by the Employer, and
the Employer is willing to employ the Employee, on the terms, covenants, and
conditions set forth in this Agreement, then
IN CONSIDERATION of the mutual promises set forth in this Agreement,
the Employer and the Employee agree as follows:
Section 1. EFFECTIVE DATE. Employment shall begin on January 1, 1996,
the term of this Agreement shall be three (3) years from the effective date.
Section 2. EMPLOYMENT TITLE AND DUTIES. The Employer shall employ the
Employee in the capacity of Vice President, Chief Operating Officer, and
General Counsel. The duties associated with this employment shall include
investor relations, strategic planning, coordination of Employer legal matters
with corporate attorney and other legal specialists, company operations,
policies, procedures and systems, and other day to day duties reasonably and
customarily associated with the position of Vice President, Chief Operating
Officer, and General Counsel. The term "General Counsel" shall mean general
advisor or assistant to other members of top management, and not legal
advisor. The Employee accepts this employment, subject to the general
supervision and pursuant to the orders and direction of the Employer, with
reporting and functional responsibility to the President. The Employee shall
perform such other duties as are customarily performed by one holding such
position in other, same, or similar businesses or enterprises as that engaged
in by the Employer. The Employee shall also render such other and unrelated
services and duties as may be assigned from time to time by the Employer.
Section 3. COMPENSATION OF THE EMPLOYEE. The Employer shall pay the
Employee in full payment for the Employee's services under this Agreement, the
following compensation:
a. An annual salary of ninety-nine thousand nine hundred
forty-four dollars ($99,944.00) per year payable weekly in
the amount of one thousand nine hundred twenty-two dollars
($1,922.00).
b. Bonuses, stock options, vacations, sick leave, retirement
benefits, and expense accounts or other prerequisites, as
either stated herein, in the Employer's manual for other
employees in the same category and as attached by Exhibit
to this Agreement, or as may be decided by the Board of
Directors of the Employer.
c. Term Life Insurance is not presently available to Employee
by the Employer. If a policy should be made available to
the Employee in the future, it shall be equal to the
Employee in the future, it shall be equal to Employee's
annual base salary subject to term and condition then in
effect by Employer.
d. A monthly car allowance or company car commensurate with
that provided to anyone in top management position of the
Employer which shall be provided to Employee for each month
during the term of this Agreement.
e. Employer shall provide comprehensive medical insurance
coverage commensurate with that provided to anyone in top
management position of Employer, and said coverage shall be
provided to Employee and to his immediate family at no cost
to Employee. Comprehensive dental shall also be provided at
no cost to Employee and family when available.
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Section 4. BEST EFFORTS OF THE EMPLOYEE. The Employee agrees to
perform all of the duties pursuant to the express and implicit terms of this
Agreement to the reasonable satisfaction of the Employer. The Employee further
agrees to perform such duties faithfully and to the best of his ability,
talent, and experience.
Section 5. PLACE OF EMPLOYMENT. The Employee shall render such duties
at 11 Oval Drive, Islandia, N.Y. 11722, and at such other places as the
Employer shall in good faith require or as the interest, needs, business, or
opportunity of the Employer shall require.
Section 6. NON-COMPETITION WITH THE EMPLOYER DURING THE TERM OF
EMPLOYMENT. The Employee shall not, during the term of this Agreement, be
interested directly or indirectly, in any manner, as partner, officer,
director, consultant, shareholder, advisor, employee, or in any other capacity
in any other Breath Alcohol Ignition Interlock Business. However, nothing
contained in this section shall prevent or limit the right of the Employee
from investing in the capital stock or other securities of any corporation
whose stock or securities are publicly owned and traded on any public
exchange, nor shall anything contained in this section prevent or limit the
Employee from investing in real estate, or working in investing in or managing
any other enterprise(s) not competitive with Employer (Breath Alcohol Ignition
Interlock Industry only); and if competitive Employee agrees not to compete
with Employer for a period not to exceed 18 months after the expiration or
termination of this Agreement, unless Employee is terminated without cause, in
which event Employee shall not be restricted whatsoever.
Section 7. RESTRICTIONS ON THE USE OF TRADE SECRETS AND RECORDS.
During the term of employment under this Agreement, the Employee may have
access to various trade secrets, consisting of formulas, patterns, devices,
inventions, processes, and compilations of information of information,
records, and specifications, all of which are owned by the Employer and
regularly used in the operation of the Employer's business. All files,
records, customer lists, documents, drawings, specifications, equipment, and
similar items relating to the business of the Employer, whether they are
prepared by the Employee or come into the Employee's possession in any other
way and whether or not they contain or constitute trade secrets owned by the
Employer, are and shall remain the exclusive property of the Employer and
shall not be removed from the premises of the Employer under any circumstances
whatsoever without the prior written consent of the Employer. The Employee
agrees not to divulge, misappropriate, or disclose any of these trade secrets
and records directly or indirectly, to any person, firm, corporation, or other
entity in any manner whatsoever, except as required in the course of
employment, either during the term of this Agreement or for eighteen (18)
months thereafter.
Section 8. THE EMPLOYEE SHALL CONTRACT FOR THE EMPLOYER. The Employee
shall have the right to make any contracts or commitments for or on behalf of
the Employer, subject to the authority vested in Employee by the Board of
Directors of the Employer.
Section 9. VACATION AND HOLIDAYS. Immediately upon employment, the
Employee shall be entitled to an annual vacation leave equivalent to four
calendar weeks and such other vacation time as the Board of Directors may deem
reasonable and appropriate at full pay. In addition, the Employee shall be
entitled to paid holidays and other days off with pay as specified by the
Employer.
Section 10. ILLNESS. The Employee shall be entitled to unlimited days
per year of sick leave (except for disability) with full pay.
Section 11. TERMINATION WITHOUT CAUSE. This Agreement may not be
terminated without cause by the Employer. However, if Employer requests
Employee to remove himself from his position, as described in this Agreement,
and or Employ of the Employer without cause at any time during the term of
this Agreement, and Employee so consents, Employer must pay Employee a sum of
$300,000.00 in consideration of premature termination without cause, and said
payment shall be immediately payable at the date of termination, and shall be
considered liquidated damages with no further obligation among the parties
unless otherwise provided for herein, or damage to Employee results from an
intentional tort or criminal act.
Section 12. TERMINATION FOR SUBSTANTIAL CAUSE INCLUDING BREACH,
NEGLECT, OR INCAPACITY. If the Employee willfully and substantially breaches
or habitually neglects the performance of duties required under the terms of
the Agreement, or demonstrates continued and substantial or profound
incapacity to perform those duties, he is required to perform under this
Agreement, the Employer may terminate this Agreement by giving written notice
of termination to the Employee without prejudice to any other remedy to which
the Employer may be entitled either at law, in equity, or under this
Agreement.
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Section 13. TERMINATION FOR DISABILITY. The Employer may also
terminate this Agreement in the event that the Employee shall, during the term
of this Agreement, become permanently disabled as the term is fixed and
defined in this section. Such option shall be exercised by the Employer giving
notice to the Employee as required by this Agreement. On the giving of such
notice, this Agreement shall cease on the last day of the month in which the
notice is so mailed, with the same force and effect as if such last day of the
month were the date originally set forth in this Agreement as the termination
date of this Agreement.
For the purposes of this Agreement, the Employee shall have
become permanently disabled, if, during any year of the term of this
Agreement, because of ill health, physical, or mental disability or for other
causes beyond the Employee's control the Employee shall have been continuously
unable or unwilling or shall have failed to perform the duties under this
Agreement for one hundred and eighty (180) days, or if, during any year of the
term of this Agreement, the Employee shall have been unable or unwilling or
shall have failed to perform such duties for a total period of one year (365)
days, whether or not such days are consecutive. In all events, Employee shall
be paid his full weekly salary during any said disability, or until disability
can be verified as provided below for a maximum of 52 weeks, or 365 days.
Notwithstanding the above, the salary continuation shall be offset by
any EMPLOYER SPONSORED disability policy or income continuation plan by a
qualified third party provider of such plans. However, the Employee salary
continuation shall not be offset by any government sponsored or independent
Employee paid policy, or other collateral source.
For the purposes of this Agreement, the term "any year of the term of
this Agreement" is defined to mean any 12 consecutive month period during the
term of the Agreement. If permanent disability is verified at any time during
the term of this Agreement by a panel of two independent physicians, Employer
shall pay Employee the sum of $100,000 as severance due to disability in
addition to any disability income or salary continuation plan then in effect,
or as provided for above.
Section 14. INDEMNITY. The Employer shall indemnify the Employee and
hold the Employee harmless for any acts, omissions, or decisions made by the
Employee in good faith while performing services for the Employer including,
but not limited to the Employee's capacity as "General Counsel" (General
Advisor), and will use its best efforts to obtain coverage for the Employee
under any insurance policy now in force or later obtained during the term of
this Agreement covering the other officers, and/or employees of the Employer
against lawsuits. The Employer shall pay all expenses, including attorney's
fees, actually and necessarily incurred by the Employee in connection with any
appeal thereon, including the cost of court settlements.
Section 15. EFFECT OF PARTIAL INVALIDITY. The invalidity of any
portion of this Agreement shall not affect the validity of any other
provision. In the event that any provision of this Agreement is held to be
invalid, the parties agree that the remaining provisions shall remain in full
force and effect.
Section 16. ENTIRE AGREEMENT. This Agreement contains the complete
Agreement between the parties and shall supersede all other agreements, either
oral or written, between the parties. The parties stipulate that neither of
them has made any representations except as are specifically set forth in this
Agreement and each of the parties acknowledges that they have relied on their
own judgment in entering into this Agreement.
Section 17. ASSIGNMENT. This is a Personal Service Agreement. This
Agreement may not be assigned by the Employee. Any attempted assignment shall
be null and void. Employer may however, assign this Agreement.
Section 18. NOTICES. All notices, requests, demands, and other
communications shall be in writing and shall be given by registered or
certified mail, postage prepaid, to the addresses shown on the first page of
this Agreement, or to such subsequent addresses as the parties shall so
designate in writing. All notices given under this Agreement shall be deemed
to be a right of 30 days notice from one party to the other, and shall
constitute effective notice
Section 19. ARBITRATION. Any controversy or claim arising out of this
Agreement, or the breach of this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules for the American Arbitration
Association, and judgment upon the award rendered by the Arbitrator shall be
FINAL AND BINDING and may be entered in any court having jurisdiction.
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Section 20. ATTORNEY'S FEES. If any action at law or in equity,
including an action for declaratory relief, is brought to enforce or interpret
the provisions of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees as determined by the court in the same action.
Section 21. AMENDMENT. Any modification, amendment or change of this
Agreement will be effective only if it is in a writing signed by both parties.
Section 22. GOVERNING LAW. This Agreement, and all transactions
contemplated by this Agreement, shall be governed by, construed, and enforced
in accordance with the laws of the STATE OF NEW YORK. The venue for any
dispute, resolution proceedings shall be maintained exclusively in the COUNTY
OF SUFFOLK IN THE STATE OF NEW YORK.
Section 23. HEADINGS. The titles to the paragraphs of this Agreement
are solely for the convenience of the parties and shall not affect in any way
the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on this
31st day of December, 1995.
Employee: Dr. Steven A. Martello
EMPLOYER:
-----------------------------------
Alcohol Sensors International, Ltd.
_____________________________ By: ______________________________
(Signature) (Signature)
_____________________________ ______________________________
(Typed or printed name) (Printed name)
Its: ______________________________
(Title)
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EXHIBIT 10.6
EMPLOYEE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made by and between Alcohol Sensors
International, Ltd. ("Employer") located at 11 Oval Drive, Islandia, New York
11722 and Michael Sylvester ("Employee"), residing 12 Lansing Street, Carmel,
NY 10512.
The parties to this Agreement declare that:
WHEREAS; The Employer is engaged in the business of design,
development, manufacture, sale and distribution of a Breath Alcohol Ignition
Interlock Devices, and
WHEREAS; The Employee is willing to be employed by the Employer, and
the Employer is willing to employ the Employee, on the terms, covenants, and
conditions set forth in this Agreement, then
IN CONSIDERATION of the mutual promises set forth in this Agreement,
the Employer and the Employee agree as follows:
Section 1. EFFECTIVE DATE. Employment shall begin on January 1, 1996,
the term of this Agreement shall be three (3) years from the effective date.
Section 2. EMPLOYMENT TITLE AND DUTIES. The Employer shall employ the
Employee in the capacity of Treasurer and Chief Financial Officer. The duties
associated with this employment shall include managing corporate accounts,
Banking relationships, corporate financing, and account and finance policy,
procedures and systems, strategic planning and other day to day duties
reasonably and customarily associated with the position of Treasurer and Chief
Financial Officer. The Employee accepts this employment, subject to the
general supervision and pursuant to the orders and direction of the Employer,
reporting to, and with functional responsibility to the Vice President and
Chief Operating Officer, and advisory reporting to the President. The Employee
shall perform such other duties as are customarily performed by one holding
such position in other, same, or similar businesses or enterprises as that
engaged in by the Employer. The Employee shall also render such other and
unrelated services and duties as may be assigned from time to time by the
Employer.
Section 3. COMPENSATION OF THE EMPLOYEE. The Employer shall pay the
Employee in full payment for the Employee's services under this Agreement, the
following compensation:
a. An annual salary of ninety-nine thousand nine hundred
forty-four dollars ($99,944.00) per year payable weekly in
the amount of one thousand nine hundred twenty-two dollars
($1,922.00).
b. Bonuses, stock options, vacations, sick leave, retirement
benefits, and expense accounts and other prerequisites as
either stated herein, in the Employer's manual for other
employees in the same category and as attached by Exhibit
to this Agreement, or as may be decided by the Board of
Directors of the Employer.
c. Term Life Insurance is not presently available to Employee
by the Employer. If a policy should be made available to
the Employee in the future, it shall be equal to the
Employee in the future, it shall be equal to Employee's
annual base salary subject to term and condition then in
effect by Employer.
d. A monthly car allowance or company car commensurate with
that provided to anyone in top management position of the
Employers shall be provided to Employee for each month
during the term of this agreement.
e. Employer shall provide comprehensive medical insurance
coverage commensurate with that provided to anyone in top
management position of Employer, and said coverage shall be
provided to Employee and to his immediate family at no cost
to Employee. Comprehensive dental shall also be provided at
no cost to Employee and family when available.
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Section 4. BEST EFFORTS OF THE EMPLOYEE. The Employee agrees to
perform all of the duties pursuant to the express and implicit terms of this
Agreement to the reasonable satisfaction of the Employer. The Employee further
agrees to perform such duties faithfully and to the best of his ability,
talent, and experience.
Section 5. PLACE OF EMPLOYMENT. The Employee shall render such duties
at 11 Oval Drive, Islandia, N.Y. 11722, and at such other places as the
Employer shall in good faith require or as the interest, needs, business, or
opportunity of the Employer shall require.
Section 6. NON-COMPETITION WITH THE EMPLOYER DURING THE TERM OF
EMPLOYMENT. The Employee shall not, during the term of this Agreement, be
interested directly or indirectly, in any manner, as partner, officer,
director, consultant, shareholder, advisor, employee, or in any other capacity
in any other Breath Alcohol Ignition Interlock Business. However, nothing
contained in this section shall prevent or limit the right of the Employee
from investing in the capital stock or other securities of any corporation
whose stock or securities are publicly owned and traded on any public
exchange, nor shall anything contained in this section prevent or limit the
Employee from investing in real estate, or working in investing in or managing
any other enterprise(s) not competitive with Employer (Breath Alcohol Ignition
Interlock Industry only); and if competitive, Employee agrees not to compete
with Employer for a period not to exceed 18 months after the expiration or
termination of this Agreement, unless Employee is terminated without cause, in
which event Employee shall not be restricted whatsoever.
Section 7. RESTRICTIONS ON THE USE OF TRADE SECRETS AND RECORDS.
During the term of employment under this Agreement, the Employee may have
access to various trade secrets, consisting of formulas, patterns, devices,
inventions, processes, and compilations of information of information,
records, and specifications, all of which are owned by the Employer and
regularly used in the operation of the Employer's business. All files,
records, customer lists, documents, drawings, specifications, equipment, and
similar items relating to the business of the Employer, whether they are
prepared by the Employee or come into the Employee's possession in any other
way and whether or not they contain or constitute trade secrets owned by the
Employer, are and shall remain the exclusive property of the Employer and
shall not be removed from the premises of the Employer under any circumstances
whatsoever without the prior written consent of the Employer. The Employee
agrees not to divulge, misappropriate, or disclose any of these trade secrets
and records directly or indirectly, to any person, firm, corporation, or other
entity in any manner whatsoever, except as required in the course of
employment, either during the term of this Agreement or for eighteen (18)
months thereafter.
Section 8. THE EMPLOYEE SHALL CONTRACT FOR THE EMPLOYER. The Employee
shall have the right to make any contracts or commitments for or on behalf of
the Employer, subject to the authority vested in Employee by the Board of
Directors of the Employer.
Section 9. VACATION AND HOLIDAYS. Immediately upon employment, the
Employee shall be entitled to an annual vacation leave equivalent to four
calendar weeks and such other vacation time as the Board of Directors may deem
reasonable and appropriate at full pay. In addition, the Employee shall be
entitled to paid holidays and other days off with pay as specified by the
Employer.
Section 10. ILLNESS. The Employee shall be entitled to unlimited days
per year of sick leave (except for disability) with full pay.
Section 11. TERMINATION WITHOUT CAUSE. This Agreement may not be
terminated without cause by the Employer. However, if Employer requests
Employee to remove himself from his position, as described in this Agreement,
and or Employ of the Employer without cause at any time during the term of
this Agreement, and Employee so consents, Employer must pay Employee a sum of
$300,000.00 in consideration of premature termination without cause, and said
payment shall be immediately payable at the date of termination, and shall be
considered liquidated damages with no further obligation among the parties
unless otherwise provided for herein, or damage to Employee results from an
intentional tort or criminal act.
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Section 12. TERMINATION FOR SUBSTANTIAL CAUSE INCLUDING BREACH,
NEGLECT, OR INCAPACITY. If the Employee willfully and substantially breaches
or habitually neglects the performance of duties required under the terms of
the Agreement, or demonstrates continued and substantial or profound
incapacity to perform those duties, he is required to perform under this
Agreement, the Employer may terminate this Agreement by giving written notice
of termination to the Employee without prejudice to any other remedy to which
the Employer may be entitled either at law, in equity, or under this
Agreement.
Section 13. TERMINATION FOR DISABILITY. The Employer may also
terminate this Agreement in the event that the Employee shall, during the term
of this Agreement, become permanently disabled as the term is fixed and
defined in this section. Such option shall be exercised by the Employer giving
notice to the Employee as required by this Agreement. On the giving of such
notice, this Agreement shall cease on the last day of the month in which the
notice is so mailed, with the same force and effect as if such last day of the
month were the date originally set forth in this Agreement as the termination
date of this Agreement.
For the purposes of this Agreement, the Employee shall have become
permanently disabled, if, during any year of the term of this Agreement,
because of ill health, physical, or mental disability or for other causes
beyond the Employee's control the Employee shall have been continuously unable
or unwilling or shall have failed to perform the duties under this Agreement
for one hundred and eighty (180) days, or if, during any year of the term of
this Agreement, the Employee shall have been unable or unwilling or shall have
failed to perform such duties for a total period of one year (365) days,
whether or not such days are consecutive. In all events, Employee shall be
paid his full weekly salary during any said disability, or until disability
can be verified as provided below for a maximum of 52 weeks, or 365 days.
Notwithstanding the above, the salary continuation shall be offset by
any EMPLOYER SPONSORED disability policy or income continuation plan by a
qualified third party provider of such plans. However, the Employee salary
continuation shall not be offset by any government sponsored or independent
Employee paid policy, or other collateral source.
For the purposes of this Agreement, the term "any year of the term of
this Agreement" is defined to mean any 12 consecutive month period during the
term of the Agreement. If permanent disability is verified at any time during
the term of this Agreement by a panel of two independent physicians, Employer
shall pay Employee the sum of $100,000 as severance due to disability in
addition to any disability income or salary continuation plan then in effect,
or as provided for above.
Section 14. INDEMNITY. The Employer shall indemnify the Employee and
hold the Employee harmless for any acts, omissions or decisions made by the
Employee in good faith while performing services for the Employer and will use
its best efforts to obtain coverage for the Employee under any insurance
policy now in force or later obtained during the term of this Agreement
covering the other officers, and/or employees of the Employer against
lawsuits. The Employer shall pay all expenses, including attorney's fees,
actually and necessarily incurred by the Employee in connection with any
appeal thereon, including the cost of court settlements.
Section 15. EFFECT OF PARTIAL INVALIDITY. The invalidity of any
portion of this Agreement shall not affect the validity of any other
provision. In the event that any provision of this Agreement is held to be
invalid, the parties agree that the remaining provisions shall remain in full
force and effect.
Section 16. ENTIRE AGREEMENT. This Agreement contains the complete
Agreement between the parties and shall supersede all other agreements, either
oral or written, between the parties. The parties stipulate that neither of
them has made any representations except as are specifically set forth in this
Agreement and each of the parties acknowledges that they have relied on their
own judgment in entering into this Agreement.
Section 17. ASSIGNMENT. This is a Personal Service Agreement. This
Agreement may not be assigned by the Employee. Any attempted assignment shall
be null and void. Employer may however, assign this Agreement.
Section 18. NOTICES. All notices, requests, demands, and other
communications shall be in writing and shall be given by registered or
certified mail, postage prepaid, to the addresses shown on the first page of
this Agreement, or to such subsequent addresses as the parties shall so
designate in writing. All notices given under this Agreement shall be deemed
to be a right of 30 days notice from one party to the other, and shall
constitute effective notice.
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<PAGE>
Section 19. ARBITRATION. Any controversy or claim arising out of this
Agreement, or the breach of this Agreement shall be settled by arbitration in
accordance with the Commercial Arbitration Rules for the American Arbitration
Association, and judgment upon the award rendered by the Arbitrator shall be
FINAL AND BINDING and may be entered in any court having jurisdiction.
Section 20. ATTORNEY'S FEES. If any action at law or in equity,
including an action for declaratory relief, is brought to enforce or interpret
the provisions of this Agreement, the prevailing party will be entitled to
reasonable attorney's fees as determined by the court in the same action.
Section 21. AMENDMENT. Any modification, amendment or change of this
Agreement will be effective only if it is in a writing signed by both parties.
Section 22. GOVERNING LAW. This Agreement, and all transactions
contemplated by this Agreement, shall be governed by, construed, and enforced
in accordance with the laws of the STATE OF NEW YORK. The venue for any
dispute, resolution proceedings shall be maintained exclusively in the COUNTY
OF SUFFOLK IN THE STATE OF NEW YORK.
Section 23. HEADINGS. The titles to the paragraphs of this Agreement
are solely for the convenience of the parties and shall not affect in any way
the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on this
31st day of December, 1995.
Employee: Michael Sylvester
EMPLOYER:
___________________________________
Alcohol Sensors International, Ltd.
_____________________________ By: ______________________________
(Signature) (Signature)
_____________________________ ______________________________
(Typed or printed name) (Printed name)
Its: ______________________________
(Title)
37
<PAGE>
EXHIBIT 10.7
CERTIFICATE OF INCORPORATION
OF A PUBLIC LIMITED COMPANY
Company No. 3263565
THE REGISTRAR of Companies for England and Wales hereby certifies that
ALCOHOL SENSORS EUROPE PLC
is this day incorporated under the Companies Act 1985 as a public company and
that the company is limited.
Given at Companies House, London, the 9th October 1996
MISS S. BASHAR
For The Registrar Of Companies
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<PAGE>
EXHIBIT 10.8
CERTIFICATE THAT A PUBLIC COMPANY
IS ENTITLED TO DO BUSINESS AND BORROW
No.3263565
I hereby certify that the provisions of section 117(l) of the Companies Act
1985 have been complied with in relation to
ALCOHOL SENSORS EUROPE PLC
and that the company is entitled to do business and borrow Given under my hand
at Companies House, Cardiff the 21st October 1996
MR. F. A. JOSEPH
An Authorised Officer
39
<PAGE>
EXHIBIT 10.9
JOINT VENTURE AGREEMENT
AGREEMENT dated the 8th day of August, 1996, by and between Weather
Eye, Inc. (hereinafter referred to as WeatherEye), a corporation duly form and
existing under the laws of the state of Nevada and having a New York office
located at 3132 Union Boulevard, East Islip, New York 11730 and Alcohol
Sensors International, Ltd. (hereinafter referred to as ASI), a corporation
duly formed and existing under the laws of the state of New York and having
its principal place of business located at 11 Oval Drive, Islandia, New York
11722.
WHEREAS, WeatherEye is the owner, inventor and developer of certain
technology which automatically turns on the headlights of automobiles to a
certain percentage of their capacity (which is less than 100%) when the car is
started 1 hereinafter referred to as a Daytime Running Light or DRL), along
with other technology which automatically puts the vehicles headlights and
taillight on when the windshield wipers are switched on and a twilight
sentinel which automatically puts the headlights and taillights on at dusk,
all within one piece of equipment, and
WHEREAS, WeatherEye wishes to sell this product to various
distributors, after market suppliers, automobile dealerships, etc., and
WHEREAS, ASI has the expertise and ability to manufacture, market and
distribute said DRL via the distribution and marketing arrangements AST
presently has or is currently forming
NOW THEREFORE, in consideration of the mutual promises contained
herein, the parties agree an follows:
1. The parties agree that they will, to the extent possible and as
otherwise outlined herein, perform all tasks pursuant to this
Agreement, as a joint venture between the parties.
2. The term of this agreement shall be from the date written above, up
to and Including December 31, 2000.
3. This Agreement may be extended for terms of an additional two years
with the mutual consent of the parties.
4. ASI is hereby granted the exclusive right to distribute DRL to the
new/used car dealers, subject to ASI maintaining a minimum numbers of
DRL being distributed, in accordance with the following:
From the date of the Agreement through December 31, 1997
100,000 units;
January 1 - December 31, 1998
350,000 units;
January 1 - December 31, 1999
350,000 units; and
January 1 - December 31, 2000
200,000 units.
In the event ASI shall fail to meet the minimum number of DRLs it
must sell in order to retain its exclusivity with regard to the new/used car
dealers, Weather Eye, at its sole discretion, may terminate ASI's exclusivity
with regard to the new/used car dealers.
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<PAGE>
In the event WeatherEye shall choose to terminate ASI's exclusivity,
as provided for herein, ASI shall retain the right to distribute DRL to the
new/used car dealers, however, this right shall not be exclusive to ASI.
5. ASI shall be granted the Manufacturing rights to the DRL in the
territory of the United States of America and Canada, for the term of this
Agreement, with regard to the exclusive market that it has been granted. ASI
may perform the manufacturing of the product itself or may subcontract this
manufacturing obligation to any of the contract manufacturers it presently
uses for ASI's products. In the event ASI subcontracts the manufacturing of
the product, ASI shall remain liable for the workmanship of the manufacturer.
6. In consideration for the performance of the manufacturing of the
DRL, ASI Shall be paid, from the profits of the joint venture, the sum of
three ($3.00) dollars for the first 200,000 DRL manufactured and sold and the
SUM of two ($2.00) per every DRL manufactured and sold thereafter.
7. The geographic area for the exclusive marketing and distribution
of the Product the subject of this Agreement, shall be limited to the United
States of America and Canada. ASI, in addition to the aforementioned exclusive
markets, shall also be granted the non-exclusive right to sell the DRL in
other Markets which ASI may wish to market and distribute the DRL.
8. As additional consideration of ASI undertaking the cost and
responsibility of the manufacturing of the DRL, the parties agree that from
the date of this Agreement through December 31, 1996 (up to a maximum of the
first 15,000 units sold), unless otherwise agreed by the parties, ASI shall be
entitled to all but fifteen ($15.00) dollars of the not profit received as a
result of ASI's sale of Weather Eye under this Agreement.
9. After December 31, 1996 and throughout the remaining term of this
Agreement, including extensions or renewals of this Agreement, the parties
shall share the net profits from the joint venture an a 52/48 basis, with the
majority share being paid to ASI.
10. The parties shall both be responsible for the arrangement of
markets for distribution of the DRL and shall work in conjunction with one
another to achieve the maximum number of outlets and sources of distribution.
11. The parties shall coordinate their efforts and will agree upon
the sales material, brochures and packaging of the DRL units. In the event of
a disagreement between the parties with regard to the contents of same, ASI
shall have the final decision.
12. Throughout the term Of this Agreement, ASI may use the trademark
of Weather Eye, for which a trademark application has been filed by Weather
Eye, with respect to sales material, brochures, packaging and the production
of the DRL.
13. This Agreement shall not apply to the original equipment
manufactures market, which shall remain the sole and exclusive property of
Weather Eye. Upon demonstration to Weather Eye by ASI of ASI's ability to
assist in the creation of the original equipment manufactures market, the
parties may subsequently include said market within the confines of this
Agreement by a subsequent amendment hereto.
In the event Weather Eye in successful in entering the original
equipment market, ASI shall receive a royalty payment equal to one (it)
percent of the gross profit from the sales of Weather Bye to that market. This
royalty payment shall be applicable only to the territory to which ASI has
been granted the exclusive marketing rights pursuant to this Agreement and any
amendments hereto.
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14. Weather Eye presently has royalty agreements with engineers
employed by Weather Eye who were instrumental in the development of the DRL.
Weather Eye has disclosed the terms of these royalty agreements to ASI and the
parties agree that the royalty payments to be made pursuant to these
agreements shall be paid from the overall net profit realized by the joint
venture prior to the parties sharing the net profits, as specified in
paragraph 8 above.
15. During the term of this Agreement and for a period of two (2)
years after the term of this Agreement or any extensions thereof, ASI agrees
not to manufacture, distribute, sell, promote, market or otherwise become
involved or affiliated with any other person, company or other entity that
manufactures, distributes, sells, promotes or market a product that in
competitive to that of the DRL without the written consent of Weather Eye.
During the term of this Agreement and for a period of two (2) years
after the term of this Agreement or any extensions thereof, Weather Eye agrees
not to manufacture, distribute, sell, promote, market or otherwise become
involved or affiliated with any person, company or other entity that
manufactures, distributes, sells, promotes or markets a product that in
competitive to that of ASI's without the written consent of ASI.
16. Weather Eye way terminate this Agreement if ASI shall fail to
meet any of the material provisions of this Agreement or if any of the
representations contained herein by ASI are found to be false . In the event
weather Eye elects to terminate this Agreement, it shall provide ASI with
written notice of such election sixty (60) days prior to the termination date.
ASI may terminate this Agreement if Weather Eye shall fail to meet
any of the material provisions of this Agreement or if any of the
representations contained herein are found to be false. In the event ASI
elects to terminate this Argument, it shall provide Weather Eye with written
notice of such election sixty (60) days prior to the termination date.
17. The invalidity of any provision of this Agreement shall not
effect the validity of any other provision. In the event that any provision is
held to be invalid by a court of law, that provision shall be stricken from
the Agreement and the parties agree that the remaining provisions of this
Agreement shall remain in full force and effect as if the stricken provision
had never been included in thin Agreement.
18. This Agreement contains the entire understanding between the
parties hereto and that it supersedes all other agreement, oral or written,
that may exist between the parties with respect to the subject matter
contained herein. The parties stipulate and agree that they have made no other
representations other than those as set forth in this Agreement and that each
acknowledges that they have not relied upon any other representation other
than those as get forth herein. The parties further represent that this
Agreement was jointly constructed and drafted and that each party has relied
upon its own judgment and business expertise in entering this Agreement.
19. Neither party to this Agreement may assign their respective
rights or obligations under this Agreement, except as provided for herein,
without the express written consent by the other party. Any unauthorized
assignment shall be invalid, null and void and shall render this Agreement
terminated.
20. All notices, demands and requests shall be given in writing and
shall be delivered by certified mail, return receipt requested to the other
party at the address shown above, unless otherwise notified by the parties.
21. Any amendment, modification, changes, subsequent terms or
extensions to this Agreement shall only be effective when they are signed by
both parties to this Agreement.
22. This Agreement shall be governed, enforced and interpreted
in accordance with the laws of the State of New York.
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23. Any dispute, controversy or claim arising out of this Agreement,
or a breach of this Agreement, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction. The judgment of the arbitrator shall be final and
binding between the parties. The parties agree that the venue for any
adjudication proceedings shall be in Suffolk County, State of New York.
24. The headings to the provisions of this Agreement are solely for
the convenience of the parties and shall not affect the meaning of this
Agreement.
25. Provided that ASI has performed in accordance with its
obligations under the terms of this Agreement to the satisfaction of Weather
Eye, then Weather Eye shall grant a right of first refusal to ASI for any new
products that Weather Eye seeks to distribute.
26. Weather Eye hereby grants to ASI, the use of its corporate name
in the marketing of the product in marketing literature and communications,
subject to review and approval by Weather Eye. In consideration of Weather Eye
granting such permission, ASI agrees not to sell, market, distribute,
represent or become any way competitive with Weather Eye with regard to the
product(s) which are the subject of this Agreement.
27. Weather Eye agrees to indemnify and hold ASI harmless against any
claims and liabilities that are found to be directly caused by defective
design and for no other causes.
28. ASI agrees to indemnify and hold WeatherEye harmless against any
claims and liabilities that are found to be directly caused by the
manufacturing of the product and for no other causes.
29. Weather Eye agrees to indemnify and hold ASI harmless any
damages, costs and expenses, including reasonable attorneys fees and court
costs, resulting from any claim of patent infringement brought by another
party.
30. All rights, title and interest in WeatherEye's patents or
intellectual property shall remain with Weather Eye throughout the term of
this Agreement. Weather Eye represents that it has filed for a patent on the
technology which is the subject of this Agreement and that this patent in
currently pending in the United States Patent Office.
IN WITNESS WHEREOF, the parties have executed this Agreement on this
8th day of August, 1996.
__________________________________________
Alcohol Sensors International, Ltd.
By:
__________________________________________
WeatherEye, Inc.
By: Joseph M. Lively
President
43
<PAGE>
AMENDMENT
Amendment, dated the 31st day of December 1996, by and between
WeatherEye, Inc. (hereinafter referred to as "WeatherEye"), a corporation duly
formed and existing under the laws of the State of Nevada and having a New
York office located at 110 Willard Avenue, Farmingdale, New York 11735, and
Alcohol Sensors International, Ltd. (hereinafter referred to as "ASI"), a
corporation duly formed and existing under the laws of the State of New York
and having its principal office located at 11 Oval Drive, Islandia, New York
11722.
WHEREAS, the parties have previously executed an agreement dated the
8th day of August 1996, wherein ASI was given the exclusive right to
distribute the product of WeatherEye to the new/used car dealers in the United
States, subject to ASI maintaining certain minimum quotas of distribution;
and,
WHEREAS, ASI has failed to reach those minimums as set forth in the
August 8, 1996 Agreement; and,
WHEREAS, ASI wishes to maintain its exclusivity under this prior
Agreement.
NOW THEREFORE, in consideration of the mutual premises contained
herein, the parties agree as follows:
1. Joint Venture. The parties agree that the prior Agreement will be
amended such that it will no longer be considered a joint venture
between the parties.
2. Exclusivity. It is agreed by and between the parties that ASI shall
maintain its exclusive rights under the prior Agreement, conditioned
upon ASI paying the mutually agreed legal fees of WeatherEye with regard
to its patent and trademark filings.
3. Product. ASI shall be granted the right to modularize the product into
various series in order to capitalize on as many markets available to
it. ASI shall be responsible for all costs involved with the testing and
manufacturing of such modularization of the product. A description of
the product series is annexed hereto in Schedule A.
4. Profits. The profits as stated in the prior Agreement, which were to be
shared on a 52/48% basis (with the majority share being paid to ASI),
will be changed such that ASI will pay WeatherEye a royalty per unit
sold, in accordance with Schedule B, attached hereto.
All other terms of the Agreement dated August 8, 1996, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment on this
31st day of December 1996.
____________________________________________________
Alcohol Sensors International, Ltd.
By: John T. Ruocco, Sr. Executive Vice President
Secretary
_____________________________________________________
WeatherEye, Inc.
By: Joseph M. Lively
44
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND THE OPERATORS FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,042,051
<SECURITIES> 0
<RECEIVABLES> 16,392
<ALLOWANCES> 0
<INVENTORY> 287,462
<CURRENT-ASSETS> 3,484,200
<PP&E> 459,539
<DEPRECIATION> 91,921
<TOTAL-ASSETS> 3,874,902
<CURRENT-LIABILITIES> 1,866,150
<BONDS> 500,000
0
2,500,000
<COMMON> 8,777
<OTHER-SE> 1,708,838
<TOTAL-LIABILITY-AND-EQUITY> 3,874,902
<SALES> 40,586
<TOTAL-REVENUES> 40,586
<CGS> 39,971
<TOTAL-COSTS> 595,997
<OTHER-EXPENSES> 5,606,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,747
<INCOME-PRETAX> (6,121,143)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,121,143)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,121,143)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
