-----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, F9ahohoMPLZSxEn0fT1PZ4f4eDVPszyqiaYoChWPHqqzi962o37wc/6YBIPSgc2t 0LH1LwjUhg4tpOyZEYsG2g== 0000868075-03-000026.txt : 20030812 0000868075-03-000026.hdr.sgml : 20030812 20030812170310 ACCESSION NUMBER: 0000868075-03-000026 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLASSICA GROUP INC CENTRAL INDEX KEY: 0000868075 STANDARD INDUSTRIAL CLASSIFICATION: DAIRY PRODUCTS [2020] IRS NUMBER: 133413467 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19721 FILM NUMBER: 03838261 BUSINESS ADDRESS: STREET 1: 1835 SWARTHMORE AVENUE CITY: LAKEWOOD STATE: NJ ZIP: 08701 BUSINESS PHONE: 7323633800 MAIL ADDRESS: STREET 1: 1835 SWARTHMORE AVE CITY: LAKEWOOD STATE: NJ ZIP: 08701 FORMER COMPANY: FORMER CONFORMED NAME: EMPIRE SPECIALTY FOODS INC /NY/ DATE OF NAME CHANGE: 19600201 10KSB/A 1 ksba2-03.txt 12/31/02 FORM 10KSB/A 2ND AMENDMENT U.S. Securities and Exchange Commission Washington, D.C. 20549 Amendment No. 2 to Form 10-KSB FORM 10-KSB/A (Mark One) [x]ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 [ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 Commission file number 0-19721 THE CLASSICA GROUP, INC. (Name of small business issuer in its charter) New York 13-3413467 (State or other jurisdiction of (IRS Employer identification no.) incorporation or organization) 2400 Main Street, Suite #12 Sayreville, New Jersey 08872 (Address of principal executive offices) (Zip Code) (732) 727-7800 (Issuer's telephone number) --------------------------------- Securities registered under section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered - ----------------------------- ------------------------------------------------ Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par value ------------------------------ (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ...X.. No......... Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained in, to the best of registrant's knowledge, definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB/A or any amendment to this Form 10-KSB/A. ( ) State issuer's revenues for its most recent fiscal year: Revenues for the fiscal year ended December 31, 2002 were $37,451. State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act). Note; if determining whether a person is an affiliate will involve unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated. The aggregate market value of the voting stock held by non-affiliates as of December 31, 2002 was $7,559,050 (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d)of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes .......No ....... N/A (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date. Title of Each Class Number of Shares Outstanding Common Stock, $.001 par value per share 5,142,211(December 31, 2002) DOCUMENTS INCORPORATED BY REFERENCE If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB/A (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990). Transitional Small Business Disclosure Format (Check one): Yes ; No . ----- ----- Introductory Note We are filing this Amendment to Form 10-KSB/A to include information called for by Item III of Form 10-KSB. There are changes to the Consolidated Statement of Cash Flows for the year ended December 31, 2001 and additional disclosures provided in the Footnotes to Consolidated Financial Statements. PART 1 Item 1. Business General development of business We were incorporated in New York in 1987. Our headquarters are located in Sayreville, New Jersey. From August 1994 through December 2002 our wholly owned subsidiary Cucina Classica Italiana, Inc., or CCI, was engaged in the production of grated, shredded and dry cheese products and the importation and distribution of premium Italian cheese and meats under the Galbani(R) brand. On October 18, 2002 CCI sold its grated, shredded and dry cheese processing and distribution business. On December 31, 2002 CCI sold its Galbani(R) brand cheese and meat importing and distribution business. In November, 2001, we were the subject of a Cease and Desist Order from the SEC in connection with two of our press releases concerning the ability of our microwave technology to kill the anthrax bacterium. The SEC issued the order because it believed we failed to comply with Exchange Act by omitting material information in the press releases. We believe that we have fully complied with the Cease and Desist Order and have not committed or caused any violation of the Exchange Act. In the first quarter of 2000, we formed Classica Microwave Technologies, Inc., or CMT, a Delaware corporation. Effective October 2, 2000, we acquired a testing laboratory and several patents for the microwave heat processing process business from OMAC Research, Ltd., or OMAC. The equipment and processes to which the patents relate can be used for pasteurization, sterilization, drying, and sanitizing in the food and pharmaceutical industries. OMAC had previously sold and installed more than200 microwave heat processing systems worldwide. OMAC ceased operations in 1995 and its business was dormant until 2000, when CMT purchased the equipment and patents. Our Italian subsidiary, C.G.T.I.-Classica Group Technologies Italia, S.r.l., or CGTI was formed in 2001. Since commencing operations, we have delivered two microwave heat processing systems, a drying system and a laboratory system, each of which is currently operating. Going forward, our focus will be exclusively on the microwave heat processing equipment business, and revenue from this business will be our sole source of revenue. Microwave energy has long been used in the food industry for various applications such as cooking and defrosting. The former inability of manufacturers to control temperature uniformity limited its use as a method of ensuring food safety. Our microwave heat processing systems are designed to extend refrigerated shelf life through pasteurization and to permit non-refrigerated shelf life through sterilization without the use of any chemical additives. The system is intended to promote food safety while reducing overall operating costs, inventory storage and delivery costs without sacrificing productivity or food quality. Our system was designed to ensure food safety through controlled temperature uniformity by using patented and proprietary microwave technology in concert with hot air under strict time and temperature guides on post packaged products. This technological advancement of guaranteed temperature uniformity using microwave energy as the heat source allows foods to be processed for consumer protection without affecting the taste and texture of the product. The process is controlled by a programmable linear controller, which is a computer that controls the operation of the microwave heat processing machine. The design includes a self-monitoring program that alerts an operator to any system malfunction that could jeopardize the food safety of the product. 2 Professor Giuseppe Ruozi, the key developer of our microwave heat processing systems, and a European authority in the field of microwave technology as it applies to the food industry, is our Chief Technology Officer. We anticipate generating revenues from the sale of microwave based processing systems for pasteurization, sterilization, sanitizing and drying of food products, and by providing development services to new and existing clients. Products We design and, through third parties, build microwave heat processing systems capable of pasteurization, sterilization, sanitizing, and drying in the food and pharmaceutical industries. The manufacture and assembly of the machines is supervised by our Chief Technology Officer. Each machine is custom designed to meet an individual customer's needs with regard to that customer's requirements as to packaging and products. Pasteurization: Based on the specific features and production requirements of a customer's product, including the ingredients, packaging materials, package size and shape, initial bacterial load, and sensitivity to heat and pressure, a design platform is selected and further customized to meet the unique requirements of the product. The systems are available with production capacities that range from 100 pounds per hour for a laboratory model to 4,000 pounds per hour for an industrial scale unit. Our line of pasteurization systems is suitable for, among other things, processing ready meals, bread and other bakery products, sauces and dips, fresh and precooked pasta, and precooked meat and vegetables. Sterilization: Our microwave heat processing systems include a line of continuous sterilization systems that can provide food manufacturers with the ability to prepare sterilized food products with 12 months shelf life at ambient temperature. The production capacity of these systems ranges, from 100 pounds per hour for a laboratory model to 5,000 pounds per hour for an industrial scale unit. These systems are suitable for, among other things, processing sauces, precooked pasta, and precooked meat and vegetables. Drying Systems: Our line of microwave heat processing systems includes a continuous design platform as well as a series of special rotary batch dryers. Based on the specific features and production requirements of a customer's product, a design platform is selected and is further customized to meet the unique requirements of the product. Variable design elements include "Hose Down" construction for easy cleaning, including a self cleaning belt, vacuum and additional infrared heating. The production capacity of these systems ranges from 5 to 100 pounds per hour for a laboratory model to 10,000 pounds per hour for an industrial scale unit. These systems are suitable for, among other things, processing fruits and vegetables, cookies and biscuits, cereals, spices and specialty meat products. We are also in the process of designing a technically advanced drying system that we anticipate will offer the meat industry the ability to process cured meats at a rate up to ten times faster than the methods being used today. We have applied for a patent for this process, which is pending. When fully developed, we expect that this system will also be applicable to and useful for sanitation and drying in the produce and vegetable markets. Sanitizing Systems: Our line of sanitizing systems uses a continuous design platform as well as a series of special rotary drum batch designs. Based on the characteristics of the customer's product (mainly sensitivity to heat, initial bacterial load and desired bacterial kill) a design platform is selected and further customized. The production capacity of these systems ranges from 100 pounds per hour for a laboratory model, and up to 10,000 pounds per hour for an industrial scale unit. These systems are suitable for, among other things, processing spices, herbs, grains, flour and rice. Although to date we have focused our marketing efforts on the food industry, we believe that our microwave heat processing systems are also suitable, after customization, for drying ceramics, paper and wood products, vulcanizing rubber, and sterilizing pharmaceutical products and medical waste. 3 Competition Currently, the market for industrial microwave heat processing systems is a small niche in the larger area of industrial heat processing systems. We are focusing our efforts on higher value-added applications that require uniform heat distribution. Although there are approximately a dozen manufacturers of microwave heat processing systems worldwide, we believe that they do not currently represent significant competition to our patented and proprietary controlled hear distribution process. This is primarily because many manufacturers of microwave systems for the food industry use systems that employ significantly fewer high-power microwave generators than our systems. Their designs are limited in capability to generate uniform heat distribution within the product, and, accordingly, are useful only in applications where heat uniformity is less important. Many of our competitors, that manufacture conventional hear processing systems, have financial resources, marketing and technical personnel superior to ours. As our share of the market grows, we anticipate that many of the market leaders of conventional heat processing systems will develop and/or acquire the ability to build and market new systems that will compete with our systems. In addition, there are a few small companies in Italy, each of which employs individuals who were employed and trained by OMAC, that therefore have the knowledge to design and build systems that would compete with our systems. Our advantage is that we employ the inventor of the technology, Engineer Giuseppe Ruozi who developed the uniform heat distribution process and the author of the patents on this process which the Company now owns. Therefore, while these smaller competitors have the ability to emulate OMAC's old technology that existed at the time they ceased operations, Engineer Ruozi provides us with a significant advantage in the development of new technology in this field. Furthermore, we own and operate 2 state of the art laboratories for development of new applications, which these Italian competitors lack altogether. Sources of Availability of Raw Materials and the Names of Principal Suppliers We are developing sources for raw material to be used in the manufacture of our products and do not currently have principal suppliers. Dependence on a Few Customers We are developing our marketing and sales effort and accordingly are not dependent on a few customers. Product Line Exclusivity License & Trademark Agreements We hold four United States patents and numerous foreign patents for the microwave heat processing systems technology, which we purchased in October 2000. We have also applied for additional patents, and are developing technology for which we anticipate applying for patents in the future. The patents we hold have effective lives of from 10 to 19 years. Government Regulations Purchasers of our microwave heat processing systems that will use the systems to process food products will be subject to regulations of the United States Department of Agriculture and/or the United States Food and Drug Administration. Although we intend to work with our customers in satisfying such regulations, the responsibility for compliance lies with the ultimate user of our products. 4 Research & Development Prior to our purchase of the equipment and patents for the microwave heat processing systems technology, several million dollars were spent on their development and design. We anticipate that in the future and as the need arises, we will update and develop the systems. In addition, as potential customers test our equipment prior to purchase, they may require that certain research be done to determine whether the equipment is suitable for their products. A significant portion of any monies we will spend on research for those purposes will be borne by the potential customers. We do expect, however, that we will provide certain research free of charge as a marketing tool. In addition, we have performed some research and testing for potential customers for a fee, which has been only a minor portion of our revenues, and which we do not anticipate will become a significant portion of our revenues. For the foreseeable future, however, we do not intend to allocate significant resources to research or development. Cost and Effects of Compliance with Environmental Laws The costs and effects of compliance with environmental laws are not material to our operations. Current Employees We and our subsidiaries currently employ 14 people, of whom 13 are full time. Item 2. Description of Property Effective February 15, 2003, we began leasing a 10,400 square foot facility at 2400 Main Street, Sayreville, New Jersey. Approximately 7,900 square feet serves as our office and laboratory space and 2,500 square feet serves as our warehouse. Our basic rent is $9,533.33 per month or $114,400 annually. The lease runs until March 31, 2008 with a provision for renewal for an additional five-year term. CGTI leases a 3,768 square foot facility at Via Nagy 7, 42019 Pratissolo di Scandiano, Italy. Approximately 2,700 square feet serves as office space, with the balance serving as its laboratory. The basic rent is 1,807.6 Euro (approximately $1,600) per month or 21,691.2 Euro (approximately $19,200) annually. The lease was entered into on December 15, 2001, and continues for a period of four years. At the end of each year, the basic rent is adjusted to reflect changes in the Italian price indexes. Item 3. Legal Proceedings Currently, there are no material legal proceedings by or against our company or any of our subsidiaries. 5 Item 4. Submission of Matters to a Vote of Security Holders Our annual meeting of shareholders was held on October 30, 2002. Election of Directors. Our shareholders elected each of the five nominees for directors as listed in our Proxy Statement dated October 9, 2002. The votes were as follows: Director For Against Abstain - ---------------------- --------------- ------- -------- Scott G. Halperin 2,678,838 22,179 0 Bernard F. Lillis, Jr. 2,678,838 22,179 0 Joseph M. Greene 2,678,838 22,179 0 Alan Rubin 2,678,838 22,179 0 Harry J. Friedberg 2,678,838 22,179 0 Adoption of our 2002 Incentive and Non-Qualified Stock Option Plan. Our shareholders approved the adoption of our 2002 Incentive and Non-Qualified Stock Option Plan. The votes were as follows: For Against Abstain --------- -------- -------- 974,164 85,166 11,267 Appointment of Auditors Our shareholders ratified the appointment of Ehrenkrantz Sterling & Co. LLC independent auditors as our auditors. The votes were as follows: - -------------------------------------------------------------------------------- Ratification of the appointment of Ehrenkrantz Sterling & Co. Broker LLC as auditors Votes For Votes Against Abstention Non-Votes - ---------------------------------- --------- ------------- ---------- --------- 2,665,714 15,284 20,079 0 - -------------------------------------------------------------------------------- 6 Part II Item 5. Market for Common Equity and Related Stockholder Matters Shares of our common stock are traded on the Nasdaq SmallCap Market under the symbol "TCGI". The following table sets forth the range of high and low bid quotations for our common stock for the period indicated, as reported by the Nasdaq SmallCap Market. The quotations represent inter-quotations, without adjustment for retail mark-ups, markdowns or commissions, and may not represent actual transactions. 2002 2001 Common Shares Common Shares Period High Low High Low ------------------------------------------------ January 1 - March 31 $2.3400 $1.1300 $2.6670 $1.1670 April 1 - June 30 2.2600 1.2000 4.6670 1.8750 July 1 - September 30 1.7400 0.6000 4.6000 2.5600 October 1 - December 31 1.4900 0.8000 5.2500 1.3400 Holders As of March 26, 2003 there were approximately 240 holders of record of our common stock. Dividends. We have not paid a cash dividend on our common stock since our inception. We expect that, for the foreseeable future, any earnings will be retained for use in the business or other corporate purposes, and we do expect that cash dividends will be paid. There are, however, no restrictions on the payment of dividends, either by contract or regulation. Recent Sales of Unregistered Securities. On December 13, 2002, we completed a private placement of 1,030,000 shares of our common stock and 206,000 shares issuable upon the exercise of warrants to a group of accredited investors, from which we received gross proceeds of $1,030,000 pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The warrants are dated December 13, 2003 and expire on December 12, 2005. The exercise price is $1.00 per share. The shares of common stock issued in the transaction and those issuable upon exercise of the warrants are subject to a registration rights agreement. In accordance therewith, we filed a registration statement on Form SB-2 (Registration No. 333-102642) with the Securities and Exchange Commission on January 22, 2003. We are using the proceeds from this private placement to fund the growth of our microwave technology business. On May 31, 2002, we sold 100,000 shares of our common stock to each of two accredited investors in a private placement pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. Each purchaser purchased 100,000 shares at a purchase price of $1.00 per share. Each purchaser was granted "piggyback" registration rights, and their shares were included in a registration statement on Form SB-2 (Registration No. 333-102642) that we filed with the SEC on January 22, 2003. We used the proceeds from this private placement of our shares for general working capital. In January 2000, we completed a private placement of 200,000 shares at a purchase price of $1.50 per share of our common stock to a group of investors pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. We received gross proceeds of $300,000. We used the proceeds from this private placement for general working capital. 7 Securities Authorized For Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2002 regarding compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
Number of Securities Number of Securities To Remaining Available for Be Issued Upon Future Issuance Under Exercise Weighted-Average Exercise Equity Of Outstanding Price of Outstanding Compensation Plans Options, Options, (Excluding Securities Warrants and Rights Warrants and Rights Reflected in Column (a)) ------------------------ ----------------------------- ----------------------------- Plan Category (a) (b) (c) Equity Compensation Plans Approved by Security Holders 1,610,679 $1.15 10,794 Equity Compensation Plans Not 479,333 0 Approved by Security Holders $1.66 Total 2,090,012 $1.27 10,794
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operation The following discussion and analysis contains forward-looking statements, which involve risk and uncertainties. When used herein, the words "anticipated," "believe," "estimate," and "expect" and similar expressions as they relate to our company or our management are intended to identify such forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results, performance or achievements could differ materially from the results expressed or implied by these forward-looking statements. Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Audited Consolidated Financial Statements and related notes, which are contained in Item 7 herein. Results of Operations for the Years Ended December 31, 2002 and 2001 Net Revenues. Net revenues for the year ended December 31, 2002 were $37,451 compared with $38,382 in 2001, a decrease of $931, or 2.5%. This decrease is insignificant as the revenues in both years represent only incidental amounts related to the start-up of our microwave technology subsidiary. These incidental amounts consisted of: Years Ended December 31, 2002 2001 ------------- ------------- Laboratory systems rental $ 13,158 $ - Consulting fees 10,836 4,285 Laboratory testing fees 6,209 - Maintenance fees-systems in operation 4,156 - Interest and other miscellaneous income 3,092 443 Gain on cash collateral account (See below) - 33,654 ------------- ------------- TOTAL $ 37,451 $ 38,382 ============= ============= A cash collateral account was maintained by the parent company, The Classica Group, Inc. as security for a trade account payable to one of the major suppliers of The now discontinued subsidiary, Cucina Classica Italiana, Inc. ("CCI"). The cash Collateral account and the income from the account were the property of the parent Company. The account was liquidated at the time of the sale of CCI's Galbani Products business. Gross Profit. We generated gross profit of $28,246 or 75.4% of net revenues for 2002 versus $38,382 for 2001. This decrease is insignificant as the revenues in both years represent only incidental amounts related to the start-up of our microwave technology subsidiary. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A")were $1,311,412 in 2002 versus $552,285 for 2001. This represents an increase of $759,127, substantially all of which represents start-up costs of our microwave technology subsidiary. The significant costs that make up SG& A were:
Year Ended December 31, 2002 2001 ------------------- --- ---------------- Employee compensation and related expenses $ 662,049 $ 274,093 Depreciation and amortization 150,396 35,381 Advertising,trade shows, travel and other selling expenses 129,287 24,350 Professional fees and other expenses of being a public company 179,341 78,668 Administrative, office and general expenses 129,344 123,295 Research and Development 60,995 16,498 ------------------- ---------------- TOTAL $ 1,311,412 $ 552,285 =================== ================
Loss from Continuing Operations. Loss from continuing operations for 2002 was $1,283,166 versus $513,903 for 2001. These amounts represent start-up costs of our microwave technologies subsidiary. Income Taxes. We reported no provision for Federal income taxes for the years ended December 31, 2002 and 2001, as we had net losses for both years. 8 Liquidity and Capital Resources Our potential sources of capital include capital leases and the issuance of debt and/or equity securities. At December 31, 2002, we had a net worth of $3,436,329 compared to $2,225,443 at December 31, 2001. We use capital leases for the acquisition of operating assets of our subsidiaries when appropriate. We expect that we will issue additional shares of our common stock in a private placement within the next 12 months. In addition, we anticipate an increase in sales of our products by the end of fiscal year 2003. If we believe we need to, we will seek a line of credit from an institutional lender. We believe that we have, or have access to, sufficient working capital to meet the requirements of our microwave technologies subsidiary. Plan of Operation More than 200 installations of microwave heat processing systems and technology have been undertaken in Europe and Japan. All but two of those installations were undertaken by OMAC and other entities. We have only delivered two systems, one of which is in Switzerland, and was rented for an initial period of five months, which has been extended by the customer. The second system was installed in Italy on a contingent basis subject to the customer's acceptance. After the completion of the installation the customer elected not to accept the machine, and to continue with its previous technology, which we feel is inferior to the new system. The system has been returned to our inventory for modification and sale to a new customer. Our systems and the technology are not well known outside Europe and Japan. Our plan is to continue to promote and market our systems in Europe and Japan, and to penetrate other markets. Our goal is to generate revenues from the sale of microwave heat processing systems and the sale of technical services. In order to facilitate sales of our microwave systems, we have undertaken a major campaign of communications and education among future users, governmental regulatory agencies and food industry professionals. We are seeking to introduce our company, our systems, and the benefits of our systems to potential users, so that we can obtain a high level of recognition and acceptance of our systems. Up until the recent introduction of CMT's patented technology the common perception among food manufacturers in the US was that the food applications of microwave heat processing technology are very limited due to the uneven heating offered by existing microwave equipment manufactures (e.g. Amana or Cryodry). In the US commercial installations of microwave heat processing systems were successful only for defrosting of frozen meat blocks and for the cooking of bacon - two applications where non-uniformity of temperature is acceptable. In order to introduce its technology in the United States CMT had to overcome this common perception by providing food technologists, process engineers, Quality Assurance specialists and other food industry professionals with the evidence of the technology's features, advantages and benefits as demonstrated by its earlier successful European track record of almost 200 industrial installations. Through the education campaign, which has so far included the mailing of more than 7,500 brochures, presentations at the meetings of various trade organizations, and attendance at several trade shows and international conferences, CMT achieved the attention of the Research & Development and Operations departments of leading US food manufacturers. The professionals in those organizations followed up with visits and tests at CMT's laboratory in New Jersey, and based upon their positive feedback within their companies, CMT is currently involved in applications development projects for top Fortune 100 companies. Simultaneously with the communications and education campaign, we have begun to use both a direct sales force and an independent agent with regional offices and representation throughout the United States. In addition, we have begun to develop relationships with a network of agents worldwide who will identify market and sell our equipment to customers. In developing our network of agents to sell our equipment in the United States we have entered into an Agreement of Representation with a national agency for the sale of food processing machinery, with headquarters in California for the sale of our microwave heat processing equipment to the food industry, using their network of regional sales agents throughout the United States. In addition, we have entered into exclusive agency agreements with two European companies, one located in Zurich, Switzerland covering Switzerland, Germany, Austria, and Lichtenstein, and for France with a well known agency for the sale of food processing machinery headquartered in Argenteuil, France. We are currently negotiating with a national agency for the sale of food processing machinery located in Mississauga, Canada an exclusive agency agreement covering Canada and British Columbia. Additional international agencies are being identified and contacted . Following our participation at the Anuga FoodTec trade show in Germany in April of 2003 we were contacted by two companies from Japan and Thailand requesting to become our agent in their respective countries. We have begun working together with these companies exploring leads in their territories and expect to decide by early 2004 if either one of these two companies should become our exclusive agent in their designated territories In addition to selling our microwave systems, we intend to provide technical services to customers. We have two laboratories, one at our Sayreville, New Jersey location, and one in our Italy location. Our Sayreville location is also equipped with a full commercial kitchen. We have provided potential clients with access to our laboratories in the USA and Italy so that we can work with them to develop and customize new microwave heat processing applications. Some of the technical services are, and will continue to be, provided free of charge as part of our marketing efforts. Other more comprehensive research and development services are marketed and will be offered to customers for fees. We hope to market our company and our capabilities to food and pharmaceutical manufacturers through many means, including through partnerships with engineering and design companies, and with manufacturers of complementary equipment. We believe that such partnerships would be beneficial to both our company and to our potential partner by enabling us to avoid duplication of marketing, and research and development costs, and by expanding the field of potential customers to whom our products would become known. We are a member of ten relevant trade associations through which we promote recognition of microwave technology in general and of our unique systems in particular. Members of our staff have made presentations at various trade association meetings and seminars to acquaint the members with our unique systems. At the present time the design and construction of systems is carried out in Italy by our subsidiary CGTI and third parties. We are evaluating additional manufacturing capabilities in the USA, so as to be prepared for domestic construction of our systems as our sales volumes increase. 9 Item 7. Financial Statements Response submitted as a separate section of this report commencing on page F-1. Item 8. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure None Part III. Item 9. Directors, Executive Officers, Promoters and Control Persons The following table sets forth information with respect to each person who serves as one of our executive officers or directors and their ages as of the date of this prospectus: Name Age Position - ---------------------------- --------- ------------------------------------ Scott G. Halperin 41 Director, President & Chief Executive Officer - --------------------------------------------------- ----------------------- Bernard F. Lillis, Jr. CPA 60 Director, Chief Administrative Officer, Chief Financial Officer, Treasurer and Secretary - --------------------------------------------------------------------------- Joseph M. Greene 60 Director - --------------------------------------------------------------------------- Alan Rubin 34 Director - --------------------------------------------------------------------------- Harry J. Friedberg, Esq. 65 Director - --------------------------------------------------------------------------- Joseph Riemer, PhD. 54 President of Classica Microwave Technologies, Inc. - --------------------------------------------------------------------------- Each director holds office until the next annual meeting of shareholders or until his successor has been elected and qualified. our officers are elected by our board of directors and serve at the board's discretion. Scott G. Halperin has served as Chairman of our board of directors since July 1, 1997 and as Chief Executive Officer since August 1, 1994. He has served as one of our directors since May, 1994. He also served as Treasurer from May 1994 through June 30, 1997. Prior to joining us, he was President and a principal of Agama, Inc., a company involved in mergers and acquisitions from 1993 to 1997. Earlier in his career, Mr. Halperin worked for ABIC International Consultants, Inc., a food technology consulting company, from May, 1982 to September 1982 where he was involved in product development and analytical testing of food products. Bernard F. Lillis, Jr., CPA has been one of our directors, and Treasurer since July 1, 1997. He served as our Chief Operating officer from July 1, 1997 through November, 2001 and as our Chief Administrative Officer since November, 2001. He has been our Chief Financial Officer and our Secretary since April 15, 1996. Prior to joining us, he served as Chief Financial Officer of several companies from 1969 to 1972 and from 1974 to 1996, as Deputy City Manager for Finance of Rochester, New York from 1973 to 1974 and on the audit staff of Deloitte & Touche, certified public accountants from 1964 to 1969. Mr. Lillis is a certified public accountant. Joseph M. Greene has been one of our directors since February 23, 1998. He served as acting chief operating officer of Marx Toys, Inc., from January 2001 through May, 2002. He is the founder and has been the chief executive officer of Advanced Trading concepts since January, 1990, a sales agency for various fully tariffed switch and network based domestic and international carriers of telephone services. Mr. Greene is a member of the Audit committee and the compensation committee of the Board of Directors. 10 Alan Rubin has been one of our directors since January 28, 2000. Since 2000 he has been a partner of Targeted Financial Services, a registered investment advisor. Prior to 2000, he was partner of Nalven, Paredes, Payne & Rubin, a registered investment advisor from March, 1998 to July, 2000. Mr. Rubin is a member of the Audit Committee and the Compensation Committee of the Board of Directors. Harry J. Friedberg, Esq. has been one of our directors since March 2, 1998. He has been engaged in the private practice of law since 1963. Joseph Riemer, Ph. D. was appointed Vice President - Corporate Development of Classica Microwave Technologies, Inc. in November, 2001 and President in June, 2002. Prior to 2001, he a Director of Global Operations Development for Pfizer in the Adams Confectionary Division from 1998 to 2001 and he was the Director, Adams R&D Process Development and Operations for Pfizer from 1998 to 1993. From 1991 to 1993, he was the Manager of R&D in the Food and Consumer Products Group for CRS Sirrine Engineers, Inc. He was the General Manager and Founder f R.J. Foods, Ltd., a consulting firm in the field of food technology, engineering and management from 1988 to 1990. He holds a BS in Food Engineering and Biotechnology from Technion, Israel and a Ph. D. in Food science and Technology from Massachusetts Institute of Technology. None of our directors holds directorships in any other public company. There are no family or other personal or business relationships between or among our directors, key employees, any control persons or the investors purchasing the shares covered by this filing. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own more than ten percent of a registered class of our equity securities to file reports of beneficial ownership and changes in beneficial ownership with the Securities and Exchange Commission (the "Commission"). The rules promulgated by the Commission under Section 16(a) of the Exchange Act require those persons to furnish us with copies of all reports filed with the Commission pursuant to Section 16(a). To our knowledge, during the fiscal year ended December 31, 2002, all filing requirements were complied with for the year ended December 31, 2002. 11 Item 10. Executive Compensation The following table sets forth, for each of the last three fiscal years, cash and certain other compensation paid or accrued by our company for our Chief Executive Officer and Chief Administrative and Financial Officer, the President of our subsidiary, Cucina Classica Italiana, Inc., and the President of our subsidiary, Classica Microwave Technologies, Inc. There are no other executive officers who earned at least $100,000 for any of the last three fiscal years. Summary Compensation Table
Annual Compensation ($) Long-Term Compensation ($) - -------------------------- -------- ---------- ------ ----------------- ------------- --------------- ------------- ---------------- Long-Term Incentive Name and Principal Restricted Securities Plan Payouts All other Position Bonus * Stock Awards underlying Compensation ($) Year Salary Other Annual Options Compensation - -------------------------- -------- ---------- ------ ----------------- ------------- --------------- ------------- ---------------- Scott G. Halperin 2002 190,008 0 12,990 0 377,526 0 0 Chairman of the Board; 2001 190,008 0 12,322 0 0 0 0 Chief Executive Officer; 2000 190,008 0 10,778 0 0 0 0 - -------------------------- -------- ---------- ------ ----------------- ------------- --------------- ------------- ---------------- Bernard F. Lillis, Jr. 2002 160,006 0 9,009 0 302,021 0 0 Chief Administrative 2001 160,006 0 8,226 0 0 0 0 Officer; 2000 160,006 0 7,482 0 0 0 0 Chief Financial Officer - -------------------------- -------- ---------- ------ ----------------- ------------- --------------- ------------- ---------------- Robert Castellano, 2002 114,880 0 12,990 0 0 0 0 President Cucina 2001 106,345 0 12,322 0 25,000 0 0 Classica Italiana 2000 106,033 0 10,778 0 0 0 0 (Resigned December 27, 2002) - -------------------------- -------- ---------- ------ ----------------- ------------- --------------- ------------- ---------------- Joseph Riemer 2002 69,231 0 8,660 0 189,783 0 0 President, 2001 0 0 0 0 0 0 0 Classica Microwave 2000 0 0 0 0 0 0 0 Technologies, Inc. - -------------------------- -------- ---------- ------ ----------------- ------------- --------------- ------------- ----------------
Represents payment of health insurance premiums. Long-Term Incentive Plans We have no long-term incentive plans other than our various stock option plans. Option Grants in Last Fiscal Year, Ending December 31, 2002 Individual Grants
Name Number of Securities % of Total Options Exercise Expiration Date Underlying Options Granted to Employees Or Base Granted In Fiscal Year Price ($/sh) Scott G. Halperin 377,526 15.7% 0.99 12/12/2012 Bernard F. Lillis, Jr. 302,021 12.6% 0.99 12/12/2012 Robert Castellano 68,570 2.9% 1.75 05/31/2011 Joseph Riemer 121,213 5.0% 0.99 10/31/2012
Aggregated Option Exercises in 2002 and December 31, 2002 Option Values
Shares Acquired Number of On ($) Securities Underlying Value of Unexercised Exercise Value Unexercised Options In-the-Money Options (#) Realized at Fiscal Year-End ($) at Fiscal Year-End (#)(A) ------------- ---------- ---------------------------- ----------------------------- Name Exercisable Unexercisable Exercisable Unexercisable -------- ------------- ---------- ------------ -------------- ------------- -------------- Scott G. Halperin 0 0 324,111 252,526 103,804 121,212 Bernard F. Lillis, Jr. 0 0 158,778 202,021 82,931 96,970 Robert Castellano 0 0 45,000 0 0 0 Joseph Riemer 0 0 22,857 166,926 0 58,182
* Options are "in-the-money" if, on December 31, 2002, the market price of our common stock ($1.47) exceeds the exercise price of such options. The value of such options is calculated by determining the difference between the aggregate market price of our common stock covered by such options on December 31, 2002, and the aggregate price of such options. 12 Employment Agreements Scott G. Halperin On August 1, 1997, (amended December 13, 2002) we entered into an employment agreement with Scott G. Halperin, which provides for an annual salary of $250,000 effective January 1, 2003. The agreement provides that Mr. Halperin shall serve as Chairman of the Board and our Chief Executive Officer through July 31, 2005. Mr. Halperin's employment agreement may be renewed for successive three-year periods commencing on the termination date by mutual agreement. We may, however, terminate the agreement at the end of a term by giving written notice of non-renewal at least 180 days prior to the end of such term. Mr. Halperin's base compensation will be increased annually by 5% plus the increase in the cost of living annually. Additionally, on December 13, 2002 and annually thereafter on December 13th. Mr. Halperin will be given a stock option for no less than an amount of shares equal to his updated annual salary divided by the closing price of The Classica Group, Inc. common stock on the previous business day. These options will vest 1/3 one year from the date of granting of the option, and 1/3 each year thereafter on the 1st of January. As an inducement to accept the amendment of December 13, 2002 to his employment agreement Mr. Halperin was granted an option to purchase 125,000 shares of our common stock at the closing price on December 12, 2002 ($0.99 per share). In addition to his base salary, Mr. Halperin is entitled to receive additional incentive compensation during each fiscal year in an amount not less than two percent of the increase in our gross revenues during each year as compared to the prior year, commencing with the fiscal year ended December 31, 1996, and any other bonus our board of directors may award to Mr. Halperin. We will pay Mr. Halperin an automobile expense allowance in the amount of $12,000 per annum and will maintain at our expense a medical and dental plan that covers Mr. Halperin, his spouse and his minor children. Mr. Halperin waived the automobile allowance through December 31, 2002. We may terminate this agreement for cause, and Mr. Halperin may terminate it for good reason. Should the agreement be terminated without cause, however, Mr. Halperin will be paid his full base salary through the time notice of termination is given and a lump sum severance payment equal to the greater of (i) the remaining compensation (including incentive compensation) payable to Mr. Halperin as though the employment agreement had been performed through July 31, 2005 or such later date to which the term of the employment has been extended or (ii) the total compensation earned by Mr. Halperin during the one year period prior to the date of termination. Under such circumstances, Mr. Halperin is also entitled to receive all employee benefits until the later of (A) July 31, 2005 or such later date to which the term of the Employment Agreement has been extended or (B) one year from the date of termination. In addition, all stock awards and options theretofore awarded or granted to Mr. Halperin shall, to the fullest extent permitted by applicable law, immediately vest. The Employment Agreement prohibits Mr. Halperin from disclosing our confidential information or trade secrets during the term of his employment under the Employment Agreement and for 12 months thereafter. The Employment Agreement also prohibits Mr. Halperin from competing, during the period of his employment under the Employment Agreement and for 12 months thereafter, within any county (or adjacent county) in any state within the United States in which we are engaged in business during Mr. Halperin's employment by us. However, the restrictions on disclosure and competition do not apply if we terminate Mr. Halperin without cause or if Mr. Halperin terminates the Employment Agreement for good reason. The Employment Agreement also grants Mr. Halperin certain demand and "piggyback" registration rights with respect to the shares of common stock owned by him. Mr. Halperin waived cash compensation in excess of $190,000 for 1998, 1999, 2000, 2001 and 2002. 13 Bernard F. Lillis, Jr. On August 1, 1997, (amended December 13, 2002) we entered into an employment agreement with Bernard F. Lillis, Jr., which provides for an annual salary of $200,000 effective January 1, 2003. The agreement provides that Mr. Lillis shall serve as our Chief Financial Officer and Chief Administrative Officer through July 31, 2005. Mr. Lillis' employment agreement may be renewed successive three-year periods commencing on the termination date, by mutual agreement. We may, however, terminate the agreement at the end of a term by giving written notice of non-renewal not less than 180 days prior to end of such term. Mr. Lillis's base compensation will be increased annually by 5% plus the increase in the cost of living annually. Additionally, on December 13, 2002 and annually thereafter on December 13th, Mr. Lillis will be given a stock option for no less than an amount of shares equal to his updated annual salary divided by the closing price of The Classica Group, Inc. common stock on the previous business day. These options will vest 1/3 one year from the date of granting of the option, and 1/3 each year thereafter on the 1st of January. As an inducement to accept the amendment of December 13, 2002 to his employment agreement Mr. Lillis was granted an option to purchase 100,000 shares of our common stock at the closing price on December 12, 2002 ($0.99 per share). In addition to his base-salary, Mr. Lillis is entitled to receive additional incentive compensation during each fiscal year in an amount not less than two percent of the increase in our gross revenues during each such year as compared to the prior year, commencing with the fiscal year ended December 31, 1996, and any other bonus our board of directors may award to Mr. Lillis. We will pay Mr. Lillis an automobile expense allowance in the amount of $12,000 per annum and will maintain at our expense a medical and dental plan that covers Mr. Lillis, his spouse and his minor children. Mr. Lillis waived the automobile allowance through December 31, 2002. We may terminate Mr. Lillis for cause and Mr. Lillis may terminate the Employment Agreement for good reason or if his health should become impaired to an extent that makes the continued performance of his duties under the Employment Agreement hazardous to his physical or mental health. If we terminate the Employment Agreement we are required to pay to Mr. Lillis his full base salary through the time notice of termination is given and a lump sum payment equal to the greater of (i) the remaining compensation (including incentive compensation) payable to Mr. Lillis as though the Employment Agreement had been performed through July 31, 2005 or such later date to which the term of the employment has been extended and (ii) the total compensation earned by Mr. Lillis during the one ear period prior to the date of termination. Under such circumstances, Mr. Lillis is also entitled to receive all employee benefits until the later of (A) July 31, 2005 or such later date to which the term of the Employment Agreement has been extended or (B) one year from the date of termination. In addition, all stock awards and options theretofore awarded or granted to Mr. Lillis shall, to the fullest extent permitted by applicable law, immediately vest. The Employment Agreement prohibits Mr. Lillis from disclosing our confidential information or trade secrets during the term of his employment under the Employment Agreement and for 12 months thereafter. The Employment Agreement also prohibits Mr. Lillis from competing, during the period of his employment under the Employment Agreement and for 12 months thereafter, within any county (or adjacent county) in any state within the United States in which we are engaged in business during Mr. Lillis's employment by us. However, the restrictions on disclosure and competition do not apply if we terminate Mr. Lillis without cause or if Mr. Lillis terminates the Employment Agreement for good reason. The Employment Agreement also grants Mr. Lillis certain demand and "piggyback" registration rights with respect to the shares of common stock owned by him. Mr. Lillis waived cash compensation in excess of $160,000 for 1998, 1999, 2000, 2001, and 2002. 14 Joseph Riemer On June 1, 2002, we entered into a letter agreement with Dr. Joseph Riemer, which provides for an annual salary of $120,000.00, plus an initial grant of options to purchase 68,750 shares of our common stock at $1.75 per share, vesting one-third on each of November 1, 2002, 2003 and 2004. in addition, on November 1, 2002 and each year thereafter, Dr. Riemer's compensation will be reviewed and updated, and he is entitled to an annual stock option grant to purchase the number of shares equal to his updated annual salary divided by the closing price of our common stock the previous day. Those options will vest one third one year from the date of granting and one third each year thereafter on November 1. Under the terms of the letter agreement, Dr. Riemer is an at-will employee, and the letter agreement is not to be construed as a contract. Giuseppe Ruozi On September 21, 1999, we entered into a consulting agreement with Ing. Giuseppe Ruozi, which, at this time, provides for a monthly fee of $6,000.00, plus an initial grant of options to purchase 75,000 shares of our stock, which have vested. In addition, The agreement was initially for 3 years, but automatically renews for additional 1 year periods unless one of the parties notifies the other of his or its desire to not renew the agreement, at least 30 days prior to the expiration date of the term. Other than by expiration or termination by non-renewal, the agreement may only be terminated in the event of default by a party. Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information as of May 6, 2003, regarding the ownership of our common stock by each director and each of our current executive officers, each person known to us to beneficially own 5% or more of common stock, and all our directors and executive officers as a group. Except as indicated, all persons named as beneficial owners of common stock have sole voting and investment power with respect to the shares indicated as beneficially owned by them. All persons named have an address at c/o The Classica Group, Inc., 2400 Main Street, Suite 12, Sayreville, New Jersey 08872. - ------------------------------------------------------------------------------- Name of Beneficial Owner (A) Number of Shares Percentage of Outstanding (I) - ------------------------------------------------------------------------------- Scott G. Halperin 729,150 (B) 14.18 - ------------------------------------------------------------------------------- Bernard F. Lillis, Jr. 548,950 (C) 10.68 - ------------------------------------------------------------------------------- Joseph M. Greene 45,500 (D) 0.90 - ------------------------------------------------------------------------------- Harry J. Friedberg 60,667 (E) 1.18 - ------------------------------------------------------------------------------- Alan Rubin 55,100 (F) 1.07 - ------------------------------------------------------------------------------- Joseph Riemer 27,257 (G) 0.53 - ------------------------------------------------------------------------------- Michael Iaverone 303,000 5.89 - ------------------------------------------------------------------------------- Howard Green 400,000 7.78 - ------------------------------------------------------------------------------- All directors and executive officers 1,466,624 28.54 - ------------------------------------------------------------------------------- All beneficial owners 2,169,624 42.21 - ------------------------------------------------------------------------------- (A) All information with respect to beneficial ownership of the shares is based upon filings made by the respective beneficial owners with the securities and Exchange commission or information provided by such beneficial owners to us. Shares include stock options and warrants exercisable within 60 days. (B) Includes options to purchase 199,111 shares at $1.25 per share and 125,000 shares at $ 0.99 held by Mr. Halperin. (C) Includes options to purchase 158,778 shares at $1.25 per share and 100,000 shares at $ 0.99 held by Mr. Lillis. (D) Includes options to purchase 20,500 shares at $1.25 per share and 25,000 shares at $0.99 held by Mr. Greene. (E) Includes options to purchase 23,000 shares at $1.25 per share and 15,000 shares at $ 0.99 held by Mr. Friedberg. (F) Includes options to purchase 10,000 shares at $1.25 per share and 25,000 shares at $ 0.99 held by Mr. Rubin. (G) Includes options to purchase 22,857 shares at $ 1.75 per share held by Dr. Riemer. (H) Includes options to purchase 103,000 shares at $1.00 per share held by Mr. Iaverone (I) For each beneficial owner, the "Percentage of outstanding" equals each owner's actual holdings of shares plus shares represented by unexercised options and warrants held, divided by total shares outstanding of our company on May 6, 2003, of 5,142,211 plus the above-referenced unexercised options and warrants of the referenced holder only. In other words, individual percentages of the listed holders will not add to the group total because the calculations are made separately for each holder. Securities authorized for issuance under equity compensation plans. Included in Item 5, above. Item 12. Certain Relationships and Related Transactions There are no family or other personal or business relationships between or among our directors, key employees, or any control persons. 15 Item 13. Exhibits and Reports on Form 8-K - -------- -------------------------------- (a) Exhibits. Exhibit Number Description 3.1 Articles of Incorporation of Registrant (A) 3.2 Bylaws of Registrant (A) 4.1 1998 Incentive and Non-Qualified Stock Option Plan (D) 4.2 Amendment to 1998 Incentive and Non-Qualified Stock Option Plan (D) 4.3 1998 Incentive and Non-Qualified Stock Option Plan (E) 4.4 Form of Warrant dated December 13, 2002 (A) 10.1 Acquisition Agreement between Registrant and OMAC Research, Ltd. (B) 10.2 Lease Agreement between CGTI Classica Group Technologies, Italia S.r.l. and PRAGMATA, S.r.l., dated December 15, 2001 (C) 10.3 Lease Agreement between First Industrial Development Services, Inc. and Classica Microwave Technologies, Inc. dated November 13, 2002. filed herewith 10.4 Placement Agent Agreement (A). 10.5 Securities Purchase Agreement (A) 10.6 Registration Rights Agreement (A) 10.7 Employment Agreement with Scott G. Halperin. (F) 10.8 Employment Agreement with Bernard F. Lillis (F) 10.9 Employment Agreement with Joseph Riemer, Ph.D., filed herewith. 10.10 Amendment to Employment Agreement with Scott G. Halperin, dated 12/13/2002, filed herewith. 10.11 Amendment to Employment Agreement with Bernard F. Lillis dated 12/13/2002, filed herewith. 10.12 Agreement with Giuseppe Ruozi, filed herewith. 21.1 Subsidiaries of Registrant, filed herewith. 23.1 Engineer Giuseppe Ruozi's consent, filed herewith. 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. 99.3 List of Patents held by the Company. - ----------- The foregoing is incorporated by reference from the Registrant's filings indicated: (A) Registration Statement on Form SB-2, filed with the Securities and Exchange Commission on January 22, 2003. (B) Form 8-K, filed with the Securities and Exchange Commission on April 17, 2001. (C) Form 10-KSB, filed with the Securities and Exchange Commission on April 1, 2002. (D) Registration Statement on Form S-8 filed with the Securities and Exchange Commission on September 18, 2002. (E) Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 15, 2002. (F) Form 10-KSB filed with the Securities and Exchange Commission on March 12, 1998. (b) Reports on Form 8-K. None 16 Item 14. Controls and Procedures Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of our management's evaluation, there were no significant changes in our internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 17 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE CLASSICA GROUP, INC. /s/ Scott G. Halperin Date: August 12, 2003 - -------------------------------------------- Scott G. Halperin Chairman of the Board Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Scott G. Halperin Date: August 12, 2003 -------------------------------------------- Scott G. Halperin Chairman of the Board Chief Executive Officer Audit Committee Member By: /s/ Bernard F. Lillis, Jr. Date: August 12, 2003 ----------------------------------- Bernard F. Lillis, Jr. Chief Financial Officer Chief Administrative Officer Principal Accounting Officer Director By: /s/ Joseph M. Greene Date: August 12, 2003 -------------------------------------------- Joseph M. Greene Director Audit Committee Member By- /s/ Alan Rubin Date: August 12, 2003 -------------------------------------------- Alan Rubin Director Audit Committee Member 18 CERTIFICATION PURSUANT TO RULE 13-A-14 OF THE SECURITIES ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Scott G. Halperin, certify that: 1. I have reviewed this annual report on Form 10-KSB/B of The Classica Group, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that the material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there are significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 12, 2003 /s/ Scott G. Halperin Scott G. Halperin Chief Executive Officer CERTIFICATION PURSUANT TO RULE 13-A-14 OF THE SECURITIES ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Bernard F. Lillis, Jr., certify that: 1. I have reviewed this annual report on Form 10-KSB/B of The Classica Group, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that the material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there are significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 12, 2003 /s/ Bernard F. Lillis, Jr. Bernard F. Lillis, Jr. Chief Financial Officer THE CLASSICA GROUP, INC. AND SUBSIDIARIES INDEX FINANCIAL STATEMENTS Included in Part II Independent Auditors' Report Consolidated Balance Sheet at December 31, 2002 Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2002 and 2001 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002 and 2001 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2002 and 2001 Notes to Consolidated Financial Statements F-1 INDEPENDENT AUDITORS' REPORT Board of Directors The Classica Group, Inc. and Subsidiaries Sayreville, New Jersey 08872 We have audited the accompanying consolidated balance sheet of The Classica Group, Inc. and Subsidiaries (the "Company") as of December 31, 2002, and the related consolidated statements of operations and comprehensive income, cash flows and changes in stockholders' equity for the years ended December 31, 2002, and 2001. 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 auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2002, and the results of its consolidated operations and its cash flows for the years ended December 31, 2002, and 2001 in conformity with accounting principles generally accepted in the United States of America. EHRENKRANTZ, STERLING & CO., LLC Livingston, New Jersey March 27, 2003 F-2 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheet December 31, 2002 ASSETS ------ CURRENT ASSETS: Cash $742,067 Accounts receivable 14,433 Receivable from sale of discontinued operation 426,819 Inventories 297,562 Prepaid expenses 101,486 Assets relating to discontinued operations 397,441 --------------- TOTAL CURRENT ASSETS 1,979,808 Property and equipment, at cost, net 472,138 Intangible assets, net 1,422,967 Other assets 123,423 --------------- TOTAL ASSETS $3,998,336 =============== See notes to consolidated financial statements. F-3 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheet December 31, 2002 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 106,122 Accrued expenses 58,444 Liabilities relating to discontinued operations 397,441 --------------- TOTAL CURRENT LIABILITIES 562,007 --------------- TOTAL LIABILITIES 562,007 --------------- COMMITMENTS AND CONTINGENCIES - STOCKHOLDERS' EQUITY - --------------------------------------------------- Preferred stock Class A participating convertible preferred shares, $1 par value, stated at liquidation value, authorized 200 shares of which 16.5 shares are issued and outstanding. 397,898 Common stock $.001 par value, 25,000,000 shares authorized, 5,142,211 issued and outstanding 5,142 Additional paid-in-capital 5,756,166 Accumulated deficit (2,736,729) Accumulated other comprehensive income 13,852 --------------- TOTAL STOCKHOLDERS' EQUITY 3,436,329 --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,998,336 =============== See notes to consolidated financial statements. F-4 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income Years Ended December 31, 2002 2001 ------------------------- Revenue $ 37,451 $ 38,382 Cost of sales 9,205 - ------------------------- Gross profit 28,246 38,382 Selling, general and administrative expenses 1,311,412 552,285 ------------------------- Loss from continuing operations (1,283,166) (513,903) ------------------------- Discontinued operations Loss from operation of business segment - Deli King - (179,074) Income(loss) from operation of business segment - CCI(168,861) 294,106 Loss from disposal of business segment - Deli King - (728,494) Income from disposal of business segment - CCI 566,351 - ------------------------- Income (loss) from discontinued operations 397,490 (613,462) ------------------------- Net loss before income taxes (885,676) (1,127,365) Other comprehensive income: Foreign currency translation, net of tax effect of $-0- 13,852 - ------------------------- Comprehensive income $ (871,824)$ (1,127,365) ========================= INCOME (LOSS) PER COMMON SHARE BASIC & DILUTED Loss from continuing operations $ (0.38) $ (0.24) Income (loss) from discontinued operations 0.12 (0.28) ------------------------- NET LOSS $ (0.26) $ (0.52) ========================= Weighted average shares outstanding, basic and diluted 3,374,437 2,168,052 See notes to consolidated financial statements. F-5 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31, 2002 2001 -------------------------- Cash Flows from operating activities: Net loss $ (885,676) (1,127,365) Adjustments to reconcile net loss to net cash used in operating activities: Net assets of discontinued operations - 637,610 Foreign currency adjustment 13,852 - Depreciation 46,907 9,509 Amortization 103,489 25,872 Changes in operating assets and liabilities Accounts receivable (98,403) (14,443) Inventories (297,562) - Prepaid expenses and other current assets (82,699) (3,011) Other assets (122,924) 500 Accounts payable and accrued expenses 91,034 27,495 -------------------------- Net cash used in operating activities (1,231,982) (443,833) -------------------------- Cash flows from investing activities: Purchase of property and equipment (197,046) (48,956) -------------------------- Net cash used in investing activities (197,046) (48,956) -------------------------- Cash flows from financing activities: Proceeds from issuance of common stock 2,082,710 562,682 -------------------------- Net cash provided by financing activities 2,082,710 562,682 -------------------------- Increase in cash 653,682 69,893 Cash at beginning of year 88,385 18,492 -------------------------- Cash at end of year $ 742,067 $ 88,385 ========================== Supplemental disclosure of cash flow information: Income taxes paid - 240 See notes to consolidated financial statements. F-6 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 2002 and 2001
CLASS "A" PARTICIPATING CONVERTIBLE PREFERRED --------------------------- AMOUNT ACCUMULATED STATED AT ADDITIONAL OTHER LIQUIDATION COMMON SHARES PAID-IN ACCUMULATED COMPREHENSIVE SHARES VALUE SHARES AMOUNT CAPITAL DEFICIT INCOME TOTAL ------------------------------------------------------------------------------------------------ Balance at December 31, 2000 16.5 $ 397,898 1,812,213 $ 1,812 $ 3,114,104 $ (723,688) $2,790,126 Options exercised - - 701,219 701 561,981 - 562,682 Net loss - - - - - (1,127,365) (1,127,365) ------------------------------------------------------------------------------------------------ Balance at December 31, 2001 16.5 397,898 2,513,432 2,513 3,676,085 (1,851,053) 2,225,443 Options exercised - - 1,398,779 1,399 1,204,111 - 1,205,510 Issuance of Common Stock - - 1,230,000 1,230 875,970 - 877,200 Foreign currency translation - - - - - 13,852 13,852 Net loss - - - - - (885,676) (885,676) ------------------------------------------------------------------------------------------------ Balance at December 31, 2002 16.5 $ 397,898 5,142,211 $ 5,142 $5,756,166 $ (2,736,729) $ 13,852 $3,436,329 ================================================================================================
See notes to consolidated financial statements. F-7 THE CLASSICA GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS The Classica Group, Inc. ("the Company") and its wholly owned subsidiaries Classica Microwave Technologies, Inc. (United States) and CGTI Classica Group Technologies Italia, S.r.l. ("Classica Italy") (collectively "CMT") provide safe food solutions through its automated microwave processing systems. In addition, CMT's technologically advanced design of post packaging processing, extends refrigerated shelf life through pasteurization and permits non-refrigerated shelf life through sterilization without the use of any chemical additives. The system is designed to promote food safety while reducing overall operating costs, inventory storage and delivery costs without sacrificing productivity or food quality. Professor Giuseppe Ruozi, the key developer of the process and one of the leading European experts in the field of microwave technology as it applies to the food industry is under a consulting agreement with CMT as its Chief Technology Officer. The use of microwave technology in concert with proprietary knowledge acquired over years of research and development by Professor Ruozi gives CMT a strong position in the growing field of new and innovative processing technologies for the food industry. CMT expects to generate revenues in two different areas. First, the company sells microwave based processing systems for pasteurization, sterilization, sanitizing and drying of food products. Second, the company intends to utilize its microwave application expertise to provide development services to new and existing clients. Microwave energy has long been used in the food industry for various applications such as cooking and defrosting. However, the inability of competing companies to control temperature uniformity prohibited its use as a method of insuring food safety. CMT's was designed to insure food safety through controlled temperature uniformity by using patented and proprietary microwave technology in concert with hot air under strict time and temperature guides on post packaged products. This technological advancement of guaranteed temperature uniformity using microwave energy as the heat source allows foods to be processed for consumer protection without affecting the taste and texture of the product. The process is controlled by a Programmable Logic Controller ("PLC"), a device used to control the operations of complex industrial equipment. Basically, it is an earlier generation computer. The PLC allows the operator to customize a vast number of instructions ("the program"), in proper sequence, for the tasks that the equipment is required to perform under any number of alternative conditions to achieve the desired results. Different programs for different output results and conditions can be stored in the PLC. The design includes a self-monitoring program that alerts an operator to any system malfunction that could jeopardize the food safety of the product. In October 2002, the Company sold its grated, shredded and dry cheese processing and distributing business. In December 2002, the Company sold its Galbani(R) brand cheese and meat importing and distribution business. See note 5. FINANCIAL STATEMENT PRESENTATION The accompanying consolidated financial statements include the accounts of the Company and it's wholly owned subsidiary companies. All material intercompany transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and \ liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Revenue for microwave heat processing systems is recognized upon acceptance of the system by the customer after its installation in the customer's facility. Revenue for technical services rendered by the Company is recognized, if on an hourly basis as the services are provided to the customer, or upon completion of the project if on a project basis. In the case of lengthy projects progress billing and revenue recognition arrangements may be made with the customer in advance. Revenue for spare parts, replacement parts, or accessories for a system is recognized upon shipment of the product to the Customer. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements", which provides guidance related to revenue recognition. The Company has adopted SAB 101 and it has not had a material impact on the Company's consolidated financial position or results of operations, nor did it result in the Company reporting a change in accounting principles from its application. F-8 CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. FOREIGN CURRENCY For Classica Italy, the local currency is the functional currency. In accordance with the Statement of Financial Standards (SFAS) No. 52, "Foreign Currency Translations," the financial statements of the subsidiary are translated into U.S. dollars as follows: assets and liabilities at year-end exchange rates; income, expenses and cash flows at average exchange rates; and shareholders' equity at historical exchange rates. The resulting translation adjustment is recorded as a component of accumulated other comprehensive income in the accompanying Consolidated Statement of Financial Position. RESEARCH AND DEVELOPMENT COSTS Research and development costs, which include costs in connection with new product development, fundamental and exploratory research, process improvement, and product use technology and product accreditation, are charged to operations in the period in which they are incurred. Research and development costs for the years ended December 31, 2002 and 2001 were $60,995 and $16,498, respectively. ADVERTISING COSTS The Company expenses all advertising costs as incurred. Advertising costs for the years ended December 31, 2002 and 2001 were $8,547 and $0, respectively. ACCOUNTS RECEIVABLE On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, when deemed necessary, based on its history of past write-offs and collections, contractual terms and current credit conditions. INVENTORIES Inventories consist of raw materials used in production, construction in progress and used machines held for resale and are carried at the lower of cost or market. Cost is determined on a first-in, first-out method. DEPRECIATION Property and equipment are carried at cost, less accumulated depreciation and amortization computed on a straight-line basis over the estimated useful lives of the assets which range from three to ten years. F-9 INTANGIBLE ASSETS Patents, recorded at cost, are amortized over their estimated useful lives, approximating 15 years. Intangible assets are reviewed for impairment whenever events or circumstances indicate impairment might exist or at least annually. The Company assesses the recoverability of its assets, in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets," comparing projected undiscounted cash flows associated with those assets against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. The Company determined that there is no impairment of the assets at December 31, 2002 and 2001. Intangible assets consist of the following at December 31, 2002: Patents $ 1,552,328 Accumulated amortization (129,361) -------------- Intangible assets, net $ 1,422,967 ============== For the years ending December 31, 2003 through 2007 the patents will be amortized at the rate of $103,489 per annum for a total amortization for the five year period of $517,245. CONCENTRATION OF RISK The Company's products are constructed by its wholly owned subsidiary, C.G.T.I. - Classica Group Technologies Italia, S.r.l. ("CGTI") in Italy. The products are manufactured by sub-contractors under the supervision of CGTI's personnel. Management believes that, in the event of a disruption in the supply of product as the result of circumstances beyond its control, wherein the supplier could not supply product in a timely manner, a replacement source could be obtained without major disruption to the business. The Company maintains cash balances in financial institutions, which are insured by the Federal Deposit Corporation up to $100,000. LONG-LIVED ASSETS Long-lived assets to be held and used by the Company are reviewed to determine whether an event or change in circumstances indicated that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, the Company bases its evaluation on such impairment indicators as the nature of the asset, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of the assets may not be recoverable; the Company determines whether impairment has occurred through the use of undiscounted cash flows analysis of assets at the lowest level for which identifiable cash flows exist. If impairment has occurred, the Company recognizes a loss for the difference between the carrying amount and the estimated value of the asset. The fair value of the asset is measured using discounted cash flow analysis or other valuation techniques. Management has determined that there is no impairment of assets in the continuing segments of the business. No impairment expense was recognized in the years ended December 31, 2002 and 2001. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." The asset and liability approach underlying SFAS No. 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amount and tax basis of the Company's assets and liabilities, and net operating loss carryforwards. Management provides valuation allowances against the net deferred tax asset for amounts that may not be realized. F-10 EARNINGS PER COMMON SHARE Earnings per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. There were outstanding at December 31, 2002 1,610,689 employee stock options and 479,333 warrants with average purchase prices of $1.1497 and $1.6554 per share, respectively. These options and warrants could potentially dilute basic earnings per share in the future should be Company achieve profitability. Diluted earnings per share do not reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares or resulted in the issuance of common shares as the impact of such would be antidilutive given the net losses incurred. Additionally, 770,000 shares contingently issued and placed in escrow in June, 2003 will not be included in the calculation of earnings per share while the contingency exists in accordance with paragraph 30 of SFAS 128. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than a forced sale or liquidation. Significant differences can arise between the fair value and carrying amount of financial instruments that are recognized at historical cost amounts. The Company in estimating fair value disclosures for financial instruments used the following methods and assumptions: o Cash, trade receivables and other receivables reported in the consolidated balance sheet approximate fair value. Note 2 - INVENTORIES Inventories at December 31, 2002 consist of: Raw materials $ 20,553 Construction in progress 245,934 Used machines held for resale 31,075 ------------ Total inventory $ 297,562 ============ NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment, at cost, consists of the following at December 31, 2002: Furniture, fixtures and equipment $ 525,670 Less accumulated depreciation and amortization (53,532) ------------- Fixed assets, net $ 472,138 ============= NOTE 4 - ACCRUED EXPENSES Accrued expenses at December 31, 2002 consist of: Accrued payroll $ 36,558 Other accrued expenses 21,886 --------------- Total accrued expenses $ 58,444 =============== F-11 NOTE 5 - DISCONTINUED OPERATIONS On October 18, 2002, the Company sold assets comprised of manufacturing equipment, certain inventory and related packaging materials and supplies, customer lists, goodwill, trademark and rights to its lease of the distribution facility and other rights relating to its grated, shredded and dry cheese processing and distributing business. On December 30, 2002, the Company sold assets comprised of a customer list, goodwill, right to use a license and distribution agreement with a supplier, certain inventory and related packaging materials and supplies a portfolio of import licenses for dairy products, and an assumption of a liability to its distributor relating to its Galbani(R) brand cheese and meat importing and distribution business. As a result of the aforementioned sales, the Company has recorded an after-tax gain on these sales of assets of $566,351 including the write-off of prior recognized goodwill of $157,500 and a loss from operations totaling $168,861 as discontinued operations. The total selling price included cash of approximately $600,000 and liabilities assumed totaling approximately $739,000. The consolidated financial statements and related notes for the year ended December 31, 2001 have been restated, where applicable. The tax effect of the gain on the sale of assets was to reduce the amount of the deferred tax asset by approximately $192,000 as of December 31, 2002 for the amount of the taxes that would have been due on the transaction were it not for the Company's large net loss carryforwards. Revenues related to the 2002 discontinued operations totaled $6,647,798 and $7,478,213 in 2002 and 2001, respectively. Pretax profit (loss) reported was $(168,861) and $294,104 in 2002 and 2001, respectively. On December 28, 2000 the Company adopted a formal plan to discontinue the operations of its Deli King, Inc. ("Deli King") mobile catering subsidiary and to dispose of the assets of the business segment. The operations of Deli King ceased on March 9, 2001. Operating results of Deli King Subsidiary for the year ended December 31, 2001 are shown separately in the accompanying income statement. Deli King had no operations for the year ended December 31, 2002. Revenues of Deli King for 2001 were $343,463. This amount is not included in net sales in the accompanying financial statements. Pretax loss reported in discontinued operations was zero and $(179,074) in 2002 and 2001, respectively. As of December 31, 2001, all of the assets of Deli King, Inc. had been disposed of or were deemed to be worthless. During 2002 Deli King, Inc. was liquidated under Chapter VII in the U.S. Bankruptcy Court for the District of New Jersey. Management believes that there are no material present or future liabilities on the part of the Company for matters relating to Deli King, Inc. The tax effect of the loss on the sale of the Deli King business segment was to increase the amount of the deferred tax asset by approximately $247,000 as of December 31, 2001 for the amount of the tax benefit that would have been received from the transaction were it not for the Company's large net loss carryforwards. F-12 NOTE 6 - INCOME TAXES The income taxes are comprised of the following for the years ended December 31, 2002: December 31, 2002 2001 ------------------------------ Deferred Federal $ 301,100 $ (373,104) State 79,700 (98,700) ------------------------------ Sub-total 380,800 (471,804) Valuation allowance 380,800 471,804 ------------------------------ Income tax provision $ - $ - ============================== The difference between the U.S. federal statutory rate and the Company's effective tax rate is as follows: Years Ended December 31, 2002 2001 ----------------------------- Federal statutory tax rate 34.0% 34.0% Valuation allowance -34.0% -34.0% ----------------------------- Effective tax rate 0.0% 0.0% ============================= Deferred tax assets (liabilities) are comprised of the following: December 31, 2002 Net operating loss carryforwards $ 3,985,300 Less: valuation allowance (3,985,300) ----------------- $ - ================= The Company has available net operating loss carryforwards of approximately $ 9,300,000 for federal and state income taxes expiring between 2009 and 2022 to offset future taxable income. A deferred tax asset results from the benefit of utilizing net operating loss carryforwards in future years. A valuation allowance has been provided for the entire benefit. During the years ended December 31, 2002 and 2001, the valuation allowance was increased by $380,800 and $471,804, respectively. These charges reflect increases in the valuation allowance related to the deferred tax asset. The Company will continue to assess the recoverability of its deferred income tax asset and adjustments may be necessary based on the evidence available at that time. F-13 NOTE 7--COMMITMENTS AND CONTINGENCIES Operating Leases Until December 2002, the Company leased its distribution and office facility in Lakewood, New Jersey under a lease which required a base annual rental of approximately $92,000. On November 13, 2002 the Company entered into a lease of a 10,400 square foot facility in Sayreville New Jersey of which approximately 7,900 square feet serve as office space and a laboratory and 2,500 square feet serves as a warehouse. The lease was effective February 15, 2003 (the move in date). The lease is for a period of five years and three months, with the first three months of base rental forgiven. The base rental under the lease is $114, 400 per annum ($9,533.33 per month). The lease contains a renewal option for five additional years, the lease provides for the Company to pay its proportionate share of the landlord's common costs. The Company leases a 3,768 square foot facility at Via Nagy 7, 42019 Pratissolo di Scandiano, Italy, of which approximately 2700 square feet serves as office space, with the balance serving as its laboratory. The facility is leased at a base rent of $19,200 annually. The lease was entered into on December 15, 2001, and continues for a period of four years. At the end of each year, the rent shall be adjusted based upon changes in the Italian price indexes. Rent expenses totaled $ 19,522 and $ 977 for 2002 and 2001 respectively. Minimum future commitments under all operating leases are as follows: Year Ending December 31, Amount ------------------ ------------------ 2003 $ 91,022 2004 133,922 2005 133,108 2006 114,400 2007 114,400 Thereafter 42,900 ------------------ $ 629,752 ================== Litigation The parent and its subsidiaries are not currently involved in any litigation that they expect, individually or in the aggregate, will have a material adverse effect on the Company's financial condition or results of operations. Employment Agreements The Company has employment agreements with the Company's Chairman and Chief Executive Officer and its Chief Financial and Administrative Officer that expire on July 31, 2005. The Company has a consulting agreement with the Company's Chief Technical Officer which is automatically renewed annually on September 21, that provides for A monthly fee of $6,000 per month. F-14 NOTE 8- STOCK PLANS AND STOCK BASED COMPENSATION The Company's 1998 Incentive and Nonqualified Stock Option Plan was amended in 2002 to increase the number of shares reserved for issuance under the 1998 Incentive and Nonqualified Stock Option Plan to 1,450,000. Exercise and vesting terms for options granted under this plan are determined at each grant date. All options were granted at not less than fair market value at dates of grant. At December 31, 2002, 3 options were available for grant under the plan and reserved for issuance under the 1998 Incentive and Nonqualified Stock Option Plan. The Company's 1998 Director Stock Option Plan provides for the granting of options to purchase 40,000 shares of common stock to certain directors of the Company. Exercise and vesting terms for options granted under this plan are determined at each grant date. All options were granted at not less than fair market value at dates of grant. At the end of 2001, no options were available for grant under the 1998 plan and 40,000 shares of common stock were reserved for issuance under the 1998 Director Stock Option Plan. The Company's 2002 Incentive and Nonqualified Stock Option Plan provides for the granting of options to purchase 1,000,000 shares of common stock to certain employees of the Company. Exercise and vesting terms for options granted are determined at each grant date. All options will be granted at no less than fair market value at the date of grant. At the end of 2002, 10,794 options were available for grant and reserved for issuance under the 2002 Incentive and Nonqualified Stock Option Plan. Stock options transactions are summarized as follows:
2002 Options 2002 Warrants 2001 Options 2001 Warrants Weighted Weighted Weighted Weighted Average Average Average Average Exercise Exercise Exercise Exercise Shares Price Shares Price Shares Price Shares Price ------------------------------------------------------------------------------------------------------------------- Outstanding, beginning of year606,349 1.3271 32,632 9.1349 572,849 $1.3127 91,300 $8.9058 Granted 2,403,109 0.9567 456,000 1.3015 734,719 $1.7543 - - Forfeited (9,299) 10.5487 (58,668) $8.7784 Exercised (1,398,779) 0.8966 (701,219)$1.7629 - - ------------------------------------------------------------------------------------------------------------------- Outstanding, end of year 1,610,679 1.1497 479,333 1.6554 606,349 $1.3271 32,632 $9.1349 ========================================================================================= Options and warrants exercisable at year-end 989,206 1.2149 479,333 1.7076 606,349 $1.3271 32,632 $9.1349 ========================================================================================= Weighted-average fair value of $ 0.9576 $ 1.6700 options granted during the year
The following table summarizes stock options and warrants outstanding and exercisable at December 31, 2002:
Weighted Outstanding Exercisable Average Average Average Exercise Options & Remaining Options & Exercise Options & Exercise Price Range Warrants Life Warrants Price Warrants Price - ---------------------------------------------------------------------------------------------------- $ 0.99 $ 1.25 1,820,609 7.36 1,820,609 $ 1.09 1,194,849 $ 1.13 1.50 1.75 112,070 6.62 112,070 1.65 66,357 1.59 1.78 2.00 130,000 2.14 130,000 1.95 130,000 1.95 6.25 10.00 27,333 2.09 27,333 8.23 27,333 8.23 - ---------------------------------------------------------------------------------------------------- 2,090,012 6.93 2,090,012 $ 1.27 1,418,539 $ 1.36 =================================================================================
F-15 The fair value of each option granted is estimated on the date of each grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2002 and 2001, respectively: risk free interest rate 4.85% and 2.5%; expected life from 1 to 5 years; expected volatility of 93.8% and 127%; dividend yield 0% and 0%. The fair values generated by the Black-Scholes model may not be indicative of the future benefit, if any, which may be received by the option holder. SFAS No. 123 Accounting for Stock-Based Compensation encourages (but does not require) compensation expense to be measured based on fair value of the equity instrument awarded. In accordance with APB No. 25 "Accounting for Stock Issued to Employees" no compensation cost has been recognized in the Consolidated Statements of Operations for the Company's stock option plans, as all options have been granted to employees and non-employee directors with exercise prices equal to or greater than the fair market value of the underlying stock on the date of grant. If compensation cost for the Company's stock option plans had been determined in accordance with the fair value method prescribed by SFAS No. 123, the Company's net loss would have been $(2,353,661) and $(1,642,335) for 2002 and 2001, respectively. Diluted loss per share, would have been $(0.70) and $(0.76) for 2002 and 2001, respectively. This pro forma information may not be representative of the amounts to be expected in future years as the fair value method of accounting prescribed by SFAS No. 123 has not been applied to options granted prior to 1996. NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS In July, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141) and Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method of accounting, thereby eliminating use of the pooling of interests method. SFAS 141 also requires that an intangible asset acquired in a business combination be recognized apart from goodwill if: (i) the intangible asset arises from contractual or other legal rights or (ii) the acquired intangible asset is capable of being separated from the acquired enterprise, as defined in SFAS 141. SFAS 142 requires, among other things, that goodwill not be amortized but should be subject to impairment testing at the "reporting unit level" at least annually and more frequently upon the occurrence of certain events, as defined by SFAS 142. A reporting unit is the same level as or one level below an operating segment, as defined by Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information." As a result of the adoption of SFAS 142 in 2002, the non-amortization of goodwill had the effect of decreasing the Company's loss from discontinued operations by approximately $30,000. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Ling-Lived Assets" (SFAS 144). SFAS 144 supersedes Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and certain provisions of APB Opinion No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 establishes standards for long-lived assets to be disposed of, and redefines the valuation and presentation of discontinued operations. SFAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The adoption of SFAS 144 did not have a material effect on the Company's financial position, results of operations, and cash flows. In July, 2002, the Financial Accounting Standards Board, or FASB, issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit of disposal activities initiated after September 30, 2002. We do not expect SFAS No. 146 to have a material effect on our consolidated financial position, results of operations or liquidity. F-16 NOTE 10 - STOCKHOLDERS' EQUITY The Preferred Stockholders have no voting rights but are entitled to a priority of payment in the amount of the original subscription price paid for each Preferred Share ($16,667 to $25,000), plus a proportionate amount, as defined, on any remaining excess proceeds if there is, among other matters, a sale of all or substantially all of the shares or assets of the Company. The Preferred Stockholders are not entitled to specific dividends; however, should the Company declare any dividends on the common shares, the Preferred Stockholders will be entitled to receive dividends as if they had converted to common shares immediately prior to the dividend declaration. The holders of the Preferred Shares may convert, at their option, at any time, all or part of their shares into common shares. Each outstanding Preferred Share is convertible into one common share, subject to certain adjustments as defined in the Amended Certificate of Incorporation. The Company has reserved, in aggregate, 17 common shares for possible future issuance to Preferred Shareholders in the event of conversion. At December 31, 2002 there were 16.5 preferred shares outstanding all of which are convertible into common shares at the holder's option. NOTE 11 - COMMON STOCK On January 23, 2003, the Company filed with the Securities and Exchange Commission a Registration Statement under the Securities Act of 1933 seeking to register 1,686,000 shares of its common stock, which 1,230,000 common shares have been issued along with warrants exercisable to purchase 456,000 shares of common stock. NOTE 12 - SEGMENT REPORTING Industry segment information at December 31, 2002 and 2001 is summarized as follows: Total Revenues Operating Profits(Loss) 2002 2001 2002 2001 ---------------------- ------------------------- United States Operations $ 4,268 $ 4,728 $ (614,180) $ (118,251) Italian Operations 24,327 - (18,405) - ------------------------------------------------ Total Segments 28,595 4,728 (632,585) (118,251) Eliminations - - - - Corporate Income(expenses) 8,856 33,654 (650,581) (395,652) ------------------------------------------------ Consolidated $37,451 $ 38,382 (1,283,166) (513,903) ====================== Interest expense - - ------------------------ Loss from continuing operations $(1,283,166) $ (513,903) ========================
Depreciation and Capital Expenditures Amortization Expense Identifiable Assets 2002 2001 2002 2001 2002 2001 -------------------------------------------------------------------------------- U.S. Operations $ 184,889 $ 48,956 $41,515 $ 3,722 $ 1,247,560 $ 406,588 Italian Operations 12,157 - 3,729 - 442,263 - Corporate - - 105,152 31,659 1,911,072 2,059,171 Discontinued Op. - - - - 397,441 1,300,228 -------------------------------------------------------------------------------- Consolidated $ 197,046 $ 48,956 $ 150,396 $35,381 $ 3,998,336 $ 3,765,987 ================================================================================
F-17 EX-10 3 tcgilse.txt BUILDING LEASE FIRST INDUSTRIAL DEVELOPMENT SERVICES, INC. STANDARD FORM INDUSTRIAL BUILDING LEASE (Multi-Tenant) 1. BASIC TERMS. This Section 1 contains the Basic Terms of this Lease between Landlord and Tenant, named below. Other Sections of the Lease referred to in this Section 1 explain and define the Basic Terms and are to be read in conjunction with the Basic Terms. 1.1 Date of Lease: November 13, 2002 1.2 Landlord: First Industrial Development Services, Inc., a Maryland corporation. 1.3 Tenant: Classica Microwave Technologies Inc., a Delaware corporation. 1.4 Premises: Suites 11 and 12, containing 10,400 rentable square feet in the building commonly known as 2400 Main Street Extension, Sayreville, New Jersey (the "Building"). 1.5 Property: See Exhibit A. 1.6 Lease Term: Five (5) years and three (3) months ("Term"), commencing on or about January 1, 2003 ("Commencement Date") and ending March 31, 2008 ("Expiration Date"), subject to the provisions of Section 2.3 hereof. 1.7 Permitted Uses: (See Section 4) Office, warehouse, and laboratory purposes only. 1.8 Tenant's Guarantor: None. 1.9 Brokers: (See Section 23) (A) Tenant's Broker: Binswanger/Klatskin Co. (B) Landlord's Broker: None. 1.10 Security Deposit: (See Section 4) $100,000.00. 1.11 Initial Estimated Additional Rent Payable by Tenant:$1,300.00 per month 1.12 Tenant's Proportionate Share: 16.67%. 1.13 Riders to Lease: The following riders are attached to and made a part of this Lease. None. 2. LEASE OF PREMISES; RENT. ----------------------- 2.1 Lease of Premises for Lease Term. Landlord hereby leases the Premises to Tenant, and Tenant hereby rents the Premises from Landlord, for the Term and subject to the conditions of this Lease. Tenant agrees that it shall execute an acceptance letter in the form annexed hereto as Exhibit "E". 2.2 Types of Rental Payments. Tenant shall not be responsible for the payment of any installment of Base Rent which is applicable to the first (1st) three (3) months of the Term. All of the other terms and conditions of the Lease, including the obligation for the payment of Additional Rent and all other charges set forth in this Lease shall be applicable to such three (3) month period. Thereafter, Tenant shall pay net base rent to Landlord in monthly installments, in advance, on the first day of each and every calendar month during the Term of this Lease (the "Base Rent") in the amounts and for the periods set forth below: Lease Period Annual Base Rent Monthly Base Rent - -------------------------------------------------------------------------------- For the entire Term $114,400.00 $9,533.33 Option Period Annual Base Rent Monthly Base Rent - -------------------------------------------------------------------------------- For the entire Option Period $131,560.00 $10,963.33 Tenant shall also pay Tenant's Proportionate Share (as set forth in Section 1.12) of Operating Expenses (as hereinafter defined), Tenant's Proportionate Share of any and all Reserve Expenses (as hereinafter defined) and any other amounts owed by Tenant hereunder [collectively, "Additional Rent"]. In the event any monthly installment of Base Rent or Additional Rent, or both, is not paid within 7 days of the date when due, a late charge in an amount equal to 5% of the then delinquent installment of Base Rent and/or Additional Rent may be imposed by Landlord [the "Late Charge"; the Late Charge, Default Interest (as defined in Section 22.3), Base Rent and Additional Rent shall collectively be referred to as "Rent"]. The Rent shall be sent by Tenant to First Industrial, L.P., c/o First Industrial, L.P., P.O. Box 33168 Newark, New Jersey 07188-0168, or if sent by overnight courier, Bank One National Processing Corporation, 3rd Floor, 300 Harmon Meadow Boulevard, Secaucus, New Jersey 07094, Attention: First Industrial, L.P., Lockbox #33168, or pursuant to such other directions as Landlord shall designate in this Lease or otherwise in writing. Simultaneously with the execution hereof, the Tenant has delivered to the Landlord the first monthly installment of Base Rent payable hereunder, the first month's Estimated Additional Rent and the Security Deposit referred to in Section 1.10. 2.3 Covenants Concerning Rental Payments. Tenant shall pay the Rent promptly when due, without notice or demand, and without any abatement, deduction or setoff, except as may otherwise be expressly and specifically provided in this Lease. No payment by Tenant, or receipt or acceptance by Landlord, of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or letter accompanying any payment be deemed an accord or satisfaction, and Landlord may accept such payment without prejudice to its right to recover the balance due or to pursue any other remedy available to Landlord. If the Commencement Date occurs on a day other than the first day of a calendar month, the Rent due for the first calendar month of the Term shall be prorated on a per diem basis and paid to Landlord on the Commencement Date. The Term will be extended to terminate on the last day of the sixty third (63rd) calendar month following the Commencement Date, and the Expiration Date shall be adjusted accordingly. 3. OPERATING EXPENSES. 3.1 Definitional Terms Relating to Additional Rent. For purposes of this Section and other relevant provisions of the Lease: 3.1.1 Operating Expenses. The term "Operating Expenses" shall mean all costs and expenses paid or incurred with respect to the ownership, repair, replacement, restoration, maintenance and operation of the Property, including, without limitation, the following: (i) services provided directly by employees of Landlord or Landlord's managing agent (the "Agent") in connection with the operation, maintenance or rendition of other services to or for the Property; (ii) to the extent not separately metered, billed, or furnished, all charges for utilities and services furnished to either or both of the Property and the Premises (including, without limitation, the Common Areas [as hereinafter defined]), together with any taxes on such utilities; (iii) all premiums for casualty, workers' compensation, liability, boiler, flood and all other types of insurance provided by Landlord and relating to the Property, all third party administrative costs incurred in connection with the procurement and implementation of such insurance policies, and all deductibles paid by Landlord pursuant to insurance policies required to be maintained by Landlord under this Lease; (iv) the cost of all supplies, tools, materials and equipment utilized in the ownership and operation of the Property, and sales and other taxes thereon; (v) amounts charged (including, without limitation, those costs and expenses set forth in Section 13.2(i) below) by any or all of contractors, materialmen and suppliers for services, materials and supplies furnished to Landlord in connection with any or all of the operation, repair and maintenance of any part of the Property, including, without limitation, the structural elements of the Property and the Common Areas; (vi) reasonable and customary management fees to Landlord or Agent or other persons or management entities actually involved in the management and operation of the Property; (vii) any capital improvements made by, or on behalf of, Landlord to the Property that are either or both (a) designed to reduce Operating Expenses and (b) required to keep the Property in compliance with all governmental laws, rules and regulations applicable thereto, from time to time, the cost of which capital improvements shall be reasonably amortized by Landlord over the useful life of the improvement, in accordance with generally accepted accounting principles; (viii) all professional fees incurred in connection with the operation, management and maintenance of the Property; and (ix) Taxes, as hereinafter defined in Section 3.1.2. 3.1.2 Taxes. The term "Taxes," as referred to in Section 3.1.1(viii) above shall mean (i) all governmental taxes, assessments, fees and charges of every kind or nature (other than Landlord's income, franchise or other similar taxes), whether general, special, ordinary or extraordinary, due at any time or from time to time, during the Term and any extensions thereof, in connection with the ownership, leasing, or operation of the Property, or of the personal property and equipment located therein or used in connection therewith; and (ii) any reasonable expenses incurred by Landlord in contesting such taxes or assessments and/or the assessed value of the Property. Landlord shall pay all assessments over the longest period of time permitted, being understood that only the installments of said assessments which are applicable to the Term shall be included within Taxes. For purposes hereof, Taxes for any year shall be Taxes that are due for payment or paid in that year rather than Taxes that are assessed, become a lien, or accrue during such year. Tenant shall have no right to conduct a tax appeal affecting the Property. Tenant acknowledges that the Property currently benefits from a tax abatement and that, consequently, Taxes may increase significantly in the future. 3.1.3 Operating Year. The term "Operating Year" shall mean the calendar year commencing January 1st of each year (including the calendar year within which the Commencement Date occurs) during the Term. 3.2 Payment of Operating Expenses. Tenant shall pay, as Additional Rent and in accordance with the requirements of Section 3.3, its Proportionate Share of the Operating Expenses as set forth in Section 3.3. Additional Rent commences to accrue upon the Commencement Date. The Tenant's Proportionate Share of Operating Expenses payable hereunder for the Operating Years in which the Term begins and ends shall be prorated to correspond to that portion of said Operating Years occurring within the Term. Tenant's Proportionate Share of Operating Expenses and any other sums due and payable under this Lease shall be adjusted upon receipt of the actual bills therefor, and the obligations of this Section 3 shall survive the termination or expiration of the Lease. 3.3 Payment of Additional Rent. Landlord shall have the right to reasonably estimate the Operating Expenses for each Operating Year. Tenant shall pay, on the first day of each month during that Operating Year, an amount (the "Estimated Additional Rent") equal to the estimate of the Tenant's Proportionate Share of Operating Expenses divided by 12 (or the fractional portion of the Operating Year remaining at the time Landlord delivers its notice of the estimated amounts due from Tenant for that Operating Year). Landlord shall deliver a statement of Operating Expenses to Tenant promptly following each Operating Year; Landlord shall deliver backup documentation to Tenant regarding any such statement, upon Tenant's written request. If the aggregate amount of Estimated Additional Rent actually paid by Tenant during any Operating Year is less than Tenant's actual ultimate liability for Operating Expenses for that particular Operating Year, Tenant shall pay the deficiency within 30 days of Landlord's written demand. If the aggregate amount of Estimated Additional Rent actually paid by Tenant during a given Operating Year exceeds Tenant's actual liability for such Operating Year, the excess shall be credited against the Estimated Additional Rent next due from Tenant during the immediately subsequent Operating Year, except that in the event that such excess is paid by Tenant during the final Lease Year, then upon the expiration of the Term, Landlord shall pay Tenant the then-applicable excess promptly after determination thereof, provided that there are no other amounts due and owing by Tenant to Landlord. In the event that any item of Operating Expenses has not been included in Tenant's Estimated Additional Rent payments, Landlord shall have the right to bill Tenant for any such cost, which incurred, and Tenant shall pay to the Landlord the invoiced amount within thirty (30) days of Landlord's written demand therefor. 4. USE OF PREMISES AND COMMON AREAS; SECURITY DEPOSIT. 4.1 Use of Premises and Property. The Premises shall be used by the Tenant for the purpose(s) set forth in Section 1.7 above and for no other purpose whatsoever. Tenant shall not, at any time, use or occupy, or suffer or permit anyone to use or occupy, the Premises, or do or permit anything to be done in the Premises or the Property, in any manner that may (a) violate any Certificate of Occupancy for the Premises or the Property; (b) cause, or be liable to cause, injury to, or in any way impair the value or proper utilization of, all or any portion of the Property (including, but not limited to, the structural elements of the Property) or any equipment, facilities or systems therein; (c) constitute a violation of the laws and requirements of any public authority or the requirements of insurance bodies or the rules and regulations of the Property, including any covenant, condition or restriction affecting the Property; (d) exceed the load bearing capacity of the floor of the Premises; (e) impair or tend to impair the character, reputation or appearance of the Property; or (f) unreasonably annoy, inconvenience or disrupt the operations or tenancies of other tenants or users of the Property. On or prior to the date hereof, Tenant has completed and delivered for the benefit of Landlord a "Tenant Operations Inquiry Form" in the form attached hereto as Exhibit D describing the nature of Tenant's proposed business operations at the Premises, which form is intended to, and shall be, relied upon by Landlord. Except for the Certificate of Occupancy, Tenant shall be responsible to obtain all other permits and approvals necessary for the operation by Tenant of its business in the Premises. Tenant may not utilize any portion of the Property outside of the Premises for outside storage of any equipment, raw materials, pallet storage or staging, finished products or any other personal property of Tenant. 4.2 Use of Common Areas. As used herein, "Common Areas" shall mean all areas within the Property that are available for the common use of tenants of the Property and that are not leased or held for the exclusive use of Tenant or other tenants or licensees, including, but not limited to, parking areas, driveways, sidewalks, loading areas, access roads, corridors, landscaping and planted areas. Tenant shall have the nonexclusive right to use the Common Areas for the purposes intended, subject to such reasonable rules and regulations as Landlord may uniformly establish from time to time. Landlord reserves the right to allocate designated parking spaces, if Landlord so chooses. Tenant shall not interfere with the rights of any or all of Landlord, other tenants or licensees, or any other person entitled to use the Common Areas. Without limitation of the foregoing, Tenant shall not park or store any vehicles or trailers on, or conduct truck loading and unloading activities in, the Common Areas in a manner that unreasonably disturbs, disrupts or prevents the use of the Common Areas by Landlord, other tenants or licensees or other persons entitled to use the Common Areas. Landlord, from time to time, may change any or all of the size, location, nature and use of any of the Common Areas although such changes may result in inconvenience to Tenant, so long as such changes do not materially and adversely affect Tenant's use of the Premises. In addition to the foregoing, Landlord may, at any time, close or suspend access to any Common Areas to perform any acts in the Common Areas as, in Landlord's reasonable judgment, are desirable to improve or maintain either or both of the Premises and the Property, or are required in order to satisfy Landlord's obligations under either or both of Sections 13.2 and 18; provided, however, that Landlord shall use reasonable efforts not to disrupt Tenant's use and operation of the Premises in connection therewith. 4.3 Signage. Tenant shall not affix any sign of any size or character to any portion of the Property, without prior written approval of Landlord, which approval shall not be unreasonably withheld or delayed. Tenant shall have the right to place a sign on the front door of the Premises, at Tenant's sole cost and expense, subject to Landlord's approval and to the applicable rules and regulations of all governmental boards and bureaus having jurisdiction over the Property. Any other signs placed on the Property by Tenant, after approval by Landlord, shall be installed by Landlord's designated sign company in accordance with Landlord's building standard signage. Tenant shall remove all signs of Tenant upon the expiration or earlier termination of this Lease and immediately repair any damage to either or both of the Property and the Premises caused by, or resulting from, such removal. 4.4 Security Deposit. Simultaneously with the execution and delivery of this Lease, Tenant shall deposit with Landlord the sum set forth in Section 1.10 above, in cash (the "Security"), representing security for the performance by Tenant of the covenants and obligations hereunder. The Security shall be held by Landlord in a separate segregated account, with interest in favor of Tenant (said interest to become part of the Security); provided, however, that no trust relationship shall be deemed created thereby. If Tenant defaults in the performance of any of its covenants hereunder, Landlord may, without notice to Tenant, apply all or any part of the Security, to the extent required for the payment of any Rent or other sums due from Tenant hereunder, in addition to any other remedies available to Landlord. In the event the Security is so applied, Tenant shall, upon demand, immediately deposit with Landlord a sum equal to the amount so used, by certified or bank cashiers check. If Tenant is not in default of its covenants and obligations hereunder at the time of expiration of the Term, the Security (or any balance thereof) shall be returned to Tenant within 30 days after the last to occur of (i) the date the Term expires or terminates, (ii) delivery to Landlord of possession of the Premises in accordance with the terms of this Lease, or (iii) delivery to Landlord of evidence of compliance with ISRA, as hereinafter defined . Landlord may deliver the Security to any purchaser of Landlord's interest in the Premises [or any Successor Landlord (defined below), if applicable], and thereupon Landlord shall be discharged from any further liability with respect to the Security, provided that such successor assumes Landlord's obligations regarding the Security in writing, and a true copy of such assumption is delivered to Tenant. 5. CONDITION AND DELIVERY OF PREMISES. 5.1 Condition of Premises. (i) Tenant agrees that Tenant is familiar with the condition of both the Premises and the Property, and Tenant hereby accepts the foregoing on an "AS-IS," "WHERE-IS" basis. Tenant acknowledges that neither Landlord, nor any representative of Landlord has made any representation as to the condition of the foregoing or the suitability of the foregoing for Tenant's intended use. Tenant represents and warrants that Tenant has made its own inspection of the foregoing. Landlord shall not be obligated to make any repairs, replacements or improvements (whether structural or otherwise) of any kind or nature to the foregoing in connection with, or in consideration of, this Lease, except (a) as set forth in Sections 13.2 and 18 and (b) with respect to all (if any) repairs and improvements expressly and specifically described in Exhibit B attached hereto ("Landlord Work Items"). Landlord agrees to make reasonable efforts to enforce, upon Tenant's request, all manufacturer's or contractor's warranties, if any, issued in connection with any of the Landlord Work Items. (ii) Anything hereinabove contained to the contrary, it is expressly understood and agreed that the Landlord's construction obligation shall be limited to the Landlord Work Items hereinabove set forth in Section 5.1(i). In the event that any changes or additions are required to the work to be performed by Landlord (including any modification to the fire suppression system serving the Premises) by any governmental or quasi-governmental entity having jurisdiction over the Tenant or its use and occupancy of the Premises, any such changes or additions shall be performed by the Landlord at the Tenant's sole cost and expense. In addition, in the event that the performance of any such changes or additions shall delay the Commencement Date hereunder, the Commencement Date shall be established as of the date that the Premises would otherwise have been substantially completed by the Landlord, but for such additional requirements which are applicable to the Tenant. 5.2 Delay in Commencement. Landlord shall not be liable to Tenant if Landlord does not deliver possession of the Premises to Tenant on the anticipated Commencement Date. The obligations of Tenant under the Lease shall not be affected thereby, except that the Commencement Date shall be delayed until Landlord delivers possession of the Premises to Tenant, and the Lease Term shall be extended by a period equal to the number of days of delay in delivery of possession of the Premises to Tenant, plus the number of days necessary to end the Lease Term on the last day of a month. 6. SUBORDINATION; NOTICES TO SUPERIOR LESSORS AND MORTGAGEES; ATTORNMENT. 6.1 Subordination. This Lease shall be subject and subordinate at all times to (a) all ground leases or underlying leases that may now exist or hereafter be executed affecting either or both of the Premises and the Property and (b) any mortgage or deed of trust that may now exist or hereafter be placed upon, and encumber, any or all of (x) the Property, (y) any ground leases or underlying leases for the benefit of the Property, and (z) all or any portion of Landlord's interest or estate in any of said items. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases that benefit the Property or any such mortgage or deed of trust liens to this Lease. Tenant shall execute and deliver, upon demand by Landlord and in the form reasonably requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases for the benefit of the Property or any such mortgage or deed of trust. Landlord represents that there is currently no mortgage affecting the Property. Landlord shall obtain, for the benefit of Tenant, a Subordination, Non-Disturbance and Attornment Agreement from all future mortgagees of the Property, provided that any such Subordination, Non-Disturbance and Attornment Agreement shall be written on the applicable mortgagee's customary form. 6.2 Estoppel Certificates. Tenant agrees, from time to time and within 10 days after request by Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating such matters pertaining to this Lease as may be reasonably requested by Landlord. Failure by Tenant to timely execute and deliver such certificate shall constitute an acceptance of the Premises and acknowledgment by Tenant that the statements included therein are true and correct without exception. Landlord and Tenant intend that any statement delivered pursuant to this section may be relied upon by any prospective purchaser or mortgagee of the Property or of any interest therein or any other Landlord designee. 6.3 Transfer by Landlord. In the event of a sale or conveyance by Landlord of the Property, the same shall operate to release Landlord from any future liability for any of the covenants or conditions, express or implied, herein contained in favor of Tenant, and in such event Tenant agrees to look solely to Landlord's successor in interest with respect thereto and agrees to attorn to such successor. 7. QUIET ENJOYMENT. Subject to the provisions of this Lease, so long as Tenant pays all of the Rent and performs all of its other obligations hereunder, Tenant shall not be disturbed in its possession of the Premises by Landlord, Agent or any other person lawfully claiming through or under Landlord; provided, however, in addition to Landlord's rights under Section 16 and elsewhere in this Lease, Landlord and Landlord's agents, employees, contractors and representatives shall be provided reasonable access to the Premises such that Landlord and Landlord's agents, employees, contractors and representatives may perform the General Maintenance Services (as hereinafter defined) without undue interruption, delay or hindrance. This covenant shall be construed as a covenant running with the Property and is not a personal covenant of Landlord. Tenant shall not unreasonably interrupt, delay, prevent or hinder the performance of the General Maintenance Services by or on behalf of Landlord. Notwithstanding the foregoing, however, Tenant acknowledges and agrees that Landlord shall have the unfettered and unilateral right to use portions of the Common Areas (inclusive of the roof of the Building) for such purposes and uses as Landlord may desire; provided, however, that in all events and under all circumstances, Landlord's use of any portion of the Common Areas shall not interfere, in any material respect, with any or all of (a) Tenant's rights to occupy and use the Common Areas (in the manner and for the purposes contemplated hereunder); (b) Tenant's right to utilize the vehicular parking areas located on the Common Areas; and (c) Tenant's right of access, ingress and egress to and from the Common Areas. 8. ASSIGNMENT, SUBLETTING AND MORTGAGING. 8.1 Prohibition. Tenant acknowledges that this Lease and the Rent due under this Lease have been agreed to by Landlord in reliance upon Tenant's reputation and creditworthiness and upon the continued operation of the Premises by Tenant for the particular use described in Section 4.1 above; therefore, Tenant shall not, whether voluntarily, or by operation of law, or otherwise: (a) assign or otherwise transfer this Lease; (b) sublet the Premises or any part thereof, or allow the same to be used or occupied by anyone other than Tenant; or (c) mortgage, pledge, encumber, or otherwise hypothecate this Lease or the Premises, or any part thereof, in any manner whatsoever, without in each instance obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld delayed or conditioned. Any purported assignment, mortgage, transfer, pledge or sublease made without the prior written consent of Landlord shall be absolutely null and void. No assignment of this Lease shall be effective and valid unless and until the assignee executes and delivers to Landlord any and all documentation reasonably required by Landlord in order to evidence assignee's assumption of all obligations of Tenant hereunder. Any consent by Landlord to a particular assignment, sublease or mortgage shall not constitute consent or approval of any subsequent assignment, sublease or mortgage, and Landlord's written approval shall be required in all such instances. No consent by Landlord to any assignment or sublease shall be deemed to release Tenant from its obligations hereunder and Tenant shall remain fully liable for performance of all obligations under this Lease. 8.2 Rights of Landlord. If this Lease is assigned, or if the Premises (or any part thereof) are sublet or used or occupied by anyone other than Tenant, whether or not in violation of this Lease, Landlord may (without prejudice to, or waiver of its rights), collect Rent from the assignee, subtenant or occupant. Landlord may apply the net amount collected to the Rent herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any of the provisions of this Section 8. With respect to the allocable portion of the Premises sublet, in the event that the total rent and any other considerations received under any sublease by Tenant is greater than the total Rent required to be paid, from time to time, under this Lease, Tenant shall pay to Landlord one hundred percent (100%) of such excess as received from any subtenant and such amount shall be deemed a component of the Additional Rent. 8.3 Permitted Transfers. The provisions of Section 8.1(a) shall apply to a transfer of a majority (i.e. greater than 50% interest) of the voting stock of Tenant or to any other change in voting control of Tenant (if Tenant is a corporation), or to a transfer of a majority of the general partnership or membership interests in Tenant (if Tenant is a partnership or a limited liability company) or to a change in the managerial control of Tenant, or to any comparable transaction involving any other form of business entity, whether effectuated in one or more transactions, as if such transfer were an assignment of this Lease; but said provisions shall not apply to such a transfer, provided, in any of such events, the successor to Tenant (or any party remaining liable for the obligations of Tenant hereunder): (i) has a net worth at least equal to the net worth of Tenant as of the Commencement Date or (ii) is capable of satisfying Tenant's obligations hereunder, in Landlord's reasonable judgment. Any such permitted transferee shall execute and deliver to Landlord any and all documentation reasonably required by Landlord in order to evidence assignee's assumption of all obligations of Tenant hereunder. Notwithstanding anything to the contrary contained in this Section 8.3, in no event may Tenant assign, mortgage, transfer, pledge or sublease this Lease to any entity whatsoever if, at the time of such assignment, mortgage, transfer, pledge or sublease, Tenant is in default under this Lease. 8.4 Landlord's Right of Recapture. Notwithstanding anything hereinabove set forth, any request by Tenant for Landlord's consent to an assignment of the lease or a sublease of any portion of the Premises shall clearly set forth the proposed terms of such proposed assignment or sublease and shall constitute Tenant's offer to cancel this Lease. Landlord may accept such offer by notice to Tenant within thirty (30) days after Landlord's receipt thereof, in which event, this Lease shall terminate as of the end of the month following the month in which such notice is sent (with the same effect as if such date were the date fixed herein for the natural expiration of the Term), Base Rent and Additional Rent shall be apportioned to such date, Tenant shall surrender the Premises on such date as herein provided, and subject to payment of required lease adjustments, the parties shall thereafter have no further liability one to the other. If Landlord fails to send such notice, Tenant, within twenty (20) days after the expiration of such thirty (30) day period, may assign this Lease or sublet the applicable portion of the Premises to the proposed assignee or subtenant and upon the terms specified in such request. The terms of this Section 8.4 shall be inapplicable to the transactions described in Section 8.3. 8.5 Option to Renew Personal. It is expressly understood and agreed that the Tenant's Option to Renew, as hereinafter set forth in Section 26, shall be personal to Tenant only, and may not be exercised by any permitted assignee or subtenant hereunder. It is understood and agreed that Tenant's Option to Renew shall be null and void in the event that fifty (50%) percent or more of the Premises have been sublet by the Tenant prior to the date set for the exercise by Tenant of the Option to Renew hereinafter set forth. 9. COMPLIANCE WITH LAWS. 9.1 Compliance with Laws. Tenant shall, at its sole expense (regardless of the cost thereof), comply with all local, state and federal laws, rules, regulations and requirements now or hereafter in force and all judicial and administrative decisions in connection with the enforcement thereof (collectively, "Laws"), pertaining to either or both of the Premises and Tenant's use and occupancy thereof. Notwithstanding the foregoing, Tenant shall not be responsible for making capital improvements to the Premises in order to comply with Laws, if the requirement that is imposed is one of general applicability to the Building, and not related to the Tenant's particular manner of use of the Premises. If any license or permit is required for the conduct of Tenant's business in the Premises, Tenant, at its expense, shall procure such license prior to the Commencement Date, and shall maintain such license or permit in good standing throughout the Term. Tenant shall give prompt notice to Landlord of any written notice it receives of the alleged violation of any law or requirement of any governmental or administrative authority with respect to either or both of the Premises and the use or occupation thereof. The judgment of any court of competent jurisdiction, or the admission of Tenant in any action or proceeding against Tenant, whether Landlord is a party thereto or not, that any such Law pertaining to the Premises has been violated, shall be conclusive of that fact as between Landlord and Tenant. 9.2 (a) Hazardous Materials. If, at any time or from time to time during the Term (or any extension thereof), any Hazardous Material (defined below) is generated, transported, stored, used, treated or disposed of at, to, from, on or in either or both of the Premises and the Property by, or as a result of any act or omission of, any or all of Tenant and any or all of Tenant's Parties (defined below): (i) Tenant shall, at its own cost, at all times comply (and cause all others to comply) with all laws (federal, state or local) relating to Hazardous Materials, including, but not limited to, all Environmental Laws (defined below), and Tenant shall further, at its own cost, obtain and maintain in full force and effect at all times all permits and other approvals required in connection therewith; (ii) Tenant shall promptly provide Landlord with complete copies of all communications, permits or agreements with, from or issued by any governmental authority or agency (federal, state or local) or any private entity relating in any way to the presence, release, threat of release, or placement of Hazardous Materials on or in the Premises or any portion of the Property, or the generation, transportation, storage, use, treatment, or disposal at, on, in or from the Premises, of any Hazardous Materials; (iii) Landlord and Landlord's agents and employees shall have the right to either or both (x) enter the Premises and (y) conduct appropriate tests for the purposes of ascertaining Tenant's compliance with all applicable laws (including Environmental Laws), rules or permits relating in any way to the generation, transport, storage, use, treatment, disposal or presence of Hazardous Materials on, at, in or from all or any portion of either or both of the Premises and the Property; and (iv) upon written request by Landlord, provided that Landlord has a reasonable basis to believe that Tenant is not in compliance with all applicable Laws, Tenant shall provide Landlord with the results of reasonably appropriate tests of air, water or soil to demonstrate that Tenant complies with all applicable laws, rules or permits relating in any way to the generation, transport, storage, use, treatment, disposal or presence of Hazardous Materials on, at, in or from all or any portion of either or both of the Premises and the Property. This Section 9.2 does not authorize the generation, transportation, storage, use, treatment or disposal of any Hazardous Materials at, to, from, on or in the Premises, without Landlord's prior written consent, which consent Landlord may withhold in its sole discretion. Tenant covenants to investigate, clean up and otherwise remediate, at Tenant's sole expense, any release of Hazardous Materials caused, contributed to, or created by any or all of (A) Tenant and (B) any or all of Tenant's officers, directors, members, managers, partners, invitees, agents, employees, contractors or representatives ("Tenant Parties") during the Term. Such investigation and remediation shall be performed only after Tenant has obtained Landlord's prior written consent; provided, however, that Tenant shall be entitled to respond immediately to an emergency without first obtaining such consent. All remediation shall be performed in strict compliance with Environmental Laws and to the reasonable satisfaction of Landlord. Tenant shall be liable for any and all conditions covered hereby, and for all costs relating thereto, that are caused or created by Tenant and any or all of Tenant's Parties. Tenant shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to any Hazardous Materials in any way connected to the Premises without first obtaining Landlord's written consent (which consent may be given or withheld in Landlord's sole, but reasonable, discretion) and affording Landlord the reasonable opportunity to participate in any such proceedings. As used herein, the term (x) "Environmental Laws" shall mean any and all laws pertaining to Hazardous Materials or that otherwise deal with, or relate to, air or water quality, air emissions, soil or ground conditions or other environmental matters of any kind; and (y) "Hazardous Materials" shall mean any waste, material or substance (whether in the form of liquids, solids or gases, and whether or not airborne) that is or may be deemed to be or include a pesticide, petroleum, asbestos, polychlorinated biphenyl, radioactive material, urea formaldehyde or any other pollutant or contaminant that is or may be deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or injurious, or that presents a risk to public health or to the environment, and that is or becomes regulated by any Environmental Law. The undertakings, covenants and obligations imposed on Tenant under this Section 9.2 shall survive the termination or expiration of this Lease. 9.2 (b) ISRA. Without limiting anything hereinabove contained in this Section 9.2, Tenant expressly covenants and agrees to fully comply with the provisions of the New Jersey Industrial Site Recovery Act (N.J.S.A. 13:1K-6, et seq.) hereinafter referred to as "ISRA", and all regulations promulgated thereto (or under its predecessor statute, the New Jersey Environmental Cleanup Responsibility Act) prior to the expiration or earlier termination of this Lease or at any time that any action of Tenant triggers the applicability of ISRA. In particular, Tenant agrees that it shall comply with the provisions of ISRA in the event of any "closing, terminating or transferring" of Tenant's operations, as defined by and in accordance with the regulations which have been promulgated pursuant to ISRA. In the event evidence of such compliance is not delivered to Landlord prior to surrender of the Premises by Tenant to Landlord, it is understood and agreed that the Tenant shall be liable to pay to the Landlord an amount equal to one and one-half times the annual Base Rent then in effect, prorated on a monthly basis, together with all applicable Additional Rent from the date of such surrender until such time as evidence of compliance with ISRA has been delivered to Landlord, and together with any costs and expenses incurred by Landlord in enforcing Tenant's obligations under this Section 9.2(b). Evidence of compliance, as used herein, shall mean a "letter of non-applicability" issued by the New Jersey Department of Environmental Protection, hereinafter referred to as "NJDEP", or an approved "no further action letter" or a "remediation action workplan" which has been fully implemented and approved by NJDEP. Evidence of compliance shall be delivered to Landlord, together with copies of all submissions made to, and received from, the NJDEP, including all environmental reports, test results and other supporting documentation. In addition to the above, Tenant hereby agrees that it shall cooperate with Landlord in the event of the termination or expiration of any other lease affecting the Property, or a transfer of any portion of the Property, or any interest therein, which triggers the provisions of ISRA. In such case, Tenant agrees that it shall fully cooperate with Landlord in connection with any information or documentation which may be requested by the NJDEP. In the event that any remediation of the Property is required in connection with the conduct by Tenant of its business in the Premises, Tenant expressly covenants and agrees that it shall be responsible for that portion of said remediation which is attributable to the Tenant's use and occupancy thereof. Tenant hereby represents and warrants that its Standard Industrial Classification No. is 12408, and that Tenant shall not generate, manufacture, refine, transport, treat, store, handle or dispose of Hazardous Materials, as above defined. Tenant hereby agrees that it shall promptly inform Landlord of any change in its SIC number or the nature of the business to be conducted in the Premises. The within covenants shall survive the expiration or earlier termination of the Term. 10. INSURANCE. 10.1 Insurance to be Maintained by Landlord. Landlord shall maintain (a) "all-risk" property insurance policy covering the Property (at its full replacement cost), but excluding Tenant's Property (defined below), and (b) commercial general public liability insurance covering Landlord for claims arising out of liability for bodily injury, death, personal injury, advertising injury and property damage occurring in and about the Property and otherwise resulting from any acts and operations of Landlord, its agents and employees, and (c) rent loss insurance, all of the above with limits that are required by any lender(s) of Landlord, or as are otherwise reasonably determined by Landlord. 10.2 Insurance to be Maintained by Tenant. Tenant shall purchase, at its own expense, and keep in force at all times during this Lease the policies of insurance set forth below in Sections 10.2.1 and 10.2.2 (collectively, "Tenant's Policies"). All Tenant's Policies shall (a) be issued by an insurance company with a Best rating of A-X or better and otherwise reasonably acceptable to Landlord and shall be licensed to do business in the state of New Jersey; (b) provide that said insurance shall not be canceled or materially modified unless 30 days' prior written notice shall have been given to Landlord; and (c) otherwise be in such form, and include such coverages, as Landlord may reasonably require. All Tenant's Policies (or, at Landlord's option, Certificates of Insurance, in a form reasonably acceptable to Landlord, evidencing said Tenant's Policies), shall be delivered to Landlord by Tenant upon commencement of the Lease and renewals thereof shall be delivered at least 30 days prior to the expiration of each Tenant's Policy. 10.2.1 General Liability Insurance. Tenant shall purchase and maintain, throughout the Term, a Tenant's Policy(ies) of (i) commercial general liability insurance, including personal injury and property damage, in the amount of not less than $2,000,000.00 per occurrence, and $5,000,000.00 annual general aggregate, per location. The Tenant's Policies required by this Section 10.2.1 shall (a) name Landlord and any party holding an interest to which this Lease may be subordinated as additional insureds; (b) provide coverage on an occurrence basis; (c) provide coverage for the indemnity obligations of Tenant under this Lease; (d) contain a severability of insured parties provision and/or a cross liability endorsement; (e) be primary, not contributing with, and not in excess of, coverage that Landlord may carry; and (f) provide coverage with no exclusion for a pollution incident arising from a hostile fire. 10.2.2 Property and Workers' Compensation Insurance. Tenant shall purchase and maintain, throughout the Term, a Tenant's Policy or Policies of (i) "all-risk" property insurance covering Tenant's Property (at its full replacement cost), and damage to other property resulting from any acts or operations of Tenant, and (ii) workers' compensation insurance per the applicable state statutes covering all employees of Tenant. 10.3 Waiver of Subrogation. To the extent permitted by law, and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and Tenant each waive any right to recover against the other for (a) damages to property, (b) damages to all or any portion of either or both of the Premises and the Property, (c) claims arising by reason of the foregoing, to the extent such damages and claims are insured against, or required to be insured against, by Landlord or Tenant under this Lease, or (d) claims paid by Tenant's workers' compensation carrier. This provision is intended to waive, fully and for the benefit of each party, any rights and/or claims which might give rise to a right of subrogation by any insurance carrier. The coverage obtained by each party pursuant to this Lease shall include, without limitation, a waiver of subrogation by the carrier which conforms to the provisions of this section. 11. ALTERATIONS. Procedural Requirements. Tenant may, from time to time, at its expense, make alterations or improvements in and to the Premises (hereinafter collectively referred to as "Alterations"), provided that Tenant first obtains the written consent of Landlord in each instance. Landlord's consent to Alterations shall not be unreasonably withheld, provided that: (a) the Alterations are non-structural and the structural integrity of the Premises and Property shall not be affected; (b) the Alterations are to the interior of the Premises; (c) the proper functioning of the mechanical, electrical, heating, ventilating, air-conditioning (HVAC), sanitary and other service systems of the Premises and Property shall not be affected and the usage of or demand made upon such systems by Tenant shall not be increased; (d) the Alterations have no adverse effect on other leased premises in the Property; (e) Tenant shall have appropriate insurance coverage, reasonably satisfactory to Landlord, regarding the performance and installation of the Alterations; (f) the Alterations shall conform with all other requirements of this Lease; (g) Tenant shall have provided Landlord with reasonably detailed plans and specifications for such Alterations in advance of requesting Landlord's consent; and (h) Landlord shall have the right to require Tenant to remove such Alterations on or before the Expiration Date, and to restore the Premises, at Tenant's sole cost and expense. Landlord shall make such election at the time it gives its consent to such Alterations or Improvements to Tenant. Additionally, before proceeding with any Alterations, Tenant shall (i) at Tenant's expense, obtain all necessary governmental permits and certificates for the commencement and prosecution of Alterations; (ii) submit to Landlord, for Landlord's written approval, working drawings, plans and specifications and all permits for the work to be done and Tenant shall not proceed with such Alterations until it has received said approval; and (iii) cause those contractors, materialmen and suppliers engaged to perform the Alterations to deliver to Landlord certificates of insurance (in a form reasonably acceptable to Landlord) evidencing policies of commercial general liability insurance (providing the same coverages as required in Section 10.2(i) above) and workers' compensation insurance. Such insurance policies shall satisfy the obligations imposed under Section 10.2. After obtaining Landlord's approval to the Alterations, Tenant shall give Landlord at least five days' prior written notice of the commencement of any Alterations at the Premises, and Landlord may elect to record and post notices of non-responsibility at the Premises. 11.1 Performance of Alterations. Tenant shall cause the Alterations to be performed in compliance with all applicable permits, laws and requirements of public authorities, and with Landlord's reasonable rules and regulations or any other restrictions that Landlord may impose on the Alterations. Tenant shall cause the Alterations to be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to the standards for the Property established by Landlord. Tenant shall obtain all necessary permits and certificates for final governmental approval of the Alterations and shall provide Landlord with as built plans, copies of all construction contracts, governmental permits, approvals and certificates of occupancy and proof of payment for all labor and materials, including, without limitation, copies of paid invoices and final lien waivers. Anything herein contained to the contrary notwithstanding, it is expressly understood and agreed that Landlord reserves the right to perform any such Alterations, at Tenant's sole cost and expense. 11.2 Lien Prohibition. Tenant shall pay when due all claims for labor and material furnished to the Premises in connection with the Alterations. Tenant shall not permit any construction lien to attach to the Premises or the Property. Tenant, at its expense, shall procure the satisfaction or discharge of record of all such liens and encumbrances within (30) days after the filing thereof; or, within such thirty (30) day period, Tenant shall provide Landlord, at Tenant's sole expense, with endorsements (satisfactory, both in form and substance, to Landlord and the holder of any mortgage or deed of trust) to the existing title insurance policies of Landlord and the holder of any mortgage or deed of trust, insuring against the existence of, and any attempted enforcement of, such lien. In the event Tenant has not so performed, Landlord may, at its option, pay and discharge such liens and Tenant shall be responsible to reimburse Landlord, on demand and as Additional Rent under this Lease, for all costs and expenses incurred in connection therewith, together with interest thereon at the rate set forth in Section 22.3, which expenses shall include reasonable fees of attorneys of Landlord's choosing, and any costs in posting bond to effect discharge or release of the lien as an encumbrance against the Premises or the Property. 12. LANDLORD'S AND TENANT'S PROPERTY. 12.1 Landlord's Property. Subject to Section 12.2, all fixtures, machinery, equipment, improvements and appurtenances attached to, or built into, the Premises at the commencement of, or during the Term, whether or not placed there by or at the expense of Tenant, shall become and remain a part of the Premises; shall at Landlord's option, be deemed the property of Landlord (the "Landlord's Property"), without compensation or credit to Tenant; and shall not be removed by Tenant at the Expiration Date unless Landlord requests their removal. Further, any personal property in the Premises on the Commencement Date, movable or otherwise, unless installed and paid for by Tenant, shall be and shall remain the property of Landlord and shall not be removed by Tenant. In no event shall Tenant remove any of the following materials or equipment without Landlord's prior written consent (which consent may be given or withheld in Landlord's sole discretion): any power wiring or power panels, lighting or lighting fixtures, wall or window coverings, carpets or other floor coverings, heaters, air conditioners or any other HVAC equipment, fencing or security gates, or other similar building operating equipment and decorations. 12.2 Tenant's Property. All movable non-structural partitions, business and trade fixtures, machinery and equipment, communications equipment and office equipment that are installed in the Premises by, or for the account of, Tenant and without expense to Landlord and that can be removed without structural damage to the Premises or to the Property, and all furniture, furnishings and other articles of movable personal property owned by Tenant and located in the Premises (collectively, the "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term, provided Tenant repairs or pays the cost of repairing any damage to the Premises or to the Property resulting from the installation and/or removal thereof. At or before the Expiration Date, or the date of any earlier termination, Tenant, at its expense, shall remove from the Premises all of Tenant's Property and any Alterations (except such items thereof as constitute Landlord's Property; or as Landlord shall have expressly permitted, in writing, to remain, which property shall become the property of Landlord), and Tenant shall repair (to Landlord's reasonable satisfaction) any damage to the Premises or the Property resulting from any installation and/or removal of Tenant's Property. Any other items of Tenant's Property that shall remain in the Premises after the Expiration Date, or following an earlier termination date, may, at the option of Landlord, be deemed to have been abandoned, and in such case, such items may be retained by Landlord as its property or be disposed of by Landlord, in Landlord's sole and absolute discretion and without accountability, at Tenant's expense, together with an additional twenty one (21%) percent of such costs for Landlord's overhead and profit. Notwithstanding the foregoing, if Tenant is in default under the terms of this Lease, Tenant may remove Tenant's Property from the Premises only upon the express written direction of Landlord. 13. REPAIRS AND MAINTENANCE. 13.1 Tenant Repairs and Maintenance. Tenant shall, at its expense, throughout the Term, (i) maintain and preserve, in first-class condition (subject to normal and customary wear and tear), the Premises and the fixtures and appurtenances therein (including, but not limited to, the Premises' plumbing and HVAC systems, all doors, overhead or otherwise, glass and levelers located in the Premises or otherwise available in the Property for Tenant's sole use; and excluding, however, those components of the Premises for which Landlord is expressly responsible under Section 13.2); and (ii) except to the extent Landlord elects to repair and maintain the HVAC systems as part of General Maintenance Services (as hereinafter defined), maintain, in full force and effect, a preventative maintenance and service contract with a reputable service provider for maintenance of the HVAC systems of the Premises (a copy of which service agreement shall be provided to Landlord within fifteen (15) days after the Commencement Date), (which contract shall provide for a minimum of four (4) inspections per year). Tenant shall also be responsible for all cost and expenses incurred to perform any and all repairs and replacements (whether structural or non-structural; interior or exterior; and ordinary or extraordinary), in and to the Premises and the Property and the facilities and systems thereof, if and to the extent that the need for such repairs or replacements arises directly or indirectly from any or all of: (a) the performance or existence of any Alterations, (b) the installation, use or operation of Tenant's Property in the Premises, (c) the moving of Tenant's Property in or out of the Property, and (d) any act, omission, misuse, or neglect of Tenant, any of its subtenants, or others entering into the Premises by act or omission of Tenant or any subtenant. Any repairs or replacements required to be made by Tenant to any or all of the structural components of the Property and the mechanical, electrical, sanitary, HVAC, or other systems of the Property or Premises shall be performed by appropriately licensed contractors approved by Landlord, which approval shall not be unreasonably withheld. All such repairs or replacements shall be subject to the supervision and control of Landlord, and all repairs and replacements shall be made with materials of equal or better quality than the items being repaired or replaced. Notwithstanding any of the foregoing, however, from time to time during the Term, Landlord may elect, in its sole discretion and by delivery of written notice to Tenant, to perform on behalf of Tenant, all or some portion of the repairs, maintenance, restoration and replacement in and to the Premises required to be performed by Tenant under this Lease (any such repairs, maintenance, restoration and/or replacement activities that Landlord elects to perform on behalf of Tenant are herein collectively referred to as "General Maintenance Services"). Tenant shall reimburse Landlord for the cost or value of all General Maintenance Services provided by Landlord as Additional Rent simultaneously with the payment of Operating Expenses as part of Estimated Additional Rent (on a monthly estimated basis subject to annual reconciliation as described in Section 3.3). Unless and until Landlord affirmatively elects to provide General Maintenance Services, nothing contained herein shall be construed to obligate Landlord to perform any General Maintenance Services or, except as otherwise expressly provided in Section 13.2, to repair, maintain, restore or replace any portion of the Premises. Landlord may from time to time, in its sole discretion, (x) reduce or expand the scope of the General Maintenance Services that Landlord has elected to provide or (y) revoke its election to provide any or all of the General Maintenance Services, in either event, upon delivery of not less than thirty (30) days' prior written notice to Tenant. If Landlord does not elect to repair, maintain and/or replace the HVAC systems as part of General Maintenance Services, or revokes such election at any time after having made such election, Tenant shall enter into a preventative maintenance and service contract, (which contract shall provide for a minimum of four (4) inspections per year) with a reputable service provider for maintenance of the HVAC systems of the Premises, a copy of which agreement shall be provided to Landlord. 13.2 Landlord Repairs. Notwithstanding anything contrary herein, Landlord shall repair, replace and restore the foundation, exterior and interior load-bearing walls, roof structure and roof covering and tuckpointing of the Property; provided, however, that (i) all costs and expenses so incurred by Landlord to repair, replace and restore the above items shall constitute Operating Expenses; and (ii) notwithstanding (i) above, in the event that any such repair, replacement or restoration is necessitated by any or all of the matters set forth in Sections 13.1(a) through (d) above (collectively, "Tenant Necessitated Repairs"), then Tenant shall be required to reimburse Landlord for all costs and expenses that Landlord incurs in order to perform such Tenant Necessitated Repairs, and such reimbursement shall be paid, in full, within 10 days after Landlord's delivery of demand therefor. Landlord agrees to commence the repairs, replacements or restoration described in this Section 13.2 within a reasonable period of time after receiving from Tenant written notice of the need for such repairs. 14. UTILITIES. Tenant shall purchase all utility services from the utility or municipality providing such service; shall provide for scavenger, cleaning and extermination services; and shall pay for such services when payments are due. Tenant shall be solely responsible for the repair and maintenance of any meters necessary in connection with such services. Tenant's use of electrical energy in the Premises shall not, at any time, exceed the capacity of either or both of (i) any of the electrical conductors and equipment in or otherwise servicing the Premises; and (ii) the HVAC systems of either or both of the Premises and the Property. Notwithstanding the above, Landlord reserves the right to provide all of the foregoing services to Tenant, and to charge Tenant for the cost of same. 15. INVOLUNTARY CESSATION OF SERVICES. Landlord reserves the right, without any liability to Tenant and without affecting Tenant's covenants and obligations hereunder, to stop service of any or all of the HVAC, electric, sanitary, elevator (if any), and other systems serving the Premises, or to stop any other services required by Landlord under this Lease, whenever and for so long as may be necessary by reason of (i) accidents, emergencies, strikes, or the making of repairs or changes which Landlord, in good faith, deems necessary or (ii) any other cause beyond Landlord's reasonable control. Further, it is also understood and agreed that Landlord shall have no liability or responsibility for a cessation of services to the Premises or to the Property that occurs as a result of causes beyond Landlord's reasonable control. No such interruption of service shall be deemed an eviction or disturbance of Tenant's use and possession of the Premises or any part thereof, or render Landlord liable to Tenant for damages, or relieve Tenant from performance of Tenant's obligations under this Lease, including, but not limited to, the obligation to pay Rent. 16. LANDLORD'S RIGHTS. Landlord and its respective agents, employees and representatives shall have the right to enter and/or pass through the Premises at any time or times upon reasonable prior oral notice (except in the event of emergency): (a) to examine and inspect the Premises and to show them to actual and prospective lenders, prospective purchasers or mortgagees of the Property or providers of capital to Landlord and its affiliates; and (b) to make such repairs, alterations, additions and improvements in or to all or any portion of either or both of the Premises and the Property, or the Property's facilities and equipment as Landlord is required or desires to make. Landlord shall be allowed to take all materials into and upon the Premises that may be required in connection with any repairs, alterations, additions or improvements, without any liability to Tenant and without any reduction or modification of Tenant's covenants and obligations hereunder; provided, however, that Landlord shall use reasonable efforts to limit interference with Tenant's business operations and Tenant's occupancy and use of the Premises. During the period of twelve (12) months prior to the Expiration Date (or at any time, if Tenant has vacated or abandoned the Premises or is otherwise in default under this Lease), Landlord and its agents may exhibit the Premises to prospective tenants. Additionally, Landlord shall have the following rights with respect to the Premises, exercisable without notice to Tenant, without liability to Tenant, and without being deemed an eviction or disturbance of Tenant's use or possession of the Premises or giving rise to any claim for setoff or abatement of Rent: (i) to designate and approve, prior to installation, all types of signs; (ii) to have pass keys, access cards, or both, to the Premises; and (iii) to decorate, remodel, repair, alter or otherwise prepare the Premises for reoccupancy during the last ninety (90) days of the Term, if, during or prior to that time, Tenant vacates the Premises. 17. NON-LIABILITY AND INDEMNIFICATION. 17.1 Non-Liability. Except as provided in Section 17.2.2, none of Landlord, any managing agent, or their respective affiliates, owners, partners, directors, officers, agents and employees shall be liable to Tenant for any loss, injury, or damage, to Tenant or to any other person, or to its or their property, irrespective of the cause of such injury, damage or loss. Further, except as provided in Section 17.2.2, none of Landlord, any managing agent, or their respective affiliates, owners, partners, directors, officers, agents and employees shall be liable to Tenant (a) for any damage caused by other tenants or persons in, upon or about the Property, or caused by operations in construction of any public or quasi-public work; (b) with respect to matters for which Landlord is liable, for consequential or indirect damages; (c) any latent defect in the Premises or the Property; (d) injury or damage to person or property caused by fire, or theft, or resulting from the operation of heating or air conditioning or lighting apparatus, or from falling plaster, or from steam, gas, electricity, water, rain, snow, ice, or dampness, that may leak or flow from any part of the Property, or from the pipes, appliances or plumbing work of the same. 17.2 Indemnification. 17.2.1 Tenant Indemnification. Tenant hereby indemnifies, defends, and holds Landlord and Landlord's affiliates, owners, partners, directors, officers, agents and employees (collectively, "Landlord Indemnified Parties") harmless from and against any and all Losses (defined below) arising from or in connection with any or all of: (a) the conduct or management of either or both the Property and the Premises or any business therein, or any work or Alterations done, or any condition created by any or all of Tenant and Tenant's Parties in or about the Premises during the Term or during the period of time, if any, prior to the Commencement Date that Tenant is given access to the Premises; (b) any act, omission or negligence of any or all of Tenant and Tenant's Parties; (c) any accident, injury or damage whatsoever (unless caused by Landlord's negligence) occurring in, at or upon either or both of the Property and the Premises and caused by any or all of Tenant and Tenant's Parties; (d) any breach by Tenant of any of its warranties and representations under this Lease; (e) any actions necessary to protect Landlord's interest under this Lease in a bankruptcy proceeding or other proceeding under the Bankruptcy Code; (f) any violation or alleged violation by any or all of Tenant and Tenant's Parties of any Law including, without limitation, any Environmental Law; (g) any breach of the provisions of Section 9 by any or all of Tenant and Tenant's Parties; (h) claims for work or labor performed or materials supplies furnished to or at the request of any or all of Tenant and Tenant's Parties; (i) claims arising from any breach or default on the part of Tenant in the performance of any covenant contained in this Lease; (j) any Hazardous Materials used, exposed, emitted, released, discharged, generated, manufactured, sold, transported, handled, stored, treated, reused, presented, disposed of or recycled in, at, near or under all or any portion of the Premises as a result of the acts or omissions of any or all of Tenant and Tenant's Parties; and (k) the violation of any Environmental Law or any permit, application or consent required in connection with any Environmental Law by any or all of Tenant and Tenant's Parties with respect to the Premises during the Term, excluding, however, any violation of any Environmental Law resulting directly from the acts or omissions of Landlord and Landlord's employees, agents and contractors (collectively, "Tenant's Indemnified Matters"). In case any action or proceeding is brought against any or all of Landlord and the Landlord Indemnified Parties by reason of any of Tenant's Indemnified Matters, Tenant, upon notice from any or all of Landlord or any Superior Party (defined below), shall resist and defend such action or proceeding by counsel reasonably satisfactory to, or selected by, Landlord. The term "Losses" shall mean all claims, demands, expenses, actions, judgments, damages (actual, but not consequential), penalties, fines, liabilities, losses of every kind and nature (including, without limitation, property damage, diminution in value of Landlord's interest in the Premises or the Property, damages for the loss or restriction on use of any space or amenity within the Premises or the Property, damages arising from any adverse impact on marketing space in the Property, sums paid in settlement of claims and any costs and expenses associated with injury, illness or death to or of any person), suits, administrative proceedings, costs and fees, including, without limitation, attorneys' and consultants' reasonable fees and expenses, and the costs of cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity. The provisions of this Section 17.2.1 shall survive the expiration or termination of this Lease. 17.2.2 Landlord Indemnification. Landlord hereby indemnifies, defends and holds Tenant harmless from and against any and all Losses actually suffered or incurred by Tenant as the sole and direct result of any negligent, willful or intentional acts or omissions of any or all of Landlord and any parties within the direct and sole control of Landlord. In the event that any action or proceeding is brought against Tenant, and the foregoing indemnity is applicable to such action or proceeding, then Landlord, upon notice from Tenant, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Tenant. Notwithstanding anything to the contrary set forth in this Lease, however, in all events and under all circumstances, the liability of Landlord to Tenant shall be limited to the interest of Landlord in the Property, and Tenant agrees to look solely to Landlord's interest in the Property for the recovery of any judgment or award against Landlord, it being intended that Landlord shall not be personally liable for any judgment or deficiency. The provisions of this Section 17.2.2 shall survive the expiration or termination of this Lease. 17.3 Force Majeure. The obligations of Tenant hereunder shall not be affected, impaired or excused, and Landlord shall have no liability whatsoever to Tenant, with respect to any act, event or circumstance arising out of (a) Landlord's failure to fulfill, or delay in fulfilling any of its obligations under this Lease by reason of labor dispute, governmental preemption of property in connection with a public emergency or shortages of fuel, supplies, or labor, or any other cause, whether similar or dissimilar, beyond Landlord's reasonable control; or (b) any failure or defect in the supply, quantity or character of utilities furnished to the Premises, or by reason of any requirement, act or omission of any public utility or others serving the Property, beyond Landlord's reasonable control. 18. DAMAGE OR DESTRUCTION. 18.1 Notification and Repair. Tenant shall give prompt notice to Landlord of (a) any fire or other casualty to the Premises or the Property, and (b) any damage to, any part or appurtenance of the Property's sanitary, electrical, HVAC, elevator or other systems located in or passing through the Premises or any part thereof. Subject to the provisions of Section 18.3 below, if either or both of the Property and the Premises is damaged by fire or other insured casualty, Landlord shall repair the damage and restore and rebuild the Property and/or the Premises (except for Tenant's Property) with reasonable dispatch after (x) notice to it of the damage or destruction and (y) the adjustment of the insurance proceeds attributable to such damage. Subject to the provisions of Section 18.3 below, Tenant shall not be entitled to terminate this Lease and no damages, compensation or claim shall be payable by Landlord for purported inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Premises or of the Property pursuant to this Section. Landlord shall use its diligent, good faith efforts to make such repair or restoration promptly and in such manner as not to unreasonably interfere with Tenant's use and occupancy of the Premises, but Landlord shall not be required to do such repair or restoration work except during normal business hours of business days. 18.2 Rental Abatement. If (a) the Property is damaged by fire or other casualty thereby causing the Premises to be inaccessible or (b) the Premises are partially damaged by fire or other casualty, the Rent shall be proportionally abated to the extent of any actual loss of use of the Premises by Tenant. 18.2.1 Total Destruction. If the Property or the Premises shall be totally destroyed by fire or other casualty, or if the Property shall be so damaged by fire or other casualty that (in the reasonable opinion of a reputable contractor or architect designated by Landlord, to be provided to Tenant within thirty (30) days following such fire or casualty) its repair or restoration requires more than 120 days, Landlord and Tenant shall each have the option to terminate this Lease (by so advising the other, in writing) within 10 days after said contractor or architect delivers written notice of its opinion to Landlord and Tenant, but in all events prior to the commencement of any restoration of the Premises or the Property by Landlord. In such event, the termination shall be effective as of the date upon which either Landlord or Tenant, as the case may be, receives timely written notice from the other terminating this Lease pursuant to the preceding sentence. If neither Landlord nor Tenant timely delivers a termination notice, this Lease shall remain in full force and effect. Notwithstanding the foregoing, if (A) any holder of a mortgage or deed of trust encumbering the Property or landlord pursuant to a ground lease encumbering the Property (collectively, "Superior Parties") or other party entitled to the insurance proceeds fails to make such proceeds available to Landlord in an amount sufficient for restoration of the Premises or the Property, or (B) the issuer of any casualty insurance policies on the Property fails to make available to Landlord sufficient proceeds for restoration of the Premises or the Property, then Landlord may, at Landlord's sole option, terminate this Lease by giving Tenant written notice to such effect within 30 days after Landlord receives notice from the Superior Party or insurance company, as the case may be, that such proceeds shall not be made available, in which event the termination of this Lease shall be effective as of the date Tenant receives written notice from Landlord of Landlord's election to terminate this Lease. Landlord shall have no liability to Tenant, and Tenant shall not be entitled to terminate this Lease by virtue of any delays in completion of repairs and restoration. Insurance Proceeds. Landlord shall not be obligated to expend in repairs and restoration an amount in excess of the proceeds of insurance recovered with respect to any casualty. Tenant acknowledges that Landlord shall be entitled to the full proceeds of any insurance coverage, whether carried by Landlord or Tenant, for damage to either or both of the Premises and the Property (excluding any proceeds for damage to Tenant's Property). In the event that either or both of the Premises and the Property are not repaired or reconstructed, all proceeds of insurance (excluding any proceeds covering Tenant's Property), whether carried by Landlord or Tenant, shall be payable to Landlord. Landlord's duty to repair the Premises and the Property (excluding Tenant's Property) is limited to repairing the Premises to the condition existing immediately prior to such fire or other casualty. 19. EMINENT DOMAIN. If the whole, or any substantial (as reasonably determined by Landlord) portion, of the Property is taken or condemned for any public use under any Law or by right of eminent domain, or by private purchase in lieu thereof, and such taking would prevent or materially interfere with the Permitted Use of the Premises, this Lease shall terminate effective when the physical taking of said Premises occurs. If less than a substantial portion of the Property is so taken or condemned, or if the taking or condemnation is temporary (regardless of the portion of the Property affected), this Lease shall not terminate, but the Rent payable hereunder shall be proportionally abated to the extent of any actual loss of use of the Premises by Tenant. Landlord shall be entitled to any and all payment, income, rent or award, or any interest therein whatsoever, which may be paid or made in connection with such a taking or conveyance, and Tenant shall have no claim against Landlord or the condemning authority for the value of any unexpired portion of this Lease. Notwithstanding the foregoing, any compensation specifically and independently awarded to Tenant for loss of business or goodwill, or for its personal property, or for relocation expenses shall be the property of Tenant. 20. SURRENDER AND HOLDOVER. On the last day of the Term, or upon any earlier termination of this Lease, or upon any re-entry by Landlord upon the Premises, (a) Tenant shall quit and surrender the Premises to Landlord "broom-clean" and in good order, condition and repair, except for ordinary wear and tear and such damage or destruction as Landlord is required to repair or restore under this Lease, (b) Tenant shall remove all of Tenant's Property therefrom, except as otherwise expressly provided in this Lease, and (c) Tenant shall surrender to Landlord any and all keys, access cards, computer codes or any other items used to access the Premises. Landlord shall be permitted to inspect the Premises in order to verify compliance with this Section 20 at any time prior to (x) the Expiration Date, (y) the effective date of any earlier termination of this Lease, or (z) the surrender date otherwise agreed to in writing by Landlord and Tenant. Landlord and Tenant hereby agree that they shall conduct a walk through inspection of the Premises at least ninety (90) days prior to the expiration date, at which time Landlord shall determine (subject to the provisions of Section 11) which alterations and improvements will need to be removed by the Landlord at Tenant's sole cost and expense, and which shall remain. The obligations imposed under the first sentence of this Section 20 shall survive the termination or expiration of this Lease. If any repairs are required to be performed in, to or at the Premises (pursuant to the first sentence of this Section 20 or any other applicable provision of this Lease) upon the expiration or termination of the Term, Tenant shall cause such repairs to be performed, to Landlord's reasonable satisfaction, by no later than the date on which this Lease is terminated or expired. If Tenant fails to timely comply with the preceding sentence, then Landlord shall have the right to cause the repairs to be performed, at Tenant's expense, and all such expenses so incurred by Landlord shall bear interest (at the rate specified in the second sentence of Section 22.3) from the date the expense is incurred until the date paid, in full, by Tenant (inclusive of interest). If Tenant remains in possession after the Expiration Date hereof or after any earlier termination date of this Lease or of Tenant's right to possession: (i) Tenant shall be deemed a tenant-at-will; (ii) Tenant shall pay 150% of the aggregate of the Base Rent and Additional Rent last prevailing hereunder, and also shall pay all actual damages sustained by Landlord, directly by reason of Tenant's remaining in possession after the expiration or termination of this Lease; (iii) there shall be no renewal or extension of this Lease by operation of law; and (iv) the tenancy-at-will may be terminated by either party hereto upon 30 days' prior written notice given by the terminating party to the non-terminating party. The provisions of this Section 20 shall not constitute a waiver by Landlord of any re-entry rights of Landlord provided hereunder or by law. 21. EVENTS OF DEFAULT. 21.1 Bankruptcy of Tenant It shall be a default by Tenant under this Lease if Tenant makes an assignment for the benefit of creditors, or files a voluntary petition under any state or federal bankruptcy or insolvency law, or an involuntary petition alleging an act of bankruptcy or insolvency is filed against Tenant under any state or federal bankruptcy or insolvency law that is not dismissed within 90 days, or whenever a petition is filed by or against (to the extent not dismissed within 90 days) Tenant under the reorganization provisions of the United States Bankruptcy Code or under the provisions of any state or federal law of like import, or whenever a petition shall be filed by Tenant under the arrangement provisions of the United States Bankruptcy Code or similar state or federal law, or whenever a receiver of Tenant, or of, or for, the property of Tenant shall be appointed, or Tenant admits it is insolvent or is not able to pay its debts as they mature. 21.2 Default Provisions. Each of the following shall constitute a default by Tenant under this Lease: (a) if Tenant fails to pay Rent or any other payment within five (5) days of the date on which said payment is due; or (b) if Tenant fails, whether by action or inaction, to timely comply with, or satisfy, any or all of the obligations imposed on Tenant under this Lease (other than the obligation to pay Rent) for a period of 30 days after Landlord's delivery to Tenant of written notice of such default under this Section 21.2(b); provided, however, that if the default cannot, by its nature, be cured within such 30 day period, but Tenant commences and diligently pursues a cure of such default promptly within the initial 30 day cure period, then Landlord shall not exercise its remedies under Section 22 unless such default remains uncured for more than 90 days after the initial delivery of Landlord's original default notice. 22. RIGHTS AND REMEDIES. 22.1 Landlord's Cure Rights Upon Default of Tenant. If Tenant defaults in the performance of any of its obligations under this Lease, and fails to cure such default on a timely basis (pursuant to Section 21.2), Landlord, without thereby waiving such default, may (but shall not be obligated to) perform the same for the account, and at the expense of, Tenant. 22.2 Landlord's Remedies. In case of any such default under Section 21.2, at any time following the expiration of the respective grace periods above mentioned, Landlord may serve a notice upon Tenant electing to terminate this Lease upon a specified date not less than seven (7) days after the date of serving such notice and this Lease shall then expire on the date so specified as if that date had been originally fixed as the expiration date of the Term herein granted; however, a default under Section 21.2, hereof shall be deemed waived if such default is made good before the date specified for termination in the notice of termination served on Tenant. All Base Rent and Additional Rent payable by Tenant following Tenant's receipt of a notice of monetary default shall be made by way of certified or bank cashier's check. In case this Lease shall be terminated as hereinbefore provided, or by summary proceedings or otherwise, Landlord or its agents may, immediately or any time thereafter, re-enter and resume possession of the Premises or such part thereof, and remove all persons and property therefrom, either by summary proceedings or by a suitable action or proceeding at law, without being liable for any damages therefor. No re-entry by Landlord shall be deemed an acceptance of a surrender of this Lease. In case this Lease shall be terminated as hereinabove provided, or by summary proceedings or otherwise, Landlord may, in its own name and in its own behalf, relet the whole or any portion of the Premises, for any period equal to or greater or less than the remainder of the then current Term, for any sum which it may deem reasonable, to any tenant which it may deem suitable and satisfactory, and for any use and purpose which it may deem appropriate, and in connection with any such lease Landlord may make such changes in the character of the improvements on the Premises as Landlord may determine to be appropriate or helpful in effecting such lease and may grant concessions or free rent. Landlord agrees that it shall use commercially reasonable efforts to relet the Premises, so as to mitigate the damages otherwise payable by Tenant hereunder. Landlord shall not in any event be required to pay Tenant any surplus of any sums received by Landlord on a reletting of the Premises in excess of the rent reserved in this Lease. Landlord shall be entitled to recover from Tenant the sum equal to all expenses, including reasonable counsel fees, incurred by Landlord in recovering possession of the Premises, the costs of reletting the Premises, and the costs and charges for the care of Premises while vacant, which damages shall be due and payable by Tenant to Landlord at such time or times as such expenses shall have been incurred by Landlord. 22.3 Additional Rights of Landlord. Any and all costs, expenses and disbursements, of any kind or nature, incurred by Landlord in connection with the enforcement of any and all of the terms and provisions of this Lease, including attorneys' reasonable fees (through all appellate proceedings), shall be due and payable (as Additional Rent) upon Landlord's submission of an invoice therefor. All sums advanced by Landlord on account of Tenant under this Section, or pursuant to any other provision of this Lease, and all Base Rent and Additional Rent, if not paid by Tenant and received by Landlord within thirty (30) days of the date when due hereunder, shall bear interest at the rate of one and one half (1 1/2%) percent per month (the "Default Rate") from the date such payment is due until the date of payment thereof, and such interest shall be and constitute Additional Rent and be due and payable upon Landlord's or Agent's submission of an invoice therefor. The various rights, remedies and elections of Landlord reserved, expressed or contained herein are cumulative and no one of them shall be deemed to be exclusive of the others or of such other rights, remedies, options or elections as are now or may hereafter be conferred upon Landlord by law. 22.4 Event of Bankruptcy. In addition to, and in no way limiting the other remedies set forth herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a voluntary or involuntary bankruptcy, reorganization, composition, or other similar type proceeding under the federal bankruptcy laws, as now enacted or hereinafter amended, then: (a) "adequate assurance of future performance" by Tenant and/or any assignee of Tenant pursuant to Bankruptcy Code Section 365 will include (but not be limited to) payment of an additional/new security deposit in the amount of three times the then current Base Rent payable hereunder; (b) any person or entity to which this Lease is assigned, pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to have assumed all of the obligations of Tenant arising under this Lease on and after the effective date of such assignment, and any such assignee shall, upon demand by Landlord, execute and deliver to Landlord an instrument confirming such assumption of liability; (c) notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as "Rent", shall constitute "rent" for the purposes of Section 502(b)(6) of the Bankruptcy Code; and (d) if this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations payable or otherwise to be delivered to Landlord (including Base Rent, Additional Rent and other amounts hereunder), shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the bankruptcy estate of Tenant. Any and all monies or other considerations constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust by Tenant or Tenant's bankruptcy estate for the benefit of Landlord and shall be promptly paid to or turned over to Landlord. 23. BROKER. Tenant covenants, warrants and represents that the broker set forth in Section 1.9(A) was the only broker to represent Tenant in the negotiation of this Lease ("Tenant's Broker"). Landlord covenants, warrants and represents that the broker set forth in Section 1.9(B) was the only broker to represent Landlord in the negotiation of this Lease ("Landlord's Broker"). Landlord shall be solely responsible for paying the commission of both Landlord's Broker and Tenant's Broker. Each party agrees to and hereby does defend, indemnify and hold the other harmless against and from any brokerage commissions or finder's fees or claims therefor by a party claiming to have dealt with the indemnifying party and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses, for any breach of the foregoing. The foregoing indemnification shall survive the termination or expiration of this Lease. 24. TENANT'S FINANCIAL INFORMATION. The Tenant agrees, at the request of the Landlord, to be made not more than once during any lease year, to furnish its latest current income and balance statements, certified to by an officer of the corporation. 25. MISCELLANEOUS. 25.1 Merger. All prior understandings and agreements between the parties are merged in this Lease, which alone fully and completely expresses the agreement of the parties. No agreement shall be effective to modify this Lease, in whole or in part, unless such agreement is in writing, and is signed by the party against whom enforcement of said change or modification is sought. 25.2 Notices. Any notice required to be given by either party pursuant to this Lease, shall be in writing and shall be deemed to have been properly given, rendered or made only if personally delivered, or if sent by Federal Express or other comparable commercial overnight delivery service, addressed to the other party at the addresses set forth below (or to such other address as Landlord or Tenant may designate to each other from time to time by written notice), and shall be deemed to have been given, rendered or made on the day so delivered or on the first business day after having been deposited with the courier service: If to Landlord: First Industrial Development Services, L.P. 43 U.S. Highway 46 East, Suite 701 P.O. Box 600 Pine Brook, New Jersey 07058 Attention: Mr. Hayden Tiger With a copy to: First Industrial Realty Trust 311 South Wacker Drive, Suite 4000 Chicago, Illinois 60606 Attention: David P. Draft, Executive Vice President of Operations With a copy to: Epstein, Fitzsimmons, Brown, Gioia, Jacobs & Sprouls 245 Green Village Road Chatham Township, New Jersey 07928-0901 Attention: Robert K. Brown, Esq. If to Tenant: Classica Microwave Technologies, Inc. 2400 Main Street Extension, Suite 11 Sayreville, New Jersey 08872 Attention: Scott G. Halperin, Chairman & CEO 25.3 Non-Waiver. The failure of either party to insist, in any one or more instances, upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the Lease shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The receipt and acceptance by Landlord of Base Rent or Additional Rent with knowledge of breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach. 25.4 Legal Costs. Any party in breach or default under this Lease (the "Defaulting Party") shall reimburse the other party (the "Nondefaulting Party") upon demand for any legal fees and court (or other administrative proceeding) costs or expenses that the Non-defaulting Party incurs in connection with the breach or default, regardless whether suit is commenced or judgment entered. Such costs shall include legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, in the event of litigation, the court in such action shall award to the party in whose favor a judgment is entered a reasonable sum as attorneys' fees and costs, which sum shall be paid by the losing party. Tenant shall pay Landlord's attorneys' reasonable fees incurred in connection with Tenant's request for Landlord's consent under provisions of this Lease governing assignment and subletting, or in connection with any other act which Tenant proposes to do and which requires Landlord's consent. 25.5 Parties Bound. Except as otherwise expressly provided for in this Lease, this Lease shall be binding upon, and inure to the benefit of, the successors and assignees of the parties hereto. Tenant hereby releases Landlord named herein from any obligations of Landlord for any period subsequent to the conveyance and transfer of Landlord's ownership interest in the Property. In the event of such conveyance and transfer, Landlord's obligations shall thereafter be binding upon each transferee (whether Successor Landlord or otherwise). No obligation of Landlord shall arise under this Lease until the instrument is signed by, and delivered to, both Landlord and Tenant. 25.6 Recordation of Lease. Tenant shall not record or file this Lease (or any memorandum hereof) in the public records of any county or state. 25.7 Survival of Obligations. Upon the expiration or other termination of this Lease, neither party shall have any further obligation nor liability to the other except as otherwise expressly provided in this Lease and except for such obligations as, by their nature or under the circumstances, can only be, or by the provisions of this Lease, may be performed after such expiration or other termination. 25.8 Governing Law; Construction. This Lease shall be governed by and construed in accordance with the laws of the State of New Jersey. If any provision of this Lease shall be invalid or unenforceable, the remainder of this Lease shall not be affected but shall be enforced to the extent permitted by law. The captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. Each covenant, agreement, obligation, or other provision of this Lease to be performed by Tenant, shall be construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. This Lease may be executed in counterpart and, when all counterpart documents are executed, the counterparts shall constitute a single binding instrument. 25.9 Time. Time is of the essence of this Lease. If the time for performance hereunder falls on a Saturday, Sunday or a day that is recognized as a holiday in the state of New Jersey, then such time shall be deemed extended to the next day that is not a Saturday, Sunday or holiday in said state. 25.10 Authority of Tenant. If Tenant is a corporation, partnership, limited liability company, association or any other entity, it shall deliver to Landlord, concurrently with the delivery to Landlord of an executed Lease, certified resolutions of Tenant's directors or other governing person or body (i) authorizing execution and delivery of this Lease and the performance by Tenant of its obligations hereunder and (ii) certifying the authority of the party executing the Lease as having been duly authorized to do so. 25.11 WAIVER OF TRIAL BY JURY. THE LANDLORD AND THE TENANT, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY ANY PARTY TO THIS LEASE WITH RESPECT TO THIS LEASE, THE PREMISES THE PROPERTY, OR ANY OTHER MATTER RELATED TO THIS LEASE OR THE PREMISES. 25.12 Intentionally Omitted. 25.13 Intentionally Omitted. 25.14 Submission of Lease. Submission of this Lease to Tenant for signature does not constitute a reservation of space or an option to lease. This Lease is not effective until execution by and delivery to both Landlord and Tenant. 25.15 Joint and Several Liability. All parties signing this Lease as Tenant shall be jointly and severally liable for all obligations of Tenant hereunder. 25.16 Riders. All Riders and Exhibits attached hereto and executed (or initialed) both by Landlord and Tenant shall be deemed to be a part hereof and hereby incorporated herein. 25.17 Tenancy Approval. The within Lease is subject to and conditioned upon the approval of Tenant's use and occupancy of the Premises by the Township of Sayreville. Landlord and Tenant shall cooperate so as to obtain such approval as soon as is reasonably practicable. 26. OPTION TO RENEW 26.1 Provided the Tenant is not in default pursuant to the terms and conditions of this Lease, the Tenant is hereby given the right and privilege to renew this Lease, for one (1) five (5) year period, to commence at the end of the initial Term, which renewal shall be upon the same terms and conditions as in this Lease contained, except that Tenant shall pay Base Rent during the option period in the amounts set forth in Section 2.2 hereof. 26.2 The right, option and privilege of the Tenant to renew this Lease as hereinabove set forth is expressly conditioned upon the tenant delivering to the Landlord in writing by certified mail, return receipt request, twelve (12) months prior notice of its intention to renew, which notice shall be given to the Landlord by the Tenant no later than twelve (12) months prior to the date fixed for the termination of the initial Lease Term. 26.3 The obligation to pay the Base Rent as hereinabove set forth shall be in addition to the obligation to pay all Additional Rent and other charges required by the terms and conditions of this Lease. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. ANDLORD: FIRST INDUSTRIAL DEVELOPMENT SERVICES, INC., a Maryland corporation WITNESS: /s/ Maryann E. Russell ________________________ By: /s/ Hayden Tiger --------------------------- Its: Regional Dir --------------------------- TENANT: CLASSICA MICROWAVE TECHNOLOGIES INC., a Delaware corporation ATTEST: By: /s/ Scott G. Halperin ----------------------------------- /s/ Bernard S. Lillis, Jr. Its: CEO - ---------------------------- ----------------------------------- CFO, Secretary & Treasurer (Affix Corporate Seal) {W:\docs\EPFITZ\16510\00347\RedlineClassica 11-4-02.doc; ? 11/4/2002 10:02 AM} STATE OF NEW JERSEY ) ) SS.: COUNTY OF MORRIS ) BE IT REMEMBERED, that on this 13th day of November, 2002, before me, the subscriber, Maryanne Russell, personally appeared Hayden Tiger, who, I am satisfied, is the person who signed the within Instrument as Reg Dir, of FIRST INDUSTRIAL DEVELOPMENT SERVICES, INC., a Maryland corporation, the Landlord named therein, and he thereupon acknowledged that the said instrument made by the corporation and sealed with its corporate seal, was signed and sealed with the corporate seal and delivered by him as such officer, and is the voluntary act and deed of the corporation, made by virtue of authority from its Board of Directors. /s/ Maryann E. Russell --------------------------- STATE OF NEW JERSEY ) ) SS.: COUNTY OF OCEAN ) BE IT REMEMBERED, that on this 8th day of November2002, before me, the subscriber, Mary A. Taveras, personally appeared Scott G. Halperin, who, I am satisfied, is the person who signed the within Instrument as Chief Executive Officer (CEO) of CLASSICA MICROWAVE TECHNOLOGIES INC., a Delaware corporation, the Tenant named therein, and he thereupon acknowledged that the said instrument made by the corporation and sealed with its corporate seal, was signed and sealed with the corporate seal and delivered by him as such officer, and is the voluntary act and deed of the corporation, made by virtue of authority from its Board of Directors. /s/ Mary A. Taveras --------------------------- EXHIBIT A Property EXHIBIT B Landlord Work Items Anything herein contained to the contrary notwithstanding, it is expressly understood and agreed that the Tenant shall take the Premises and improvements as of the Commencement Date of the within Lease in an "as is" condition, except that Landlord shall perform such work as shall be set forth on a plan to be prepared by Landlord (the "Plan"), which Plan shall be mutually approved by Landlord and Tenant hereunder and attached to the lease as Schedule "B". The Plan shall reflect those improvements shown on the single line drawing annexed hereto as Exhibit "C", shall provide for the construction of up to 7,500 square feet of office space, and shall be based upon the workletter which is annexed hereto as Exhibit "F" and the specifications which are annexed hereto as Exhibit "G". The Plan shall be submitted to Landlord by Tenant within two (2) weeks following the date of execution hereof; if the Plan is not submitted within two (2) weeks following the date hereof, the Commencement Date shall be established as of the date that the Premises would otherwise have been substantially completed by the Landlord, but for such delay. LEASE EXHIBIT D TENANT OPERATIONS INQUIRY FORM Tenant Name:__________________________________ Te L E A S E A G R E E M E N T BY AND BETWEEN: FIRST INDUSTRIAL DEVELOPMENT SERVICES, INC., a Maryland corporation, "Landlord" - and - CLASSICA MICROWAVE TECHNOLOGIES INC., = a Delaware corporation "Tenant" PREMISES: 2400 Main Street Extension, Suites 11 and 12 Sayreville, New Jersey DATED: November 13, 2002 PREPARED BY: ROBERT K. BROWN, ESQ. November 6, 2002 L E A S E A G R E E M E N T BY AND BETWEEN: FIRST INDUSTRIAL DEVELOPMENT SERVICES, INC., a Maryland corporation, "Landlord" - and - CLASSICA MICROWAVE TECHNOLOGIES INC., a Delaware corporation "Tenant" ----------------------------------- DATED: November 13, 2002 --------------------------------------- LAW OFFICES EPSTEIN, FITZSIMMONS, BROWN, GIOIA, JACOBS & SPROULS a Professional Corporation 245 Green Village Road P.O. Box 901 Chatham Township, New Jersey 07928-0901 (973) 593-4900 (973) 593-4966 (fax) W:\docs\EPFITZ\16510\88888\00015435.DOC TABLE OF CONTENTS 1. BASIC TERMS..........................................................1 2. LEASE OF PREMISES; RENT..............................................2 2.1 Lease of Premises for Lease Term............................2 2.2 Types of Rental Payments....................................2 2.3 Covenants Concerning Rental Payments........................3 3. OPERATING EXPENSES...................................................3 3.1 Definitional Terms Relating to Additional Rent..............3 3.1.1 Operating Expenses.................................3 3.1.2 Taxes..............................................4 3.1.3 Operating Year.....................................5 3.2 Payment of Operating Expenses...............................5 3.3 Payment of Additional Rent..................................5 4. USE OF PREMISES AND COMMON AREAS; SECURITY DEPOSIT...................6 4.1 Use of Premises and Property................................6 4.2 Use of Common Areas.........................................7 4.3 Signage......... ...........................................7 4.4 Security Deposit............................................8 5. CONDITION AND DELIVERY OF PREMISES...................................8 5.1 Condition of Premises.......................................8 Delay in Commencement................................................9 6. SUBORDINATION; NOTICES TO SUPERIOR LESSORS AND MORTGAGEES; ATTORNMENT...........................................................9 6.1 Subordination..............................................10 6.2 Estoppel Certificates......................................10 6.3 Transfer by Landlord.......................................10 7. QUIET ENJOYMENT.....................................................11 8. ASSIGNMENT, SUBLETTING AND MORTGAGING...............................11 8.1 Prohibition................................................11 8.2 Rights of Landlord.........................................12 8.3 Permitted Transfers............. ..........................12 8.4 Landlord's Right of Recapture..............................13 8.5 Option to Renew Personal...................................13 9. COMPLIANCE WITH LAWS................................................13 9.1 Compliance with Laws.......................................14 9.2 (a) Hazardous Materials................... ................14 10. INSURANCE...........................................................17 10.1 Insurance to be Maintained by Landlord.....................17 10.2 Insurance to be Maintained by Tenant.......................17 10.2.1 General Liability and Auto Insuran................18 10.2.2 Property and Workers' Compensation insurance......18 10.3 Waiver of Subrogation......................................18 11. ALTERATIONS.........................................................19 12. LANDLORD'S AND TENANT'S PROPERTY....................................21 12.1 Landlord's Property........................................21 12.2 Tenant's Property..........................................21 13. REPAIRS AND MAINTENANCE.............................................22 13.1 Tenant Repairs and Maintenance.............................22 13.2 Landlord Repairs...................................... ....24 14. UTILITIES...........................................................24 15. INVOLUNTARY CESSATION OF SERVICES...................................25 16. LANDLORD'S RIGHTS...................................................25 17. NON-LIABILITY AND INDEMNIFICATION...................................26 17.1 Non-Liability..............................................26 17.2 Indemnification............................................26 17.2.1 Tenant Indemnification............................26 17.2.2 Landlord Indemnification..........................28 17.3 Force Majeure..............................................28 18. DAMAGE OR DESTRUCTION...............................................28 18.1 Notification and Repair....................................29 18.2 Rental Abatement...........................................29 18.3 Total Destruction..........................................29 18.4 Insurance Proceeds.........................................30 19. EMINENT DOMAIN......................................................30 20. SURRENDER AND HOLDOVER..............................................31 21. EVENTS OF DEFAULT...................................................32 21.1 Bankruptcy of Tenant.......................................32 21.2 Default Provisions.........................................32 22. RIGHTS AND REMEDIES.................................................33 22.1 Landlord's Cure Rights Upon Default of Tenant..............33 22.2 Landlord's Remedies........................................33 22.3 Additional Rights of Landlord..............................34 22.4 Event of Bankruptcy........................................35 23. BROKER..............................................................35 24. TENANT'S FINANCIAL INFORMATION......................................36 25. MISCELLANEOUS.......................................................36 25.1 Merger.....................................................36 25.2 Notices....................................................36 25.3 Non-Waiver.................................................37 25.4 Legal Costs................................................37 25.5 Parties Bound..............................................37 25.6 Recordation of Lease.......................................38 25.7 Survival of Obligations....................................38 25.8 Governing Law; Construction................................38 25.9 Time.......................................................38 25.10 Authority of Tenant........................................38 25.11 WAIVER OF TRIAL BY JURY....................................39 25.12 Intentionally Omitted......................................39 25.14 Intentionally Omitted......................................39 25.15 Joint and Several Liability................................39 25.16 Riders.....................................................39 25.17 Tenancy Approval...........................................39 26. OPTION TO RENEW.....................................................39 EXHIBITS A. Property B. Landlord Work Items C. Plans Of Premises D. Tenant Operations Inquiry Form E. Tenant's Acceptance Letter F. Tenant Workletter G. Tenant Fitout Specifications EX-10 4 yosemp.txt AGREEMENT WITH JOSEPH RIEMER Scott G. Halperin Chief Executive Officer June 1, 2002 Joseph Riemer, PhD. 57 Forest Road Randolph, New Jersey 07869 PERSONAL, CONFIDENTIAL & PRIVILEGED Dear Dr. Riemer: As per understanding, the purpose of this letter is to outline to you the general terms of your employment by the Classica Microwave Technologies, Inc.'s ("CMT") beginning today. 1. Your title will be President and you shall have primary responsibility for the supervision and control over, and responsibility for, the day-to-day operations of the Company, and shall have such other powers and duties as may from time to time be delegated to you by the Board of Directors of the Company, provided that such duties are consistent with your position. You shall report directly to the Chief Executive Officer of the Company. 2. Your annual compensation shall be $120,000, paid bi-weekly at the rate of $4,615.39 bi-weekly. In addition, you will receive an initial stock option for the purchase of 68,570 shares of The Classic Group, Inc. common stock at $1.75 per share, vesting 1/3 on November 1, 2002, 1/3 on November 1, 2003 and the remaining 1/3 on November 1, 2004. 3. Also, annually starting on November 1, 2002 and each year there after, in consideration for your successful performance of your duties, your annual compensation will be reviewed and updated, and you will be given a stock option for no less than an amount of shares equal to your updated annual salary divided by the closing price of the Classica Group, Inc. common stock the previous business day. These options will vest 1/3 one year from the date of granting of the option, and 1/3 each year thereafter on the 1st day of November. Joseph Riemer, PhD. June 1, 2002 Page 2 4. After the required waiting period of 90 days you will be offered participation in the Company's Executive Health and Dental insurance programs. The Company's health insurance is under Oxford Health Plans Liberty Plan PPO. Under that plan there is no "Gatekeeper" and no referrals are required. An office visits requires a $10.00 co-pay. Drugs from the pharmacy require either a $5.00 or $10.00 co-pay depending upon the drug in question. The Company's dental insurance program is underwritten by the Allied Health Partnership--Kansas City Life Insurance Company. 5. You will be entitled to three weeks of vacation during your first year of employment and four weeks per year thereafter. 6. The Company does not currently have a 401(k) plan in effect, but is anticipating adopting one. Upon adoption of a plan you will be entitled to join it in accordance with its requirements. Finally, this letter is not, and is not intended to be a contract. As a matter of policy the Company does not enter into employment contracts with its employees. Employment with the Company is voluntarily entered into by the employee and the employment relationship is "at will" as regards the employer. Yours very truly, Scott G. Halperin Chief Executive Officer EX-10 5 halemp.txt HALPERIN - AMENDMENT TO EMPLOYMENT AGREEMENT Joseph Greene Director Compensation Committee Chairman December 13, 2002 Scott Halperin 10 Andrea Court Manalapan, New Jersey 07726 PERSONAL, CONFIDENTIAL & PRIVILEGED Dear Mr. Halperin: As per understanding, the purpose of this letter is to document an amendment to paragraph 5 ("Salary") of your Employment Agreement ("Agreement") dated August 1, 1997. The following changes to the Agreement have been proposed by the Company's compensation committee: 1. Your annual salary effective January 1, 2003 shall be reduced from your current salary of $524,621, which was in accordance with your Employment Agreement, to $250,000. You shall receive an increase of 5% plus the increase in the cost of living, per year through the end of the Agreement. 2. Today, and each year on the anniversary date of this letter, you will be given a stock option for no less than an amount of shares equal to your updated annual salary divided by the closing price of the Classica Group, Inc. common stock the previous business day. These options will vest 1/3 one year from the date of granting of the option, and 1/3 each year thereafter on the 1st day of January. 3. Additionally, as an inducement to accept the proposed amendment you will be granted an option to purchase 125,000 shares of the Company's common stock at yesterdays closing price. This letter when accepted by you will become a permanent amendment to the Agreement. Yours very truly, Joseph Greene Director, Compensation Committee Chairman Agreed to and accepted as of the dated written above. - ------------------------- Scott G. Halperin EX-10 6 lilemp.txt LILLIS AMENDMENT Joseph Greene Director Compensation Committee Chairman December 13, 2002 Bernard F. Lillis, Jr. 14 Jeffrey Lane East Windsor, New Jersey 08520 PERSONAL, CONFIDENTIAL & PRIVILEGED Dear Mr. Lillis: As per understanding, the purpose of this letter is to document an amendment to P. 5 ("Salary") of your Employment Agreement ("Agreement") dated August 1, 1997. The following changes to the Agreement have been proposed by the Company's compensation committee: 1. Your annual salary effective January 1, 2003 shall be reduced from your current salary of $453,082, which was in accordance with your Employment Agreement, to $200,000. You shall receive an increase of 5% plus the increase in the cost of living, per year through the end of the Agreement. 2. Today, and each year on the anniversary date of this letter, you will be given a stock option for no less than an amount of shares equal to your updated annual salary divided by the closing price of the Classica Group, Inc. common stock the previous business day. These options will vest 1/3 one year from the date of granting of the option, and 1/3 each year thereafter on the 1st day of January. 3. Additionally, as an inducement to accept the proposed amendment you will be granted an option to purchase 100,000 shares of the Company's common stock at yesterdays closing price. This letter when accepted by you will become a permanent amendment to the Agreement. Yours very truly, Joseph Greene Director, Compensation Committee Chairman Agreed to and accepted as of the dated written above. - ------------------------- Bernard F. Lillis, Jr. EX-10 7 ruoziemp.txt RUOZI AGREEMENT Classica Microwave Technologies, Inc. 1835 Swarthmore Avenue Lakewood, New Jersey 08701 (732) 363-3800 (732) 363-0965 fax September 21, 1999 Ing. Giuseppe Ruozi Viale Timavo, n.17 42100 Reggio Emilia RE: Engagement for Development and Engineering Services Utilizing Microwave Technology. Dear Ing. Ruozi: This letter shall serve to confirm our agreement with respect to the services you will perform on behalf of The Classica Group, Inc. (The Group") 1. The Development and Engineering Services to be Provided You will provide the following services: i. Develop and design various food related systems utilizing microwave technology, which The Group will have the ability and right to patent. ii. Aid in the food product development to be processed utilizing microwave technology. iii. Train our personnel in the use and servicing of the microwave systems. iv. Serve on our technical advisory board, which will advise us as to the direction of the microwave project. 2. Terms of Engagement The initial term of this engagement shall be thirty-six (36) months, commencing on October 1, 1999. This agreement will automatically be renewed for additional twelve (12) month periods unless either party notifies the other in writing, at least thirty (30) days prior to the expiration date of each term of engagement, of its desire not to renew. 3 Fees for Services and Method of Payment SBI shall pay you a monthly fee of: October 1, 1999 through December 31, 1999 $1,000 January 1, 2000 through June 30, 2000 $2,000 July 1, 2000 through December 31, 2000 $3,000 January 1, 2001 through December 31, 2001 $5,000 January 1, 2002 and thereafter $6,000 Payment of the fee is due on the first day of the month. The Group will also be billed for telephone charges, copying, and any other out-of-pocket expense incurred in the ordinary course of servicing the Company. The Company will be responsible for all travel expenses incurred on behalf of the Company, for which prior approval of the Company must be obtained. The Company shall grant you 75,000 options for the purchase of The Classica Group, Inc. common stock exercisable at the closing bid price of the stock on the date of the signing of this agreement. The above options shall vest as follows: 25,000 of the options shall immediately vest upon executing this agreement, 25,000 of the options shall vest thirty (30) days thereafter, and the balance of the options shall vest sixty (60) days after executing this agreement. You shall receive piggyback registration rights. The above options shall expire three (3) years from the effective date of this agreement. 4. Termination This engagement may only be terminated in the event of default by either party. The Group shall default if they fail to pay your fees when due and such non-payment shall continue for more than ten (10) calendar days. You shall default should you fail to provide the services contemplated by this agreement in a timely and professional manner. If either party is in default the other party shall be required to notify the defaulting party of their intention to terminate. Upon notice of termination, all options not yet vested shall immediately expire. 5.Governing Law This agreement shall be governed and interpreted with the laws of the State of New Jersey without regard to the conflict of interest principles thereof or the actual domiciles of the parties herein. If the terms of this agreement are acceptable to you, please indicate by executing, dating and returning a copy of this agreement to the Company. Very truly yours, Mario Bassani President Agreed to and accepted by: - ------------------------------ ------------------- Guiseppe Ruozi Date EX-21 8 subsex.txt LIST OF SUBSIDIARIES EXHIBIT 21 THE CLASSICA GROUP INC. LIST OF SUBSIDIARIES Classica Microwave Technologies, Inc., a Delaware corporation C.G.T.I. - Classica Group Technologies Italia, S.r.l., Established December 13, 2001 in Reggio Emilia, Italy Cucina Classica Italiana, Inc, a New Jersey corporation EX-23 9 ruozi.txt CONSENT OF GIUSEPPE RUOZI CLASSICA GROUP TECHNOLOGIES ITALIA, S.r.l. Via Nagy 7, Pratissolo di Scandiano, RE Telephone -39 0522 76 70 34 Fax 39 0522 76 79 71 Ing. Giuseppe Ruozi Ricerca e Sviluppo 10 August 2003 The Classica Group, Inc. and Subsidiaries 2400 Main Street Suite #12 Sayreville, New Jersey 08872 Re: Consent to use of my name and curriculum vita. To whom it may concern: The Classica Group, Inc. and its Subsidiaries ("the Company") have and are hereby granted my permission to use my name, a description of my education, past business activities, professional achievements and experience, and any other facts concerning me and my relationship with the Company in any documents, press releases, publications, oral or visual presentations, filings with governmental authorities, or in any other manner or material whatsoever as they see fit. /s/ Ing. Giuseppe Ruozi - ---------------------------------- Ing. Giuseppe Ruozi 03-March-2003 EX-99.A4 10 ex2991.txt CERTIFICATION EXHIBIT (99.1) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of The Classica Group, Inc. (the "Company") on Form 10-KSB/A for the fiscal year ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Scott G. Halperin, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of 13(a) or 15(d) of the Securities and Exchange Act of 1934; (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Scott G. Halperin Scott G. Halperin Chief Executive Officer May 16, 2003 EX-99.A4 11 ex2992.txt CERTIFICATION EXHIBIT (99.2) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of The Classica Group, Inc. (the "Company") on Form 10-KSB/A for the fiscal year ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bernard F. Lillis, Jr., Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of 13(a) or 15(d) of the Securities and Exchange Act of 1934; (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Bernard F. Lillis, Jr. Bernard F. Lillis, Jr. Chief Financial Officer May 16, 2003 EX-99.77Q1 12 patent.txt LIST OF PATENTS EXHIBIT 99.3 LIST OF PATENTS PATENT NUMBER DESCRIPTION - -------------------------------------------------------------------------------- 5,066,503 Method of Pasteurizing or Sterilizing Foodstuffs Utilizing Microwaves 5,074,200 System for Pasteurizing or Sterilizing Foodstuffs Utilizing Microwaves 5,750,966 Plant for Pasteurizing or Sterilizing Solid or Liquid Food Products Using Microwaves 5,919,506 Process for Maturing Meat Products 6,039,991 Method and Apparatus for Sanitizing Minced Meat -----END PRIVACY-ENHANCED MESSAGE-----