Opinion ID: 1733568
Heading Depth: 1
Heading Rank: 1

Heading: general factual background in the present case

Text: During the mid-1980s, Robert Murphy (Murphy) and Howard Hornsby (Hornsby) developed a low-profile, remote-controlled, unmanned marine vehicle known as the OWL. Generally described, the OWL consists of a fiberglass hull, motor, and various electronic components, all formed around the base of a jet ski type personal watercraft. In 1988, Murphy and Hornsby, along with several other individuals, formed International Robotic Systems, Inc. (Robotic Systems I), a Florida corporation, in large part to conduct business relating to the development and marketing of the OWL. Murphy and Hornsby each owned forty percent of the stock in Robotic Systems I; Murphy became the president of the company and Hornsby its vice-president. By 1990, two patents had been issued to Murphy and Hornsby as co-inventors of the OWL, and they assigned those patents to Robotic Systems I. During the late 1980s and early 1990s, Murphy and Hornsby attempted to attract business interest in the OWL, with a primary potential customer being the U.S. Navy. In addition to the U.S. Navy, private companies such as Boston Whaler and Israeli Aircraft Industries expressed varying interest in the product. Also during this time period, several business interests loaned funds to Robotic Systems I, including a New York financier who loaned $100,000 to the company, and International Commercial Development Company (ICDC), which loaned the company $125,000. To secure the $125,000 loan from ICDC, Robotic Systems I assigned the two patents on the OWL to ICDC as collateral. Robotic Systems I also obtained several other smaller loans during this time period. By the end of 1991, the U.S. Navy had expressed an interest in purchasing a prototype OWL, but there were no guarantees of when, if ever, the Navy would actually make the purchase. During February 1992, Murphy and Hornsby were introduced to John Terry Carroll (Carroll), an employee and representative of United Technologies Optical Systems (UTOS), a subsidiary of United Technologies Corporation (UTC). UTOS was not UTC's only subsidiary, as UTC was also the parent company of entities such as Pratt-Whitney; generally speaking, UTC was a large corporate entity with significant ties to the defense industry. Upon meeting with Murphy and Hornsby and viewing the OWL, Carroll expressed interest in the OWL's potential uses. In April 1992, Carroll introduced Murphy and Hornsby to Peter Just (Just) and John Wood (Wood), officers of Laser Holdings, Ltd. (Laser), an Australian company with which UTC had a pre-existing business relationship. On April 12, 1992, Murphy, Hornsby, Just, and Wood met to discuss the sale of Robotic Systems I's assets to Laser. Carroll attended this meeting as well, acting in large part as moderator. At the end of the meeting, Murphy and Hornsby on behalf of Robotic Systems I, and Just and Wood on behalf of Laser, executed a Memorandum of Understanding (MOU). According to the terms of the MOU, Robotic Systems I agreed to sell its assets to Laser for $200,000, of which $25,000 would be payable on April 15, 1992, with the remaining $175,000 payable at closing. The assets to be transferred included, among other things, the two OWL patents, any future contract with the U.S. Navy, a prototype OWL, and the goodwill of Robotic Systems I, including its corporate name. The memorandum also specified that any sale was contingent upon (1) Robotic Systems I successfully procuring a contract from the U.S. Navy for the purchase of an OWL; and (2) Hornsby becoming an employee of the purchasing company. After executing the MOU, but prior to closing, the parties entered into several additional agreements. Specifically, on May 27, 1992, Laser entered into a Consultancy Agreement and a Loan Agreement with Robotics Systems I, and Laser also entered into a Commission Agreement with Hornsby and Murphy, individually. Under the terms of the Consultancy Agreement, Robotic Systems I agreed to be a consultant to Laser for a period of five years for development of the business purchased from Robotic Systems I, and Laser agreed to pay a total consultant's fee of not less than $300,000 but not more than $400,000 during that five-year period. According to the Loan Agreement, Laser agreed to lend $300,000 to Robotic Systems I for a five-year period at an interest rate of six percent, to be paid back in amounts to be agreed upon by the parties from time to time. Finally, under the terms of the Commission Agreement, Laser agreed to pay Murphy and Hornsby a commission of $5000 each for every OWL produced in the first twelve months following the date of execution of the agreement, and $750 for every OWL produced in the four years following that first twelve-month period. The cap on commissions payable to Murphy and Hornsby over the five-year period was $1,000,000 each. The closing on the proposed transaction was held on July 24, 1992. Several weeks prior to that time, one of the conditions precedent to the proposed transaction had been fulfilled; namely, the U.S. Navy entered into a contract with Robotic Systems I for the purchase of a prototype OWL, with a sales price of approximately $449,000. Hornsby fulfilled the other condition precedent set forth in the MOU by agreeing at the closing to a five-year employment contract with the Australian interests, with a starting salary of $80,000 per year. In conjunction with the closing, Just and Wood formed a new Florida corporation, Justwood, Inc. (Justwood), to receive the assets of Robotic Systems I, including its corporate name. Additionally, all of Laser's rights under the previously executed agreements were transferred to Justwood, which adopted the name International Robotic Systems, Inc. (Robotic Systems II). At the same time, Robotic Systems I changed its name to Technology Innovations International, Inc. (Innovations), and Murphy remained with Innovations. Using the money obtained from the sale, Robotic Systems I satisfied all of its existing debts. After the closing, Hornsby, as president of Robotic Systems II, began developing and building a new prototype OWL according to the specifications and requirements set forth in the contract with the U.S. Navy. Cost overruns occurred during this development and building process, and the OWL ultimately was delivered to the U.S. Navy behind schedule. During the same time period, Laser experienced financial difficulties and was placed into receivership in Australia. A $5000 commission check was sent to Murphy for the OWL produced for the U.S. Navy, and another $750 commission check was sent to him after another prototype demonstrator OWL was produced. The OWL built for the Navy and the demonstrator OWL were the only two OWLs fully produced in the three years following the closing of July 14, 1992.