-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VHPOSsROuyOUKVGMlul5RuG5D8yz+Dd57EW+m9u9b8cxVeieq9fVS1pZwhFa/LGu Y9OwAom9gvE9oDHfYEo3nQ== 0000950109-96-003469.txt : 19960530 0000950109-96-003469.hdr.sgml : 19960530 ACCESSION NUMBER: 0000950109-96-003469 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960529 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOJACK CORP CENTRAL INDEX KEY: 0000355777 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 042664794 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-74238-B FILM NUMBER: 96573739 BUSINESS ADDRESS: STREET 1: 333 ELM ST CITY: DEBHAM STATE: MA ZIP: 02026 BUSINESS PHONE: 6173264700 MAIL ADDRESS: STREET 2: 333 ELM ST CITY: DEDHAM STATE: MA ZIP: 02026 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] for the fiscal year ended February 29, 1996 or [_] Transition Report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the transition period from to ------------------- ------------------- Commission File No. 2-74238-B -------------------- LOJACK CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-2664794 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 333 Elm Street Dedham, Massachusetts 02026 (Address of Principal Executive Offices) (Zip Code) (617) 326-4700 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class: Common Stock, $.01 par value Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 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[ ] Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The aggregate market value of the Common Stock of the registrant held by non- affiliates was approximately $248,953,016 as of May 17, 1996. As of May 17, 1996, there were issued and outstanding 21,941,891 shares of the registrant's Common Stock, $.01 par value. - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended February 29, 1996 (Items 5, 6, 7, 8 and 14(a)(1)) (2) Portions of the definitive Proxy Statement for Registrant's Annual Meeting of Stockholders to be held on July 17, 1996 (Items 1, 10, 11 and 12) LOJACK CORPORATION Securities and Exchange Commission Item Number and Description Page - --------------------------- ---- PART I ITEM 1. Business..................................................... 1 ITEM 2. Properties................................................... 6 ITEM 3. Legal Proceedings............................................ 7 ITEM 4. Submission of Matters to a Vote of Security Holders.......... 7 PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters....................... 7 ITEM 6. Selected Financial Data...................................... 7 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 7 ITEM 8. Financial Statements and Supplementary Data.................. 7 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................... 7 PART III ITEM 10. Directors and Executive Officers of the Registrant............ 7 ITEM 11. Executive Compensation........................................ 8 ITEM 12. Security Ownership of Certain Beneficial Owners and Management................................................ 8 ITEM 13. Certain Relationships and Related Transactions................ 8 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................... 8 SIGNATURES................................................................. 12 INDEX TO AUDITORS' REPORT AND FINANCIAL STATEMENT SCHEDULE ................ 13 In as much as the calculation of shares of the registrant's voting stock held by non-affiliates requires a calculation of the number of shares held by affiliates, such figure, as shown on the cover page hereof, represents the registrant's best good faith estimate for purposes of this annual report on Form 10-K, and the registrant disclaims that such figure is binding for any other purpose. The aggregate market value of Common Stock indicated is based upon the last traded price of the Common Stock as reported by NASDAQ on May 17, 1996. All outstanding shares beneficially owned by executive officers and directors of the registrant or by any shareholder beneficially owning more than 10% of registrant's Common Stock, as disclosed herein, were considered for purposes of this disclosure to be held by affiliates. PART I ITEM 1 - BUSINESS GENERAL LoJack Corporation ("LoJack" or the "Company") was organized as a Massachusetts corporation in l978. Its telephone number is (6l7) 326-4700. LoJack developed and markets the LoJack System, a unique, patented system designed to assist law enforcement personnel in locating, tracking and recovering stolen vehicles. In addition, LoJack developed and markets CarSearch, a product line of its patented LoJack System, designated for use in international markets where it may not be practicable or desirable to implement the fully integrated LoJack System. The LoJack System is comprised of a Registration System maintained and operated by LoJack; a Sector Activation System and Police Tracking Computers operated by law enforcement officials (the "Law Enforcement Components"); and the LoJack Unit, a VHF (very high frequency) transponder sold to consumers. The LoJack System is designed to be integrated into existing law enforcement computers and telecommunication networks and procedures. If a car equipped with a LoJack Unit is stolen, its owner reports the theft as usual to the local police department. Existing law enforcement computer and communication networks and procedures operate in the normal manner for a report of a stolen vehicle. If the theft involves a vehicle equipped with a LoJack Unit, a unique radio signal will be transmitted automatically to the LoJack Unit in the stolen vehicle activating its tracking signal. The tracking signal emitted from the LoJack Unit can be detected by the Police Tracking Computer installed in police patrol cars and aircraft throughout the coverage areas and used to lead law enforcement officers to the stolen vehicle. The Company also sells conventional vehicle security devices, which may be purchased as options with the LoJack Unit, under the names "LoJack Prevent" and "LoJack Alert." OPERATION OF THE LOJACK SYSTEM IN THE UNITED STATES Under agreements with state police agencies, LoJack generally furnishes the Law Enforcement Components for distribution to state, county, and municipal law enforcement agencies for a nominal rent. The installation, testing and maintenance of the Law Enforcement Components are primarily the responsibility of LoJack. The Law Enforcement Components are generally owned by LoJack or a LoJack subsidiary; the respective state, county or city law enforcement agency provides the necessary staff to operate the LoJack System as required during the term of each such agreement. The agreements with the applicable law enforcement agencies are generally for initial terms of up to five (5) years. To date, any such agreements which have expired have been renewed or are in the process of renewal. Renewal or extension of any such agreement may be subject to competitive bidding. The LoJack System has been implemented in the following domestic jurisdictions pursuant to agreements with applicable law enforcement agencies: Jurisdiction Date Operational ------------ ---------------- Massachusetts July l986 Florida: Dade, Broward, Palm Beach and surrounding December l988 counties; Tampa, St. Petersburg and July 1994 surrounding counties in West Florida; and Orlando April 1996 New Jersey March l990 Michigan April l990 California: Los Angeles County; July l990 San Diego and Orange County June 1995 Illinois November l990 Georgia August l992 Virginia August l993 New York June l994 Rhode Island June l994 District of Columbia September 1994 Connecticut April 1995 -1- The Company is presently pursuing negotiation with several law enforcement agencies in the United States regarding the implementation of the LoJack System in jurisdictions in addition to those mentioned above. The Company's strategy is to expand the LoJack System to those jurisdictions where the combination of new vehicle sales, population density, and the incidence of vehicle theft is high. To date, LoJack has expanded into 12 of 16 of its targeted States. The Company also has plans to expand to additional domestic jurisdictions, beyond the 16 targeted states, which do not presently fall within the guidelines of the Company's targeted expansion profile. Certain improvements to the Company's technology and interface with law enforcement systems make such additional expansion economically feasible for the Company. THE LOJACK SYSTEM The LoJack System consists of four basic components: 1. LoJack Unit 2. Police Tracking Computer 3. Sector Activation System 4. Registration System The LoJack Unit. The LoJack Unit is the consumer component of the LoJack System and is installed in a purchaser's motor vehicle. The LoJack Unit consists of a VHF transponder, a microprocessor based computer, and a modem. The computer's memory contains a set of codes unique to the particular LoJack Unit and the vehicle in which it is installed. The microprocessor activates the Unit's transmitter upon receipt of its unique activation code from the Sector Activation System. Since each LoJack Unit has its own unique activation code and reply code, the microprocessor responds only upon receipt of the appropriate code. An activated LoJack Unit will continue to broadcast its reply code until it receives a properly coded message to stop. That message is sent after the police have recovered the vehicle. All transmissions are made on a nationwide radio frequency allocated by the Federal Communications Commission ("FCC") as a law enforcement radio service. Police Tracking Computer. The Police Tracking Computer ("PTC") is a sophisticated radio direction finder. The PTC is used by police to locate and track activated LoJack Units. The PTC consists of a radio receiver with a directional antenna array, doppler signal processor, microprocessor based computer and a controllable display. When the PTC detects a LoJack Unit transmission from a stolen vehicle, it displays the reply code along with graphic indications of signal strength and the direction toward the stolen vehicle. The officer may then radio the reply code to the police dispatcher and obtain a vehicle description. The PTC is normally installed in police vehicles, but also can be mounted in aircraft as well as at fixed locations such as toll booths, radio towers, or police communication centers. Modified designs of the PTC have been developed for use in helicopters. Effective tracking range varies under different topographical and other conditions, from about one mile to approximately five miles under ideal conditions. Sector Activation System. The Sector Activation System ("SAS") is a computerized system that controls and commands the LoJack System and activates LoJack Units in stolen vehicles. It is designed to function with existing law enforcement computer and telecommunication networks and procedures. Routine and normal processing of a stolen vehicle report activates the SAS, even if the person reporting the theft and the officer responding are unfamiliar with the LoJack System. A stand-alone Sector Activation Computer ("SAC") contains a file with up-to-date information on vehicles equipped with LoJack Units. This computer usually is installed in conjunction with pre-existing law enforcement computer and communication systems. This file contains, for each LoJack equipped vehicle, the vehicle identification number ("VIN") assigned by the vehicle's manufacturer, and the activation and reply codes for the LoJack Unit installed in that vehicle. When the VIN of a stolen vehicle is entered into existing stolen vehicle reporting systems, it is compared automatically to those contained in the LoJack file. When a match occurs, the SAC automatically transmits the appropriate activation code. Police officers who have detected the transmissions of an activated LoJack Unit call into a dispatcher for a description of the transmitting vehicle. After the vehicle is recovered, the VIN is again entered into the SAC to generate the appropriate deactivation code and to reset the LoJack Unit for future use. -2- The SAS controls a network of radio transmitters positioned on sites throughout the coverage area. The SAC accepts stolen vehicle reports from the state law enforcement computer and initiates activations and deactivations of LoJack Units. Registration System. The Registration System is a proprietary method of assigning digital codes to be transmitted and received by LoJack Units in such manner that unique activation codes are permanently correlated with the unique VIN assigned to the vehicle in which the LoJack Unit has been installed. MARKETING AND DISTRIBUTION OF LOJACK UNITS - UNITED STATES LoJack's marketing approach in each jurisdiction focuses on franchised new car dealers who will offer the LoJack Unit as an option on both their new and used car sales. LoJack also markets LoJack Units to major fleet accounts as well as directly to consumers and the automotive aftermarket using selected retailers. LoJack also markets conventional vehicle security devices sold under the names "LoJack Prevent" and "LoJack Alert." LoJack's sales force routinely visits franchised new car dealers to reemphasize to dealership personnel the benefits of the LoJack System. LoJack's direct marketing efforts emphasize the benefits to the dealers and their customers of the LoJack Unit as a purchase option for new car buyers. Like other options, the LoJack Unit may be financed conveniently as a part of the purchase price of the vehicle. LoJack uses direct advertising to consumers to generate product awareness. LoJack maintains full responsibility for installation and warranty service of LoJack Units sold by the Company both for the convenience of dealers through whom the LoJack Units are marketed and for LoJack to maintain a high degree of quality control and security over its technology. In addition to distributing LoJack Units itself, through its subsidiaries or licensees, LoJack may consider joint ventures or other cooperative arrangements to expedite the expansion of the LoJack System. The actual method of distribution will be determined on a market-by-market basis. INTERNATIONAL OPERATIONS The Company also licenses the use of its stolen vehicle recovery system technology in selected international markets. In connection with its efforts to expand outside of the United States, the Company has utilized its stolen vehicle recovery technology to develop the CarSearch Stolen Vehicle Recovery System ("CarSearch"). Unlike the LoJack System currently operational in the United States, CarSearch has the flexibility of operating independent of existing law enforcement communication networks. The Company targets CarSearch for use by either law enforcement or private security companies in selected international markets where the implementation of a fully integrated LoJack System may not be feasible. This new application of the LoJack technology allows stolen vehicles to be activated, tracked and recovered without the direct involvement of local police. Present international license agreements have thus far been denominated in U.S. dollars and structured with up-front licensing fees, which may be substantial and are non-recurring, and provide that the Company will subsequently either supply components and products at prices to be determined from time to time and/or receive royalties based upon the licensees' revenues. It is the Company's intention to continue to license the use of either the LoJack System or CarSearch in other selected international markets on the same basis as described above. The Company does not anticipate making any direct investment in the operations of foreign licensees in the foreseeable future. However, the Company has been granted an option, exercisable through March 1998, to purchase up to 5% of the outstanding common stock of its United Kingdom licensee. The Company generally does not recognize revenues during the period immediately after entering into an agreement with a licensee. Recognition of revenues does not generally commence until after the licensee receives any required governmental approvals, such as frequency allocation for the CarSearch or LoJack System. The governmental approval process may be time-consuming. As of February 29, 1996, the Company had Licensees operating stolen vehicle recovery systems using LoJack's technology in the following countries: the United Kingdom, Slovakia, the Czech Republic, Greece, Ecuador, Colombia, Trinidad and Tobago, Hong Kong, Argentina, Russia and Venezuela. The Company also has licensees which it expects to commence operating stolen vehicle recovery systems during its fiscal year ending February 28, 1997 in South Africa and Kenya. The -3- Company also has entered into agreements to license the use of LoJack's technology in Israel, Taiwan, Panama, Germany, Italy, Jamaica, Nicaragua, Guatemala, Belize, and Peru. The date for commencement of operations in these countries has not been set, as their ability to operate may be subject to the licensees obtaining certain governmental approval which may be time consuming or may not be obtained. The Company is also pursuing similar agreements for other countries. Approximately 8% of the Company's revenues in fiscal l996 were derived from export revenues. These revenues were comprised of product sales and licensing revenues from unaffiliated customers in foreign countries. Approximately 95% of the Company's foreign product sales are covered by letters of credit or require payment in advance from the licensee. (See Note 9 to the Notes to Financial Statements which are included in LoJack's 1996 Annual Report which is filed as Exhibit 13 hereto.) GOVERNMENT REGULATION AND APPROVAL In 1989, the FCC put into effect a rule change to allocate frequency l73.075 MHz for nationwide use by state and local law enforcement agencies for stolen vehicle recovery systems. Law enforcement agencies in jurisdictions where the Company operates have been granted authority by the FCC to use this frequency for LoJack's stolen vehicle recovery system. In connection with its domestic operations, the Company must obtain the approval of law enforcement agencies, as well as executive or legislative bodies, for implementation of the LoJack System before sales of LoJack Units can commence in a given jurisdiction. The approval process may be time consuming and costly and is subject to considerations generally affecting the process of governmental decision making. In some jurisdictions, governmental approval may be terminable at the convenience of the executive or legislative body. Any such termination could have a material effect on future sales in any such jurisdiction. To the extent that, beyond its initial base of operations, LoJack is able to charge more than nominal prices for the Law Enforcement Components, governmental appropriation of funds will be required. Most government agencies have established, by policy, statute or regulation, a process requiring competitive bidding for all acquisitions of products and equipment. This process may cause delay and expense to the Company. To date, the Company has not sought to charge law enforcement agencies more than nominal prices for the Law Enforcement Components. AUTOMOBILE INSURANCE BENEFITS Management considers automobile insurance premium discounts to be an inducement for the purchase of LoJack Units by vehicle owners. The application of insurance premium discounts, which are generally applied to the vehicle owner's comprehensive insurance, varies from state to state and, in some cases, from insurance company to insurance company. For example, insurance regulations in some states, such as Massachusetts, Rhode Island, New York and New Jersey, provide for mandated insurance discounts for automobiles protected by automobile security systems. In other states, such as California, where the granting of such discounts is not regulated, the determination is made by individual insurance carriers. Currently, insurance discounts, which vary from state to state, and nationally by certain insurance carriers, provide for discounts of up to 35% on comprehensive insurance premiums for vehicles equipped with a vehicle recovery and anti-theft device. There is also pending legislation in some states where the LoJack System is operational which would establish or increase discounts available to vehicle owners who install the LoJack Unit. Since the insurance industry is, in general, heavily regulated, the process of seeking voluntary or mandatory discounts for vehicles may involve significant time and effort by LoJack. PRODUCT WARRANTY LoJack warrants to consumers that the LoJack Unit will be free from defects in material or workmanship for a period of two years, subject to extension at the customer's option for an additional charge. LoJack also warrants to purchasers of LoJack Units that if their LoJack equipped vehicle is stolen within two years of installation and not recovered within 24 hours from the time that the report of the theft is reported to the police, LoJack will refund the full purchase price of the LoJack Unit up to a maximum of $595. -4- PATENTS AND TRADEMARKS LoJack holds United States Patent Nos. 4,8l8,998 and 4,908,629, which expire in 2006 and 2007, respectively, covering the LoJack System. The Company also holds patents in various countries in Europe, Asia, South America and North America. Patent protection has also been sought by LoJack in several other countries. Although management believes the patents have value, there can be no assurance such patents will effectively deter others from manufacturing and marketing a stolen vehicle recovery system. LoJack's name and logo are registered trademarks in the United States and many foreign countries. COMPETITION Several competitors or potential competitors are marketing or have announced the development of stolen vehicle recovery products directly competitive with the LoJack System. To the knowledge of management, none is compatible with the LoJack System and none is proposed to be operated or actively monitored exclusively by law enforcement agencies as is the LoJack System. LoJack markets the LoJack System as a stolen vehicle recovery device. Management believes, however, that makers of auto theft prevention devices view the LoJack System as competitive, and, consequently, LoJack believes it faces competition from companies that sell vehicle security devices. Some of the competitors and potential entrants into the stolen vehicle recovery industry may have greater resources than LoJack. In addition, there can be no assurance that a competitor will not develop a system of theft detection or recovery, including other stolen vehicle recovery systems that may or may not require government approvals, that would compete with or be superior to the LoJack System. SUBCONTRACTORS LoJack has subcontracted with Micrologic, Inc. ("Micrologic") of Waltham, Massachusetts, to perform a substantial portion of the engineering, design and implementation of the LoJack and CarSearch Systems in new jurisdictions as well as to perform certain research and development. LoJack owns all rights in any new developments created by Micrologic as a subcontractor of LoJack. LoJack has granted to Micrologic, through April 2000, the exclusive rights to assemble Police Tracking Computers. LoJack believes that other companies have the same capabilities as Micrologic, but that changing to a new subcontractor for these tasks could involve delays and additional cost to LoJack. LoJack has subcontracted the manufacture of the LoJack Unit, which is designed for automated production using surface mounted technology, to Motorola, Inc. LoJack believes that several companies have the capability to manufacture LoJack Units using this technology. INVENTORY LoJack seeks to maintain a 60-day supply of LoJack Units, which it believes is in line with sales levels and sufficient to rapidly fulfill orders. The Company maintains an inventory of certain Law Enforcement Components beyond its current requirements in order to facilitate expansion into additional domestic markets. RESEARCH AND DEVELOPMENT During fiscal years l996, l995 and l994 the approximate amounts spent by LoJack on company-sponsored research and development activities were $515,000, $330,000, and $150,000, respectively. In December 1995, LoJack Venture Corporation, a wholly owned subsidiary of LoJack,and Micrologic entered into a joint venture for the purpose of developing the next generation of the LoJack Unit and other related exploitable technology. LoJack Venture Corporation and Micrologic have equal ownership interests in the joint venture. The joint venture shall own all technology and other intellectual property that is developed by the joint venture or by Micrologic under contract to the joint venture, except that LoJack shall own and have all patent and other rights to any improvements on United States Patents held by LoJack. The joint venture has granted LoJack exclusive rights, with the right to sublicense, to make, use and sell all products relating to the next generation of the LoJack Unit in exchange for certain royalty payments based on the number of next generation LoJack Units sold. The technology contemplated by the joint venture has not yet been completed and the Company can not be certain of a successful outcome. -5- EMPLOYEES As of May 17, l996, the Company and its subsidiaries had a total of 315 full-time employees. EXECUTIVE OFFICERS OF THE REGISTRANT There is incorporated herein by reference the information concerning C. Michael Daley, who is Chairman of the Board, Chief Executive Officer and Treasurer of the Company, from the Company's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on July 17, 1996, under the headings "Proposal No. 1 - Election of Directors" and "Board of Directors." Information concerning the Company's other executive officers is set forth below.
Name Age Title ---- --- ----- Joseph F. Abely 43 President and Chief Operating Officer William R. Duvall 44 Senior Vice President (Operations and Technical Development) Kevin M. Mullins 41 Vice President (Sales and Marketing) Peter J. Conner 55 Vice President (Government Relations)
Mr. Abely joined LoJack in October 1988 as Senior Vice President and Chief Financial Officer. He was named President and Chief Operating Officer in January 1996. From 1976 until October 1988, Mr. Abely was employed by the accounting firm of Deloitte Haskins & Sells, where he served as a partner since 1985. Mr. Abely is a Certified Public Accountant. Mr. Duvall joined LoJack in 1985 and is Senior Vice President of Operations and Technical Development. From 1984 to 1985, he was a part owner and manager of Rich's Car Tunes, a company engaged in the sale and installation of consumer electronic products in the automotive aftermarket. For six years prior to 1984, Mr. Duvall was Vice President of Marketing and Sales for Analog and Digital Systems, Inc., a manufacturer of consumer electronic products. Mr. Mullins joined LoJack in February 1996 and was appointed Vice President of Sales and Marketing as of March 1, 1996. From 1976 until joining LoJack Mr. Mullins served in a variety of positions at Proctor & Gamble Company, Inc., including District Sales Manager, Customer Business Development Manager, and most recently as Northeast Operation Manager. Mr. Conner joined LoJack in 1985 and is Vice President of Government Relations. From 1982 to 1985, he was a franchise director for Continental Cablevision of Boston, Massachusetts. From 1980 to 1982, Mr. Conner was a franchise director for American Television Communications of Denver, Colorado, a cable television operator. Each executive officer is elected for a term scheduled to expire at the meeting of Directors following the annual meeting of Stockholders or until a successor is duly chosen and qualified. There are no arrangements or understandings pursuant to which any executive officer was or is to be selected for election or reelection. There are no family relationships among any Directors or executive officers, except that C. Michael Daley, a Director and executive officer, and James A. Daley, a Director, are brothers. ITEM 2 - PROPERTIES The Company's executive offices are located at 333 Elm Street, Dedham, Massachusetts, under a lease for such space expiring in May 2001. In addition, the Company leases various facilities in Massachusetts, New Jersey, Michigan, Los Angeles, California, Illinois, Georgia, Virginia and Florida under operating leases whose terms expire from 1996 to 2001. The leases contain renewal options ranging from two to five years. Because the Company's operations do not require any special facilities, the Company does not anticipate any difficulty in finding space adequate for its purposes at reasonable rates. -6- ITEM 3 - LEGAL PROCEEDINGS None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated herein by reference to the section entitled "Market for Registrant's Common Equity and Related Stockholder Matters" on the inside front cover of the Company's 1996 Annual Report, which is filed herewith as Exhibit 13. ITEM 6 - SELECTED FINANCIAL DATA The information required by this item is incorporated herein by reference to the section entitled "Selected Financial Data" on page 3 of the Company's 1996 Annual Report, which is filed herewith as Exhibit 13. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated herein by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," pages 4 through 7 of the Company's 1996 Annual Report, which is filed herewith as Exhibit 13. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated herein by reference to the consolidated financial statements of the Company (including the notes thereto) and the auditors' report thereon appearing on pages 8 through 16 of the Company's 1996 Annual Report, which is filed herewith as Exhibit 13. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to Item 401(b), the information required by this item concerning executive officers, including certain information incorporated herein by reference to the information appearing in the Company's definitive Proxy Statement concerning C. Michael Daley, who is also Chairman of the Board, Chief Executive Officer and Treasurer of the Company, is set forth in Part I, Item 1 under the heading "Executive Officers of the Registrant" and information concerning Directors, including Mr. Daley, is incorporated by reference to the sections entitled "Proposal No. 1 - Election of Directors" and "Board of Directors" in the Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders to be held July 17, 1996. There is incorporated herein by reference to the discussion under "Principal and Management Stockholders - Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders to be held July 17, 1996 the information with respect to any delinquent filings of reports pursuant to Section 16(a) of the Securities Exchange Act of 1934. -7- ITEM 11 - EXECUTIVE COMPENSATION Information required by this Item is incorporated herein by reference to the information appearing in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on July 17, l996 under the heading "Executive Compensation." ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated herein by reference to the information appearing in the Company's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on July 17, 1996 under the heading "Principal and Management Stockholders." ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14 -EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are included as part of this report: (1) Financial Statements -------------------- The following financial statements of the Company and the report of the independent certified public accountants are incorporated by reference to the Company's 1996 Annual Report: Independent Auditors' Report Relating to the Consolidated Financial Statements (and notes thereto) Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (2) Financial Statement Schedule ---------------------------- The following report and financial statement schedule is filed as part of this report and should be read in conjunction with the consolidated financial statements (and notes thereto): Independent Auditors' Report Relating to the Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts Other financial statement schedules have been omitted because they are not required or not applicable or because the required information is included in the consolidated financial statements or notes thereto. -8- (3) Exhibits -------- Certain of the exhibits listed hereunder have been previously filed with the Commission as exhibits to certain registration statements and periodic reports as indicated in the footnotes below and are incorporated herein by reference pursuant to Rule 411 promulgated under the Securities Act and Rule 24 of the Commission's Rules of Practice. The location of each document so incorporated by reference is indicated by footnote. 3A. Restated Articles of Organization (incorporated by reference to Exhibit 3A filed with the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994 (the "1994 Form 10-K")) 3B. Amended By-Laws (incorporated by reference to exhibit 3B filed with the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 1992 (the "1992 Form 10-K")) 4A. Specimen Share Certificate (incorporated by reference to exhibit 4A to File No. 2-74238-B) 4A1. Amended Specimen Share Certificate (incorporated by reference to exhibit 4B to File No. 2-98609) 4B. Unit Purchase Agreement dated as of May 16, 1990 (incorporated by reference to exhibit 4C to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1990 (the "1990 Form 10-K")) 4C. Amendment to Unit Purchase Agreement dated as of September 13, 1990 (incorporated by reference to exhibit 4G to File No. 33-35948) 4D. Indenture dated May 16, 1990 between LoJack Corporation and State Street Bank and Trust Company, Trustee, and Supplemental Indentures No. 1-3 dated August 8, 1991, November 15, 1991 and December 13, 1991, respectively (incorporated by reference to exhibit 4E to 1992 Form 10-K) 4E. Form of Debenture (included in 4D) 4F. 1991 Unit Purchase Agreement dated as of November 15, 1991 (incorporated by reference to exhibit 4A to the Company's Current Report on Form 8-K dated December 23, 1991 (the "1991 Form 8-K")) 4G. Amendment Agreement dated as of December 13, 1991 (incorporated by reference to exhibit 4C to the 1991 Form 8-K) 10A. Volume Assembly Contract with Micrologic, Inc. (incorporated by reference to exhibit 10I to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1986 (the "1986 Form 10-K")) 10B. Supply Agreement with Motorola (incorporated by reference to exhibit 10J to the 1986 Form 10-K) 10C. Agreement with the City of Los Angeles dated March 9, 1989 (incorporated by reference to exhibit 10K to File No. 33-27457) 10D. Contract between the State of Michigan and LoJack Corporation dated as of April 24, 1989 (incorporated by reference to exhibit 10O to the 1990 Form 10-K) 10E. Agreement between LoJack Corporation and the Illinois State Police dated as of August 23, 1990 (incorporated by reference to exhibit 10P to the 1990 Form 10-K) 10F.++ 1985 Non-Qualified Stock Option Plan, as amended (incorporated by reference to exhibit 10F to 1992 Form 10-K) 10G.++ Directors' Compensation Plan (incorporated by reference to exhibit 10G to 1992 Form 10-K) 10H.++ LoJack Corporation Restated and Amended Stock Incentive Plan (incorporated by reference to Exhibit 10H to the 1994 Form 10-K) 10I. Form of Agreement with respect to options granted to certain officers and employees (incorporated by reference to exhibit 10H to File No. 33-27457) 10J. Greece License, Trademark and Supply Agreement between LoJack Corporation and EQQUS, Ltd., dated as of January 24, 1992 (incorporated by reference to exhibit 10J to 1992 Form 10-K) 10K. Lease Agreement LoJack Sector Activation System dated February 23, 1988 between Recovery Systems, Inc. and the Florida Department of Motor Vehicles (incorporated by reference to exhibit 10K to 1992 Form 10-K) 10L. Accepted Proposal by LoJack Corporation to the Massachusetts Department of Public Safety (incorporated by reference to exhibit 10F to File No. 2- 74238-B) 10M. Lease Agreement between Auto Recovery Systems, Inc. and the State of New Jersey dated July 31, 1989 (incorporated by reference to exhibit 10M to 1992 Form 10-K) 10N. Loan Agreement dated December 10, 1993 among The First National Bank of Boston and LoJack Corporation, LoJack Midwest Corporation, LoJack of New Jersey Corporation, Recovery Systems, Inc. and CarSearch Corporation (incorporated by reference to Exhibit 10N to the 1994 Form 10-K) 10P. Security Agreement dated December 10, 1993 by LoJack Corporation and The First National Bank of Boston (incorporated by reference to Exhibit 10P to the 1994 Form 10-K)
-9- 10Q. Secured Demand Note dated December 10, 1993 in the amount of $872,000 made by LoJack of New Jersey Corporation payable to the order of LoJack Corporation and endorsed to the order of The First National Bank of Boston (incorporated by reference to Exhibit 10Q to the 1994 Form 10-K) 10R. Lease Agreement Number VA-901212-LOJ between LoJack Corporation and the Commonwealth of Virginia dated September 17, 1991 (incorporated by reference to exhibit 10W to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993 (the "1993 Form 10-K")) 10S. Lease Agreement between LoJack Corporation and the State of Georgia Department of Public Safety dated June 6, 1991 (incorporated by reference to exhibit 10X to 1993 Form 10-K) 10T.++ Form of Senior Management Option (incorporated by reference to exhibit 10Z to 1993 Form 10-K) 10U. License, Trademark and Supply Agreement dated July 16, 1992, by and between Carsearch Corporation, a subsidiary of LoJack Corporation, and Secar, Ltd. Kutuzovovn, Bratislava, Czechoslovakia (incorporated by reference to exhibit 10aa to 1993 Form 10-K) 10V. Patent License and Ancillary Know-How Agreement dated December 30, 1991, and Second Amendment (relating to the Patent, License and Know-How Agreement of December 30, 1991), dated January 29, 1993, (the Second Amendment incorporates by reference the First Amendment to the Patent, License and Know-How Agreement dated April 27, 1992 which is superseded), each by and between LoJack Corporation and Stolen Vehicle Recovery Systems Limited, Aylesbury, Buckingham, UK (incorporated by reference to exhibit 10bb to 1993 Form 10-K) 10W. Stock Pledge Agreement dated as of December 10, 1993 by LoJack Corporation and The First National Bank of Boston (incorporated by reference to Exhibit 10W to the 1994 Form 10-K) 10X. Assignment for Security (Trademarks) dated December 10, 1993 by LoJack Corporation (incorporated by reference to Exhibit 10X to the 1994 Form 10-K) 10Y. Patent Collateral Assignment and Security Agreement dated December 10, 1993 between LoJack Corporation, LoJack Midwest Corporation, LoJack of New Jersey Corporation, CarSearch Corporation, Inc., Recovery Systems, Inc. and The First National Bank of Boston (incorporated by reference to Exhibit 10Y to the 1994 Form 10-K) 10Z. Trademark Collateral Assignment and Security Agreement dated as of December 10, 1993 between LoJack Corporation, LoJack Midwest Corporation, LoJack of New Jersey Corporation, CarSearch Corporation, Inc., Recovery System, Inc. and The First National Bank of Boston (incorporated by reference to Exhibit 10Z to the 1994 Form 10-K) 10aa. Agreement dated January 21, 1994 between the New York Division of State Police and LoJack Corporation (incorporated by reference to Exhibit 10aa to the 1994 Form 10-K) 10bb. Subsidiary Security Agreement dated December 10, 1993 between LoJack of New Jersey Corporation and LoJack Corporation (incorporated by reference to Exhibit 10bb to the 1994 Form 10-K) 10cc. Memorandum of Understanding dated July 29, 1993 with the District of Columbia Metropolitan Police Department (incorporated by reference to Exhibit 10cc to the 1995 Form 10-K) 10dd. Memorandum of Understanding dated February 28, 1994 with Rhode Island State Police (incorporated by reference to Exhibit 10dd to the 1995 Form 10-K) 10ee. Contract dated July 15, 1993 with the State of Connecticut (incorporated by reference to Exhibit 10ee to the 1995 Form 10-K) 10ff. Supply Agreement dated May 28, 1993 among CarSearch Corporation, Alrite Holdings, Ltd, Nassau, Bahamas, and Carro Seguro Carseg S.A., Guayaquil, Ecuador (incorporated by reference to Exhibit 10ff to the 1995 Form 10-K) 10gg. License and Trademark Agreement dated May 28, 1993 between CarSearch Corporation and Carro Seguro Carseg S.A., Guayaquil, Ecuador (incorporated by reference to Exhibit 10gg to the 1995 Form 10-K) 10hh. License, Trademark, and Supply Agreement dated July 27, 1993 between CarSearch Corporation and PJV Ltd., Centraville, Nassau, Bahamas (incorporated by reference to Exhibit 10hh to the 1995 Form 10-K) 10ii. License, Trademark, and Supply Agreement dated August 10, 1993 between CarSearch Corporation and Vehicles Security Resources Limited, Nassau, Bahamas (incorporated by reference to Exhibit 10ii to the 1995 Form 10-K) 10jj. License, Trademark, and Supply Agreement dated August 23, 1993 between CarSearch Corporation and MaxRich Consultants, Ltd., Kowloon, Hong Kong (incorporated by reference to Exhibit 10jj to the 1995 Form 10-K) 10kk. License, Trademark, and Supply Agreement dated August 31, 1993 between CarSearch Corporation and Cartrack Ltd., Tel-Aviv, Israel (incorporated by reference to Exhibit 10kk to the 1995 Form 10-K) 10ll. License, Trademark, and Supply Agreement dated April 15, 1994 between CarSearch Corporation and Triones Taiwan Co., Ltd., Taichung, Taiwan, R.O.C. (incorporated by reference to Exhibit 10ll to the 1995 Form 10-K)
-10- 10mm. Patent, License, Trademark, and Supply Agreement dated October 4, 1994 between LoJack International Corporation, a subsidiary of LoJack Corporation, and Sucess Trading, S.A., Buenos Aires, Argentina (incorporated by reference to Exhibit 10mm to the 1995 Form 10-K) 10nn. License, Trademark, and Supply Agreement dated October 13, 1994 between LoJack International Corporation and Tracker Vehicle Location Systems (PTY) Ltd., Cape Town, South Africa (incorporated by reference to Exhibit 10nn to the 1995 Form 10-K) 10oo.* License and Ancillary Know-How Agreement dated October 1, 1995 between LoJack International Corporation and Detektor, Bad Homburg, Germany 10pp. Patent License and Ancillary Know-How Agreement dated November 30, 1994 between LoJack International Corporation and LoJack Italia, Bologna, Italy (incorporated by reference to Exhibit 10pp to the 1995 Form 10-K) 10qq. License and Supply Agreement dated April 25, 1995 between LoJack International Corporation and United States Consolidated Technologies Corporation (incorporated by reference to Exhibit 10qq to the 1995 Form 10-K) 10rr.* License and Supply Agreement dated September 5, 1995 between LoJack International Corporation and GBSI, Inc. d/b/a Access 2000 10ss.*++ Amendment No. 1 to Restated and Amended Stock Incentive Plan 10tt.* Second Amendment to Loan Agreement dated as of February 20, 1996 among The First National Bank of Boston and LoJack Corporation, LoJack International Corporation, LoJack of New Jersey Corporation, Recovery Systems, Inc. and LoJack Holdings Corporation 10uu.* Amended and Restated Revolving Credit and Term Note dated as of February 20, 1996 in the amount of $7,500,000 made by LoJack Corporation, LoJack International Corporation, LoJack of New Jersey Corporation, Recovery Systems, Inc. and LoJack Holdings Corporation payable to the order of The First National Bank of Boston 10vv.* Security Agreement dated as of February 20, 1996 by LoJack Holdings Corporation and The First National Bank of Boston 10ww.* First Amendment to Trademark Collateral Assignment and Security Agreement dated as of February 20, 1996 among LoJack Corporation, LoJack International Corporation, LoJack of New Jersey Corporation, Recovery Systems, Inc., LoJack Holdings Corporation and The First National Bank of Boston 10xx.* Second Assignment for Security (Trademarks) dated February 20, 1996 by LoJack Corporation 10yy.* Trademark and Supply Agreement dated August 15, 1995 between LoJack International and CarTrack Kenya Limited, Nairobi, Kenya 11.* Statement re: Computation of per share earnings 13.* 1996 Annual Report to Stockholders 21.* Subsidiaries of the Registrant 23.* Consent of Deloitte & Touche LLP 27.* Financial Data Schedule 99.* "Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995
- --------------- * Indicates an exhibit which is filed herewith. ++ Indicates an exhibit which constitutes an executive compensation plan. (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed by the Company during the last quarter of the period covered by this report. -11- SIGNATURES 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, in the Town of Dedham, Commonwealth of Massachusetts, on the 20th day of May l996. LOJACK CORPORATION (Registrant) BY: /s/ C. Michael Daley ----------------------------------------- C. Michael Daley Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of l934, this report has been signed below by the following persons on behalf of the registrant and in their capacities and on the date indicated. Signature Capacity Date - --------- -------- ---- /s/ C. Michael Daley Director, Chairman, Chief May 20, l996 - -------------------- Executive Officer, C. Michael Daley and Treasurer (Principal Executive Officer) /s/ Robert J. Murray Director May 20, l996 - -------------------- Robert J. Murray /s/ James A. Daley Director May 20, l996 - ------------------ James A. Daley /s/ Harold W. Shad, III Director May 20, l996 - ----------------------- Harold W. Shad, III /s/ Lee T. Sprague Director May 20, l996 - ------------------ Lee T. Sprague /s/ Larry C. Renfro Director May 20, l996 - ------------------- Larry C. Renfro /s/ Joseph F. Abely President and Chief Operating May 20, l996 - ------------------- Officer (Principal Joseph F. Abely Financial and Accounting Officer) -12- INDEX TO INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENT SCHEDULE PAGE Independent Auditors' Report Relating to the Financial Statement Schedule.. F-1 Schedule II - Valuation and Qualifying Accounts............................ F-2 -13- INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of LoJack Corporation: We have audited the consolidated financial statements of LoJack Corporation and subsidiaries as of February 29, 1996 and February 28, 1995, and for each of the three years in the period ended February 29, 1996, and have issued our report thereon dated April 12, 1996; such consolidated financial statements and report are included in your 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of LoJack Corporation, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP - ------------------------- Boston, Massachusetts April 12, 1996 F-1 SCHEDULE II LOJACK CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 - --------------------------------------------------------------------------------
Column C Column B Additions Column E Balance at Charged to Balance Column A Beginning Costs and Column D at End Description of Period Expenses Deductions of Period ALLOWANCE FOR DOUBTFUL ACCOUNTS: For the year ended: February 29, 1996 $193,381 $230,942 $ (29,121) (1) $395,202 ======== ======== ========= ======== February 28, 1995 $109,097 $117,831 $ (33,547) (1) $193,381 ======== ======== ========= ======== February 28, 1994 $122,723 $ 721 $ (14,347) (1) $109,097 ======== ======== ========= ======== WARRANTY RESERVE: For the year ended: February 29, 1996 $223,509 $267,036 $(165,732) $324,813 ======== ======== ========= ======== February 28, 1995 $191,479 $134,732 $(102,702) $223,509 ======== ======== ========= ======== February 28, 1994 $174,655 $104,107 $ (87,283) $191,479 ======== ======== ========= ========
(1) Net accounts written off. F-2 INDEX TO EXHIBITS Exhibit No. Exhibit - ----------- ------- 3A. Restated Articles of Organization (incorporated by reference to Exhibit 3A filed with the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994 (the "1994 Form 10-K")) 3B. Amended By-Laws (incorporated by reference to exhibit 3B filed with the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 1992 (the "1992 Form 10-K")) 4A. Specimen Share Certificate (incorporated by reference to exhibit 4A to File No. 2-74238-B) 4A1. Amended Specimen Share Certificate (incorporated by reference to exhibit 4B to File No. 2-98609) 4B. Unit Purchase Agreement dated as of May 16, 1990 (incorporated by reference to exhibit 4C to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1990 (the "1990 Form 10-K")) 4C. Amendment to Unit Purchase Agreement dated as of September 13, 1990 (incorporated by reference to exhibit 4G to File No. 33-35948) 4D. Indenture dated May 16, 1990 between LoJack Corporation and State Street Bank and Trust Company, Trustee, and Supplemental Indentures No. 1-3 dated August 8, 1991, November 15, 1991 and December 13, 1991, respectively (incorporated by reference to exhibit 4E to 1992 Form 10-K) 4E. Form of Debenture (included in 4D) 4F. 1991 Unit Purchase Agreement dated as of November 15, 1991 (incorporated by reference to exhibit 4A to the Company's Current Report on Form 8-K dated December 23, 1991 (the "1991 Form 8-K")) 4G. Amendment Agreement dated as of December 13, 1991 (incorporated by reference to exhibit 4C to the 1991 Form 8-K) 10A. Volume Assembly Contract with Micrologic, Inc. (incorporated by reference to exhibit 10I to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1986 (the "1986 Form 10-K")) 10B. Supply Agreement with Motorola (incorporated by reference to exhibit 10J to the 1986 Form 10-K) 10C. Agreement with the City of Los Angeles dated March 9, 1989 (incorporated by reference to exhibit 10K to File No. 33-27457) 10D. Contract between the State of Michigan and LoJack Corporation dated as of April 24, 1989 (incorporated by reference to exhibit 10O to the 1990 Form 10-K) 10E. Agreement between LoJack Corporation and the Illinois State Police dated as of August 23, 1990 (incorporated by reference to exhibit 10P to the 1990 Form 10-K) 10F.++ 1985 Non-Qualified Stock Option Plan, as amended (incorporated by reference to exhibit 10F to 1992 Form 10-K) 10G.++ Directors' Compensation Plan (incorporated by reference to exhibit 10G to 1992 Form 10-K) 10H.++ LoJack Corporation Restated and Amended Stock Incentive Plan (incorporated by reference to Exhibit 10H to the 1994 Form 10-K) 10I. Form of Agreement with respect to options granted to certain officers and employees (incorporated by reference to exhibit 10H to File No. 33-27457) 10J. Greece License, Trademark and Supply Agreement between LoJack Corporation and EQQUS, Ltd., dated as of January 24, 1992 (incorporated by reference to exhibit 10J to 1992 Form 10-K) 10K. Lease Agreement LoJack Sector Activation System dated February 23, 1988 between Recovery Systems, Inc. and the Florida Department of Motor Vehicles (incorporated by reference to exhibit 10K to 1992 Form 10-K) 10L. Accepted Proposal by LoJack Corporation to the Massachusetts Department of Public Safety (incorporated by reference to exhibit 10F to File No. 2-74238-B) 10M. Lease Agreement between Auto Recovery Systems, Inc. and the State of New Jersey dated July 31, 1989 (incorporated by reference to exhibit 10M to 1992 Form 10-K) 10N. Loan Agreement dated December 10, 1993 among The First National Bank of Boston and LoJack Corporation, LoJack Midwest Corporation, LoJack of New Jersey Corporation, Recovery Systems, Inc. and CarSearch Corporation (incorporated by reference to Exhibit 10N to the 1994 Form 10-K) 10P. Security Agreement dated December 10, 1993 by LoJack Corporation and The First National Bank of Boston (incorporated by reference to Exhibit 10P to the 1994 Form 10-K) 10Q. Secured Demand Note dated December 10, 1993 in the amount of $872,000 made by LoJack of New Jersey Corporation payable to the order of LoJack Corporation and endorsed to the order of The First National Bank of Boston (incorporated by reference to Exhibit 10Q to the 1994 Form 10-K) 10R. Lease Agreement Number VA-901212-LOJ between LoJack Corporation and the Commonwealth of Virginia dated September 17, 1991 (incorporated by reference to exhibit 10W to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993 (the "1993 Form 10-K")) 10S. Lease Agreement between LoJack Corporation and the State of Georgia Department of Public Safety dated June 6, 1991 (incorporated by reference to exhibit 10X to 1993 Form 10-K) 10T.++ Form of Senior Management Option (incorporated by reference to exhibit 10Z to 1993 Form 10-K) 10U. License, Trademark and Supply Agreement dated July 16, 1992, by and between Carsearch Corporation, a subsidiary of LoJack Corporation, and Secar, Ltd. Kutuzovovn, Bratislava, Czechoslovakia (incorporated by reference to exhibit 10aa to 1993 Form 10-K) 10V. Patent License and Ancillary Know-How Agreement dated December 30, 1991, and Second Amendment (relating to the Patent, License and Know- How Agreement of December 30, 1991), dated January 29, 1993, (the Second Amendment incorporates by reference the First Amendment to the Patent, License and Know-How Agreement dated April 27, 1992 which is superseded), each by and between LoJack Corporation and Stolen Vehicle Recovery Systems Limited, Aylesbury, Buckingham, UK (incorporated by reference to exhibit 10bb to 1993 Form 10-K) 10W. Stock Pledge Agreement dated as of December 10, 1993 by LoJack Corporation and The First National Bank of Boston (incorporated by reference to Exhibit 10W to the 1994 Form 10-K) 10X. Assignment for Security (Trademarks) dated December 10, 1993 by LoJack Corporation (incorporated by reference to Exhibit 10X to the 1994 Form 10-K) 10Y. Patent Collateral Assignment and Security Agreement dated December 10, 1993 between LoJack Corporation, LoJack Midwest Corporation, LoJack of New Jersey Corporation, CarSearch Corporation, Inc., Recovery Systems, Inc. and The First National Bank of Boston (incorporated by reference to Exhibit 10Y to the 1994 Form 10-K) 10Z. Trademark Collateral Assignment and Security Agreement dated as of December 10, 1993 between LoJack Corporation, LoJack Midwest Corporation, LoJack of New Jersey Corporation, CarSearch Corporation, Inc., Recovery System, Inc. and The First National Bank of Boston (incorporated by reference to Exhibit 10Z to the 1994 Form 10-K) 10aa. Agreement dated January 21, 1994 between the New York Division of State Police and LoJack Corporation (incorporated by reference to Exhibit 10aa to the 1994 Form 10-K) 10bb. Subsidiary Security Agreement dated December 10, 1993 between LoJack of New Jersey Corporation and LoJack Corporation (incorporated by reference to Exhibit 10bb to the 1994 Form 10-K) 10cc. Memorandum of Understanding dated July 29, 1993 with the District of Columbia Metropolitan Police Department (incorporated by reference to Exhibit 10cc to the 1995 Form 10-K) 10dd. Memorandum of Understanding dated February 28, 1994 with Rhode Island State Police (incorporated by reference to Exhibit 10dd to the 1995 Form 10-K) 10ee. Contract dated July 15, 1993 with the State of Connecticut (incorporated by reference to Exhibit 10ee to the 1995 Form 10-K) 10ff. Supply Agreement dated May 28, 1993 among CarSearch Corporation, Alrite Holdings, Ltd, Nassau, Bahamas, and Carro Seguro Carseg S.A., Guayaquil, Ecuador (incorporated by reference to Exhibit 10ff to the 1995 Form 10-K) 10gg. License and Trademark Agreement dated May 28, 1993 between CarSearch Corporation and Carro Seguro Carseg S.A., Guayaquil, Ecuador (incorporated by reference to Exhibit 10gg to the 1995 Form 10-K) 10hh. License, Trademark, and Supply Agreement dated July 27, 1993 between CarSearch Corporation and PJV Ltd., Centraville, Nassau, Bahamas (incorporated by reference to Exhibit 10hh to the 1995 Form 10-K) 10ii. License, Trademark, and Supply Agreement dated August 10, 1993 between CarSearch Corporation and Vehicles Security Resources Limited, Nassau, Bahamas (incorporated by reference to Exhibit 10ii to the 1995 Form 10-K) 10jj. License, Trademark, and Supply Agreement dated August 23, 1993 between CarSearch Corporation and MaxRich Consultants, Ltd., Kowloon, Hong Kong (incorporated by reference to Exhibit 10jj to the 1995 Form 10-K) 10kk. License, Trademark, and Supply Agreement dated August 31, 1993 between CarSearch Corporation and Cartrack Ltd., Tel-Aviv, Israel (incorporated by reference to Exhibit 10kk to the 1995 Form 10-K) 10ll. License, Trademark, and Supply Agreement dated April 15, 1994 between CarSearch Corporation and Triones Taiwan Co., Ltd., Taichung, Taiwan, R.O.C. (incorporated by reference to Exhibit 10ll to the 1995 Form 10-K) 10mm. Patent, License, Trademark, and Supply Agreement dated October 4, 1994 between LoJack International Corporation, a subsidiary of LoJack Corporation, and Sucess Trading, S.A., Buenos Aires, Argentina (incorporated by reference to Exhibit 10mm to the 1995 Form 10-K) 10nn. License, Trademark, and Supply Agreement dated October 13, 1994 between LoJack International Corporation and Tracker Vehicle Location Systems (PTY) Ltd., Cape Town, South Africa (incorporated by reference to Exhibit 10nn to the 1995 Form 10-K) 10oo.* License and Ancillary Know-How Agreement dated October 1, 1995 between LoJack International Corporation and Detektor, Bad Homburg, Germany 10pp. Patent License and Ancillary Know-How Agreement dated November 30, 1994 between LoJack International Corporation and LoJack Italia, Bologna, Italy (incorporated by reference to Exhibit 10pp to the 1995 Form 10-K) 10qq. License and Supply Agreement dated April 25, 1995 between LoJack International Corporation and United States Consolidated Technologies Corporation (incorporated by reference to Exhibit 10qq to the 1995 Form 10-K) 10rr.* License and Supply Agreement dated September 5, 1995 between LoJack International Corporation and GBSI, Inc. d/b/a Access 2000 10ss.*++ Amendment No. 1 to Restated and Amended Stock Incentive Plan 10tt.* Second Amendment to Loan Agreement dated as of February 20, 1996 among The First National Bank of Boston and LoJack Corporation, LoJack International Corporation, LoJack of New Jersey Corporation, Recovery Systems, Inc. and LoJack Holdings Corporation 10uu.* Amended and Restated Revolving Credit and Term Note dated as of February 20, 1996 in the amount of $7,500,000 made by LoJack Corporation, LoJack International Corporation, LoJack of New Jersey Corporation, Recovery Systems, Inc. and LoJack Holdings Corporation payable to the order of The First National Bank of Boston 10vv.* Security Agreement dated as of February 20, 1996 by LoJack Holdings Corporation and The First National Bank of Boston 10ww.* First Amendment to Trademark Collateral Assignment and Security Agreement dated as of February 20, 1996 among LoJack Corporation, LoJack International Corporation, LoJack of New Jersey Corporation, Recovery Systems, Inc., LoJack Holdings Corporation and The First National Bank of Boston 10xx.* Second Assignment for Security (Trademarks) dated February 20, 1996 by LoJack Corporation 10yy.* Trademark and Supply Agreement dated August 15, 1995 between LoJack International and CarTrack Kenya Limited, Nairobi, Kenya 11.* Statement re: Computation of per share earnings 13.* 1996 Annual Report to Stockholders 21.* Subsidiaries of the Registrant 23.* Consent of Deloitte & Touche LLP 27.* Financial Data Schedule 99.* "Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995 - --------------------------------- * Indicates an exhibit which is filed herewith. ++ Indicates an exhibit which constitutes an executive compensation plan. EX-10.OO 2 PATENT LICENSE AND ANCILLARY KNOW HOW AGREEMENT EXHIBIT 10oo SUBJECT TO REVIEW OF COUNSEL AND APPROVAL OF THE BOARD OF DIRECTORS DATED October l, l995 --------------- FEDERAL REPUBLIC OF GERMANY --------------------------- LOJACK INTERNATIONAL CORPORATION (1) and DETEKTOR TRACKING SYSTEMS LTD. (2) - -------------------------------------------------------------------------------- PATENT LICENSE AND ANCILLARY KNOW-HOW AGREEMENT - -------------------------------------------------------------------------------- Index to Clauses - ---------------- l. Interpretation and Definitions 2. Option Period 3. Conditions Precedent 4. Improvements 5. Technical Information and LoJack Manufacturing Specifications 6. Grant of Rights 7. Manufacture 8. Deliverables, User of the System Software and Technical Assistance 9. Payments 10. Royalty Statements and Financial Information 11. Performance Conditions 12. Performance Undertakings 13. Infringement 14. Warranties, Limitation of Liability and Patent Protection 15. Promotion and Advertising 16. Insurance 17. Trademarks 18. Competing Products 19. Confidentiality 20. Termination 21. Transfer 22. Force Majeure 23. Notices 24. General Schedule l Part I - The Patent Part II - Trademarks Exhibit A - Royalty Statement Pro Forma Exhibit 2 - Technical Specifications Schedule 2 Form of Deed of Undertaking PATENT LICENSE AND ANCILLARY KNOW-HOW AGREEMENT Dated: October l, l995 --------------- PARTIES: - ------- (1) LOJACK INTERNATIONAL CORPORATION ("LIC"), a corporation organized under the -------------------------------- laws of the State of Delaware with its principal place of business is 333 Elm Street, Dedham, Massachusetts 02026, United States of America ("the Licensor", or "LoJack International Corporation"). LoJack International Corporation is a wholly owned subsidiary of the LoJack Corporation ("LoJack") (2) DETEKTOR TRACKING SYSTEMS, Ltd. ("Licensee"), Hessenring 21, D-6l348 Bad Homburg, Germany, whose registered office is 7 Surrey Street, London WC2R 2NN, United Kingdom. RECITALS: - -------- (A) LoJack is the beneficial owner of the Rights as defined below relating to the manufacture, assembly, and commercial operation of a system for the recovery of stolen vehicles. LoJack International Corporation has been licensed such Rights by LoJack for the purpose of entering into this Agreement. (B) The Licensee wishes to receive and the Licensor is willing to grant a license on the terms and conditions hereinafter set forth to work with the Patent Rights, Trademark Rights, Intellectual Property and to use the Technical Information. OPERATIVE PROVISIONS: - -------------------- l. INTERPRETATION AND DEFINITIONS ------------------------------ 1.1 In this Agreement headings are inserted for ease of reference only and shall not affect the interpretation of the terms and provisions herein and, unless the context otherwise requires, the following words and expressions shall have the following meanings: "Approved Applications" --------------------- motor vehicles registered (including trucks and buses) and used in the Territory and such other applications in the Territory as the Licensor and Licensee may from time to time agree. "Business Day" ------------ any day other than a Saturday and Sunday on which banks in the Federal Republic of Germany are open for business. -4- "Default Interest Rate" --------------------- on any date the rate of interest per year equal to the prime rate of Bank of Boston (or its successor), in effect on that date plus two percent (2%) "Designated Equipment" -------------------- the Sector Activation Computer, the communications network to the Radio Broadcast Towers and the Radio Broadcast Towers "Dollars or $" ------------ the lawful currency of the United States of America "Effective Date" -------------- the date on which the First Condition Precedent is satisfied "European Community" ------------------ the member states of the European Community as amended from time to time "First Condition Precedent" ------------------------- The signing of agreements with State Police authorities of not less than three (3) of the sixteen (l6) States of the Federal Republic of Germany, to operate the System; "Gross Sales Price" ----------------- a sum equal to the gross price (exclusive of Valued Added Tax) invoiced by the Licensee on all its sales of Royalty Products including, where installation is performed by or on behalf of the Licensee, the costs of the installation, service and all related parts and accessories, but without any discounts or allowances from such gross price for prompt payment or similar discounts or allowances and excluding interest paid by customers for deferred or installment payments and excluding from any sales any Royalty Products provided free of charge or at a nominal charge to the police. Gross Sales Price shall also include any additional monthly, annual or other periodic fees charged to customers by Licensee or affiliated entities related to the continued operation of the Vehicle Location Unit as part of the System. -5- "Improvements" ------------ all improvements, modifications, or adaptations to any part of the Patent, System Software and the Technical Information which might reasonably be of commercial interest to either party in the design, manufacture, or supply of any component of the System or in the operation of the System and which may be made or acquired by either party during the period beginning on the Effective Date and expiring on the last day of the Term "Intellectual Property" --------------------- all inventions, registered and unregistered designs and design rights, copyright and rights in the nature of copyright, know-how, trade secrets and confidential information and any applications and rights to apply for any of the foregoing in any part of the world with respect to all drawings and other documents, recordings in any form and all other articles bearing or embodying any part of the Technical Information "Licensee Software" ----------------- the software which may be developed by the Licensee at its sole cost and expense from adaptation, modification and/or incorporation of the System Software in order to meet the Local Requirements "Licensor Manufacturing Specifications" ------------------------------------- the specifications of the minimum quality control requirements considered by the Licensor from time to time to be necessary in its own manufacture of the Products (whether directly or by sub-contract) for the technically satisfactory exploitation of the Products "Local Requirements" ------------------ the technical and operational requirements of the System to be designed by the Licensee, at its costs and expense, for the installation and operation of the System in the Territory "Vehicle Location Units" ---------------------- VHF (very high frequency) transponders designed to be installed in motor vehicles and used in conjunction with Vehicle Tracking Computers as part of the System. May also be referred to as "LoJack Units" -6- "Patent" ------ the patent application short particulars whereof are set out in Part I of Schedule I hereto in respect of each component of the System other than the Sector Activation Computer "Patent Rights" ------------- (i) the Patent (ii) all patent applications that may hereafter be filed by or on behalf of the Licensor or LoJack for the Territory; and (iii) all patents which may be granted pursuant to any of the foregoing applications "Performance Conditions" ---------------------- the performance conditions set out in Clause 11 "Vehicle Tracking Computers" -------------------------- a radio direction finder designed to be used to locate and track activated Vehicle Location Units "Products" -------- the Vehicle Location Units ("VLUs"), the Vehicle Tracking Computers, Sector Activation Computer, Radio Broadcast Towers, all subcomponents of the System, the installation test units and the police training units "Quarter" ------- the period from the Effective Date to the first Quarter Day and each successive period of three months ending on a Quarter Day "Quarter Day" ----------- 3lst March, 30th June, 30th September, and 3lst of December in each year "Radio Broadcast Towers" ---------------------- radio broadcast towers available to the Licensee for the operation of the System in the Territory and equipped to receive from the Sector Activation Computer a command to transmit a signal to activate, accelerate and deactivate Vehicle Location Units ("VLUs") -7- "Registration System" ------------------- a method proprietary to the Licensor and LoJack of assigning digital codes to be transmitted and received by VLUs in such manner that unique activation codes are permanently correlated with the unique vehicle identification number or vehicle registration number assigned to the vehicle in which the VLUs has been installed. The Registration System maintains a data base for the Sector Activation System that is consistently updated "Rights" ------- the rights granted to the Licensee by Clause 6 of this Agreement "Royalty Period" -------------- the period from the Effective Date to the date of expiry of the Term "Royalty Products" ---------------- Products "Royalty Statement" ----------------- the royalty statements, substantially in the form attached as Exhibit A, for the royalties payable by the Licensee to the Licensor pursuant to Clause 9.4 of this Agreement "Second Condition Precedent" -------------------------- First, the Licensee to have obtained written approval from the Licensor of ----- the Licensee's statement of its envisaged funding requirements (including working capital and reserves) with particular reference to ongoing engineering studies as envisaged by the Licensee's five year business plan in effect as at the Effective Date, such approval by the Licensor not be unreasonably withheld or delayed; Second, the Licensee to have obtained legally binding written commitments ------ from one or more investors or underwriters to subscribe for ordinary and/or preference shares in the capital of the Licensee and/or to provide subordinated loan capital to the Licensee and legally binding written commitments from one or more bank lenders in Germany to make working capital facilities available to the Licensee, the aggregate total of all such commitments to be not less than the total funding requirements of the Licensee as set forth in the statement of its funding requirements as referred to above; -8- Third, the Licensee to have secured the Letters of Credit referred to in ----- Clause 9.2 and 9.3.2 Fourth, Licensee shall have paid the First Installment. ------- "Sector Activation System" ------------------------ a computerized system owned by LoJack and licensed to the LICENSOR that controls and commands the System and activates, accelerates and deactivates Vehicle Location Units "Sector Activation Computer" -------------------------- the stand-alone computer to be operated by the Licensee at its cost and expense which:- (a) contains a file with up-to-date information on vehicles equipped with VLUs including the vehicle identification number or vehicle registration number assigned to the vehicle, and the activation and reply codes for the VLU installed in that vehicle; (b) accepts stolen vehicle reports and accepts requests that a VLU be activated accelerated, or deactivated; and (c) runs the Licensee Software "System" ------ the Vehicle Location Unit, the Sector Activation System, the Vehicle Tracking Computers and the Registration System "System Software" --------------- the system software and related technical information and documentation owned or used by the LoJack for the purpose of operating the System in the United States at the date hereof "Technical Information" --------------------- all documentation embodying know-how and experience, drawings, designs, circuit diagrams and all other technical information and data in written or machine-readable form relating to the System in the possession or control of the Licensor or LoJack concerning the design, manufacture, use, supply, and marketing of the System but expressly excluding the System Software "Terms" ----- the period from the Effective Date to the date of the expiry of the last of the patents the subject of the Patent Rights unless such period is terminated earlier in accordance with this Agreement -9- "Territory" --------- Federal Republic of Germany ("Germany") "Trademarks" ---------- the German registered trademarks and applications for registrations, German unregistered trademarks and trade names short particulars of which are set out in Part II of Schedule l "User" ---- the adaptation and modification of the System Software to develop the Licensee Software, the incorporation with or without adaptation or modification of the System Software into the Licensee Software, the copying or transmission of the System Software as so adapted, modified or incorporated into the Sector Activation Computer, and the use of the System Software as so adapted, modified, or incorporated on the Designated Equipment 2. OPTION PERIOD ------------- In consideration of the payment to LoJack International Corporation of $400,000 (Four Hundred Thousand dollars) U.S. Dollars as a security deposit ("Deposit"), LoJack International Corporation confirms their agreement with Licensee in relation to the proposed licensing of the Rights set forth in Clause 6 for the Territory: 2.1 LoJack International Corporation Obligations 2.l.l LoJack International Corporation grants to Detektor for a period of 9 (nine) months from the date of this Agreement ("Exclusivity Period") with respect to Territory the exclusive right to carryout all necessary due diligence for the purposes of investigating and determining the feasibility of implementing the System in the Territory ("Project"). 2.l.2 LoJack International Corporation agrees that it will not, during the Exclusivity Period, grant to any third party any rights in relation to the granting of Rights in the Territory. 2.l.3 LoJack International Corporation will give to Detektor Tracking Systems Ltd such assistance as LoJack International Corporation shall in its reasonable discretion consider necessary and appropriate to assist Detektor Tracking Systems Ltd. in its feasibility study. -10- 2.l.4 LoJack International Corporation will extend the Exclusivity Period for a further consecutive period of not more than 90 (ninety) days ("First Extension") at no further cost to Detektor Tracking Systems Ltd. upon written request to LoJack International Corporation to enable Detektor Tracking Systems Ltd. to confirm that it has available all necessary government authorizations for the establishment and operation of the System in the Territory and on condition that Detektor Tracking Systems Ltd. have in our reasonable judgment complied with its obligations in Clause 2. Further, LoJack International Corporation will extend the Exclusivity Period for a further consecutive period of not more than 90 (ninety) days ("Second Extension") upon expiration at no further cost to Detektor Tracking Systems Ltd. upon written request to LoJack International Corporation to enable Detektor Tracking Systems Ltd. to confirm that it has available all necessary government authorizations for the establishment and operation of the System in the Territory and on condition that Detektor Tracking Systems Ltd. have in our reasonable judgment complied with its obligations in Clause 2. Further extensions of Exclusivity Period will provide that the Deposit will become non- refundable, and that Detektor Tracking Systems Ltd. will reimburse LoJack International Corporation (as set forth in Clause 2.3.2) for any out-of- pocket expenses incurred by LoJack International Corporation during the Exclusivity Period within l0 days of invoice. 2.l.5 LoJack International Corporation will at the request of Detektor Tracking Systems Ltd. refund the Deposit to Detektor Systems Ltd. within 14 working days after the expiry of the Exclusivity Period and the First and Second Extension net of our costs in paragraph 2.3.2 if Detektor Tracking Systems decides in good faith that the implementation of the System in the Territory would not be feasible, or Detektor Tracking Systems Ltd. has in good faith failed fulfil the Conditions Precedent outlined in Clause 3. 2.2 General 2.2.1 Detektor Tracking Systems Ltd. understands and agrees with LoJack International Corporation until such time as fulfills the Conditions Precedent described in Clause 3 that Detektor Tracking Systems Ltd. is granted no proprietary or other Rights of any nature in the System and shall not hold itself out as an agent or other representative of LoJack International Corporation, LoJack, or of the System. LoJack International Corporation shall have no obligation to disclose to Detektor Tracking Systems Ltd. any confidential -11- information to trade secrets nor to lend, give or otherwise part with possession of any proprietary item or right in connection with the System that is not in our sole opinion freely available at no cost to us in the public domain. Your undertaking in paragraph 2.3.3 will continue notwithstanding termination under paragraph 2.4. 2.2.2 If Detektor Tracking Systems Ltd. breaches the confidentiality undertaking in paragraph 2.3.3 Detektor Tracking Systems Ltd. will on a full indemnity basis indemnify and hold LoJack International Corporation, LoJack, and any of its affiliates harmless from the direct or indirect consequences of such breach and howsoever and whensoever caused. 2.3 Obligations 2.3.1 Detektor Tracking Systems Ltd. will use its best endeavors to ensure the success of the Project. 2.3.2 Detektor Tracking Systems Ltd. grants LoJack International Corporation an express right to set off and deduct from the Deposit any out of pocket costs incurred by LoJack International Corporation in connection with the Project, including but not limited to travel, payroll, subcontractors, etc. The fees related to payroll shall be charged by the Licensor for the services of its full-time employees in providing assistance to Detektor Tracking Systems Ltd. under this Clause 2, shall be at a rate equal to 175% (one hundred seventy five percent) of the salary and benefits of the Licensor's personnel involved pro-rated on a daily basis for the number of days spent by such personnel in rendering such assistance. During the Exclusivity Period, LoJack International Corporation shall provide 50 hours of time of its executive officers at no charge to assist Detektor Tracking Systems Ltd. in planning the System. It is understood the LoJack International Corporation will not expend any time or expenses on behalf of Detektor Tracking Systems Ltd. without express written authorization. 2.3.3 Detektor Tracking Systems Ltd. agrees and undertakes with LoJack International Corporation that this Agreement and its terms and all information disclosed to Detektor Tracking Systems Ltd. by LoJack International Corporation or discovered by Detektor Tracking Systems Ltd. during the Exclusivity Period and any extension ("Information") will be kept secret and in strict confidence and that Detektor Tracking Systems Ltd. will not, (except where such disclosure is required by applicable law or regulation) and without the prior written consent of LoJack International -12- Corporation, disclose, use, or permit the use or disclosure of the Information in whole or in part to any person other than the designated advisers to Detektor Tracking Systems Ltd. or to any third parties, such as the authorities in the Territory who require disclosure of the Information solely for the purposes of the Project. Detektor Tracking Systems Ltd. will require any authorized third parties including employees and contractors of Detektor Tracking Systems Ltd. to observe this confidentiality as a condition of disclosure. 2.3.4 Throughout the Exclusivity Period and any extension, Detektor Tracking Systems Ltd. will keep LoJack International Corporation informed on a regular basis and whenever requested with detailed reports of the progress Detektor Tracking Systems Ltd. is making and the professional advice Detektor Tracking Systems Ltd. is receiving on any feasibility study, particularly concerning the financial, technical, regulatory and legal aspects of the Project. 2.3.5 As consideration for the return to of the Deposit under Clause 2.l.5 (net of costs described in Clause 2.3.2), Detektor Tracking Systems Ltd. will at the request of LoJack International Corporation and forthwith make available to LoJack International Corporation the results of the due diligence on the Project performed during the Exclusivity Period and will return to LoJack International Corporation forthwith anything lent or given during the Project. 2.4 Termination 2.4.1 LoJack International Corporation shall have the right to terminate the rights under this Clause 2 forthwith by written notice in the event that, Detektor Tracking Systems Ltd. is in material breach of any of its duties to LoJack International Corporation, cease to trade, becomes insolvent, unable to pay its debts or liquidated or are in receivership. If Yoram Tamari is for any reason no longer affiliated with Detektor Tracking Systems Ltd. for a period of ninety (90) days, Detektor shall appoint a substitute, which shall not be unreasonably rejected by LoJack International Corporation. If LoJack International Corporation has reasonable cause to reject the appointed substitute, or Detektor brings LoJack International Corporation, LoJack or the System into disrepute or damage the name or goodwill of LoJack International Corporation or LoJack whereupon LoJack International Corporation shall be entitled to forfeit the Deposit in and towards the liability in an amount not to exceed such liability to LoJack International Corporation as a result of such termination and without prejudice to LoJack International Corporation's rights at that time. -13- 3. CONDITIONS PRECEDENT -------------------- 3.1 It is a condition precedent to the grant of the Rights by the Licensor to ----- the Licensee that the First Condition Precedent shall be fulfilled on or before the expiration of the Option Period (or any extension thereto). 3.2 It is a condition precedent to the exercise of the Rights by the Licensee -------- first that the Second Condition Precedent shall be fulfilled within ninety (90) days of the fulfillment of the First Condition Precedent and the second that the First Installment (as defined in Clause 9.2 below) shall be paid, for which purpose time is of the essence. 3.3 This Agreement shall terminate immediately and without any formality and any rights granted shall fall away and entirely revert to the Licensor and the parties shall have no further rights and obligations the one to the other if:- 3.3.l the First Condition Precedent has not been fulfilled on or before the date specified in Clause 3.l; or 3.3.2 the Second Condition Precedent has not been fulfilled within ninety (90) days of the fulfillment of the First Condition Precedent. 4. IMPROVEMENTS ------------ 4.1 Each party shall forthwith disclose to the other in confidence and in such detail as the other may reasonably require all Improvements that it may independently of the other develop or acquire ownership of during the Term 4.2 The Licensor shall have a non-exclusive, irrevocable and royalty-free license without limit of time and regardless of termination of this Agreement to use worldwide, except in the Territory during the Term, all Improvements (and to sub-license the same) that the Licensee is required to disclose to the Licensor under Clause 4.l. 4.3 The Licensee shall have a non-exclusive irrevocable and royalty free license to use only in the Territory during the Term all Improvements that the Licensor is required to disclose to the Licensee under Clause 4.l. 4.4 A party to whom an Improvement is disclosed under Clause 4.l shall bear all costs incurred in (i) ensuring that the use of such Improvement complies with all regulatory requirements in the jurisdiction(s), and (ii) adapting such Improvements to Local Requirements where such Improvement is to be used by such party. -14- 4.5 Improvements arising from work agreed to be carried out by the parties jointly shall belong to the parties equally unless they shall otherwise agree and shall be financed equally unless they shall otherwise agree. Each party shall have the irrevocable right to use such joint Improvements independently of the other, and to the extent necessary for such use each party shall be deemed to have a non-exclusive, irrevocable and royalty- free license from the other without limit of time with respect to the user of such joint Improvements, including the right to grant sub-licenses thereunder, provided that nothing in this Clause 4.5 shall be deemed to grant a license to the Licensor to use or sub-license use of such joint Improvements in the Territory during the Term nor shall be deemed to grant a license to the Licensee to use or sub-license use of such joint Improvements otherwise than in the Territory during the Term. Each party hereby undertakes that on request it will confirm to any prospective sub- licensee of the other the right of that other to grant a sub-license pursuant to this Clause 4.5. 5. TECHNICAL INFORMATION AND LOJACK MANUFACTURING SPECIFICATIONS ------------------------------------------------------------- After the satisfaction of the First and Second Conditions Precedent and throughout the Term the Licensor will supply to the Licensee all Technical Information in the possession or control of the Licensor and with the Licensor Manufacturing Specifications from time to time and that are reasonably necessary or desirable to enable the Licensee to install, use, service and operate the System in the Territory and to manufacture and sell the Products on a commercial scale. 6. GRANT OF RIGHTS --------------- 6.1 The Licensor for the purposes only of the Approved Applications grants to the Licensee for the Term, subject to Clause 3 (Conditions Precedent) and Clause 11 (Performance Conditions):- 6.1.1 an exclusive license to install, use, service and operate the System in the Territory; 6.1.2 an exclusive license to use in the Territory the Technical Information and Intellectual Property of the Licensor; 6.1.3 under the Patent Rights, Technical Information and the Intellectual Property of the Licensor, a non-exclusive license to manufacture or procure the manufacture of Products in the Territory or elsewhere to the extent required for the Licensee's own sales or use of the Products in the Territory, any such manufacture to be subject to the provisions of Clause 7 below; -15- 6.1.4 an exclusive license to install, use, service, sell and otherwise deal in the Territory in the Products manufactured under the license of Clause 6.1.3 above; and 6.1.5 an exclusive license to use the Trademarks in the Territory in connection with the use by the Licensee of any of the other rights granted by the foregoing provisions of this Clause 6, including all advertising, marketing, and promotion in connection therewith in accordance with Clause l7 below ; and 6.1.6 an exclusive license for User in the Territory of the System Software. 7. MANUFACTURE ----------- 7.1 The license with respect to the manufacture of the Products granted by Clause 6.l.3 above shall extend to manufacture of VLUs and to manufacture of Vehicle Tracking Computers and to manufacture of any of the Products by any other manufacturer chosen by the Licensee after consultation with the Licensor but for this purpose the Licensor shall be entitled to review the manufacturing specifications proposed to be used by any such other manufacturer (the "proposed specifications") and shall advise the Licensee whether or not the Licensor approves such proposed specifications as being in strict conformance to the then current LoJack Manufacturing Specifications, such approval by the Licensor not to be unreasonably withheld or delayed. 7.2 If the Licensor advises that the proposed specifications are not in strict conformance to the then current LoJack Manufacturing Specifications, the Licensee agrees to use all its efforts to bring the proposed specifications up to the standard of the then current LoJack Manufacturing Specifications. The Licensor will grant its consent to manufacture by such other manufacturer where, pursuant to Clause 7.1 above and of this Clause 7.2, the proposed specifications are or are brought up to being in strict conformance to the then current LoJack Manufacturing Specifications. 7.3 With respect to all manufacture of the Products under the license granted to Clause 6.1.3 above, the Licensor shall be entitled to take, examine, and test random samples from the production line of the manufacturer and from the Licensee's inventories of such Products and if such random sampling indicates a failure rate of 5% or more in any of the Products from either a particular batch or in aggregate from random sampling in any period of two (2) months, the Licensor and Licensee shall meet with the manufacturer and, at the Licensor's sole discretion may give the manufacturer -16- an opportunity to correct the defects in manufacture within 30 day period. At the Licensor's sole discretion the Licensee shall change manufacturer from that manufacturer to another manufacturer as soon as practicable, and the provisions of Clauses 7.l and 7.2 above and this Clause 7.3 shall apply with respect to manufacture by any such other manufacturer. 8. USE OF THE SYSTEM SOFTWARE AND TECHNICAL ASSISTANCE --------------------------------------------------- 8.1 The Licensee shall not make nor permit to be made any use of the System Software other than the User thereof in accordance with this Agreement and shall not assign, sublicense, transfer, lease, rent, charge or otherwise encumber or deal or permit any dealing with the System, its components, Intellectual Property, Licensee Software, Licensor Manufacuturing Specifications, System Software or any part thereof. 8.2 The Licensor undertakes that it shall to the extent of its reasonable capabilities and at the reasonable request of the Licensee from time to time and insofar as such services are necessary for the technically satisfactory exploitation of the System, render such technical assistance to the Licensee as the Licensee may reasonably require in connection with the installation, use, servicing, and commercial operation of the System in the Territory, such technical assistance to include technical, marketing, sales, operational, and administrative assistance with the development and use of the Licensee Software. The Licensor may at its discretion render such technical assistance either directly or through subcontracting with third parties reasonably acceptable to the Licensee. Nothing in this Clause 8.2 shall require the Licensor to render any such technical assistance with respect to the System Software if the System Software has been adapted or modified otherwise than by or on behalf of the Licensor. 8.3 The Licensor and Licensee acknowledge and agree that the System Software may need to be adapted and modified solely for Local Requirements and that the Licensor and the Licensee will work together to identify which modules of the System Software are viable for incorporation with or without modification and adaptation for the purposes of developing the Licensee Software at the sole cost and expense of the Licensee. 8.4 The Licensee shall, in the first instance, request maintenance and technical support from the Licensor with respect to the System Software as incorporated in, merged, or combined with the Licensee Software. -17- 8.5 The Licensee shall pay the Licensor's fees, costs, and expenses for all technical assistance rendered by the Licensor to the Licensee pursuant to this Clause 8. 8.6 The fees charged by the Licensor for the services of its full-time employees in providing technical assistance to the Licensee under this Clause 8, shall be at a rate equal to 175% (one hundred seventy five percent) of the salary and benefits of the Licensor's personnel involved pro-rated on a daily basis for the number of days spent by such personnel in rendering such assistance. 8.7 All fees and expenses required to be paid by the Licensee pursuant to this Clause 8, including all out-of-pocket expenses reasonably incurred by the Licensor in rendering technical assistance to the Licensee and including, without limitation, travel expenses and fees of third party contractors or consultants retained by the Licensor, shall be payable by the Licensee in full not later than 10 business days after the presentation by the Licensor to the Licensee from time to time of a statement of such fees, costs and expenses accompanied by evidence of such individual expense items as the Licensee may reasonably require (and of which it has first advised the Licensor). 9. PAYMENTS -------- 9.1 In consideration of the right to exercise the Rights and as a continuing condition of such exercise the Licensee shall pay to the Licensor in the amounts and in the manner set out in this Clause 9 as follows:- 9.2 The Licensee shall pay to the Licensor a royalty in the sum of $1,250,000 (United States Dollars ("USDs")) (One Million Two Hundred Fifty Thousand Dollars) which accrues due and is earned entirely on the Effective Date. Such Royalty shall be "grossed up" to reflect any withholding taxes required to be paid to the Government in the Territory. The Royalty is payable as follows: a first installment of $400,000 USD (Four Hundred Thousand dollars) to be paid on the Effective Date (the "First Installment) and the second and third installments of $300,000 USD each (Three Hundred Thousand dollars) to be paid, respectively, 90 days and l80 days after the Effective Date. The remaining $250,000 USD (Two Hundred Fifty Thousand Dollars) shall be paid at a rate of $l USD (One Dollar) for each VLU purchased from Licensor or manufactured by Licensee, until the full amount has been paid. The First Installment shall be adjusted to (i) subtract the Deposit paid pursuant to Clause 2, and (ii) add any out-of-pocket expenses incurred by LoJack International Corporation pursuant to Clause 2.3.2. The Licensee shall cause to be issued in favor of the Licensor an irrevocable letter of credit valid for l80 (one hundred eighty) days, -18- either (i) issued by a bank satisfactory to the Licensor having an office in Boston and which is a member of the United States Federal Reserve System, or (ii) if such bank is not a member of the United States Federal Reserve System, the letter of credit must be confirmed (at the sole cost of the Licensee) by a bank which is a member of the United States Federal Reserve System. The letter of credit shall be in an amount equal to the unpaid portion of the Royalty set forth in this Clause 9.2. Such letter of credit shall provide for payment to the Licensor upon dates set forth in Clause 9.2. Such letter of credit shall be in such form and content acceptable by the Licensor and its bank. No part of the royalty payable under this Clause 9.2 shall be refundable and any outstanding balance thereof shall be immediately due and payable by the Licensee upon any transaction of this Agreement by the Licensee after the Effective Date or any termination by the Licensor after the Effective Date pursuant to Clause 20.1.3. 9.3 Payment for Products 9.3.1 Products purchased from the Licensor by the Licensee shall be delivered ex-factory at the point of manufacture and date to be advised by the Licensor. Risk and title in the Products shall pass to the Licensee at that time. The Licensee shall be entitled only to such benefits as the Licensor may receive under any warranty or guarantee given to the Licensor in respect of all Products purchased under this Agreement and the Licensor without prejudice to the provisions of Clause l4.l0, makes no other representation or warranty in respect of the Licensee's purchases under this Agreement. The Licensee and Licensor have agreed that an initial Purchase Order will be placed not later than the Effective Date by the Licensee for a minimum purchase as follows: (1) Sector Activation Computer (5) Sector Activation Transmitters (500) Vehicle Tracking Computers (6,000) Vehicle Location Units The shipping schedule of the Sector Activation Computer, Sector Activation Transmitters and Vehicle Tracking Computers shall provide for delivery of all hardware within six (6) months of the exercise of the rights described in this Agreement. The shipping schedule for the Vehicle Location Units shall provide delivery for all units within eight (8) months of the exercise of the rights described in this Agreement. VLU delivery quantities may be increased or decreased by twenty-five (25%) percent with ninety (90) days written notice to Licensor, prior to scheduled shipments. -19- Subsequent orders for Products shall be authorized in writing by the Licensee and shall specify requested release dates, but in no instance should such orders specify release dates sooner than 90 days of receipt of order by Licensor. Licensor will use its best efforts to comply with requested release dates. The Licensor shall make reasonable efforts to fill each order of the Licensee that is accepted by the Licensor, but shall not be liable in any respect for failure or delay in shipping any accepted orders that is due wholly or in part to any shortage of material, labor, transportation, or utility service, or to any labor or production difficulty of the Licensor, any source supplying to the Licensor, or their suppliers, or to any cause beyond the Licensor's control or without the Licensor's fault or negligence. The Licensor shall not be liable for shipping over routes or by means of transportation not specified by the Licensee. If Licensee does not specify shipping routes, Licensor shall select routes and shall have no liability to Licensee by reason of such selection. 9.3.2 All Products are priced in USD's and payment, therefore, shall be made in USD's. Upon a placement of a purchase order for Products, the Licensee shall cause to be issued in favor of the Licensor an irrevocable letter of credit valid for one year, either (i) issued by a bank satisfactory to the Licensor having an office in Boston and which is a member of the United States Federal Reserve System, in an amount equal to the full amount of the order or (ii) if such bank is not a member of the United States Federal Reserve System, the letter of credit must be confirmed at (the sole cost of the Licensee) by a bank which is a member of the United States Federal Reserve System. The letter of credit shall be in the an amount equal to the full amount of order. Such letter of credit shall provide for payment to the Licensor upon receipt of an Airway Bill of Lading and a copy of the Licensor's invoice by the Licensee. Such letter of credit shall provide for payment for partial shipments and shall be in such form and content acceptable by the Licensor and its bank. As an alternative to a Letter of Credit, the Licensee may, upon placement of a purchase order, make a cash deposit by wire transfer equal to 65% (sixty- five percent) of the amount of such purchase order, with the remaining 35% (thirty-five percent) to be paid prior to shipment by wire transfer. -20- 9.3.3 For each Quarter commencing not later than 9 months from the Effective Date, Licensee shall purchase from the Licensor a minimum VLUs as follows: Minimum Order Relevant Quarter ------------- ---------------- 6,000 Initial Order 12,000 per annum Quarters l through 4 16,000 per annum Quarters 5 through 8 30,500 per annum Quarters 9 through l2 40,000 per annum Quarters l3 through end of term This Clause 9.3.3 does not apply for any Quarter where the Licensee manufactures VLUs for its own use within the Territory. However, if at any time the Licensee purchases VLUs from Licensor, the minimum purchase for which the Licensee would be liable will be that which would be applicable if Licensor manufactured VLUs for since the Effective Date. 9.4 Royalties 9.4.1 Subject to Clause 9.5 below, the Licensee shall in respect of each Quarter during the rest of the Royalty Period pay to the Licensor a Royalty on any Product it manufactures of a sum equal to that percentage shown in the first column of the Gross Sales Price actually invoiced by the Licensee during each such Quarter in respect to each sale of the aggregate numbers of Royalty Products manufactured by the Licensee shown in the second column below: Column l Column 2 -------- -------- 5 percent 1 to 50,000 per annum; 4 percent 50,001 to 75,000 per annum; 3 percent 75,00l and over per annum 9.4.2 If the Royalty payable by the Licensee with respect to any Quarter pursuant to Clause 9.4.l above (the "Actual Royalty") is less than the non-returnable minimum royalty for the same Quarter as determined by this Clause 9.4.2 (the "Minimum Royalty"), the Licensee shall in lieu of the Actual Royalty pay to the Licensor the Minimum Royalty for that Quarter. The Minimum Royalty for each Quarter in which the Licensee sells Royalty Products which it has manufactured shall be determined as set forth below:- -21- Minimum Royalty Relevant Quarters - --------------- ----------------- $ 50,000 per Quarter Quarters l through 4 $ 75,000 per Quarter Quarters 5 through 8 $l25,000 per Quarter Quarters 9 through l2 $l50,000 per Quarter Quarters l3 through l6 Thereafter, the Minimum Royalty in respect of each successive Quarter in which the Licensee sells Royalty Products which it has manufactured shall be $150,000 increased by a sum equal to the percentage increase in the cost of living index in the United States with respect to the previous period of four consecutive Quarters applied at a rate of one-fourth of such sum per Quarter. The Minimum Royalty shall only apply in those Quarters where the Licensee sells Royalty Products which it has manufactured pursuant to the rights granted under Clause 6.l.3. 9.4.3 All Royalties payable by the Licensee with respect to each Quarter pursuant to Clause 9.4 shall be paid within fourteen (14) days after the end of such Quarter. In calculating such royalties, all amounts of Gross Sales Price in German currency shall be converted into U.S. Dollars at the rate of exchange reported by the Wall Street Journal on the last business day of each month during such Quarter. 9.5 Time is of the essence for all payments under this Clause 9. 9.6 All Royalties and other amounts payable by the Licensee to the Licensor under this Agreement are exclusive of any Value Added Tax (which shall be payable in addition upon the rendering by the Licensor to the Licensee of any appropriate Value Added Tax invoice) and shall be paid in U.S. Dollars to a bank account designated by the Licensor, same date value. 9.7 All Royalties and other amounts payable by the Licensee to the Licensor under this Agreement which are not paid when due shall bear and be payable with interest at the Default Interest Rate, determined as at such due date, and calculated from such due date to the date of actual payment by the Licensee (whether after judgment or before). 9.8 All Royalties and other amounts payable by the Licensee to the Licensor under this Agreement shall be paid in full without any deduction or withholding whatsoever provided that in the event the Licensee is required by the laws of United States or the regulations of any competent authority thereof to deduct or withhold any taxes, charges or duties from any royalties or other amounts payable to the Licensor -22- under this Agreement, the Licensee shall deduct or withhold such taxes, charges, or duties and pay over to the relevant authority the full amount thereof within the time allowed under applicable law or regulation, and shall deliver to the Licensor a certificate of deduction or withholding in such form as the Licensor may reasonably require or a receipt issued by the relevant authority to evidence such payment. The Licensee shall, at the cost and expense of the Licensor, cooperate with the Licensor in such manner as may be reasonably requested by the Licensor to obtain a credit or deduction in the United States for any such taxes, charges, or duties so deducted or withheld and paid. 9.9 The parties agree to cooperate in all such respects as may be reasonably necessary or desirable in order to obtain such relief from double taxation as may be available under the double taxation treaty between Germany and the United States. 10. ROYALTY STATEMENTS AND FINANCIAL INFORMATION -------------------------------------------- 10.1 In respect of the royalties payable by the Licensee pursuant to Clause 9 above, the Licensee shall prepare and submit to the Licensor not later than fourteen (14) days after the end of each Quarter (time of the essence) the Royalty Statement for that Quarter. 10.2 All Royalty Statements shall be certified annually at the Licensee's cost by an independent firm of chartered or certified public accountants approved by the Licensor, such approval not to be unreasonably withheld or delayed. 10.3 The Licensee shall prepare and submit to the Licensor not later than thirty (30) days after the end of each Quarter the quarterly management accounts of the Licensee. 10.4 The Licensor shall be entitled, on giving not less than five (5) business days prior written notice, to enter and/or to have its own certified or chartered accountants enter upon the premises of the Licensee during normal business hours to examine, take copies of and inspect the books of account of the Licensee and, where necessary, to run any accounting computer and to copy the results of such run. Without prejudice to the provisions of Clause 20.l.2(d) below the Licensee shall pay the Licensor's reasonable out-of-pocket expenses of such inspection and copying if, as a result of any such inspections, it is determined by such accountants or the Licensor's Chief Financial Officer and certified by them or by him as appropriate to the Licensee that the royalties due to the Licensor in respect of any Quarter have been underpaid by 5 percent or more. -23- 10.5 The Licensor agrees to maintain the confidentiality of and not to make any unauthorized use of any financial information received with respect to the Licensee's operations pursuant to this Clause 10. 11. PERFORMANCE CONDITIONS ---------------------- 11.1 During the Term, the Licensee shall, as conditions subsequent to the continued grant of the Rights and the continued exercise of the Rights by the Licensee:- 11.1.1 pay to the Licensor on the due dates thereof all installments of the royalty payable by the Licensee pursuant to Clause 9.2 above; 11.1.2 pay to the Licensor on the due dates thereof all royalties shown to be payable in the Royalty Statements'; 11.1.3 pay to the Licensor on the due dates thereof for all purchases pursuant to Clause 9.3 above; 11.1.4 comply with the minimum purchase requirements pursuant to Clause 9.3.3 above; 11.1.5 permit the Licensor and/or the chartered or certified accountants of the Licensor to examine, take copies of and inspect the books of account of the Licensee and to run any accounting computer and to copy the results of such run, in accordance with Clause 10.4 above; 11.l.6 comply with the manufacturing requirements pursuant to Clause 7 above. 11.1.7 comply with all material respects with the guidelines approved by the Licensor governing the installations, use, servicing, and operation of the System in the Territory, as such guidelines may be amended, modified, supplemented and in effect from time to time; 11.1.8 comply with all material respects with the requirements of the regulatory agencies from time to time with regard to the use by the Licensee of the frequency channel assigned or allocated for use with stolen vehicle systems generally as well with the requirements of any regulatory agency with jurisdiction over the operation of the System in the Territory; and 11.1.9 use all reasonable efforts to promote and fulfill a demand in the Territory for Vehicle Location Units and use all reasonable efforts to distribute and sell Vehicle Location Units in the Territory. -24- 12. PERFORMANCE UNDERTAKINGS ------------------------ 12.1 The Licensee undertakes to the Licensor that during the Term the Licensee shall: 12.1.1 bear the sole responsibility for and the cost of establishing and maintaining the System in the Territory, implement the Local Requirements at its sole cost and expense and advise the Licensor in writing of those modules of the System Software which are incorporated in whole or in part into the Licensee Software; 12.1.2 take all steps necessary, including but not limited to compliance with the provisions of Clause 7 above, to ensure that all Products manufactured or procured to be manufactured by the Licensee will meet the LoJack Manufacturing Specifications; 12.1.3 take all steps necessary to ensure that all Vehicle Location Units sold by the Licensee are installed in a careful and workmanlike manner; 12.1.4 provide or procure the provision in the Territory of sufficient trained and qualified personnel and facilities for the proper servicing of any components of the System manufactured by or on behalf of and/or supplied by the Licensee' 12.1.5 not hold itself out as agent of the Licensor for any purpose and not make or give any representation or warranty on behalf of the Licensor; 12.1.6 attach or affix to all Products manufactured by Licensee or procured to be manufactured by the Licensee a label quoting the relevant patent or patent application numbers of such Products and stating that such Products are manufactured under license from the Licensor; 12.1.7 permit or procure permission for the authorized representatives of the Licensor, upon at least five (5) business days prior written notice, to have during normal business hours such access to the premises of the Licensee and to the premises of such other persons as may be reasonably required by the Licensor for the purpose of verifying the Licensee's compliance with the provisions of this Clause 12; 12.1.8 inform the Licensor if for any reason the Licensee is not able to meet reasonable market demand for Vehicle Location Units in the Territory, and provide the Licensor with sufficient information and cooperation to enable the Licensor in its discretion to meet such demand; -25- 12.1.9 take all steps necessary to ensure that, once the Licensee Software has been developed, the System as operated by the Licensee in the Territory shall have the ability to activate, locate, track and recover stolen vehicles equipped with VLUs; 12.1.l0 ensure that all sales of Royalty Products by the Licensee to any person, firm, or company shall be made at an arm's length commercial price (and Gross Sales Price shall be construed accordingly). 13. INFRINGEMENT ------------ 13.1 In the event of any claim by a third party that the exercise of the Rights by or on behalf of the Licensee infringes the rights of that third party, the Licensor will defend against such claim and indemnify and hold harmless the Licensee against all damages, liabilities, costs and expenses that may be suffered or incurred by the Licensee in connection with such claim and any legal proceedings in respect thereof ("Defensive Litigation") provided that the Licensee:- -------------------------- l3.l.l gives written notice to the Licensor of any such claim forthwith upon becoming aware of it; l3.l.2 gives the Licensor the sole conduct of the Defensive Litigation and does not at any time admit liability or otherwise attempt to settle or compromise the said claim or any legal action or proceeding in respect thereof except upon the express written instructions of the Licensor; and l3.l.3 acts in accordance with the reasonable instructions of the Licensor as notified to the Licensee and gives the Licensor such assistance as it shall reasonably require and instruct the Licensee in writing to provide in connection with the conduct of the Defensive Litigation including, without prejudice to the generality of the foregoing, the filing of all pleadings and other court process and the provision of all relevant documents, and the right to use the Licensee's name in or to join the Licensee as a party to the proceedings. l3.2 in the event of any infringement or claimed infringement of the Rights by a third party, the Licensor shall promptly notify the Licensee what action, if any, the Licensor in its sole discretion elects to take in respect of such matter. The Licensor shall have sole conduct of any action it elects to take in such matter ("Offensive Litigation") and either: l3.2.l the Licensor shall pay all costs in connection with such Offensive Litigation and shall be entitled to all damages and other sums which may be paid or awarded as a result thereof, or -26- l3.2.2 if within ten (10) business days after its receipt of such notice the Licensee agrees to share equally the costs of such Offensive Litigation, the costs of an such Offensive Litigation shall be borne and all damages and other sums which may be paid or awarded as a result thereof shall be shared equally by the Licensor and the Licensee. l3.3 In the event that the Licensor fails to accept the conduct of any Offensive Litigation within a reasonable period after notice from the Licensee requesting the Licensor to do so, the Licensee shall be entitled at its cost and expense to take all such actions as it deems necessary or desirable in connection with such infringement or claimed infringement and the Licensee shall be entitled to all damages and other sums which may be recovered by or awarded to it as a result thereof. l3.4 The Licensor shall reimburse the Licensee its reasonable costs and expenses incurred in complying with the provisions of Clause l3.l.3 above (assistance for Defensive Litigation). l3.5 The Licensor shall have no liability to the Licensee in respect to any Defensive Litigation or Offensive Litigation if the same results from any breach of the Licensee's obligations under this Agreement. l3.6 In the event of Defensive Litigation concerning the System Software, the Licensor shall be entitled at its own expense and option either to: l3.6.l procure the rights for the Licensee to continue using the System Software, or the Licensor shall make such alterations, modifications, or adjustments to the System Software as may be necessary to make it non- infringing without incurring any material diminution in the performance or function of either the System Software or the Licensee Software; or l3.6.2 replace the Software System with non-infringing substitutes provided that such substitutes do not entail a material diminution in the performance or function of the System Software or the Licensee Software. 13.6.3 in the event that LICENSOR, despite the use of best efforts, cannot reasonably accomplish either the results described in Clauses l3.6.l or l3.6.2, above, at reasonable expense, than LICENSOR shall refund a proportionate part of the LICENSEE fee provided in Clause 9.2 proportionate to the degree of which LICENSEE is prohibited from exercising the Licensed Rights. -27- l3.7 In the event of any alterations, modifications, or adjustments to the System Software or its replacement with non-infringement substitutes pursuant to Clause l3.6.2 above, the Licensor shall reimburse the Licensee the reasonable costs and expenses incurred by the Licensee in making such adaptations to the Licensee Software and the Designated Equipment as may be necessary as a result thereof. l4. WARRANTIES, LIMITATION OF LIABILITY AND PATENT PROTECTION --------------------------------------------------------- 14.1 The Licensor and LoJack warrant that LoJack's title to and property in the Patent, and Patent Rights, and Trademarks and the Intellectual Property of the Licensor are free and unencumbered (other than to the extent pledged as security interest under LoJack's financing arrangements) and that it is the legal and beneficial owner thereof, that it has the right power and authority to license the Rights to the Licensee upon and subject to the terms and conditions of this Agreement, and that the Patent, and Patent Rights, the Trademarks, the Intellectual Property of the Licensor and the license of the Rights to the Licensee hereunder do not conflict with or infringe the rights of any third party. l4.2 The Licensor warrants that it will perform any technical assistance and other services undertaken to be provided by it pursuant to this Agreement with reasonable care and skill. l4.3 The Licensee will give notice to the Licensor as soon as the Licensee becomes aware of any breach of the Licensor's warranties hereunder. l4.4 If at any time during the Term of this Agreement, the Licensee opposes or disputes in any legal or administrative action or proceeding instituted by the Licensee, or voluntarily joins in any legal or administrative action or proceeding instituted by any third party to oppose or dispute the grant of letters, patent or any patent application within the Patent Rights or the validity of any patent within the Patent Rights, the Licensor shall be entitled at any time thereafter to terminate all or any of the Rights granted to the Licensee under this Agreement forthwith by notice to the Licensee. l4.5 Where either party has developed or acquired an Improvement to which Clause 4 above applied, it shall either prepare and file an application for patent or other relevant protection with respect to such Improvements as soon as practicable or promptly notify the other party of its decision not to seek such protection and disclose in -28- writing with such notice all information relating to such Improvement. The party receiving such disclosure may seek such protection if it decides to do so and will notify the other party of its receipt of such disclosure. If the party receiving such disclosure decides to seek such protection, it will prepare and file an application for such protection as soon as practicable after the end of such period of fifteen (15) business days. Until such time as an application for such protection is filed by either party or the parties have each notified a decision pursuant to this clause l4.5 not to seek such protection, neither party shall publish such Improvement or take any other action which might prejudice the validity of any patent or other relevant protection that might be granted with respect to such Improvement. For Improvements which are jointly developed or acquired, unless both parties agree otherwise, patent protection will be sought. Any dissenting party shall give all such assistance at the dissenter's cost as the other party may require to obtain such patent protection. l4.6 Either party may at any time with respect to any Improvement elect not to pursue further an application for patent or other relevant protection either jointly or on its own behalf or to maintain any such protection as it may have obtained and the party so electing shall promptly notify the other party and shall if so requested assign all rights it may have therein to that other party, provided that nothing in Clause l4.5 above or this -------- Clause l4.6 shall prejudice the rights of the parties with respect to the grant of the licenses provided for by Clause 4. 14.7 Subject to Clause l4.5 and Clause l4.6 above, each party shall be free to apply for patent protection for any invention not made in whole or in part by an employee of the other party provided that the specification and -------- supporting information for such invention and the application for patent protection in respect thereof does not disclose any technical information, intellectual property or any confidential information of the other party. l4.8 Subject to the provisions of Clause l4.6 above the Licensor and the Licensee shall share equally the costs of filing and prosecuting any future patent applications agreed by them to be made jointly and the costs of obtaining the grant and of maintaining such grant of patent in all countries. -29- 14.9 The Licensor warrants to Licensee that the Products when purchased from the Licensor, under normal use and service, will be free from defect in materials and workmanship. This warranty shall be in effect for a period of six (6) months from the date of receipt of the Products at the Port of Entry of said VLUs and Vehicle Tracking Computers to the Licensee (the "Warranty Period"). The Licensor's liability for honoring the warranty claims is subject to Licensee making claims for defective Products within the applicable Warranty Period, and any claims not made within the Warranty Period shall be conclusively deemed waived and released. During the Warranty Period for respective Products, the Licensor shall, at its option, replace or repair, at any authorized facility designated by the Licensor, any Products which the Licensor determines to be defective. The foregoing warranty does not apply to any Products which have been damaged as a result of force majeure, accident, shipping and handling, improper power supply, misuse, abuse, improper storage, improper maintenance, improper installation, improper operation, unauthorized modification, or which has been installed, serviced, modified, or repaired by anyone other than a person designated in writing by the Licensor as an authorized Licensor service representative. l4.10 EXCEPT AS EXPRESSLY SET FORTH IN THIS CLAUSE 14 OR ELSEWHERE IN THIS AGREEMENT ALL REPRESENTATIONS, WARRANTIES OR CONDITIONS WHETHER EXPRESSED OR WHETHER IMPLIED BY STATUTE OR COMMON LAW OR BY ANY PARTY ARE EXCLUDED TO THE FULLEST EXTENT PERMITTED BY LAW. UNDER NO CIRCUMSTANCES WILL THE LICENSOR BE LIABLE TO THE LICENSEE OR TO ANY OTHER PERSON FOR ANY CONSEQUENTIAL DAMAGES OR FOR ANY LOSS OF PROFIT, REVENUE, GOODWILL, OR ANY OTHER ECONOMIC LOSS INCLUDING PHYSICAL DAMAGE WHICH IT MAY SUFFER. 15. PROMOTION AND ADVERTISING ------------------------- 15.1 Subject to Clause l5.2 below, the Licensee shall be entitled to use the Trademarks in connection with the installation, use, servicing and operation of the System in the Territory and in connection with all sales, sales promotions, marketing and advertising activities associated therewith and/or associated with sales of Products in the Territory. The Licensee undertakes that all sales promotions, marketing, and advertising materials shall bear the legend "Under license from the LoJack International Corporation". -30- l5.2 All sales promotion, marketing, and advertising materials which use the Trademarks (or mock-ups or such materials) and which the Licensee intends to use for its initial launch of the System in the Territory shall be submitted to the Licensor (translated into English) no later than thirty (30) business days before the proposed date of such launch. The use of such materials for such initial launch shall be subject to the prior written approval of the Licensor, provided that if any such materials are -------- not approved in writing by the Licensor within fifteen (15) business days after such submission the Licensor shall be deemed to have approved the materials. 16. INSURANCE --------- the Licensee shall keep and maintain insurances with an insurer of repute in such amounts against such risks as are customarily maintained by companies operating business similar to the business of the Licensee. l7. TRADEMARKS ---------- 17.1 The Licensee recognizes and acknowledges that LoJack is the sole and exclusive owner of the Trademarks and agrees that it will not register any of such marks in its own name or that of any other firm, person, company or corporation. l7.2 The Licensee shall be permitted to identify itself as the manufacturer of any part of any component of the System which it does so manufacture or procure to be manufactured under the Rights. l7.3 The Licensor will use all reasonable efforts to prevent the Trademarks from being used in the Territory by any person other than the Licensee. The Licensee agrees to enter into any agreements reasonably required by the Licensor for the protection of the Trademarks in the Territory including, but not limited to, any simultaneous registered user agreements, all costs and expenses thereof to be shared equally by the Licensor and the Licensee. l7.4 Upon the termination of this Agreement for any reason the Licensee shall cease and forever abstain from using the Trademarks and shall deliver to the Licensor within fourteen (14) days after the date of such termination all documents, instructions, display items, and the like bearing any of the Trademarks, to the extent that such items were originally purchased from the Licensor, are in original packaging and are usable by the Licensor. All such items shall be returned subject to payment by the Licensor within fourteen (14) days after the date of such termination of (a) the costs of returning the items and (b) their net book value taking into account depreciation for the period of use in respect of each item, less a l5% restocking charge. -31- l8. COMPETING PRODUCTS ------------------ 18.1 LoJack and the Licensor hereby expressly reserve to themselves all member states of the European Community other than the Territory ("the Reserved Territories") and for the purposes of this Clause l8, the phrase "Parallel Patent" shall mean subsisting patent rights for the Reserved Territories licensed by the Licensor to any other licensee parallel to those licensed to the Licensee under this Agreement, and the phrase "System" shall be deemed to include the System Software. The Licensee shall not:- l8.l.l exploit any component of the System in the Reserved Territories so far and so long as those components of the System are protected in the Reserved Territories by Parallel Patents; l8.l.2 except for manufacture under the license granted by Clause 6.l.3 above, manufacture or use any components of the System or use the Patent Rights or the Technical Information in the Reserved Territories so far and so long as the System is protected in the Reserved Territories by Parallel Patents; l8.l.3 pursue an active policy of putting any components of the System on the market in the Reserved Territories and in particular shall not engage in advertising specifically aimed at the Reserved Territories or establish any branch or maintain any distribution depot in the Reserved Territories in so far and so long as those components of the System are protected in the Reserved Territories by Parallel Patents; or l8.l.4 put any components of the System on the market in the Reserved Territories for a period not exceeding five (5) years from the date when they are first put on the market within the European Community by the Licensor or one of its licensees in so far as those components are protected in the Reserved Territories by Parallel Patents. 18.2 The parties hereto agree to give each other on request all information in their possession necessary to determine the dates of the period of five (5) years referred to in Clause l8.l.4. l9. CONFIDENTIALITY --------------- 19.1 The Licensee agrees to maintain secret and confidential all Technical Information, LoJack Manufacturing Specifications, and Intellectual Property of the Licensor (all of which are expressly agreed by the parties to constitute the know-how disclosed or to be disclosed by the Licensor to the Licensee or obtained by the Licensee from the Licensor -32- pursuant to this Agreement) and all other information that the Licensor designates as confidential and discloses to the Licensee pursuant to the Agreement including the design details and operating characteristics of the System, information relating to installation of VLUs in motor vehicles and all other aspects of the System treated as confidential by Licensor and LoJack or not generally known, including the System Software, the Sector Activation System and the Registration System and all related file structures, documentation, algorithms and software concepts (all of the foregoing being referred to collectively as the "Confidential Information"), to respect the Licensor's proprietary rights in the Confidential Information, to use the Confidential Information exclusively for the purposes of the exercise of the Rights and the installation, use, servicing and operation of the System in the Territory in accordance with this Agreement, and to disclose the Confidential Information only to those persons to whom and to the extent such disclosure is reasonably necessary for the aforesaid purposes. l9.2 The Licensee shall procure that all of its employees and all of its contractors who manufacture Products or any component of any of the Products who have access to any of the Confidential Information shall be made aware of the confidentiality thereof. The Licensee shall further procure that all of its employees and all of such contractors shall enter into a Deed of Undertaking substantially in the form set forth in Schedule 2. 19.3 The Licensor agrees to maintain secret and confidential all business and operating information of the Licensee that the Licensee designates as confidential and is not generally known. The Licensor's obligation pursuant to this Clause l9.3 specifically excludes Improvements or any modifications made by the Licensee to the System, its components, Intellectual Property, Licensee Software, Licensor Manufacturing Specifications, or System Software. 20. TERMINATION ----------- 20.1 This Agreement may be terminated:- 20.l.l by the Licensee at any time by the giving of l20 days prior written notice to the Licensor; 20.l.2 by the Licensor forthwith by giving notice in writing:- (a) for any material breach of the Performance Conditions which is capable of being remedied and shall not have been remedied within 2l days after a written request to remedy the same, provided that -------- any breach of the Performance Conditions set out in Clause 11.1.1, Clause 11.1.2, ll.l.3 and ll.l.4 above shall be deemed not capable of remedy; if not remedied within l5 days of such notice -33- (b) for any breach by the Licensee of its obligations under Clause 2l.2 or 2l.3 below; (c) if within the meaning of Part I of the Insolvency Act l986 a proposal shall be made or a meeting of creditors of the Licensee convened for a voluntary arrangement, or if an order is made or effective resolution passed for the dissolution, liquidation, reorganization, administration, or winding-up for the purpose of a reconstruction, amalgamation or other reorganization in such manner that the company resulting from the same is bound by or agrees to assume the obligations of the Licensee under this Agreement), or if a trustee, receiver, administrative receiver or similar officer is appointed for the Licensee or in respect of the whole or any part of its assets, or if the Licensee makes any general assignment for the benefit of its creditors or is deemed unable to pay its debts within the meaning of Section l23 of the Insolvency Act l986 (unless the Licensee pays within three weeks or disputes in good faith any demand served under Section l23(a) of the said Act); (d) if it is determined and certified pursuant to Clause 10.4 that the royalties due to the Licensor have been unpaid and the Licensee shall fail to pay to the Licensor, within 14 days after the date such determination has been notified by the Licensor to the License, a sum equal to the amount of such underpayment together with interest thereon at the Default Interest Rate in effect on the date when the amount of such underpayment was due for payment and calculated from that date to the date of actual payment by the License, whether before or after judgment; (e) if the Licensee shall fail to pay when due any other sums payable by it to the Licensor under this Agreement within 14 (fourteen) days of notice from the Licensor; or (f) if the Licensee shall remain in breach of any of its other obligations under this Agreement 30 (thirty) days after it shall have been advised by the Licensor of such breach. 20.2 Upon termination of this Agreement for any reason other than termination pursuant to Clause 20.1.2 above, the Licensee shall continue to have the right to complete the delivery, sale, and installation of all Products contracted for sale at the date of such termination and to purchase -34- and take delivery of Products already manufactured and required for such purpose, subject to payment to the Licensor of royalties for such sales in accordance with Clause 9 above. 20.3 Upon the termination of this Agreement for any reason the Licensee shall:- 20.3.l at its cost and expense within l4 days after the date of such termination deliver up to the Licensor all Technical Information, all documents constituting the LoJack Manufacturing Specifications and the Intellectual Property of the Licensor, the System Software and all other Confidential Information in the possession or control of the Licensee, and to the extent not physically capable of redelivery the Licensee shall not use the same and shall keep it confidential; 20.3.2 subject to the Clause 20.2 above, make available to the Licensor, at Licensor's sole option, for purchase at cost price, less a l5% restocking charge, to the Licensee all remaining Products and will permit the Licensor the right to verify and inspect the same; 20.3.3 subject to being indemnified by the Licensor in form and substance reasonably satisfactory to the Licensee against all costs, expenses and liabilities which may be incurred by the Licensee, use all reasonable efforts as directed by the Licensor to ensure (for the benefit of existing purchasers and for the protection of the goodwill of the Licensor in the System and the Trademarks) the continuing operation and maintenance of the System in the Territory until the establishment of a successor to the Licensee reasonably satisfactory to the Licensor. 20.4 The Licensor, having regard to its good name, its goodwill and the expectancy of existing purchasers of the Products at termination of a continuity of service may, in its absolute discretion using its best business judgement, either take over the service to those of the existing purchasers of the Products that are prepared to enter into a novation with the Licensor or find a new Licensee of the Rights. 20.5 Termination of this Agreement for any reason shall not bring to an end:- 20.5.l the confidentiality obligations of the parties hereto; 20.5.2 the Licensee's obligations to pay royalties which have accrued due or which will become due in respect of sales under Clause 20.2; -35- 20.5.3 the delivery-up obligations of the Licensee under Clause 20.3; and 20.5.4 the licences (if any) under Clause 4 above. 2l. TRANSFER -------- 2l.l This Agreement shall be binding upon and enure to the benefit of the parties and their respective legal successors and permitted assigns. The Licensor shall have the right to assign its rights and obligations under this Agreement to any subsidiary or to any other person, persons, partnership, association, or corporation provided that:- 2l.l.l each such transferee agrees in writing to assume all rights of and obligations undertaken by the Licensor herein; 2l.l.2 the Licensee receives an assignment and assumption agreement executed by the Licensor and each such transferee to that effect; 2l.l.3 each transferee has the financial capacity and technical expertise necessary to discharge the obligations of the Licensor under this Agreement; and 2l.l.5 upon such assignment and assumption the Licensor shall thereafter have no further rights or obligations hereunder, without prejudice, however, to the accrued rights of the Licensor to such date. 2l.2 The Licensee shall not assign, sell, transfers, sublease, license (other than for the purpose of manufacture of Products), convey, give away, transfer part with possession of the whole or any part of the Rights of its other rights and/or obligations under this Agreement. Licensee intends to become a UK PLC solely for purposes of obtaining financing through an undertaking in the United Kingdom in which current owners of Licensee will retain a minimum of own 20% (twenty percent) equity ownership of the UK PLC. Licensee shall provide Licensor with all documents relative to such underwriting as such documents become available. 2l.3 The Licensee shall not, without the Licensor's prior written consent (such consent not to be unreasonably withheld or delayed) pledge, mortgage, charge or otherwise encumber all or any part of the Rights of its other rights and obligations under this Agreement, except that the Licensee may grant a security interest for bank obligations in a maximum amount of $3 million (USD). -36- 22. FORCE MAJEURE ------------- 22.1 If either party is affected by an Event of Force Majeure it shall promptly notify the other party of the nature and extent of the circumstances in question. 22.2 Notwithstanding any other provisions of this Agreement, neither party shall be deemed to be in breach of this Agreement, or otherwise be liable to the other, for any delay in performance or the non-performance of any of its obligations under this Agreement, to the extent that the delay or non-performance is due to any Event or Force Majeure, and the time for performance of that obligation shall be extended accordingly. 23. NOTICES ------- 23.1 All notices, requests, consents, demands, or similar communications under this Agreement shall be given in writing by pre-paid registered post (airmail) to the address of the addressee as set out at the head of this Agreement, or to such other address as the addressee may from time to time have notified for the purpose of this Clause 23, or sent by facsimile transmission or via a reputable private courier company. 23.2 All notices, requests, consents, demands or similar communications given and sent in the manner prescribed by Clause 23.l above shall be deemed to have been received five (5) business days after delivery to the post office or three (3) business days after delivery to recognized international overnight courier service, or at the time of transmission if sent by facsimile transmission, provided sender receives electronic confirmation of delivery. 23.3 All such notices, requests, consents, demands or similar communications addressed to the Licensee shall be marked for the attention of the managing director and if addressed to the Licensor shall be marked for the attention of the Chief Financial Officer. 24. GENERAL ------- 24.1 The provisions of this Agreement may be varied or amended by mutual consent of the parties but no such variation or amendment shall be effective unless made in writing and signed by the Licensor and the Licensee. 24.2 This Agreement contains the whole agreement between the parties with respect to the subject matter hereof and supersedes all previous agreements and understandings between the parties, whether written or oral, with respect to the subject matter hereof. -37- 24.3 If any provisions of this Agreement shall be found by an court or administrative body of competent jurisdiction to be invalid or unenforceable the invalidity or unenforceability of such provision 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. 24.4 This Agreement shall be governed by and be construed in accordance with the laws of Germany and the Commonwealth of Massachusetts and the parties agree to submit to the non-exclusive jurisdiction of the courts in Germany. 24.5 Each party to this Agreement shall execute and deliver such other documents and do such other acts and things as they deem necessary or desirable to carry out the terms, provisions, and purpose of this Agreement. 25.6 The failure to enforce or to require the performance at any time of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions and shall not affect the rights of any party thereafter to enforce and to require performance of each and every provision in accordance with the terms of this Agreement. 24.7 The headings of the clauses of this Agreement are used for convenience only shall not affect the meaning of interpretation of the content of this Agreement. 24.8 Nothing in this Agreement shall be deemed to constitute a partnership or joint venture between the parties. Nothing contained in this Agreement shall be deemed to authorize any party to act as agent for the other party or to assume or create any obligations on behalf of the other party. -38- SIGNATURES This Agreement may be executed in one or more counterparts having the signatures of the parties and each such counterpart shall, for all purposes, be deemed an original, but all such counterparts shall together constitute but one and the same instrument. LoJack Corporation & LoJack International Corporation BY: --------------------------- C. Michael Daley, President - --------------------------------- Detektor Tracking Systems Ltd. BY: ----------------------------- Yoram Tamari - ---------------------------------- -39- Schedule 1 Part I The Patent Country Number Date of Issue Owner - ------- ------ ------------- ----- Europe (l) 0245555 May l992 LoJack Corporation U.K. Germany France Italy Belgium Switzerland Austria Sweden Holland Part II A: Registered Trademarks Reg. Date of Goods/ The Mark No. Class as of Renewal Services - -------- ------ ----- ----- ------- -------- LoJack l,388,l52 9 22.6.89 22.6.96 Transponder units; computers for use by police tracking purposes; all included in Class 9 B: Unregistered Trademarks Mark or Representation or Description of Get-Up Goods - --------------------- ----- LoJack All components of the LoJack System SCHEDULE 2 DEED OF UNDERTAKING The undersigned hereby undertakes to Detektor ("Detektor") and to LoJack International Corporation ("LIC") jointly and severally to maintain in confidence at all time, and not to make any unauthorized disclosure or use, of any Technical Information (defined below) or any Confidential Information (defined below) received by the undersigned from Detektor or LoJack International Corporation. The undersigned also hereby undertakes itself and to require its officers, employees, and subcontractors to assign the rights to any Improvements to Detektor. "Confidential Information" means any trade secrets and other proprietary information in any form concerning the business or operations of Detektor and/or LoJack International Corporation including but not limited to sales, marketing, manufacturing and employee information. "Technical Information" means any know-how, experience, specifications, drawings, designs, photographs, methods of operation, circuit diagrams, processes, formulae, data, computer programs, samples, literature, and all other technical information relating to the stolen vehicle recovery system operated by Detektor under license from LoJack International Corporation. EXECUTED AND DELIVERED as a deed on the date below. EXECUTED by: ( ) ( ) ------------------------ Date: ( ) EX-10.RR 3 LICENSE AND SUPPLY AGREEMENT EXHIBIT 10rr RUSSIA LICENSE AND SUPPLY AGREEMENT This Agreement, made this 5th day of September, 1995, is entered into by and between LOJACK INTERNATIONAL CORPORATION ("LIC") ("LICENSOR"), (a subsidiary of LoJack Corporation ("LOJACK"), a Delaware corporation having its principal place of business at 333 Elm Street, Dedham, Massachusetts 02026 USA and GBSI, Inc. ta Access 2000, 2217 Lovedale Lane, Reston, VA 2209l, (hereinafter referred to as "LICENSEE"). W I T N E S S E T H ------------------- WHEREAS, LOJACK has developed a system for the recovery of stolen vehicles; and WHEREAS, LOJACK has developed Software and Software Programs relative to the system for the recovery of stolen vehicles; and WHEREAS, LOJACK has licensed to LICENSOR its Software Programs, Trademarks and related documentation in order for LICENSOR to develop and license its own system for the activation and recovery of stolen vehicles; WHEREAS, the LICENSOR has agreed to grant the LICENSEE an exclusive license to use the LICENSOR Licensed Software Programs, and associated documentation; sell LICENSOR VLUs; and use Products in the Territory as hereunder defined and to provide certain services to the LICENSEE including technical support, supply of Products, and training upon the terms and conditions of this Agreement; and WHEREAS, LICENSEE, recognizes the benefits to be derived from being identified with the license by LICENSOR, and being entitled to utilize LICENSOR'S Systems which the LICENSOR makes available to its licensees; pursuant to agreement; and WHEREAS, LICENSEE desires to receive and the LICENSOR is willing to grant a License for the LICENSOR'S Licensed Software Program in the Territory subject to the provisions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, receipt whereof is respectively acknowledged, the undersigned parties hereby agree as follows: DEFINITIONS - ----------- Unless context otherwise requires, the following terms, shall have the meanings set forth below: -1- CONFIDENTIAL INFORMATION - ------------------------ The design details and operating characteristics of the System, information relating to the installation of Vehicle Location Units in motor vehicles, and all other aspects of the System treated as confidential by LICENSOR or not generally known, including all related software, file structures, documentation, algorithms and related software concepts, except as otherwise provided herein. LICENSEE: - -------- The LICENSEE shall mean the GBSI, Inc. ta Access 2000, and any subsidiary which is owned by LICENSEE in an amount of at least 5l%. LICENSED SOFTWARE PROGRAM - ------------------------- The software programs in object code form which are required to operate the System, including all updates, revisions and any new release of the same which may be issued from time to time within the term of this Agreement. PRODUCTS - -------- All products purchased by LICENSEE from the LICENSOR, including Vehicle Location Units (or "VLUs"), Vehicle Tracking Computers, (or "VTCs") the Vehicle Activation Computer (VAC), Vehicle Activation Transmitter (VATs) and all other subcomponents of the System. SYSTEM - ------ A system for locating and recovering stolen motor vehicles, utilizing a computerized transceiver in the vehicle (the "VLU", in the singular, and "VLUs" in the plural); a system for activating and deactivating the VLU (the "Vehicle Activation Computer and Vehicle Activation Transmitter(s)"); and a directional tracking unit designed for installation in vehicles (the "Vehicle Tracking Computers"); and all enhancements and improvements thereto, as outlined in the definition document appended as Attachment I. LICENSED RIGHTS - --------------- The use of the Licensed Software Program, the Confidential Information, and Proprietary Information. -2- PROPRIETARY INFORMATION - ----------------------- All inventions, registered and unregistered and design rights, copyrights in the nature of copyright, know-how, trade secrets, and Confidential Information and any applications and rights to apply for any of the foregoing in any part of the world in respect of all drawings and other documents, recordings in any form and all other articles bearing or embodying any part of the System. TERRITORY - --------- As defined in Section 11 of this Agreement. EFFECTIVE DATE - -------------- The Effective Date for the grant of rights described in Section l of this ----- Agreement shall be the date of this Agreement (the "First Condition Precedent") and the LICENSEE pays the First Installment described in Section 2.l. The Effective Date for the exercise of rights described in Section l -------- of this Agreement shall be the date that LICENSEE provides LICENSOR with (i) the Irrevocable Letter of Credit referred to in Paragraphs 2.1 and 2.4, (the "Second Condition Precedent") and (ii) the information required in Section 3.4. This Agreement shall terminate immediately and without any formality and any rights granted shall fall away and entirely revert to the LICENSOR and the parties shall have no further rights and obligations the one to the other if the Second Condition Precedent has not been fulfilled within 30 (thirty) days of the First Condition Precedent. This 30 (thirty) day period is referred to as the "Exclusivity Period"). LICENSOR may extend the Exclusivity Period for a further consecutive period of not more than 30 (thirty) days ("First Extension") at no further cost to LICENSEE upon written request to LICENSOR to enable LICENSEE to confirm to LICENSOR that LICENSEE has available all necessary government authorizations for the establishment and operation of the System in the Territory and on condition that LICENSEE has in LICENSOR'S sole judgment complied with its obligations under this Agreement. -3- 1. SOFTWARE LICENSE, EXCLUSIVE DISTRIBUTION RIGHTS, and INFRINGEMENT ----------------------------------------------------------------- 1.1 The LICENSOR hereby grants to the LICENSEE for the term described in Section l.6 subject to the fulfillment of the Conditions Precedent above and the Performance Standards (Section l6) an exclusive license to use, in the Territory, the Licensed Rights. 1.2 During the term of this Agreement, and within the Territory, the LICENSOR grants to LICENSEE, subject to all terms and conditions set forth in this Agreement, the exclusive right to sell or to distribute for resale VLU's, either to vendors selling VLU's to motor vehicles owners or operators in the usual course of business, or directly to such motor vehicles owners or operators. 1.3 The LICENSOR, in consideration of the payment by the LICENSEE of the amounts setforth in Section 2.1, hereby grants to the LICENSEE an exclusive license to use, in the Territory, the Licensed Software Programs, solely in the operation of the System in the Territory for the purposes described in Sections l.2 and l.7. Updates, revisions, and new releases to the Licensed Software Programs will be made available to LICENSEE at no cost. 1.4 In consideration of the payment by the LICENSEE of the amount set forth in Section 2.1, LICENSOR hereby grants to the LICENSEE an exclusive license to use, in the Territory for the purpose described in Sections l.2 and l.7, the rights granted under this Agreement in connection with the operation of the System, during the term of this Agreement. 1.5 The term of this Agreement shall commence on the exercise of the rights described in Section l, and shall continue for a term of ten (10) years, with automatic renewals for successive five (5) year periods thereafter subject to earlier termination as provided in Article 14 of this Agreement, and other provisions of this Agreement. Notwithstanding the foregoing, the automatic term renewal provided above shall not take effect if LICENSEE shall be in default beyond grace of its obligations hereunder, or in the event of the occurrence of any other event of default under Article 14 of this Agreement. -4- 1.6 The rights herein granted are limited to sales of Products for ultimate use in registered motor vehicles, which includes trucks. LICENSEE agrees not to use the System or technology utilized therein for any other or additional applications without the written approval of the LICENSOR in each instance, which approval shall be at the LICENSOR's sole discretion and may require payment of an additional fee. In no event shall LICENSEE be allowed to use or sell Products for any purpose outside the Territory, and LICENSEE specifically consents to this restriction and limitation. 1.7 (a) LICENSEE promptly shall notify LICENSOR of any claim by a third party that any activities of LICENSEE pursuant to this Agreement infringe Licensed Rights or proprietary rights of that third party. In the Event that any such claim, if successful, would affect LICENSEE's exercise of rights granted hereunder in such a way as to have a material adverse effect on the business of LICENSEE, LICENSOR shall at its sole expense without cost to LICENSEE: (i) defend against such claim and indemnify and hold harmless LICENSEE against all damages, liabilities, costs and expenses that may be suffered or incurred by the LICENSEE in connection with such claim and any legal proceedings in respect thereof ("Defensive Litigation"), provided that LICENSEE shall have given notice as provided above of any such claim forthwith upon becoming aware of it, gives LICENSOR the sole conduct of the defense of litigation and does not at any time admit liability or otherwise attempt to settle or compromise the said claim or any legal action or proceedings in respect thereof except upon the express written instructions of LICENSOR, and acts in accordance with the reasonable instructions of the LICENSOR as notified to the LICENSEE and gives the LICENSOR such assistance as it shall reasonably require and instruct the LICENSEE in writing to provide in connection with the conduct of the Defensive Litigation including, without prejudice to the generality of the foregoing, the filing of all pleadings and other court process and the provision of all relevant documents and the right to use the LICENSEE's name or to join the LICENSEE as a party to the proceedings, or (ii) procure the right for the LICENSEE to continue exercising the Licensed Rights granted hereunder, or LICENSOR shall make such alterations, modifications and adjustments to the Licensed Rights as -5- may be necessary to make the exercise thereof non-infringing, without incurring any material diminution of the performance of function of the System, or replace all or any part of the Licensed Rights with non- infringing substitutes provided that such substitutes do not entail a material diminution in performance; or (iii) in the event that LICENSOR, despite the use of best efforts, cannot reasonably accomplish either (i) or (ii) above, at reasonable expense, than LICENSOR shall refund a proportionate part of the LICENSEE fee provided in Section 2.1, proportionate to the degree to which LICENSEE is prohibited from exercising the Licensed Rights. (b) In the event of any infringement or claimed infringement of the rights by a third party, the LICENSEE shall promptly notify the LICENSOR of said infringement or claimed infringement. In such a case, the LICENSOR shall promptly notify the LICENSEE what action, if any, the LICENSOR in it sole discretion elects to take in respect of such matter. The LICENSOR shall have sole conduct of any action it elects to take in such matter ("Offensive Litigation") and either: the LICENSOR shall pay all costs in connection with such Offensive Litigation and shall be entitled to all damages and other sums which may be paid or awarded as a result thereof; or if within ten (10) business days after its receipt of such notice the LICENSEE agrees to share equally the costs of such Offensive Litigation, the costs of any such Offensive Litigation shall be borne and all damages and other sums which may be paid or awarded as a result thereof shall be shared equally by the LICENSOR an the LICENSEE. (c) In the event that the LICENSOR fails to accept the conduct of any Offensive Litigation within a reasonable period after notice from the LICENSEE requesting the LICENSOR to do so, the LICENSEE shall be entitled at its cost and expense to take all such actions as it deems necessary or desirable in connection with such infringement or claimed infringement and the LICENSEE shall be entitled to all damages and other sums which may be recovered by or awarded to it as a result thereof. LICENSOR shall give the LICENSEE such assistance as it shall reasonably require in connection with the conduct of the Offensive Litigation including, without prejudice of the generality of the foregoing, the filing of all pleadings and other court process and the provisions of all relevant documents, and the rights to use the LICENSOR'S name in or to join the LICENSOR as a party to the proceedings. -6- (d) The LICENSOR shall reimburse the LICENSEE its reasonable costs and expenses incurred in complying with the provisions of clause 1.7 (a) above (assistance for Defensive Litigation). The LICENSOR shall have no liability to the LICENSEE in respect of any Defensive Litigation or Offensive Litigation if the same results from any breach of the LICENSEE's obligations under this Agreement. 2. PAYMENT,PRICING AND TERMS ------------------------- 2.1 The License fee shall be U.S. $342,000 (Three Hundred Forty Two Thousands dollars). The fee shall be paid as follows: $l7l,000 (One Hundred Seventy One Thousand dollars) upon execution of this Agreement ("First Installment"), $l7l,000 (One Hundred Seventy One Thousand dollars upon delivery of the initial order of hardware and software. 2.2 Hardware and software costs for the components of the System are as listed in Attachment II. (Specific Equipment Requirements to be determined.) Costs are for Hardware and Resident Software only, and do not include additional costs which may be incurred for insurance, installation, testing, modification, or approvals of any kind from local agencies. Payment for all products and services under this Agreement shall be billed and paid as shipped F.O.B. Dedham, Massachusetts, Seguin, Texas, U.S.A. or such other place determined by LICENSOR. 2.3 An initial Purchase Order will be placed no later than the exercise of the rights described in Section l of the Agreement by the LICENSEE for the minimum purchase as follows: (1) Vehicle Activation Computer (VAC) (4) Vehicle Activation Transmitters (VAT) (50) Vehicle Tracking Computers (VTC) (5,000) Vehicle Location Units (VLUs) -7- The shipping schedule for the VAC, VAT's and VTC's shall provide for delivery of all hardware within one hundred and twenty days (120) of the acceptance by the LICENSOR of the Purchase Order. The shipping schedule for the VLUs shall provide for delivery of all units within one hundred and twenty days (120) of the acceptance by the LICENSOR of the Purchase Order. VLU delivery quantities may be increased or decreased (in no case shall quantities be reduced below the minimum specified in Section 16) by twenty- five (25%) percent within ninety (90) days of the acceptance by the LICENSOR of a Purchase Order by the LICENSEE, provided that any increases or decreases must be made in multiples of 480 VLUs. Subsequent orders for Products shall be authorized in writing by delivery to the LICENSOR of a Purchase Order by the LICENSEE and shall specify requested release dates, but in no instance should such orders specify release dates sooner than ninety (90) days of receipt and acceptance of order by LICENSOR, provided that Purchase Order for VLUs must be in multiples of 480 units. LICENSOR will use its best efforts to comply with requested release dates. Each Purchase Order will be accepted by LICENSOR if it meets all of the requirements set forth in this Section 2. The LICENSOR shall use its best efforts to fill each order of the LICENSEE that is accepted by the LICENSOR, but shall not be liable in any respect for failure or delay in shipping any accepted orders that is due wholly or in part to any shortage of material, labor, transportation, or utility service, or to any labor or production difficulty of the LICENSOR, any source supplying to the LICENSOR, or their suppliers, or to any cause beyond the LICENSOR's reasonable control or without the LICENSOR's fault or negligence. The LICENSOR shall not be liable for shipping over routes or by means of transportation not specified by the LICENSEE. If LICENSEE does not specify shipping routes, LICENSOR shall select routes and shall have no liability to LICENSEE by reason of such selection. -8- 2.4 All Products are priced in United States dollars and payment, therefore, shall be made by LICENSEE in United States dollars. Upon placement of a Purchase Order for Products, LICENSEE shall cause to be issued, in favor of LICENSOR, an Irrevocable Standby Letter of Credit valid for the period covering the shipping schedule of the Products either (i) issued by a bank satisfactory to LICENSOR having an office in Boston and which is a member of the United States Federal Reserve System, (ii) if such issuing bank is not a member of the United States Federal Reserve System, the letter of credit must be confirmed (at the sole cost to the LICENSEE) by a bank which is a member of the United States Federal Reserve System. Such letter of credit shall be in an amount equal to the full amount of the order, and payable against receipt of an Airway Bill of Lading and a copy of LICENSOR's invoice to LICENSEE. In the case of the initial purchase order the letter of credit shall be in the amount of no less than the total of items on Attachment IV. Delivery of equipment and costs shall be determined and made a part of this Agreement as Attachment IV. 2.5 The prices payable by LICENSEE for the Vehicle Tracking Computer and VLUs will be fixed for one (1) year from the date of this Agreement. Prices shall not increase in excess of 2.5% per year in subsequent years, unless LICENSOR presents evidence to LICENSEE to support such increase in excess of 2.5%, provided however, if LICENSOR sells VLUs in any other territory which is of similar size and similar purchase volumes of VLUs as in the Territory for a price which is lower than the purchase price then in effect hereunder, then the purchase price shall be reduced to such lower price for all unshipped orders of LICENSEE and under orders thereafter placed by LICENSEE. 2.6 All Royalties and other amounts payable by the LICENSEE to the LICENSOR under this Agreement are exclusive of any Value Added or other Tax (which shall be payable in addition upon the rendering by the LICENSOR to the LICENSEE of any appropriate Value Added Tax invoice). -9- 2.7 All amounts payable by the LICENSEE to the LICENSOR under this Agreement which are not paid when due shall bear and be payable with interest at 3% (three percent) over the Prime Rate as reported by the Bank of Boston, determined as at such date, and calculated from such due date to the date of actual payment by the LICENSEE (whether after judgment or before). 2.8 All amounts payable by the LICENSEE to the LICENSOR under this Agreement shall be paid in full without any deduction or withholding whatsoever provided that in the event the LICENSEE is required by the Laws of the United States or the regulations of any competent authority thereof to deduct or withhold any taxes, charges, or duties from any amounts payable to the LICENSOR under this Agreement, the LICENSEE shall deduct or withhold such taxes, charges, or duties and pay over to the relevant authority the full amount thereof within the time allowed under applicable law or regulation, and shall deliver to the LICENSOR a certificate of deduction or withholding in receipt issued by the relevant authority to evidence such payment. The LICENSEE shall, at the cost and expense of the LICENSOR, cooperate with the LICENSOR in such a manner as may be reasonably requested by the LICENSOR to obtain a credit or deduction in the United States or any such taxes, charges, or duties so deducted or withheld and paid. 2.9 The parties agree to cooperate in all such respects as may be reasonably necessary or desirable in order to obtain such relief from double taxation as may be available under any double taxation treaty between Russia and the United States. 2.10 All payments by LICENSEE to LICENSOR shall be made in U.S. Dollars and either i) drawn on the bank of a designated lending institution which is a member of the U.S. Federal Reserve System and approved in writing by the LICENSOR or ii) by wire transfer to LICENSOR'S bank. -10- 3. ESTABLISHMENT OF SYSTEM; TECHNICAL ASSISTANCE; ---------------------------------------------- FEES AND EXPENSES; FINANCIAL INFORMATION ---------------------------------------- 3.1 LICENSEE shall bear the sole responsibility for establishing the System in the Territory in accordance with specifications provided by the LICENSOR. Any and all modifications to the functionality and operation of the System beyond that defined in the system specifications (Attachment I) must receive prior written approval from LICENSOR. Such alteration, if approved by LICENSOR, shall be completed at the sole expense of the LICENSEE, and may, at LICENSOR's sole discretion, affect the system warranty. The responsibilities of the LICENSEE shall include, without limitation, promptly and diligently upon execution of this Agreement, to obtain financing for, and to construct, install, test and make operational the System in the Territory, to obtain all governmental and other licenses, authority and approval necessary for the operation of the System in the Territory, and to abide by all the provisions of this Agreement. 3.2 The sole obligations of the LICENSOR in connection with the establishment of the System in the Territory and the operation of the System in the Territory during the term of this Agreement shall be for the LICENSOR: (a) to render technical operating and marketing assistance to the LICENSEE upon the reasonable request of the LICENSEE on a fee for service basis; (See Attachment III) (b) to honor LICENSEE's claims for warranty repairs made in accordance with this Agreement; (c) to supply Products at agreed terms and prices subject to Purchase Orders executed by LICENSEE and the LICENSOR; (d) to sell or to license Products to no person or entity (other than the LICENSEE) for use in the Territory; and (e) to abide by all of the provisions of this Agreement. The LICENSOR shall also provide, at LICENSEE's reasonable request, assistance in training LICENSEE's properly qualified personnel with respect to the installation of VLUs and other operational aspects of LICENSEE's business on a fee for service basis. The LICENSOR may, at its option, provide such technical assistance directly or by subcontracting with third parties. -11- 3.3 LICENSEE shall pay the LICENSOR fees for all technical, operating, administrative and marketing assistance, and services rendered by the LICENSOR to LICENSEE, at LICENSEE's request. The amount of the fee for any services rendered by the LICENSOR will be determined at the time that such services are rendered using rates not in excess of the rates which the LICENSOR used at that time to determine it fees for similar services to other LICENSEE'S or in the absence of other LICENSEE'S to unrelated third parties. (See Attachment III). Such fees shall be payable immediately upon receipt of invoices for such services. LICENSEE shall reimburse the LICENSOR for all incidental expenses reasonably incurred by the LICENSOR in rendering such requested services to the LICENSEE. Pre-approved travel, hotel and out-of-pocket expenses of the LICENSOR also, fees of independent contractors retained by the LICENSOR shall either be paid directly by the LICENSEE of shall be reimbursed to LICENSOR by LICENSEE, at the discretion of the LICENSEE. LICENSEE shall reimburse the LICENSOR for such expenses promptly upon receipt from the LICENSOR of reasonable written evidence of such expenses. 3.4 Within ninety (90) days of the exercise of the rights described in Section 1, LICENSEE shall have provided to the LICENSOR: (i) current financial statements and other information prepared by outside auditors prepared in accordance with generally accepted accounting principles in the United States, consistently applied and reasonably acceptable to LICENSOR in order to evaluate LICENSEE's ability to meet its financial obligations in connection with the establishment and operation of the System in the Territory, (ii) a business plan acceptable to LICENSOR for a period of no less than three (3) years detailing the LICENSEE's proposed operation of the System in the Territory. Within thirty (30) days after receipt of written request made by the LICENSOR, LICENSEE shall deliver to the LICENSOR such other financial information or materials as the LICENSOR shall reasonably require for purposes of preparing its own financial statements, or which may be requested by its Lenders or governmental authorities having jurisdiction over the LICENSOR or any of its business activities. By its execution and delivery of this Agreement, LICENSEE hereby warrants that any financial statements, business plan and other information and materials provided to the LICENSOR shall be true and correct in all material respects and shall fairly reflect the LICENSEE's financial circumstances as of the date thereof. -12- 3.5 The LICENSEE shall have a non-exclusive royalty free license to use only in the Territory during the term of this Agreement any improvements, modifications, or adaptations (collectively "Improvements") to any part of the Licensed Software Program or components of the System made by the LICENSOR or LoJack, provided the LICENSEE shall bear sole cost of adapting such Improvements for use within the Territory. 4. PURCHASE OF SUPPLIES; COMPETING PRODUCTS; INSTALLATION ------------------------------------------------------ 4.1 Recognizing that the LICENSOR has developed a unique System, and in order to safeguard the integrity of the CARSEARCH by LoJack Name and to protect proprietary information of the LICENSOR and assure uniform product quality and specification compliance and control, LICENSEE shall purchase from the LICENSOR all Products which it uses or sells, except standard off-the-shelf items ordinarily purchased by the LICENSOR from third parties. In addition, the LICENSEE will not sell any products which are in competition with the Products. 4.2 LICENSEE assures that installation of VLUs shall be in compliance and conformity with all procedures and standards reasonably established by the LICENSOR for the Territory and in compliance with all applicable laws and regulations. The LICENSOR shall provide LICENSEE with written notice of any failure to so conform of which the LICENSOR has actual notice, and LICENSEE shall thereupon, and within thirty (30) days thereafter, evidence to the LICENSOR that any such non-conformity has been fully rectified. LICENSEE hereby grants the LICENSOR the right, at reasonable times, from time-to-time and at any time, and with or without notice to LICENSEE, as the LICENSOR elects, to audit and inspect installations and installation facilities to ascertain LICENSEE's compliance with this Section. All such audits and inspections shall be at the LICENSOR's expense. 5. RESALE PRICING -------------- LICENSEE shall have the right to establish its own price levels for sale of all Products sold or installed in the Territory. -13- 6. GOVERNMENTAL LICENSING ---------------------- 6.1 LICENSEE acknowledges that certain permits, approvals, authorizations and licenses necessary to operate the System in the Territory (herein collectively called the "Required Permits") may be required by governmental or other authorities prior to operation of the System in the Territory and for the continued operation thereof. LICENSEE hereby warrants to the LICENSOR that it has undertaken sole responsibility at its sole expense to procure and prior to commencement of operations of the System in the Territory shall have procured all such Required Permits necessary to commence the operation of the System. LICENSEE specifically represents and warrants that it shall make information regarding all such Required Permits available to the LICENSOR from time-to-time within fifteen (15) days after receipt of the LICENSOR's written request, therefore, and that LICENSEE shall make all payments, submit all filings and applications, and do all things necessary to keep all such Required Permits at all times current and in full force and effect at its sole expense. LICENSEE further warrants that it shall procure any and all other permits, permissions, licenses and approvals (from all governmental and other authorities and others), hereafter required or otherwise necessary for the operation or use of the System in the Territory (all of which shall be deemed to be "Required Permits" hereunder). It is specifically agreed that the LICENSOR shall have no obligations or liability to LICENSEE for any loss, cost or damage arising from LICENSEE's failure to procure or to maintain any Required Permits. 6.2 LICENSEE at all times shall comply with all limitations regulations, rules, guidelines and requirements of any governmental authorities ("Regulatory Body") having jurisdiction in the Territory granting any of Required Permits, including, without limitation, those issued by authorities having jurisdiction over radio transmissions licenses, permits or approvals, or otherwise and in any way regulating or affecting the System, or its operation or use in the Territory. The LICENSOR will provide to LICENSEE, at no cost to LICENSEE, all documents, information or data in the LICENSOR's control or possession which LICENSEE -14- reasonably determines to be necessary for LICENSEE to obtain or maintain any Required Permit or to comply with any requirement of any Regulatory Body, and the LICENSOR will provide same with all due diligence and dispatch upon receipt of a written request for same from LICENSEE. 6.3 The LICENSOR and LICENSEE, upon request of the other, will cooperate with the other with respect to the filing and/or recording, if applicable, by the LICENSOR of this Agreement (and any amendments thereto from time-to-time in effect), or notice thereof, as applicable, with all governmental authorities and other regulatory bodies in the Territory necessary for the effectuation and/or enforcement thereof, and the delivery to the LICENSOR of an opinion from country counsel, reasonably approved by the LICENSOR, stating that this Agreement (or amendment, if applicable) has been appropriately filed and/or recorded and is in all events valid and enforceable in the Territory. 6.4 The LICENSOR's obligations under this Agreement may be subject to the filing and/or recording of this Agreement (and any amendments thereto from time-to-time in effect), or notice thereof, as applicable, with certain governmental authorities or other regulatory bodies in the Territory. LICENSEE will use its best efforts to inform LICENSOR of its obligations described in 6.4, and will assist LICENSOR in making any required filings. 6.5 LICENSEE hereby grants, to the extent permitted by law, and assigns to the LICENSOR all of its rights, title, and interest in and to the Required Permits, which assignment shall take effect and become operable only upon the expiration of the term of this Agreement, or upon the earlier termination of this Agreement pursuant to Article 14, or as otherwise provided in this Agreement. LICENSEE expressly makes no representations that any such assignment will be valid or enforceable pursuant to the laws of the Territory. 7. INSURANCE --------- The LICENSEE shall keep and maintain insurance with an insurer of repute in such amounts and against such risks as are customarily maintained by companies operating businesses similar to the business of the LICENSEE in the Territory. -15- 8. INDEMNIFICATION --------------- 8.1 The LICENSOR agrees to indemnify and hold harmless LICENSEE and, if applicable, each of LICENSEE's officers, directors, agents, employees and controlling persons against any and all loss, liability, claim, damage and expense arising solely from a defect in the design or manufacture of Products purchased by LICENSEE from the LICENSOR except that this indemnification shall not extend to any loss, liability, claim, damage or expense attributed solely to those matters for which LICENSEE has indemnified the LICENSOR pursuant to section 8.2. below. 8.2 LICENSEE agrees to indemnify and hold harmless the LICENSOR and each of the LICENSOR's officers, directors, agents, employees and controlling persons against any and all loss, liability, claim, damage and expense arising solely in connection with either (a) the LICENSEE's establishment and operation of System, or (b) the sale and installation by LICENSEE of Products, or (c) the conduct of business by the LICENSEE pursuant to, or as contemplated by, this Agreement, except that this indemnification shall not extend to any loss, liability, claim, damage or expense attributable solely to those matters for which the LICENSOR has indemnified LICENSEE pursuant to Section 8.1 above. For purposes of Section 8.2, the term LICENSEE shall include the LICENSEE and any of its licensees or distributors in the Territory. Any liability shall be joint and several. 8.3 Promptly after receipt by an indemnified party pursuant to Section 8.1 above or Section 8.2 above of actual notice of the commencement of any action giving rise to indemnification rights under Section 8.1 above or Section 8.2 above, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under the applicable section, notify the indemnifying party in writing of the commencement thereof. The failure to so notify the indemnifying party shall relieve it from any liability which it may have to any indemnified party under such section, but shall not relieve it from any liability which it may have to any indemnified party otherwise than under such section. Upon receipt of notice from the indemnified party as aforesaid , the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, to assume the defense of, the action, with counsel selected and paid for by the indemnifying party but reasonably satisfactory to the indemnified party. After the indemnified party shall have received notice from the agreed upon counsel that the defense has been -16- assumed, the indemnifying party shall not be responsible for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation, unless incurred at the written request of the indemnifying party or the indemnifying party shall not have employed counsel to have charge of the defense of such action or the indemnified party shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party) in any of which events such legal or other expenses shall be borne by the indemnifying party. In no event shall the indemnifying party be liable for the fees and expenses of more than one counsel for all indemnified parties, in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general obligations or circumstances, unless the indemnified party shall have reasonably concluded and been advised by indemnifying party that there may be defenses available to it which are different from or additional to those available to other indemnified parties, in which case the indemnifying party shall be responsible for the fees and expenses of such additional counsel as is reasonably required. The indemnifying party shall not be liable under the indemnity provisions set forth above for any amount paid in settlement of any claim unless such indemnifying party consented in writing to any such settlement . 9. CONFIDENTIALITY --------------- 9.1 The LICENSEE agrees to maintain secret and confidential all Technical Information, Specifications, and Proprietary Information the LICENSOR (all of which are expressly agreed by the parties to constitute the know-how disclosed or to be disclosed by the LICENSOR to the LICENSEE or obtained by the LICENSEE from the LICENSOR pursuant to this Agreement) and all other information that the LICENSOR designates as confidential and discloses to the LICENSEE pursuant to this Agreement including the design details and operating characteristics of the System, information relating to installation of Vehicle -17- Location Units in motor vehicles and trucks, and all other aspects of the System treated as confidential by the LICENSOR or not generally known, including the System Software, the Vehicle Activation Computer and the Vehicle Activation Transmitters and all related file structures, documentation, algorithms and software concepts (all of the foregoing being referred to collectively as the "Confidential Information"), to respect the LICENSOR's proprietary rights in the Confidential Information, to use the Confidential Information exclusively for the purposes of the exercise of the Licensed Rights and the installation, use, User, servicing and operation of the System in the Territory in accordance with this Agreement, and to disclose the Confidential Information only to those persons to whom and to the extent such disclosure is absolutely necessary for the aforesaid purposes. 9.2 The LICENSEE shall require that all of its employees, sub-contractors, and agents, who will have access to any of the Confidential Information shall be made aware of the confidentiality thereof. The LICENSEE shall further procure that all of its employees and all of such sub-contractors shall enter into a non-disclosure agreement substantially in the form set forth in Attachment IV. 10. WARRANTY -------- The LICENSOR warrants to LICENSEE that the Products when purchased from the LICENSOR, under normal use and service, will be free from defect in materials and workmanship. This warranty shall be in effect for a period the greater of: i) of ninety (90) days from the date of receipt of the Products at the Port of Entry of said VLUs and VTCs to the LICENSEE and ii) or the same warranty LICENSOR receives from its manufacturers from time-to- time (the "Warranty Period"). The LICENSOR's liability for honoring the warranty claims is subject to LICENSEE making claims for defective Products within the applicable Warranty Period, and any claims not made within the Warranty Period shall be conclusively deemed waived and released. The LICENSOR further warrants to LICENSEE that the VACs, VTCs, and VATs, which are purchased from the LICENSOR, under normal use and service, will be free from defects in materials and workmanship. This warranty shall be in effect for a period of one hundred (l80) days from the date of -18- receipt of the VACs, VTCs, and VATs at the Point of Entry, ("Warranty Period"). The LICENSOR'S liability, for honoring the warranty claims is subject to LICENSEE making claims for defective Products within the applicable Warranty Period, and any claims not made within the Warranty Period shall be conclusively deemed waived and released. During the Warranty Period for respective Products, the LICENSOR shall, at its option, replace or repair, at any authorized repair facility designated by the LICENSOR, any Products which the LICENSOR determines to be defective. LICENSOR will grant a 3.5% discount on VAT purchased only, subsequent to the initial purchase as a credit towards the purchase of spare parts. The foregoing warranty does not apply to any Products which have been damaged as a result of force majeure, accident, shipping and handling, improper power supply, misuse, abuse, improper storage, improper maintenance, improper installation, improper operation, unauthorized modification, or which has been installed, serviced, modified or repaired by anyone other than a person designated, in writing by the LICENSOR, as an authorized service representative. EXCEPT AS EXPRESSLY SET FORTH ABOVE, NO OTHER WARRANTIES ARE EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND THE LICENSOR EXPRESSLY DISCLAIMS ALL WARRANTIES NOT STATED HEREIN. THE LICENSOR'S SOLE OBLIGATION FOR VALID WARRANTY CLAIMS AND LICENSEE'S SOLE REMEDY ON ACCOUNT OF WARRANTY CLAIMS SHALL BE FOR REPAIR OR REPLACEMENT AS PROVIDED ABOVE. UNDER NO CIRCUMSTANCES WILL THE LICENSOR BE LIABLE TO THE LICENSEE OR ANY OTHER PERSON FOR ANY DAMAGES OF ANY KIND WHATSOEVER, INCLUDING WITHOUT LIMITATION ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES. 11. TERRITORY --------- This Agreement shall apply to the Country of Russia (the "Territory") with no rights for any other Territory or area outside of the Territory. -19- 12. PROMOTION AND ADVERTISING ------------------------- 12.1 LICENSEE agrees that all signs and advertising shall prominently disclose that it is a LICENSEE of Products. 12.2 LICENSEE agrees that it shall be solely responsible for sales promotions and advertising of Products in the Territory, and that no portion of the cost thereof shall be borne by the LICENSOR. The LICENSOR reserves the right to review and approve all promotional material and literature used by LICENSEE in the sale of LICENSOR'S products with such approval not unreasonably withheld or delayed. 12.3 LICENSEE agrees that it shall be solely responsible at its expense for the translation of LICENSOR'S sales literature and technical and other documentation. Upon the expiration or earlier termination of this Agreement, the LICENSEE agrees to promptly (within fifteen (15) business days) deliver to the LICENSOR literature and documentation of every kind relating to the System and/or any components thereof, and all translations, and all promotional materials, in its possession or within its control, in the manner directed by the LICENSOR. 13. TRANSFER -------- 13.l This Agreement shall be binding upon and enure to the benefit of the parties and their respective legal successors and permitted assigns. The LICENSOR shall have the right to assign or otherwise transfer its rights and obligations under this Agreement to any subsidiary or to any other person, persons, partnership, association, or corporation provided that:- 13.l(a) each such transferee agrees in writing to assume all rights of and obligations undertaken by the LICENSOR herein; 13.l(b) the LICENSEE receives an assignment and assumption agreement executed by the LICENSOR and each such transferee to that effect; -20- 13.l(c) each transferee has the financial capacity and technical expertise necessary to discharge the obligations of the LICENSOR under this Agreement; and 13.l(d) upon such assignment and assumption the LICENSOR shall thereafter, have no further rights or obligations hereunder, without prejudice, however, to the accrued rights of the LICENSOR to such date. 13.2 The LICENSEE shall not assign, sell, transfer, sublease, license, convey, give away, transfer or part with possession of the whole or any part of the Licensed Rights or its other rights and/or obligations under this Agreement. 13.3 The LICENSEE shall not, without the LICENSOR'S prior written consent (such consent not to be unreasonably withheld or delayed) pledge, mortgage, charge or otherwise encumber all or any part of its other rights and obligations under this Agreement, except that the LICENSEE may grant a security interest for bank obligations in a maximum amount of $l million (USD). 14. TERMINATION ----------- 14.1 LICENSEE shall have the right to terminate this Agreement with or without cause, upon the giving of sixty (60) days' written notice to the LICENSOR, provided, however, that such sixty (60) day notice period may be waived or shortened by the LICENSOR in writing after its receipt of the notice of termination given by LICENSEE. 14.2 The following occurrences shall be events of defaults entitling the LICENSOR, at its option, to terminate this Agreement immediately upon the giving of written notice by the LICENSOR: (a) If LICENSEE shall fail to make payment of any sum due from LICENSEE to the LICENSOR within ten (10) days following the receipt of written notice by the LICENSOR stating with particularity the amount and nature of any such unpaid amount; (b) if LICENSEE shall fail to comply with, observe or perform any other material covenant or material agreement set forth in this Agreement, other than those relating to the payment of monies from LICENSEE to the LICENSOR, within thirty (30) days following the receipt -21- of written notice by the LICENSOR stating with particularity the default claimed, provided that the LICENSEE shall not be in default if such default is cured within such thirty (30) day period, or, with respect to breaches that are not curable within such thirty (30) day period, shall have commenced to cure such default and, thereafter, shall have prosecuted to completion the cure of the same with due diligence, provided, however, a default shall occur in all events if any such cure is not effectuated, notwithstanding LICENSEE's due diligence, within sixty (60) days after the giving of the LICENSOR's default notice, provided such cure is within LICENSEE'S control; (c) if a receiver, liquidator or trustee of the LICENSEE shall be appointed for LICENSEE by court order, or if judicial or other proceedings are initiated against LICENSEE for the protection of creditors or if any other action is taken by order of court or other governmental authority wresting control of LICENSEE or its assets, or if a petition to reorganize or its equivalent shall be filed against either party by a third party creditor under any bankruptcy, reorganization or insolvency law, and shall not be dismissed within thirty (30) days, or if LICENSEE shall file a petition in voluntary liquidation or make an assignment for the benefit of creditors or its equivalent under local law, any of the foregoing shall be default entitling the LICENSOR to, thereupon, or thereafter, at any time, terminate this Agreement. 15. RIGHTS AFTER TERMINATION ------------------------ 15.1 Upon the termination of this Agreement, each party shall continue to observe its respective obligations which shall survive the termination of the Agreement, including the obligations in Section 1; LICENSEE shall continue to observe its obligations with respect to Products owned or possessed by LICENSEE; and the LICENSOR shall continue to observe the obligation set forth in section 15.2. 15.2 Except in cases where LICENSEE terminates this Agreement without cause, in the event that following the termination of this Agreement the LICENSOR either (a) permits Products to be sold or distributed in the Territory by a party other than the LICENSEE, or (b) permits a party other than the LICENSEE to provide service in the Territory with -22- respect to any Products distributed, sold, or sublicensed by the LICENSEE, then in either event the LICENSOR or its Designee (the "Purchaser") shall purchase those assets of LICENSEE, including Transferable Intangible Assets, in good and marketable condition, as agreed by both parties which are part of or relate to the System within the Territory, and are useful to the purchaser including, items such as: Vehicle Tracking Computers, the Vehicle Activation Computers, Vehicle Activation Transmitters, VLUs (the "Designated Assets"). The price which Purchaser shall pay for such Designated Assets shall be equal to the lower of cost or fair market value for tangible assets and fair market value for Transferable Intangible Assets. If the parties cannot agree, Fair Market Value shall be calculated by an impartial international auditing firm (the "Auditor") and, if requested by either party, shall be subject to arbitration as provided in Section l7. In calculating the Fair Market Value of Transferable Intangible Assets, the Auditor in addition to taking into account other relevant factors (a) shall make such calculations as of the date of the termination of the Agreement (the "Valuation Date"), (b) shall take into account the present value of both future payments and future costs associated therewith (c) shall assume that LICENSOR had provided to LICENSEE the consent and reasonable assistance necessary to enable the Purchaser to enjoy the benefits of the Transferable Intangible Assets (d) shall assume that as of the Valuation Date the LICENSEE has an unqualified right to continue to operate pursuant to this Agreement for a period equal to (i) ten (l0) years, minus (ii) the number of full calendar years which has elapsed during the period commencing with the Effective Date of the exercise of the rights under this Agreement and ending on the Valuation Date. The closing shall occur in Boston, Massachusetts. At such closing, the Purchaser shall pay in cash to the LICENSEE the price set forth above for all of the Designated Assets and Transferable Intangible Assets. LICENSEE shall execute and deliver such agreements (including without limitation an Asset Purchase Agreement containing such reasonable representations and warranties and other terms and conditions as the Purchaser may require), instruments and other documents as are necessary to transfer to the Purchaser the Assets which the Purchaser is acquiring, free and clear of all liens, encumbrances and restrictions (unless otherwise agreed to by the Purchaser). -23- 15.3 Immediately upon the expiration or earlier termination of this Agreement, the LICENSEE shall cease and forever abstain from using the CARSEARCH by LoJack Name and to deliver to the LICENSOR all documents, instructions, display items, and the like bearing any of the CARSEARCH by LoJack Name. To the extent that such items were originally purchased from the LICENSOR, are in original packaging and can be used by LICENSOR, upon any such termination by the LICENSOR, the LICENSOR may pay LICENSEE a price for such items equal to cost less a fifteen (15%) percent restocking charge. 15.4 Immediately upon the expiration or earlier termination of this Agreement, LICENSEE shall assign to LICENSOR, free and clear of all liens, encumbrances, and restrictions, permits to operate the System by any governmental authority or other regulatory bodies. 16. PERFORMANCE STANDARDS --------------------- 16.1 Within two (2) months after the exercise of the Rights described in Section l of this Agreement, all approvals required by governmental authority or other regulatory bodies within the Territory for the installations and operations of the System and all other aspects of the System within the Territory shall have been obtained. 16.2 Within five (5) months of receipt of the approvals described in Section 16.l of this Agreement, the Vehicle Activation System shall be fully operational with coverage effective throughout the Greater Moscow area. 16.3 Commencing by the (6th) sixth month of the receipt of the approvals described in Section 16.l of this Agreement, LICENSEE shall have purchased a minimum of Five Thousand (5,000) VLUs ("Minimum Unit Purchase"). 16.4 For each calendar quarter commencing nine months after the initial receipt of VLUs (as described in Section 2.3) LICENSEE shall purchase from the LICENSOR a minimum of One Thousand Five Hundred (l,500) VLUs, plus an annual increase of 10% (ten percent) over the quantity in Section 16.3 calculated on a quarterly basis thereafter during the term of this Agreement. -24- 16.5 In addition to the LICENSOR's Rights of Termination as described in Section l5, in the event that the LICENSEE is not in compliance with any of the terms of Sections 2.l, 2.3, 2.4, 2.5, 2.ll, 3.2, 4.2, 13.2, 13.3, l6.l, l6.2, l6.3, and l6.4 of this Agreement, the LICENSOR shall have the right, at the LICENSEE'S expense, to visit LICENSEE's operation in order to review and inspect such operations with five (5) day written notice. 17. DISPUTE RESOLUTION ------------------ The parties agree that all controversies and disputes arising under this Agreement or in connection with the transactions hereunder shall be determined by arbitration conducted in accordance with the rules for commercial disputes of the American Arbitration Association in Boston, Massachusetts, and all matters submitted to arbitration shall be binding upon the parties and fully enforceable. 18. GOVERNING LAW ------------- This Agreement shall be deemed made in the Commonwealth of Massachusetts and all rights and obligations of the parties hereunder shall be governed as to validity, construction and in all other respects by the Laws of United States and the Commonwealth of Massachusetts. 19. NOTICE ------ All notices hereunder shall be in writing and shall be deemed to be given and effective upon delivery by a recognized international delivery service such as Federal Express or DHL, delivery charges prepaid or facsimile, and addressed to the parties at their respective addresses set forth above, or at such other addresses as may be designated from time-to-time by a party by the giving of notice thereof in the manner herein provided for the giving of notices. 20. GENERAL ------- 20.1 The provisions of this Agreement may be varied or amended by mutual consent of the parties but no such variation or amendment shall be effective unless made in writing and signed by the LICENSOR and the LICENSEE. -25- 20.2 This Agreement contains the whole agreement between the parties with respect to the subject matter hereof and supercedes all previous agreements and understandings between the parties, whether written or oral, with respect to the subject matter hereof. 20.3 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 provision 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. 20.4 Each party to this Agreement shall execute and deliver such other documents and do such other acts and things as may be necessary or desirable to carry out the terms provisions and purpose of this Agreement. 20.5 The failure to enforce or to require the performance at any time of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions and shall not affect the right of any party thereafter to enforce and to require performance of each and every provision in accordance with the terms of this Agreement. 20.6 The headings of the clauses of this Agreement are used for convenience only and shall not affect the meaning or interpretation of the contents of this Agreement. 20.7 The relationship between LICENSOR and LICENSEE is that of independent contractors, and that LICENSEE is not authorized to undertake any obligation or commitment on behalf of LICENSOR, including any warranty given by LICENSOR under this Agreement, and that such purported action by LICENSEE shall be of no effect. 20.8 If in the opinion of LICENSOR'S counsel any portion of this Agreement may not be enforceable in the Territory, LICENSOR and LICENSEE each agree that it will be amended, in a manner acceptable to LICENSOR, so that such portion is enforceable under the laws of the Territory. -26- 21. FORCE MAJEURE ------------- Neither party shall be liable or deemed to be in default for delay or failure in performance under this Agreement or interruption of service resulting directly or indirectly from acts of God, political, civil or military authority, acts of public enemy, war, riots, civil disturbances, insurrections, accidents, fire, explosions, earthquakes, floods, the elements, strikes, labor disputes, fuel shortages, or from failure to receive on a timely basis suitable parts, labor materials or transportation, or other causes beyond reasonable control of such party; and the time for performance so delayed shall be deemed extended for the period of such delay. 22. SIGNATURES ---------- This Agreement may be executed in one or more counterparts having the signatures of the parties and each such counterpart shall, for all purposes, be deemed an original, but all such counterparts shall together constitute but one and the same instrument. LOJACK INTERNATIONAL CORPORATION By: ---------------------------- - ---------------------------- GBSI, Inc. ta Access 2000 By: ---------------------------- Michael Turner Date --------------- -27- EX-10.SS 4 AMENDMENT NO. 1 TO PLAN EXHIBIT 10ss LOJACK CORPORATION Amendment Number One to Restated and Amended Stock Incentive Plan ----------------------------------------------------------------- On May 26, 1995, the Board of Directors of LoJack Corporation approved the following Amendment Number One to the Restated and Amended Stock Incentive Plan: RESOLVED: That the following amendments to the Restated and Amended Stock - -------- Incentive Plan (the "Plan") are hereby adopted: Section 2(u) of the Plan shall be deleted and the following language shall be inserted: (u) "Senior Management Option": An Option which is a NQSO, an ISO or a combination thereof, as determined by the Committee, granted to a person determined by the Committee to be a member of senior management and designated a Senior Management Option by the Committee. Section 4(a) of the Plan shall be deleted and the following language shall be inserted: (a) Maximum Shares. Subject to adjustment by the operation of Section 4(b) hereof, the maximum number of Shares with respect to which Options may be granted under the Plan is 4,124,135 shares, comprised of 3,414,135 shares available for the Award of Senior Management Options, 500,000 shares available for the Award of other Options, and 210,000 shares available for Non-Employee Director Options. The Shares with respect to which Options may be granted under the Plan may be either authorized and unissued shares or issued shares heretofore or hereafter reacquired and held as treasury shares. An Award shall not be considered to have been made under the Plan with respect to any Option to the extent that it terminates without being exercised, and new Awards may be granted under the Plan with respect to the number of Shares as to which such termination has occurred. RESOLVED: Except as expressly amended hereby, all of the terms and provisions of - -------- the Plan shall and do remain in full force and effect, all without change, and all of the terms and provisions contained therein, as amended by the prior resolution, are hereby expressly ratified and confirmed. EX-10.TT 5 SECOND AMENDMENT TO LOAN AGREEMENT EXHIBIT 10tt SECOND AMENDMENT TO LOAN AGREEMENT ---------------------------------- THIS AMENDMENT is made as of February 20, 1996 by and among LOJACK CORPORATION, a Massachusetts corporation (the "Parent"), and its wholly-owned ------ subsidiaries, LOJACK INTERNATIONAL CORPORATION, a Delaware corporation ("LIC") --- formerly known as LoJack Midwest Corporation (and the successor by merger to CarSearch Corporation, which was formerly a party to the Loan Agreement referred to below), LOJACK OF NEW JERSEY CORPORATION, a Delaware corporation ("LONJ"), ---- and RECOVERY SYSTEMS, INC., a Florida corporation ("RSI", with the Parent, LIC --- and LONJ being collectively referred to herein as the "Original Borrowers"); by ------------------ execution of the Joinder attached hereto, LOJACK HOLDINGS CORPORATION, a Massachusetts corporation ("Holdings" and, together with the Original Borrowers, -------- the "Borrowers") and THE FIRST NATIONAL BANK OF BOSTON (the "Lender"). --------- ------ RECITALS -------- A. The Lender and the Original Borrowers are parties to a Loan Agreement dated as of December 10, 1993, as amended as of October 11, 1994 (as so amended, the "Loan Agreement"). Capitalized terms used herein without definition have -------------- the meanings assigned to them in the Loan Agreement. B. Since the execution of the Loan Agreement, the Parent has formed a new subsidiary, LoJack Holdings Corporation, for the purpose of dealing in and holding marketable securities and cash. Simultaneously with the execution of this Amendment, the Parent is causing Holdings to enter into a Security Agreement with the Lender, and the Parent is pledging all of the issued and outstanding shares of capital stock of Holdings to the Lender, all as required under Section 2.7 of the Loan Agreement. C. The Original Borrowers wish to amend the Loan Agreement (1) to increase the maximum Revolving Loans available under the Note from $4,500,000 to $7,500,000, with the outstanding principal amount thereof to convert to a five year term loan on March 1, 1997, (2) to add Holdings as a "Borrower" thereunder and (3) to amend certain financial and other covenants, all as hereinafter set forth. D. Subject to certain terms and conditions, the Lender is willing to agree to such amendments, as hereinafter set forth. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: I. Amendment to Definitions in Loan Agreement. ------------------------------------------- -1- A. The definitions of "Borrowers", "Commitment", "EBITDA", "New Markets" and "Operating Cash Flow" in Section 1 of the Loan Agreement are amended to read as follows: Borrowers: LoJack Corporation, LoJack International Corporation, LoJack of --------- New Jersey Corporation, Recovery Systems, Inc. and LoJack Holdings Corporation. Commitment: $7,500,000. ---------- EBITDA: For any period, an amount equal to Net Income of the Borrowers for ------ such period plus (a) taxes in respect of income and profits, (b) Interest Expense, (c) depreciation and (d) amortization, in each case to the extent deducted in computing Net Income for such period. New Markets: Any and all new markets located in the United States, as ----------- specified in the Parent's business plan delivered from time to time to the Lender. Operating Cash Flow: For any period, an amount equal to Net Income for ------------------- such period plus (a) taxes in respect of income and profits, (b) Interest ---- Expense, (c) depreciation and amortization and (d) other non-cash charges taken in accordance with GAAP, in each case to the extent deducted in computing Net Income for such period, minus (i) taxes in respect of income and profits ----- actually paid during such period, (ii) Capital Expenditures made during such period, (iii) Equity Distributions made during such period, to the extent made concurrently with or following the initial Revolving Loan, and (iv) Permitted Investments described in clause (c) of the definition thereof made during such period, to the extent made concurrently with or following the initial Revolving Loan. B. In addition, the following new definitions are added to Section 1, alphabetically, as follows: Bank Charges: See Section 2.1. ------------ Conversion Date: See Section 2.1. --------------- Equity Distribution: Any distribution or payment of cash or property, or ------------------- both, directly or indirectly, in respect of any class of the stock of any Borrower or any other equity securities in any Borrower, including without limitation any dividends and any other distributions paid for the purchase, redemption, retirement or acquisition of any class of stock or other equity securities of any Borrower. Holdings: LoJack Holdings Corporation, a Massachusetts corporation and the -------- Parent's wholly owned subsidiary. Permitted Investment: (a) Any equity investment in an existing Subsidiary -------------------- made by a Borrower after the date of this Agreement, (b) any stock or asset acquisition made by a Borrower (directly or indirectly by a Subsidiary formed for such purpose), in each case, however, only to the extent consented to in advance by the Lender, which consent shall not be unreasonably withheld or delayed, and (c) any investment by a Borrower in a joint venture, -2- corporation, partnership or other similar business, provided that (i) such investment involves the purchase of no more than 49% of the equity and/or debt securities issued by such entity, on a fully diluted basis, and (ii) the aggregate amount of such investments shall not exceed $5,000,000 for any fiscal year. Term Loan Principal: See Section 2.4(a). ------------------- C. The definitions of "Excluded Expenditures" and "Maturity Date" are deleted from Section 1.1. II. Revolving Credit and Term Loans. Section 2.1 is deleted and the ------------------------------- following substituted therefor: Section 2.1. Revolving Credit and Term Loans. --------------------------------------------- (a) Subject to the terms and conditions contained in this Agreement, the Lender agrees to make loans (the "Revolving Loans') to the Parent from time to --------------- time from the date hereof until March 1, 1997 (the "Conversion Date"), in the --------------- maximum principal amount at any one time outstanding of $7,500,000, provided that the principal amount of Revolving Loans outstanding at any time shall not exceed the Borrowing Base at such time. Subject to the provisions of this Agreement, from the date hereof until the Conversion Date and within the limits of the Commitment, the Parent may borrow, repay and re-borrow under this Section. (b) The Revolving Loans shall be evidenced by, and be payable as provided in, the Borrowers' joint and several Amended and Restated Revolving Credit and Term Note in the form attached as Exhibit 2.1 hereto (with all substitutions ----------- therefor, the "Note"), payable to the order of the Lender, which Note is hereby ---- incorporated herein by reference and made a part hereof. (c) Until the Conversion Date, the Lender shall record in the Revolving Loan Account (i) all Revolving Loans, (ii) all payments made by any of the Borrowers and (c) other debits and credits, in accordance with customary accounting practices, including all interest, fees, charges, taxes and expenses chargeable to the Borrowers under this Agreement (collectively, the "Bank Charges"). The ------------ debit balance of the Revolving Loan Account prior to the Conversion Date shall reflect the amount of the Borrowers' Obligations to the Lender from time to time in respect of Revolving Loans and other Bank Charges hereunder. At least once each month the Lender may render a statement of account showing as of its date the debit balance(s) of the Loan Account which, unless within thirty (30) days of such date notice to the contrary is received by the Lender from the Borrowers, shall be considered correct and accepted by the Borrowers and conclusively binding upon it. III. Pricing. Section 2.3(a) is amended by deleting the words and ------- characters "plus .625%" where they appear in the first sentence thereof, with the effect that the principal amount outstanding under the Note shall bear interest at a rate per annum equal to the Base Rate. -3- IV. Amortization. Section 2.4(a) is deleted and the following inserted ------------ in substitution therefor: (a) In addition to payments required under the third sentence of this Section 2.4(a), the Borrowers may prepay the principal amount of the Note, in whole or in part, at any time without premium or penalty. Amounts so paid may, prior to the Conversion Date and within the limits of the Borrowing Base, be borrowed and reborrowed as provided in Section 2.1. The Borrowers shall repay the principal amount outstanding under the Note on the Conversion Date (the "Term Loan Principal"), without setoff, deduction or counterclaim, in quarterly ------------------- installments of principal on each Quarterly Date, commencing on May 31, 1997 and ending on February 28, 2002, when all outstanding principal, interest and other expenses and charges payable under this Agreement, the Note and the Security Documents shall be due and payable in full. The amount of each such quarterly installment shall be the percentage of the Term Loan Principal set forth opposite the respective Quarterly Date in the following table:
Percentage of Term Loan Principal --------------------------------- Quarterly Date Payable during Each Fiscal Quarter -------------- ---------------------------------- May 31, 1997 through February 28, 1998 3.00% May 31, 1998 through February 28, 1999 4.00% May 31, 1999 through February 28, 2000 5.00% May 31, 2000 through February 28, 2001 6.00% May 31, 2001 through February 28, 2002 7.00%
V. Fees. Section 2.5(a) is amended to read in its entirety as follows: ---- (a) The Borrowers shall pay to the Lender a commitment fee, computed on the daily debit balance in the Revolving Loan Account through the Conversion Date and payable in arrears on each Quarterly Date and on the earlier of the Conversion Date or the maturity of the Note. whether by payment, prepayment , acceleration or otherwise, equal to 0.25% per annum of the average daily unused portion of the Commitment. VI. Security. Section 2.7(a) is amended by adding after the word "Parent" -------- at the end of the parenthetical included therein the words and character "and of any and all equity securities issued to any Borrower, including equity securities constituting Permitted Investments". -4- VII. Use of Proceeds. Section 2.8(a) is deleted and the following --------------- substituted therefor: (a) The proceeds of the Revolving Loans shall be used (i) for working capital purposes of the Borrowers, including without limitation Capital Expenditures, including costs and expenses incurred in connection with start-up businesses in New Markets, (ii) for Permitted Investments and (iii) to make Equity Distributions in respect of the Parent's capital stock. VIII. Conditions to Loans. Section 3.2(b)(ii) is deleted and the ------------------- following substituted therefor: (ii) (A) after giving effect to such Loan, both as of the proposed date thereof and as if made on the most recent Quarterly Date, no event shall have occurred and be continuing and no condition shall exist, or would result from such Loan or the transactions contemplated hereby, which would constitute, a Default, and (B) the Borrowers shall have delivered to the Lender the certificate of a senior officer of the Parent, in form and substance satisfactory to the Lender, certifying to such effect and including detailed calculations showing compliance with the financial covenants set forth in Section 5 as of such prior Quarterly Date and certifying as to such senior officer's belief that the Borrowers are also in compliance therewith as of the proposed date of such Loan; IX. Financial Covenants. ------------------- A. Section 5.1 is amended to read in its entirety as follows: 5.1 Debt Service Coverage. The Borrowers will maintain a ratio of --------------------- Operating Cash Flow to Total Debt Service for each period of twelve consecutive months of at least (a) 1.50:1.00, through and including the twelve month period ending February 28, 1998, and (b) 1.75:1.00, for each twelve month period ending on or after March 31, 1998. B. Section 5.2 is amended to read in its entirety as follows: 5.2 Minimum Tangible Capital Funds. ------------------------------ (a) The Borrowers will cause Tangible Capital Funds to equal or exceed, at all times, $33,000,000 minus the aggregate amount of any Equity Distributions ----- made after November 30, 1995. (b) In addition, the Borrowers will cause Tangible Capital Funds as of each Quarterly Date specified below to equal or exceed the following respective amounts:
Quarterly Date(s) Minimum Tangible Capital Funds ----------------- ------------------------------ November 30, 1995 and February 28, 1996 $4,000,000 May 31, 1996 through February 28, 1997 $6,000,000 May 31, 1997 and thereafter $8,000,000
-5- C. Section 5.3 is amended to read in its entirety as follows: 5.3 Leverage. The Borrowers will not permit the ratio of Total -------- Liabilities to Tangible Capital Funds as of any Quarterly Date to exceed the respective amount indicated below:
Quarterly Date(s) Maximum Ratio of Total ----------------- ---------------------- Liabilities to Tangible Capital ------------------------------- Funds ----- November 30, 1995 through February 28, 3.00:1.00 1997 May 31, 1997 through February 28, 1998 2.00:1.00 May 31, 1998 and thereafter 1.00:1.00
D. Section 5.5 is deleted and the following substituted therefor: 5.5 Minimum Profitability. The Borrowers will not permit their --------------------- consolidated after-tax profit, determined in accordance with GAAP, to be less than $500,000 for any fiscal quarter. X. Other Covenants. --------------- A. Section 6.1(c) is amended to provide that the Borrowing Base Certificate required to be delivered thereunder shall be delivered on a quarterly rather than monthly basis so long as there is no outstanding balance under the Note, within 35 days after the end of each fiscal quarter. B. Section 7.1(c) is amended by increasing the maximum permitted amount of indebtedness for Capitalized Leases and purchase money Indebtedness set forth in clause (i) (B) thereof from $5,000,000 to $7,000,000. C. Section 7.7(a) is deleted and the following substituted therefor: 7.7 Investments, Loans and Acquisitions. ----------------------------------- (a) None of the Borrowers will (i) purchase or acquire any share of capital stock, partnership interest, evidence of indebtedness or other equity security of any other Person, (ii) acquire all or substantially all of the assets of any entity, (iii) make any loan, advance or extension of credit to, or contribution to the capital of, any other Person, (iv) purchase any real estate for sale or investment, (v) purchase any commodities futures contracts other than in connection with bona fide hedging transactions in the ordinary course of business, (vi) make any other investment in any other Person, (vii) form any Subsidiary or (viii) make any commitment or acquisition of any option or enter into any other arrangement for the purpose of making any of the foregoing investments, loans or acquisitions (all of the foregoing being referred to collectively as "Investments"); except for (A) Qualified Investments, (B) the Parent's -6- equity investments in Subsidiaries as of the date hereof, (C) Intercompany Loans by the Parent to Subsidiaries existing as of the date hereof, (D) subject to the requirements of Section 7.7(b), the formation and capitalization of Subsidiaries (1) to install the Lojack System in one or more of the New Markets or (2) with the Lender's consent, in connection with acquisitions constituting Permitted Investments and subject to the following clause (E), and (E) Permitted Investments, provided that any required consents of the Lender have been obtained, all conditions to such consents have been satisfied and, after giving effect to any such Permitted Investment, the Borrowers are in compliance with Sections 2.7, 6.8, 7.1 and 7.7(b) and all other applicable provisions of this Agreement and no Default exists and is continuing. (b) Notwithstanding the foregoing, no new Subsidiary may be formed by the Companies unless (i) such Subsidiary is majority owned by the Parent, (ii) the Parent shall have notified the Lender at least five (5) days prior to the formation of any such Subsidiary and (iii) as of the date of the formation of any such Subsidiary and the Parent's investment therein, and after giving effect thereto, (A) this Agreement shall have been amended and restated to add such Subsidiary as a Borrower and to reflect all other related changes in the Parent's capital structure, to the reasonable satisfaction of the Lender, (B) such new Subsidiary shall have entered into any and all Security Documents (in form and substance satisfactory to the Lender) necessary to comply with the provisions of Section 2.7 and the Lender shall be satisfied that all liens and security interests required to be granted in the assets and ownership interests of such new Subsidiary under such Section 2.7 have been granted or pledged and have been perfected, and (C) without limiting the generality of the foregoing, no Default shall exist and be continuing. D. Section 7.8 is deleted and the following substituted therefor: 7.8 [Intentionally Deleted.] XI. Notices. Section 9.1 is amended by deleting the reference to Roy F. ------- Bates, Vice President, with a Mail-Stop of 01-09-12, and substituting therefor a reference to Michael E. Hjerpe, with a Mail-Stop of 01-07-07. XII. Exhibits. -------- A. Exhibit 2.1 to the Loan Agreement is deleted and the attached Exhibit ----------- ------- 2.1 substituted therefor. - --- B. The following Disclosure Exhibits to the Loan Agreement are amended to reflect changes arising in connection with the Borrowers' expansion into the New Markets since the date of execution of the Loan Agreement, as provided in the Loan Agreement Disclosure Exhibit Supplement attached hereto: -7- a) Exhibit 4.1 Borrowers' Jurisdictions ----------- b) Exhibit 4.5 Real Property; Liens ----------- c) Exhibit 4.8 Material Agreements ----------- d) Exhibit 4.17 Capitalization ------------ e) Exhibit 4.20 Mergers and Acquisitions ------------ C. The Officer's Certificates delivered in connection with the execution and delivery of each of the Security Agreements dated as of December 10, 1993 executed by the Borrowers and the Lenders are amended to reflect changes arising in connection with the Borrowers' expansion into the New Markets since such date, as provided on the Security Agreement Exhibit Supplement attached hereto. XIII. No Further Amendments. Except as specifically amended hereby, the --------------------- Loan Agreement and the Security Documents shall remain unmodified and in full force and effect and are hereby ratified and affirmed in all respects, and the indebtedness of the Borrowers to the Lender evidenced thereby and by the Note is hereby reaffirmed in all respects. XIV. Confirmation of Security. The Borrower's obligations under the Loan ------------------------ Agreement, as amended hereby, the Amended and Restated Revolving Credit and Term Note issued on the date hereof in substitution for the Borrower's Revolving Credit Note dated December 10, 1993 (the "New Note") (collectively, the "New -------- --- Obligations") and all other obligations constitute "Obligations" for all - ----------- purposes of (i) the Loan Agreement and (ii) the Security Documents executed by the Borrowers (the "Original Security Documents") and, howsoever defined, shall --------------------------- be secured by, and entitled to all of the benefits of, the Original Security Documents and any other Security Documents executed from time to time under the Loan Agreement, as amended hereby. XV. Certain Representations of the Borrowers. As a material inducement to ---------------------------------------- the Lender to enter into this Amendment, the Borrowers hereby jointly and severally represent and warrant to the Lender (which representations and warranties shall survive the delivery of this Amendment), after giving effect to this Amendment, as follows: - --------------------------- A. The execution and delivery of this Amendment and the additional Security Documents executed and delivered by the Parent and Holdings on the date hereof have been duly authorized by all requisite corporate action on the part of the Borrowers. B. The representations and warranties contained in Section 4 of the Loan Agreement, as amended by this Amendment, are true and correct in all material respects on and as of the date of this Amendment as though made at and as of such date (except to the extent that such representations and warranties expressly relate to an earlier date or except to the extent variations therefrom have been permitted under the terms of the Loan Agreement or -8- otherwise in writing by the Lender). No material adverse change has occurred in the assets, liabilities, financial condition, business or prospects of any Borrower from that disclosed in the financial statements most recently furnished to the Lender or otherwise by written notice from the Borrowers to the Lender. C. This Amendment and the additional Security Documents executed and delivered by the Parent and Holdings on the date hereof constitute the legal, valid and binding obligation of the Borrowers, enforceable against each of them in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights and remedies of creditors generally or the application of principles of equity, whether in any action at law or proceeding in equity, and subject to the availability of the remedy of specific performance or of any other equitable remedy or relief to enforce any right thereunder. XVI. Conditions. The willingness of the Lender to agree to the foregoing ---------- is subject to the following conditions: A. The Borrowers shall have executed and delivered to the Lender (or shall have caused to be executed and delivered to the Lender by the appropriate persons) the following: 1. This Amendment. 2. The New Note, in the form of new Exhibit 2.1 to the Loan Agreement (in exchange for cancellation of the Revolving Credit Note dated December 10,1995). 3. A Security Agreement between Holdings and Lender, together with the related Officer's Certificate. 4. Stock certificates evidencing all of the issued and outstanding shares of capital stock of Holdings, which are owned in full by the Parent, as required under Section 1(b) of the Stock Pledge Agreement dated as of December 10, 1993 between the Parent and the Lender, together with appropriate stock powers, executed in blank, and a revised Exhibit A showing an updated list of --------- the shares of capital stock pledged with the Secured Party under such Stock Pledge Agreement. 5. An Assignment for Security (Trademarks) and a Trademark Collateral Assignment and Security Agreement, substantially in the form of the comparable documents previously executed by the Parent as of December 10, 1993, in connection with certain additional registered trademarks obtained, and trademark applications made, by the Parent, together with evidence satisfactory to the Lender of the proper filing of such Assignment for Security (Trademarks) with the U.S. Patent and Trademark Office by Robert H. Rines, Esq., the Borrowers special patent and trademark counsel. 6. True and complete copies of any required directors' consents and/or resolutions, authorizing the execution and delivery of the Amendment and the additional Security Documents executed and delivered on the date hereof by the Parent and Holdings, certified by the Clerk of each Borrower. -9- 7. UCC, tax lien and judgment searches of recent date as to each of the Borrowers, to the extent required by the Lender and evidence satisfactory to the Lender of the proper filing of any and all additional UCC financing statements, or amendments thereto, necessary to ensure full compliance by the Borrowers with the provisions of Section 2.7 of the Loan Agreement with respect to assets and properties acquired or leased in the New Markets and otherwise since the date of execution of the Loan Agreement, including the additional registered trademarks obtained, and trademark applications made, by the Parent, as described on Exhibit 4.6 to the Loan Agreement, as amended on the date hereof. 8. Such other supporting documents and certificates as the Lender or its counsel may reasonably request. B. The Borrowers shall have paid to the Lender all outstanding legal fees and disbursements of the Lender's counsel. C. All legal matters relating to this Amendment shall be satisfactory to the Lender and its counsel. XVII. Miscellaneous. ------------- A. As provided in the Loan Agreement, the Borrowers jointly and severally agree to reimburse the Lender upon demand for all out-of-pocket costs and expenses of the Lender (including reasonable fees and disbursements of counsel to the Lender) in connection with its Amendment and the other agreements and instruments and documents executed pursuant hereto. B. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. C. This Amendment may be executed by the parties hereto in several counterparts hereof and by the different parties hereto on separate counterparts hereof, all of which counterparts shall together constitute one and the same agreement. -10- IN WITNESS WHEREOF, the Lender and the Original Borrowers have caused this Amendment to be duly executed by their duly authorized representatives, in each case as a sealed instrument and as of the day and year first above written. LOJACK CORPORATION By --------------------------------- Joseph F. Abely, President LOJACK INTERNATIONAL CORPORATION By --------------------------------- Joseph F. Abely, President LOJACK OF NEW JERSEY CORPORATION By --------------------------------- Joseph F. Abely, President RECOVERY SYSTEMS, INC. By --------------------------------- Joseph F. Abely, President THE FIRST NATIONAL BANK OF BOSTON By: --------------------------------- Michael E. Hjerpe, Vice President -11- JOINDER TO LOAN AGREEMENT ------------------------- The undersigned, by its execution hereof, hereby becomes a party to, and agrees to be bound by, the Loan Agreement dated as of December 10, 1993, as amended as of October 11, 1994 and February 20, 1996 (the "Loan Agreement"), among The First National Bank of Boston, LoJack Corporation, LoJack International Corporation, LoJack of New Jersey Corporation and Recovery Systems, Inc., and shall have all of the rights and obligations of a "Borrower" under the Loan Agreement. Executed as a sealed instrument as of February 20, 1996. LOJACK HOLDINGS CORPORATION By --------------------------------- Joseph F. Abely, President -12- LOJACK CORPORATION EXHIBIT 4.1 Description of Incorporation and Foreign Qualification of Borrowers
NAME OF BORROWER STATE OF INCORPORATION FOREIGN QUALIFICATION LoJack Corporation Massachusetts Georgia, California* Virginia, Rhode Island New York, Connecticut, District of Colombia LoJack of New Jersey Corporation Delaware New Jersey LoJack International** Delaware Michigan,Illinois Recovery Systems Inc.*** Florida Florida LoJack Holdings Corporation Massachusetts None
Each of LoJack of New Jersey, LoJack International, Recovery Systems Inc., and LoJack Holdings Corporation is a wholly-owned subsidiary of LoJack Corporation. *In California, LoJack Corporation is qualified to do business under the name "LoJack Auto Recovery Systems." **Formerly known as LoJack Midwest Corporation (and the successor by merger to CarSearch Corporation), which does business in Illinois under the tradename "LoJack of Illinois," and in Michigan under the tradename "LoJack of Michigan." ***In Florida, Recovery Systems, Inc. does business under its tradename "LoJack of Florida". EXHIBIT 4.17 CAPITALIZATION LoJack Corporation LoJack of New LoJack International Recovery LoJack Jersey Corporation Corporation Systems, Inc. Holdings Corporation LoJack Corporation is the legal and record owner of: 1. 650 shares of Common Stock, without par value, of LoJack of New Jersey Corporation, a Delaware corporation (LONJ"), and 15150 shares of Non-Voting Cumulative Preferred Stock, without par value, of LONJ. 2. 1,000 shares of Common Stock, without par value, of LoJack International Corporation (formerly LoJack Midwest Corporation), a Delaware corporation. 3. 100 shares of Common Stock, with $.01 par value, of Recovery Systems, Inc., a Florida corporation. 4.100 shares of Common Stock without par value, of LoJack Holdings Corporation, a Massachusetts corporation. For further description of the other information required in this Exhibit, please see LoJack Corporation's most recent financial statement. EXHIBIT 4.20 NAME CHANGES, MERGERS AND ACQUISITION As of November 3, 1989 LoJack Corporation ("LoJack"), through its subsidiary, LoJack of New Jersey Corporation, acquired substantially all of the assets of Auto Recovery Systems, Inc. a distributor of LoJack's products, and the resulting corporation, known as LoJack of New Jersey Corporation, remains a subsidiary of LoJack. Subsequently, LoJack acquired all of the securities of LoJack of New Jersey Corporation, which were not previously held by it. The stockholders of Auto Recovery Systems, Inc. and the former minority stockholders of LoJack of New Jersey Corporation, received LoJack shares in these acquisitions. Effective May 30, 1990, LoJack of Florida Corporation, a wholly-owned subsidiary of LoJack, was merged with and into Recovery Systems, Inc., a Florida corporation and a former distributor of LoJack's products. Recovery Systems, Inc. was the surviving corporation in the merger and does business under the name of LoJack of Florida. The former stockholders of Recovery Systems, Inc. received shares of LoJack's common stock as consideration for the surrender of their shares in the merger. In July of 1990, the stockholders of LoJack at their annual stockholders meeting, voted to remove the hyphen from the former name "Lo-Jack" so that the corporate name of the company is now "LoJack Corporation." Effective October 5, 1994 CarSearch Corporation and LoJack Midwest Corporation merged, at which time CarSearch Corporation ceased to exist, and LoJack Midwest became the surviving corporation. Subsequent to this merger, LoJack Midwest Corporation changed its name to LoJack International Corporation. EXHIBIT 4.5 LIST OF LEASES 1. A certain Lease between Recovery Systems, Inc. and Hutton/GSH Commercial Properties, which relates to the premises (or portion thereof) located at 5371 N.W. 33rd Avenue, Fort Lauderdale, Florida. 2. A certain Lease between LoJack Corporation and Kurt-Saracen Associates, which relates to the premises (or portion thereof) located at 333 Elm Street, Dedham, Massachusetts. 3. A certain Lease between LoJack Corporation and Brannen/Goodard Company, which relates to the premises (or portion thereof) located at 8601 Dunwoody Place, Atlanta, Georgia. 4. A certain Lease between LoJack Midwest Corporation and Korman/Lederer Management Co. which relates to the premises (or portion thereof) located at 655 West Grand Ave, Elmhurst, Illinois. 5. A certain Lease between LoJack Midwest Corporation and Southfield Technecenters Properties, which relates to the premises (or portion thereof) located at 21455 Melrose Ave., Southfield, Michigan. 6. A certain Lease between LoJack Corporation and Century Center Associates, L.P. which relates to the premises (or portion thereof) located at 9911 West Pico Blvd., Los Angeles, California. 7. A certain Lease between LoJack Corporation and TCW Realty Fund III Holding Co. which relates to the premises (or portion thereof) located at 485 Spring Park Place, Herdon, Virginia. 8. A certain Lease between LoJack of New Jersey and Paramus Plaza IV Associates which relates to the premises (or portion thereof) located at 12 Route 17 North, Paramus, New Jersey. 9. A certain Lease between LoJack Corporation and Al-Ron Associates which relates to the premises (or portion thereof) located at 15 Commercial Circle, Dedham, Massachusetts. EXHIBIT 4.6 LIST OF LICENSEE, PATENTS AND TRADEMARKS ---------------------------------------- l. Patents ------- United States U.S. Patent 4,l77,466 United States U.S. Patent 4,8l8,998 United States U.S. Patent 4,098,629 Argentina Patent No. 243285 European* Patent No. 0245555 Canada Patent No. l,286,390 Venezuela Patent No. 252-88 Mexico Patent No. l66803 Spain Patent No. P-8700923/4 Brazil Patent No. 870l433 Japan Patent No. 73944/87 2. Trademarks ---------- 2.l Registered U.S. Trademarks: -------------------------- For the tradename "LoJack", LoJack Corporation has U.S. Trademark Registration No. l,482,2ll. CarSearch by LoJack #l,766,622 LoJack Retrieve #l,650,079 LoJack Prevent #l,653,600 Voice Guard by LoJack #l582332 2.2 Registered Non-U.S. Trademarks: ------------------------------ For the tradename "LoJack" LoJack Corporation has Registered Non-U.S. Trademarks in the following countries: Argentina Registration No. l,521,255 Australia Registration No. 5l0900 Brazil Registration No. 8l4990878 Canada Registration No. 377,587 Czecholslovakia Registration No. 73l95 Ecuador Registration No. 37464/94 Great Britain Registration No. l388l52 France Registration No. l,539,703 Germany Registration No. ll633l3 Greece Registration No. 108,07l Israel Registration No. 852l9 Italy Registration No. l98l85 Page 3 Japan Registration No. 5999l/89 Mexico Registration No. 368782 South Africa Registration No. 94/14386 South Korea Registration No. 198185 Spain Registration No. l,5l9,948 Taiwan Registration No. 505697 Trinidad & Tobago Registration No. 22047 Venezuela Registration Nos. 999889 & 979789 For the tradename "CarSearch" LoJack Corporation has Registered Non-U.S. Trademarks in the following countries: Colombia Registration No. 408037 Czecholslovakia Registration No. 73l97 Greece Registration No. 108,072 Israel Registration No. 85220 Mexico Registration No. 470267 Trinidad Tobago Registration No. 2236l 2.3 Pending U.S. Trademark Registration Applications: None ------------------------------------------------ 2.4 Pending Non-U.S. Trademark Registration Applications: ---------------------------------------------------- None For the tradename "LoJack" LoJack Corporation has pending Non-U.S. Trademark Registration Applications in the following countries: Hong Kong Panama Russia Saudi Arabia For the tradename "CarSearch" LoJack Corporation has pending Non-U.S. Trademark Registration Applications in the following countries: Greece Hong Kong Panama Saudi Arabia 2.5 Unregistered Trademarks: None ----------------------- 3. Licenses -------- 3.l Agreement with the City of Los Angeles dated March 9, l989. Page 3 3.2 Contract between the State of Michigan and LoJack Corporation dated as of April 24, l989. 3.3 Lease Agreement LoJack Sector Activation System, dated February 23, l988, between Recovery Systems, Inc. and the Florida Department of Motor Vehicles. 3.4 Accepted Proposal by LoJack Corporation to the Massachusetts Department of Public Safety. 3.5 Lease Agreement between Auto Recovery Systems, Inc. and the State of New Jersey, dated July 3l, l989. 3.6 Lease Agreement Number VA-90l2l2-LOJ between LoJack Corporation and the Commonwealth of Virginia, dated September l7, l99l. 3.7 Lease Agreement between LoJack Corporation and the State of Georgia Department of Public Safety, dated June 6, l99l. 3.8 Lease Agreement between the New York Division of State Police and LoJack Corporation dated January 2l, l994. 3.9 Memorandum of Understanding dated July 23, l993 withe the District of Columbia Metropolitan Police Department. 3.l0 Memorandum of Understanding dated February 29, l994 with the Rhode Island State Police. 3.ll Lease Agreement with the State of Connecticut dated July l5, l993. 3.12 Lease Agreement between LoJack Corporation and the Illinois State Police dated August 23, l990. * European Patent covers the following countries: United Kingdom, West Germany, France, Italy, Belgium, Switzerland, Austria, Sweden and Holland. EX-10.UU 6 AMENDED AND RESTATED REVOLVING CREDIT AND TERM NOT EXHIBIT 10uu AMENDED AND RESTATED REVOLVING CREDIT AND TERM NOTE --------------------------------------------------- $7,500,000 Boston, Massachusetts December 10, 1993 as Amended and Restated as of February 20, 1996 FOR VALUE RECEIVED, LOJACK CORPORATION, LOJACK INTERNATIONAL CORPORATION, LOJACK OF NEW JERSEY CORPORATION, RECOVERY SYSTEMS, INC. and LOJACK HOLDINGS CORPORATION (the "Borrowers"), hereby jointly and severally promise to pay to --------- THE FIRST NATIONAL BANK OF BOSTON (the "Lender"), or order, at the head office ------ of the Lender at 100 Federal Street, Boston, Massachusetts 02110, the principal amount of Seven Million Five Hundred Thousand Dollars ($7,500,000) or such lesser amount as shall equal the aggregate unpaid principal amount of Revolving Loans (as defined in the Loan Agreement referred to below) made by the Lender to the Borrower pursuant to the Loan Agreement dated as of December 10, 1993 by and between the Borrowers and the Lender, as amended as of October 11, 1994 and February 20, 1996 and as hereafter amended or extended from time to time, (the "Loan Agreement"), together with interest thereon at the rate or rates provided - --------------- in the Loan Agreement, payable monthly in arrears, without set-off, deduction or counterclaim, on the first Business Day of each month, and at the maturity of this Note, whether by payment or prepayment, acceleration or otherwise. Prior to the Conversion Date (as defined in the Loan Agreement) the principal amount hereof may be advanced, repaid and readvanced in accordance with the terms of the Loan Agreement. The principal amount outstanding hereunder on the Conversion Date shall be payable as provided in the Loan Agreement. Overdue principal (whether at maturity, by reason of acceleration or otherwise) and, to the extent permitted by applicable law, overdue interest and fees or any other amounts payable under the Loan Agreement (including without limitation overadvances) due to the Borrowers' failure to pay the same in full shall bear interest from and including the due date thereof until paid, at a rate per annum equal to 4% above the rate which then applies to this Note, which interest shall be compounded daily and payable on demand. In addition, if a payment of principal or interest hereunder is not made, due to the Borrowers' failure to pay the same in full on its due date, the Borrowers will also pay on demand a late payment charge equal to 5% of the amount of such payment. The foregoing shall in no way affect the Lender's right to exercise any of its rights or remedies, including those provided in Section 8.2 of the Loan Agreement or in the Security Documents referred to therein, arising upon the occurrence of an Event of Default (as defined in the Loan Agreement). All payments under this Note shall be made at the head office of the Lender at 100 Federal Street, Boston, Massachusetts 02110 (or at such other place as the Lender may designate from time to time in writing) in lawful money of the United States of America in federal or other immediately available funds. This Note is the "Note" referred to in, and is entitled to the benefits of, the Loan Agreement (including Exhibits thereto) and all Security Documents and other agreements and instruments evidencing and/or securing the indebtedness hereunder (the "Loan Documents"), which Loan Documents are hereby incorporated -------------- herein by reference; but neither this reference to the Loan Documents nor any provision thereof shall affect or impair the absolute and unconditional obligation of the Borrowers to pay the principal of and interest on this Note as herein provided. This Note supersedes and replaces the Revolving Credit Note in the principal amount of $4,500,000 issued to the Lender by the Borrowers on December 10, 1993 under the Loan Agreement. In case an Event of Default (as defined in the Loan Agreement) shall occur, the aggregate unpaid principal of and accrued interest on this Note shall become or may be declared to be due and payable in the manner and with the effect provided in the Loan Agreement. The Borrowers hereby waive presentment, demand, notice of dishonor, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note. THIS INSTRUMENT SHALL HAVE THE EFFECT OF AN INSTRUMENT EXECUTED UNDER SEAL AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS PROVISIONS CONTAINED THEREIN). WITNESS AS TO ALL: LOJACK CORPORATION By ________________________________ Joseph F. Abely, President ________________________ LOJACK INTERNATIONAL CORPORATION By _______________________________ Joseph F. Abely, President LOJACK OF NEW JERSEY CORPORATION By _______________________________ Joseph F. Abely, President RECOVERY SYSTEMS, INC. By _______________________________ Joseph F. Abely, President LOJACK HOLDINGS CORPORATION By _________________________________ Joseph F. Abely, President EX-10.VV 7 SECURITY AGREEMENT EXHIBIT 10vv THE FIRST NATIONAL BANK OF BOSTON SECURITY AGREEMENT AGREEMENT made as of February 20, 1996 by LOJACK HOLDINGS CORPORATION, a Massachusetts corporation with its principal place of business at 333 Elm Street, Dedham, Massachusetts 02026 (the "Debtor"), in favor of THE FIRST NATIONAL BANK OF BOSTON, a national banking association with its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Secured Party"). FOR VALUE RECEIVED, the receipt of which is hereby acknowledged, including without limitation, enabling the Debtor to obtain credit or other financial accommodations from the Secured Party, the Debtor hereby agrees as follows: Section 1. Definitions. All capitalized terms used herein or in any ----------- certificate, report or other document delivered pursuant hereto shall have the meanings assigned to them below (unless otherwise defined). Except as otherwise defined, terms defined in the Uniform Commercial Code shall have the meanings set forth herein: Accounts. All rights of the Debtor to payment for goods sold or leased -------- or for services rendered, all sums of money or other proceeds due or becoming due thereon, all instruments pertaining thereto, all guarantees and security therefor, and the Debtor's rights pertaining to and interest in such goods, including the right of stoppage in transit, replevin or reclamation; all chattel paper; all amounts due from affiliates of the Debtor, including without limitation all indebtedness due from its subsidiaries; all other rights and claims to the payment of money, under contracts or otherwise, including amounts due from affiliates, tax refunds and insurance proceeds; and all other property constituting "accounts" as such term is defined in the Uniform Commercial. Affiliates. LoJack Corporation, LoJack of New Jersey Corporation, ---------- Recovery Systems, Inc. and LoJack International Corporation. Business Day. The meaning specified for such term in the Loan ------------ Agreement. Collateral. See Section 2. ---------- Encumbrance. Any mortgage, pledge, security interest, lien or other ----------- charge or encumbrance of any kind or nature upon or with respect to any property. Equipment. All machinery, equipment and fixtures, office furniture, --------- furnishings and trade fixtures, specialty tools and parts, motor vehicles and materials handling equipment of the Debtor, together with the Debtor's interest in, and right to, any and all manuals, computer programs, data bases and other materials relating to the use, operation or structure of any of the foregoing; and all other property constituting "equipment" as such term is defined in the Uniform Commercial Code. Event of Default. An "Event of Default", as defined in the Loan ---------------- Agreement (which includes any default or misrepresentation by the Debtor under this Agreement, after the expiration of any applicable grace period). General Intangibles. All rights with respect to all patents, together ------------------- with any reissue, extension or renewal thereof, all patents, patent applications and patent licenses, all trademarks, trademark applications, trademark licenses, service marks, service mark applications, trade names, trade styles, copyrights, copyright applications, mask works and trade-secrets information and all other proprietary rights and rights to prevent others from doing acts that constitute unfair competition with the Debtor or misappropriation of its property, including without limitation any sums (net of expenses) that the Debtor may receive arising out of any claim for infringement of its rights in any of the foregoing, and all rights of the Debtor under contracts to enjoy performance by others or to be entitled to enjoy rights granted by others, including without limitation any licenses; all tax refunds; all rights, title and interest of the Debtor in and to all documents, books, records and other information (on whatever medium recorded, and including without limitation computer programs, tapes, discs, punch cards, data processing software and related property and rights) maintained by the Debtor that reflect the conduct of the Debtor's business, such as financial records, marketing and sales records, research and development records, and design, engineering and manufacturing records; all rights under service bureau service contracts; all computer data and the concepts and ideas on which said data is based; all developmental ideas and concepts, papers, plans, schematics, drawings, blueprints, sketches and documents; all data bases; all customer lists; and all other property constituting "general intangibles" as such term is defined in the Uniform Commercial Code. Inventory. All goods, merchandise and other personal property --------- (including warehouse receipts and other negotiable and non-negotiable documents of title covering any such property) of the Debtor that are held for sale, lease or other disposition, or for display or demonstration, or leased or consigned, or that are raw materials, piece goods, work-in-process or materials used or consumed or to be used or consumed in the Debtor's business, whether in transit or in the possession of the Debtor or another, including without limitation all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and goods located on the premises of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other third parties; all proprietary rights, patents, plans, drawings, diagrams, schematics, assembly and display materials relating to any of the foregoing; and all other property constituting "inventory" as such term is defined in the Uniform Commercial Code. Loan Agreement. The Loan Agreement dated as of December 10, 1993 among -------------- the Debtor, the Affiliates and the Secured Party, as amended as of October 11, 1994 and the date hereof and as hereafter amended or extended from time to time. 2 Obligations. All obligations of the Debtor or any of the Subsidiaries ----------- to the Secured Party of every kind and description, whether direct or indirect, absolute or contingent, primary or secondary, joint or several, due or to become due, or now existing or hereafter arising or acquired and whether by way of loan, discount, letter of credit, lease, or otherwise. Officer's Certificate. A certificate signed by a responsible officer --------------------- of the Debtor in the form attached hereto and delivered concurrently herewith. Permitted Encumbrance. The meaning specified for such term in the Loan --------------------- Agreement. Revolving Loan Account. The meaning specified for such term in the ---------------------- Loan Agreement. Securities. All of the securities and instruments of the Debtor, ---------- including without limitation all stocks, bonds, U.S. Treasury bills, certificates of deposit and mutual or money market fund shares; and all sums due or to become due on any of the foregoing, and all securities, instruments or other property purchased or acquired as a result of the investment and reinvestment thereof as hereinafter provided. Uniform Commercial Code. The Uniform Commercial Code as in effect in ----------------------- The Commonwealth of Massachusetts. Section 2. Grant. To secure the payment and performance of the ----- Obligations, the Debtor hereby assigns and pledges to the Secured Party all of its rights, title and interest in, and grants to the Secured Party a continuing security interest in, the following described property: Accounts, Equipment, Inventory, General Intangibles and Securities; whether now owned or existing or hereafter arising or acquired, together with all goods, instruments, documents of title, policies and certificates of insurance, securities, chattel paper, deposit accounts, cash or other property owned by the Debtor or in which the Debtor has an interest that are now or may hereafter be in the possession, custody or control of the Secured Party or its participants or assigns for any purpose any and all additions, substitutions, replacements and accessions thereto; and all proceeds and products of any of the foregoing (collectively, the "Collateral"). Section 3. Representations, Warranties and Covenants. The Debtor ----------------------------------------- hereby (a) confirms the representations, warranties and covenants set forth in the Loan Agreement, which are incorporated by reference herein, (b) makes the following representations and warranties and (c) agrees to the following covenants, each of which representations, warranties and covenants shall be continuing and in force so long as this Agreement is in effect: 3.1 Name: Debtor/Collateral Location; Changes. ----------------------------------------- (a) The name of the Debtor set forth on the first page hereof is the true and correct legal name of the Debtor, and except as otherwise disclosed to the Secured Party in the Officer's Certificate, the Debtor has not done business as or used any other name. (b) The address of the Debtor set forth on the first page hereof is the Debtor's chief executive office and the place where its business records are kept. Except as disclosed on the 3 Officer's Certificate, all tangible Collateral other than Securities is located at such chief executive office. (c) The Debtor will not change its name, identity or organizational structure or chief executive office or place where its business records are kept, or move any tangible Collateral (other than Securities) to a location other than those set forth in the officer's Certificate, or merge into or consolidate with any other entity, unless the Debtor shall have given the Secured Party at least 30 days prior written notice thereof and shall have delivered to the Secured Party such new Uniform Commercial Code financing statements or other documentation as may be necessary or required by the Secured Party to ensure the continued perfection and priority of the security interests granted by this Agreement. 3.2 Ownership of Collateral: Absence of Liens and Restrictions. The ---------------------------------------------------------- Debtor is, and in the case of property acquired after the date hereof, will be, the sole legal and equitable owner of the Collateral, holding good and marketable title to the same free and clear of all Encumbrances except for Permitted Encumbrances, and has all right and legal authority to assign, deliver, and create a security interest in the Collateral in the manner herein contemplated. The Collateral is genuine and is what it is purported to be. The Collateral is not subject to any restriction that would prohibit or restrict the assignment, delivery or creation of the security interests contemplated hereunder. 3.3 First Priority Security Interest. This Agreement, together with -------------------------------- the filing of Uniform Commercial Code financing statements in the appropriate offices for the locations of Collateral listed in the Officer's Certificate, create a valid and continuing first lien on and perfected security interest in the Collateral (except for property located in the United States in which a security interest may not be perfected by filing under the Uniform Commercial Code), prior to all other Encumbrances, and is enforceable as such against creditors of the Debtor, any owner of the real property where any of the Collateral is located, any purchaser of such real property and any present or future creditor obtaining a lien on such real property. Other than as disclosed in the Officer's Certificate and to the best knowledge of the Debtor, no financing statement under the Uniform Commercial Code of any state or other instrument evidencing a lien that names the Debtor as debtor is on file in any jurisdiction. The Debtor has not signed any such document or any agreement authorizing the filing of any such financing statement or instrument, other than those disclosed in the Officer's Certificate. 3.4 Maintenance; Taxes: Sales: Encumbrances: Insurance. The Debtor -------------------------------------------------- will: (a) keep the Collateral in good order and repair; (b) not use the Collateral in violation of law or any policy of insurance thereon; (c) pay promptly when due all taxes and assessments on the Collateral or on its use or operation; (d) not sell, grant, assign or transfer any interest in, or permit to exist any Encumbrance on, any of the Collateral other than Permitted Encumbrances and Encumbrances on, and sale of, Inventory in the ordinary course of the Debtor's business; (e) defend its title to, and the Secured Party's interest in, the Collateral against all claims and take any action necessary to remove any Encumbrances other than those permitted hereunder and defend the right, title and interest of the Secured Party in and to any of the Debtor's rights in the Collateral; and (f) keep the Collateral insured at all times as required in the Loan Agreement. 4 3.5 Validity of Accounts. Each Account constituting Collateral is and -------------------- shall be a valid, legal and binding obligation of the party purported to be obligated thereon, enforceable in accordance with its terms and free of material setoffs, defenses or counterclaims. Each such Account shall be a valid Account representing indebtedness incurred by the account debtor for goods held subject to delivery instructions or theretofore shipped or delivered pursuant to a contract of sale or for services theretofore performed by the Debtor in the ordinary course of the Debtor business; there shall be no setoffs or counterclaims against the Account; no agreement under which any goods may be returned shall have been made with the account debtor except in the ordinary course of business and consistent with the Debtor's past practices; and no agreement under which any discount may be claimed shall have been made with the account debtor unless written notice has theretofore been or is concurrently given to the Secured Party. 3.6 Fixture Conflicts; Required Waivers. The Debtor intends, to the ----------------------------------- extent not inconsistent with applicable law, that the Collateral shall remain personal property of the Debtor and shall not be deemed to be a fixture irrespective of the manner of its attachment to any real estate. The Debtor will deliver to the Secured Party such disclaimer, waiver, or other document as the Secured Party may request, executed by each person having an interest in such real estate. 3.7 Accounts: Collection and Delivery of Proceeds. Until the Secured --------------------------------------------- Party exercises its rights to collect the Accounts pursuant to this Agreement, the Debtor will diligently collect all of its Accounts constituting Collateral. The Debtor shall, at the request of the Secured Party following the occurrence of an Event of Default and during the continuance thereof, notify account debtors of the security interest of the Secured Party in any Account and that payment thereof is to be made directly to the Secured Party. Upon request of the Secured Party, following the occurrence of an Event of Default and during the continuance thereof, any proceeds of Accounts or Inventory constituting Collateral received by the Debtor, whether in the form of cash, checks, notes or other instruments, shall be held in trust for the Secured Party and the Debtor shall deliver said proceeds daily to the Secured Party, without commingling, in the identical form received (properly endorsed or assigned where required to enable the Secured Party to collect same). The Secured Party shall credit the proceeds of collection of Accounts Receivable received by the Secured Party to the Revolving Loan Account in respect of outstanding loans and other amounts due, such credits to be entered as of the second Business Day after receipt thereof by the Secured Party. Such credits shall be conditional upon final payment in cash or solvent credits of the items giving rise to them. If any item is not so paid, the Secured Party, in its discretion, whether or not the item is returned, may either reverse any credit given for the item or charge the amount of the item against the deposits or other sums which may be due to the Debtor from the Secured Party. Upon elimination of any debit balance of the Credit Loan Account, proceeds of collection and other receipts may then, except as otherwise provided in Section 6 or elsewhere in this Agreement, be credited to any deposit account which the Debtor may maintain with the Secured Party or, if there is no such account, held pending instructions from the Debtor. 3.8 General Intangibles; Registration. Maintenance of Copies. The -------------------------------------------------------- Debtor will apply for, and pursue diligently applications for, registration of its ownership of the General Intangibles constituting Collateral and for which registration is appropriate, and will use such other measures 5 as are appropriate to preserve its rights in its other General Intangibles constituting Collateral. The Debtor will, at the request of the Secured Party, retain off-site current copies of all materials created by or furnished to the Debtor on which is recorded then-current information about any computer programs or data bases that the Debtor has developed or otherwise has the right to use from time to time. Such materials include, without limitation, magnetic or other computer media on which object source or other code is recorded or that are documentation of those computer programs or data bases, in the nature of listing printouts, narrative descriptions, flow diagrams and similar things. The Debtor will, at the request of the Secured Party, deliver a set of such copies to the Secured Party for safekeeping and retention or transfer in the event of foreclosure. 3.9 Securities: Voting, Dividends. Certificates, Options, etc. Until --------------------------------------------------------- the occurrence of an Event of Default hereunder, the Debtor shall retain the right to vote any of the Securities constituting Collateral in a manner not inconsistent with the terms of this Agreement. If, during the existence of an Event of Default, the Debtor, as registered holder of such Securities, receives (a) any dividend or other distribution in cash or other property in connection with the liquidation or dissolution of the issuer of such Securities, or in connection with the redemption or payment of such Securities, or (b) any stock certificate, option or right, or other distribution, whether as an addition to, in substitution of, or in exchange for, such Securities, or otherwise, the Debtor agrees to accept same in trust for the Secured Party and to deliver same forthwith to the Secured Party or its designee, in the exact form received, with the Debtor's endorsement or reassignment when necessary, to be held by the Secured Party as Collateral. 3.10 Securities: Delivery or Registration. Upon request of the Secured ------------------------------------ Party after an Event of Default, the Debtor will (a) deliver all of its Securities constituting Collateral and represented by certificates to the Secured Party to hold pursuant to the terms of this Agreement, and (b) to register in the name of the Secured Party or its designee any uncertificated Security constituting Collateral or the Secured Party's security interest therein on the books maintained by or on behalf of the issuer thereof or the depository therefor. 3.11 Further Assurances. Upon the reasonable written request of the ------------------ Secured Party, and at the sole expense of the Debtor, the Debtor will promptly execute and deliver such further instruments and documents and take such further actions as the Secured Party may deem reasonably desirable to obtain the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, filing of any financing statement under the Uniform Commercial Code; execution of collateral assignments of General Intangibles, pledges or designations of Inventory and, following the occurrence of an Event of Default, assignments of accounts receivable (giving the Secured Party full power to collect, compromise or otherwise deal with the assigned accounts receivable as the sole owner thereof), all in form and substance satisfactory to the Secured Party; delivery of appropriate stock or bond powers; and transfer of Collateral (other than Inventory, Accounts and Equipment) to the Secured Party's possession. The Debtor authorizes the Secured Party to file any such financing statement without the signature of the Debtor to the extent permitted by applicable law, and to file a copy of this Agreement in lieu of a financing statement. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument, 6 such note or instrument shall be immediately delivered to the Secured Party, duly endorsed in a manner satisfactory to it. Section 4. Notices and Reports Pertaining to Collateral. The Debtor ------------------------------------------------------- will, with respect to the Collateral: - ---------- (a) promptly furnish to the Secured Party, from time to time upon reasonable request, reports in form and detail reasonably satisfactory to the Secured Party, including those required in the Loan Agreement; (b) promptly notify the Secured Party of any Encumbrance asserted against the Collateral, including any attachment, levy, execution or other legal process levied against any of the Collateral, and of any information received by the Debtor relating to the Collateral, including the Accounts, the account debtors, or other persons obligated in connection therewith, that may in any way adversely affect the value of the Collateral or the rights and remedies of the Secured Party with respect thereto; (c) promptly notify the Secured Party when it obtains knowledge of actual or imminent bankruptcy or other insolvency proceeding of any account debtor owing more than $100,000 in the aggregate for all the Subsidiaries and the Parent; (d) deliver to the Secured Party, if and as the Secured Party may from time to time reasonably request after the occurrence of an Event of Default, delivery receipts, customers' purchase orders, shipping instructions, bills of lading and any other evidence of shipping arrangements; and (e) promptly after the application by the Debtor for registration of any General Intangibles, as contemplated in Section 3.8, notify the Secured Party thereof. The Debtor authorizes the Secured Party to destroy all invoices, delivery receipts, reports and other types of documents and records submitted to the Secured Party in connection with the transactions contemplated herein at any time subsequent to 12 months from the time such items are delivered to the Secured Party. Section 5. Secured Party's Rights with Respect to Collateral. The ------------------------------------------------- Debtor hereby appoints the Secured Party the Debtor's lawful attorney, with full power of substitution, in the name of the Debtor, for the sole use and benefit of the Secured Party, but at the Debtor's expense, at the Secured Party's option and at any time following the occurrence of an Event of Default and during the continuance thereof, whether or not the Obligations are due, without notice or demand on the Debtor, to exercise all or any of the following powers with respect to the Collateral: (a) with respect to any Accounts: (i) notify account debtors of the security interest of the Secured Party in such Accounts and that payment thereof is to be made directly to the Secured Party (which notice shall not affect the duties of the Debtor described in Section 3.7); (ii) demand, collect, and receive for any amounts relating thereto, as the Secured Party may determine; (iii) commence and prosecute any actions in any court for the purposes of collecting any such Accounts and enforcing any other rights in respect thereof; (iv) defend, settle or 7 compromise any action brought and, in connection therewith, give such discharges or releases as the Secured Party may deem appropriate; (v) receive, open and dispose of mail addressed to the Debtor and endorse checks, notes, drafts, acceptances, money orders, bills of lading, warehouse receipts or other instruments or documents evidencing payment, shipment or storage of the goods giving rise to such Accounts or securing or relating to such Accounts, on behalf of and in the name of the Debtor; and (vi) sell, assign, transfer, make any agreement in respect of, or otherwise deal with or exercise rights in respect of, any such Accounts or the goods or services which have given rise thereto, as fully and completely as though the Secured Party were the absolute owner thereof for all purposes; (b) with respect to any Equipment and Inventory: (i) make, adjust and settle claims under any insurance policy related thereto and place and pay for appropriate insurance thereon; (ii) discharge taxes and other Encumbrances at any time levied or placed thereon; (iii) make repairs or provide maintenance with respect thereto; and (iv) pay any necessary filing fees and any taxes arising as a consequence of any such filing (it being understood and agreed that the Secured Party shall have no obligation to make any such expenditures nor shall the making thereof relieve the Debtor of its obligation to make such expenditures); (c) with respect to any Securities, (i) transfer them at any time to itself, or to its nominee, and receive the income thereon and hold the same as Collateral hereunder or apply it to any matured Obligations; and (ii) demand, sue for, collect or make any compromise or settlement it deems desirable; and (d) with respect to any General Intangibles, take any actions provided in the Trademark and Patent Assignments (as defined in the Loan Agreement). Except as otherwise provided herein, the Secured Party shall have no duty as to the collection or protection of the Collateral nor as to the preservation of any rights pertaining thereto, beyond the safe custody of any Collateral in its Possession. Section 6. Secured Party's Rights and Remedies. ---------------------------------------------- (a) So long as any Event of Default shall have occurred and is continuing, the Secured Party shall have all of the following rights and remedies: (i) The Secured Party may, at its option, without notice or demand, cause all of the Obligations to become immediately due and payable and take immediate possession of the Collateral, and for that purpose the Secured Party may, so far as the Debtor can give authority therefor, enter upon any premises on which any of the Collateral is situated and remove the same therefrom or remain on such premises and in possession of such Collateral for purposes of conducting a sale or enforcing the rights of the Secured Party. (ii) The Debtor will, upon demand, assemble the Collateral and make it available to the Secured Party at a place and time designated by the Secured Party that is reasonably convenient to both parties. 8 (iii) The Secured Party may collect and receive all income and proceeds in respect of the Collateral and exercise all rights of the Debtor with respect thereto, including without limitation the right to exercise all voting and corporate rights at any meeting of the shareholders of the issuer of any Securities and to exercise any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any Securities as if the Secured Party were the absolute owner thereof, including the right to exchange, at its discretion, any and all of any Securities upon the merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof, all without liability except to account for property actually received (but the Secured Party shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing). (iv) The Secured Party may sell, lease or otherwise dispose of the Collateral at a public or private sale, with or without having the Collateral at the place of sale, and upon such terms and in such manner as the Secured Party may determine, and the Secured Party may purchase any Collateral at any such sale. Unless the Collateral threatens to decline rapidly in value or is of the type customarily sold on a recognized market, the Secured Party shall send to the Debtor prior written notice (which, if given within five days of any sale, shall be deemed to be reasonable) of the time and place of any public sale of the Collateral or of the time after which any private sale or other disposition thereof is to be made. The Debtor agrees that upon any such sale the Collateral shall be held by the purchaser free from all claims or rights of every kind and nature, including any equity of redemption or similar rights, and all such equity of redemption and similar rights are hereby expressly waived and released by the Debtor. In the event any consent, approval or authorization of any governmental agency is necessary to effectuate any such sale, the Debtor shall execute all applications or other instruments as may be required. (v) In any jurisdiction where the enforcement of its rights hereunder is sought, the Secured Party shall have, in addition to all other rights and remedies, the rights and remedies of a secured party under the Uniform Commercial Code. (b) Prior to any disposition of Collateral pursuant to this Agreement the Secured Party may, at its option, cause any of the Collateral to be repaired or reconditioned (but not upgraded unless mutually agreed) in such manner and to such extent as to make it salable. (c) The Secured Party is hereby granted a license or other right to use, without charge, the Debtor's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, relating to the Collateral, in completing production of, advertising for sale and selling any Collateral; and the Debtor's rights under all licenses and all franchise agreements shall inure to the Secured Party's benefit. (d) The Debtor recognizes that the Secured Party may be unable to effect a public sale of all or a part of the Securities by reason of certain prohibitions contained in the Securities Act of 1933 (as amended from time to time, the "Securities Act") or the securities laws of various states (the "Blue Sky Laws"), but may be compelled to resort to one or more private sales to a restricted 9 group of purchasers who will be obliged to agree, among other things, to acquire the Securities for their own account, for investment and not with a view to the distribution or resale thereof. The Debtor acknowledges that private sales so made may be at prices upon other terms less favorable to the seller than if the Securities were sold at public sales. The Debtor agrees that the Secured Party has no obligation to delay sale of any of the Securities for the period of time necessary to permit the Securities to be registered for public sale under the Securities Act or the Blue Sky Laws, and that private sales made under the foregoing circumstances shall be deemed to have been made in a commercially reasonable manner. (e) The Secured Party shall be entitled to retain and to apply the proceeds of any disposition of the Collateral, first, to its reasonable expenses of retaking, holding, protecting and maintaining, and preparing for disposition and disposing of, the Collateral, including attorneys' fees and other legal expenses incurred by it in connection therewith; and second, to the payment of the Obligations in such order of priority as the Secured Party shall determine. Any surplus remaining after such application shall be paid to the Debtor or to whomever may be legally entitled thereto, provided that in no event shall the Debtor be credited with any part of the proceeds of the disposition of the Collateral until such proceeds shall have been received in cash by the Secured Party. The Debtor shall remain liable for any deficiency. Section 7. Waivers. The Debtor waives presentment, demand, notice, protest, ------- notice of acceptance of this Agreement, notice of any loans made, credit or other extensions granted, collateral received or delivered or any other action taken in reliance hereon and all other demands and notices of any description, except for such demands and notices as are expressly required to be provided to the Debtor under this Agreement or any other document evidencing the Obligations. With respect to both the Obligations and the Collateral, the Debtor assents to any extension or postponement of the time of payment or any other forgiveness or indulgence, to any substitution, exchange or release of Collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payment thereon and the settlement, compromise or adjustment of any thereof, all in such manner and at such time or times as the Secured Party may deem advisable. The Secured Party may exercise its rights with respect to the Collateral without resorting, or regard, to other collateral or sources of reimbursement for Obligations. The Secured Party shall not be deemed to have waived any of its rights with respect to the Obligations or the Collateral unless such waiver is in writing and signed by the Secured Party. No delay or omission on the part of the Secured Party in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not bar or waive the exercise of any right on any future occasion. All rights and remedies of the Secured Party in the Obligations or the Collateral, whether evidenced hereby or by any other instrument or papers, are cumulative and not exclusive of any remedies provided by law or any other agreement, and may be exercised separately or concurrently. Section 8. Expenses. The Debtor shall, on demand, pay or reimburse the -------- Secured Party for all reasonable expenses incurred or paid by the Secured Party in connection with this Agreement, as provided in the Loan Agreement, including, without limitation, such expenses as are incurred to preserve the value of the Collateral and the validity, perfection, priority and value of any security interest created hereby, the collection, sale or other disposition of any of the 10 Collateral or the exercise by the Secured Party of any of the rights conferred upon it hereunder. The obligation to pay any such amount, and any interest thereon, shall be an additional Obligation secured hereby. Section 9. Notices. Any demand upon or notice to the Debtor that the ------- Secured Party may give shall be effective when delivered in accordance with the Loan Agreement. Section 10. General. This Agreement may not be amended or modified except ------- by a writing signed by the Debtor and the Secured Party, nor may the Debtor assign any of its rights hereunder. This Agreement and the terms, covenants and conditions hereof shall be construed in accordance with, and governed by, the laws of The Commonwealth of Massachusetts (without giving effect to any conflicts of law provisions contained therein). In the event that any Collateral or any deposit or other sum due from or credited by the Secured Party is held or stands in the name of the Debtor and another or others jointly, the Secured Party may deal with the same for all purposes as if it belonged to or stood in the name of the Debtor alone. Section headings are for convenience of reference only and are not a part of this Agreement. This Agreement shall be binding upon the Debtor, its successors and assigns, and shall inure to the benefit of and be enforceable by the Secured Party and its successors and assigns. IN WITNESS WHEREOF, the Debtor has caused this Agreement to be duly executed as an instrument under seal as of the date first written above. LOJACK HOLDINGS CORPORATION By:________________________________ Joseph F. Abely, President 11 OFFICER'S CERTIFICATE to SECURITY AGREEMENT dated February 20, 1996 of LOJACK HOLDINGS CORPORATION The undersigned, as Vice President of LOJACK HOLDINGS CORPORATION, a Massachusetts corporation (the "Debtor"), hereby certifies, with reference to a certain Security Agreement dated February 20, 1996 (terms defined in such Security Agreement having the same meanings herein as specified therein), by and between the Debtor and THE FIRST NATIONAL BANK OF BOSTON (the "Secured Party"), to the Secured Party as follows: 1. Names: ------ (a) The exact corporate name of the Debtor as it appears on its organizational documents and its taxpayer identification number is as follows: LoJack Holdings Corporation Federal Identification No: 04-3270032 (b) The following is a list of all other names (including trade names or similar appellations) used by the Debtor, or any other business or organization to which the Debtor became the successor by merger, consolidation, acquisition, change in form, nature or jurisdiction of organization or otherwise, now or at any previous time: None 2. Locations. --------- (a) The chief executive office of the Debtor is located at the following address: c/o LoJack Corporation Norfolk Place 333 Elm Street Dedham. MA 02026 (b) The following is a list of all other locations in the United States of America in which the Debtor maintains any books or records relating to any of the Collateral consisting of Accounts, chattel paper, General Intangibles or mobile goods: 12 Norfolk Place 333 Elm Street Dedham, MA 02026 (c) The following are all the other places of business of the Debtor in the United States of America: None (d) The following are all the other locations in the United States of America where any of the Collateral (other than Securities and any deposit accounts) is located: None (e) The following are the names and addresses of all persons or entities other than the Debtor, such as lessees, consignees, warehousemen or purchasers of chattel paper, that have possession or are intended to have possession of any of the Collateral consisting of chattel paper, Inventory or Equipment: None 3. Other UCC Filings. Financing Statements in favor of secured parties other than the Secured Party have been filed in the Uniform Commercial Code filing offices in the jurisdictions and real estate recording offices identified below: None IN WITNESS WHEREOF, the undersigned has hereunto executed this Certificate as of this 20th day of February, 1996. LOJACK HOLDINGS CORPORATION By:_______________________________________ Joseph F. Abely, President 13 EX-10.WW 8 FIRST AMENDMENT TO TRADEMARK COLLATERAL ASSIGN EXHIBIT 10ww FIRST AMENDMENT TO TRADEMARK COLLATERAL ASSIGNMENT -------------------------------------------------- AND SECURITY AGREEMENT ---------------------- This AMENDMENT is made as of February __.1996, between LOJACK CORPORATION, a Massachusetts corporation, LOJACK INTERNATIONAL CORPORATION and LOJACK OF NEW JERSEY CORPORATION, each a Delaware corporation, and RECOVERY SYSTEMS, INC., a Florida corporation (collectively, the " Original Borrowers"); by execution of the Joinder attached hereto, LOJACK HOLDINGS CORPORATION, a Massachusetts corporation ("Holdings" and, together with the Original Borrowers, the "Borrowers"); and THE FIRST NATIONAL BANK OF BOSTON, a national banking association (the "Secured Party""); RECITALS -------- A. The Secured Party and the Original Borrowers are parties to a Loan Agreement dated as of December 10, 1993, as amended as of October 11, 1994 (as so amended, the "Loan Agreement"). Capitalized terms used herein without definition have the meanings assigned to them in the Loan Agreement. B. In connection with the Loan Agreement, the Original Borrowers entered into a Trademark Collateral Assignment and Security Agreement dated as of December 10, 1993 (as amended from time to time, the "Original Agreement"). C. Since the execution of the Loan Agreement, the Parent (as defined therein) has (1) formed a new subsidiary, LoJack Holdings Corporation, for the purpose of dealing in and holding marketable securities and cash and (2) obtained certain additional registered trademarks and related intellectual property (the "new Trademark Collateral"). D. The Original Borrowers wish to amend the Original Agreement (1) to add LoJack Holdings Corporation as a "Borrower" thereunder and (2) to amend Schedules 2(a) (i) and Schedule 2(a) (ii) to reflect the New Trademark - ------------------ ----------------- Collateral, in accordance with the terms of Section 6 of the Original Agreement. E. It is a condition precedent to the Secured Party's willingness to amend the Loan Agreement on the date hereof and make any loans to the Borrowers under the Loan Agreement that the Borrowers execute and deliver this Amendment the Secured Party. NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers hereby jointly and severally agree with the Secured Party as follows: 1. Schedules 2(a)(i) and 2(a)(ii) are hereby deleted and the attached Schedules 2(a)(i) and 2(a)(ii) are substituted therefor. The amendment of such Schedules pursuant to this Amendment shall not be deemed to limit or modify in any way the Secured Party's right to effect any such amendment to reflect additional Trademark Collateral, without the necessity of any Borrower's approval or signature, as provided in Section 6 of the Original Agreement. 2. All of the additional Trademarks, Trademark Registrations and Trademark Rights referred to in such amended Schedules shall be automatically deemed "Trademarks", "Trademark Registrations" and "Trademark Rights", as defined in the Original Agreement, and all representations and warranties of the Borrowers set forth in the Original Agreement and in the Security Agreements shall be deemed to be restated by the Borrowers as of the date hereof with the full force and effect as though made on this date. 3. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Amendment and all rights and obligations hereunder shall be binding upon each Borrower and its respective successors and assigns, and shall inure to the benefit of the Secured Party and its successors and assigns. Each Borrower acknowledges receipt of a copy of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers thereunto as of the date first above written. LOJACK CORPORATION By:____________________________________ Joseph F. Abely, President LOJACK INTERNATIONAL CORPORATION By:____________________________________ Joseph F. Abely, Vice President LOJACK OF NEW JERSEY CORPORATION By:____________________________________ Joseph F. Abely, Vice President RECOVERY SYSTEMS, INC. By:____________________________________ Joseph F. Abely, Vice President THE FIRST NATIONAL BANK OF BOSTON By:____________________________________ Michael E. Hjerpe, Vice President JOINDER TO LOAN AGREEMENT ------------------------- The undersigned, by its execution hereof, hereby becomes a party to, and agrees to be bound by, the Trademark Collateral Assignment and Security Agreement dated as of December 10, 1993, as amended as of October 11, 1994 and February ___, 1996 (the "Agreement"), among The First National Bank of Boston, LoJack Corporation, LoJack International Corporation, LoJack of New Jersey Corporation and Recovery Systems, Inc., and shall have all of the rights and obligations of a "Borrower" under the Agreement. Executed as a sealed instrument as of February ___, 1996. LOJACK HOLDINGS CORPORATION By _______________________________ Joseph F. Abely, Vice President 3 COMMONWEALTH OF MASSACHUSETTS ) ) ss. COUNTY OF SUFFOLK ) On this _____ of February, 1996, before me personally appeared Joseph F. Abely, to me known, who, being by me duly sworn, declared that he is the President of LOJACK CORPORATION and the Vice President of each of LOJACK INTERNATIONAL CORPORATION and LOJACK OF NEW JERSEY CORPORATION, each a Delaware corporation, and RECOVERY SYSTEMS, INC., a Florida corporation, and LOJACK HOLDINGS CORPORATION, a Massachusetts corporation (all of such corporations being referred to collectively as the "Corporations"), all as described in and which executed the foregoing FIRST AMENDMENT TO TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT; that, being duly authorized, he did execute the foregoing FIRST AMENDMENT TO TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT on behalf of each of the Corporations; and that the foregoing constitutes the free act and deed of each of the Corporations. ___________________________________ Notary Public My commission expires:__________________ COMMONWEALTH OF MASSACHUSETTS ) ) ss. COUNTY OF SUFFOLK ) On this ____ day of February, 1996 before me personally appeared Michael E. Hjerpe, to me known, who, being by me duly sworn, declared that he is the Vice President of THE FIRST NATIONAL BANK OF BOSTON (the "Secured Party"), the Secured Party described in and which executed the foregoing FIRST AMENDMENT TO TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT; that, being duly authorized, he did execute the foregoing FIRST AMENDMENT TO TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT on behalf of the Secured Party; and that the foregoing constitutes the free act and deed of the Secured Party. ___________________________________ Notary Public My commission expires:__________________ Section 2(a)(i) TRADEMARKS ---------- I. Registered U.S, Trademarks: -------------------------- For the tradename "LoJack," LoJack Corporation has U.S. Trademark Registration No. 1,482,211. [] [] [] II. Registered Non-U.S. Trademarks: For the tradename "LoJack," LoJack Corporation has Registered Non-U.S. Trademarks in the following countries: Argentina Registration No. 1,838,242 Australia Registration No. 510900 Brazil Registration No. 814990878 Canada Registration No. 377,587 Czechoslovakia Registration No. 73195 Ecuador Registration No. 37464/93 Great Britain Registration No. 1388152 France Registration No. 1,539,703 Germany Registration No. 1163313 Israel Registration No. 85219 Italy Registration No. 198185 Mexico Registration No. 368782 For the tradename "CarSearch," LoJack Corporation has Registered Non-U.S. Trademarks in the following countries: Argentina Registration No. 1,838,241 Colombia Registration No. 408037 Czechoslovakia Registration No. 73197 Israel Registration No. 85220 Mexico Registration No. 171479 III. Pending U.S. Trademark Registration Applications: None IV. Pending Non-U.S. Trademark Registration Applications: None For the tradename "LoJack," LoJack Corporation has pending Non-U.S. Trademark Registration Applications in the following countries: Greece Hong Kong Japan Panama For the tradename "CarSearch," LoJack Corporation has pending Non-U.S. Trademark Registration Applications in the following countries: Greece Hong Kong Panama V. Unregistered Trademarks: None -6- Schedule 2(a)(ii) TRADEMARK LICENSES ------------------ Greece License, Trademark and Supply Agreement between LoJack Corporation and EQQUS, Ltd., dated as of January 24, 1992. License, Trademark and Supply Agreement dated July 16, 1992, by and between CarSearch Corporation, a subsidiary of LoJack Corporation, and Secar, Ltd. Kutuzovovn, Bratislava, Czechoslovakia. Patent License and Ancillary Know-How Agreement dated December 30, 1991, and Second Amendment (relating to the Patent, License and Know-How Agreement of December 30, 1991), dated January 29, 1993, (the Second Amendment incorporates by reference the First Amendment to the Patent, License and Know- How Agreement dated April 27, 1992 which is superseded), each by and between LoJack Corporation and Stolen Vehicle Recovery Systems Limited, Sylesbury, Buckingham, UK. License and Trademark Agreement dated May 28, 1993 by and between CarSearch Corporation, a subsidiary of LoJack Corporation, and Carro Seguro Carseg S.A., Guayaquil, Ecuador. Colombia License, Trademark and Supply Agreement dated August 10, 1993 by and between CarSearch Corporation, a subsidiary of LoJack Corporation, and Vehicle Security Resources Ltd. (a Bahamian Corporation) located in Nassau, Bahamas. Trinidad and Tobago License, Trademark and Supply Agreement dated July 27, 1993 by and between CarSearch Corporation, a subsidiary of LoJack Corporation and PJV LTD., Nassau, Bahamas. License, Trademark and Supply Agreement dated August 23, 1993 by and between CarSearch Corporation, a subsidiary of LoJack Corporation MaxRich Consultants, Ltd., a Hong Kong corporation having business at B2 Energy Plaza, 92 Granville Road, T.S.T. East, Kowloon, Hong Kong. Patent, License, Trademark and Supply Agreement dated October 4, 1994 by and between LOJACK INTERNATIONAL CORPORATION, a subsidiary of LoJack Corporation and Sucess Trading, S.A., Sarmiente 517 3 A- (1041) Buenos Aires, Argentina. Russian License, Trademark and Supply Agreement dated September 5, 1995 by and between LOJACK INTERNATIONAL CORPORATION and GBSI, Inc. ta Access 2000, 2217 Lovedale Lane, Reston, VA 22091. License, Trademark and Supply Agreement dated 31st day of August, 1993, is entered into by and between CARSEARCH CORPORATION, a subsidiary of LoJack Corporation and Cartrack, Ltd., an Israeli corporation having business at P.O. Box 39282, 45 Kibbutz Galuyot Street, Tel-Aviv, Israel, 61392. License, Trademark and Supply Agreement dated 13th day of October, 1994, by and between LOJACK INTERNATIONAL CORPORATION and Tracker Vehicle Location Systems (PTY) Ltd. P.O. Box 2202, Cape Town 8000, Cape Town, South Africa. German Patent, License and Ancillary Know-How Agreement dated October 1, 1995 by and between LOJACK INTERNATIONAL CORPORATION and Detektor, Bad Homburg, Germany. Kenya License, Trademark and Supply Agreement dated 15th day of August, 1995, by and between LOJACK INTERNATIONAL CORPORATION, a subsidiary of LoJack Corporation, and CarTrack Kenya Limited, P.O. Box 51990, Nairobi, Kenya. Taiwan License, Trademark and Supply Agreement dated August 15, 1995 by and between CARSEARCH CORPORATION, a subsidiary of LoJack Corporation and Triones Taiwan Co., Ltd., Taichung, Taiwan, R.O.C. Poland License, Trademark and Supply Agreement dated May 1, 1996 by and between LOJACK INTERNATIONAL CORPORATION, a subsidiary of LoJack Corporation and LoJack Polska Warszawa, Poland. -7- EX-1.XX 9 SECOND ASSIGNMENT FOR SECURITY TRADEMARKS EXHIBIT 10xx SECOND ASSIGNMENT FOR SECURITY (TRADEMARKS) ------------------------------------------- WHEREAS, LOJACK CORPORATION, a Massachusetts corporation with its principal office at 333 Elm Street, Dedham, Massachusetts 02026 (the "Company"), has ------- adopted, used and is using the mark or marks shown on Schedule A attached hereto -------- (the "New Marks"), which are registered in the United States Patent and --------- Trademark Office under the registration numbers shown on such Schedule A next to -------- each of the New Marks; and WHEREAS, the Company is obligated to THE FIRST NATIONAL BANK OF BOSTON, a national bank having its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Lender"), pursuant to (i) a certain Loan Agreement ------ dated as of December 10, 1993, as amended as of October 11, 1994 and the date hereof, among the Lender, the Company and the Company's Subsidiaries (the "Loan ---- Agreement"); (ii) an Amended Revolving and Restated Credit Note of even date - --------- herewith in the principal amount of $7,500,000 made payable to the Lender by the Company and its subsidiaries; (iii) a Trademark Collateral Assignment and Security Agreement dated as of December 10, 1993 (the "Original Trademark ------------------ Agreement") between the Company, its Subsidiaries and the Lender with respect to - --------- certain trademarks and other collateral owned by the Company on such date (the "Original Marks"), as amended by a First Amendment to Trademark Collateral - --------------- Assignment and Security Agreement of even date herewith between the Company, its Subsidiaries and the Lender with respect to the New Marks, which were obtained by the Company subsequent to the execution of the Original Trademark Agreement; (iv) an Assignment for Security (Trademarks) filed with the U.S. Copyright and Trademark Office on or about December 20, 1993 with respect to the Original Marks; and (v) a Security Agreement dated as of December 10, 1993 between the Company and the Lender; and (vi) certain other agreements and instruments executed in connection with the foregoing (all of the foregoing being referred to collectively as the "Agreements"); and ---------- WHEREAS, pursuant to the Agreements, the Company has granted or is granting to the Lender a security interest in and to the New Marks, the good will of the business symbolized by the New Marks, and the registrations thereof, all in collaboration to the Lender's security interest in the Original Marks; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company does hereby assign and grant to the Lender a security interest in and to the New Marks, together with the good will of the businesses symbolized by each of the New Marks, and the registrations thereof, which assignment and security interest shall secure all the Obligations (as defined in the Agreements) in accordance with the terms and provisions thereof. The Lender expressly acknowledges and affirms that its rights and remedies with respect to the assignment and security interest granted hereby are more fully set forth in the Agreements. Dated: February 20, 1996 LOJACK CORPORATION By ____________________________________ Joseph F. Abely, President COMMONWEALTH OF MASSACHUSETTS) ) COUNTY OF SUFFOLK ) The foregoing Assignment for Security (Trademarks) was executed and acknowledged before me this ____ day of February, 1996, by Joseph F. Abely, personally known to me to be the President of LOJACK CORPORATION, a Massachusetts corporation, on behalf of such corporation. ________________________________________ Notary Public My Commission Expires. __ SCHEDULE A TRADEMARKS I. New Registered U.S. Trademarks: ------------------------------- Carsearch by LoJack: U.S. Trademark Registration No. 1,766,622 LoJack Retrieve: U.S. Trademark Registration No. 1,650,079 LoJack Prevent: U.S. Trademark Registration No. 1,653,600 Voice Guard by LoJack: U.S. Trademark Registration No. 1,582,332 EX-10.YY 10 TRADEMARK AND SUPPLY AGREEMENT EXHIBIT 10yy REPUBLIC OF KENYA LICENSE, TRADEMARK, AND SUPPLY AGREEMENT This Agreement, made this 15th day of August, 1995, is entered into by and between LOJACK INTERNATIONAL CORPORATION ("LIC") ("LICENSOR"), (a subsidiary of LoJack Corporation ("LOJACK"), a Delaware corporation having its principal place of business at 333 Elm Street, Dedham, Massachusetts 02026 USA and CarTrack Kenya Limited, P.O. Box 5l990, Nairobi, Kenya (hereinafter referred to as "LICENSEE"). W I T N E S S E T H ------------------- WHEREAS, LOJACK has developed a system for the recovery of stolen vehicles; and WHEREAS, LOJACK has developed Software and Software Programs and products relative to the system for the recovery of stolen vehicles ("LoJack System"); and WHEREAS, LOJACK has licensed to LICENSOR its Software Programs, Trademarks and related documentation in order for LICENSOR to develop and license a system for the activation and recovery of stolen vehicles for use in countries outside of the United States ("System"); WHEREAS, the LICENSOR has agreed to grant the LICENSEE an exclusive license to use the LICENSOR Licensed Software Programs, associated documentation, and Trademarks (to the extent registered in the Territory); sell LICENSOR VLUs; and use Products in the Territory as hereunder defined and to provide certain services to the LICENSEE including technical support, supply of Products, and training upon the terms and conditions of this Agreement; and WHEREAS, LICENSEE, recognizes the benefits to be derived from being identified with the license by LICENSOR, and being entitled to utilize LICENSOR'S Systems, Tradenames and Trademarks (to the extent registered in the Territory) which the LICENSOR makes available to its licensees; pursuant to agreement; and WHEREAS, LICENSEE desires to receive and the LICENSOR is willing to grant a License for the LICENSOR'S System and the LICENSOR'S Trademark in the Territory subject to the provisions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, receipt whereof is respectively acknowledged, the undersigned parties hereby agree as follows: DEFINITIONS - ----------- Unless context otherwise requires, the following terms, shall have the meanings set forth below: -1- CONFIDENTIAL INFORMATION - ------------------------ The design details and operating characteristics of the System, information relating to the installation of VLUs in motor vehicles, and all other aspects of the LOJACK System treated as confidential by LICENSOR or not generally known, including all related software, file structures, documentation, algorithms and related software concepts, except as otherwise provided herein. LICENSEE - -------- The LICENSEE shall mean CarTrack Kenya Limited, and any subsidiary which is owned by LICENSEE in an amount of at least 5l%. LICENSED SOFTWARE PROGRAM - ------------------------- The software programs in object code form which are required to operate the LOJACK System, including all updates, revisions and any new release of the same which may be issued from time to time within the term of this Agreement. TRADEMARKS - ---------- All trademarks and trade names and logos now or hereafter during the term of this Agreement owned by LOJACK and Licensed to the LICENSOR and used by the LICENSOR in connection with the sale of Products or the operation of the System. The LICENSOR undertakes to use its best efforts to obtain trademarks in Kenya for "CarSearch by LoJack". PRODUCTS - -------- All products purchased by LICENSEE from the LICENSOR, including Vehicle Location Units (or "VLUs"), Vehicle Tracking Computers, (or "VTCs") the Vehicle Activation Computer ("VAC"), Vehicle Activation Transmitter ("VATs") and all other subcomponents of the System. SYSTEM - ------ A system for locating and recovering stolen motor vehicles based upon the LoJack System, utilizing a computerized transceiver in the vehicle (the "VLU", in the singular, and "VLUs" in the plural); a system for activating the VLU after report of a theft (the "Vehicle Activation Computer and Vehicle Activation Transmitter(s)"); and a directional -2- tracking unit designed for installation in vehicles (the "Vehicle Tracking Computers"); and all enhancements and improvements thereto, as outlined in the definition document appended as Attachment I. LICENSED RIGHTS - --------------- The Licensed Software Program, the Trademarks only if such Trademarks are registered in the Territory), the Confidential Information, and Proprietary Information. PROPRIETARY INFORMATION - ----------------------- All inventions, registered and unregistered and design rights, copyrights in the nature of copyright, know-how, trade secrets, and Confidential Information and any applications and rights to apply for any of the foregoing in any part of the world in respect of all drawings and other documents, recordings in any form and all other articles bearing or embodying any part of the System. TERRITORY - --------- As defined in Section 11 of this Agreement. EFFECTIVE DATE - -------------- The Effective Date for the grant of rights described in Section l of this ----- Agreement shall be the date of this Agreement (the "First Condition Precedent") and the LICENSEE pays the First Installment described in Section 2.l. The Effective Date for the exercise of rights described in Section l -------- of this Agreement shall be the date that LICENSEE pays the First Installment and provides LICENSOR with (i) the Irrevocable Letter of Credit referred to in Paragraphs 2.1 and 2.4, (the "Second Condition Precedent") and (ii) the information required in Section 3.4. This Agreement shall terminate immediately and without any formality and any rights granted shall fall away and entirely revert to the LICENSOR and the parties shall have no further rights and obligations the one to the other should: if the Second Condition Precedent has not been fulfilled within 90 (ninety) days of the First Condition Precedent. This 90 (ninety) day period is referred to as the "Exclusivity Period"). LICENSOR may extend the Exclusivity Period for a further consecutive period of not more than 30 (thirty) days ("First Extension") at no further cost to LICENSEE upon written -3- request to LICENSOR to enable LICENSEE to confirm to LICENSOR that LICENSEE has available all necessary government authorizations for the establishment and operation of the System in the Territory and on condition that LICENSEE has in the sole judgment of the LICENSOR complied with its obligations under this Agreement. Further extensions of Exclusivity Period will provide that the First Installment will become non-refundable, and that LICENSEE will reimburse LICENSOR (as set forth in Sections 3.2 and 3.3) for any out-of- pocket expenses incurred by LICENSOR during the Exclusivity Period within l0 days of invoice. LICENSOR will at the request of LICENSEE refund the First Installment to LICENSEE within 14 working days after the expiry of the Exclusivity Period and the First Extension net of LICENSOR'S costs pursuant to Sections 3.2 and 3.3 if LICENSEE decides in good faith that the implementation of the System in the Territory would not be feasible. 1. TRADEMARK LICENSE, SOFTWARE LICENSE, ------------------------------------ EXCLUSIVE DISTRIBUTION RIGHTS, and INFRINGEMENT ----------------------------------------------- 1.1 The LICENSOR hereby grants to the LICENSEE for the term described in Section l.6 subject to the fulfillment of the Conditions Precedent above and the Performance Standards (Section l6) hereby grants to the LICENSEE an exclusive license to use, in the Territory, the Licensed Rights. 1.2 During the term of this Agreement, and within the Territory, the LICENSOR grants to LICENSEE, subject to all terms and conditions set forth in this Agreement, the exclusive right to sell, lease, or rent to distribute for resale VLU's, either to vendors or insurance companies selling VLU's to motor vehicles owners or operators in the usual course of business, or directly to such motor vehicles owners or operators. 1.3 The LICENSOR, in consideration of the payment by the LICENSEE of the amounts set forth in Section 2.1, hereby grants to the LICENSEE an exclusive license to use, in the Territory, the Licensed Software Programs, solely in the operation of the System in the Territory for the purposes described in Sections l.2 and l.7. Updates, revisions, and new releases to the CARSEARCH Licensed Software Programs will be made available to LICENSEE at no cost. -4- 1.4 In consideration of the payment by the LICENSEE of the amount set forth in Section 2.1, LICENSOR hereby grants to the LICENSEE an exclusive license to use, in the Territory for the purpose described in Sections l.2 and l.7, the rights granted under this Agreement in connection with the operation of the System, during the term of this Agreement. 1.5 During the term of this Agreement and within the Territory, the LICENSOR grants to LICENSEE, subject to all terms and conditions set forth in this Agreement, an exclusive license to use the trade names and Trademarks (to the extent registered in the Territory), solely and exclusively in connection with the sale, lease, or rent of Products in the ordinary course of business, and for no other use or purpose. The LICENSEE recognizes and acknowledges that the LICENSOR is the sole and exclusive LICENSEE of the Trademarks and agrees not to register any of the Trademarks of the LICENSOR or of LOJACK in its own name or that of any other firm, person, or corporation and further agrees not to use the LOJACK or CARSEARCH names nor any of its Trademarks as any part of its corporate name. 1.6 The term of this Agreement shall commence on the exercise of the rights described in Section l, and shall continue for a term of ten (10) years, with automatic renewals for successive five (5) year periods thereafter subject to earlier termination as provided in Article 14 of this Agreement, and other provisions of this Agreement. Notwithstanding the foregoing, the automatic term renewal provided above shall not take effect if LICENSEE shall be in default beyond grace of its obligations hereunder, or in the event of the occurrence of any other event of default under Article 14 of this Agreement. 1.7 The rights herein granted are limited to sale, lease or rent of Products for ultimate use in registered motor vehicles, which includes trucks. LICENSEE agrees not to use the System or technology utilized therein for any other or additional applications without the written approval of the LICENSOR in each instance, which approval shall be at the LICENSOR's sole discretion and may require payment of an additional fee. In no event shall LICENSEE be allowed to use or sell Products for any purpose outside the Territory, and LICENSEE specifically consents to this restriction and limitation. -5- 1.8 (a) LICENSEE promptly shall notify LICENSOR of any claim by a third party that any activities of LICENSEE pursuant to this Agreement infringe Trademark or proprietary rights of that third party. In the Event that any such claim, if successful, would affect LICENSEE's exercise of rights granted hereunder in such a way as to have a material adverse effect on the business of LICENSEE, LICENSOR shall at its sole expense without cost to LICENSEE: (i) defend against such claim and indemnify and hold harmless LICENSEE against all damages, liabilities, costs and expenses that may be suffered or incurred by the LICENSEE in connection with such claim and any legal proceedings in respect thereof ("Defensive Litigation"), provided that LICENSEE shall have given notice as provided above of any such claim forthwith upon becoming aware of it, gives LICENSOR the sole conduct of the defense of litigation and does not at any time admit liability or otherwise attempt to settle or compromise the said claim or any legal action or proceedings in respect thereof except upon the express written instructions of LICENSOR, and acts in accordance with the reasonable instructions of the LICENSOR as notified to the LICENSEE and gives the LICENSOR such assistance as it shall reasonably require and instruct the LICENSEE in writing to provide in connection with the conduct of the Defensive Litigation including, without prejudice to the generality of the foregoing, the filing of all pleadings and other court process and the provision of all relevant documents and the right to use the LICENSEE's name or to join the LICENSEE as a party to the proceedings, or (ii) procure the right for the LICENSEE to continue exercising the licensed rights granted hereunder, or LICENSOR shall make such alterations, modifications and adjustments to the Licensed Rights as may be necessary to make the exercise thereof non-infringing, without incurring any material diminution of the performance of function of the System, or replace all or any part of the Licensed Rights with non- infringing substitutes provided that such substitutes do not entail a material diminution in performance; or -6- (iii) in the event that LICENSOR, despite the use of best efforts, cannot reasonably accomplish either (i) or (ii) above, at reasonable expense, than LICENSOR shall refund a proportionate part of the LICENSEE fee provided in Section 2.1, proportionate to the degree to which LICENSEE is prohibited from exercising the Licensed Rights. (b) In the event of any infringement or claimed infringement of the rights by a third party, the LICENSEE shall promptly notify the LICENSOR of said infringement or claimed infringement. In such a case, the LICENSOR shall promptly notify the LICENSEE what action, if any, the LICENSOR in it sole discretion elects to take in respect of such matter. The LICENSOR shall have sole conduct of any action it elects to take in such matter ("Offensive Litigation") and either the LICENSOR shall pay all costs in connection with such Offensive Litigation and shall be entitled to all damages and other sums which may be paid or awarded as a result thereof; or if within ten (10) business days after its receipt of such notice the LICENSEE agrees to share equally the costs of such Offensive Litigation, the costs of any such Offensive Litigation shall be borne and all damages and other sums which may be paid or awarded as a result thereof shall be shared equally by the LICENSOR an the LICENSEE. (c) In the event that the LICENSOR fails to accept the conduct of any Offensive Litigation within a reasonable period after notice from the LICENSEE requesting the LICENSOR to do so, the LICENSEE shall be entitled at its cost and expense to take all such actions as it deems necessary or desirable in connection with such infringement or claimed infringement and the LICENSEE shall be entitled to all damages and other sums which may be recovered by or awarded to it as a result thereof. (d) The LICENSOR shall reimburse the LICENSEE its reasonable costs and expenses incurred in complying with the provisions of clause 1.8 (a) above (assistance for Defensive Litigation). The LICENSOR shall have no liability to the LICENSEE in respect of any Defensive Litigation or Offensive Litigation if the same results from any breach of the LICENSEE's obligations under this Agreement. -7- 2. PAYMENT,PRICING AND TERMS ------------------------- 2.1 The License fee shall be U.S. $60,000.00 (Sixty Thousand dollars). The fee shall be paid as follows: $20,000.00 (Twenty Thousand dollars) upon execution of this Agreement. The receipt of the said $20,000 was sent by LICENSEE and received by the LICENSOR on October 23, l995 and is hereby acknowledged by the LICENSOR as the ("First Installment"); $20,000.00 (Twenty Thousand dollars) upon delivery to the LICENSEE of the initial order of hardware and software; and $20,000 (Twenty Thousand dollars) upon activation of the System (in no case later than l80 days from date of this Agreement). The License Fee shall be secured by an Irrevocable Letter of Credit valid for l80 (one hundred eighty) days after the fulfillment of the Second Condition Precedent either (i) issued by a bank satisfactory to the LICENSOR having an office in Boston and which is a member of the United States Federal Reserve system, or (ii) if such issuing bank is not a member of the United States Federal Reserve System, the letter of credit must be confirmed (at the sole cost to the LICENSEE) by a bank which is a member of the United States Federal Reserve System. The License Fee is due as designated concurrent with the exercise of the rights described in Section l and is non-refundable. 2.2 Estimated hardware and software costs for the components of the System are as listed in Attachment II. (Specific Equipment Requirements to be determined.) Costs are for Hardware and Resident Software only, and do not include additional costs which may be incurred for insurance, installation, testing, modification, or approvals of any kind from local agencies. Payment for all products and services under this Agreement shall be billed and paid as shipped F.O.B. Dedham, Massachusetts, Seguin, Texas, U.S.A. or such other place determined by LICENSOR. 2.3 An initial Purchase Order will be placed no later than the exercise of the rights described in Section l of the Agreement by the LICENSEE for the minimum purchase as follows: (1) Vehicle Activation Computer (VAC)* (2) Vehicle Activation Transmitters (VAT) (20) Vehicle Tracking Computers (VTC) (960) Vehicle Location Units (VLUs) * Plus any required software development or interface software necessary to operate the system. -8- The shipping schedule for the VAC, VAT's and VTC's shall provide for delivery of all hardware within six (6) months* of the exercise of the rights described in Section l of this Agreement. The shipping schedule for the VLUs shall provide for delivery of all units within eight (8) months of the exercise of the rights described in Section l of this Agreement. VLU delivery quantities may be increased or decreased (in no case shall quantities be reduced below the minimum specified in Section 16) by twenty-five (25%) percent with ninety (90) days written notice to LICENSOR, prior to scheduled shipments. * Subject to review of timetable for any necessary software required for implementation of system. Subsequent orders for Products shall be authorized in writing by the LICENSEE and shall specify requested release dates, but in no instance should such orders specify release dates sooner than ninety (90) days of receipt of order and Irrevocable Letter of Credit by LICENSOR. LICENSOR will use its best efforts to comply with requested release dates. The LICENSOR shall make reasonable efforts to fill each order of the LICENSEE that is accepted by the LICENSOR, but shall not be liable in any respect for failure or delay in shipping any accepted orders that is due wholly or in part to any shortage of material, labor, transportation, or utility service, or to any labor or production difficulty of the LICENSOR, any source supplying to the LICENSOR, or their suppliers, or to any cause beyond the LICENSOR's reasonable control or without the LICENSOR's fault or negligence. The LICENSOR shall not be liable for shipping over routes or by means of transportation not specified by the LICENSEE. If LICENSEE does not specify shipping routes, LICENSOR shall select routes and shall have no liability to LICENSEE by reason of such selection. 2.4 All Products are priced in United States dollars and payment, therefore, shall be made by LICENSEE in United States dollars. Upon placement of a purchase order for Products, LICENSEE shall cause to be issued, in favor of LICENSOR, an Irrevocable Letter of Credit valid for the greater of six (6) months, or the period covering the shipping schedule of the Products either (i) issued by a bank satisfactory to LICENSOR having an office in Boston and which is a member of the United States Federal Reserve System, (ii) if such issuing bank is not a member of the United States Federal Reserve System, the letter of credit must be confirmed (at the -9- sole cost to the LICENSEE) by a bank which is a member of the United States Federal Reserve System. Such letter of credit shall be in an amount equal to the full amount of the order, and payable against receipt of an Airway Bill of Lading and a copy of LICENSOR's invoice to LICENSEE. In the case of the initial purchase order the letter of credit shall be in the amount of no less than the total of items on Attached IV. 2.5 Subsequent Purchase Orders shall be signed by the LICENSEE and shall have release dates for Vehicle Tracking Computers and VLU's. All shipments shall be accompanied by a Irrevocable Letter of Credit valid for the period covering the shipping schedule plus 30 (thirty) days either (i) issued by a bank satisfactory to LICENSOR having an office in Boston and which is a member of the United States Federal Reserve System, (ii) if such issuing bank is not a member of the United States Federal Reserve System, the letter of credit must be confirmed (at the sole cost to the LICENSEE) by a bank which is a member of the United States Federal Reserve System. Such letter of credit shall be in an amount equal to the full amount of the purchase order, and payable against receipt of an Airway Bill of Lading and a copy of LICENSOR'S invoice to LICENSEE. All Letters of Credit shall be in a form acceptable to the LICENSOR. 2.6 The prices payable by LICENSEE for the Vehicle Tracking Computer and VLUs will be fixed for one (1) year from the date of this Agreement. 2.7 All amounts payable by the LICENSEE to the LICENSOR under this Agreement as reflected on LICENSOR invoices and are exclusive of any Value Added or other Tax (which shall be payable in addition upon the rendering by the LICENSOR to the LICENSEE of any appropriate Value Added Tax invoice). 2.8 All amounts payable by the LICENSEE to the LICENSOR under this Agreement which are not paid when due shall bear and be payable with interest at 3% (three percent) over the Prime Rate as reported by the Bank of Boston, determined as at such date, and calculated from such due date to the date of actual payment by the LICENSEE (whether after judgment or before). -10- 2.9 All amounts payable by the LICENSEE to the LICENSOR under this Agreement shall be paid in full without any deduction or withholding whatsoever provided that in the event the LICENSEE is required by the Laws of the United States or the regulations of any competent authority thereof to deduct or withhold any taxes, charges, or duties from any amounts payable to the LICENSOR under this Agreement, the LICENSEE shall deduct or withhold such taxes, charges, or duties and pay over to the relevant authority the full amount thereof within the time allowed under applicable law or regulation, and shall deliver to the LICENSOR a certificate of deduction or withholding in receipt issued by the relevant authority to evidence such payment. The LICENSEE shall, at the cost and expense of the LICENSOR, cooperate with the LICENSOR in such a manner as may be reasonably requested by the LICENSOR to obtain a credit or deduction in the United States for any such taxes, charges, or duties so deducted or withheld and paid. 2.10 The parties agree to cooperate in all such respects as may be reasonably necessary or desirable in order to obtain such relief from double taxation as may be available under any double taxation treaties between the governments in the Territory and the United States. 2.ll All payments by LICENSEE to LICENSOR shall be made in U.S. Dollars and either i) drawn on the bank of a designated lending institution which is a member of the U.S. Federal Reserve System and approved in writing by the LICENSOR or ii) by wire transfer to LICENSOR'S bank. 3. ESTABLISHMENT OF SYSTEM; TECHNICAL ASSISTANCE; ---------------------------------------------- FEES AND EXPENSES; FINANCIAL INFORMATION ---------------------------------------- 3.1 LICENSEE shall bear the sole responsibility for establishing the System in the Territory in accordance with specifications provided by the LICENSOR. Any and all modifications to the functionality and operation of the System beyond that defined in the system specifications (Attachment I) must receive prior written approval from LICENSOR. Such alteration, if approved by LICENSOR, shall be completed at the sole expense of the LICENSEE, and may, at LICENSOR'S sole discretion, affect the system warranty. The responsibilities of the LICENSEE shall include, without limitation, promptly and diligently upon execution of this Agreement, to obtain financing for, and to construct, install, test and make operational the System in the Territory, to obtain all governmental and other licenses, authority and approval necessary for the operation of the System in the Territory, and to abide by all the provisions of this Agreement. -11- 3.2 The sole obligations of the LICENSOR in connection with the establishment of the System in the Territory and the operation of the System in the Territory during the term of this Agreement shall be for the LICENSOR: (a) to render technical operating and marketing assistance to the LICENSEE upon the reasonable request of the LICENSEE on a fee for service basis (See Attachment III); (b) to honor LICENSEE's claims for warranty repairs made in accordance with this Agreement; (c) to supply Products at agreed terms and prices subject to Purchase Orders executed by LICENSEE and the LICENSOR; (d) to sell, lease or rent Products to no person or entity (other than the LICENSEE) for use in the Territory; and (e) to abide by all of the provisions of this Agreement. The LICENSOR shall also provide, at LICENSEE's reasonable request, assistance in training LICENSEE's properly qualified personnel with respect to the installation of VLUs and other operational aspects of LICENSEE's business on a fee for service basis. The LICENSOR may, at its option, provide such technical assistance directly or by subcontracting with third parties. LICENSOR shall have no obligations to the LICENSEE other than those stated herein. 3.3 Nothing in this Agreement shall require the LICENSOR to render any technical assistance with respect to the System or the System Software if the System Software has been adapted or modified otherwise than by or on behalf of the LICENSOR. LICENSEE shall pay the LICENSOR fees for all technical, operating, administrative and marketing assistance, and services rendered by the LICENSOR to LICENSEE (including assistance described in Section 3.2 above), at LICENSEE's request. Such fees shall be payable in full when the services are rendered. LICENSEE shall reimburse the LICENSOR for all expenses reasonably incurred by the LICENSOR in rendering such requested services to the LICENSEE, including, travel, hotel and out-of-pocket expenses of the LICENSOR and fees of independent contractors retained by the LICENSOR. LICENSEE shall reimburse the LICENSOR for such expenses promptly upon receipt from the LICENSOR of reasonable written evidence of such expenses. 3.4 Prior to the execution of the rights described in Section 1, LICENSEE shall have provided to the LICENSOR: (i) current financial statements and other information prepared by outside auditors prepared in accordance with generally accepted accounting principles of the Territory, consistently applied and reasonably acceptable to LICENSOR in order to evaluate -12- LICENSEE's ability to meet its financial obligations in connection with the establishment and operation of the System in the Territory, (ii) a business plan acceptable to LICENSOR for a period of no less than three (3) years detailing the LICENSEE's proposed operation of the System in the Territory. Within thirty (30) days after receipt of written request made by the LICENSOR, LICENSEE shall deliver to the LICENSOR such other financial information or materials as the LICENSOR shall reasonably require in order to evaluate LICENSEE'S ability to continue to meet its financial obligations under this Agreement, for purposes of preparing its own financial statements, or which may be requested by its Lenders or governmental authorities having jurisdiction over the LICENSOR or any of its business activities. By its execution and delivery of this Agreement, LICENSEE hereby warrants that any financial statements, business plan and other information and materials provided to the LICENSOR shall be true and correct in all material respects and shall fairly reflect the LICENSEE's financial circumstances as of the date thereof. 3.5 The LICENSEE shall have a non-exclusive royalty free license to use only in the Territory during the term any improvements, modifications, or adaptations (collectively "Improvements") to any part of the Licensed Software Program or components of the System made by the LICENSOR, provided the LICENSEE shall bear sole cost of adapting such Improvements for use within the Territory. 4. PURCHASE OF SUPPLIES; COMPETING PRODUCTS; INSTALLATION ------------------------------------------------------ 4.1 Recognizing that the LOJACK has developed a unique System, and in order to safeguard the integrity of the Trademarks and to protect Proprietary Information and Confidential Information of the LICENSOR and LoJack and assure uniform product quality and specification compliance and control, LICENSEE shall purchase directly from the LICENSOR all Products or components which it uses or sells. In addition, the LICENSEE will not sell any products which are in competition with the Products or components. LICENSEE agrees to offer in connection with the sale of VLUs, only the standard warranty from time-to-time given by the LICENSOR to its retail customers, except as the LICENSOR may otherwise in writing approve. -13- 4.2 LICENSEE assures that installation of VLUs shall be in compliance and conformity with all procedures and standards reasonably established by the LICENSOR for the Territory and in compliance with all applicable laws and regulations. The LICENSOR shall provide LICENSEE with written notice of any failure to so conform of which the LICENSOR has actual notice, and LICENSEE shall thereupon, and within fifteen (15) days thereafter, evidence to the LICENSOR that any such non-conformity has been fully rectified. LICENSEE hereby grants the LICENSOR the right, at reasonable times, from time-to-time and at any time, and with or without notice to LICENSEE, as the LICENSOR elects, to audit and inspect installations and installation facilities to ascertain LICENSEE's compliance with this Section. All such audits and inspections shall be at the LICENSOR's expense. 5. RESALE PRICING -------------- LICENSEE shall have the right to establish its own price levels for sale, lease or rent of all Products sold or installed in the Territory. 6. GOVERNMENTAL LICENSING ---------------------- 6.1 LICENSEE acknowledges that certain permits, approvals, authorizations and licenses necessary to operate the System in the Territory (herein collectively called the "Required Permits") may be required by governmental or other authorities prior to operation of the System in the Territory and for the continued operation thereof. LICENSEE hereby warrants to the LICENSOR that it has undertaken sole responsibility at its sole expense to procure and prior to commencement of operations of the System in the Territory shall have procured all such Required Permits necessary to commence the operation of the System. LICENSEE specifically represents and warrants that it shall make information regarding all such Required Permits available to the LICENSOR from time-to-time within fifteen (15) days after receipt of the LICENSOR's written request, therefore, and that LICENSEE shall make all payments, submit all filings and applications, and do all things necessary to keep all such Required Permits at all times current and in full force and effect at its sole expense. LICENSEE further warrants that it shall procure any and all other permits, permissions, licenses and approvals (from all governmental and other authorities and -14- others), hereafter required or otherwise necessary for the operation or use of the System in the Territory (all of which shall be deemed to be "Required Permits" hereunder). It is specifically agreed that the LICENSOR shall have no obligations or liability to LICENSEE for any loss, cost or damage arising from LICENSEE's failure to procure or to maintain any Required Permits. 6.2 LICENSEE at all times shall comply with all limitations regulations, rules, guidelines and requirements of any governmental authorities ("Regulatory Body") having jurisdiction in the Territory granting any of Required Permits, including, without limitation, those issued by authorities having jurisdiction over radio transmissions licenses, permits or approvals, or otherwise and in any way regulating or affecting the System, or its operation or use in the Territory. The LICENSOR will provide to LICENSEE, at no cost to LICENSEE, all documents, information or data in the LICENSOR's control or possession which LICENSEE reasonably determines to be necessary for LICENSEE to obtain or maintain any Required Permit or to comply with any requirement of any Regulatory Body, and the LICENSOR will provide same with all due diligence and dispatch upon receipt of a written request for same from LICENSEE. 6.3 The LICENSOR and LICENSEE, upon request of the other, will cooperate with the other with respect to the filing and/or recording, if applicable, by the LICENSOR of this Agreement (and any amendments thereto from time-to-time in effect), or notice thereof, as applicable, with all governmental authorities and other regulatory bodies in the Territory necessary for the effectuation and/or enforcement thereof, and the delivery to the LICENSOR of an opinion from country counsel, reasonably approved by the LICENSOR, stating that this Agreement (or amendment, if applicable) has been appropriately filed and/or recorded and is in all events valid and enforceable in the Territory. 6.4 LICENSEE hereby grants, to the extent permitted by law, and assigns to the LICENSOR all of its rights, title, and interest in and to the Required Permits, which assignment shall take effect and become operable only upon the expiration of the term of this Agreement, or upon the earlier termination of this Agreement pursuant to Article 14, or as otherwise provided in this Agreement. -15- 7. INSURANCE --------- The LICENSEE shall keep and maintain insurances with an insurer of repute in such amounts and against such risks as are customarily maintained by companies of similar size. 8. INDEMNIFICATION --------------- 8.1 The LICENSOR agrees to indemnify and hold harmless LICENSEE and, if applicable, each of LICENSEE's officers, directors, subcontractors, agents, employees and controlling persons against any and all loss, liability, claim, damage and expense arising solely from a defect in the design or manufacture of Products purchased by LICENSEE from the LICENSOR except that this indemnification shall not extend to any loss, liability, claim, damage or expense attributed solely to those matters for which LICENSEE has indemnified the LICENSOR pursuant to section 8.2. below. 8.2 LICENSEE agrees to indemnify and hold harmless the LICENSOR and each of the LICENSOR's officers, directors, agents, employees and controlling persons against any and all loss, liability, claim, damage and expense arising solely in connection with either (a) the LICENSEE's establishment and operation of System, or (b) the sale, lease or rent and installation by LICENSEE of Products, or (c) the conduct of business by the LICENSEE pursuant to, or as contemplated by, this Agreement, except that this indemnification shall not extend to any loss, liability, claim, damage or expense attributable solely to those matters for which the LICENSOR has indemnified LICENSEE pursuant to Section 8.1 above. 8.3 Promptly after receipt by an indemnified party pursuant to Section 8.1 above or Section 8.2 above of actual notice of the commencement of any action giving rise to indemnification rights under Section 8.1 above or Section 8.2 above, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under the applicable section, notify the indemnifying party in writing of the commencement thereof. The failure to so notify the indemnifying party shall relieve it from any liability which it may have to any indemnified party under such section, but shall not relieve it from any liability which it may have to any indemnified party otherwise than under such section. Upon receipt of notice from the indemnified party as aforesaid, the indemnifying party shall be entitled to participate in, and, to the extent that it -16- shall wish, to assume the defense of, the action, with counsel selected and paid for by the indemnifying party but reasonably satisfactory to the indemnified party. For purposes of this Agreement, the term "counsel" shall mean attorneys and advocates. After the indemnified party shall have received notice from the agreed upon counsel that the defense has been assumed, the indemnifying party shall not be responsible for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation, unless incurred at the written request of the indemnifying party or the indemnifying party shall not have employed counsel to have charge of the defense of such action or the indemnified party shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party) in any of which events such legal or other expenses shall be borne by the indemnifying party. In no event shall the indemnifying party be liable for the fees and expenses of more than one counsel for all indemnified parties, in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general obligations or circumstances, unless the indemnified party shall have reasonably concluded and advised by indemnifying party that there may be defenses available to it which are different from or additional to those available to other indemnified parties, in which case the indemnifying party shall be responsible for the fees and expenses of such additional counsel as is reasonably required. The indemnifying party shall not be liable under the indemnity provisions set forth above for any amount paid in settlement of any claim unless such indemnifying party consented in writing to any such settlement. 9. CONFIDENTIALITY --------------- 9.1 The LICENSEE agrees to maintain secret and confidential all Technical Information and Confidential Information, Specifications, and Proprietary Information (all of which are expressly agreed by the parties to constitute the know-how disclosed or to be disclosed by the LICENSOR to the LICENSEE or obtained by the LICENSEE from the LICENSOR pursuant to this Agreement) and all other information that the LICENSOR designates as -17- confidential and discloses to the LICENSEE pursuant to this Agreement including the design details and operating characteristics of the System, information relating to installation of Vehicle Location Units in motor vehicles, and trucks, and all other aspects of the System treated as confidential by the LICENSOR or not generally known, including the System Software, the Vehicle Activation Computer and the Vehicle Activation Transmitters and all related file structures, documentation, algorithms and software concepts (all of the foregoing being referred to collectively as the "Confidential Information"), to respect the LICENSOR's proprietary rights in the Confidential Information, to use the Confidential Information exclusively for the purposes of the exercise of the Licensed Rights and the installation, use, servicing and operation of the System in the Territory in accordance with this Agreement, and to disclose the Confidential Information only to those persons to whom and to the extent such disclosure is absolutely necessary for the aforesaid purposes. 9.2 The LICENSEE shall require that all of its employees, sub-contractors, and agents, who will have access to any of the Confidential Information shall be made aware of the confidentiality thereof. The LICENSEE shall further procure that all of its employees and all of such sub- contractors shall enter into a non-disclosure agreement substantially in the form set forth in Attachment IV. 10. WARRANTY -------- The LICENSOR warrants to LICENSEE that the Products when purchased from the LICENSOR, under normal use and service, will be free from defect in materials and workmanship. This warranty shall be in effect for a period the greater of: i) one hundred and eighty (180) days from the date of receipt of the Products at the Port of Entry of said VLUs and VTCs to the LICENSEE and ii) the same warranty LICENSOR receives from its manufacturers from time-to-time (the "Warranty Period"). The LICENSOR's liability for honoring the warranty claims is subject to LICENSEE making claims for defective Products within the applicable Warranty Period, and any claims not made within the Warranty Period shall be conclusively deemed waived and released. During the Warranty Period for respective Products, the LICENSOR shall, at its option, replace or repair, at any authorized repair facility designated by the LICENSOR, any Products which the LICENSOR determines to be defective. -18- The foregoing warranty does not apply to any Products which have been damaged as a result of force majeure, accident, shipping and handling, improper power supply, misuse, abuse, improper storage, improper maintenance, improper installation, improper operation, unauthorized modification, or which has been serviced, modified or repaired by anyone other than a person designated, in writing by the LICENSOR, as an authorized service representative. EXCEPT AS EXPRESSLY SET FORTH ABOVE, NO OTHER WARRANTIES ARE EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND THE LICENSOR EXPRESSLY DISCLAIMS ALL WARRANTIES NOT STATED HEREIN. THE LICENSOR'S SOLE OBLIGATION FOR VALID WARRANTY CLAIMS AND LICENSEE'S SOLE REMEDY ON ACCOUNT OF WARRANTY CLAIMS SHALL BE FOR REPAIR OR REPLACEMENT AS PROVIDED ABOVE. UNDER NO CIRCUMSTANCES WILL THE LICENSOR BE LIABLE TO THE LICENSEE OR ANY OTHER PERSON FOR ANY DAMAGES OF ANY KIND WHATSOEVER, INCLUDING WITHOUT LIMITATION ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES. 11. TERRITORY --------- This Agreement shall apply to the Republic of Kenya, the ("Territory") with no rights for any other Territory or area outside of the Territory. In relation to the installation and operation of the System (as contemplated by this Agreement) in the United Republic of Tanzania and the Republic of Uganda, LICENSOR hereby gives LICENSEE a right of first refusal within 60 (sixty) days of the date of which LICENSOR invites LICENSEE to operate the system in one or both such countries, such invitation to be made by LICENSOR on terms no less favorable to those LICENSOR would be willing to enter into with another prospective licensee. 12. PROMOTION AND ADVERTISING ------------------------- 12.1 LICENSEE agrees that its retail sales, lease or rental activity shall be operated under the name CARSEARCH by LoJack and that all signs and advertising shall prominently disclose that it is a LICENSEE of Products. 12.2 LICENSEE agrees that it shall be solely responsible for sales promotions and advertising of Products in the Territory, and that no portion of the cost thereof shall be borne by the LICENSOR. The LICENSOR reserves the right to review and approve all promotional material and literature used by LICENSEE in the sale of LICENSOR'S products. -19- 12.3 LICENSEE agrees that it shall be solely responsible at its expense for the translation of LICENSOR'S sales literature and technical and other documentation. Upon the expiration or earlier termination of this Agreement, the LICENSEE agrees to promptly (within fifteen (15) business days) deliver to the LICENSOR literature and documentation of every kind relating to the System and/or any components thereof, and all translations, and all promotional materials, in its possession or within its control, in the manner directed by the LICENSOR. 13. TRANSFER -------- 13.l This Agreement shall be binding upon and enure to the benefit of the parties and their respective legal successors and permitted assigns. The LICENSOR shall have the right to assign or otherwise transfer its rights and obligations under this Agreement to any subsidiary or to any other person, persons, partnership, association, or corporation provided that:- 13.l(a) each such transferee agrees in writing to assume all rights of and obligations undertaken by the LICENSOR herein; 13.l(b) the LICENSEE receives an assignment and assumption agreement executed by the LICENSOR and each such transferee to that effect; 13.l(c) each transferee has the financial capacity and technical expertise necessary to discharge the obligations of the LICENSOR under this Agreement; and 13.l(d) upon such assignment and assumption the LICENSOR shall thereafter, have no further rights or obligations hereunder, without prejudice, however, to the accrued rights of the LICENSOR to such date. 13.2 The LICENSEE shall not assign, sell, transfer, sublease, sublicense, license, convey, give away, transfer or part with possession of the whole or any part of the Licensed Rights or its other rights and/or obligations under this Agreement. 13.3 The LICENSEE shall not, without the LICENSOR'S prior written consent (such consent not to be unreasonably withheld or delayed) pledge, mortgage, charge or otherwise encumber all or any part of its other rights and obligations under this Agreement, except that the LICENSEE may grant a security interest for bank obligations in a maximum amount of $l million (USD). -20- 14. TERMINATION ----------- 14.1 LICENSEE shall have the right to terminate this Agreement with or without cause, upon the giving of sixty (60) days' written notice to the LICENSOR, provided, however, that such sixty (60) day notice period may be waived or shortened by the LICENSOR in writing after its receipt of the notice of termination given by LICENSEE. 14.2 The following occurrences shall be events of default entitling the LICENSOR, at its option, to terminate this Agreement immediately upon the giving of written notice by the LICENSOR: (a) If LICENSEE shall fail to make payment of any sum due from LICENSEE to the LICENSOR within thirty (30) days following the receipt of written notice by the LICENSOR stating with particularity the amount and nature of any such unpaid amount or fails to maintain performance standards as outlined in Section l6. (b) if LICENSEE shall fail to comply with, observe or perform any other material covenant or material agreement set forth in this Agreement, other than those relating to the payment of monies from LICENSEE to the LICENSOR or maintenance of performance standards as outlined in Section 16, within thirty (30) days following the receipt of written notice by the LICENSOR stating with particularity the default claimed, provided that the LICENSEE shall not be in default if such default is cured within such thirty (30) day period, or, with respect to breaches that are not curable within such thirty (30) day period, shall have commenced to cure such default and, thereafter, shall have prosecuted to completion the cure of the same with due diligence, provided, however, a default shall occur in all events if any such cure is not effectuated, notwithstanding LICENSEE's due diligence, within sixty (60) days after the giving of the LICENSOR's default notice, provided such cure is within LICENSEE'S control; (c) if a receiver, liquidator or trustee of the LICENSEE shall be appointed for LICENSEE by court order, or if judicial or other proceedings are initiated against LICENSEE for the protection of creditors or if any other action is taken by order of court or other governmental authority wresting control of LICENSEE or its assets, or if a petition to reorganize or its equivalent shall be filed against -21- either party by a third party creditor under any bankruptcy, reorganization or insolvency law, and shall not be dismissed within thirty (30) days, or if LICENSEE shall file a petition in voluntary liquidation or make an assignment for the benefit of creditors or its equivalent under local law, any of the foregoing shall be default entitling the LICENSOR to, thereupon, or thereafter, at any time, terminate this Agreement. 15. RIGHTS AFTER TERMINATION ------------------------ 15.1 Upon the termination of this Agreement, each party shall continue to observe its respective obligations which shall survive the termination of the Agreement, including the obligations in Section 1.5; LICENSEE shall continue to observe its obligations with respect to Products owned or possessed by LICENSEE; and the LICENSOR shall continue to observe the obligation set forth in section 15.2. 15.2 Except in cases where LICENSEE terminates this Agreement without cause, in the event that following the termination of this Agreement the LICENSOR either (a) permits Products to be sold or distributed in the Territory by a party other than the LICENSEE, or (b) permits a party other than the LICENSEE to provide service in the Territory with respect to any Products distributed, sold, or sublicensed by the LICENSEE, then in either event the LICENSOR or its Designee (the "Purchaser") may purchase inventory and such other assets, in good and marketable condition, as agreed by both parties which are part of or relate to the System within the Territory, including, items such as: Vehicle Tracking Computers, the Vehicle Activation Computers, Vehicle Activation Transmitters, VLUs (the "Designated Assets"). The price which Purchaser shall pay for such Assets shall be equal to the lower of cost or a price to be negotiated by the parties. The closing shall occur in Boston, Massachusetts. At such closing, the Purchaser shall pay in cash to the LICENSEE the price set forth above for all of the Designated Assets and LICENSEE shall execute and deliver such agreements (including without limitation an Asset Purchase Agreement containing such reasonable representations and warranties and other terms and conditions as the Purchaser may require), instruments and other documents as are necessary to transfer to the Purchaser the Assets which the Purchaser is acquiring, free and clear of all liens, encumbrances and restrictions (unless otherwise agreed to by the Purchaser). -22- 15.3 Immediately upon the expiration or earlier termination of this Agreement, the LICENSEE shall cease and forever abstain from using the Trademarks and to deliver to the LICENSOR all documents, instructions, display items, and the like bearing any of the Trademarks. To the extent that such items were originally purchased from the LICENSOR, are in original packaging and can be used by LICENSOR, upon any such termination by the LICENSOR, the LICENSOR may pay LICENSEE a price for such items equal to cost less a fifteen (15%) percent restocking charge. 15.4 Immediately upon the expiration or earlier termination of this Agreement to the extent permitted by law, LICENSEE shall assign to LICENSOR or designate of LICENSOR, free and clear of all liens, encumbrances, and restrictions, permits to operate the System by any governmental authority or other regulatory bodies. 15.5 By executing this Agreement to the extent permitted by law, the LICENSEE waives any rights to compensation following expiration or earlier termination of this Agreement, and LICENSEE further agrees that, upon expiration or earlier termination of this Agreement, that it will take whatever steps necessary to deregister the Agreement with any governmental or other authority in the Territory. 16. PERFORMANCE STANDARDS --------------------- 16.1 Within six (6) months after the exercise of the Rights described in Section l of this Agreement, all approvals required by governmental authority or other regulatory bodies within the Republic of Kenya for the installations and operations of the System and all other aspects of the System shall have been obtained. 16.2 Within four (4) months of receipt of the approvals described in Sentence l of Section 16.l of this Agreement, the Vehicle Activation System shall be fully operational with coverage effective throughout greater Nairobi. 16.3 By the (10th) tenth month of the receipt of the approvals described in Section 16.l of this Agreement, LICENSEE shall have purchased a minimum of Six Thousand (6,000) VLUs ("Minimum Unit Purchase"). -23- 16.4 For each calendar quarter commencing ten (10) months after the receipt of approvals described in Section l6.l of this Agreement, LICENSEE shall purchase from the LICENSOR a minimum number of VLUs equal to the greater of 200 (Two hundred) VLUs, or 6% (six percent) of new motor vehicles registered in the Territory for that quarter. 16.5 In addition to the LICENSOR's Rights of Termination as described in Section l5, in the event that the LICENSEE is not in compliance with any of the terms or Performance Conditions of this Agreement, the LICENSOR shall have the right, at the LICENSEE'S expense, to visit LICENSEE's operation in order to review and inspect such operations with five (5) day written notice. 17. DISPUTE RESOLUTION ------------------ The parties agree that all controversies and disputes arising under this Agreement or in connection with the transactions hereunder shall be determined by arbitration conducted in accordance with the rules for commercial disputes of the International Chamber of Commerce in London, and all matters submitted to arbitration shall be binding upon the parties and fully enforceable. 18. GOVERNING LAW ------------- This Agreement shall be deemed made in the Commonwealth of Massachusetts and all rights and obligations of the parties hereunder shall be governed as to validity, construction and in all other respects by the Laws of Kenya. LICENSOR and LICENSEE agree to submit to the exclusive jurisdiction of the Courts of the Territory. 19. NOTICE ------ All notices hereunder shall be in writing and shall be deemed to be given and effective upon delivery by a recognized international delivery service such as Federal Express, DHL or UPS, delivery charges prepaid or facsimile, and addressed to the parties at their respective addresses set forth above, or at such other addresses as may be designated from time-to-time by a party by the giving of notice thereof in the manner herein provided for the giving of notices. -24- 20. GENERAL ------- 20.1 The provisions of this Agreement may be varied or amended by mutual consent of the parties but no such variation or amendment shall be effective unless made in writing and signed by the LICENSOR and the LICENSEE. 20.2 This Agreement contains the whole agreement between the parties with respect to the subject matter hereof and supercedes all previous agreements and understandings between the parties, whether written or oral, with respect to the subject matter hereof. 20.3 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 provision 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. 20.4 Each party to this Agreement shall execute and deliver such other documents and do such other acts and things as may be necessary or desirable to carry out the terms provisions and purpose of this Agreement. 20.5 The failure to enforce or to require the performance at any time of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions and shall not affect the right of any party thereafter to enforce and to require performance of each and every provision in accordance with the terms of this Agreement. 20.6 The headings of the clauses of this Agreement are used for convenience only and shall not affect the meaning or interpretation of the contents of this Agreement. 20.7 The relationship between LICENSOR and LICENSEE is that of independent contractors, and that LICENSEE is not authorized to undertake any obligation or commitment on behalf of LICENSOR, including any warranty given by LICENSOR under this Agreement, and that such purported action by LICENSEE shall be of no effect. -25- 21. FORCE MAJEURE ------------- Neither party shall be liable or deemed to be in default for delay or failure in performance under this Agreement or interruption of service resulting directly or indirectly from acts of God, civil or military authority, acts of public enemy, war, riots, civil disturbances, insurrections, accidents, fire, explosions, earthquakes, floods, the elements, strikes, labor disputes, fuel shortages, or from failure to receive on a timely basis suitable parts, labor materials or transportation, or other causes beyond reasonable control of such party; and the time for performance so delayed shall be deemed extended for the period of such delay. 22. SIGNATURES ---------- This Agreement may be executed in one or more counterparts having the signatures of the parties and each such counterpart shall, for all purposes, be deemed an original, but all such counterparts shall together constitute but one and the same instrument. LOJACK INTERNATIONAL CORPORATION By:____________________________ C. Michael Daley, President - -------------------------------- CARTRACK KENYA LIMITED - ----------------------------- Gabriel Katri - -------------------------- Date -26- EX-11 11 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 Page 1 of 3 LOJACK CORPORATION AND SUBSIDIARIES PRIMARY EARNINGS PER SHARE COMPUTATION FOR STATEMENT OF OPERATIONS YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 - --------------------------------------------------------------------------------
1996 1995 1994 Reconciliation of net income before extraordinary loss applicable to common stockholders per statement of operations to amount used in primary earnings per share computation: Income before extraordinary loss and preferred dividend $11,978,036 $ 3,837,738 $ 1,393,033 Interest on debt and investments, net of tax effect on application of assumed proceeds from exercise of options and warrants in excess of 20% limitation (a) 278,777 ----------- ----------- ----------- Income before extraordinary loss and preferred dividend, as adjusted 11,978,036 3,837,738 1,671,810 Preferred dividend (425,563) (1,216,500) ----------- ----------- ----------- Income before extraordinary loss applicable to common stockholders, as adjusted 11,978,036 3,412,175 455,310 Extraordinary loss (163,062) ----------- ----------- ----------- Net income applicable to common stockholders, as adjusted $11,978,036 $3,412,175 $ 292,248 =========== =========== =========== Reconciliation of weighted average number of common shares outstanding to amount used in primary earnings per share computation: Weighted average number of shares outstanding 21,544,346 19,660,496 13,652,255 Shares issuable from assumed exercise of options and warrants using treasury stock method 1,669,268 993,375 3,723,691 Dilutive effect of exercised options and warrants outstanding during the year 71,070 12,186 154,150 ----------- ----------- ----------- Weighted average number of common shares outstanding, as adjusted 23,284,684 20,666,057 17,530,096 =========== =========== =========== Primary earnings per share: Income before extraordinary loss $ 0.51 $ 0.16 $ 0.02 Extraordinary loss (0.01) ----------- ----------- ----------- Net income $ 0.51 (b) $ 0.16 (b) $ 0.01 (b) =========== =========== ===========
Page 2 of 3 LOJACK CORPORATION AND SUBSIDIARIES COMPUTATION FOR STATEMENT OF OPERATIONS FULLY DILUTED EARNINGS PER SHARE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 - --------------------------------------------------------------------------------
1996 1995 1994 Reconciliation of net income before extraordinary loss applicable to common stockholders, as adjusted per primary computation above, to amount used for fully diluted computation in statement of operations: Income before extraordinary loss applicable to common stockholders, as adjusted per primary computation $11,978,036 $ 3,412,175 $ 455,310 Interest on debt and investments, net of tax effect on application of assumed proceeds from exercise of options and warrants in excess of 20% limitation (a) (30,341) ----------- ----------- ----------- Income before extraordinary loss applicable to common stockholders, as adjusted 11,978,036 3,412,175 424,969 Extraordinary loss (163,062) ----------- ----------- ----------- Net income applicable to common stockholders, as adjusted $11,978,036 $ 3,412,175 $ 261,907 =========== =========== =========== Reconciliation of weighted average number of common shares outstanding, as adjusted per primary computation above, to amount used for fully diluted computation in statement of operations: Weighted average number of shares outstanding, as adjusted per primary calculation 23,284,684 20,666,057 17,530,096 Additional dilutive effect from the assumed exercise of options and warrants using the treasury stock method 59,503 407,670 69,315 Additional dilutive effect of exercised options and warrants outstanding during the year 1,834 36,910 15,456 ----------- ----------- ----------- Weighted average number of common shares outstanding, as adjusted 23,346,021 21,110,637 17,614,867 =========== =========== =========== Fully diluted earnings per share: Income before extraordinary loss $ 0.51 $ 0.16 $ 0.02 Extraordinary loss (0.01) ----------- ----------- ----------- Net income $ 0.51 (b) $ 0.16 (b) $ 0.01 (b) =========== =========== ===========
Page 3 of 3 LOJACK CORPORATION AND SUBSIDIARIES ADDITIONAL FULLY DILUTED COMPUTATION (c) YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 - --------------------------------------------------------------------------------
1996 1995 1994 Additional adjustment to net income, as adjusted, per fully diluted computation above: Income before extraordinary loss applicable to common stockholders, as adjusted, per fully diluted computation above $11,978,036 $ 3,412,175 $ 424,969 Interest on 10% convertible subordinated debentures, net of tax effect (a) 3,867 9,300 Dividend on 10% convertible preferred stock 425,563 1,216,500 ----------- ----------- ----------- Income before extraordinary loss applicable to common stockholders, as adjusted 11,981,903 3,837,738 1,650,769 Extraordinary loss (163,062) ----------- ----------- ----------- Income applicable to common stockholders, as adjusted $11,981,903 $ 3,837,738 $ 1,487,707 =========== =========== =========== Additional adjustments to weighted average number of shares outstanding, as adjusted: Weighted average number of common shares outstanding, as adjusted, per fully diluted computation above 23,346,021 21,110,637 17,614,867 Effect of assumed conversion of 10% convertible subordinated debentures 9,569 23,506 23,506 Effect of assumed conversion of 10% convertible preferred stock 999,584 2,858,775 ----------- ----------- ----------- Weighted average number of common shares outstanding, as adjusted 23,355,590 22,133,727 20,497,148 =========== =========== =========== Fully diluted earnings per share: Income before extraordinary loss $ 0.51 $ 0.17 $ 0.08 Extraordinary loss (0.01) ----------- ----------- ----------- Net income $ 0.51 (b) $ 0.17 $ 0.07 (c) =========== =========== ===========
(a) Adjustments to income have been shown net of tax effects which were calculated at the Company's effective tax rate which was (19.2%) for fiscal 1996, 7.1% for fiscal 1995 and 5.4% for fiscal 1994. The difference between the Company's effective tax rate and the United States statutory rate is due primarily to the utilization of loss carryforwards and the change in the valuation allowance. (b) These figures agree with the related amounts in the statements of operations. (c) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although, it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. EX-13 12 ANNUAL REPORT EXHIBIT 13 1996 ANNUAL REPORT (ART) COMPANY PROFILE - -------------------------------------------------------------------------------- LoJack Corporation markets and licenses the LoJack System, a unique, proprietary system used exclusively by law enforcement personnel to track, locate and recover stolen motor vehicles. The problem of vehicle theft has escalated to an epidemic level--estimated to result in an annual loss of almost $8 billion. The LoJack System has a proven track record of reducing damage, enhancing public safety, and solving serious crimes related to motor vehicle theft, all accomplished within the practical constraints of today's overburdened law enforcement system. LoJack's strategy is to expand the use of its technology into those U.S. and international markets where the combination of population density, new car sales, and vehicle theft is high. The LoJack System is currently operational in the following states: Massachusetts, Florida, California, New York, New Jersey, Rhode Island, Georgia, Michigan, Illinois, Virginia, District of Colombia, and Connecticut. International licensees are operating stolen vehicle recovery systems using LoJack's technology in the following countries: United Kingdom, Argentina, Russia, Trinidad and Tobago, Hong Kong, Colombia, Venezuela, Ecuador, Greece, Slovakia, and the Czech Republic. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS LoJack's Common Stock is traded on the NASDAQ National Market under the symbol: LOJN. The following table sets forth the range of the high and low bid information for the Common Stock of LoJack for the fiscal periods indicated, as reported by NASDAQ. This information reflects inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily reflect actual transactions. LoJack's fiscal year ends the last day of February.
HIGH LOW Fiscal 1995 ------ ------- First Quarter 11 3/8 6 15/16 Second Quarter 8 1/2 5 7/8 Third Quarter 7 1/4 5 1/2 Fourth Quarter 8 5 1/8 Fiscal 1996 First Quarter 10 1/8 6 7/8 Second Quarter 13 5/8 9 1/8 Third Quarter 17 1/2 9 1/4 Fourth Quarter 11 1/2 9 1/4
On May 17, 1996, there were 4,797 record holders of the Company's Common Stock. The Company believes the actual number of beneficial owners of the Common Stock is approximately 28,000 because a large number of the shares of the Company's Common Stock is held in custodial or nominee accounts for the benefit of persons other than the record holder. LoJack has never paid a dividend, and at the present time, the Company expects that future earnings will be retained for use in its business. The Company's loan agreement with a bank permits the payment of dividends so long as such payment does not cause non-compliance with certain loan covenants. LETTER TO SHAREHOLDERS: 1 - -------------------------------------------------------------------------------- OVERVIEW I am pleased to report to you the results of LoJack Corporation's fiscal year ended February 29, 1996 ("fiscal 1996"), and to share with you some insights concerning the Company's vision for fiscal 1997 and beyond. The Company demonstrated its continued profit potential during fiscal 1996 with pre-tax profit increasing by 143% on a 26% increase in revenues. The growth in revenues from our domestic operations was particularly impressive given that retail new car sales were down markedly in our large northeast market: New York, New Jersey, Massachusetts, Connecticut, and Rhode Island. It is noteworthy that despite bad winter weather and decreased new car sales we were still able to increase our penetration of retail new car sales over fiscal 1995. Internationally, we continued our exceptional growth, bringing the number of international markets to a total of 11 countries with the addition of four new countries. The prospects for continued growth in the international arena are very encouraging as several additional licensees are on the verge of implementing LoJack's technology in their territories. An exciting result of our strong financial performance is the immediate opportunity it gives us to continue our growth, both in existing markets and through domestic expansion and, more importantly, to increase our investment in R&D to maintain our technology at the forefront of the stolen vehicle recovery industry as well as to open new markets for our technology. In summary, we are pleased with our present growth and profitability and believe that our success and financial and technological strength puts the Company in an excellent position as we enter fiscal 1997 and beyond. FISCAL 1996 RESULTS For fiscal 1996, revenues were $52,516,359, an increase of 26% over revenues of $41,658,074 a year earlier. Pre-tax income was $10,047,036, an increase of 143% over $4,132,738 a year ago. Net income was $11,978,036, or $.51 per share. Included in net income for fiscal 1996 was a $2,654,000, or $.11 per share, deferred tax benefit which resulted from the recognition of the estimated future tax benefit of the Company's remaining net operating loss carryforwards. Net income a year ago was $3,837,738 or $.16 per share. For fiscal 1996, the increase in revenues reflects an $8,871,891, or 23% increase in revenues from domestic operations, and a $1,986,394, or 81% increase in revenues from product sales and licensing fees pursuant to international license agreements. I would like to detail for you the improvements in profitability for the fourth quarter. Our overall gross margin increased to 54% of revenues from 50% a year ago, primarily because increased volume produced additional manufacturing and installation efficiencies. As a percentage of revenues, operating income before depreciation and amortization increased to 22% for the fourth quarter as compared to 15% a year ago. This represents a record year for profitability for the Company and I am extremely proud to bring you this good news. FISCAL 1997 While we were pleased with our results for fiscal 1996, we are now focusing on improving those results in fiscal 1997. Domestically, our plans include both increasing our penetration and coverage areas in existing markets and aggressively working to complete our domestic expansion goals which include Pennsylvania, Texas, and Maryland. Internationally, we also continue to work with licensees who are resolving issues such as frequency availability and financing to expand into a number of additional locations around the world, such as Germany, Italy, China, Korea, and Israel, to name a few. Our strategy to increase our penetration in existing domestic markets includes expanding our sales presence among new car dealers, stepping up our sales effort to test the viability of the fleet and commercial markets, and strengthening and improving our advertising. We are in the final stages of selecting an outside advertising agency and we expect to announce an appointment in late spring. Currently, we do all our creative work internally, which has been extremely effective in establishing our brand name and presence in our markets. However, we believe that now is the time to engage (ART) the skills of an outside agency as we seek to better position LoJack and its products in present and future markets. We are aggressively engaged in improving and upgrading LoJack's technology and product line in the following areas: . We have been developing an updated version of the LoJack Unit required for use in the European Community. All approvals for this product should be received by late spring with the first shipment scheduled for South Africa in mid-summer. This version of the LoJack Unit is also suitable for installation in heavy equipment in the United States. . Progress continues in the research and development program to develop a new product, the LJU-III, which will help us open new markets for our technology. LJU-III will be a totally self-contained LoJack Unit, the size of a credit card, at a reduced cost over the present LoJack Unit. While development is not complete, and therefore not a certainty, we have tentatively targeted late 1997 for introduction of this new version of the LoJack Unit into the retail aftermarket and fleet vehicle market including rentals, trucking and cargo. The Company feels this new product will complement our existing LoJack Unit which we intend to continue marketing through our existing new car dealer distribution channels. . We have completed development of a new version of the Police Tracking 2 - -------------------------------------------------------------------------------- Computer which will be available this spring. The new compact unit is more economical to manufacture and updates our technology replacing outdated parts and meets the current requirement of law enforcement. . Finally, we have developed a remote listening post to detect the presence of a LoJack signal for the purpose of enhancing or broadening LoJack coverage. We think this is a valuable use of our technology and has great potential in both domestic and international markets for increasing coverage at a reduced cost. THE POTENTIAL FOR ACQUISITION We will continue to consider strategic acquisitions in order to increase our market size, revenue and profit potential. Our objective would be to acquire a company or product line which would be compatible with our brand name, distribution and overhead structure. While we have not seen any candidates that fit our criteria this past year, we are continuing to seek and consider opportunities without distracting ourselves from opportunities in our core business. CONCLUSION In conclusion, on behalf of the officers and Board of Directors, I wish to express our congratulations to Joseph F. Abely on his promotion to President and Chief Operating Officer and also to extend our appreciation to all the employees who make up the "LoJack Team" for their efforts, commitment and dedication in contributing to the continued success of the Company. LoJack Corporation has experienced the most successful year in its history with the completion of fiscal 1996. I am extremely optimistic based on the favorable condition of the company and the improvements we have made during the year that we enter fiscal 1997 with even greater opportunity to succeed in expanding our profitability in the coming year. Yours truly, (ART) C. Michael Daley Chairman and Chief Executive Officer May 10, 1996 3 - -------------------------------------------------------------------------------- SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial data of the Company for the periods indicated. The selected consolidated financial data for and as of the end of the years in the five year period ended February 29, 1996 are derived from the consolidated financial statements of the Company which have been audited by Deloitte & Touche LLP. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes appearing elsewhere in this report.
YEAR ENDED -------------------------------------------------------------------- FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, 1996 1995 1994 1993 1992 ------------ ------------ ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA Revenues................ $52,516,359 $41,658,074 $30,218,584 $23,346,493 $17,535,402 Cost of goods sold...... 23,966,360 20,840,184 15,301,927 12,689,495 9,519,738 ----------- ----------- ----------- ----------- ----------- Gross margin............ 28,549,999 20,817,890 14,916,657 10,656,998 8,015,664 ----------- ----------- ----------- ----------- ----------- Costs and expenses: Systems costs and research and development.......... 1,263,492 807,462 522,117 725,462 523,910 Marketing............. 11,211,501 9,277,847 6,797,677 5,747,868 5,201,612 General and administrative....... 5,574,757 4,870,004 4,111,385 3,750,387 3,747,863 Depreciation and amortization......... 1,894,933 2,294,346 1,988,916 1,807,846 1,856,028 ----------- ----------- ----------- ----------- ----------- Total................... 19,944,683 17,249,659 13,420,095 12,031,563 11,329,413 ----------- ----------- ----------- ----------- ----------- Operating income (loss). 8,605,316 3,568,231 1,496,562 (1,374,565) (3,313,749) Interest income (expense) and other-- net.................... 1,441,720 564,507 (24,529) (367,244) (1,323,935) ----------- ----------- ----------- ----------- ----------- Income (loss) before provision for income taxes and extraordinary item................... 10,047,036 4,132,738 1,472,033 (1,741,809) (4,637,684) Income tax provision (benefit).............. (1,931,000) 295,000 79,000 ----------- ----------- ----------- ----------- ----------- Income (loss) before extraordinary item..... 11,978,036 3,837,738 1,393,033 (1,741,809) (4,637,684) Extraordinary item, loss on exchange of subordinated debentures............. (163,062) ----------- ----------- ----------- ----------- ----------- Net income (loss)....... $11,978,036 $ 3,837,738 $ 1,229,971 $(1,741,809) $(4,637,684) Preferred dividends for the year............... (425,563) (1,216,500) (1,216,500) ----------- ----------- ----------- ----------- ----------- Net income (loss) applicable to common stockholders........... $11,978,036 $ 3,412,175 $ 13,471 $(2,958,309) $(4,637,684) =========== =========== =========== =========== =========== Earnings (loss) per common share........... $ 0.51 $ 0.16 $ 0.01 $ (0.23) $ (0.38) =========== =========== =========== =========== =========== BALANCE SHEET DATA Working capital......... $33,317,556 $21,967,747 $ 8,006,436 $ 1,270,527 $ 2,180,220 Total assets............ 53,079,437 36,694,816 21,376,486 13,559,392 14,775,489 Long-term debt.......... 644,218 899,246 617,662 2,384,656 2,221,723 Total liabilities....... 9,351,969 7,930,097 6,213,707 7,371,133 6,938,983 Stockholders' equity.... 43,727,468 28,764,719 15,162,779 6,188,259 7,836,506
4 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LoJack is the developer of, and owns all rights to, the LoJack System, a unique patented system designed to assist law enforcement personnel in locating, tracking, and recovering stolen vehicles. The LoJack System is comprised of a Registration System maintained and operated by LoJack; a Sector Activation System and Police Tracking Computers operated by law enforcement officials (the "Law Enforcement Components"); and the LoJack Unit, a VHF (very high frequency) transponder sold to consumers. The LoJack System is designed to be integrated into existing law enforcement computer and telecommunication networks and procedures. If a car equipped with a LoJack Unit is stolen, its owner reports the theft as usual to a local police department. Existing law enforcement computer and communication networks and procedures operate in the normal manner for a report of a stolen vehicle. If the theft involves a vehicle equipped with a LoJack Unit, a unique radio signal will be transmitted automatically to the LoJack Unit in the stolen vehicle activating its tracking signal. The tracking signal emitted from the LoJack Unit can be detected by the Police Tracking Computer installed in police patrol cars throughout the coverage areas and used to lead law enforcement officers to the stolen vehicle. The Company's revenues in the United States are derived primarily from the sale of LoJack Units and related products to consumers. Approximately 95% of such sales are made through a distribution network consisting of new automobile dealers. In the fiscal year ended February 28, 1993, the Company commenced deriving revenues from fees, sales of product, and royalties pursuant to agreements to license ("License Agreements") the use of the Company's stolen vehicle recovery system technology, principally to selected international markets. In connection with this international expansion, the Company modified its stolen vehicle recovery technology to develop the CarSearch Stolen Vehicle Recovery System ("CarSearch"). Unlike the LoJack System currently in operation in the United States, CarSearch has the flexibility of operating independently of existing law enforcement communication networks. RESULTS OF OPERATIONS Year Ended February 29, 1996 ("fiscal 1996") vs. February 28, 1995 ("fiscal 1995") Revenues increased by $10,858,000, or 26%, in fiscal 1996 to $52,516,000 from $41,658,000 in fiscal 1995. Revenues from domestic markets contributed $8,872,000 of the increase and international revenues contributed $1,986,000. The increase in domestic revenues was primarily due to increased revenues of approximately $8,338,000 from sales of LoJack Units and related components in domestic markets, including $3,500,000 from new markets which began operations in fiscal 1996. The increase in international revenues of $1,986,000 resulted from an increase in revenues from sales and royalties of the international version of the LoJack Unit of $1,070,000 to both new and existing licensees, with the balance of the increase from the non-recurring sale of components and license fees principally from new licensing agreements with parties in foreign countries including Russia, Argentina, and South Africa. Cost of goods sold decreased to 46% of consolidated revenues in fiscal 1996 from 50% in fiscal 1995. Domestically cost of goods sold decreased as a percentage of revenues to 46% in fiscal 1996 from 50% in fiscal 1995. This decrease is primarily the result of a decrease in the manufactured cost of the LoJack Unit during the year. Additionally, reductions in cost of goods sold were due to installation efficiencies resulting from the economies of scale. International cost of goods sold decreased to 40% of revenues in fiscal 1996 from 50% in fiscal 1995 primarily as the result of revenues being weighted towards higher margin component sales and license fees. Systems costs and research and development increased by $456,000 to $1,263,000 in fiscal 1996 from $807,000 in fiscal 1995. Research and development expense increased by $185,000 as a result of expenses related to the development of certain improvements and modifications to the LoJack Unit and Police Tracking Computers, and other projects which commenced during fiscal 1996. Systems costs increased by $271,000 primarily as a result of increased system operating costs related to the fiscal 1995 expansion markets which were in operation for a full year in fiscal 1996, as well as increases in systems maintenance costs and maintenance engineering salaries related to updating and repairing existing LoJack Systems. Marketing expenses increased by $1,933,000 to $11,211,000 in fiscal 1996 from $9,278,000 in fiscal 1995 primarily as the result of increases in marketing wages and benefits of $506,000 and increases in general marketing expenses, including advertising costs, of $1,427,000 as the result of both a full year of operations in the fiscal 1995 expansion markets, the start-up of new markets in fiscal 1996, and an increase in marketing spending related to the increase in overall business volume during the year in existing domestic markets. General and administrative expenses increased by $705,000 to $5,575,000 in fiscal 1996 from $4,870,000 in fiscal 1995, primarily due to the addition of certain administrative personnel and related office, telephone, insurance and other expenses necessary to accommodate the demands of the increase in the company's business volume, legal and other fees resulting from the Company's international expansion and other non-recurring matters, as well as a full year of operations for the fiscal 1995 expansion markets. Depreciation expense decreased by $399,000 as the result of LoJack System components in certain older markets becoming fully depreciated. This decrease is offset partially by increases in depreciation related to fiscal 1995 and fiscal 1996 start-up markets as well as current year additions of certain computer equipment and software. Interest income increased by $709,000 to $1,526,000 in fiscal 1996 from $817,000 in fiscal 1995 as the result in the increase in cash balances available for investment during the year offset by a general decrease in average interest rates during the year. Interest expense decreased by $177,000 to $167,000 in fiscal 1996 5 - -------------------------------------------------------------------------------- from $344,000 in fiscal 1995 primarily due to the inclusion of additional interest expense in fiscal 1995 related to a guarantee under a former line of credit. Other income decreased by $9,000 in fiscal 1996 to $82,000 from $91,000 in fiscal 1995 primarily due to a decrease in income earned on disposals of installation vehicles. The income tax provision (benefit) decreased by $2,226,000 to a benefit of $1,931,000 in fiscal 1996 from a provision of $295,000 in fiscal 1995. This decrease resulted from an increase in the current provision of $428,000 as the result of the increase in taxable income during the fiscal year, offset by a deferred tax benefit of $2,654,000 which resulted from the realization of the future tax benefit of the Company's remaining net operating loss carryforwards in accordance with certain accounting pronouncements. As a result of the foregoing, net income for fiscal 1996 increased by $8,140,000 to $11,978,000 in fiscal 1996 from $3,838,000 in fiscal 1995. Year Ended February 28, 1995 ("fiscal 1995") vs. February 28, 1994 ("fiscal 1994") Revenues increased by $11,439,000, or 38%, to $41,658,000 for fiscal 1995 from $30,219,000 in fiscal 1994. This increase is primarily the result of increased revenues of $12,039,000 from sales of LoJack Units and related components in the Company's domestic markets. Revenues from existing domestic markets contributed $5,725,000 of this increase, while revenues from the new markets ("new markets") of Rhode Island and New York (both operational in June of 1994) provided $6,314,000 of the increase in domestic revenues over fiscal 1994. This increase in domestic revenues was offset partially by a net decrease of $600,000 in foreign revenues derived pursuant to License Agreements consisting of a $1,344,000 decrease in non-recurring license fees earned offset by a $744,000 increase in revenues from the sale of CarSearch products and ongoing royalties. Cost of goods sold as a percentage of revenues decreased overall to 50% in fiscal 1995 from 51% in fiscal 1994. Domestically, cost of goods sold as a percentage of revenues decreased by 3% to 50% in fiscal 1995 from 53% a year earlier. This decrease is the result of reduced manufacturing costs of the LoJack Unit as well as increased installation efficiencies resulting from the economies of scale. Cost of goods sold related to revenues derived under License Agreements increased to 50% of related revenues in fiscal 1995 from 29% in fiscal 1994. This increase is the result of the aforementioned decrease in license fee revenue, which has no significant related cost component, to 15% of total revenues under License Agreements in fiscal 1995 from 50% in fiscal 1994. Systems costs and research and development increased by $285,000 to $807,000 in fiscal 1995 from $522,000 a year earlier. This increase is the result of several research and development projects undertaken during the year related to the LoJack System and other products as well as increased system operating costs related to the addition of the new markets in fiscal 1995. Overall, marketing expenses increased by $2,480,000 to $9,278,000 in fiscal 1995 from $6,798,000 a year earlier primarily as the result of advertising costs and marketing wages related to the start-up of the new markets in fiscal 1995, as well as an increased media presence in certain existing domestic markets. Overall, general and administrative expenses increased by $759,000 to $4,870,000 in fiscal 1995 from $4,111,000 a year earlier. This increase is primarily the result of the start-up of new markets in fiscal 1995 as well as an increase in administrative personnel, services, telephone expense and supplies related to the increase in domestic revenues. Depreciation and amortization increased by $305,000 to $2,294,000 in fiscal 1995 from $1,989,000 a year earlier. The start-up of new markets accounted for $271,000 of the increase, and the remaining $34,000 is the result of net additions to property and equipment in existing markets. Interest expense increased by $31,000 to $344,000 in fiscal 1995 from $313,000 a year earlier primarily as the result of interest expense on new capital leases for installation vehicles entered into during the fiscal year. Interest income increased $741,000 to $817,000 in fiscal 1995 from $76,000 in fiscal 1994. This increase is primarily the result of increased interest income generated from the increase in cash available for investment during the year and higher interest rates. Other income decreased by $122,000 to $91,000 in fiscal 1995 from $213,000 in fiscal 1994 primarily due to the absence in fiscal 1995 of income related to the renegotiation of a lease in fiscal 1994. Provision for income taxes increased by $216,000 to $295,000 for fiscal 1995 from $79,000 a year earlier as the result of the Company's increased taxable income for fiscal 1995. The extraordinary loss item of $163,000 in fiscal 1994 is the result of the exchange of the Company's common stock for the convertible subordinated debentures of a subsidiary. As a result of the foregoing, net income increased by $2,608,000 to $3,838,000 in fiscal 1995 from $1,230,000 a year earlier. 6 - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES
1996 1995 1994 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by operating activities before changes in assets and liabilities............................ $12,291,933 $ 6,815,872 $ 3,745,237 Increase (decrease) in cash from changes in assets and liabilities.............. (1,147,524) (86,380) 198,574 ----------- ----------- ----------- Net cash provided by operating activities............................. $11,144,409 $ 6,729,492 $ 3,943,811 =========== =========== =========== CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock................ $ 1,682,849 $13,585,828 $ 5,452,730 Repayment of debt and other............. (1,015,436) (687,895) (471,630) Preferred stock dividends paid.......... (3,821,626) Repurchase of common stock.............. (847,500) ----------- ----------- ----------- Net cash provided by (used for) financing activities................... $ (180,087) $ 9,076,307 $ 4,981,100 =========== =========== =========== CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property and equipment- net.................................... $ (999,567) $(2,556,419) $(1,912,570) ----------- ----------- ----------- Net cash used for investing activities.. $ (999,567) $(2,556,419) $(1,912,570) =========== =========== ===========
The Company's strategic plan in the United States is to expand the use of its technology to those jurisdictions where the combination of new vehicle sales, population density, and the incidence of vehicle theft is high. Expansion of the LoJack System in the United States requires substantial investments of capital and operating resources. The Company had historically financed its capital and operating needs through the issuance of common stock, convertible debentures, long-term debt, and since fiscal 1993, from cash flow from operations. In fiscal 1996 the decrease in cash from changes in assets and liabilities of $1,148,000 includes an increase in accounts receivable of $1,853,000, and an increase in inventory of $935,000, and other net increases in assets and liabilities of $4,000, offset partially by increases in accrued liabilities of $894,000 and deferred revenue of $750,000. The increase in gross accounts receivable of $1,853,000 is primarily related to the increase in domestic revenues during the fourth quarter of fiscal 1996 of over $1,445,000 versus fiscal 1995, as well as a receivable of over $200,000 related to a rebate due from an inventory supplier. The increase in inventory of $935,000 resulted primarily from an effort to increase the Company's inventory on hand to sufficient levels to satisfy the Company's current level of business, as well as to meet unanticipated demand. In addition, certain inventory on hand at February 29, 1996 related to shipments of LoJack Units to certain international licensees in early fiscal 1997. The Company expects that its investment in inventory and accounts receivable will increase as its sales increase. As the result of uncertainties in timing, changes in refundable deposits from international licensees cannot be estimated. The increase in deferred revenue is related to cash received during the year under the extended warranty program for which revenue is amortized over a five year period. The increase in accrued liabilities resulted from increases in accrued taxes and other liabilities relative to the Company's increased business profitability and volume. The Company is presently pursuing expansion efforts in several new states which meet the qualifications set forth in the Company's initial strategic plan. Additionally, the Company is in negotiations to expand into new jurisdictions within certain states which currently have operational LoJack Systems. The Company expects that, pending receipt of necessary approvals, certain of these potential expansion markets will become operational during fiscal 1997. The Company plans to fund these expansions as well as other capital expenditures during fiscal 1997 using existing working capital or cash flow from operations. The Company estimates capital expenditures in fiscal 1997 of approximately $2,500,000 to $3,000,000 for these expansions and other on- going capital requirements. The Company's expansion into additional international markets is achieved through licensing agreements and has not, in the past, required capital investment on the part of the Company. The Company currently has no plans to change its practice. During fiscal 1996 the Company's board of directors authorized a stock repurchase program under which the Company may repurchase up to 2,200,000 shares of its outstanding common stock. The Company plans to accomplish the repurchase program in open market transactions, from time to time, depending on the price of its stock. As of February 29, 1996 the Company had repurchased 90,000 common shares. From March 1, 1996 through May 8, 1996 the Company has repurchased an additional 20,000 common shares. In February 1996 the Company completed an amendment to a revolving credit facility with a bank which provides for borrowings up to a maximum of $7,500,000. The amount of actual available borrowings is determined based upon certain financial performance formulas. As of May 8, 1996 the Company would be eligible to borrow $7,500,000. Amounts outstanding under the line of credit bear interest at the bank's base rate. This facility permits borrowings and repayments through March 1, 1997 at which time the line of credit converts to a term loan which requires quarterly installments of principal commencing on May 31, 1997 and ending on February 28, 2002. The loan agreement contains limitations on indebtedness, certain investments in equity securities, and entity acquisitions; requires the bank's approval of mergers; and prohibits disposition of assets other 7 - -------------------------------------------------------------------------------- than in the normal course of business. Additionally, the Company is required to maintain certain financial performance levels, including debt service coverage, minimum tangible capital funds, leverage, quick ratio, and profitability. The Company is permitted to pay dividends and repurchase its own common stock under terms of the agreement, and is only limited to the extent of its ability to meet certain financial performance measures. As of May 8, the Company has no borrowings under this line of credit. Capital lease obligations aggregating $879,000, $1,299,000 and $854,000 were incurred for new equipment during each of the three years ended February 29, 1996. Interest rates on such leases range from 6% to 9% per annum. As of the last day of February 1996 and 1995, principal amounts under such leases aggregated $1,315,000 and $1,451,000, respectively. The Company continues to participate in research and development efforts regarding both improvements and modifications to the LoJack Unit and LoJack system components. The Company expects to spend approximately $850,000 in fiscal 1997 on its research and development efforts as compared with $515,000 spent in fiscal 1996. As the result of the recognition of the estimated tax benefit of the remaining net operating loss carryforwards, the Company will start, in its quarter ending May 31, 1997, to accrue income taxes for financial reporting purposes based upon its pre-tax income at a rate of approximately 39%, although the Company's actual cash payment for taxes will be substantially offset to the extent of the tax effect of the utilization of net operating loss carryforwards of $13,600,000. As of February 29, 1996 the Company had working capital of $33,348,000. The Company believes that its anticipated capital and operating requirements for fiscal 1997 can be funded from cash flows from operations. The Company intends to continue to repurchase shares of its common stock in accordance with the plan authorized by the board of directors during fiscal 1996 provided that the reacquisition cost makes such repurchases economically practical. The Company is also continuing to explore possible investment opportunities, including, but not limited to, possible acquisitions of, or investments in, other companies. The Company's current operations are not materially impacted by the effects of inflation. NEW ACCOUNTING PRONOUNCEMENTS In fiscal 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and SFAS No. 123 "Accounting for Stock-Based Compensation", which are effective for the Company's fiscal year 1997. The Company's management does not believe implementation of SFAS No. 121 will have a significant impact on the financial statements when adopted in fiscal 1997. With regard to SFAS No. 123, the Company has determined as permitted under SFAS No. 123 that it will not adopt the fair value method and will continue to use Accounting Principles Board Opinion No. 25 for the measurement and recognition of employee stock based transactions. CAUTIONARY STATEMENTS The Private Securities Litigation Reform Act of 1995 contains certain safe harbors regarding forward-looking statements. From time to time, information provided by the Company or statements made by its directors, officers, or employees may contain "forward-looking" information which involve risk and uncertainties. Any statements in this report that are not statements of historical fact are forward-looking statements (including, but not limited to, statements concerning the characteristics and growth of the Company's market and customers, the Company's objectives and plans for future operations, possible acquisitions, and the Company's expected liquidity and capital resources). Such forward-looking statements are based on a number of assumptions and involve a number of risks and uncertainties, and accordingly, actual results could differ materially. Factors that may cause such differences include, but are not limited to: the continued and future acceptance of the Company's products and services, the rate of growth in the industries of the Company's customers; the presence of competitors with greater technical marketing and financial resources; the Company's ability to promptly and effectively respond to technological change which meet evolving customer needs; capacity and supply constraints or difficulties; and the Company's ability to successfully integrate new operations. For a further discussion of these and other significant factors to consider in connection with forward-looking statements concerning the Company, reference is made to Exhibit 99 of the Company's Annual Report on Form 10-K for fiscal year February 29, 1996. LOJACK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 8 - --------------------------------------------------------------------------------
1996 1995 1994 ----------- ----------- ----------- Revenues................................ $52,516,359 $41,658,074 $30,218,584 Cost of Goods Sold...................... 23,966,360 20,840,184 15,301,927 ----------- ----------- ----------- Gross Margin............................ 28,549,999 20,817,890 14,916,657 ----------- ----------- ----------- Costs and Expenses: System costs and research and develop- ment................................... 1,263,492 807,462 522,117 Marketing............................... 11,211,501 9,277,847 6,797,677 General and administrative.............. 5,574,757 4,870,004 4,111,385 Depreciation and amortization........... 1,894,933 2,294,346 1,988,916 ----------- ----------- ----------- Total................................... 19,944,683 17,249,659 13,420,095 ----------- ----------- ----------- Operating Income........................ 8,605,316 3,568,231 1,496,562 ----------- ----------- ----------- Other Income (Expense): Interest expense........................ (166,748) (343,658) (313,301) Interest income......................... 1,526,440 817,179 75,732 Other income............................ 82,028 90,986 213,040 ----------- ----------- ----------- Total................................... 1,441,720 564,507 (24,529) ----------- ----------- ----------- Income Before Provision for Income Taxes and Extraordinary Item................. 10,047,036 4,132,738 1,472,033 Income Tax Provision (Benefit).......... (1,931,000) 295,000 79,000 ----------- ----------- ----------- Income Before Extraordinary Item........ 11,978,036 3,837,738 1,393,033 Extraordinary Item--Loss on exchange of subordinated debentures................ (163,062) ----------- ----------- ----------- Net Income.............................. 11,978,036 3,837,738 1,229,971 Preferred Dividends for the Year........ (425,563) (1,216,500) ----------- ----------- ----------- Net Income Applicable to Common Stock- holders................................ $11,978,036 $ 3,412,175 $ 13,471 =========== =========== =========== Primary and fully diluted earnings per common share: Income before extraordinary item........ $ 0.51 $ 0.16 $ 0.02 Extraordinary item...................... (0.01) ----------- ----------- ----------- Earnings per common share............... $ 0.51 $ 0.16 $ 0.01 =========== =========== =========== Weighted average common shares and equivalents............................ 23,284,684 20,666,057 17,530,096 =========== =========== ===========
See notes to consolidated financial statements. LOJACK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 9 - --------------------------------------------------------------------------------
1996 1995 ASSETS ---- ---- Current Assets: Cash and equivalents............................... $ 31,630,663 $ 21,665,908 Accounts receivable--Net........................... 5,873,918 4,258,555 Inventories........................................ 2,780,416 1,845,753 Prepaid expenses and other......................... 83,544 63,971 ------------ ------------ Total current assets............................... 40,368,541 27,834,187 Property and Equipment--Net........................ 7,652,703 8,440,427 Deferred Tax Asset................................. 4,703,173 Other Assets--Net.................................. 355,020 420,202 ------------ ------------ Total.............................................. $ 53,079,437 $ 36,694,816 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of capital lease obligations....... $ 670,925 $ 651,854 Accounts payable................................... 2,562,922 2,548,811 Accrued and other liabilities...................... 996,165 740,958 Deposits........................................... 1,087,741 718,668 Current portion of deferred revenue................ 695,794 437,778 Accrued compensation............................... 672,938 709,069 Accrued taxes...................................... 364,500 59,302 ------------ ------------ Total current liabilities.......................... 7,050,985 5,866,440 ------------ ------------ Deferred Revenue................................... 1,656,766 1,164,411 ------------ ------------ Long-term Debt: Capital lease obligations.......................... 644,218 799,246 10% convertible subordinated debentures............ 100,000 ------------ ------------ Total long-term debt............................... 644,218 899,246 ------------ ------------ Commitments and Contingencies Stockholders' Equity: Series A preferred stock--$.01 par value; authorized, 10,000,000 shares; issued, 0 shares at February 29, 1996 and February 28, 1995........... Common stock--$.01 par value; authorized, 35,000,000 shares; issued, 21,876,666 and 21,252,610 shares at February 29, 1996 and February 28, 1995, respectively................... 218,767 212,527 Additional paid-in capital......................... 56,872,389 53,046,416 Deficit............................................ (12,516,188) (24,494,224) Treasury stock, at cost, 90,000 shares of common stock............................................. (847,500) ------------ ------------ Total stockholders' equity......................... 43,727,468 28,764,719 ------------ ------------ Total.............................................. $ 53,079,437 $ 36,694,816 ============ ============
See notes to consolidated financial statements. LOJACK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 10 - --------------------------------------------------------------------------------
Preferred Stock Common Stock Treasury Stock -------------------- ------------------- ------------------- Additional Number of Number of Paid-in Number of Shares Amount Shares Amount Capital Deficit Shares Amount Total ---------- -------- ---------- -------- ----------- ------------ --------- --------- ----------- Balance, March 1, 1993............. 1,216,500 $ 12,165 12,839,088 $128,391 $31,788,010 $(25,740,307) $ 6,188,259 Issuance of common stock: Exercise of warrants and options......... 1,705,272 17,052 5,435,678 5,452,730 Conversion of subordinated debentures of a subsidiary...... 554,262 5,543 2,202,845 2,208,388 Other............ 16,083 161 83,270 83,431 Net income........ 1,229,971 1,229,971 ---------- -------- ---------- -------- ----------- ------------ ----------- Balance, February 28, 1994......... 1,216,500 12,165 15,114,705 151,147 39,509,803 (24,510,336) 15,162,779 Issuance of common stock: Exercise of warrants and options......... 3,278,453 32,785 13,553,043 13,585,828 Conversion of preferred stock into common stock........... (1,216,500) (12,165) 2,859,452 28,595 (16,430) 0 Preferred dividend paid............. (3,821,626) (3,821,626) Net income........ 3,837,738 3,837,738 ---------- -------- ---------- -------- ----------- ------------ ----------- Balance, February 28, 1995......... 21,252,610 212,527 53,046,416 (24,494,224) 28,764,719 Issuance of common stock: Exercise of options......... 600,550 6,005 1,676,844 1,682,849 Conversion of subordinated debentures...... 23,506 235 99,765 100,000 Repurchase of common stock..... 90,000 $(847,500) (847,500) Tax benefit of employee stock option exercises. 2,049,364 2,049,364 Net income........ 11,978,036 11,978,036 ---------- -------- ---------- -------- ----------- ------------ ------ --------- ----------- Balance, February 29, 1996......... 21,876,666 $218,767 $56,872,389 $(12,516,188) 90,000 $(847,500) $43,727,468 ========== ======== ========== ======== =========== ============ ====== ========= ===========
See notes to consolidated financial statements LOJACK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 11 - --------------------------------------------------------------------------------
1996 1995 1994 ----------- ----------- ----------- Cash Flows From Operating Activities: Net income............................. $11,978,036 $ 3,837,738 $ 1,229,971 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activi- ties: Depreciation and amortization.......... 2,730,173 2,860,303 2,351,483 Provision for doubtful accounts........ 237,724 117,831 721 Loss on exchange of debentures......... 163,062 Deferred tax benefit................... (2,654,000) Increase (decrease) in cash from changes in assets and liabilities: Accounts receivable.................... (1,853,087) (1,714,369) (255,144) Inventories............................ (934,663) (42,483) 331,798 Prepaid expenses and other............. (19,573) (10,338) 4,108 Other assets........................... 1,778 41,325 (86,385) Accounts payable....................... 14,111 300,477 (135,446) Accrued and other liabilities.......... 893,539 677,287 (74,976) Deferred revenue....................... 750,371 661,721 414,619 ----------- ----------- ----------- Total adjustments...................... (833,627) 2,891,754 2,713,840 ----------- ----------- ----------- Net cash provided by operating activi- ties.................................. 11,144,409 6,729,492 3,943,811 ----------- ----------- ----------- Cash Flows From Investing Activities: Expenditures for property and equip- ment--net............................. (999,567) (2,556,419) (1,912,570) ----------- ----------- ----------- Cash Flows From Financing Activities: Issuance of common stock............... 1,682,849 13,585,828 5,452,730 Repayment of debt...................... (1,015,436) (687,895) (460,873) Payment of preferred dividends......... (3,821,626) Repurchase of common stock............. (847,500) Other.................................. (10,757) ----------- ----------- ----------- Net cash (used for) provided by financ- ing activities........................ (180,087) 9,076,307 4,981,100 ----------- ----------- ----------- Increase in Cash and Equivalents....... 9,964,755 13,249,380 7,012,341 Beginning Cash and Equivalents......... 21,665,908 8,416,528 1,404,187 ----------- ----------- ----------- Ending Cash and Equivalents............ $31,630,663 $21,665,908 $ 8,416,528 =========== =========== ===========
See notes to consolidated financial statements. LOJACK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994 12 - -------------------------------------------------------------------------------- 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY--LoJack Corporation and subsidiaries ("LoJack" or the "Company") market and license for use components of the LoJack System (the "LoJack System") and related products, a unique proprietary system for locating, tracking and recovering stolen vehicles. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR--The Company's February 1996, 1995 and 1994 fiscal years ended on February 29, 1996, and February 28, 1995 and 1994, respectively. PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of LoJack and its wholly owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation. REVENUE RECOGNITION--Sales of the LoJack Units and related products are recognized upon installation by the Company. Revenues from the sales of components of the LoJack System to licensees are recognized upon shipment. Nonrefundable fees received in connection with the granting of licenses to implement and operate components of the LoJack System are generally recognized upon receipt of the fees or, in the case of deposits, once they become nonrefundable. Such revenues aggregated approximately $932,000, $163,000 and $1,507,000 for the fiscal years ended February 1996, 1995 and 1994, respectively. LoJack's sole obligation in connection with the granting of licenses is to provide technical assistance on a fee-for-service basis. Revenues from sales of extended warranties are amortized over the estimated term of the warranties (five years). Costs directly related to the sales of such warranties are deferred and charged to expense proportionately as the revenues are recognized. Such revenues aggregated approximately $570,000, $334,000 and $153,000 for the fiscal years ended February 1996, 1995 and 1994, respectively. The related warranty costs are recognized when incurred. Revenues from extended warranty sales expected to be realized beyond one year are classified as a long-term liability. RESEARCH AND DEVELOPMENT--Costs for research and development on components of the LoJack System have been expensed as incurred. Such costs aggregated approximately $515,000, $330,000, and $150,000 for the fiscal years ended February 1996, 1995 and 1994, respectively. CASH EQUIVALENTS--Cash equivalents include short-term, highly liquid investments purchased with remaining maturities of three months or less. These cash equivalents consist of high quality securities purchased through major banks. Management routinely assesses the financial strength of the banks and, as of February 29, 1996, believes it had no significant exposure to credit risks. ACCOUNTS RECEIVABLE--The allowance for doubtful accounts was approximately $395,000 and $193,000 as of the end of February 1996 and 1995, respectively. Accounts receivable are principally due from new automobile dealers that are geographically dispersed in various states in the United States. INVENTORIES--Inventories are stated at the lower of cost (first-in, first-out method) or market and consist primarily of finished goods, including LoJack Units and other related products and components held for resale. PROPERTY AND EQUIPMENT--Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the related assets (three to seven years). OTHER ASSETS--NET--Other assets--net consist of the following as of the end of February:
1996 1995 -------- -------- Engineering deposits......................................... $110,000 $110,000 Deferred contract costs...................................... 153,920 185,612 Deferred financing costs..................................... 25,438 54,094 Deferred patent costs........................................ 12,318 15,373 Other (principally deposits)................................. 53,344 55,123 -------- -------- Total........................................................ $355,020 $420,202 ======== ========
Deferred contract, financing and patent costs are being amortized using the straight-line method over periods ranging from 3 to 17 years. Accumulated amortization aggregated approximately $247,000 and $184,000 as of the end of February 1996 and 1995, respectively. PRODUCT WARRANTY COSTS--Anticipated costs related to standard product warranties are charged to income at the time of the sale of the related products. EARNINGS PER SHARE--Earnings per share has been computed by dividing net income, after reduction for preferred stock dividends, by the weighted average number of common shares and equivalents outstanding. Common share equivalents included in the computation represent shares issuable upon assumed exercise of stock options (and stock purchase warrants for fiscal years 1995 and 1994), which would have a dilutive effect. Fully diluted and primary earnings per share were the same for the years ended February 1996, 1995 and 1994. INCOME TAXES--Deferred tax assets and liabilities are determined based upon: (a) the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse, and (b) operating loss and tax credit carryforwards. FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company's financial instruments consist of cash and equivalents, accounts receivable, accounts payable, deposits, accrued liabilities, capital lease obligations and, at the end of February 1995, 10% convertible subordinated debentures. The fair value of these financial instruments at the end of February 1996 and 1995 approximate their carrying values. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash payments for interest aggregated approximately $168,000, $672,000 and $83,000 for the fiscal years ended February 1996, 1995 and 1994, respectively. Cash payments for income taxes for the fiscal years ended February 1996, 1995 and 1994 were approximately $418,000, $244,000 and $95,000, respectively. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES AND EXTRAORDINARY LOSS--Capital lease obligations aggregating approximately $879,000, $1,299,000 and $854,000 were incurred when the Company entered into NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13 - -------------------------------------------------------------------------------- lease agreements for new vehicles and equipment during the fiscal years ended February 1996, 1995 and 1994, respectively. In July 1995, $100,000 of the Company's 10% convertible subordinated debentures were converted into 23,506 shares of the Company's common stock. On May 27, 1994, the Company called for redemption on July 11, 1994, 1,216,500 shares of its Series A Preferred Stock at a price of $10.50 per share. Prior to the redemption date, holders of all of the 1,216,500 shares of the Preferred Stock exercised their option to convert such shares into 2,859,452 shares of the Company's common stock and receive payment of $3,821,626 of accumulated preferred dividends, which had accumulated at a rate of 10% per year from May 15, 1991. As a result of this conversion, the Company no longer has any preferred stock outstanding. On May 7, 1993, the Company acquired from an investor group their holdings of convertible subordinated debentures of the Company's New Jersey subsidiary in exchange for 554,262 shares of the Company's common stock. The convertible subordinated debentures which were exchanged had a face value of $1,566,977 plus accrued interest of $528,873. The total loss on exchange of the convertible subordinated debentures aggregated $163,062, which is classified as an extraordinary item. Of this loss, $152,306 was a noncash transaction, including $39,768 of unamortized deferred financing costs related to the convertible subordinated debentures which were written off upon the exchange. ACCOUNTING PRONOUNCEMENTS--In fiscal 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and SFAS No. 123, "Accounting for Stock-Based Compensation," which are effective for the Company's fiscal year 1997. The Company's management does not believe implementation of SFAS No. 121 will have a significant impact on the financial statements when adopted in fiscal 1997. With regard to SFAS No. 123, the Company has determined that, as permitted under SFAS No. 123, it will not adopt the fair value method and will continue to use Accounting Principles Board Opinion No. 25 for the measurement and recognition of employee stock-based transactions. USE OF ESTIMATES--The management of the Company is required, in certain instances, to use estimates and assumptions that affect the amounts reported in the financial statements, and the notes thereto, in order to conform with generally accepted accounting principles. The Company's actual results could differ from these estimates. RECLASSIFICATIONS--Certain 1995 and 1994 amounts have been reclassified to conform to the 1996 presentation. 2. PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of the end of February:
1996 1995 ------------ ------------ LoJack System components............................ $ 13,015,269 $ 12,144,624 Equipment, furniture, and fixtures.................. 2,766,764 2,076,926 Vehicles............................................ 3,129,892 2,797,533 ------------ ------------ Total............................................... 18,911,925 17,019,083 Less accumulated depreciation and amortization...... (12,069,040) (10,042,098) ------------ ------------ Total............................................... 6,842,885 6,976,985 LoJack System components not yet in service......... 809,818 1,463,442 ------------ ------------ Property and equipment--net......................... $ 7,652,703 $ 8,440,427 ============ ============
Total additions to property and equipment, including those relating to capital lease obligations, aggregated approximately $2,158,000, $3,471,000 and $3,122,000 for the fiscal years ended February 1996, 1995 and 1994, respectively. LoJack System components not yet in service consist primarily of certain components relating to the implementation of the LoJack System in expansion markets. Such components at the end of February 1996 are expected to be used in markets which are estimated to be approved and become operational during the year ending February 28, 1997. 3. NOTE PAYABLE AND CAPITAL LEASE OBLIGATIONS LINE OF CREDIT--The Company has renewed a line-of-credit agreement with a bank for a revolving credit facility which provides for borrowings up to a maximum of $7,500,000. The amount of actual available borrowings is determined based upon certain financial performance formulas. As of February 29, 1996, the Company would be eligible to borrow $7,500,000. This facility permits borrowings and repayments through March 1, 1997, at which time the line of credit converts to a term loan which requires quarterly installments of principal commencing on May 31, 1997 and ending on February 28, 2002. Outstanding borrowings under the line of credit bear annual interest, payable monthly, at the bank's base rate. No borrowings were outstanding under the line of credit as of the end of February 1996 and 1995. The Company has granted to the bank a security interest in substantially all of the assets of the Company and its subsidiaries. The loan agreement relating to the line of credit generally contains limitations on indebtedness, certain investments in equity securities and entity acquisitions; requires lender's approval of mergers; and prohibits disposition of assets other than in the normal course of business. Additionally, the loan agreement requires the Company to maintain certain financial performance measures including debt service coverage, minimum tangible capital funds, leverage, quick ratio and profitability. The payment of dividends and repurchase of the Company's common stock is permitted and is limited only to the extent such payments affect the Company's ability to meet the financial performance measures under the line of credit. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14 - -------------------------------------------------------------------------------- CAPITAL LEASE OBLIGATIONS--The Company has entered into capital lease arrangements for certain vehicles and equipment. The cost of leased vehicles and equipment included in property and equipment was approximately $2,946,000 and $2,966,000, and the related accumulated amortization was approximately $1,447,000 and $1,390,000 as of the end of February 1996 and 1995, respectively. REPAYMENT REQUIREMENTS--At February 29, 1996, scheduled repayment requirements for capital lease obligations are as follows: 1997................................................................. $ 769,619 1998................................................................. 529,814 1999................................................................. 160,080 2000................................................................. 13,616 --------- Total payments....................................................... 1,473,129 Less amounts representing interest................................... (157,986) --------- Total principal...................................................... 1,315,143 Less current portion................................................. (670,925) --------- Long-term portion.................................................... $ 644,218 =========
4. STOCKHOLDERS' EQUITY STOCK OPTIONS--In July 1989, the Company's stockholders adopted the LoJack Incentive Stock Option Plan ("ISO Plan") which covers substantially all employees. The ISO Plan, as amended, provides for the granting of options to purchase a maximum of 500,000 shares of common stock, of which options to purchase 279,900 shares of common stock are outstanding and 91,050 shares remained available for future grant as of February 29, 1996. In July 1992 and July 1995, the Company's stockholders approved amendments to the ISO Plan to create a new class of Senior Management Options, which provide for the granting of options to purchase a maximum of 3,414,135 shares of common stock, of which options to purchase 2,303,000 shares of common stock have been granted and 1,111,135 shares remained available for future grant as of February 29, 1996. In July 1994, the Company's stockholders approved an amendment to the ISO Plan to provide for the granting of options to non-employee directors to purchase a maximum of 210,000 shares of common stock, of which options to purchase 75,000 shares of common stock have been granted and 135,000 remained available for future grant. The Company has, from time to time, also granted options to key employees, officers and directors to purchase an aggregate of 236,750 shares of the Company's common stock. The options, including those issued under the ISO Plan, provide for an exercise price equal to fair market value of the common stock as of the date of the grant, generally vest ratably over periods of three to five years, and expire ten years from the date of the grant. A summary of stock option activity for the fiscal years ended February 1996, 1995 and 1994 is as follows:
1996 1995 1994 ------------ ----------- ----------- Outstanding, beginning of period....... 2,842,600 2,493,550 2,022,250 Granted................................ 524,475 535,550 516,000 Exercised.............................. (600,550) (186,300) (35,700) Canceled............................... (167,875) (200) (9,000) ------------ ----------- ----------- Outstanding, end of period ($2.00- $12.38)............................... 2,598,650 2,842,600 2,493,550 ============ =========== =========== Exercisable, end of period............. 1,854,145 1,720,085 1,448,520 ============ =========== =========== Option prices per share: Granted................................ $8.38-$12.38 $6.63-$7.63 $4.94 Exercised.............................. $2.00-$ 7.63 $2.00-$4.94 $2.00-$2.38 Canceled............................... $2.38-$ 9.00 $4.38 $2.38-$4.53
STOCK PURCHASE WARRANTS--In connection with the issuance of the Company's 10% subordinated debentures (see Note 1), holders of the Company's Series A Preferred Stock (see Note 1) and 10% convertible subordinated debentures were granted warrants to purchase 3,141,517 shares of common stock, expiring May 15, 1997, at an exercise price of $4.25 per share. During the year ended February 28, 1994, 91,092 of these warrants were exercised. On March 25, 1994, the Company called the remaining warrants pursuant to terms of the related warrant agreement. During the year ended February 28, 1995, 3,050,425 of such warrants were exercised, resulting in net proceeds to the Company of approximately $12,965,000. In connection with the private placement of 794,449 shares of the Company's common stock in November 1991, the Company issued warrants to purchase 1,459,800 shares of common stock, expiring November 15, 1998, at an exercise price of $3.00 per share. The holders exercised all of these warrants during the year ended February 28, 1994. In connection with a 1989 offering of common stock, the Company granted the underwriter warrants to purchase 170,000 shares of common stock at a price of $5.25 per share. The warrants were exercisable through April 1994. During the years ended February 28, 1995 and 1994, the holders exercised 42,000 and 118,680 warrants, respectively, and the balance expired unexercised in April 1994. COMMON STOCK RESERVED--As of February 29, 1996, the Company had 21,786,666 shares of common stock issued and outstanding, and 3,908,835 shares of common stock reserved for the exercise of stock options (see above). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15 - -------------------------------------------------------------------------------- 5. INCOME TAXES The provision for income taxes consisted of the following for the fiscal years ended February 1996, 1995 and 1994:
1996 1995 1994 ----------- -------- ------- Current: Federal........................................ $ 200,000 $ 65,000 $50,000 State.......................................... 523,000 230,000 29,000 ----------- -------- ------- Total............................................ 723,000 295,000 79,000 ----------- -------- ------- Deferred: Federal........................................ (2,348,000) State.......................................... (306,000) ----------- -------- ------- Total............................................ (2,654,000) ----------- -------- ------- Income tax provision (benefit)................... $(1,931,000) $295,000 $79,000 =========== ======== =======
The difference between the Company's effective income tax rate before extraordinary item and the United States statutory rate is reconciled below:
1996 1995 1994 ----- ----- ----- U.S. statutory rate....................................... 34.0% 34.0% 34.0% State taxes, net of federal benefit....................... 5.2 5.6 2.0 Utilization of net operating loss carryforwards........... (19.3) (26.2) (29.0) Change in valuation allowance............................. (38.9) Other, net................................................ (0.2) (6.3) (1.6) ----- ----- ----- Effective tax rate........................................ (19.2)% 7.1% 5.4% ===== ===== =====
The tax effects of the items comprising the Company's net deferred tax asset at the end of February 1996 and 1995 are as follows:
1996 1995 -------------------- ---------------------- CURRENT LONG-TERM CURRENT LONG-TERM -------- ----------- --------- ----------- Deferred tax liability-- differences between book and tax basis of property............... $(1,565,541) $ (880,961) -------- ----------- --------- ----------- Deferred tax assets: Reserves not currently deductible...................... $ 23,493 $ 195,993 Income deferred for book purposes........................ 278,317 662,707 177,911 465,764 Net operating loss carryforwards. 4,946,197 6,895,540 Tax credit carryforwards......... 358,000 140,000 -------- ----------- --------- ----------- Deferred tax assets.............. 301,810 5,966,904 373,904 7,501,304 Valuation allowance.............. (373,904) (6,620,343) -------- ----------- --------- ----------- 301,810 5,966,904 880,961 -------- ----------- --------- ----------- Net deferred tax assets.......... $301,810 $ 4,401,363 $ 0 $ 0 ======== =========== ========= ===========
Effective March 1, 1994, the Company adopted SFAS No. 109, "Accounting for Income Taxes." As a result, the Company recorded a deferred tax asset relating to the tax benefit of operating loss and tax credit carryovers, and differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At that time the Company provided for a valuation allowance equal to 100% of the deferred tax asset as a result of the uncertainty of the Company's ability to utilize the benefit of the net operating loss and tax credit carryovers against future taxable income or payments. Changes in the valuation allowance for the years ended February 1996, 1995 and 1994 resulted in a decrease to the Company's tax provision of approximately $5,854,000, $1,381,000 and $441,000, respectively, primarily attributable to the utilization of net operating loss carryforwards and the Company's determination that, as of the end of February 1996, the valuation allowance was no longer necessary. Accordingly, the income tax provision for the year ended February 29, 1996 includes a credit provision of approximately $2,654,000 related to the elimination of the valuation allowance for the deferred tax assets. The tax benefit that pertained to certain employee stock option exercises of approximately $2,049,000 was recorded to additional paid-in capital. The Company (excluding Recovery System, Inc. ("RSI"), a subsidiary) has available for tax purposes net operating loss carryforwards of approximately $12,700,000 at February 29, 1996. These losses may be used to offset future regular taxable income, if any, which may otherwise be subject to federal income tax, and expire in varying amounts through 2008. The Company also has investment tax and research and development credit carryforwards aggregating approximately $140,000 at February 29, 1996, and expire in varying amounts through 2001. The Company also has approximately $218,000 in alternative minimum tax credits at February 29, 1996. These credits may be used to offset future federal income tax liabilities, if any. The maximum amount of operating loss and tax credit carryforwards available in any one year may be limited under existing tax law. RSI has available for tax purposes a net operating loss carryforward of approximately $900,000 at February 29, 1996. This loss may be used to offset future taxable income of RSI, if any, which may otherwise be subject to federal income tax, and expires in varying amounts through 2005. As a result of the acquisition of RSI by LoJack, the maximum amount of RSI carryforwards available in any one year will be limited under existing tax law. 6. COMMITMENTS AND CONTINGENT LIABILITIES LEASE COMMITMENTS--The Company leases various facilities under operating leases whose terms expire from 1997 to 2001; the leases contain renewal options ranging from two to five years. Minimum annual lease payments are as follows: 1997................................................................. $ 624,000 1998................................................................. 578,000 1999................................................................. 466,000 2000................................................................. 326,000 2001................................................................. 280,000 Thereafter........................................................... 43,000 ---------- Total................................................................ $2,317,000 ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16 - -------------------------------------------------------------------------------- Rental expense under operating leases aggregated approximately $786,000, $721,000 and $667,000 for the fiscal years ended February 1996, 1995 and 1994, respectively. OTHER COMMITMENTS--The Company made a payment of $500,000 of contingent interest in fiscal 1995 to a third-party guarantor under a previous line of credit to the Company. The Company has no further contingent liabilities under this agreement. 7. EMPLOYEE BENEFIT PLAN Effective March l, 1992, the Company adopted a defined contribution 40l(k) plan covering substantially all full-time employees. Under the provisions of the plan, employees may contribute a portion of their compensation within certain limitations. The Company matches a percentage of employee contributions on a discretionary basis as determined by the Board of Directors. The Company's Board of Directors elected to match 40% of employee contributions in fiscal 1996 and 25% in fiscal years 1995 and 1994, subject to certain limitations. Company contributions are vested 100% after five years of continuous service. Benefit costs related to the plan were $133,000, $59,000 and $27,000 for the fiscal years ended February 1996, 1995 and 1994, respectively. 8. EXPORT SALES Export revenues relate to product sales to and licensing revenues from unaffiliated licensees in foreign countries. A summary of such revenues is as follows:
1996 1995 1994 ---------- ---------- ---------- Export revenues: Europe....................................... $1,589,000 $ 654,000 $2,246,000 South America................................ 2,391,000 1,044,000 582,000 Asia......................................... 236,000 749,000 219,000 Africa....................................... 217,000 ---------- ---------- ---------- Total.......................................... $4,433,000 $2,447,000 $3,047,000 ========== ========== ==========
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of LoJack Corporation: We have audited the accompanying consolidated balance sheets of LoJack Corporation and subsidiaries as of February 29, 1996 and February 28, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended February 29, 1996. 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, such consolidated financial statements present fairly, in all material respects, the financial position of LoJack Corporation and subsidiaries as of February 29, 1996 and February 28, 1995, and the results of their operations and their cash flows for each of the three years in the period ended February 29, 1996 in conformity with generally accepted accounting principles. (ART) Boston, Massachusetts April 12, 1996 CORPORATE DATA - -------------------------------------------------------------------------------- EXECUTIVE OFFICERS SECURITIES LISTINGS C. Michael Daley NASDAQ: National Market Systems--"LOJN" Chairman of the Board of Directors and Treasurer ANNUAL MEETING (ChiefExecutive Officer) 10:00 a.m. Joseph F. Abely July 17, 1996 President and Chief Sheraton Tara Hotel Operating Officer Braintree, Massachusetts William R. Duvall FORM 10-K AVAILABILITY Senior Vice President (Operations and Technical The Company's annual report filed with the Development) Securities and Exchange Commission on Form 10-K is available without charge upon written request to: Kevin M. Mullins Vice President Investor Relations (Sales and Marketing) LoJack Corporation Norfolk Place Peter J. Conner 333 Elm Street Vice President Dedham, Massachusetts 02026 (Government Relations) 617-326-4700 BOARD OF DIRECTORS CORPORATE COUNSEL C. Michael Daley Peabody & Arnold Chairman Boston, Massachusetts James A. Daley INDEPENDENT CERTIFIED President, Daley Hotel PUBLIC ACCOUNTANTS Group, Inc. Deloitte & Touche LLP Robert J. Murray Boston, Massachusetts Chairman and Chief Executive OfficerNew INVESTOR RELATIONS England Business Service, Inc. Swanson Communications New York, NY Harold W. Shad, III 212-683-4890 President and Chief Executive Officer, Mike Shad Ford Larry C. Renfro Vice President, Allmerica Financial Services Lee T. Sprague Private Investor Thomas A. Wooters Clerk REGISTRAR AND TRANSFER AGENT American Stock Transfer & Trust Company New York, New York EX-21 13 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 Subsidiaries of the Registrant ------------------------------ CarSearch Corporation, a Delaware corporation LoJack Midwest Corporation, a Delaware corporation LoJack of New Jersey Corporation, a Delaware corporation Recovery Systems, Inc.,* a Florida corporation LoJack Holdings Corporation, a Massachusetts corporation LoJack Venture Corporation, a Massachusetts corporation *In Florida, Recovery Systems, Inc. does business under its tradename "LoJack of Florida." EX-23 14 INDEPENDENT AUDITORS' CONSENTS EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33- 86608, 33-65258 and 33-46462 on Form S-3 and Registration Statement Nos. 33- 86614 and 33-55904 on Form S-8 of LoJack Corporation of our reports dated April 12, 1996, appearing in and incorporated by reference in the Annual Report on Form 10-K of LoJack Corporation for the year ended February 29, 1996. /s/ Deloitte & Touche LLP - ------------------------- Boston, Massachusetts May 28, 1996 EX-27 15 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS IN ITS ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED FEBRUARY 29, 1996, WHICH ARE INCORPORATED BY REFERENCE INTO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR SUCH FISCAL YEAR, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR FEB-29-1996 MAR-01-1995 FEB-29-1996 31,630,663 0 6,269,120 395,202 2,780,416 40,368,541 19,721,743 12,069,040 53,079,437 7,050,985 0 0 0 218,767 43,508,701 53,079,437 51,234,708 52,516,359 23,966,360 23,966,360 19,944,683 230,942 166,748 10,047,036 (1,931,000) 11,978,036 0 0 0 11,978,036 .51 .51
EX-99 16 SAFE HARBOR STATEMENT UNDER PRIVATE SECURITIES LIT EXHIBIT 99 "SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Forward-looking statements made by or on behalf of the Company represent the Company's reasonable judgement on the future and are subject to risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, among others: DEPENDENCE ON PRINCIPAL PRODUCTS AND MARKET ACCEPTANCE. The Company currently derives most of its revenues from the sales of LoJack Units and related products to consumers, the licensing of its CarSearch Stolen Vehicle Recovery System to licensees in foreign countries, and the sale of products related to its CarSearch Vehicle Recovery System. The Company also derives a limited portion of its revenues from sales of conventional vehicle security devices. As a result, any factor adversely affecting sales of the Company's principal products would have a material adverse effect on the Company. In new markets, the Company's success is also heavily dependent upon consumer acceptance. There can be no assurance that the LoJack System will achieve widespread consumer acceptance in all of the Company's existing or future markets. EFFECT OF CHANGES IN ECONOMIC CONDITIONS AND NEW VEHICLE SALES. While the Company's products are installed in both new and used vehicles, the Company's sales levels are primarily affected by the level of sales of new vehicles. During periods of economic slowdown or recession, as fewer new vehicles are sold, it is possible that fewer LoJack Units may be installed. Because new car sales are most often a discretionary activity, prolonged periods of economic slowdown or recession could materially and adversely affect the Company's revenues. The Company could also be adversely affected by slowdowns in new vehicle production, such as those which may be caused by labor actions affecting the automobile industry. DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's success is heavily dependent upon its proprietary technology. The Company attempts to protect its proprietary technology through patents, copyrights, trademarks, trade secrets and license agreements. Nevertheless, there can be no assurance that the Company will be able to protect its technology from misappropriation or that competitors will not be able to be able to develop similar technology independently. In addition, effective patent, copyright, trademark and trade secret protection may be unavailable or limited in certain foreign countries. COMPETITION. Several competitors or potential competitors are marketing or have announced the development of stolen vehicle recovery products directly competitive with the LoJack System. To the knowledge of management, none is compatible with the LoJack System and none is proposed to be operated or actively monitored exclusively by law enforcement agencies as is the LoJack System. 1 LoJack markets the LoJack System as a stolen vehicle recovery device. Management believes, however, that makers of auto theft prevention devices view the System as competitive, and, consequently, LoJack believes it faces competition from companies that sell auto theft prevention devices. Some of these competitors and potential entrants into the stolen vehicle recovery industry may have greater resources than LoJack. In addition, there can be no assurance that a competitor will not develop a system of theft detection or recovery, including other vehicle recovery systems that may or may not require government approvals, that would compete with or be superior to the LoJack System. GOVERNMENT REGULATION AND APPROVALS. The Company must obtain the approval of law enforcement agencies, as well as executive or legislative bodies, for implementation of the LoJack System before sales of LoJack Units can commence in a given domestic jurisdiction. The approval process may be time consuming and costly and is subject to considerations generally affecting the process of governmental decision-making. The Company may encounter similar or additional regulatory requirements as it expands into additional foreign markets. DEPENDENCE ON KEY PERSONNEL. The success of the Company is dependent in part on its ability to hire and retain qualified managerial personnel. Although the Company to date has been able to hire and retain such personnel, there can be no assurance that the Company will be successful in recruiting and retaining such personnel in the future. There are no employment agreements between the Company and any of its employees. 2 -----END PRIVACY-ENHANCED MESSAGE-----