<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TRUSTED INFORMATION SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
7372
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
52-1281786
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
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3060 WASHINGTON ROAD
GLENWOOD, MD 21738
(301) 854-6889
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN T. WALKER
TRUSTED INFORMATION SYSTEMS, INC.
3060 WASHINGTON ROAD
GLENWOOD, MD 21738
(301) 854-6889
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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Copies to:
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EDWIN M. MARTIN, JR., ESQUIRE GERALD S. TANENBAUM, ESQUIRE
PIPER & MARBURY L.L.P. CAHILL GORDON & REINDEL
1200 NINETEENTH STREET, N.W. 80 PINE STREET
WASHINGTON, DC 20036 NEW YORK, NY 10005
(202) 861-3900 (212) 701-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Shares of Common Stock, par value $.01......................... $46,000,000 $15,863
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(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) under the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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TRUSTED INFORMATION SYSTEMS, INC.
CROSS-REFERENCE SHEET
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ITEM NUMBER IN FORM S-1 LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and Outside Front Cover
Page of Prospectus........................................... Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front Cover Page of
Prospectus; Additional
Information
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges................................................ Prospectus Summary; Risk
Factors
4. Use of Proceeds.............................................. Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price.............................. Underwriting
6. Dilution..................................................... Dilution
7. Selling Stockholders......................................... Not Applicable
8. Plan of Distribution......................................... Outside Front Cover Page of
Prospectus; Prospectus
Summary; Underwriting
9. Description of Securities to be Registered................... Outside Front Cover Page of
Prospectus; Dividend Policy;
Capitalization; Description of
Capital Stock
10. Interests of Named Experts and Counsel....................... Not Applicable
11. Information with respect to the Registrant
(a) Description of the Business.............................. Prospectus Summary; Business;
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
(b) Description of the Property.............................. Business
(c) Legal Proceedings........................................ Business
(d) Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters................... Dividend Policy; Management;
Principal Stockholders;
Description of Capital Stock;
Shares Eligible for Future
Sale
(e) Financial Statements..................................... Financial Statements
(f) Selected Financial Data.................................. Selected Financial Data
(g) Supplementary Financial Information...................... Not Applicable
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(h) Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
(i) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... Not Applicable
(j) Directors and Executive Officers......................... Management
(k) Executive Compensation................................... Management; Certain
Relationships and Related
Party Transactions
(l) Security Ownership of Certain Beneficial Owners and
Management............................................... Management; Principal
Stockholders
(m) Certain Relationships and Related Transactions........... Management; Certain
Relationships and Related
Party Transactions
12. Disclosure of Commission Prohibition on Indemnification for
Securities Act Liabilities................................... Not Applicable
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS Subject to Completion
Dated June 7, 1996
Shares
[TIS LOGO]
TRUSTED INFORMATION SYSTEMS, INC.
Common Stock
(par value $.01 per share)
All of the shares of Common Stock (the "Common Stock") offered hereby (the
"Offering") are being offered by Trusted Information Systems, Inc., a Delaware
corporation (the "Company"). See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock. See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price.
The Common Stock has been submitted for approval for quotation on the Nasdaq
National Market under the symbol "TISX."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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Per Share $ $ $
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Total (3) $ $ $
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(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted the Underwriters an option to purchase up to an
additional shares of Common Stock, on the same terms set forth above,
solely to cover over-allotments, if any. If such option is exercised in full,
the total Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ respectively. See "Underwriting."
The shares of Common Stock offered by this Prospectus are being offered by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to approval of certain legal matters by Cahill
Gordon & Reindel, counsel for the Underwriters. It is expected that delivery of
the shares of Common Stock will be made against payment therefor on or about
, 1996 at the offices of J.P. Morgan Securities Inc., 60 Wall
Street, New York, New York.
J.P. MORGAN & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ
, 1996
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No person has been authorized to give any information or make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriter. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation.
No action has been or will be taken in any jurisdiction by the Company or any
Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Common Stock and the distribution of this Prospectus.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 23
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PAGE
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Management............................ 40
Certain Relationships and Related
Party Transactions.................. 46
Principal Stockholders................ 47
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 50
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Additional Information................ 52
Index to Financial Statements......... F-1
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UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Company intends to furnish stockholders with annual reports containing
financial statements audited by its independent auditors and quarterly reports
containing unaudited financial statements for the first three quarters of each
fiscal year.
The Trusted Information Systems, Inc. logo and Trusted Mach are registered
trademarks or servicemarks of the Company. Trademark registrations are pending
for TIS, Gauntlet, CKE, KRT, Key Recovery Technology and Building A World of
Trust. This Prospectus also includes trademarks, servicemarks and tradenames of
other companies.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
included elsewhere in this Prospectus. As used herein, the terms "Company" and
"TIS," unless otherwise indicated, refer to Trusted Information Systems, Inc.
and its subsidiary. Except as otherwise noted or the context otherwise requires,
all information in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option and (ii) reflects a 40-for-1 stock split of the Common
Stock effected as of May 31, 1996 in connection with the reincorporation of the
Company in Delaware.
THE COMPANY
Trusted Information Systems, Inc., founded in 1983, is a leading provider of
comprehensive security solutions for protection of computer networks, including
global Internet-based systems, internal networks and individual workstations and
laptops. The Company develops, markets, licenses and supports the Gauntlet
family of firewall products. These products allow customers to create "trusted"
networks that are protected from access, theft and damage by unauthorized users
from "untrusted" networks such as the Internet and also enable the creation of
virtual private networks ("VPNs") through the encrypted transmission of
information across untrusted networks. The Company emphasizes the robustness of
its security solutions, its long experience with computer security and
cryptography issues and its ability to provide comprehensive solutions to
customers. The Company also emphasizes its strong reputation with corporate and
government computer security professionals in the United States and abroad as a
pioneer in the field of computer network security.
The Company's Gauntlet Internet Firewall, introduced in 1994, was derived from
the TIS Internet Firewall Toolkit which has been available on the Internet since
1993 and has been downloaded more than 27,000 times to more than 15,000 discrete
locations worldwide. To date, more than 1,500 Gauntlet Internet Firewalls have
been licensed to customers, including the following or subsidiaries thereof:
Chevron Corporation, Chrysler Corporation, NationsBank Corporation and Swiss
Bank Corporation. In January 1996, the Company initiated a telemarketing program
to upgrade TIS Internet Firewall Toolkit users to the Gauntlet family of
firewall products. These products use a proxy-based application gateway system
rather than a filtering gateway system, thus assuring a higher level of security
by prohibiting direct connections between networks and by permitting only
specifically approved application data to flow into and out of the trusted
network. Additionally, the Gauntlet family of firewall products is built on an
operating system that has been modified or "hardened" for greater system
security. TIS employs a "Crystal Box" approach in which source code is
distributed to allow for assurance reviews by the Company's customers, resellers
and other experts. The Gauntlet Internet Firewall is available on an Intel
Pentium-based platform as well as other platforms such as Hewlett-Packard,
Silicon Graphics and Sun Microsystems workstations. The Company expects that its
Gauntlet Internet Firewall versions supporting Sun Microsystems' Solaris and
Microsoft's Windows NT Server will be commercially available by the end of 1996.
The Gauntlet family of firewall products also includes the recently introduced
Gauntlet Intranet Firewall for internal networks, Gauntlet Net Extender for
remote sites and Gauntlet PC Extender for desktop or mobile computer users.
Initially, the Company focused on consulting to major corporations such as
Digital Equipment Corporation, International Business Machines Corporation and
MCI Communications Corporation, and it has continued to provide computer
security consulting to major corporations throughout its history. The Company's
commercial consulting practice offers expert technology research services,
consultation on security issues associated with products and services, corporate
information security policy development, architectural and diagnostic security
analysis, firewall configuration and maintenance support and training for
corporate network and security administration personnel. These services are
carried out by a staff of 12 persons who average more than 15 years of
information security experience in both commercial and government organizations.
The Company believes that full commercial utilization of the Internet has been
hampered by lack of security and the vulnerability of the Internet and private
networks connected to the Internet. The very openness of the Internet means that
transmitted information and data stored in connected hosts are exposed to other
users who are able, in the absence of effective security measures, to gain
access to, manipulate and divert the data. This fundamental
3
<PAGE> 7
weakness requires that organizations and individuals weigh security concerns
against the perceived commercial opportunities presented by millions of Internet
users.
To satisfy an organization's desire both to conduct commerce on public networks
and to keep hackers and viruses outside of its trusted network, firewalls are
designed to monitor and regulate the traffic passing into and out of the trusted
network. Organizations are vulnerable not only to unauthorized access to
information resources by outsiders, but also to abuse by employees within their
own organizations. The Company believes that firewalls and encryption are key
elements in providing solutions to these security issues. International Data
Corporation has recently forecast that revenues from new licenses of firewall
software will grow from approximately $160 million in 1995 to approximately $980
million in 2000.
To capitalize on this opportunity, the Company is pursuing a focused marketing
strategy to achieve greater market penetration through complementary domestic
and international distribution channels, including direct sales, resellers and
telesales. The Company's direct sales force markets its products and services to
Fortune 500 corporations and organizations with complex information security
needs, such as telecommunications companies, finance and banking institutions,
petrochemical companies and pharmaceutical companies. The Company's more than 50
resellers include Internet service providers such as BBN Internet Service Corp.,
Demon Internet Limited, PSINet, Inc., Unipalm Limited and UUNet Technologies,
Inc.; value added resellers and hardware vendors such as Bull Enterprise
Systems, Data General Corporation, HITACHI Ltd., Silicon Graphics, Inc. and
Sumitomo Electric Systems Company, Ltd.; system integrators such as AvantComp
Oy, Conjungi Corporation, Fujitsu Systems Business of Canada, Inc. and Media
Communications STM AB; and security product vendors such as Hanil Telecom Co.,
Ltd., Mergent International, Inc. and Virtual Open Network Environment
Corporation ("V-One").
Prior to founding TIS in 1983, Stephen T. Walker spent 20 years working on
computer security issues at the National Security Agency ("NSA"), the Advanced
Research Projects Agency ("ARPA") and the Office of the Secretary of Defense.
While working for the U.S. Department of Defense, Mr. Walker was responsible for
the development of network security standards and policies, as well as for the
establishment of the Department of Defense Computer Security Initiative, the
first comprehensive attempt in the Department of Defense at managing computer
security systems solutions. Mr. Walker is widely recognized as a pioneer in the
field of computer network security. He has testified before Congress as an
expert witness on these issues on numerous occasions and has played an
instrumental role in assisting the U.S. government to formulate encryption
export policy. Mr. Walker's experience is complemented by other members of the
Company's senior management team who average over 20 years of experience working
on computer security and networking issues in industry and government.
In 1987, TIS began to perform consulting and research and development projects
for government agencies, including the NSA and ARPA. These activities have
contributed to the Company's in-depth understanding of the technologies, threats
and user requirements in computer security and have contributed to the
development of the TIS Internet Firewall Toolkit and the Gauntlet family of
firewall products. The Company continues to provide research and development and
consulting services to government agencies in areas such as next generation
firewalls, distributed trusted operating systems, Internet domain name services,
international cryptography and advanced cryptographic key handling and recovery
techniques.
The Company's position as an adviser and supplier to industry and the government
has enabled it to become a leader in developing a key escrow solution, based on
its proprietary Key Recovery Technology ("KRT"), to permit the export of
products with strong cryptography while protecting the interests of security and
law enforcement agencies. In January 1996, the U.S. government granted the
Company an export license for a particular transaction involving a network
security product using the Data Encryption Standard ("DES") algorithm (56 bits).
This is the first export license granted because the encryption is combined with
a key recovery system. The Company has incorporated its Commercial Key Escrow
("CKE") solution into its Gauntlet Internet Firewall product and is pursuing
additional export licenses from the U.S. government.
The Company was incorporated in Maryland in 1983 and was reincorporated in
Delaware in 1996. The Company's principal executive offices are located at 3060
Washington Road, Glenwood, Maryland 21738. Its telephone number is (301)
854-6889. The Company's home page on the World Wide Web is www.tis.com.
4
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THE OFFERING
COMMON STOCK OFFERED................ shares
COMMON STOCK OUTSTANDING AFTER THE
OFFERING............................ shares(1)
USE OF PROCEEDS..................... Working capital and other general
corporate purposes including expansion
of distribution capabilities, further
development of products and technology,
expansion of service and support
capabilities, repayment of short-term
borrowings and potential acquisitions.
DIVIDEND POLICY..................... The Company intends to retain its
earnings to fund development of its
business and does not anticipate paying
cash dividends in the foreseeable
future. See "Dividend Policy."
RISK FACTORS........................ For a discussion of certain
considerations relevant to an
investment in the Common Stock, see
"Risk Factors."
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL.............................. "TISX"
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(1) Excludes shares of Common Stock reserved for issuance under
outstanding stock options and stock options to be awarded to outside Directors
in connection with the Offering. See "Management -- Employee Stock Options
Plans" and "-- Directors' Stock Option Plan" and Note 5 of Notes to Consolidated
Financial Statements.
5
<PAGE> 9
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data derived from the
consolidated financial statements of the Company. The data should be read in
conjunction with the consolidated financial statements and notes thereto and
other financial information included elsewhere in this Prospectus.
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FIRST
FISCAL YEAR(1) QUARTER(1)
In thousands, except per share data 1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
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STATEMENT OF OPERATIONS DATA
Revenues
Government contracts......................... $5,191 $6,262 $8,343 $11,258 $12,327 $3,040 $2,432
Commercial products and services............. 834 568 448 1,859 5,763 906 1,744
------ ------ ------ ------- ------- ------ ------
Total revenues............................. 6,025 6,830 8,791 13,117 18,090 3,946 4,176
Gross profit................................... 2,343 2,454 2,972 4,914 7,225 1,463 1,763
Income (loss) from operations.................. 213 262 192 1,271 2,353 179 (656)
Net income (loss).............................. 38 74 35 675 1,344 98 (424)
Net income (loss) per share....................
Weighted average shares outstanding............
</TABLE>
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MARCH 29,1996
DECEMBER 29, AS
1995 ACTUAL ADJUSTED(2)
------------ ------- -------------
(UNAUDITED)
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BALANCE SHEET DATA
Cash, cash equivalents and marketable securities.................. $ 54 $ 3,793
Working capital................................................... 210 1,914
Total assets...................................................... 10,222 14,988
Total debt........................................................ 3,264 5,153
Shareholders' equity.............................................. 2,407 4,282
</TABLE>
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(1) The ending dates of these fiscal years are December 27, 1991, December 25,
1992, December 31, 1993, December 30, 1994 and December 29, 1995. The ending
dates of these first quarters are March 31, 1995 and March 29, 1996.
(2) Adjusted to reflect the sale of shares of Common Stock offered hereby
(assuming an initial public offering price of $ per share) and the
application of a portion of the estimated net proceeds therefrom to repay
short-term borrowings. See "Use of Proceeds" and "Capitalization."
6
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RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered in evaluating the Company and its business before
purchasing shares of the Common Stock offered hereby.
TRANSITION TO COMMERCIAL PRODUCT VENDOR
Historically, the Company's principal business had been contract research and
development, primarily for U.S. government agencies or companies engaged in work
for U.S. government agencies. In addition, the Company performed consulting for
major companies. The Company introduced its Firewall Toolkit on the Internet in
October 1993 and announced its first commercial firewall product, the Gauntlet
Internet Firewall, in April 1994. The transition to a commercial product vendor
requires the Company to significantly expand its self-funded research and
development, to continually introduce new products and add features to existing
products, to enhance its domestic and international sales force and establish
additional distribution channels and to further expand its management team. In
addition, the Company must adapt to the demands of an emerging and rapidly
changing commercial market, intense competition and changing technology and
industry standards. There can be no assurance that the Company can make this
transition successfully or that the Company will be able to penetrate the
commercial markets in a manner sufficient to assure its success in the future.
The Company believes it is likely that, as a result of its transition from
government contract research and development to a commercial product vendor, its
historical financial performance will not be indicative of future performance.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- TIS Strategy."
MANAGEMENT OF GROWTH
The Company has experienced changes in its operations which have placed
significant demands on the Company's administrative, operational, technical and
financial resources. The General Manager of the Commercial Division, the Chief
Financial Officer and the Vice President, Sales of the Commercial Division have
been with the Company for less than six months. To compete effectively, both in
its domestic and international operations, and to manage future growth, if any,
the Company must continue to strengthen its operational, financial and
management information reporting systems, controls and procedures on a timely
basis and expand, train and manage its work force. There can be no assurance
that the Company will be able to take such actions successfully. The failure of
the Company's management team to effectively manage growth, should it occur,
could have a material adverse effect on the Company's financial condition or
results of operations.
POTENTIAL SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND LENGTHY
SALES CYCLE
The Company anticipates significant quarterly fluctuations in its operating
results in the future. The Company generally ships orders for commercial
products as they are received and, as a result, has little backlog for
commercial products. Quarterly revenues and operating results therefore depend
on the volume and timing of orders received during the quarter, which are
difficult to forecast. The Company may, like many companies in businesses
similar to the Company, receive a disproportionate share of orders late in the
fiscal quarterly period, which makes forecasting quarterly results even more
difficult. In addition, government contracts revenues and consulting services
revenues tend to fluctuate as projects, which may continue over several
quarters, are undertaken or completed. Operating results may also fluctuate on a
quarterly basis due to factors such as the demand for the Company's products,
the introduction of new products and product enhancements by the Company or its
competitors, market acceptance of new products introduced by the Company or its
competitors and the size, timing, cancellation or delay of customer orders,
including cancellation or delay in anticipation of new product introduction or
enhancement. The Company's quarterly operating results are also affected by the
budgeting cycles of customers, changes in the proportion of revenues
attributable to licenses and consulting fees, changes in the mix of products
sold, changes in the percentage of products sold through the Company's direct
sales force, changes in product pricing, changes in the development of the
Company's direct and indirect distribution channels, competitive conditions in
the industry and changes in general economic conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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Due to the foregoing factors, it is likely that in some future quarters the
Company's operating results will be below the expectations of public market
analysts and investors. Regardless of the general outlook for the Company's
business, the announcement of quarterly operating results below analyst and
investor expectations could have a material and adverse effect on the price of
the Company's Common Stock.
SALES AND DISTRIBUTION RISKS
As of May 31, 1996, the Company had 25 employees in direct commercial sales and
marketing, many of whom had been employed by the Company for less than a year.
In order to increase its direct sales effort, the Company will need to increase
the size of its internal sales and marketing staff and increase the staff's
productivity. There can be no assurance that such internal expansion will be
successfully completed, that the cost of such expansion will not exceed the
revenues generated or that the Company's sales and marketing operation will
successfully compete against the more extensive and well funded sales and
marketing operations of many of the Company's current and future competitors.
The Company has approximately 50 resellers worldwide. There can be no assurance
that the Company will be able to retain its resellers or attract additional
resellers or that its resellers will be able to market the Company's products
effectively and will be qualified to provide timely and cost-effective customer
support and service. The Company's resellers may carry competing product
offerings. There can be no assurance that any reseller will continue to
represent the Company's products. The inability to recruit, or the loss of,
important sales personnel or resellers could materially adversely affect the
Company's financial condition or results of operations. See
"Business -- Competition" and "-- Sales and Marketing."
RISKS ASSOCIATED WITH INFORMATION SECURITY MARKET
The market for the Company's software products is in an early stage of
development. Declines in demand for the Company's products, whether as a result
of competition, technological change, the public's perception of the need for
security products, developments in the hardware and software environments in
which these products operate, general economic conditions or other factors,
could have a material adverse effect on the Company's financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
A well-publicized actual or perceived breach of network or computer security
could trigger a heightened awareness of computer abuse, resulting in an
increased demand for security products such as those offered by the Company.
Similarly, an actual or perceived breach of network or computer security at one
of the Company's customers, regardless of whether such breach is attributable to
the Company's products, could adversely affect the market's perception of the
Company and the Company's financial condition or results of operations. In
addition, although the effectiveness of the Company's products is not dependent
upon the secrecy of its proprietary technology or licensed technology, the
public disclosure of its proprietary technology could result in a perception of
breached security and reduced effectiveness of the Company's products, which
could have an adverse effect on the Company's financial condition or results of
operations.
NEW PRODUCT INTRODUCTIONS
The Gauntlet Internet Firewall was released commercially in April 1994, and the
other firewall products in the Gauntlet family were introduced in April 1996.
The Company is currently devoting significant resources toward the development
of versions of Gauntlet Internet firewall products that operate on additional
hardware platforms and operating systems, the development of Key Recovery
Technology ("KRT") products and the development of enhancements to these
families of products. There can be no assurance that the Company will
successfully complete the development of these products in a timely fashion,
that the Company will be able to develop versions of its products that operate
on the range of hardware platforms and operating systems currently anticipated
or that the Company's current or future products will satisfy the needs of the
information security market or achieve market acceptance or, if market
acceptance is achieved, that the Company will be able to maintain such
acceptance for a significant period of time. Any inability of the Company to
develop products on a timely basis that address changing customer requirements
may require the Company to substantially increase development expenditures or
may result in a loss of market share to a competitor. There can also be no
assurance that security-related products or technologies developed by others
will not adversely affect the Company's competitive position or render its
8
<PAGE> 12
products or technologies noncompetitive or obsolete. See "Business -- Commercial
Products and Services" and "-- Competition."
CHANGES IN TECHNOLOGY
The information security industry is characterized by rapid changes, including
frequent new product introductions, continuing advances in technology and
changes in customer requirements and preferences. The introduction of new
technologies or advances in techniques for gaining unauthorized network access
could render the Company's existing products obsolete or unmarketable. The
development cycle for the Company's new products may be significantly longer
than the Company's historical product development cycle, resulting in higher
development costs or a loss in market share. Advances in techniques by
individuals and entities seeking to gain unauthorized access to networks could
expose the Company's existing products to new and unexpected attacks and require
accelerated development of new products or require the Company to invest
resources in products that may not become profitable. There can be no assurance
that (i) the Company will be able to counter challenges to its current products;
(ii) the Company's future product offerings will keep pace with the
technological changes implemented by competitors or persons seeking to breach
information security; (iii) the Company's products will satisfy evolving
preferences of customers and prospects; or (iv) the Company will be successful
in developing and marketing products for any future technology. Failure to
develop and introduce new products and product enhancements in a timely fashion
could have a material adverse effect on the Company's financial condition or
results of operations. See "Business -- Commercial Products and Services."
DEPENDENCE ON THE INTERNET
The success of the Company's products and services will depend in large part
upon the development of an infrastructure for providing Internet access and
services. Because global commerce and online exchange of information on the
Internet and other similar open wide area networks are new and evolving, it is
difficult to predict with any assurance whether the Internet will prove to be a
viable commercial marketplace. The Internet has experienced, and is expected to
continue to experience, significant, geometric growth in the number of users and
amount of traffic. There can be no assurance that the Internet infrastructure
will continue to be able to support the demands placed on it by this continued
growth. In addition, the Internet could lose its viability due to delays in the
development or adoption of new standards and protocols (for example, the
next-generation Internet Protocol) to handle increased levels of Internet
activity, or due to increased governmental regulation. If the necessary
infrastructure or complementary services or facilities are not developed, or if
the Internet does not become a viable commercial marketplace, the Company's
results of operations or financial conditions could be materially adversely
affected. See "Business -- Industry Background."
RISKS OF DOING BUSINESS WITH THE U.S. GOVERNMENT
Historically, the Company has derived substantially all of its revenues from
contracts with departments and agencies of the U.S. government and government
contractors. The Company expects to continue to rely on existing and future
research and development contracts with agencies of the U.S. government for a
substantial part of the Company's revenues in the near future. The Company
believes that future government contracts will in part be dependent upon the
continued favorable reaction of government agencies to the research, development
and consulting capabilities of the Company. The Company's development contract
with the NSA, which accounted for approximately 36.8% and 38.6% of the Company's
government contracts revenues in 1995 and the first quarter of 1996,
respectively, is scheduled to expire in early 1997. There can be no assurance
that the Company will be able to procure an extension of this contract or
additional contracts of a similar magnitude. The NSA contract permits the NSA to
award a fee as low as 1% of the Company's costs of development, and is subject
to cancellation for the convenience of the agency. Although the Company has been
awarded more than 1% and there have been no terminations of the Company's
government contracts in the past, there can be no assurance that minimum fee
awards or cancellations will not occur in the future. Reductions or delays in
federal funds available for projects the Company is performing could also have
an adverse impact on the Company's government business. Contracts involving the
U.S. government are also subject to the risks of disallowance of costs upon
audit, changes in government procurement policies, the necessity to participate
in competitive bidding and, with respect to contracts involving prime
contractors or
9
<PAGE> 13
government-designated subcontractors, the inability of such parties to perform
under their contracts. Any of the foregoing events could have a material adverse
effect on the Company's financial condition or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Advanced Research and Engineering."
COMPETITION
Competition in the information security market is intense and constantly
evolving, and the Company expects such competition to increase in the future.
The Company believes that significant competitive factors affecting this market
are depth of product functionality, product quality and performance, product
price, customer support, conformance to protocols and industry standards and
breadth of platform support. In addition, the ability to rapidly develop and
implement new products and features for the market is critical. The Company's
competitors include organizations that provide information security products
based upon approaches similar to and different from those employed by the
Company. There can be no assurance that the market for information security
products will not ultimately be dominated by approaches other than the
approaches marketed by the Company. See "Business -- Industry Background" and
"-- Competition."
Many of the Company's competitors and potential competitors have longer
operating histories, greater name recognition, a larger customer base and
significantly greater financial, marketing, technical and other competitive
resources than the Company. As a result, they may be able to adapt more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the promotion and sale of their products than can
the Company. There can be no assurance that the Company's current or potential
competitors will not develop products comparable or superior to those developed
by the Company or adapt more quickly than the Company to new technologies,
evolving industry trends or changing customer requirements. Competition could
increase if new companies enter the market or if existing competitors expand
their product lines, including the addition by operating system vendors such as
Microsoft Corporation of firewalls in their operating system software products.
An increase in competition could result in price reductions and loss of market
share. Any resulting reduction in gross margins could have a material adverse
effect on the Company's financial condition or results of operations. Although
the Company believes it has certain technological and other advantages over its
competitors, maintaining such advantages will require continued investment by
the Company in research and development and sales and marketing. There can be no
assurance that the Company will have sufficient resources to make such
investments or that the Company will be able to make the technological advances
necessary to maintain such competitive advantages. In addition, current and
potential competitors have established or may in the future establish
collaborative relationships among themselves or with third parties, including
third parties with whom the Company has strategic relationships, to increase the
ability of their products to address the security needs of the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share. If this were
to occur, the Company's financial condition or results of operations could be
materially adversely affected. See "Business -- Competition."
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company intends from time to time to evaluate potential acquisitions of
businesses, products and technologies that could complement or expand the
Company's business. In the event the Company identifies an appropriate
acquisition candidate, there is no assurance that the Company would be able to
successfully negotiate the terms of any such acquisition, finance such
acquisition and integrate such acquired business, products or technologies into
the Company's existing business and operations. Furthermore, the integration of
an acquired business could cause a diversion of management time and resources.
There can be no assurance that a given acquisition, when consummated, would not
materially adversely affect the Company's financial condition or results of
operations. See "Use of Proceeds." If the Company proceeds with one or more
significant acquisitions in which the consideration consists of cash, a
substantial portion of the Company's available cash (including proceeds of the
Offering) could be used to consummate the acquisitions. If the Company
consummates one or more significant acquisitions in which the consideration
consists of stock, or is financed with the proceeds of the issuance of stock,
stockholders of the Company could suffer a significant dilution of their
interests in the Company.
10
<PAGE> 14
RISKS OF ERROR OR FAILURES
Products as complex as those offered by the Company may contain undetected
errors, failures or bugs when first introduced or when new versions are
released. Many companies offering software products have in the past discovered
failures and bugs in certain of their product offerings and have experienced
delays or lost revenues during the period required to correct these errors. The
computer technology environment is characterized by a wide variety of standard
and non-standard configurations that make pre-release testing for programming or
compatibility errors very difficult and time-consuming, especially with the many
configurations and variations of equipment and operating systems in computer
networks. Furthermore, there can be no assurance that, despite testing by the
Company and by others, errors, failures or bugs will not be found in new
products or releases after commencement of commercial shipments by the Company.
Errors, failures or bugs in the Company's products could result in adverse
publicity, in product returns, in loss of or delay in market acceptance of the
Company's products or in claims by the customer or others against the Company.
Alleviating such problems could require significant expenditures of capital and
resources by the Company and could cause interruptions, delays or cessation of
service to the Company's customers. The Company attempts to limit its liability
to customers, including liability arising from a failure of the security
features contained in the Company's products, through contractual limitations of
warranties and remedies. However, some courts have held similar contractual
limitations of liability, or the "shrink-wrap licenses" in which they sometimes
are embodied, to be unenforceable. Accordingly, there can be no assurance that
such limitations will be enforced. The Company does not currently carry product
liability insurance. The consequences of errors, failures or bugs in the
Company's products could have a material adverse effect on the Company's
financial condition or results of operations. See "Business -- Commercial
Products and Services."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continuing
contributions of its key management, sales, marketing and product development
personnel. The Company has no employment agreement with any of its employees.
The loss of the services of any key employee could adversely affect the
Company's financial condition or results of operations. The Company believes
that its future success will depend in large part upon its ability to attract
and retain highly skilled managerial, sales, marketing and product development
personnel. The Company requires consulting services and product development
personnel who are highly technically trained in the field of information
security and the competition for such individuals is intense. The Company has at
times experienced, and continues to experience, difficulty in recruiting
qualified personnel. Competition for qualified personnel in the software
industry is intense, and there can be no assurance that the Company will be
successful in retaining its key employees or that it can attract or retain
additional skilled personnel as required. See "Management."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
Sales outside North America accounted for approximately 2.4%, 7.9% and 11.9% of
the Company's total revenues in 1994, 1995 and the first quarter of 1996,
respectively. Management expects that in the future sales outside North America
will generate a larger portion of the Company's total revenues. The Company's
international business may be subject to a variety of risks, including costs
relating to the start-up of direct operations in certain countries or regions,
delays in expanding its international distribution channels, difficulties in
collecting international accounts receivable from distributors or resellers and
increased costs associated with maintaining international marketing efforts.
Some of the Company's international sales are denominated in the local currency
of the country in which the sale was made, and in those cases the Company is
subject to the risks associated with fluctuations in currency exchange rates. A
decrease in the value of any of these foreign currencies relative to the U.S.
dollar could affect the profitability in U.S. dollars of the Company's products
sold in these markets. In addition, the Company is subject to the usual risks of
doing business abroad, including increases in duty rates, the introduction of
non-tariff barriers and difficulties in enforcement of intellectual property
rights. There can be no assurance that these factors will not have an adverse
effect on the Company's financial condition or results of operations. See
"Business -- Sales and Marketing."
11
<PAGE> 15
EFFECT OF GOVERNMENT REGULATION OF TECHNOLOGY EXPORTS
The Company's international sales and operations may be subject to risks such as
the imposition of governmental controls, new or changed export license
requirements, restrictions on the export of critical technology, trade
restrictions and changes in tariffs. While the Company believes its products are
designed to meet the regulatory standards of foreign markets, any inability to
obtain foreign regulatory approvals on a timely basis could have a material
adverse effect on the Company's financial condition or results of operations.
Certain of the Company's products are subject to export controls under U.S. law,
and the Company believes it has obtained all necessary export approvals when
required. There can be no assurance, however, that the list of products and
countries for which export approval is required, and the regulatory policies
with respect thereto, will not be revised from time to time. The inability of
the Company to obtain required approvals under these regulations could
materially adversely affect the ability of the Company to make international
sales. For example, because of U.S. governmental controls on the exportation of
encryption technology, the Company is unable to export some of its products with
the most robust information security encryption technology. As a result, foreign
competitors facing less stringent controls on their products may be able to
compete more effectively than the Company in the global information security
market. There can be no assurance that these factors will not have a material
adverse effect on the Company's financial condition or results of operation. See
"Business -- Industry Background," "-- Commercial Products and Services" and
"-- Regulatory Matters."
The Company has been a leader in developing a key escrow solution to enable the
interests of security and law enforcement agencies to be protected while
permitting the export of products with strong cryptography. The U.S. government,
both in the context of executive branch decision-making and pending legislation
in the Congress, is actively considering a variety of decisions regarding
cryptography export policy. Current Clinton administration proposals would link
the relaxation of export controls to systems that include key escrow. However,
certain parties, including companies in the computer industry and members of the
U.S. Congress, and a recent report prepared for the National Research Council of
the National Academy of Sciences call for removing export controls on
cryptographic products that use the industry standard DES algorithm (56 bits).
To the extent that the government either decides not to permit the export of
such products with key escrow or decides to permit the export of such products
without key escrow, those decisions could have an adverse impact on the
development of a market for the CKE products the Company plans to introduce in
the future.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success is dependent in part on its proprietary technology. TIS
relies on a combination of patent, trade secret, copyright and trademark laws,
non-disclosure agreements and contractual provisions to establish and protect
its proprietary rights. The Company has received one patent and has four pending
domestic or foreign patent applications on its KRT and computer security
technology. The Company uses a printed "shrink-wrap" license for users of its
products in order to protect certain of its copyrights and trade secrets. The
Company attempts to protect its trade secrets and other proprietary information
through agreements with suppliers, non-disclosure and non-competition agreements
with employees and consultants and other security measures.
There can be no assurance that the Company will seek patents on aspects of its
technology relating to its information security products, that any such patents
will issue or that any such additional patents will be sufficiently broad to
protect the Company's technology relating to its information security products.
The status of computer-related patents involves complex legal and factual
questions and the breadth of claims allowed is uncertain. Accordingly, there can
be no assurance that patent applications filed by the Company will result in
patents being issued or that its existing patent, and any patents that may be
issued to it in the future, will afford protection against competitors with
similar technology; nor can there be any assurance that patents issued to the
Company will not be infringed upon or designed around by others or that others
will not obtain patents that the Company would need to license or design around.
If existing or future patents containing broad claims are upheld by the courts,
the holders of such patents might be in a position to require companies to
obtain licenses. There can be no assurance that licenses that might be required
for the Company's products would be available on reasonable terms, if at all.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. Policing
12
<PAGE> 16
unauthorized use of the Company's products is difficult, and, while the Company
is unable to determine the extent to which piracy of its software products
exists, such piracy can be expected to be a persistent problem, particularly in
international markets and as a result of the growing use of the Internet. Some
courts have held that shrink-wrap licenses, because they are not signed by the
licensee, are not enforceable. The laws of Maryland, which the shrink-wrap
licenses purport to make the governing law, are unclear on this subject. There
can also be no assurance that the Company's trade secrets or confidentiality
agreements will provide meaningful protection of the Company's proprietary
information. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate any technology developed
by the Company or that the Company's technology will not infringe upon patents
or other rights owned by others. The Company's inability to protect its
proprietary rights could have a material adverse effect on the Company's
financial condition or results of operations.
As the number of information security products in the industry increases and the
functionality of these products further overlaps, software developers and
publishers may increasingly become subject to claims of infringement or
misappropriation of the intellectual property or proprietary rights of others.
There can be no assurance that third parties will not assert infringement or
misappropriation claims against the Company in the future with respect to
current or future products. Further, the Company may be subject to additional
risk as it enters into transactions in countries where intellectual property
laws are not well developed or are poorly enforced. Legal protections of the
Company's rights may be ineffective in such countries, and technology developed
in such countries may not be protectable in jurisdictions where protection is
ordinarily available.
Any claims or litigation, with or without merit, to defend or enforce the
Company's intellectual property could be costly and could result in a diversion
of management's attention, which could have a material adverse effect on the
Company's financial condition or results of operations. Adverse determinations
in such claims or litigation could also have a material adverse effect on the
Company's financial condition or results of operations. See "Business --
Proprietary Information and Intellectual Property."
CONTROL BY DIRECTORS AND OFFICERS
Upon completion of this Offering, the Company's officers and directors will
beneficially own approximately % of the Company's outstanding Common
Stock. As a practical matter, these stockholders, if acting together, would have
the ability to elect the Company's directors and to determine the outcome of
corporate actions requiring stockholder approval. This concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company. See "Management" and "Principal Stockholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active trading market will develop or be
sustained or that the purchasers of the Common Stock will be able to resell
their Common Stock at prices equal to or greater than the initial public
offering price. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the Representatives of
the Underwriters and may not reflect the market price of the Common Stock after
the Offering. See "Underwriting" for a discussion of factors considered in
determining the initial public offering price. The trading price of the Common
Stock could be subject to wide fluctuations in response to quarterly variations
in operating results, announcements of technological innovations or new products
by the Company or its competitors, changes in financial estimates by securities
analysts, market conditions and general trends in the technology industry and
other events or factors. In addition, the stock market has experienced
volatility that has particularly affected the market prices of equity securities
of many high technology companies and that often has been unrelated to the
operating performance of such companies. These broad market fluctuations may
adversely affect the market price of the Common Stock. See "Underwriting."
SUBSTANTIAL AND IMMEDIATE DILUTION
Investors participating in the Offering will incur immediate, substantial
dilution of $ per share in the net tangible book value of their shares. To
the extent outstanding options to purchase the Common Stock are exercised, there
will be further dilution. See "Dilution."
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<PAGE> 17
EFFECT OF CERTAIN CHARTER PROVISIONS
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of preferred stock (the "Preferred Stock") and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the stockholders. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
current plans to issue shares of Preferred Stock. Further, certain provisions of
the Company's Certificate of Incorporation and Bylaws and of Delaware law could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company. The Company is subject to the anti-takeover provisions of Section
of 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
See "Description of Capital Stock -- Preferred Stock," "-- Certain Provisions of
the Company's Certificate of Incorporation and Bylaws" and "-- Section 203 of
Delaware General Corporation Law."
In addition, the Company's Certificate of Incorporation contains other
provisions that may have the effect of delaying or preventing a change in
control of the Company: (i) a classified Board of Directors and (ii) a
limitation on stockholder action by written consent. See "Description of Capital
Stock -- Certain Provisions of the Company's Certificate of Incorporation and
Bylaws." All of these factors may negatively affect the price of the Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price for the Common
Stock and the Company's ability to raise capital. Upon completion of the
Offering, the Company will have outstanding shares of Common Stock,
assuming no exercise of outstanding options. In addition to the shares offered
hereby, approximately shares will be available for immediate sale in
the public market as of or shortly following the date of this Prospectus.
Beginning 90 days after the date of this Prospectus, approximately
additional shares will become eligible for sale in the public market, subject to
the provisions of Rule 144 or Rule 701 under the Securities Act of 1933, as
amended (the "Securities Act"). Beginning 180 days following the date of this
Prospectus, unless sooner released from contractual "lock-up" agreements with
the Underwriters, approximately additional shares will become available
for sale in the public market pursuant to Rule 144 or Rule 701, subject in
certain cases to volume and other resale limitations under Rule 144. See "Shares
Eligible for Future Sale." The Company is unable to estimate the number of
shares which may be sold under Rule 144 or Rule 701 since this will depend upon
the market price of the Common Stock, the individual circumstances of the
sellers and other factors.
14
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock being offered
hereby (after deducting the underwriting discounts and estimated offering
expenses) are estimated to be $ million ($ million if the
Underwriters' over-allotment option is exercised in full) (assuming an initial
public offering price of $ per share).
Such net proceeds will be used for working capital and other general corporate
purposes including expansion of the Company's distribution capabilities, further
development of products and technology, expansion of the Company's service and
support capabilities, repayment of short-term borrowings (of which $3.0 million
was outstanding as of May 31, 1996 with an interest rate of 9.25%) and potential
acquisitions.
Pending such uses, the Company intends to invest the net proceeds in short-term,
investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its common stock.
In addition, the agreements relating to certain of the Company's borrowings from
Mercantile-Safe Deposit & Trust Company ("Mercantile Bank") restrict the
Company's ability to pay cash dividends without Mercantile Bank's consent. The
Company intends to retain its earnings to fund development of its business and
does not anticipate paying cash dividends in the foreseeable future.
15
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March 29,
1996, and as adjusted to give effect to the sale of shares of Common Stock
offered hereby (assuming an initial public offering price of $ per share)
and the application of a portion of the estimated net proceeds therefrom to
repay short-term borrowings. See "Use of Proceeds."
<TABLE>
<CAPTION>
--------------------
MARCH 29, 1996
Dollars in thousands, except per share ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Lines of credit and current portion of long-term debt.................... $2,580 $ 216
====== =========
Long-term debt, excluding current portion................................ $2,574 $ 2,574
------ ---------
Shareholders' equity:
Preferred stock, $.01 par value (5,000,000 shares authorized; no shares
outstanding)........................................................ -- --
Common stock, $.01 par value (40,000,000 shares authorized; 12,168,720
shares issued and outstanding, actual; shares issued and
outstanding, as adjusted)(1)........................................ 122
Additional paid-in capital............................................. 257
Unrealized gains, net of income taxes of $1,356........................ 2,033 2,033
Foreign currency translation adjustment................................ (6) (6)
Retained earnings...................................................... 1,876 1,876
------ ---------
Total shareholders' equity.......................................... 4,282
------ ---------
Total capitalization................................................ $6,856 $
====== =========
</TABLE>
- ---------------
(1) Does not include 94,360 shares issued after March 29, 1996 upon exercise of
stock options, 1,787,000 shares reserved for issuance upon exercise of stock
options outstanding as of May 31, 1996 or 1,074,640 additional shares available
for future issuance under the Company's Stock Option Plans. See
"Management -- Employee Stock Option Plans" and "-- Directors' Stock Option
Plan."
16
<PAGE> 20
DILUTION
The net tangible book value of the Company at March 29, 1996 (adjusted for sales
of shares pursuant to the exercise of options since that date through May 31,
1996) was $4,312,518, or $.35 per share of Common Stock. After giving effect to
(i) the sale of the shares of Common Stock of the Company offered hereby
at an assumed initial public offering price of $ per share, and (ii) the
deduction of underwriting discounts and estimated expenses of the Offering, the
net tangible book value of the Company at March 29, 1996 would have been
$ , or $ per share of Common Stock. This represents an immediate
increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock............. $
Net tangible book value per share at March 29, 1996, as adjusted............ $ .35
Increase in net tangible book value per share of Common Stock attributable
to new investors..........................................................
------
Net tangible book value per share of Common Stock after the Offering........
------
Dilution per share to new investors......................................... $
======
</TABLE>
The following table summarizes, as of March 29, 1996 (adjusted for sales of
shares pursuant to the exercise of options since that date through May 31,
1996), the number of shares of Common Stock purchased by existing stockholders
from the Company, the total consideration paid and the average price per share
paid to the Company for such shares and by new investors in the Offering
(assuming an initial public offering price of $ per share):
<TABLE>
<CAPTION>
-----------------------------------------------------------
TOTAL CONSIDERATION
SHARES PURCHASED AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 12,263,080 $409,853 $0.0334
New investors.............................
---------- -------- -------- --------
Total...................................
========== ======== ======== ========
</TABLE>
As of May 31, 1996, there were outstanding options to purchase 1,787,000 shares
of Common Stock at a weighted average exercise price of $1.4535 per share. The
foregoing tables do not give effect to the exercise of stock options and, to the
extent they are exercised, there will be further dilution to new investors. See
"Management -- Employee Stock Option Plans" and "-- Directors' Stock Option
Plan."
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<PAGE> 21
SELECTED FINANCIAL DATA
The consolidated statement of operations data set forth below for the fiscal
years ended December 31, 1993, December 30, 1994, and December 29, 1995 and the
consolidated balance sheet data at December 31, 1993, December 30, 1994 and
December 29, 1995 are derived from, and should be read in conjunction with, the
audited consolidated financial statements of the Company which are included
elsewhere in this Prospectus. The consolidated statements of operations data for
the fiscal years ended December 27, 1991 and December 25, 1992 and the
consolidated balance sheet data at December 27, 1991 and December 25, 1992 are
derived from unaudited consolidated financial statements of the Company not
included herein. The selected financial data at March 31, 1995 and March 29,
1996 and for the three months ended March 31, 1995 and March 29, 1996 are
derived from unaudited consolidated financial statements included elsewhere in
this Prospectus. The unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments and accruals) that
in the opinion of management are necessary for a fair presentation of the
financial information set forth therein. Operating results for the three months
ended March 29, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 27, 1996. The selected financial
data set forth below are qualified in their entirety by, and should be read in
conjunction with, the consolidated financial statements, the related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
-----------------------------------------------------------
FISCAL YEAR FIRST QUARTER
In thousands, except per share data 1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Government contracts......................... $5,191 $6,262 $8,343 $11,258 $12,327 $3,040 $2,432
Commercial products and services............. 834 568 448 1,859 5,763 906 1,744
------ ------ ------ ------- ------- ------ ------
6,025 6,830 8,791 13,117 18,090 3,946 4,176
Cost of revenues:
Government contracts......................... 3,332 4,108 5,512 7,377 8,845 2,119 1,775
Commercial products and services............. 350 268 307 826 2,020 364 638
------ ------ ------ ------- ------- ------ ------
3,682 4,376 5,819 8,203 10,865 2,483 2,413
------ ------ ------ ------- ------- ------ ------
Gross profit................................... 2,343 2,454 2,972 4,914 7,225 1,463 1,763
Operating expenses:
Selling, general and administrative.......... 1,578 1,612 2,198 2,997 3,727 988 2,044
Research and development..................... 552 580 582 646 1,145 296 375
------ ------ ------ ------- ------- ------ ------
2,130 2,192 2,780 3,643 4,872 1,284 2,419
------ ------ ------ ------- ------- ------ ------
Income (loss) from operations.................. 213 262 192 1,271 2,353 179 (656)
Other income (expense):
Interest income.............................. 23 7 8 44 50 8 5
Interest expense............................. (172) (145) (128) (134) (159) (23) (89)
------ ------ ------ ------- ------- ------ ------
(149) (138) (120) (90) (109) (15) (84)
------ ------ ------ ------- ------- ------ ------
Income (loss) before income taxes.............. 64 124 72 1,181 2,244 164 (740)
Income tax provision (benefit)................. 26 50 37 506 900 66 (316)
------ ------ ------ ------- ------- ------ ------
Net income (loss).............................. $ 38 $ 74 $ 35 $ 675 $ 1,344 $ 98 $ (424)
====== ====== ====== ======= ======= ====== ======
Net income (loss) per share.................... $ $ $ $ $ $ $
====== ====== ====== ======= ======= ====== ======
Weighted average shares outstanding............
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
FISCAL YEAR END FIRST QUARTER END
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ------ -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents and marketable securities...... $ 12 $ 29 $ 37 $ 262 $ 54 $ 73 $ 3,793
Working capital....................................... 150 100 (68) 400 210 428 1,914
Total assets.......................................... 3,330 3,852 4,412 5,229 10,222 6,354 14,988
Total debt............................................ 1,707 1,970 1,835 973 3,264 1,696 5,153
Shareholders' equity.................................. 738 755 793 1,467 2,407 1,560 4,282
</TABLE>
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<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Prospectus contain forward-looking statements
which involve risks and uncertainties. The Company's actual results could differ
materially from the results discussed in forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors."
OVERVIEW
Trusted Information Systems, Inc., founded in 1983, is a leading provider of
comprehensive security solutions for protection of computer networks, including
global Internet-based systems, internal networks and individual workstations and
laptops. The Company currently has two operating divisions: the Commercial
Division and the Advanced Research and Engineering ("AR&E") Division.
The Commercial Division
The Commercial Division derives revenues from the Company's Gauntlet family of
firewall products and from its commercial consulting services. The Commercial
Division accounted for 5%, 14%, 32% and 42% of the Company's total revenues in
1993, 1994, 1995 and the first quarter of 1996, respectively. The Company
expects that the Commercial Division will account for an increased percentage of
total revenues over the remainder of the current year and in future years.
Prior to 1996, the Company distributed its only revenue producing product, the
Gauntlet Internet Firewall which was introduced in 1994, exclusively through
resellers and a sales administration staff. During 1996 the Company has begun to
incur and expects to continue to incur substantial increases in its selling,
general and administrative expenses as it builds its marketing and sales efforts
to support sales of the Gauntlet Internet Firewall product and of its three
products introduced in 1996: the Gauntlet Intranet Firewall, the Gauntlet Net
Extender and the Gauntlet PC Extender. The Company presently has more than 60
persons to develop, promote, sell and deliver its network security products and
services, including the Gauntlet family of firewall products. Prior to 1996, the
Company's Gauntlet Internet Firewall was licensed as software or as software and
hardware on one platform, frequently combined (or "bundled") with installation
for pricing purposes. Since April 15, 1996, installation for the Gauntlet family
of firewall products has been offered as a separate (or "unbundled") optional
service provided to customers.
The Company offers a full range of consulting in information security planning
and product support. The Company's commercial consulting practice offers expert
technology research services, consultation on security issues associated with
products and services, corporate information security policy development,
architectural and diagnostic security analysis services, firewall configuration
and maintenance support, and training for corporate network and security
administration personnel. These services are carried out by a staff of 12
persons who average more than 15 years of information security experience in
both commercial and government organizations.
The Advanced Research and Engineering Division
The Advanced Research and Engineering Division consists primarily of research,
development and consulting in computer and related security systems, currently
including major contracts with three agencies of the U.S. government: the NSA,
Air Force Rome Laboratories ("RL") and Defense Advanced Research Projects Agency
("DARPA"), formerly ARPA. Revenues from the AR&E Division increased consistently
through 1995, but decreased in the first quarter of 1996. The aggregate award
value of the Company's nine major active government contracts is approximately
$29,203,000. In October 1993, the Company began providing services under the
largest of these current contracts, with the NSA, which is valued at $14,823,000
and is expected to expire in early 1997. The contract with RL, valued at
$3,499,000, commenced August 1993 and will expire in 1996. Of the seven
contracts with ARPA, which range in value from $741,000 to $2,495,000 and have
all commenced in the preceding two years, one expires in 1996, three expire
during 1997 and three expire during 1998. While the Company expects to continue
to obtain government contracts for its AR&E Division, it does not anticipate
that revenues from such contracts will attain the levels realized in 1995.
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<PAGE> 23
Most of the Company's government contracts provide for compensation to the
Company in the form of reimbursement of costs plus a fee. Gross profit under
government contracts generally represents the fee plus recovered operating
expenses. Under these government contracts, the Company is entitled to recover
associated direct labor costs, overhead and selling, general and administrative
expenses, including allowable research and development expenses. Selling,
general and administrative expenses allowable under government contracts include
salaries and benefits, marketing, bid and proposal costs, management,
accounting, legal and contract administration and certain other administrative
expenses.
Under its government contracts, the Company bears the risk that recoverable
expenses billed by the Company are subject to review and audit by the Defense
Contract Audit Agency (the "DCAA"). The DCAA has audited the Company's contracts
through 1990, without any significant disallowances. Pursuant to their terms,
these contracts are also subject to termination at the convenience of the
applicable governmental agency. If the contract is terminated, the Company would
typically be reimbursed for its costs to the date of termination plus the cost
of any orderly termination and would be paid a portion of the fee.
RESULTS OF OPERATIONS
First Quarter of Fiscal 1996 Compared to First Quarter of Fiscal 1995
Revenues. Total revenues increased 5.8% to $4,175,878 in the first quarter of
1996 from $3,946,433 in the first quarter of 1995. Commercial product revenues
increased 252.1% to $1,496,455 in the first quarter of 1996 from $425,000 in the
first quarter of 1995, because of an increase in shipments of the Company's
Gauntlet firewall products. Commercial consulting revenues decreased 48.6% to
$247,150 in the first quarter of 1996 from $480,730 in the first quarter of
1995, primarily because of the Company's completion of a substantial number of
commercial consulting contracts during the first quarter of 1995. Government
contract revenues decreased 20.0% to $2,432,273 in the first quarter of 1996
from $3,040,703 in the first quarter of 1995, primarily because of the Company's
reallocation of personnel to its commercial activities.
Gross Profit. Gross profit increased 20.6% to $1,763,499 in the first quarter
of 1996 from $1,462,532 in the first quarter of 1995, due to the increase in the
Company's commercial product sales. The gross profit on commercial products
increased 329.8% to $1,024,358 in the first quarter of 1996 from $238,313 in the
first quarter of 1995 because of the increase in shipments of Gauntlet firewall
products. The gross profit on commercial products as a percentage of related
revenues increased to 68.5% in the first quarter of 1996 from 56.1% in the first
quarter of 1995, primarily due to a favorable change in the mix of product
sales. Gross profit from the Company's commercial consulting services decreased
73.0% to $81,722 in the first quarter of 1996 from $302,538 in the first quarter
of 1995, and gross profit from the Company's government contracts decreased
28.7% to $657,419 in the first quarter of 1996 from $921,681 in the first
quarter of 1995, in each case because of lower related revenues. As a percentage
of related revenues, gross profit on commercial consulting services decreased to
33.1% in the first quarter of 1996 from 62.9% in the first quarter of 1995,
because of the substantially higher margin on a number of contracts in the first
quarter of 1995. As a percentage of related revenues, gross profit on government
contracts decreased to 27.0% in the first quarter of 1996 from 30.3% in the
first quarter of 1995, because of greater revenues received in 1996 from
contracts with proportionately lower fees.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 106.9% to $2,043,859 in the first quarter of
1996 from $988,016 in the first quarter of 1995, due primarily to the
substantial increase in personnel and related operating costs associated with
the increase in the Company's commercial products sales, as well as its initial
effort towards developing the infrastructure to support future commercial
product revenue growth.
Research and Development Expenses. The Company's research and development
expenses, excluding such expenses directly reimbursed under government
contracts, increased 27.1% to $375,187 in the first quarter of 1996 from
$295,137 in the first quarter of 1995. This increase primarily resulted from the
Company's efforts in developing the new members of the Gauntlet family of
firewall products announced in April 1996.
20
<PAGE> 24
Interest Expense. Interest expense increased 289.6% to $88,883 in the first
quarter of 1996 from $22,812 in the first quarter of 1995, due primarily to the
increase in borrowings under the Company's revolving and construction credit
lines.
Fiscal 1995 Compared to Fiscal 1994
Revenues. The Company's total revenues increased 37.9% to $18,090,087 in 1995
from $13,117,152 in 1994. Commercial product revenues increased 325.6% to
$4,270,924 in 1995 from $1,003,523 in 1994, primarily because of increased sales
of licenses of Gauntlet Internet Firewalls directly to customers and through the
Company's resellers. Commercial consulting revenues increased 74.3% to
$1,491,661 in 1995 from $855,613 in 1994 primarily because of the Company's
completion of a substantial number of commercial consulting contracts during
1995. Government contract revenues increased 9.5% to $12,327,502 in 1995 from
$11,258,016 in 1994.
Gross Profit. Gross profit increased 47.0% to $7,225,140 in 1995 from
$4,914,495 in 1994. This increase was primarily the result of higher gross
profit associated with the Gauntlet Internet Firewall, which increased 366.2% to
$3,128,642 in 1995 from $671,043 in 1994. The gross profit on commercial
products as a percentage of related revenues increased to 73.3% in 1995 from
66.9% in 1994 because of increased margins on the Gauntlet Internet Firewall
overall and an increase in the percentage of sales through resellers at higher
margins than for direct sales. Gross profit from the Company's government
contracts decreased 10.3% to $3,482,783 in 1995 from $3,881,084 in 1994,
primarily because the Company shifted resources to its commercial products. As a
percentage of related revenues, the gross profit for government contract
revenues decreased to 28.3% in 1995 to 34.5% in 1994 because certain of the
Company's government contracts provided for higher fees on the earlier
installments under those contracts, generating higher margins in 1994.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 24.3% to $3,727,701 in 1995 from $2,997,806 in
1994, primarily due to the Company's overall increase in operations and to the
Company's efforts in late 1995 to initiate dedicated commercial marketing and
sales efforts.
Research and Development Expenses. Research and development expenses increased
77.2% to $1,144,737 in 1995 from $646,001 in 1994, primarily because the Company
increased its budget for funding research and development efforts and began to
commit substantial resources to developing its commercial products, including
activities in encryption and additional platform applications for the Gauntlet
Internet Firewall.
Interest Expense. Interest expense increased 18.3% to $158,778 in 1995 from
$134,236 in 1994, due primarily to an increase of approximately $2.2 million
during 1995 in the Company's borrowings under its revolving and construction
credit lines.
Fiscal 1994 Compared to Fiscal 1993
Revenues. The Company's total revenues increased 49.2% to $13,117,152 in 1994
from $8,791,478 in 1993. Commercial product revenues commenced with the
introduction of the Company's Gauntlet Internet Firewall in April 1994, and
totaled $1,003,523 in 1994. Commercial consulting revenues increased 91.0% to
$855,613 in 1994 from $448,054 in 1993, primarily because of the Company's
increased efforts in establishing commercial activities. Government contract
revenues increased 34.9% to $11,258,016 in 1994 from $8,343,424 in 1993,
primarily as a result of a research and development contract with the NSA which
commenced during October 1993 and two contracts with ARPA, one of which
commenced in August 1993 and the other of which commenced in March 1994.
Gross Profit. Gross profit increased 65.4% to $4,914,495 in 1994 from
$2,971,742 in 1993. Gross profit from the Company's government contracts
increased 37.1% to $3,881,084 in 1994 from $2,830,926 in 1993, because of the
year-to-year increase in the revenues from government contracts. As a percentage
of related revenues, gross profit from government contracts was relatively
stable. The gross profit associated with the Gauntlet Internet Firewall product,
which was $671,043 in 1994, and the 157.3% increase in the gross profit on
commercial consulting to $362,368 in 1994 from $140,816 in 1993, also
contributed to the increase in overall gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 36.4% to $2,997,806 in 1994 from $2,198,011 in
1993, due primarily to the Company's overall growth in operations and revenues.
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<PAGE> 25
Research and Development Expenses. Research and development expenses increased
11.0% to $646,001 in 1994 from $582,075 in 1993, as a result of the Company's
increased funding of its research and development efforts.
Interest Expense. Interest expense increased 5.1% to $134,236 in 1994 from
$127,711 in 1993, due primarily to the Company's increased borrowings during
1994.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and the purchase of
property and equipment through the issuance of common stock, borrowings under
short-term lines of credit, secured notes payable and stockholder loans and the
generation of cash from operations.
During 1994, the Company purchased $192,165 of property and equipment and repaid
$861,269 in borrowings, primarily through the generation of cash from
operations. During 1995 and the first quarter of 1996, as the Company
substantially completed construction of its facilities in Glenwood, the Company
purchased $3,354,958 of property and equipment and repurchased common stock for
$407,520, primarily through the use of short-term borrowings of $2,364,000, the
net issuance of notes payable of $1,816,004 and the issuance of common stock for
$266,152 upon the exercise of stock options. In 1989, the Company established a
mortgage on its Glenwood facility, which at December 29, 1995, was outstanding
in the amount of $902,656.
At December 30, 1994 and December 29, 1995, the Company had various short-term
line of credit arrangements with Mercantile Bank aggregating $1,000,000 and
$2,000,000, respectively, of which $1,000,000 and $477,000, respectively, were
available for further borrowing. During the first five months of 1996, the
Company entered into an agreement with Mercantile Bank to increase its
short-term lines of credit to $3,000,000 and negotiated a separate $2,000,000
credit line for its product development needs, including the development of the
three Gauntlet firewall products introduced in 1996. At May 31, 1996,
approximately $2,000,000 was available for borrowing under these facilities.
In 1995, the Company negotiated a construction loan in the amount of $1.8
million to provide for the expansion of its facilities at its Glenwood, Maryland
location. At the end of May 1996, the Company had completed its expansion and
substantially drawn down the total amount of its construction loan. The
Company's bank borrowings are secured by substantially all of the Company's
tangible assets.
While the Company may require additional financing to fund development of new
products and expansion of its domestic and international operations, it believes
that the net proceeds from the Offering, together with existing cash and cash
equivalents, cash generated from operations and cash available through its
credit and note payable arrangements, will be sufficient to finance its product
development and operating needs through December 1997.
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<PAGE> 26
BUSINESS
In addition to the historical information contained herein, this Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the sections entitled "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed in this section and elsewhere in this
Prospectus.
GENERAL
Trusted Information Systems, Inc. is a leading provider of comprehensive
security solutions for protection of computer networks, including global
Internet-based systems, internal networks and individual workstations and
laptops. TIS, which was founded in 1983 to engage in computer security
consulting, draws upon the expertise of a senior management team with an average
of more than 20 years of experience in computer security and networking issues
in industry and government. The Company emphasizes the robustness of its
security solutions, its long experience with computer security and cryptography
issues and its ability to provide comprehensive solutions to customers. The
Company also emphasizes its strong reputation with corporate and government
computer security professionals in the United States and abroad as a pioneer in
the field of computer network security. The Company's customers include the
following or subsidiaries thereof: Chevron Corporation, Chrysler Corporation,
NationsBank Corporation and Swiss Bank Corporation.
The Company develops, markets, licenses and supports the Gauntlet family of
firewall products. These products allow customers to create "trusted" networks
that are protected from access, theft and damage by unauthorized users from
"untrusted" networks such as the Internet and also enable the creation of
virtual private networks ("VPNs") through the encypted transmission of
information across untrusted networks. The Company's Gauntlet Internet Firewall,
introduced in 1994, was derived from the TIS Internet Firewall Toolkit which has
been available on the Internet since 1993 and has been downloaded more than
27,000 times to more than 15,000 discrete locations worldwide. To date, more
than 1,500 Gauntlet Internet Firewalls have been licensed to customers. In
January 1996, the Company initiated a telemarketing program to upgrade TIS
Internet Firewall Toolkit users to the Gauntlet family of firewall products. To
build, maintain and enhance customer relationships, TIS also offers a full range
of consulting in information security policies and planning to its customers.
The Company further provides research and development and consulting to
government agencies, including the NSA and DARPA, in areas such as next
generation firewalls, distributed trusted operating systems, Internet domain
name services, international cryptography and advanced cryptographic key
handling and recovery techniques.
Prior to founding the Company in 1983, Stephen T. Walker, Chairman and Chief
Executive Officer, spent over 20 years working on computer security issues for
the U.S. government at the NSA and ARPA.
INDUSTRY BACKGROUND
The Internet
The Internet, derived from ARPA research in the 1970s, is a global web of
inter-connected computer networks which enables commercial organizations,
educational institutions, government agencies and individuals to freely
communicate, access and share information and conduct business remotely. The
networks that constitute the Internet are connected in a variety of ways,
including by the public switched telephone network and by high speed, dedicated
leased lines.
While there has been significant media interest in the consumer potential of the
Internet, business and professional organizations also account for a significant
percentage of Internet usage. The recent growth in the Internet has been driven
primarily by the increasing popularity of two applications: the World Wide Web
and e-mail. The emergence of the World Wide Web allows commercial organizations
a new medium in which to publish multi-media documents and other information for
public access and to advertise or provide products and services to users. Many
such commercial enterprises have established a "home page" to enhance these new
market opportunities. Customer service, electronic commerce, advertising and
market data generation are all being conducted across the World Wide Web. The
growth of e-mail usage on the Internet is being driven by ease-of-use and
standardization. Today,
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<PAGE> 27
there are a number of commercially available e-mail programs that an
organization or individual may use to facilitate Internet communications.
The Company believes that full commercial utilization of the Internet has been
hampered by lack of security and the vulnerability of the Internet and private
networks directly connected to the Internet. The very openness of the Internet
means that transmitted information and data stored in connected hosts are
exposed to other users who are able, in the absence of effective security
measures, to gain access to, manipulate and divert the data. This fundamental
weakness mandates that organizations and individuals weigh security concerns
against the perceived commercial opportunities presented by millions of Internet
users.
Private Networks and Intranets
As network technology has advanced, enterprise computing has evolved from
mainframe computers supporting a number of terminals toward networks of
inter-connected personal computers. Organizations have developed local-area
networks ("LANs") to share data and applications within work groups.
Increasingly, businesses are using the Internet's non-proprietary TCP/IP
protocol for internal network communications which facilitates corporate
communications using Internet tools and applications. Internal networks that
employ TCP/IP as a network protocol are known as "Intranets."
Organizations are increasingly dependent on electronic communications among
geographically dispersed internal operations, customers, suppliers and other
partners. Many organizations have connected together LANs, including
geographically dispersed networks, into wide-area networks ("WANs"), and further
connect multiple LANs and WANs, including remote networks and mobile PCs, over
dedicated leased lines or other costly telecommunication links. Private networks
can support remote access from other private networks to provide customer
support bulletin board services, electronic data interchange ("EDI") and
database sharing. Organizations can use the Internet as a low-cost, if less
secure, communications "backbone" for a WAN, thereby extending internal
information systems and enterprise applications to geographically dispersed
facilities, remote offices and mobile employees.
The increasing number of authorized users having direct access to expanding
networks and the data contained on such networks has increased the need to
provide protection for sensitive data on such networks from unauthorized users
with general access to a system. Network administrators face the challenge of
creating accessible, shared LANs and Intranets while protecting the integrity
and confidentiality of the information being shared.
Network Security
As a result of the increased use of the Internet and Intranets, unauthorized
access to organization networks and corporate data is an increasingly costly
business problem. Sensitive data that require protection from unauthorized use
include financial results, medical records, personnel files, research and
development projects, marketing plans and other business information.
Unauthorized access to this information may go undetected by the computer user
or network administrator, especially if the information is read but not altered
by the unauthorized party. Organizations are vulnerable not only to unauthorized
access to information resources by outsiders, but also to abuse by employees
within their own organizations.
TIS believes the requirements for information security in these complex
communications systems can be described in terms of three major requirements:
Confidentiality: controlling who gets to read information
Integrity: assuring that information is changed only in a specified and
authorized manner, and
Availability: assuring that authorized users have continued access to
information and resources.
The relative importance of these requirements differs depending upon the
application. For example, funds transfer systems require strong integrity
controls, while automotive design or petroleum exploration systems may focus
chiefly on confidentiality.
These information security requirements typically are stated in a security
policy -- a concise statement of information sensitivities, protection
responsibilities and organizational commitment. The Company believes that a
strong
24
<PAGE> 28
security policy must state specific security needs in terms which balance the
system's risks and vulnerabilities with the need to operate. An organization
must consider the following in establishing a system security policy:
the value of the asset being protected;
the vulnerabilities of the system -- what damage can insiders/outsiders do
to the system;
the threats to the system -- can adversaries exploit these vulnerabilities;
and
the risks to the system -- what are the costs of recovery if an adversary
exploits a system's vulnerability.
These policies then need to be implemented by the organization at a number of
levels, for example, (a) between sections or particular groups within a site,
(b) for each site, (c) throughout the organization with its many sites and (d)
between the organization, its customers and suppliers. Each level of
communications requires the implementation of information security technology to
carry out these security policies.
Firewalls
Without any firewall protection, a computer on an untrusted network can easily
exploit any weaknesses in the software on a computer on a trusted network.
Figure 1 shows two computers on networks communicating over the Internet without
any firewall protection.
FIGURE 1: TYPICAL HOST-TO-HOST COMPUTER COMMUNICATIONS
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<PAGE> 29
Firewalls have developed as key elements in implementing different security
policies at the different levels within networks. The growth in Internet users
and Intranets, as well as the growing concerns about network security, are
fueling increasing demand for firewalls. A report released in February 1996 by
International Data Corporation projects that firewall product licenses will grow
from 10,000 units in 1995 to 1,500,000 units in 2000, while revenue from such
licenses will grow from approximately $160 million to approximately $980 million
over the same period.
Firewalls provide strong points of defense and controlled, audited access to
services at all levels of communications -- both from within and without an
organization's private network. A firewall is a computer system that is
interposed between two networks, generally an organization's internal or private
computer network and a more public or untrusted network. The private, or
trusted, network can be as large as the internal network of a Fortune 500
company, or as small as a network serving a single department at a single site.
The public or untrusted network can be as specific as the enterprise's network
or as general and open as the Internet. One "firewalled" private network can
exist inside another. A firewall can restrict the access to a trusted network by
user, by application and by location. A firewall can also require users to
provide authentication based on cryptography that is much less vulnerable than
the simple passwords that have been historically used in computer systems. Thus,
any organization linking a trusted network to an untrusted network, either
internal or external, will generally and increasingly require a firewall to
enforce network security and protect the trusted network.
The two major types of firewalls are filtering gateways and application
gateways. Both gateway types work to enforce a network security policy without
adversely limiting flexibility or affecting performance. However, each design
strikes a different balance between these three goals: filtering gateways
sacrifice aspects of security in order to be more flexible and generally provide
for performance, and application gateways provide higher security at the expense
of some flexibility and performance.
Filtering Gateway Firewalls. Filtering gateway firewalls are either "static" or
"dynamic" packet filters. Dynamic filtering is sometimes referred to as
"Stateful Multi-Layer Inspection." All filtering gateways make routing decisions
based on information contained in each network "packet." If a packet's content
meets the security policy criteria, it is forwarded to the other side of the
gateway. Otherwise, it is blocked at the gateway. Static filters, which are
typically implemented in routers, examine each packet as it arrives at the
gateway and make a routing decision based on the packet's header (information
such as source and destination address, protocols, and port numbers) and
sometimes on portions of the packet's contents. Dynamic filters can make
forwarding decisions based on the application protocols contained within the
packets.
Since filtering gateways operate by routing traffic, they provide direct
connectivity between untrusted and trusted networks. This direct connection
places a large burden for the network's security policy on internal systems
because they are directly exposed for all services the firewall lets through. A
typical example is electronic mail: if the filtering gateway is configured to
permit inbound e-mail, the security of the e-mail server becomes critical -- if
it is running an insecure mail server such as the UNIX "sendmail" program,
history has shown that the system will be vulnerable to penetration, and could
then be used as a starting place to attack the rest of the computers on the
network intended to be protected by the firewall.
26
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Figure 2 shows a filtering gateway firewall imposed between an untrusted network
and a trusted network. The filtering gateway screens incoming and outgoing
traffic and decides whether to allow a connection to be made. If the connection
is allowed, a direct connection is made between the computer on the untrusted
network and the computer on the trusted network. As in Figure 1, the computer on
the untrusted network can exploit any weakness in the software on the computer
on the trusted network. Even dynamic filtering gateways that inspect the state
of a connection allow direct connections between computers on the untrusted and
trusted networks.
FIGURE 2: FILTERING GATEWAY FIREWALL
Application Gateway Firewalls. Application gateways, also known as proxy
gateways, control network connections rather than individual packets. At the
point where a connection is requested, the proxy for the given protocol will
check the firewall's security policy and decide whether the connection is
permitted. If it is, the proxy will then mediate all future traffic for that
connection and verify that it conforms to the given protocol and security
policy. Application gateways permit or deny connections based on security policy
considerations such as user name, addresses, protocols, and protocol-specific
functions (e.g., download data but not upload).
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Figure 3 shows an application gateway firewall imposed between an untrusted
network and a trusted network. The application gateway interrupts the
communication between computers on the two networks. Depending upon the
particular application, various checks are made at the application proxy level.
If the connection is allowed, a second link between the firewall and the trusted
network is established and all data is passed through the application proxy.
This design prevents a direct connection between computers on the two networks,
thereby significantly reducing the ability to directly exploit a weakness in the
software on the computer on the trusted network.
FIGURE 3: APPLICATION GATEWAY FIREWALL
TIS's Gauntlet firewall products are application gateway firewalls.
Virtual Private Networks (VPNs)
Once firewalls are in place at multiple sites on a WAN, the ability to establish
encrypted communications links over WANs becomes practical. These VPNs provide
complete protection among networks, whether among a corporation's internal
information systems at different locations or among those locations and widely
dispersed customers and suppliers. VPNs permit the safe commercial use of the
Internet, thereby providing significant cost savings by reducing reliance on
more costly dedicated telecommunications alternatives. A report prepared by an
industry consultant indicates that for the set of applications covered, such
cost savings could provide a full payback of the VPN investment within the first
year of its operation.
Export controls imposed by most governments are a significant impediment to the
establishment of Global VPNs ("GVPNs"). Recent initiatives by the U.S. and other
governments to allow export of cryptography when combined with some form of key
recovery system offer an excellent opportunity to realize the full potential of
GVPNs on an international basis. The Company believes that once appropriate
government policies are in place, the combination of application gateway
firewalls and key recovery enabled encryption (such as the Company's Key
Recovery Technology ("KRT")) will radically alter the landscape of today's
private networks, providing reliable, protected communications through public
networks such as the Internet. See "-- Commercial Products and Services --
Cryptographic Products/Key Recovery Technology (KRT) System."
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TIS STRATEGY
The Company's objective is to be the leading provider of comprehensive security
products and services for corporate and government information systems.
Essential elements of the Company's strategy include:
Provide Comprehensive Security Solutions. The Company's approach is to
develop, market and support a broad range of network security software
products for the protection of computer networks, including global
Internet-based systems, internal networks and individual workstations and
laptops. The Company believes that its integrated approach to network
security products and services provides a more comprehensive security
solution than the single product offerings marketed by many of its
competitors. The Gauntlet family of firewall products currently includes
the Gauntlet Internet Firewall, the Gauntlet Intranet Firewall, the
Gauntlet Net Extender and the Gauntlet PC Extender. Additionally, the
Company offers a full range of expert consulting services in information
security policies and planning to commercial enterprises and governments.
With the support of government-funded and independent research and
development, the Company is developing extensions and enhancements to
current firewall technology and applications of cryptography to maintain
its position as a leader in providing comprehensive security solutions. The
Company is currently developing enhancements to the Gauntlet family of
firewall products, including an enhanced graphical user interface ("GUI"),
and expects that its Gauntlet versions supporting Sun Microsystems' Solaris
Version 2 and Microsoft's Windows NT Server Version 4.0 will be
commercially available by the end of 1996. The Company intends to extend
its leading positions in network firewalls and encryption technology,
including KRT, to enable companies to establish global virtual private
networks.
Increase Market Penetration Through Multiple Channels. The Company's
marketing strategy for TIS network security products and services focuses
on utilizing both a direct sales force and reseller channels to target
large corporations and organizations. The Company intends to expand its
current direct sales force to both increase initial market penetration and
to pursue follow-on sales for TIS network security products and services.
The Company intends to continue to focus its direct sales efforts on
Fortune 500 companies, particularly those which have a strong need for
secure communications within workgroups and among geographically dispersed
networks through the Internet. For example, the Company has targeted
companies in the telecommunications, finance and banking, petrochemicals
and pharmaceuticals industries as those most likely to require network
security solutions. The Company intends to emphasize the use by such
organizations of the Gauntlet family of firewall products and related
services together with cryptography, for enhanced security for sensitive
communications. The Company has established customer relationships with the
following or subsidiaries thereof: Chevron Corporation, Chrysler
Corporation, NationsBank Corporation and Swiss Bank Corporation.
The Company has established a significant global reseller channel
consisting of over 50 Internet service providers, value added resellers and
hardware vendors, system integrators and security product vendors. The
Company's resellers are primarily located in the United States, Europe and
the Pacific Rim. The Company intends to greatly expand these channels for
its network security products and for its cryptographic products,
particularly in Europe and the Pacific Rim.
A significant portion of the Company's Gauntlet firewall products customers
consist of organizations which have sought upgrades to and support for the
TIS Internet Firewall Toolkit available on the Internet. The Company has
established a program to identify and pursue entities which have installed
firewalls based on the TIS Internet Firewall Toolkit for follow-on sales of
Gauntlet firewall products and related services.
Expand Consulting Services. The Company intends to focus on expanding its
provision of consulting services to large organizations with respect to the
establishment of information security policies and of trusted
communications systems, including GVPNs. The Company believes these
consulting services will assist companies in enhancing security while
reducing communication costs through the effective deployment of the
Company's products. In building its consulting services, the Company
intends to emphasize the reputation and experience of its senior management
and technical staff. The Company also intends to utilize the relationships
it establishes through its expanding consulting efforts to generate
additional customers for TIS network security products and services.
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Leverage Government Research and Engineering. The Company believes its
extensive U.S. government-funded research activities can yield major short
and long-term product concepts as well as enhance current network security
product offerings. Government funding contributes to the Company's ability
to maintain a research and engineering staff of over 100 scientists and
engineers. With the Gauntlet family of firewall products, the Company has
demonstrated its ability to create and market commercial products based on
government-funded research results and believes that similar efforts will
enable it to implement new advanced products in the future.
TIS SOLUTION
TIS offers a comprehensive set of products and services for the protection of
computer networks, including global Internet-based systems, internal networks
and individual workstations and laptops. As part of this complete solution, TIS
provides consulting services to evaluate and design information security
policies and firewall and other network security products that address the major
requirements of confidentiality, integrity and availability.
The TIS Trusted System Design Principles, derived from decades of computer
security experience, include:
Simplicity in mechanisms and services provided.
Simplicity in software design, development and implementation.
A "Crystal Box" approach, in which source code is distributed to allow for
assurance reviews by the Company's customers, resellers and other experts.
Logging every event that can be logged; the customer can then customize a
complete and appropriate security audit trail.
Supporting all forms of user authentication methods and mechanisms.
Enforcing an organization's security policy, instead of imposing one of its
own.
Management believes that the integrity of the Company's security solutions, the
simplicity and brevity of its Gauntlet code, the transparency of its "Crystal
Box" approach and the experience and expertise of its management team and
consultants attract customers to purchase the Company's products and services.
In addition, the Company believes that the encryption technology of its firewall
products, which allows organizations to establish secure communication between
geographically dispersed sites through VPNs and GVPNs, further attracts
customers due to the potential cost savings which may be achieved by
communicating over the Internet rather than over more expensive, private lines.
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GRAPHIC: EXAMPLE OF THE GAUNTLET INTERNET AND INTRANET FIREWALL
PRODUCTS PROTECTING A TRUSTED NETWORK.
COMMERCIAL PRODUCTS AND SERVICES
Gauntlet Firewall Products
The following table sets forth certain information regarding certain of the
current TIS product offerings.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
DATE OF
ENVIRONMENT PRODUCT NAME DESCRIPTION INTRODUCTION
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Internet Internet Firewall A research-based collection of modules, available Q4 1993
Toolkit free on the Internet for use but not for resale,
from which one can build a firewall and serves as
the foundation for the Company's Gauntlet family
of firewall products.
Internet Gauntlet Internet Application gateway firewall that protects Q2 1994
Firewall internal networks from external intrusion.
Intranets Gauntlet Intranet Distributed firewall technology that protects Q2 1996
Firewall departmental Intranets from unauthorized access
by internal users.
Remote Sites Gauntlet Net Distributed firewall technology that provides Q2 1996
Extender secure communications over the Internet and WANs
to and from remote networks through the use of
encryption.
Mobile PC Users Gauntlet PC Provides secure communications over the Internet Q2 1996
Extender and other public networks to and from mobile PC
users.
</TABLE>
Internet Firewall Toolkit. The Company introduced its Internet Firewall Toolkit
on the Internet in 1993, free for use but not for resale. The TIS Internet
Firewall Toolkit, which has been downloaded more than 27,000 times to more than
15,000 discrete locations worldwide, is a collection of computer programs from
which a skilled programmer can build an application gateway firewall to secure
communications over public networks such as the Internet. To build a firewall
from the TIS Internet Firewall Toolkit, the toolkit programs must be compiled on
the
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programmer's hardware and operating systems and must configure the operating
system on which the firewall is housed to be a suitably secure base for the
firewall software. A firewall compiled from the TIS Internet Firewall Toolkit
provides basic protection for common Internet applications including e-mail and
the World Wide Web browsers and supports user authentication. Compared to the
Gauntlet family of firewall products, such a firewall will provide limited
management features and lacks firewall-to-firewall encryption that allows the
construction of a VPN. Additionally, a firewall built from the TIS Internet
Firewall Toolkit generally must be maintained and enhanced by the programmer who
constructed it. The Company has initiated a program to upgrade TIS Internet
Firewall Toolkit users to the Gauntlet family of firewall products.
Gauntlet Internet Firewall. The Gauntlet Internet Firewall is an application
gateway firewall which is the cornerstone of the Company's comprehensive
security solution. The Gauntlet Internet Firewall functions as a barrier between
the user's trusted network and untrusted networks such as the Internet and is
based on the TIS Internet Firewall Toolkit. The Gauntlet Internet Firewall
enables secure communications over public networks such as the Internet,
including firewall-to-firewall encryption that allows a firewall owner to
construct a VPN. In addition to standard encryption and VPN capabilities,
authentication and proxy services, the Gauntlet Internet Firewall includes a
secure GUI for management and includes audit and alert capabilities and tools.
The Company introduced a new GUI for the Gauntlet Internet Firewall in January
1996 and is currently developing additional enhancements for ease of use and
administration. The Gauntlet Internet Firewall software operates on a number of
popular versions of the UNIX operating system. The Company has developed and
packages as part of the Gauntlet Internet Firewall selective modifications to
the operating systems to increase the Gauntlet Internet Firewall's usability and
to harden the operating systems to make them more resistant to attack. Because
of these modifications, the Gauntlet Internet Firewall is "transparent" and
supports network services without requiring action by individual end users or
modifications to their client software. Also because of these modifications, the
Gauntlet Internet Firewall prevents "spoofing" attacks in which a computer on
the untrusted network pretends to be on the trusted network, and it detects
attempts from either network to probe for unprotected services or points of
access. To date, more than 1,500 Gauntlet Internet Firewall products have been
installed.
The Gauntlet Internet Firewall currently supports SunOS Versions 4.1.3 and
4.1.4, Hewlett-Packard's HP-UX Versions 10.0 and 10.01 and Berkeley Software
Design, Inc.'s BSDI/OS Versions 1.1, 2.0 and 2.1. The Company expects that its
Gauntlet versions supporting Sun Microsystems' Solaris Version 2 and Microsoft's
Windows NT Server Version 4.0 will be commercially available by the end of 1996.
Gauntlet Intranet Firewall. The Gauntlet Intranet Firewall was designed for
improving the internal security of a LAN or Intranet. The Gauntlet Intranet
Firewall provides protection against unauthorized access to network resources by
internal users, and protects communications among individual PCs within and
across workgroups. The Gauntlet Intranet Firewall also currently supports Sun,
Hewlett-Packard and BSDI operating systems. The Company expects that its
Gauntlet Intranet Firewall product supporting Sun Microsystems' Solaris Version
2 and Windows NT Server Version 4.0 will be commercially available by the end of
1996.
Gauntlet Net Extender. Extending the capabilities of the Gauntlet firewall, the
Gauntlet Net Extender is a remote Gauntlet firewall that network administrators
can manage from another Gauntlet firewall. The Gauntlet Net Extender's target
customers are enterprises with multiple divisions and remote locations. Using
encryption, the Gauntlet Net Extender works in conjunction with a Gauntlet
Internet Firewall to provide remote site network security and remote management
and control from a centralized location. The Gauntlet Net Extender also
currently supports Sun, Hewlett-Packard and BSDI operating systems. The Company
expects that its Gauntlet Net Extender product supporting Sun Microsystems'
Solaris Version 2 and Windows NT Server Version 4.0 will be commercially
available by the end of 1996.
Gauntlet PC Extender. The Gauntlet PC Extender provides multiple levels of
security for remote users utilizing a PC running on Microsoft Windows 3.1 or
Microsoft Windows for Workgroups 3.11 to connect to an internal network or
communicate within an Intranet. The encryption provided by the Gauntlet PC
Extender protects passwords, provides user authentication to prevent
unauthorized access to internal network resources and provides data encryption
to protect the confidentiality and integrity of information transmitted over the
Internet or other public or private networks. The Company expects that its
Gauntlet PC Extender product for PCs supporting Microsoft Windows 95 will be
available by the end of 1996.
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The specific uses and applications of the Company's network security products
vary significantly among market sectors and business organizations. Examples of
actual uses by customers of the Company's products include:
- A U.S. company that is a provider of software solutions for electronic
commerce has installed multiple Gauntlet Internet Firewalls at the
organization's sites in the United States and abroad to create a GVPN
utilizing encryption. This enables personnel at the various domestic and
overseas sites to share proprietary software product development and
business information securely over the Internet.
- A multi-national banking institution has installed multiple Gauntlet
Internet Firewalls on corporate Intranets to enforce the bank's security
policies that require isolation of different organizations within the
bank located throughout the world. Each Gauntlet Internet Firewall is
configured to allow only selected applications to pass financial and
other important information onto the appropriate internal system. The
Company's "Crystal Box" approach and the ability to log all Internet
Firewall activities are essential to enforcement of bank security policy.
- A university teaching hospital has created a VPN by encrypting the
information transmitted between the hospital's research database and
entities and individuals at remote locations using Gauntlet Internet
Firewalls. This enables physicians, health centers and other hospitals to
access sensitive data from the hospital site.
The Gauntlet Internet Firewall is offered by the Company at a U.S. list price of
approximately $11,500 for software only and approximately $15,000 for a
software/hardware bundle. The Company's U.S. list price for the Gauntlet Net
Extender is approximately $10,000, for the Gauntlet Intranet Firewall is
approximately $7,500 and for the Gauntlet PC Extender is approximately $100.
Volume discounts are generally available. The Company provides initial on-site
installation, testing and training and offers a variety of continuing
maintenance and support options to customers of the Gauntlet family of firewall
products.
The Company plans to extend its firewall products to include new proxies for new
services and to defend against new threats. Customer input will be an important
part of the Company's continued development of improvements in ease of use and
management functions. In addition, the Company is developing products which will
be compatible with Microsoft's Internet Security Framework. This framework
provides an open, interoperable and cross-platform set of technologies and
enables the effective interface of products developed and marketed by a variety
of software companies which will allow individuals to exchange information
securely, control access to their systems and conduct secure financial
transactions across public networks.
Cryptographic Products/Key Recovery Technology (KRT) System
The Company's cryptographic products are currently under development and the
Company is in negotiations with a number of companies regarding sales of the KRT
toolkit and the Data Recovery Centers ("DRCs"). However, no revenues from the
sale of such products are anticipated prior to 1997.
Key Recovery Technology (KRT) Toolkit. The KRT toolkit consists of software and
a license to the Company's KRT technology to enable companies to incorporate KRT
into their products either to enable their cryptographic functions to satisfy
U.S. (and possibly other) government requirements for general export to foreign
markets (Commercial Key Escrow, or CKE) or more generally to provide emergency
access to encrypted data in case an encryption key is lost or unavailable for
any reason (Commercial Key Recovery, or CKR). Using the KRT toolkit, the vendor
can encrypt any user secret (e.g., a key used to encrypt a file) using the
public key of a DRC and storing it in a Data Recovery Field ("DRF"). This DRF
permits future access to that secret for any reason through the designated DRC.
Data Recovery Centers. DRCs are an essential part of the Company's KRT. A DRC
is a system (hardware and software) with a set of public and private keys for
the recovery of encrypted data. A DRC receives and records user registrations
which include the access information required for future recovery requests. Upon
registration, the user's KRT-enabled application can create a Data Recovery
Field which will be recognized by the DRC. If a user needs to recover an
encrypted file or message, the DRF is sent to the DRC, the user's identity is
authenticated and the DRC provides the key required to decrypt the file or
message.
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Microsoft CAPI Compliant Cryptographic Service Provider (CSP). The Company is
developing a Microsoft Cryptographic Application Programming Interface (CAPI)
compliant CSP with a domestic and exportable version for which an application
for export has been filed with the U.S. government. Both versions will be based
on RSA's BSAFE version 3.0 toolkit technology. The exportable version will use
the Data Encryption Standard ("DES") algorithm (56 bits) in conjunction with
CKE. The domestic version will use triple DES as its standard mode of operation,
but will also be able to interoperate with the exportable version. Both versions
will use the Company's Key Recovery Technology (KRT) and will have optional,
user selected, key recovery features.
The Company has been a leader in developing a key escrow solution to enable the
interests of security and law enforcement agencies to be protected while
permitting the export of products with strong cryptography. The U.S. government,
both in the context of executive branch decision-making and pending legislation
in the U.S. Congress, is actively considering a variety of decisions regarding
cryptography export policy. Current Clinton administration proposals would link
the relaxation of export controls to systems that include key escrow. However,
certain parties, including companies in the computer industry and members of the
U.S. Congress, and a recent report prepared for the National Research Council of
the National Academy of Sciences call for removing export controls on products
that use the industry standard DES algorithm (56 bits). To the extent that the
government either decides not to permit the export of such products with key
escrow or decides to permit the export of such products without key escrow,
those decisions could have an adverse impact on the development of a market for
the CKE products the Company plans to introduce in the future.
Commercial Consulting
TIS offers a full range of consulting in information security policies and
planning. TIS's Commercial Consulting Practice grew out of the Company's
original consulting practice founded by Stephen T. Walker. It is currently led
by members of senior management and carried out by TIS's staff of experts who
average more than 15 years of information security experience in both commercial
and government communities. TIS offers the following commercial consulting
services: technology research services; consultation on security issues
associated with products and services, corporate information security policy
development, architectural and diagnostic security analysis and firewall
configuration; and training for corporate network and security administration
personnel. TIS's consulting customer base includes a wide range of institutions
from financial, industrial, regulatory, entertainment, research, information
systems and telecommunications organizations.
Management believes that the Commercial Consulting Practice has and will
continue to play a key role in generating follow-on sales of the Company's
security products. Corporations with the most complete information security
needs, such as those in industries targeted by the Company, often look to
outside consultants to assist them in designing, maintaining and improving
network security systems and policies. The Company believes that its reputation
in the field of computer security along with its team of experienced consultants
attracts customers to engage TIS's services in solving their complex security
needs.
The Commercial Consulting Practice continuously evaluates emerging network
services and technologies, the security vulnerabilities inherent in new
offerings and evolving methods employed by hackers and professional system
penetrators to exploit system vulnerabilities. The findings from this effort not
only enable more effective consultation and the development of automated
analysis tools, but also feed into the ongoing network security product
development and enhancement activities of TIS.
ADVANCED RESEARCH AND ENGINEERING
The Company engages in research and development of computer and communications
security technology under contracts with departments and agencies of the U.S.
government. The Company provides security technology analysis and consulting
under contracts both directly and indirectly with the U.S. government and the
governments of other countries. Historically, the principal source of the
Company's revenues was from government contracts. In 1993, 1994 and 1995 and the
first quarter of 1996, approximately 95%, 86%, 68% and 58%, respectively, of the
Company's total revenues were derived directly or indirectly from government
contracts. These revenues, along with the Company's reputation as a pioneer in
the field of computer and network security, have permitted the Company to
assemble a group of renowned scientists and engineers.
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The government research and development efforts include Trusted Mach technology,
a high assurance operating system base that controls access to all system
resources and enforces security policies based upon labels associated with the
sensitivity of the resources and access privileges of the users. High-Assurance
Firewalls, World Wide Web servers and file servers built on the Trusted Mach
technology will provide strong protection for data that is to be shared, either
within an organization or externally, but which must also be protected from
unauthorized reading or writing. Another operating system security technology
derived from government-funded research enforces a broad spectrum of security
policies, including those tailored to the user's individual role in an
organization. This technology can greatly improve the security of existing
operating systems by partitioning their capabilities into various domains. The
Company has demonstrated significant improvements to UNIX systems security using
this technology.
Other government research and development efforts include the development of
prototype secure distributed systems, the incorporation of cryptographic
services into various applications and the enhancement and broader application
of access control techniques. Under government contracts, the Company has
incorporated cryptography into e-mail to provide the ability to digitally sign
e-mail in addition to protecting the contents from change or perusal. The
Company is developing techniques to improve the security of Internet
infrastructure, such as Domain Name Service and routing, by digitally signing
communications between cooperating elements. Security services are being
incorporated into distributed systems using access control techniques that work
with Common Object Request Broker Architecture (CORBA), an emerging
international standard.
Government-related consulting has focused primarily upon security assessment and
design assistance for security features and attributes of the systems and
applications of the U.S. Department of Defense. The Company's consulting has
helped to discover approaches that provide both the security and functionality
that is needed to support the defense mission. Many of the security issues and
architectures have commercial counterparts, and the Company has generally
reserved the rights to develop such related technologies for commercial uses.
The Company's backlog for direct and indirect U.S. government contracts as of
March 29, 1996 was approximately $14.4 million. The government-related backlog
represents firm orders or contracts for research, development and consulting
analysis with performance and delivery schedules that extend up to 30 months.
Funded backlog represents the portion of the backlog for which agencies,
departments or companies have actually obligated payment. As of March 29, 1996,
approximately $9.9 million of the government-related backlog is funded. The
Company's U.S. government contracts are subject to audit by the DCAA. The DCAA
has audited the Company's cost accounting system through 1990 without material
cost disallowances.
Most of the Company's government-related contracts require the Company to
perform specified services for which the Company is paid its costs incurred and
a negotiated fee. Two contracts for the development of the Trusted Mach
technology accounted for approximately 33% of the Company's total revenues
during 1995. The smaller contract ended in December 1995. The larger contract,
with the NSA, accounted for approximately 25% of the Company's total revenues
during 1995 and is currently scheduled to complete in early 1997. Security
technology research and development contracts with ARPA accounted for
approximately 17% of the Company's 1995 revenues. During 1995, 8% of the
Company's total revenues came from security technology research and development
contracts with the RL.
SALES AND MARKETING
The Company intends to pursue a focused marketing strategy to achieve greater
market penetration for TIS network security products and services by utilizing
complementary domestic and international distribution channels, including direct
sales, resellers and telesales. The Company believes these channels will provide
broad customer coverage while maintaining a highly cost-effective effort. The
Company has organized its direct sales, resellers and telesales teams,
consisting of over 20 employees, on a regional basis in order to approach the
market in a coordinated manner. The Company has initiated a strategy of directly
marketing to its current base of users who have downloaded the TIS Internet
Firewall Toolkit and seeks to convert them into users of Gauntlet products. In
addition, the Company's Fortune 500 marketing strategy with large organizations
is to establish relationships through consulting assistance in the architectural
design, installation and operational phases of their major security initiatives.
The Company plans to attend the popular Internet and network shows, advertise in
trade journals and
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submit articles that will deliver its message to decision makers and to the
people who make information security recommendations.
Direct Sales. The Company's direct sales force markets its products and
services to large corporations and organizations with complex information
security needs, such as telecommunications companies, finance and banking
institutions, petrochemical companies and pharmaceutical companies. The
Company's direct sales staff solicits these customers and provides strategy and
solutions as well as insights into security architecture alternatives while
gathering insight into customers' future requirements.
Resellers. The Company currently maintains a worldwide network of over 50
resellers which can be categorized into four areas based on business
segmentation and end user focus: Internet service providers, value added
resellers and hardware vendors, system integrators and security product vendors.
The Company views these reseller partners as an extension of its direct sales
force and supports these relationships with on-going training in security
planning, installation and maintenance as well as by providing such resellers
with updated information, software enhancements and advance notice of
announcements of future products through a TIS World Wide Web site designed
specifically for that purpose. The following are some of the Company's resellers
in each of the designated categories:
- Internet Service Providers: In the United States, these include BBN
Internet Service Corp., PSINet, Inc. and UUNet Technologies, Inc. In
Europe, these include Demon Internet Limited and Unipalm Limited.
Internet Initiative Japan is one of the Company's Internet service
provider resellers in the Pacific Rim.
- Value Added Resellers and Hardware Vendors: In the United States,
these include Data General Corporation and Silicon Graphics, Inc. In
Europe and the Pacific Rim, these include Bull Enterprise Systems,
HITACHI Ltd. and Sumitomo Electric Systems Company, Ltd.
- System Integrators: These include AvantComp Oy, Conjungi Corporation,
Fujitsu Systems Business of Canada, Inc. and Media Communications STM
AB.
- Security Product Vendors: These include Hanil Telecom Co., Ltd. in the
Pacific Rim and Mergent International, Inc. and V-One in the United
States.
Telesales. The TIS Telesales Team maintains frequent and open communications
with customers. The TIS Telesales Team is geographically focused to develop,
service and transact business. The 1993 decision to make the Company's firewall
technology available via the Company's World Wide Web page proved very
successful and of strategic importance. It is currently estimated that there
have been more than 27,000 downloads of the TIS Internet Firewall Toolkit to
more than 15,000 discrete locations worldwide. The Telesales Team targets
members of this user community as potential customers for the Gauntlet family of
firewall products. TIS also provides these prospects with information through a
Firewall Toolkit user group and Birds of a Feather sessions at conferences.
Other leads for the Telesales Team are generated through trade shows, an 800
number, e-mail and direct mailings.
CUSTOMER SERVICE AND SUPPORT
The Company offers extensive training to customers and resellers for firewall
installation and management. As part of the training program, the Company
provides onsite or offsite classroom instruction and related instructional
materials which enable customer and reseller personnel to deliver the first
level of support and to tailor a support scenario for a client's unique
requirements.
The Company offers support services by e-mail and telephone for its Gauntlet
family of firewall products. These services encompass diagnosing problems in the
network associated with the firewall and answering questions about configuration
and operation alternatives. Most customers purchase support services in the form
of a support contract covering a single firewall or in the form of a corporate
support agreement. The Company offers a variety of support contracts, including
one offering support seven days a week, 24 hours per day (7 X 24).
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RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on core information
security technologies, enhancements to existing technologies and products and
development of new products. The Company's information security products
research and development program has focused primarily on feature and
performance enhancements, expansion of the family of scaleable firewall and
cryptographic security products and development of applications of cryptography,
in particular those associated with cryptographic key recovery. The Company's
government research and development program focuses on extensions and
enhancements to current firewall technology, access control techniques for
operating systems and networks, the application of cryptography within operating
systems, network components and network infrastructure and security for
distributed systems. See "-- Advanced Research and Engineering." Through a
combination of independent and government-funded research and development
efforts, the Company is able to maintain a broad base of computer and network
security technology expertise and to remain a leader in information security
technology development.
As of May 31, 1996, the Company's research and development staff included more
than 100 scientists and engineers. Of these, seven have PhDs, 55 have master's
degrees and 39 have bachelor's degrees. The Company believes that its ability to
attract and retain a highly qualified technical staff will continue to be
essential to the success of its research and development programs. The market
for such personnel is highly competitive and the Company's research and
development activities could be adversely affected if the Company is unable to
attract and retain skilled technical personnel.
In addition to amounts directly funded by the U.S. government, the Company spent
approximately $582,000, $646,000 and $1.14 million on research and development
during the years ended 1993, 1994 and 1995, respectively, and approximately
$375,000 during the first quarter of 1996. The Company expects to continue to
fund research and development efforts independently, through internally
generated funds and proceeds from the Offering. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company believes that the continued scope and
progressiveness of its security technology research and development are
essential in ensuring the Company's future success in the information security
field.
COMPETITION
Competition in the information security market is intense and constantly
evolving, and the Company expects such competition to increase in the future.
The Company believes that significant competitive factors affecting this market
are depth of product functionality, product quality and performance, product
price, customer support, conformance to protocols and industry standards and
breadth of platform support. In addition, the Company believes that the ability
to rapidly develop and implement new products and features for the market is
critical. There can be no assurance that the Company can maintain or enhance its
competitive position against current and future competitors. Significant factors
such as the emergence of new products, fundamental changes in computing
technology and aggressive pricing and marketing strategies may also affect the
Company's competitive position. Many of these factors are out of the Company's
control. See "Risk Factors -- Competition."
The principal competitors for the Company's government-funded research and
development are BBN Corporation, Open Software Foundation Research Institute,
Secure Computing Corporation and SRI International.
The Company's principal current competitors for its network security products
include America Online, Inc.'s Advanced Network and Services subsidiary, Bay
Networks Inc., Border Network Technologies, Inc., Check Point Software
Technologies Ltd., Cisco Systems, Inc., Digital Equipment Corporation, Harris
Computer Systems Corporation, International Business Machines Corporation,
Microsoft Corporation, Milkyway Networks Corporation, Morningstar Technologies,
Inc., Network Systems Corporation, Raptor Systems, Inc., Secure Computing
Corporation, Sun Microsystems, Inc. and V-One. Secure Computing Corporation
recently announced the signing of a definitive agreement for the acquisition of
Border Network Technologies, Inc. Due to the rapid expansion of the network
security market, the Company may face competition from new entrants in the
network security industry, possibly including the Company's resellers.
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<PAGE> 41
PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY
The Company's success is dependent in part on its proprietary technology. TIS
relies on a combination of patent, trade secret, copyright and trademark laws,
non-disclosure agreements and contractual provisions to establish and protect
its proprietary rights. The Company has received one patent and has four pending
domestic or foreign patent applications on its KRT and computer security
technology. The Company uses a printed "shrink-wrap" license for users of its
products in order to protect certain of its copyrights and trade secrets. The
Company attempts to protect its trade secrets and other proprietary information
through agreements with suppliers and non-disclosure agreements with employees
and consultants and other security measures.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of the Company's products is difficult, and, while the Company is unable to
determine the extent to which piracy of its software products exists, such
piracy can be expected to be a persistent problem, particularly in international
markets and as a result of the growing use of the Internet. Some courts have
held that shrink-wrap licenses, because they are not signed by the licensee, are
not enforceable. The laws of Maryland, which the shrink-wrap licenses purport to
make the governing law, are unclear on this subject. In addition, there can be
no assurance that patent applications filed by the Company will result in
patents being issued or that its existing patent, and any patents that may be
issued to it in the future, will afford protection against competitors with
similar technology; nor can there be any assurance that patents issued to the
Company will not be infringed upon or designed around by others or that others
will not obtain patents that the Company would need to license or design around.
For additional information see "Risk Factors -- Limited Protection of
Intellectual Property and Proprietary Rights."
The Company licenses encryption and other portions of the software included in
its products from third parties and its success will depend in part on its
continued ability to use technology that is important to the functionality of
its products licensed from these or other parties. If its licenses were to be
terminated and the Company were unable to obtain licenses to similar software
from others there could be a material adverse effect on its financial condition
or results of operations.
FACILITIES
The Company's principal administrative, research, sales, marketing and
consulting facility is located in 44,681 square feet of office space in
Glenwood, Maryland which is owned by the Company. The Company leases other
domestic research, sales, marketing and consulting offices, including
approximately 20,000 square feet in Rockville, Maryland and 1,371 square feet in
Lisbon, Maryland. The Company has also entered into a lease for 6,271 square
feet in McLean, Virginia to commence in July 1996. Additional domestic offices
are located in Mountain View and Los Angeles, California, where the Company
leases 4,472 and 3,874 square feet, respectively. The Company also maintains a
sales, marketing and consulting office located in 2,675 square feet of leased
space in the United Kingdom. The Company also owns a 1,700 square foot building
adjacent to its main facility in Glenwood, Maryland which is currently leased to
a local small business. The Company believes that its existing facilities are
adequate for its needs and that alternative or additional space will be
available as needed.
EMPLOYEES
As of May 31, 1996, the Company employed 180 people on a full-time basis and 23
people on a temporary or part-time basis. All employees are required to sign
agreements containing confidentiality and non-disclosure provisions.
Additionally, the Company hires independent contractors and temporary employees
on an as-needed basis to assist with specialized assignments in certain areas,
including commercial product development, advanced research and engineering,
customer support and installations.
None of the Company's employees is represented by a labor union or is subject to
a collective bargaining agreement. The Company considers its relations with its
employees to be good.
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<PAGE> 42
REGULATORY MATTERS
Certain of the Company's information security products are subject to the export
restrictions administered by the U.S. Department of State, which permit the
export of encryption products only with the required level of export license. In
addition, these U.S. export laws prohibit the export of encryption products to a
number of hostile countries. U.S. export regulations regarding the export of
encryption technology require either a transactional export license or the
granting of Department of Commerce commodity jurisdiction. To date, the Company
has been able to secure all required U.S. export licenses, including the first,
and the Company believes the only, export license for a particular transaction
involving a network security product using the industry standard DES algorithm
(56 bits), which was granted because it included a key recovery system.
Additionally, the Company currently has six export license applications pending
before the U.S. government, including two commodity jurisdiction applications,
with respect to the export of products utilizing KRT. There can be no assurance
that the Company will continue to be able to secure such licenses in a timely
manner in the future, or at all. The Company does not expect that such KRT
products will generate revenues prior to 1997. See "-- Commercial Products and
Services -- Cryptographic Products/Key Recovery Technology (KRT) System." In
certain foreign countries, the Company's distributors are required to secure
licenses or formal permission before encryption products can be imported. To
date, except for certain limited cases, the Company's distributors have not been
denied permission to import the Company's products.
LITIGATION
The Company is not currently engaged in any legal proceedings and is not aware
of any pending or threatened litigation that could have a material adverse
effect on the Company's business, financial condition or results of operations.
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<PAGE> 43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers and their ages as of May 31, 1996
are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NAME AGE POSITION WITH THE COMPANY
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Stephen T. Walker(1) 52 President, Chief Executive Officer, Chairman of the Board
and Director
Martha A. Branstad 54 Executive Vice President and Chief Operating Officer,
President of Advanced Research and Engineering Division and
Director
Harvey L. Weiss 53 Executive Vice President, President of the Commercial
Division, Secretary and Director
Steven B. Lipner 52 Executive Vice President and Network Security Product Line
Manager
Homayoon Tajalli 37 Executive Vice President and Cryptographic Product Line
Manager
Ronald W. Kaiser 42 Executive Vice President and Chief Financial Officer
Gerald J. Popek(1)(2) 49 Director
Charles W. Stein(1)(2) 56 Director
</TABLE>
(1) Member, Compensation Committee
(2) Member, Audit Committee
STEPHEN T. WALKER founded the Company in May 1983 and has continuously served as
President, Chief Executive Officer, Chairman of the Board and a Director. From
1980 to 1983, Mr. Walker was the Director of Information Systems for the Office
of the Assistant Secretary of Defense for Communications, Command, Control and
Intelligence (C3I), Pentagon. In recognition of Mr. Walker's contributions, he
was awarded the Secretary of Defense Meritorious Civilian Service Medal in 1984,
and the first National Computer System Security Award in 1988. Mr. Walker holds
a B.S. degree in electrical engineering from Northeastern University and an M.S.
degree in electrical engineering from the University of Maryland.
MARTHA A. BRANSTAD has been Executive Vice President and a Director of the
Company since 1986, Chief Operating Officer of the Company since 1993 and
President of the AR&E Division since January 1996. From August 1984 to August
1985, Dr. Branstad served as the Program Director, Software Engineering for the
National Science Foundation, and was responsible for directing academic research
grants in software engineering and computational mathematics. During the period
from September 1978 to September 1985, Dr. Branstad worked in various positions
within the National Bureau of Standards, including Manager, Software for
Parallel Processing and Manager, Software Engineering. Prior to that time, Dr.
Branstad managed a software research group for the NSA. Dr. Branstad holds a
B.S. in mathematics from Iowa State University, an M.S. degree in mathematics
from the University of Wisconsin and a Ph.D. in computer science from Iowa State
University.
HARVEY L. WEISS has been Executive Vice President of the Company, President of
the Commercial Division and a Director of the Company since March 1996, and has
been Secretary of the Company since May 1996. Prior to that time, from February
1994 to March 1996, Mr. Weiss served as President of Public Sector Worldwide
Division for Unisys Corporation. From July 1991 to December 1993, Mr. Weiss was
the Vice President of Sales and the President and Chief Operating Officer of
Thinking Machines Corporation. Prior to that time, Mr. Weiss served in various
senior capacities in Digital Equipment Corporation. Thinking Machines
Corporation sought bankruptcy protection under Chapter 11 of the Bankruptcy Code
in August 1994. Mr. Weiss holds a B.S. degree in mathematics from the University
of Pittsburgh.
STEVEN B. LIPNER has been Executive Vice President and Network Security Product
Line Manager of the Company since February 1994. From February 1992 to February
1994, Mr. Lipner served as the Director of Information Systems, Center for
Information Systems of The MITRE Corporation. Prior to that time, Mr. Lipner
held various engineering management positions with Digital Equipment Corporation
("DEC") from March 1981 to February 1992. From 1987 to 1992, Mr. Lipner was
Engineering Group Manager of DEC's Secure Systems Group with responsibility for
secure systems product development and business strategy. Mr. Lipner received
S.B. and S.M. degrees in Civil Engineering from the Massachusetts Institute of
Technology.
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<PAGE> 44
HOMAYOON TAJALLI has been an Executive Vice President of the Company since
December 1993, and from October 1987 until December 1995 was responsible for all
aspects of the Company's Trusted Mach operating system development activities.
Since January 1996, Mr. Tajalli has served as the Cryptographic Product Line
Manager. From February 1983 to October 1987, Mr. Tajalli held various management
positions with Digital Equipment Corporation, including Senior Technical
Software Manager, Technical Software Manager/Software Consultant and Principal
Software Specialist. Mr. Tajalli holds B.S. and M.S. degrees in electrical
engineering from the University of Maryland.
RONALD W. KAISER joined the Company in May 1996 as Executive Vice President and
Chief Financial Officer. From November 1994 through January 1996, Mr. Kaiser
served as Chief Financial Officer of American Communications Services Inc.
("ACSI"), a regional competitive access provider of telecommunications services,
and since February 1996 Mr. Kaiser has served as a consultant to ACSI. Mr.
Kaiser is a certified public accountant with over 15 years of experience in
accounting and financial management of both publicly held and private companies.
From April 1993 to November 1994, Mr. Kaiser served as Vice President of
Finance, Treasurer and Chief Financial Officer at ADAK Communications
Corporation, a manufacturer and distributor of telecommunications digital access
controllers. From 1990 through 1993, Mr. Kaiser served as Vice
President - Finance and Treasurer of a subsidiary of George Fischer AG, a Swiss
corporation. Mr. Kaiser received B.A. degrees in accounting and pre-law from
Michigan State University.
GERALD J. POPEK has been a Director of the Company since May 1996. He has served
as Chief Technology Officer of Platinum technology, inc. ("Platinum") since
August 1995 and is responsible for participating in the setting of overall
corporate technology and product strategy, enterprise security and open systems
issues. From January 1982 to August 1995, Dr. Popek was the founder and Chairman
of Locus Computing Corporation, an organization dedicated to open systems based
distributed computing which was recently acquired by Platinum. Additionally,
since 1987 Dr. Popek has been a senior faculty member in the Computer Science
Department at UCLA, conducting research on computer security, distributed UNIX
systems, replication and mobile computing. Dr. Popek holds a B.S. degree in
nuclear engineering from New York University and S.M. and Ph.D. degrees in
applied mathematics from Harvard University.
CHARLES W. STEIN has been a Director of the Company since May 1996. Mr. Stein
has over 35 years of experience in the computer and communications industry and
since February 1987 has served as the President, Chief Executive Officer and
Director of Netrix Corporation, an electronic components company. Prior to that
time, Mr. Stein was a Vice President with BBN Communications Corporation where
he was responsible for marketing and later the Professional Services Division.
Mr. Stein holds a B.S. degree in mathematics from Tufts University.
Officers of the Company are elected by the Board of Directors on an annual basis
and serve until their successors have been duly elected and qualified. The
Company's Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes of directors with each class required to
be as nearly equal in number as possible. The number of directors is determined
from time to time by the Board of Directors and is currently fixed at 5 members.
A single class of directors is elected each year at the Company's annual meeting
of stockholders. Subject to transition provisions, each director elected at each
such meeting will serve for a term ending on the date of the third annual
meeting of stockholders after his or her election and until his or her successor
has been elected and duly qualified. Mr. Weiss is serving for a term expiring on
the date of the Company's 1997 Annual Meeting of Stockholders, Mr. Stein and Dr.
Branstad are serving for terms expiring on the date of the Company's 1998 Annual
Meeting of Stockholders and Mr. Walker and Dr. Popek are serving for terms
expiring on the date of the Company's 1999 Annual Meeting of Stockholders.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors currently has two committees, the Audit
Committee and the Compensation Committee. The Audit Committee, among other
things, recommends the firm to be appointed as independent accountants to audit
the Company's financial statements, discusses the scope and results of the audit
with the independent accountants, reviews with management and the independent
accountants the Company's interim and year-end operating results, considers the
adequacy of the internal accounting controls and audit procedures of the Company
and reviews the non-audit services to be performed by the independent
accountants. The current
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<PAGE> 45
members of the Audit Committee are Dr. Popek and Mr. Stein. The Compensation
Committee reviews and recommends the compensation arrangements for management of
the Company and administers the Company's stock option plans. The members of the
Compensation Committee are Mr. Walker, Dr. Popek and Mr. Stein.
DIRECTOR COMPENSATION
Directors who are not currently employees of the Company are entitled to receive
a fee of $750 per meeting attended in person, are reimbursed for certain
reasonable expenses incurred in attending each meeting of the Board of Directors
and will receive awards of stock options under the 1996 Directors' Stock Option
Plan. See "Management -- Directors' Stock Option Plan."
EXECUTIVE COMPENSATION
The following table shows information concerning compensation for the Chief
Executive Officer and each of the other most highly compensated executive
officers other than the Chief Executive Officer of the Company (the "Named
Officers") for 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
----------------------------------------------------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------------ SECURITIES OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) UNDERLYING OPTIONS COMPENSATION($)(2)
---- --------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Stephen T. Walker 1995 195,952 146,026 -- 4,472
President and Chief Executive 1994 180,055 141,274 4,000 9,931
Officer 1993 162,262 49,923 20,000 4,831
Martha A. Branstad 1995 147,538 41,840 -- 11,170
Executive Vice President and 1994 137,187 38,497 4,000 11,392
Chief Operating Officer 1993 121,182 21,263 20,000 8,587
Steven B. Lipner 1995 138,445 29,191 -- 864
Executive Vice President 1994 109,430 21,397 80,000 720
1993 -- -- -- --
Homayoon Tajalli 1995 136,571 29,484 -- 198
Executive Vice President 1994 126,874 24,424 4,000 198
1993 112,653 13,306 20,000 198
</TABLE>
- ---------------
(1) The Company's executive officers are eligible for annual cash bonuses. Such
bonuses are based upon achievement of individual or corporate performance
objectives determined by the Board of Directors.
(2) Includes the payment by the Company of the annual premium for certain term
life coverage pursuant to a benefit program, and in the case of Mr. Walker and
Dr. Branstad includes payment by the Company of the premium for buy-sell life
insurance.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options to purchase Common Stock granted in the year ended
December 29, 1995 to any of the Named Officers.
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<PAGE> 46
FISCAL YEAR-END OPTION VALUES
The following table sets forth the value of outstanding options held by the
Named Officers as of December 29, 1995.
<TABLE>
<CAPTION>
------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen T. Walker............................ 24,000 -- $28,158 --
Martha A. Branstad........................... 24,000 -- 28,158 --
Steven Lipner................................ 80,000 -- 95,424 --
Homayoon Tajalli............................. 24,000 -- 28,158 --
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the Common Stock at
December 29, 1995, $1.50 per share (as determined by the Company's Board of
Directors), less the exercise price payable for such shares, multiplied by the
number of shares underlying the option.
EMPLOYEE STOCK OPTION PLANS
Under the Company's Amended and Restated Employee Stock Option Plan (the
"Employee Option Plan"), at May 31, 1996, options for 261,640 shares of Common
Stock were outstanding. No further options will be granted under the Employee
Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996 Option Plan")
authorizes the issuance of 2,400,000 shares of Common Stock pursuant to the
exercise of stock option grants. At May 31, 1996, no shares had been issued
under the 1996 Option Plan, options for 1,525,360 shares were outstanding and
874,640 shares remained available for future grant under the 1996 Option Plan.
The Employee Option Plan and the 1996 Option Plan are collectively referred to
as the "Option Plans."
The Employee Option Plan provides for grants of options to employees of the
Company, and the 1996 Option Plan provides for grants to employees, officers and
consultants of the Company. Each stock option granted under the Option Plans is
evidenced by a written stock option agreement between the Company and the
optionee. The Option Plans provide for the granting of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and non-statutory stock options. The Option Plans are administered by
the Compensation Committee which has sole discretion and authority, consistent
with the provisions of the Option Plans, and has the right, among other things,
to determine which eligible participants will receive options, the time when
options will be granted, the terms, including the exercise price, of options
granted and the number of shares that will be subject to options granted under
the Option Plans.
For any option intended to qualify as an incentive stock option, the exercise
price must be not less than 100% of the fair market value of the Common Stock on
the date the option is granted (110% of the fair market value of such Common
Stock with respect to any optionee who immediately before any option is granted,
directly or indirectly, possesses more than 10% of the total combined voting
power of all classes of stock of the Company ("10% Owners")). The Compensation
Committee has the authority to determine the time or times at which options
granted under the Option Plans become exercisable; provided that, for any option
intended to qualify as an incentive stock option, such option must expire no
later than ten years from the date of grant (five years with respect to options
granted to 10% Owners). Options are non-assignable and non-transferable, unless
a stock option agreement provides that such option may be transferred by the
optionee upon death, by will or the laws of descent and distribution. Options
generally may be exercised only while the optionee is either employed by, or
rendering service to, the Company or within a specified period of time
thereafter. The Compensation Committee may accelerate the vesting of any option
or waive any condition or restriction pertaining to such option at any time.
Unless terminated sooner by the Board of Directors of the Company, the Employee
Option Plan will terminate in 2006, or the date on which all shares available
for issuance shall have been issued pursuant to the exercise of options granted
under the Employee Option Plan. Unless terminated sooner by the Board of
Directors of the Company, the 1996 Option Plan will terminate in 2006, or the
date on which all shares available for issuance shall have been issued pursuant
to the exercise of options granted under the 1996 Option Plan.
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<PAGE> 47
Upon a "Change in Control of the Company" as defined in the 1996 Option Plan,
any outstanding options issued pursuant to the 1996 Option Plan prior to the
date of such Change in Control of the Company shall vest and be exercisable as
to 50% of the number of shares of Common Stock that remain unvested on the date
of such Change in Control of the Company.
DIRECTORS' STOCK OPTION PLAN
The 1996 Directors' Stock Option Plan (the "Director Plan") was adopted in May
1996. Under the terms of the Director Plan, directors of the Company who are not
employees of the Company are eligible to receive non-statutory options to
purchase shares of Common Stock. A total of 200,000 shares of Common Stock may
be issued upon exercise of options granted under the Director Plan. Unless
terminated sooner by the Board of Directors, the Director Plan will terminate in
2006, or the date on which all shares available for issuance under the Director
Plan shall have been issued pursuant to the exercise of options granted under
the Director Plan.
Options to purchase 10,000 shares of Common Stock will be granted to each
eligible director upon the later of his or her initial election or appointment
to the Board of Directors or the effective date of the Offering, (the "Effective
Date"), and will vest in three equal annual installments on the anniversaries of
the date of grant (or the date of the annual meeting of stockholders in such
year, if earlier). Annual options to purchase 2,000 shares of Common Stock will
be granted to each eligible director, including those eligible directors
currently on the Board, on the date of each annual meeting of stockholders
commencing in 1997. Such annual options will vest in full at the earlier of (i)
the first anniversary of the date of the grant or (ii) the date of the next
annual meeting of stockholders. The exercise price of options granted under the
Director Plan will equal the closing price per share of the Common Stock on the
date of grant (or in the case of grants on the Effective Date the public
offering price for the Offering).
Options granted under the Director Plan are not transferable by the optionee
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order. In the event an optionee ceases to serve as
a director, each option may be exercised by the optionee for the portion then
exercisable at any time within 60 days after the optionee ceases to serve as a
director; provided, however, that in the event that the optionee ceases to serve
as a director due to his death or disability, then the optionee, or his or her
administrator, executor or heirs, may exercise the exercisable portion of the
option for up to 180 days following the date the optionee ceases to serve as a
director. No option is exercisable after the expiration of five years from the
date of grant.
Upon a "Change in Control of the Company" as defined in the Director Plan, any
outstanding options issued pursuant to the Director Plan prior to the date of
such Change in Control of the Company shall vest and be exercisable as to 50% of
the number of shares of Common Stock that remain unvested on the date of such
Change in Control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to June 3, 1996, the Company did not have a Compensation Committee, and
all matters concerning executive officer compensation were addressed by the
entire Board of Directors. The Compensation Committee is currently comprised of
Mr. Walker, Dr. Popek and Mr. Stein. Neither Dr. Popek nor Mr. Stein was at any
time during the fiscal year ended December 29, 1995, or at any other time, an
officer or employee of the Company. Mr. Walker is the President and Chief
Executive Officer of the Company. No member of the Compensation Committee of the
Company serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that to the fullest extent
permitted by Delaware law a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. Under current Delaware Law, liability of a
director may not be limited (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or purchases
and (iv) for any transaction from which the director derives an improper
personal benefit. The effect of this provision of the Company's Certificate of
Incorporation is to limit or
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<PAGE> 48
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of such director's fiduciary duty of care as a director
(including breaches resulting from negligent or grossly negligent behavior)
except in those circumstances described in clauses (i) through (iv) above. This
provision does not limit or eliminate the rights of the Company or any
stockholder to seek nonmonetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, the Company's
Certificate of Incorporation and Amended and Restated Bylaws (the "Bylaws")
provide that the Company shall indemnify its directors, officers, employees and
agents to the fullest extent permitted by Delaware Law, including circumstances
in which indemnification is otherwise discretionary under Delaware law, and the
Company has entered into indemnification agreements with its directors and
officers to that effect. The Company maintains officer and director liability
insurance providing coverage of up to $ million with respect to liabilities
arising out of certain matters, including matters arising under the Securities
Act.
At present, there is no pending litigation or proceeding involving any officer
or director, employee or agent of the Company where indemnification will be
required or permitted. The Company is not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
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<PAGE> 49
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In June 1996, the Company entered into an agreement to purchase the real
property and improvements located adjacent to the Company's Glenwood, Maryland
headquarters (the "Adjacent Property") with Glenwood Associates Limited
Partnership ("Glenwood Associates") for a purchase price of $ .
Stephen T. Walker is the general partner of Glenwood Associates. The limited
partners of Glenwood Associates are Martha A. Branstad and Stephen D. Crocker.
The purchase price was determined based on a valuation of the property prepared
by the Company based primarily upon an independent appraisal. Prior to such
transaction, the Company leased the Adjacent Property from Glenwood Associates
pursuant to an oral lease agreement which provided for monthly rent of $3,929
plus payment of operating expenses. Annual rent expense under the Adjacent
Property lease agreement for fiscal 1995 was $47,148.
In July 1995, in connection with a $1.8 million construction loan (the
"Construction Loan") from Mercantile Bank for improvements to the Company's
Glenwood, Maryland headquarters, Mr. Walker entered into a personal guaranty
agreement (the "Personal Guaranty Agreement") with Mercantile Bank. Under the
Personal Guaranty Agreement, Mr. Walker unconditionally and irrevocably
guaranteed the obligations of the Company under the Construction Loan agreements
and related documents. Mr. Walker has also entered into a Security Agreement
with the Company and Mercantile Bank in connection with the Construction Loan.
In July 1995, Mr. Walker and the Company executed a certain Deed and
Confirmatory Deed pursuant to which Mr. Walker and the Company confirmed the
boundaries of the adjacent parcels of land owned by Mr. Walker and the Company,
respectively.
In August 1995, the Company issued a Promissory Note (the "Promissory Note") for
the benefit of Mr. Crocker in the principal amount of $307,520, representing the
balance of monies due to Mr. Crocker in connection with the repurchase by the
Company of 960,000 shares of Common Stock from Mr. Crocker. This Promissory Note
was paid in full in September 1995.
The Company believes that all transactions set forth above were made on terms no
less favorable to the Company than would have been obtained from unaffiliated
third parties. The Company has adopted a policy whereby all future transactions
between the Company and its officers, directors and affiliates will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties and will be approved by a majority of the disinterested members of the
Board of Directors.
46
<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of
the Company's Common Stock as of May 31, 1996, and as adjusted to reflect the
sale of the Common Stock offered hereby, for (i) each person known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) each of the Named Officers, and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated (i) the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable,
and (ii) the address for the persons named in the table is 3060 Washington Road,
Glenwood, Maryland 21738.
<TABLE>
<CAPTION>
-------------------------------------------
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO BENEFICIALLY OWNED
THE OFFERING(1) AFTER OFFERING(1)
-------------------- ---------------------
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Martha A. Branstad..................................... 2,337,600 19.1% 2,337,600
Stephen D. Crocker(2).................................. 781,600 6.4% 781,600
Ronald W. Kaiser(3).................................... -- --
Steven B. Lipner(4).................................... 80,000 .7% 80,000
Gerald J. Popek........................................ -- --
Marvin Schaefer(5)..................................... 640,000 5.2% 640,000
Charles W. Stein....................................... -- --
Homayoon Tajalli(6).................................... 60,000 .5% 60,000
Stephen T. Walker...................................... 4,824,000 39.3% 4,824,000
Harvey L. Weiss(7)..................................... -- -- --
All directors and executive officers as a group
(8 persons)(8)....................................... 7,301,600 59.5%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment power
with respect to shares. Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after May 31, 1996 are deemed
outstanding for computing the percentage ownership of the person holding such
options, but are not deemed outstanding for computing the percentage of any
other person.
(2) The address for Mr. Crocker is Reston Parkway, Suite 430, Reston, Virginia
22091.
(3) Excludes 150,000 shares issuable upon exercise of unvested stock options.
(4) Excludes 210,600 shares issuable upon exercise of unvested stock options.
(5) The address for Mr. Schaefer is 6116 Executive Blvd., Suite 800, Rockville,
Maryland 20852.
(6) Includes 4,000 shares issuable upon the exercise of outstanding options.
Excludes 349,760 shares issuable upon exercise of unvested stock options and
does not include 20,000 shares and 4,000 shares issuable upon exercise of
outstanding options, held by Mr. Tajalli's wife.
(7) Excludes 421,160 shares issuable upon exercise of unvested stock options.
(8) See footnotes (3), (4), (6) and (7) above. Includes 4,000 shares issuable
upon the exercise of outstanding options. Excludes 1,131,520 shares issuable
upon exercise of unvested stock options.
47
<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 40,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock,
$.01 par value (the "Preferred Stock"). There are no shares of Preferred Stock
outstanding. The following summary description of the capital stock of the
Company does not purport to be complete and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the Company's
Certificate of Incorporation and Bylaws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part, and
to the applicable provisions of the General Corporation Law of the State of
Delaware.
COMMON STOCK
At May 31, 1996, there were 12,263,080 shares of Common Stock outstanding and
held of record by approximately 80 stockholders. Each holder of Common Stock is
entitled to one vote for each share held on all matters submitted to a vote of
stockholders. The holders of Common Stock, voting as a single class, are
entitled to elect all of the directors of the Company. Matters submitted to
stockholder approval generally require a majority vote.
Holders of Common Stock are entitled to receive, subject to the preferential
rights of holders of outstanding stock having preferential rights as to
dividend, such dividends as may be declared by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
would be entitled to share in the Company's assets remaining after the payment
of liabilities and the satisfaction of any liquidation preference granted the
holders of any outstanding shares of preferred stock, if any. Holders of Common
Stock have no preemptive or other subscription rights. The shares of Common
Stock are not convertible into any other security and have no redemption rights.
The outstanding shares of Common Stock are, and the shares being offered hereby
will be, upon issuance and sale, fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
PREFERRED STOCK
The Company has the authority to issue up to 5,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue, without any further
action by the stockholders (except as may be required by applicable law or stock
exchange regulations), the Preferred Stock in one or more series, to establish
from time to time the number of shares to be included in each series, and to fix
the designations, powers, preferences and rights of the shares of each series
and the qualifications, limitations or restrictions thereof. Although the
ability of the Board of Directors to designate and issue Preferred Stock
provides desirable flexibility, issuance of Preferred Stock may have adverse
effects on the holders of Common Stock including restrictions on dividends on
the Common Stock if dividends on the Preferred Stock have not been paid;
dilution of voting power of the Common Stock to the extent the Preferred Stock
has voting rights; or deferral of participation in the Company's assets upon
liquidation until the satisfaction of any liquidation preference granted to
holders of the Preferred Stock. In addition, issuance of Preferred Stock could
make it more difficult for a third party to acquire a majority of the voting
power of the outstanding capital stock and accordingly may be used as an
"anti-takeover" device. The Board of Directors, however, currently does not
contemplate the issuance of any Preferred Stock and is not aware of any pending
transactions that would be effected by such issuance.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation or By-laws, as applicable, among
other things, (i) provide that the number of directors shall be determined from
time to time by resolution adopted by a majority of the Board of Directors; and
(ii) provide for a classified Board of Directors consisting of three classes of
directors having staggered terms of three years each, with each of the classes
being as nearly equal in number as possible.
48
<PAGE> 52
The Company's Certificate of Incorporation provides that, upon the closing of
the Offering, any action required or permitted to be taken by the stockholders
of the Company may be taken only at a duly called annual or special meeting of
the stockholders, and may not be effected by any consent in writing by such
stockholders, unless such consent is unanimous, and does not provide for
cumulative voting in the election of directors. The Certificate of Incorporation
and Bylaws restrict the right of stockholders to change the number of directors
or to fill vacancies on the Board of Directors. The amendment of any of these
provisions would require approval by 66 2/3% of the voting power of the
outstanding shares of the Company.
These and other provisions could have the effect of making it more difficult for
a third party to effect, or of discouraging a third party from trying to effect,
a change in the control of the Board of Directors. Such provisions may also
discourage another person or entity from making a tender offer for the Company's
Common Stock, including offers at a premium over the market price of the Common
Stock, and might result in a delay in changes in control of management. In
addition, these provisions could have the effect of making it more difficult for
proposals favored by the stockholders to be presented for stockholder
consideration.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware Law, as amended ("Section 203"), provides that,
subject to certain exceptions specified therein, a Delaware corporation shall
not engage in any business combination, including any merger or consolidation
with, or any transaction which results in the acquisition of additional shares
of the corporation by, an "interested stockholder" for a three-year period
following the time at which the stockholder became an "interested stockholder"
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an "interested stockholder," (ii) upon consummation of
the transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time that the transaction commenced
(excluding certain shares), or (iii) at or subsequent to such time, the business
combination is approved by the board of directors of the corporation and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the "interested stockholder." Except as otherwise
specified in Section 203, an "interested stockholder" is defined to include any
person that (i) is the owner of 15% or more of the outstanding voting stock of
the corporation, or (ii) is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within three years immediately prior to the date on which it is sought
to be determined whether such person is an "interested stockholder" and the
affiliates and associates of any such person. The Company's stockholders, by
adopting an amendment to its Certificate of Incorporation or Bylaws, may elect
not to be governed by Section 203, effective twelve months after adoption.
Neither the Company's Certificate of Incorporation nor its Bylaws presently
exclude the Company from the restrictions imposed by Section 203.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is First Union
National Bank.
49
<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of Common
Stock outstanding (assuming no exercise of outstanding options). Of this amount,
shares offered hereby will be available for immediate sale in the public
market as of the date of this Prospectus. Approximately additional shares
will be available for immediate sale in the public market pursuant to Rule
144(k). Approximately additional shares will be available for sale in the
public market beginning 90 days after the date of this Prospectus and
approximately additional shares will be available in the public market
following the expiration of 180-day lockup agreements with the Representatives
of the Underwriters, subject in some cases to compliance with the volume and
other limitations of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned shares for at least two years
is entitled to sell within any three-month period commencing 90 days after the
date of this Prospectus a number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of the Common Stock (approximately
shares immediately after the Offering) or (ii) the average weekly trading volume
during the four calendar weeks preceding such sale, subject to the filing of
Form 144 with respect to such sale and certain other requirements. A person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days immediately preceding the sale who
has beneficially owned his or her shares for at least three years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations
described above. Persons deemed to be affiliates must comply with Rule 144, even
after the applicable holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold under
Rule 144, since this will depend on the market price for the Common Stock of the
Company, the personal circumstances of the sellers and other factors. Prior to
the Offering, there has been no public market for the Common Stock, and there
can be no assurance that a significant public market for the Common Stock will
develop or be sustained after the Offering. Any future sale of substantial
amounts of Common Stock in the open market may adversely affect the market price
of the Common Stock offered hereby.
The Company, its directors, executive officers and certain other stockholders
have agreed pursuant to the Underwriting Agreement and other agreements that
they will not sell any Common Stock without the prior consent of J.P. Morgan
Securities Inc. for a period of 180 days from the date of this Prospectus (the
"180-day Lockup Period"), except that the Company may, without such consent,
grant certain options to purchase stock pursuant to the Option Plans.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus. As of the date of this Prospectus, the holders of options
exercisable for shares of Common Stock will be eligible to sell their
Rule 701 shares commencing 90 days after the date of this Prospectus and holders
of options exercisable for shares will be eligible to sell their Rule 701
shares upon the expiration of the 180-day Lockup Period.
50
<PAGE> 54
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom J.P. Morgan
Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Furman
Selz LLC are acting as representatives (the "Representatives"), have severally
agreed, subject to the terms and conditions set forth in the underwriting
agreement among the Company and the Representatives (the "Underwriting
Agreement"), to purchase from the Company, and the Company has agreed to sell to
the Underwriters, the respective number of shares of Common Stock set forth
opposite their names below:
<TABLE>
<CAPTION>
----------------
UNDERWRITERS NUMBER OF SHARES
-----------------
<S> <C>
J.P. Morgan Securities Inc..................................................
Donaldson, Lufkin & Jenrette Securities Corporation.........................
Furman Selz LLC.............................................................
-----------------
Total.....................................................................
=================
</TABLE>
The nature of the Underwriters' obligations under the Underwriting Agreement is
such that all of the Common Stock being offered, excluding shares covered by the
over-allotment option granted to the Underwriters, must be purchased if any are
purchased.
The Representatives have advised the Company that the several Underwriters
propose to offer the Common Stock to the public initially at the public offering
price set forth on the cover page of this Prospectus and may offer the Common
Stock to selected dealers at such price less a concession not to exceed $
per share. The Underwriters may allow, and such dealers may reallow, a
concession to other dealers not to exceed of $ per share. After the public
offering of the Common stock, the public offering price and other selling terms
may be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable within 30 days
after the date of this Prospectus, to purchase up to additional shares of
Common Stock from the Company at the same price per share to be paid by the
Underwriters for the other shares offered hereby. If the Underwriters purchase
any such additional shares pursuant to the option, each of the Underwriters will
be committed to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may exercise the
option only to cover over-allotments, if any, made in connection with the
distribution of the Common Stock offered hereby.
Prior to the Offering, there has been no public market for the Common Stock. The
initial public offering price will be determined by negotiations between the
Company and the Representatives. Among the factors to be considered in
determining the initial offering price are the prevailing market conditions, the
market valuations of certain publicly traded companies, revenue and earnings of
the Company and comparable companies in recent periods, estimates of the
business potential and prospects of the Company, the experience of the Company's
management and the position of the Company in its industry.
The Representatives have informed the Company that the Underwriters will not
confirm, without customer authorization, sales to their customer accounts as to
which they have discretionary trading power.
The Company and its directors and executive officers and certain other
stockholders have agreed not to offer, sell or otherwise dispose of any Common
Stock or any securities convertible into Common Stock or register for sale under
the Securities Act any Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of J.P. Morgan Securities
Inc., except that the Company may, without such consent, grant options pursuant
to the Option Plans. See "Shares Eligible for Future Sale."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
The Company's Common Stock has been submitted for approval for quotation on the
Nasdaq National Market, under the trading symbol "TISX".
51
<PAGE> 55
At the Company's request, the Underwriters have reserved up to shares of
Common Stock for sale at the initial public offering price to the Company's
employees and other persons having business relationships with the Company. The
number of shares of Common Stock available for sale to other members of the
public will be reduced to the extent that these persons purchase such reserved
shares. Any reserved shares not purchased will be offered by the Underwriters on
the same basis as the other shares offered hereby.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Piper & Marbury L.L.P., Washington, D.C. Certain legal matters in
connection with the Common Stock offered hereby will be passed upon for the
Underwriters by Cahill Gordon & Reindel, a partnership including a professional
corporation, New York, New York.
EXPERTS
The consolidated financial statements of Trusted Information Systems, Inc. at
December 30, 1994 and December 29, 1995, and for each of the three years in the
period ended December 29, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and in the Registration
Statement, and have been included herein in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement on Form S-1 (the "Registration Statement")
under the Securities Act with respect to the shares of the Common Stock offered
by this Prospectus. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules to the
Registration Statement. For further information with respect to the Company and
the Common Stock, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements made in this
Prospectus concerning the contents of any contract, agreement or any other
document referred to herein are not necessarily complete; reference is made in
each instance to the copy of such contract, agreement or other document filed as
an exhibit to the Registration Statement. Each such statement is qualified in
all respects by such reference to such exhibits. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from such office after payment
of fees prescribed by the Securities and Exchange Commission.
52
<PAGE> 56
TRUSTED INFORMATION SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Shareholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Trusted Information Systems, Inc.
We have audited the accompanying consolidated balance sheets of Trusted
Information Systems, Inc. as of December 30, 1994 and December 29, 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 29, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Trusted
Information Systems, Inc. at December 30, 1994 and December 29, 1995 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 29, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Vienna, Virginia
April 29, 1996, except Note 10
as to which the date is
May 31, 1996
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion of
earnings per share calculations, which is dependent upon the establishment of
the proposed offering price range for the issuance of shares of common stock of
Trusted Information Systems, Inc. covered by this Registration Statement.
ERNST & YOUNG LLP
Vienna, Virginia
June 7, 1996
F-2
<PAGE> 58
TRUSTED INFORMATION SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------
DECEMBER 30, DECEMBER 29, MARCH 29,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 261,538 $ 53,859 $ 393,228
Marketable securities............................. -- -- 3,399,880
Accounts receivable, net of allowance of $24,000,
$44,000 and $54,000 for 1994, 1995 and 1996,
respectively................................... 2,157,343 4,304,536 3,653,895
Unbilled receivables.............................. 417,554 1,401,418 1,730,022
Prepaid expenses and other current assets......... 138,609 258,438 505,389
Refundable income taxes........................... -- -- 364,981
Deferred income taxes............................. 290,004 426,390 --
----------- ----------- -----------
Total current assets................................ 3,265,048 6,444,641 10,047,395
Property and equipment, net......................... 1,880,281 3,715,090 4,879,352
Other assets........................................ 84,137 62,072 61,605
----------- ----------- -----------
Total assets........................................ $ 5,229,466 $10,221,803 $14,988,352
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 470,438 $ 689,537 $ 522,913
Accrued payroll and related expenses.............. 1,051,968 1,384,738 1,885,840
Other accrued expenses............................ 856,089 1,342,421 1,106,601
Income taxes payable.............................. 398,720 122,174 --
Deferred income taxes............................. -- -- 970,015
Deferred revenue.................................. 12,286 1,011,992 1,067,693
Short-term borrowings............................. -- 1,523,000 2,364,000
Notes payable, current portion.................... 75,916 160,662 215,849
----------- ----------- -----------
Total current liabilities........................... 2,865,417 6,234,524 8,132,911
Notes payable, net of current portion............... 897,528 1,580,000 2,573,599
----------- ----------- -----------
Total liabilities................................... 3,762,945 7,814,524 10,706,510
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding.... -- -- --
Common stock, $.01 par value; 40,000,000 shares
authorized; 12,251,960, 11,302,480 and
12,168,720 shares issued and outstanding at
December 30, 1994, December 29, 1995 and March
29, 1996, respectively......................... 122,520 113,025 121,687
Additional paid-in capital........................ 311,841 -- 257,490
Unrealized gains, net of income taxes of
$1,356,000..................................... -- -- 2,033,000
Foreign currency translation adjustment........... (6,103) (5,121) (6,010)
Retained earnings................................. 1,038,263 2,299,375 1,875,675
----------- ----------- -----------
Total shareholders' equity.......................... 1,466,521 2,407,279 4,281,842
----------- ----------- -----------
Total liabilities and shareholders' equity.......... $ 5,229,466 $10,221,803 $14,988,352
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 59
TRUSTED INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
------------------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 29,
1993 1994 1995 1995 1996
------------ ------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Government contracts......... $8,343,424 $11,258,016 $12,327,502 $3,040,703 $2,432,273
Commercial products and
services................... 448,054 1,859,136 5,762,585 905,730 1,743,605
---------- ----------- ----------- ---------- ----------
8,791,478 13,117,152 18,090,087 3,946,433 4,175,878
Cost of revenues:
Government contracts......... 5,512,498 7,376,932 8,844,719 2,119,022 1,774,854
Commercial products and
services................... 307,238 825,725 2,020,228 364,879 637,525
---------- ----------- ----------- ---------- ----------
5,819,736 8,202,657 10,864,947 2,483,901 2,412,379
---------- ----------- ----------- ---------- ----------
Gross profit................... 2,971,742 4,914,495 7,225,140 1,462,532 1,763,499
Operating expenses:
Selling, general and
administrative............. 2,198,011 2,997,806 3,727,701 988,016 2,043,859
Research and development..... 582,075 646,001 1,144,737 295,137 375,187
---------- ----------- ----------- ---------- ----------
2,780,086 3,643,807 4,872,438 1,283,153 2,419,046
---------- ----------- ----------- ---------- ----------
Income (loss) from
operations................... 191,656 1,270,688 2,352,702 179,379 (655,547)
Other income (expense):
Interest income.............. 7,517 44,635 50,276 8,083 4,980
Interest expense............. (127,711) (134,236) (158,778) (22,812) (88,883)
---------- ----------- ----------- ---------- ----------
(120,194) (89,601) (108,502) (14,729) (83,903)
---------- ----------- ----------- ---------- ----------
Income (loss) before income
taxes........................ 71,462 1,181,087 2,244,200 164,650 (739,450)
Income tax provision
(benefit).................... 36,794 505,646 900,137 66,454 (315,750)
---------- ----------- ----------- ---------- ----------
Net income (loss).............. $ 34,668 $ 675,441 $ 1,344,063 $ 98,196 $ (423,700)
========== =========== =========== ========== ==========
Net income (loss) per share.... $ $ $ $ $
========== =========== =========== ========== ==========
Weighted average shares
outstanding..................
========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 60
TRUSTED INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
COMMON STOCK FOREIGN
---------------------- ADDITIONAL CURRENCY
NUMBER PAID-IN UNREALIZED TRANSLATION RETAINED
OF SHARES AMOUNT CAPITAL GAINS ADJUSTMENT EARNINGS TOTAL
---------- -------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1993..................... 12,228,800 $122,288 $ 304,553 $ -- $ -- $ 328,154 $ 754,995
Net income for 1993........ -- -- -- -- -- 34,668 34,668
Exercise of stock
options.................. 3,920 39 1,101 -- -- -- 1,140
Translation adjustment..... -- -- -- -- 1,702 -- 1,702
---------- -------- ---------- ---------- --------- ---------- ----------
Balance at December 31,
1993..................... 12,232,720 122,327 305,654 -- 1,702 362,822 792,505
Net income for 1994........ -- -- -- -- -- 675,441 675,441
Exercise of stock
options.................. 19,240 193 6,187 -- -- -- 6,380
Translation adjustment..... -- -- -- -- (7,805) -- (7,805)
---------- -------- ---------- ---------- --------- ---------- ----------
Balance at December 30,
1994..................... 12,251,960 122,520 311,841 -- (6,103) 1,038,263 1,466,521
Net income for 1995........ -- -- -- -- -- 1,344,063 1,344,063
Exercise of stock
options.................. 10,520 105 3,128 -- -- -- 3,233
Repurchase of common
stock.................... (960,000) (9,600) (314,969) -- -- (82,951) (407,520)
Translation adjustment..... -- -- -- -- 982 -- 982
---------- -------- ---------- ---------- --------- ---------- ----------
Balance at December 29,
1995..................... 11,302,480 113,025 -- -- (5,121) 2,299,375 2,407,279
Net loss for the three
months ended March 29,
1996..................... -- -- -- -- -- (423,700) (423,700)
Exercise of stock
options.................. 866,240 8,662 257,490 -- -- -- 266,152
Change in unrealized gain
on available-for-sale
securities, net of tax... -- -- -- 2,033,000 -- -- 2,033,000
Translation adjustment..... -- -- -- -- (889) -- (889)
---------- -------- ---------- ---------- --------- ---------- ----------
Balance at March 29, 1996
(unaudited).............. 12,168,720 $121,687 $ 257,490 $2,033,000 $(6,010) $1,875,675 $4,281,842
========== ======== ========== ========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 61
TRUSTED INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 29,
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................. $ 34,668 $ 675,441 $ 1,344,063 $ 98,196 $ (423,700)
Adjustments:
Depreciation..................... 152,974 191,615 261,020 59,376 94,791
Deferred income taxes............ (63,287) (102,456) (136,386) (21,248) 40,405
Changes in operating assets and
liabilities:
Accounts receivable and
unbilled receivables......... (431,462) (383,461) (3,131,057) (1,197,853) 322,037
Prepaid expenses and other
current assets............... (33,518) (53,857) (119,829) (46,329) (246,951)
Other assets................... 15,011 (52,218) 22,065 6,488 467
Accounts payable............... 145,489 172,593 219,099 160,637 (166,624)
Accrued payroll and related
expenses..................... 198,733 272,096 332,770 284,343 501,102
Other accrued expenses......... 332,664 185,500 486,332 97,968 (235,820)
Income taxes
payable/refundable........... (18,710) 378,835 (276,546) (289,473) (487,155)
Deferred revenue............... (57) (4,583) 999,706 54,500 55,701
------------ ------------ ------------ ----------- -----------
Net cash provided by (used in)
operating activities............. 332,505 1,279,505 1,237 (793,395) (545,747)
INVESTING ACTIVITIES
Purchases of property and
equipment........................ (191,881) (192,165) (2,095,829) (112,915) (1,259,053)
Purchase of marketable
securities....................... -- -- -- -- (10,880)
------------ ------------ ------------ ----------- -----------
Net cash used in investing
activities....................... (191,881) (192,165) (2,095,829) (112,915) (1,269,933)
FINANCING ACTIVITIES
Proceeds from exercise of stock
options.......................... 1,140 6,380 3,233 -- 266,152
Repurchase of common stock......... -- -- (407,520) -- --
Net borrowings (repayments) of
short-term borrowings............ 40,000 (390,000) 1,523,000 740,000 841,000
Proceeds from issuance of notes
payable.......................... 10,000 -- 1,036,299 -- 1,080,829
Repayments of notes payable........ (185,664) (471,269) (269,081) (17,681) (32,043)
------------ ------------ ------------ ----------- -----------
Net cash (used in) provided by
financing activities............. (134,524) (854,889) 1,885,931 722,319 2,155,938
------------ ------------ ------------ ----------- -----------
Effect of exchange rate changes on
cash............................. 1,702 (7,805) 982 (4,450) (889)
------------ ------------ ------------ ----------- -----------
Net change in cash and cash
equivalents...................... 7,802 224,646 (207,679) (188,441) 339,369
Cash and cash equivalents at
beginning
of period........................ 29,090 36,892 261,538 261,538 53,859
------------ ------------ ------------- ----------- -----------
Cash and cash equivalents at end of
period........................... $ 36,892 $ 261,538 $ 53,859 $ 73,097 $ 393,228
============ ============ ============= =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid during the period.... $ 120,083 $ 129,119 $ 162,724 $ 20,912 $ 91,031
============ ============ ============= =========== ===========
Income taxes paid during the
period........................... $ 55,504 $ 126,811 $ 1,176,683 $ 500,252 $ --
============ ============ ============= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 62
TRUSTED INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
Description of Business
Trusted Information Systems, Inc. (the Company) is a leading provider of
comprehensive security solutions for the protection of computer networks,
including global Internet-based systems, internal networks and individual
workstations and laptops. The Company sells to a broad range of companies
located throughout North America and Europe, as well as various government
agencies.
Fiscal Periods
The Company's fiscal year is based on a 52-53 week year ending on the last
Friday in December. The year ended December 31, 1993 was a 53 week year and the
years ended December 30, 1994 and December 29, 1995 were 52 week years. The
Company's fiscal quarter consists of a 13 week period.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Trusted Information Systems (U.K.)
Limited ("TIS UK"). The subsidiary was established in 1992 to conduct the
Company's activities in the United Kingdom. All material intercompany accounts
and transactions have been eliminated upon consolidation. Revenues from TIS UK
were insignificant prior to 1996. In the three months ended March 29, 1996
revenues from TIS UK amounted to 6.7% of total revenues.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The Company performs periodic credit evaluations of the financial condition of
its customers and typically does not require collateral from its customers.
Amounts receivable, directly and indirectly, from government agencies
approximated 67%, 54% and 56% of total accounts receivable at December 30, 1994,
December 29, 1995 and March 29, 1996, respectively. Sales to these agencies
accounted for approximately 95%, 86%, 68%, 77% and 58% of total revenues for the
years ended December 31, 1993, December 30, 1994 and December 29, 1995 and for
the three months ended March 31, 1995 and March 29, 1996, respectively. Export
sales, primarily to Europe, were 4.8% of total revenues for the year ended
December 29, 1995 and 5.3% of total revenues for the three months ended March
29, 1996. Export sales were insignificant in all other periods.
SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Marketable Securities
Marketable securities are classified as available-for-sale and are carried at
fair market value with unrealized gains and losses, net of taxes, reported in a
separate component of shareholders' equity. Realized gains and losses and
F-7
<PAGE> 63
TRUSTED INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
declines in value judged to be other-than-temporary are included in investment
income. Interest and dividends are included in investment income. At March 29,
1996, marketable securities consisted of 100,000 shares of common stock of
Cybercash, Inc., which the Company purchased in connection with the formation of
such company, with a cost basis of approximately $10,000 and an unrealized gain
and estimated fair value of approximately $3.4 million.
Property and Equipment
Property and equipment is stated at cost and depreciated on accelerated methods
based on estimated useful lives of 31 years for buildings and improvements and
5-7 years for furniture and equipment. Leasehold improvements are amortized over
the lesser of the estimated useful life of the asset or the lease term.
In 1995, the Company adopted the provisions of Financial Accounting Standards
Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption
of this Statement did not have a material impact on the reported results of
operations of the Company.
Stock Options Granted to Employees
The Company records compensation expense for all stock-based compensation plans
using the intrinsic value method prescribed by APB Opinion No. 25, Accounting
for Stock Issued to Employees. In October 1995, the Financial Accounting
Standards Board issued Statement No. 123, Accounting for Stock-Based
Compensation, which encourages companies to recognize expense for stock-based
awards based on their estimated fair value on the date of grant. Statement No.
123, effective for 1996, does not require companies to change their existing
accounting for stock-based awards, but if the new fair value method is not
adopted, pro forma income and earnings per share data should be provided in the
footnotes to the financial statements. The Company intends to continue to
account for stock-based compensation plans using the intrinsic value method, and
will supplementally disclose in its 1996 financial statements the required pro
forma information as if the fair value method had been adopted.
Revenue Recognition
Government Contracts -- The Company enters into research and development
contracts with government agencies under various pricing arrangements. Revenue
from "cost-plus-fixed-fee" contracts is recognized on the basis of reimbursable
contract costs incurred during the period, plus a percentage of the fixed fee.
Revenue from "time and material" contracts is recognized on the basis of hours
utilized, plus other reimbursable contract costs incurred during the period.
Revenue from "firm-fixed-price" contracts is recognized on the percentage of
completion method. Under this method, individual contract revenues are recorded
based on the percentage relationship that contract costs incurred bear to
management's estimate of total contract costs. Losses, if any, are accrued when
their occurrence becomes known and the amount of the loss is reasonably
determined.
Under its government contracts, the Company is subject to audit by the Defense
Contract Audit Agency which could result in the renegotiation of amounts
previously billed. Management believes that the results of such audits will not
have a material adverse effect on the Company's financial position or results of
operations.
Revenues recognized in excess of amounts billed to government agencies and
retainage related to long-term contracts have been recorded as unbilled
receivables in the accompanying balance sheets.
F-8
<PAGE> 64
TRUSTED INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Commercial Products and Services -- Revenues from the sale of goods, including
software products, are recognized upon shipment, when collection of the
receivable is probable and the Company has no significant remaining obligations.
In instances where the Company directly installs its products, revenues are
recognized upon completion of installation. Commercial consulting services are
provided on a time and materials basis. The Company accounts for obligations
under customer support and maintenance agreements by deferring a pro rata
portion of revenue and recognizing it either ratably as the obligations are
fulfilled or upon completion of performance.
Research and Development
Research and development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standard No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant. The distribution of products incorporating encryption technology
may be subject to U.S. government export restrictions.
Advertising Costs
All advertising costs are expensed when incurred. Costs which are included in
expense for the years ended December 31, 1993, December 30, 1994 and December
29, 1995 and the three months ended March 31, 1995 and March 29, 1996
approximated $14,700, $11,800, $28,700, $5,100 and $16,600, respectively.
Earnings Per Share
The Company's net income per share calculations are based upon the weighted
average number of shares of common stock outstanding during each period,
adjusted for the dilutive effect of common stock equivalents.
Pursuant to the requirements of the Securities and Exchange Commission, common
stock and options to purchase common stock issued at prices below the initial
public offering price during the twelve months immediately preceding the
contemplated initial filing of the registration statement relating to the
initial public offering (IPO), have been included in the computation of net
income per share as if they were outstanding for all periods presented (using
the treasury method and assuming repurchase of common stock at the estimated IPO
price with the proceeds of assumed exercise of the options), even if
antidilutive.
Unaudited Interim Statements
The consolidated financial statements for the three months ended March 31, 1995
and March 29, 1996 have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. These statements are
unaudited but, in the opinion of management, include all adjustments (consisting
only of normal recurring adjustments and accruals) necessary for a fair
presentation of the financial information set forth herein. The operating
results for the three months ended March 29, 1996 are not necessarily indicative
of the results that may be expected for the year ending December 27, 1996.
F-9
<PAGE> 65
TRUSTED INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
-------------------------------------------
DECEMBER 30, DECEMBER 29, MARCH 29,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Land.................................................. $ 123,681 $ 232,926 $ 232,926
Buildings and building improvements................... 1,762,738 1,762,738 1,762,738
Furniture and equipment............................... 1,029,794 1,656,097 1,976,926
Leasehold improvements................................ 20,688 45,211 54,655
Construction-in-progress.............................. -- 1,335,758 2,264,538
----------- ----------- -----------
2,936,901 5,032,730 6,291,783
Less: accumulated depreciation and amortization....... (1,056,620) (1,317,640) (1,412,431)
----------- ----------- -----------
$ 1,880,281 $ 3,715,090 $ 4,879,352
=========== =========== ===========
</TABLE>
3. SHORT-TERM BORROWINGS
At December 30, 1994 and December 29, 1995, the Company had various short-term
line of credit arrangements with a bank which allowed for aggregate borrowings
of $1 million and $2 million, respectively. Borrowings under these arrangements
are due upon demand and bear interest at the bank's prime rate plus 1% per annum
(weighted average rate of 9.5% during 1994 and 1995). At March 29, 1996, these
short-term line of credit arrangements allowed aggregate borrowings of $2.6
million.
After March 29, 1996, the Company entered into various agreements with the bank
which increased the aggregate available borrowings under the short-term line of
credit arrangements to $5 million.
F-10
<PAGE> 66
TRUSTED INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
4. NOTES PAYABLE
Notes payable to banks and others consist of the following:
<TABLE>
<CAPTION>
----------------------------------------
DECEMBER 30, DECEMBER 29, MARCH 29,
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
Small Business Administration note due in monthly
principal and interest (10.1% per annum) installments
of approximately $5,000............................... $ 435,345 $ 420,962 $ 417,133
Notes payable to a bank:
Construction note; maximum aggregate borrowings of
$1.8 million; principal due in monthly installments
of $10,000 beginning September 1996; callable by
the bank in August 2001 or August 2006; personally
guaranteed by a shareholder/officer................ -- 684,170 1,665,000
Mortgage note; principal due in monthly installments
of $5,128; balance due September 2003.............. 538,099 481,694 466,311
Furniture and equipment notes; principal due in
monthly installments of $3,583 in 1995 and $5,667
in 1996 and thereafter............................. -- 153,836 241,004
---------- ---------- ----------
973,444 1,740,662 2,789,448
Less current portion.................................... 75,916 160,662 215,849
---------- ---------- ----------
$ 897,528 $1,580,000 $2,573,599
========== ========== ==========
</TABLE>
All of the notes payable to a bank described above and the short-term line of
credit arrangements discussed in Note 3 are payable to the same bank, bear
interest at the bank's prime rate plus 1% per annum (9.5% at December 30, 1994
and December 29, 1995 and 9.25% at March 29, 1996), are secured by essentially
all of the Company's assets and contain cross default provisions.
Under the terms of the agreements in connection with the Construction note, the
Company is subject to certain restrictions which include, among other things,
restrictions on: (i) incurrence of additional indebtedness, (ii) distributions
of dividends and capital and (iii) selling or encumbering property and
equipment.
Other than amounts due under the Small Business Administration note, the Company
believes that the carrying amount reported in the balance sheet of its other
financial assets and liabilities approximates their fair value. The fair value
of the Small Business Administration note at December 29, 1995 is estimated,
using discounted cash flow analyses, to be approximately $480,000.
F-11
<PAGE> 67
TRUSTED INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
4. NOTES PAYABLE (CONTINUED)
Aggregate maturities of all notes payable at December 29, 1995 are as follows:
<TABLE>
<S> <C>
1996.......................................... $ 160,662
1997.......................................... 242,128
1998.......................................... 243,996
1999.......................................... 227,916
2000.......................................... 205,353
Thereafter.................................... 660,607
----------
Total......................................... $1,740,662
==========
</TABLE>
5. STOCK OPTIONS
The Company has adopted the Amended and Restated Employee Stock Option Plan
(Employee Option Plan) and the 1996 Stock Option Plan (1996 Option Plan) which
provide for the grant of incentive stock options and non-statutory stock options
to executives, employees and consultants. The Employee Option Plan and 1996
Option Plan authorize the issuance of options to acquire 10,000,000 and
2,400,000, respectively, shares of common stock. In April 1996, options were
granted under the 1996 Option Plan to acquire 1,525,360 shares at an exercise
price of $1.63 per share.
The vesting period and the exercise price of each option shall be determined by
the respective plan administration committee. However, for incentive stock
options, the exercise price shall not be less than the fair market value of the
common stock on the date of the grant. No future options will be issued under
the Employee Option Plan.
The option activity under the plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING PRICE PER
UNDER THE STOCK PLAN SHARE
-------------------- ---------
<S> <C> <C>
Balance at December 31, 1993.................................... 1,480,000 $ .31
Options granted............................................... 1,780,000 .31-.42
Options exercised............................................. (19,240) .31
Options canceled.............................................. (1,418,240) .31-.42
--------------- --------
Balance at December 30, 1994.................................... 1,822,520 .31-.42
Options granted............................................... -- --
Options exercised............................................. (10,520) .31-.42
Options canceled.............................................. (200,000) .31-.42
--------------- --------
Balance at December 29, 1995.................................... 1,612,000 .31-.42
Options granted............................................... -- --
Options exercised............................................. (866,240) .31-.42
Options canceled.............................................. (52,000) .31-.42
--------------- --------
Balance at March 29, 1996....................................... 693,760 $.31-.42
=============== ========
</TABLE>
The Company has also adopted the 1996 Directors' Stock Option Plan (Director
Plan) which provides for the grant of non-statutory stock options to
non-employee directors of the Company. The Director Plan authorizes the issuance
of options to acquire 200,000 shares of common stock. Options to purchase 10,000
shares of common stock will be
F-12
<PAGE> 68
TRUSTED INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
5. STOCK OPTIONS (CONTINUED)
granted to each director upon initial election to the board of directors. The
options vest ratably over three years. Additionally, commencing in 1997, each
director will annually be granted options to purchase 2,000 shares of common
stock. Such annual options will vest in full at the earlier of (i) the first
anniversary of the date of the grant or (ii) the date of the next annual meeting
of stockholders. The exercise price of options granted under the Director Plan
will equal the closing price per share of the common stock on the date of grant.
Upon a change in control of the Company, as defined by the plans, 50% of any
outstanding unvested options under the 1996 Option Plan or the Director Plan
prior to the date of such change in control shall vest and be immediately
exercisable.
6. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
----------------------------------------
DECEMBER 30, DECEMBER 29, MARCH 29,
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... $ 9,624 $ 16,905 $ 20,747
Other accrued expenses.................................. 280,181 343,877 359,246
Accrued vacation........................................ 131,907 172,231 121,029
Other................................................... 7,757 (13,437) (16,905)
---------- ---------- ----------
Total deferred tax assets............................... 429,469 519,576 484,117
Deferred tax liabilities:
Unbilled receivables.................................... 132,298 86,257 91,203
Property and equipment.................................. 7,167 6,929 6,929
Unrealized gain on marketable securities................ -- -- 1,356,000
---------- ---------- ----------
Total deferred tax liabilities.......................... 139,465 93,186 1,454,132
---------- ---------- ----------
Net deferred tax asset (liability)...................... $ 290,004 $ 426,390 $ (970,015)
========== ========== ==========
</TABLE>
At December 30, 1994, December 29, 1995 and March 29, 1996 no valuation
allowance was required for the deferred tax assets.
F-13
<PAGE> 69
TRUSTED INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 29,
1993 1994 1995 1995 1996
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Current:
Federal........................ $ 81,924 $ 475,575 $ 855,775 $ 88,924 ($198,989)
State.......................... 18,158 132,526 180,748 18,782 (42,023)
---------- ----------- ----------- -------- ---------
100,082 608,101 1,036,523 107,706 (241,012)
Deferred:
Federal........................ (49,434) (80,026) (125,518) (31,976) (61,701)
State.......................... (13,854) (22,429) (10,868) (9,276) (13,037)
---------- ----------- ----------- -------- ---------
(63,288) (102,455) (136,386) (41,252) (74,738)
---------- ----------- ----------- -------- ---------
Total income tax provision
(benefit)...................... $ 36,794 $ 505,646 $ 900,137 $ 66,454 ($315,750)
========== =========== =========== ======== =========
</TABLE>
The Company's provision for income taxes resulted in effective tax rates that
varied from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 29,
1993 1994 1995 1995 1996
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Expected federal income tax
provision at 34%............... $ 24,297 $401,570 $763,028 $55,981 ($251,413)
Expenses not deductible for tax
purposes....................... 11,193 14,748 13,336 3,120 5,834
State income taxes, net of
federal benefit................ 2,840 72,664 112,121 6,274 (36,345)
Surtax exemption................. (4,100) -- -- -- --
Other............................ 2,564 16,664 11,652 1,079 (33,826)
---------- ---------- ---------- -------- ---------
$ 36,794 $505,646 $900,137 $66,454 ($315,750)
========== ========== ========== ======== =========
</TABLE>
7. PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan covering all permanent employees
who work at least 20 hours per week. Participants may make voluntary
contributions to the plan and the Company matches these contributions, up to 5%
of the employee's salary. In addition, the Company may make a discretionary
contribution based on each eligible participant's compensation. Participants
contributions vest immediately and Company contributions vest over a six-year
period. Contributions to the plan charged to operations for the years ended
December 31, 1993, December 30, 1994 and December 29, 1995 and the three months
ended March 31, 1995 and March 29, 1996 totaled $363,570, $410,629, $532,170,
$137,332 and $172,902, respectively.
F-14
<PAGE> 70
TRUSTED INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
8. COMMITMENTS
The Company has embarked upon a significant renovation and expansion program to
its corporate headquarters building. This program is expected to cost
approximately $2.2 million and will be financed primarily with the proceeds of
the construction note (see Note 4.)
The Company leases certain office space in California, Maryland and Virginia
under non-cancelable operating lease agreements. Certain leases contain
escalation clauses and require the Company to pay its share of any increases in
operating expenses and real estate taxes. Rent expense was $175,491, $220,615,
$281,381, $66,209 and $111,423 for the years ended December 31, 1993, December
30, 1994 and December 29, 1995 and the three months ended March 31, 1995 and
March 29, 1996, respectively. Future minimum lease payments under all non-
cancelable operating lease arrangements are as follows:
<TABLE>
<S> <C>
Nine months ending December 27, 1996...................... $229,561
1997...................................................... 180,114
1998...................................................... 134,441
1999...................................................... 85,834
2000...................................................... 1,473
--------
Total..................................................... $631,423
========
</TABLE>
The Company maintains a self-insurance program for health care costs with
stop-loss insurance. Expense incurred for group medical claims, program premiums
and stop-loss limit charged to operations for the years ended December 31, 1993,
December 30, 1994 and December 29, 1995 and the three months ended March 31,
1995 and March 29, 1996 totaled $339,248, $476,820, $618,663, $195,690 and
$189,842, respectively.
9. RELATED PARTY TRANSACTIONS
In 1994, the Company entered into an oral agreement to lease real property
located adjacent to the Company's Glenwood, Maryland headquarters from Glenwood
Associates Limited Partnership (Glenwood Associates), a limited partnership
controlled by certain shareholders of the Company. The lease provides for
monthly rent of $3,929 plus payment of operating expenses. Rent expense under
the lease agreement for the years ended December 30, 1994 and December 29, 1995
and the three months ended March 31, 1995 and March 29, 1996 was approximately
$44,000, $47,000, $12,000 and $12,000, respectively. The Company intends to
purchase the aforementioned property from Glenwood Associates in June 1996.
In August 1995, the Company issued a promissory note for the benefit of a
shareholder and former officer (Mr. Crocker) in the principal amount of $307,520
representing the balance of monies due to Mr. Crocker in connection with the
repurchase by the Company of 960,000 shares of common stock from Mr. Crocker.
This promissory note was paid in full in September 1995.
10. SUBSEQUENT EVENTS
Effective May 31, 1996, the Company consummated a tax-free reorganization for
the purposes of becoming a Delaware corporation by issuing 40 shares of a new
class of $.01 par value common stock in exchange for each share of the then
outstanding no par value Class A (voting) and Class B (non-voting) common stock.
The effect of this reorganization is reflected as if it had occurred at the
beginning of the earliest period presented.
F-15
<PAGE> 71
TRUSTED INFORMATION SYSTEMS, INC.
"Building A World of Trust"
[TIS LOGO]
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities offered hereby, other than underwriting
discounts and commissions. All of the amounts shown are estimated except the
Securities and Exchange Commission registration fee, the NASD filing fee and the
NASDAQ listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee...................... $15,863
National Association of Securities Dealers, Inc. filing fee........ 5,100
NASDAQ listing fee................................................. *
Transfer agent's and registrar's fees.............................. *
Printing expenses.................................................. *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Blue Sky filing fees and expenses.................................. *
Miscellaneous expenses............................................. *
-------
Total......................................................... $
=======
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. The
Company's Certificate of Incorporation and Bylaws include provisions to require
the Company to indemnify its directors and officers to the fullest extent
permitted by Section 145, including circumstances in which indemnification is
otherwise discretionary. Section 145 also empowers the Company to purchase and
maintain insurance that protects its officers, directors, employees and agents
against any liabilities incurred in connection with their service in such
positions.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
The Underwriting Agreement filed as Exhibit 1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and certain officers, and by the Company of the Underwriters, for
certain liabilities arising under the Securities Act of 1933, as amended (the
"Act"), or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued unregistered securities
in the transactions described below. Securities issued in such transactions were
offered and sold in reliance upon the exemption from registration under Section
4(2) of the Act, relating to sales by an issuer not involving any public
offering, or under Rule 701 under the Act. The sales of securities were made
without the use of an underwriter and the certificates evidencing the shares
bear a restrictive legend permitting the transfer thereof only upon registration
of the shares or an exemption under the Act.
(1) From January 1, 1993 through May 31, 1996, the Company issued an
aggregate of 994,280 shares of Common Stock to various employees for aggregate
consideration of $307,581 upon exercise of options granted pursuant to the
Company's Amended and Restated Employee Stock Option Plan.
II-1
<PAGE> 73
(2) From January 1, 1993 through May 31, 1996, the Company granted to
various employees stock options under the Company's Amended and Restated
Employee Stock Option Plan and the 1996 Stock Option Plan for an aggregate of
4,785,360 shares of Common Stock exercisable at prices ranging from $.31 to
$1.63 per share, of which options for 994,280 shares have been exercised and
options for 1,787,000 shares are outstanding.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation of the Company.
3.2 -- Bylaws of the Company.
4.1* -- Specimen stock certificate for shares of Common Stock of the Company.
5.1* -- Opinion of Piper & Marbury L.L.P. regarding legality of securities
being registered.
10.1 -- Amended and Restated Employee Stock Option Plan.
10.2 -- 1996 Stock Option Plan.
10.2.1 -- Form of Incentive Stock Option Agreement pursuant to 1996 Stock Option
Plan.
10.2.2 -- Form of Non-Qualified Stock Option Agreement pursuant to 1996 Stock
Option Plan.
10.3 -- 1996 Directors' Stock Option Plan.
10.4 -- Form of Employee Agreement Regarding Confidentiality and Inventions.
10.5 -- Form of Software License and Reseller Agreement.
10.6 -- Form of Consulting Services Agreement.
10.7* -- Form of Indemnification Agreement by and between the Company and its
directors and executive officers.
10.8 -- Construction Loan Agreement dated July 26, 1995, by and between the
Company and Mercantile-Safe Deposit and Trust Company.
10.9 -- Construction Loan Promissory Note dated July 26, 1995, by and between
the Company and Mercantile-Safe Deposit and Trust Company.
10.10 -- Deed of Trust and Security Agreement dated July 26, 1995, by and
between the Company and Mercantile-Safe Deposit and Trust Company.
10.11 -- Security Agreement, dated July 26, 1995, by and among the Company,
Mercantile-Safe Deposit and Trust Company and Stephen T. Walker.
10.12 -- Personal Guaranty Agreement dated July 26, 1995, by and between Stephen
T. Walker and Mercantile-Safe Deposit and Trust Company.
10.13 -- Revolving Note issued by the Company on April 4, 1996 to
Mercantile-Safe Deposit and Trust Company.
10.14 -- Security Agreement dated April 4, 1996, by and between the Company and
Mercantile-Safe Deposit and Trust Company.
10.15 -- Revolving Note issued by the Company on April 4, 1996 to
Mercantile-Safe Deposit and Trust Company.
10.16* -- Security Agreement dated April 4, 1996, by and between the Company and
Mercantile-Safe Deposit and Trust Company.
10.17 -- Office Building Lease dated February 1, 1990, by and between the
Company and Perini Investment Properties, Inc.
10.18 -- Lease Amendment I dated May 26, 1994, by and between the Company and
Robert R. Walker, Jr., Receiver (relating to exhibit 10.17).
10.19 -- Standard Lease dated April 12, 1989, by and between the Company and R&B
Property Holding Company.
10.20 -- Amendment to Lease effective November 1, 1992, by and between the
Company and R&B Property Holding Company (relating to exhibit 10.19).
10.21 -- Lease Agreement dated as of October 3, 1995, by and between Trusted
Information Systems (UK) Limited and Theale Estates Limited.
</TABLE>
II-2
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <C> <S>
10.22* -- Contract for Sale of Real Estate, dated June , 1996, by and between
the Company and Glenwood Associates Limited Partnership.
10.23 -- Deed and Confirmatory Deed dated July 26, 1995, by and between the
Company and Stephen T. Walker.
10.24 -- Agreement and Plan of Merger dated May 30, 1996.
11.1* -- Statement of computation of earnings per share.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP.
23.2* -- Consent of Piper & Marbury L.L.P. (to be included as part of Exhibit
5.1 hereto).
24.1 -- Power of Attorney (included in signature pages)
27 -- Financial Data Schedule
</TABLE>
(b) Financial Statement Schedules
None required.
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
A. The undersigned Company hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the Delaware General Corporate Law, the Certificate of
Incorporation and the Bylaws, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
C. (1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Glenwood, County
of Howard, State of Maryland, on the 7th day of June, 1996.
TRUSTED INFORMATION SYSTEMS, INC.
By: /s/ STEPHEN T. WALKER
------------------------------------
STEPHEN T. WALKER
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Each person whose signature appears below in so signing also makes,
constitutes and appoints Stephen T. Walker and Edwin M. Martin, Jr., and each of
them acting alone, his true and lawful attorney-in-fact, with full power of
substitution, for him in any and all capacities, to execute and cause to be
filed with the Securities and Exchange Commission any and all amendments and
post-effective amendments to this Registration Statement, with exhibits thereto
and other documents in connection therewith, and hereby ratifies and confirms
all that said attorney-in-fact or his substitute or substitutes may do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- --------------
<C> <S> <C>
/s/ STEPHEN T. WALKER President, Chief Executive Officer, June 7, 1996
- ------------------------------------------ Chairman of the Board and Director
STEPHEN T. WALKER
/s/ MARTHA A. BRANSTAD Executive Vice President and Chief June 7, 1996
- ------------------------------------------ Operating Officer, President of the
MARTHA A. BRANSTAD Advanced Research and Engineering
Division and Director
/s/ HARVEY L. WEISS Executive Vice President, President June 7, 1996
- ------------------------------------------ of the Commercial Division,
HARVEY L. WEISS Secretary and Director
/s/ RONALD W. KAISER Executive Vice President and Chief June 7, 1996
- ------------------------------------------ Financial Officer (Principal
RONALD W. KAISER Financial and Accounting Officer)
/s/ GERALD J. POPEK Director June 6, 1996
- ------------------------------------------
GERALD J. POPEK
/s/ CHARLES W. STEIN Director June 7, 1996
- ------------------------------------------
CHARLES W. STEIN
</TABLE>
II-4
<PAGE> 76
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----
TRUSTED INFORMATION SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 77
EXHIBIT INDEX
TRUSTED INFORMATION SYSTEMS, INC.
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------- -------------
<C> <S> <C>
1.1* Form of Underwriting Agreement. ......................................
3.1 Certificate of Incorporation of the Company. .........................
3.2 Bylaws of the Company. ...............................................
4.1* Specimen stock certificate for shares of Common Stock of the
Company. .............................................................
5.1* Opinion of Piper & Marbury L.L.P. regarding legality of securities
being registered. ....................................................
10.1 Amended and Restated Employee Stock Option Plan. .....................
10.2 1996 Stock Option Plan. ..............................................
10.2.1 Form of Incentive Stock Option Agreement pursuant to 1996 Stock Option
Plan. ................................................................
10.2.2 Form of Non-Qualified Stock Option Agreement pursuant to 1996 Stock
Option Plan. .........................................................
10.3 1996 Directors' Stock Option Plan. ...................................
10.4 Form of Employee Agreement Regarding Confidentiality and
Inventions. ..........................................................
10.5 Form of Software License and Reseller Agreement. .....................
10.6 Form of Consulting Services Agreement. ...............................
10.7* Form of Indemnification Agreement by and between the Company and its
directors and executive officers......................................
10.8 Construction Loan Agreement dated July 26, 1995, by and between the
Company and Mercantile-Safe Deposit and Trust Company. ...............
10.9 Construction Loan Promissory Note dated July 26, 1995, by and between
the Company and Mercantile-Safe Deposit and Trust Company. ...........
10.10 Deed of Trust and Security Agreement dated July 26, 1995, by and
between the Company and Mercantile-Safe Deposit and Trust Company. ...
10.11 Security Agreement, dated July 26, 1995, by and among the Company,
Mercantile-Safe Deposit and Trust Company and Stephen T. Walker. .....
10.12 Personal Guaranty Agreement dated July 26, 1995, by and between
Stephen T. Walker and Mercantile-Safe Deposit and Trust Company. .....
10.13 Revolving Note issued by the Company on April 4, 1996 to
Mercantile-Safe Deposit and Trust Company. ...........................
10.14 Security Agreement dated April 4, 1996, by and between the Company and
Mercantile-Safe Deposit and Trust Company. ...........................
10.15 Revolving Note issued by the Company on April 4, 1996 to
Mercantile-Safe Deposit and Trust Company. ...........................
10.16* Security Agreement dated April 4, 1996, by and between the Company and
Mercantile-Safe Deposit and Trust Company. ...........................
10.17 Office Building Lease dated February 1, 1990, by and between the
Company and Perini Investment Properties, Inc. .......................
10.18 Lease Amendment I dated May 26, 1994, by and between the Company and
Robert R. Walker, Jr., Receiver (relating to exhibit 10.17). .........
10.19 Standard Lease dated April 12, 1989, by and between the Company and
R&B Property Holding Company. ........................................
10.20 Amendment to Lease effective November 1, 1992, by and between the
Company and R&B Property Holding Company (relating to exhibit
10.19). ..............................................................
10.21 Lease Agreement dated as of October 3, 1995, by and between Trusted
Information Systems (UK) Limited and Theale Estates Limited. .........
10.22* Contract for Sale of Real Estate, dated June , 1996, by and between
the Company and Glenwood Associates Limited Partnership. .............
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------- -------------
<C> <S> <C>
10.23 Deed and Confirmatory Deed dated July 26, 1995, by and between the
Company and Stephen T. Walker. .......................................
10.24 Agreement and Plan of Merger dated May 30, 1996. .....................
11.1* Statement of computation of earnings per share. ......................
21.1 Subsidiaries of the Company. .........................................
23.1 Consent of Ernst & Young LLP. ........................................
23.2* Consent of Piper & Marbury L.L.P. (to be included as part of Exhibit
5.1 hereto). .........................................................
24.1 Power of Attorney (included in signature pages).......................
27 Financial Data Schedule...............................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TRUSTED INFORMATION SYSTEMS, INC.
--------------------------------------------
FIRST: NAME. The name of the corporation is Trusted
Information Systems, Inc.
SECOND: REGISTERED OFFICE AND AGENT. The address of the
Corporation's registered office in the State of Delaware is Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
THIRD: PURPOSE. The nature of the business or purposes to
be conducted or promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware
and to possess and exercise all of the powers and privileges
granted under such law and the other laws of the State of
Delaware.
FOURTH: AUTHORIZED CAPITAL. The total number of shares of
capital stock which the Corporation shall have authority to issue is (i)
40,000,000 shares of Common Stock, $0.01 par value per share, and (ii)
5,000,000 shares of Preferred Stock, $0.01 par value per share.
(A) Common Stock. The powers, privileges and
rights, and the qualifications, limitations or restrictions thereof in respect
of the Common Stock of the Corporation are as follows:
(1) The voting, dividend and liquidation
rights of the holders of the Common Stock are subject to and
qualified by the rights of the holders of the Preferred Stock
of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
(2) The holders of the Common Stock are
entitled to one vote for each share held at all meetings of
stockholders (and written actions in lieu of meetings). There
shall be no cumulative voting.
(3) Dividends may be declared and paid
on the Common Stock from funds lawfully available therefor as
and when determined by the Board of Directors and subject to
any preferential dividend rights of any then outstanding
Preferred Stock.
(4) Upon the dissolution or liquidation
of the Corporation, whether voluntary or involuntary, holders
of Common Stock will be entitled to receive all assets of the
Corporation available for distribution to its stockholders,
subject to any preferential rights of any then outstanding
Preferred Stock.
(B) Preferred Stock The Board of Directors
expressly is authorized, subject to limitations prescribed by the Delaware
General Corporation Law and the provisions of this
<PAGE> 2
Certificate of Incorporation of the Corporation, to provide, by resolution and
by filing a certificate pursuant to the Delaware General Corporation Law, for
the issuance from time to time of the shares of Preferred Stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers, preferences and other
rights of the shares of each such series and to fix the qualifications,
limitations and restrictions thereon, including, but without limiting the
generality of the foregoing, the following:
(1) the number of shares constituting
that series and the distinctive designation of that series;
(2) the dividend rate on the shares of
that series, whether dividends shall be cumulative, and, if
so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares of that
series;
(3) whether that series shall have
voting rights, in addition to the voting rights provided by
law, and, if so, the terms of such voting rights;
(4) whether that series shall have
conversion privileges, and, if so, the terms and conditions of
such conversion, including provision for adjustment of the
conversion rate in such events as the Board of Directors shall
determine;
(5) whether or not the shares of that
series shall be redeemable, and, if so, the terms and
conditions of such redemption, including the dates upon or
after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under
different conditions and at different redemption rates;
(6) whether that series shall have a
sinking fund for the redemption or purchase of shares of that
series, and, if so, the terms and amount of such sinking fund;
(7) the rights of the shares of that
series in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, and the relative
rights of priority, if any, of payment of shares of that
series; and
(8) any other relative powers,
preferences, and rights of that series, and qualifications,
limitations or restrictions on that series.
FIFTH: BOARD OF DIRECTORS.
(A) General. Except as otherwise provided in this
Certificate of Incorporation or a certificate of designation relating to
the rights of the holders of any class or series of Preferred Stock, voting
separately by class or series, to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be as fixed
from time to time by or pursuant to the Bylaws of the Corporation (the
"By-Laws"). No director of the Corporation (a "Director") need be a
Stockholder.
(B) Classification. The Directors, other than those who
may be elected by the holders of any class or series of Preferred Stock voting
separately by class or series, shall be classified with respect to the time
for which they severally hold office into three separate classes, Class I,
Class II and Class III, which shall be as nearly equal in number as possible,
and shall be
- 2 -
<PAGE> 3
adjusted from time to time in the manner specified in the Bylaws of the
Corporation to maintain such proportionality. Each initial Director in Class I
shall hold office for a term expiring at the 1999 annual meeting of
stockholders. Each initial Director in Class II shall hold office initially
for a term expiring at the 1998 annual meeting of stockholders. Each initial
Director in Class III shall hold office for a term expiring at the 1997 annual
meeting of stockholders. Notwithstanding the foregoing provisions of this
Article Fifth, each Director shall serve until such Director's successor is
duly elected and qualified or until such Director's earlier death, resignation
or removal. At each annual meeting of stockholders, the successors to the
class of Directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election and until their successors have
been duly elected and qualified or until any such Director's earlier death,
resignation or removal.
(C) Names and Addresses of Initial Directors. The names
and mailing address of the persons who shall serve as Directors until their
successors are duly elected and qualified are:
Stephen T. Walker
Martha A. Branstad
Harvey L. Weiss
Trusted Information Systems, Inc.
3060 Washington Road (Route 97)
Glenwood, Maryland 21738
(D) Election, Bylaws. In furtherance of and not in
limitation of powers conferred by statute, it is further provided:
(1) Election of Directors need not be by written
ballot.
(2) The Board of Directors is expressly authorized
to adopt, amend or repeal the By-Laws.
SIXTH: LIMITATION ON LIABILITY. No Director of the Corporation
shall be personally liable to the Corporation or to any stockholder of the
Corporation for monetary damages for breach of fiduciary duty as a Director,
provided that this provision shall not limit the liability of a Director (i)
for any breach of the Director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involved
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of Delaware, or (iv) for any transaction from
which the Director derived an improper personal benefit.
If the General Corporation Law of Delaware or any other statute
of the State of Delaware hereafter is amended to authorize the further
elimination or limitation of the liability of Directors of the Corporation,
then the liability of a Director of the Corporation shall be limited to the
fullest extent permitted by the statutes of the State of Delaware, as so
amended, and such
- 3 -
<PAGE> 4
elimination or limitation of liability shall be in addition to, and not in lieu
of, the limitation on the liability of a Director provided by the foregoing
provisions of this Sixth Article.
Any repeal of or amendment to this Sixth Article
shall be prospective only and shall not adversely affect any limitation on the
liability of a Director of the corporation existing at the time of such repeal
or amendment.
SEVENTH: INDEMNIFICATION. To the extent permitted by
law, the Corporation shall fully indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a Director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding.
To the extent permitted by law, the Corporation may
fully indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the
fact that such person is or was an employee or agent of the Corporation, or is
or was serving at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding.
The Corporation may advance expenses (including
attorneys' fees) incurred by a Director or officer in advance of the final
disposition of such action, suit or proceeding upon the receipt of an
undertaking by or on behalf of the Director or officer to repay such amount if
it shall ultimately be determined that such Director or officer is not entitled
to indemnification. The Corporation may advance expenses (including attorneys'
fees) incurred by an employee or agent in advance of the final disposition of
such action, suit or proceeding upon such terms and conditions, if any, as the
Board of Directors deems appropriate.
EIGHTH: ACTIONS BY STOCKHOLDERS. Any action required or
permitted to be taken by the stockholders of the Corporation must be effected
at a duly called annual or special meeting of stockholders, and may not be
effected by any consent in writing by such stockholders, unless such consent is
unanimous. Meetings of stockholders may be held within or without the State of
Delaware, as the By-laws may provide.
NINTH: AMENDMENT. The Corporation reserves the right to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and the
Certificate of Incorporation, and all rights conferred upon stockholders herein
are granted subject to this reservation.
- 4 -
<PAGE> 5
TENTH: INCORPORATOR. The name and mailing address of the
sole incorporator is Stephen T. Walker, 3060 Washington Road (Route 97),
Glenwood, Maryland 21738.
IN WITNESS WHEREOF, the undersigned, for the purpose of
forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make, file and record this Certificate and does hereby certify
that the facts herein stated are true, and accordingly hereto sets his hand
this 28th day of May, 1996.
/s/ Stephen T. Walker
---------------------------------------
Stephen T. Walker, Incorporator
- 5 -
<PAGE> 6
CERTIFICATE OF MERGER
MERGING
TRUSTED INFORMATION SYSTEMS, INC. (A MARYLAND CORPORATION)
INTO
TRUSTED INFORMATION SYSTEMS, INC. (A DELAWARE CORPORATION)
PURSUANT TO SECTION 252(c) OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
The undersigned corporation DOES HEREBY CERTIFY:
FIRST: That Trusted Information Systems, Inc., a corporation
organized and existing under the laws of the State of Maryland (the "Merging
Corporation"), and Trusted Information Systems, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "Surviving
Corporation"), agree that the Merging Corporation shall be merged with and into
the Surviving Corporation.
SECOND: That the terms and conditions of the merger (the "Merger")
and the mode of carrying the same into effect are as set forth in that certain
Agreement and Plan of Merger (the "Merger Agreement"), which was approved,
adopted, certified, executed and acknowledged by both the Merging Corporation
and the Surviving Corporation in accordance with, and pursuant to, the
provisions of Section 252(c) of the State of Delaware General Corporation Law.
THIRD: That the name of the surviving corporation of the Merger
is Trusted Information Systems, Inc., a Delaware corporation, which shall
continue to be named "Trusted Information Systems, Inc." after the date on
which the Merger becomes effective.
FOURTH: That the certificate of incorporation of the Surviving
Corporation shall be the certificate of incorporation of the corporation
surviving the Merger.
FIFTH: That the executed Merger Agreement is on file at the
principal place of business of the Surviving Corporation, and the address of
such principal place of business is 3060 Washington Road (Route 97), Glenwood,
Maryland 21738.
SIXTH: That a copy of the Merger Agreement will be furnished by
the Surviving Corporation, on request and at no cost, to any stockholder of the
Merging Corporation or the Surviving Corporation.
SEVENTH: The total number of shares of stock of all classes that
the Merging Corporation has authority to issue is One Million (1,000,000)
shares, consisting of Five Hundred Thousand (500,000) shares of voting common
stock, no par value per share (the
<PAGE> 7
"Class A Stock"), and Five Hundred Thousand (500,000) shares of non-voting
common stock, no par value per share (the "Class B Stock").
IN WITNESS WHEREOF, Trusted Information Systems, Inc., a Delaware
corporation, the surviving corporation to the Merger, has caused this
Certificate of Merger to be signed in its corporate name and on its behalf by
its president and attested by the corporate secretary all as of the 31st day of
May , 1996.
ATTEST: TRUSTED INFORMATION SYSTEMS, INC.,
A DELAWARE CORPORATION (THE SURVIVING
CORPORATION)
By: /s/ Harvey Weiss By: /s/ Stephen T. Walker
---------------------------- -------------------------------------
Harvey L. Weiss, Secretary Stephen T. Walker, President and CEO
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<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
TRUSTED INFORMATION SYSTEMS, INC.
(A DELAWARE CORPORATION)
Dated as of May 30, 1996
<PAGE> 2
BY-LAWS
TABLE OF CONTENTS
ARTICLE 1 - STOCKHOLDERS
Section 1.1 Place of Meetings
Section 1.2 Annual Meeting
Section 1.3 Special Meetings
Section 1.4 Notice of Meetings
Section 1.5 Voting List
Section 1.6 Quorum
Section 1.7 Adjournments
Section 1.8 Voting and Proxies
Section 1.9 Action at Meeting
Section 1.10 Action without Meeting
ARTICLE 2 - DIRECTORS
Section 2.1 General Powers
Section 2.2 Number and Classes
Section 2.3 Term of Office, Election and Qualification
Section 2.4 Enlargement of the Board
Section 2.5 Vacancies
Section 2.6 Resignation
Section 2.7 Regular Meetings
Section 2.8 Special Meetings
Section 2.9 Notice of Special Meetings
Section 2.10 Meetings by Telephone Conference Calls
Section 2.11 Quorum
Section 2.12 Action at Meeting
Section 2.13 Action by Consent
Section 2.14 Removal
Section 2.15 Committees
Section 2.16 Compensation of Directors
ARTICLE 3 - OFFICERS
Section 3.1 Enumeration
Section 3.2 Election
Section 3.3 Qualification
Section 3.4 Tenure
Section 3.5 Resignation and Removal
Section 3.6 Vacancies
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Section 3.7 Chairman of the Board and Vice-Chairman of the Board
Section 3.8 President
Section 3.9 Vice Presidents
Section 3.10 Secretary and Assistant Secretaries
Section 3.11 Treasurer and Assistant Treasurers
Section 3.12 Salaries
ARTICLE 4 - CAPITAL STOCK
Section 4.1 Issuance of Stock
Section 4.2 Certificates of Stock
Section 4.3 Transfers
Section 4.4 Lost, Stolen or Destroyed Certificates
Section 4.5 Record Date
ARTICLE 5 - INDEMNIFICATION
Section 5.1 Indemnification in Actions, Suits or Proceedings Other
Than Those by or in the Right of Corporation
Section 5.2 Indemnification in Actions, Suits or Proceedings by or
in the Right of the Corporation
Section 5.3 Authorization of Indemnification
Section 5.4 Advancement of Expenses
ARTICLE 6 - GENERAL PROVISIONS
Section 6.1 Fiscal Year
Section 6.2 Corporate Seal
Section 6.3 Waiver of Notice
Section 6.4 Voting of Securities
Section 6.5 Evidence of Authority
Section 6.6 Certificate of Incorporation
Section 6.7 Transactions with Interested Parties
Section 6.8 Severability
Section 6.9 Pronouns
ARTICLE 7 - AMENDMENTS
Section 7.1 By the Board of Directors
Section 7.2 By the Stockholders
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<PAGE> 4
BY-LAWS
OF
TRUSTED INFORMATION SYSTEMS, INC.
ARTICLE 1 - STOCKHOLDERS
1.1 Place of Meeting. All meetings of stockholders shall be held
at such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held at such date, time and
place as may be fixed by the Board of Directors or the President. If this date
shall fall upon a legal holiday at the place of the meeting, then such meeting
shall be held on the next succeeding business day at the same hour. If no
annual meeting is held in accordance with the foregoing provisions, the Board
of Directors shall cause the meeting to be held as soon thereafter as
convenient. If no annual meeting is held in accordance with the foregoing
provisions, a special meeting may be held in lieu of the annual meeting, and
any action taken at that special meeting shall have the same effect as if it
had been taken at the annual meeting, and in such case all references in these
By-Laws to the annual meeting of the stockholders shall be deemed to refer to
such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be
called at any time by the President, the Board of Director or the holders of a
majority of the outstanding shares of the Common Stock. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of stockholders, whether annual or special,
shall be given not less than ten nor more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notices of
all meetings shall state the place, date and hour of the meeting. The notice
of a special meeting shall state, in addition, the purpose or purposes for
which the meeting is called. If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger
of the corporation shall prepare, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, at a place within the city
where the meeting is to be held. The list shall also be
<PAGE> 5
produced and kept at the time and place of the meeting during the whole time of
the meeting, and may be inspected by any stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, the holders of a majority of the shares of
the capital stock of the corporation issued and outstanding and entitled to
vote at the meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to
any other time and to any other place at which a meeting of stockholders may be
held under these By-Laws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no
stockholder is present, by any officer entitled to preside at or to act as
Secretary of such meeting. It shall not be necessary to notify any stockholder
of any adjournment of less than 30 days if the time and place of the adjourned
meeting are announced at the meeting at which adjournment is taken, unless
after the adjournment a new record date is fixed for the adjourned meeting. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for
each share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to
vote at a meeting of stockholders, or to express consent or dissent to
corporate action in writing without a meeting, may vote or express such consent
or dissent in person or may authorize another person or persons to vote or act
for him by written proxy executed by the stockholder or his authorized agent
and delivered to the Secretary of the corporation. No such proxy shall be
voted or acted upon after three years from the date of its execution, unless
the proxy expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting,
the holders of a majority of the stock present or represented and voting on a
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the holders of a
majority of the stock of that class present or represented and voting on a
matter) shall decide any matter to be voted upon by the stockholders at such
meeting, except when a different vote is required by express provision of law,
the Certificate of Incorporation or these By-Laws. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election.
1.10 Action without Meeting. Any action required or permitted to
be taken at any annual or special meeting of stockholders of the corporation
may be taken without a meeting, without prior notice and without a vote, if an
unanimous consent in writing, setting forth the action so taken, is signed by
all of the holders of outstanding stock.
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<PAGE> 6
ARTICLE 2 - DIRECTORS
2.1 General Powers. The business and affairs of the corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation except as otherwise provided by
law, the Certificate of Incorporation or these By-Laws. In the event of a
vacancy in the Board of Directors, the remaining directors, except as otherwise
provided by law, may exercise the powers of the full Board until the vacancy is
filled.
2.2 Number and Classes. The number of directors which shall
constitute the whole Board of Directors shall be determined by resolution of
the stockholders or the Board of Directors, but in no event shall be less than
three. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one of more directors.
Unless otherwise provided in the Certificate of Incorporation, the Board of
Directors shall divide the directors into three classes, which shall be as
equal in number as possible; and, when the number of directors is changed,
shall determine the class or classes to which the increased or decreased number
of directors shall be apportioned, which shall be done so as to maintain as
equal a number of directors in each class as possible; provided, however, that
no decrease in the number of directors shall affect the term of any director
then in office.
2.3 Tenure, Election and Qualification. The directors shall be
elected at the annual meeting of stockholders by such stockholders as have the
right to vote on such election. At each annual meeting of stockholders,
directors elected to succeed those whose terms are expiring shall be elected
for a term of office expiring at the annual meeting of stockholders held in the
third year following their election and until their respective successors are
elected and qualified, or until such director's earlier death, resignation or
removal. Directors need not be stockholders of the corporation.
2.4 Enlargement of the Board. The number of directors may be
increased at any time and from time to time by the stockholders or by a
majority of the directors then in office.
2.5 Vacancies. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office, and a director chosen to fill
a position resulting from an increase in the number of directors shall hold
office until the next annual meeting of stockholders and until his successor is
elected and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall
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<PAGE> 7
be effective upon receipt unless it is specified to be effective at some other
time or upon the happening of some other event.
2.7 Regular Meetings. Provided that meetings are held at least
once during each of the Company's fiscal quarters, regular meetings of the
Board of Directors may be held without notice at such time and place, either
within or without the State of Delaware, as shall be determined from time to
time by the Board of Directors; provided that any director who is absent when
such a determination is made shall be given notice of the determination. A
regular meeting of the Board of Directors may be held without notice
immediately after and at the same place as the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors
may be held at any time and place, within or without the State of Delaware,
designated in a call by any member of the Board of Directors or by the
President of the Company.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a facsimile, telegram
or telex, or delivering written notice by hand, to his last known business or
home address at least 24 hours in advance of the meeting, or (iii) by
delivering written notice to his last known business or home address at least
72 hours in advance of the meeting by a nationally recognized overnight service
(receipt requested). A notice or waiver of notice of a meeting of the Board of
Directors need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any
members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such
director so disqualified; provided, however, that in no case shall less than
one-third (1/3) of the number so fixed constitute a quorum. In the absence of
a quorum at any such meeting, a majority of the directors present may adjourn
the meeting from time to time without further notice other than announcement at
the meeting, until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors
at which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
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<PAGE> 8
2.13 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee of the Board
of Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the
written consents are filed with the minutes of proceedings of the Board or
committee.
2.14 Removal. Any one or more or all of the directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that the directors elected
by the holders of a particular class or series of stock may be removed without
cause only by vote of the holders of a majority of the outstanding shares of
such class or series.
2.15 Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports
as the Board of Directors may from time to time request. Except as the Board
of Directors may otherwise determine, any committee may make rules for the
conduct of its business, but unless otherwise provided by the directors or in
such rules, its business shall be conducted as nearly as possible in the same
manner as is provided in these By-Laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
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<PAGE> 9
ARTICLE 3 - OFFICERS
3.1 Enumeration. The officers of the corporation shall consist of
a President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be
elected annually by the Board of Directors at its first meeting following the
annual meeting of stockholders. Other officers may be appointed by the Board
of Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or
more offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the
Certificate of Incorporation or by these By-Laws, each officer shall hold
office until his successor is elected and qualified, unless a different term is
specified in the vote choosing or appointing him, or until his earlier death,
resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering
his written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
Any officer appointed by Board of Directors may be removed at
any time, with or without cause, by vote of a majority of the entire number of
directors then in office.
Except as the Board of Directors may otherwise determine, no
officer who resigns or is removed shall have any right to any compensation as
an officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month or
by the year or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy
occurring in any office for any reason and may, in its discretion, leave
unfilled for such period as it may determine any offices other than those of
President, Treasurer and Secretary. Each such successor shall hold office for
the unexpired term of his predecessor and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The
Board of Directors may appoint a Chairman of the Board. If the Board of
Directors appoints a Chairman of the Board, he shall perform such duties and
possess such powers as are assigned
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<PAGE> 10
to him by the Board of Directors. If the Board of Directors appoints a
Vice-Chairman of the Board, he shall, in the absence or disability of the
Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such
other powers as may from time to time be vested in him by the Board of
Directors.
3.8 President. Unless the Board of Directors otherwise
determines, the President shall be the Chief Executive Officer of the
corporation. The President shall, subject to the direction of the Board of
Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. The President shall perform such other
duties and shall have such other powers as the Board of Directors may from time
to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties
and possess such powers as the Board of Directors or the President may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the President, the Vice President designated as the Chief Operating
Officer of the Corporation shall perform the duties of the President and when
so performing shall have all the powers of and be subject to all the
restrictions upon the President. The Board of Directors may assign to any Vice
President the title of Executive Vice President, Senior Vice President or any
other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall
perform such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on
documents.
Any Assistant Secretary shall perform such duties and possess
such powers as the Board of Directors, the President or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary, (or if there shall be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at
any meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall
perform such duties and shall have such powers as may from time to time be
assigned to him by the Board of
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<PAGE> 11
Directors or the President. In addition, the Treasurer shall perform such
duties and have such powers as are incident to the office of treasurer,
including without limitation the duty and power to keep and be responsible for
all funds and securities of the corporation, to deposit funds of the
corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess
such powers as the Board of Directors, the President or the Treasurer may from
time to time prescribe. In the event of the absence, inability, or refusal to
act of the Treasurer, the Assistant Treasurer, (or if there shall be more than
one, the Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to
such salaries, compensation or reimbursement as shall be fixed or allowed from
time to time by the Board of Directors.
ARTICLE 4 - CAPITAL STOCK
4.1 Issuance of Stock. Unless otherwise voted by the stockholders
and subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
corporation or the whole or any part of any unissued balance of the authorized
capital stock of the corporation held in its treasury may be issued, sold,
transferred or otherwise disposed of by vote of the Board of Directors in such
manner, for such consideration and on such terms as the Board of Directors may
determine.
4.2 Certificates of Stock. Every holder of stock of the
corporation shall be entitled to have a certificate, in such form as may be
prescribed by law and by the Board of Directors, certifying the number and
class of shares owned by him in the corporation. Each such certificate shall
be signed by, or in the name of the corporation by, the Chairman or
Vice-Chairman, if any, of the Board of Directors, or the President or a Vice
President, and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the corporation. Any or all of the signatures on the
certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the
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<PAGE> 12
certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the corporation or its
transfer agent may reasonably require. Except as may be otherwise required by
law, by the Certificate of Incorporation or by these By-Laws, the corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends
and the right to vote with respect to such stock, regardless of any transfer,
pledge or other disposition of such stock until the shares have been
transferred on the books of the corporation in accordance with the requirements
of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may
issue a new certificate of stock in place of any previously issued certificate
alleged to have been lost, stolen, or destroyed, upon such terms and conditions
as the Board of Directors may prescribe, including the presentation of
reasonable evidence of such loss, theft or destruction and the giving of such
indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date
as a record date for the determination of the stockholders entitled to notice
of or to vote at any meeting of stockholders or to express consent (or dissent)
to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action. Such record date shall not be more than 60 nor less
than ten days before the date of such meeting, nor more than 60 days prior to
any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day before the day on which notice is
given, or, if notice is waived, at the close of business on the day before the
day on which the meeting is held. The record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day
on which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
ARTICLE 5 - INDEMNIFICATION
5.1 Indemnification in Actions, Suits or Proceedings Other Than
Those by or in the Right of the Corporation. (a) The Corporation shall
indemnify any person who was or is
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a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that such person is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe that such conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such conduct was unlawful.
(b) The Corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that such person is or was an employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe that such conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such conduct was unlawful.
5.2 Indemnification in Actions, Suits or Proceedings by or in the
Right of the Corporation. (a) The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director of officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best interest of
the Corporation. No such indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless
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and only to the extent that the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
(b) The Corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such person is or
was an employee or agent of the Corporation, or is or was serving at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation. No such indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the Corporation unless and only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
5.3 Authorization of Indemnification. Any indemnification under
this Article 5 shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because such person
or persons have met the applicable standard of conduct set forth in Sections
5.1 and 5.2 hereof. Such determination shall be made (i) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or
(iii) by the stockholders.
5.4 Advancement of Expenses. The Corporation may advance expenses
(including attorneys' fees) incurred by a director or officer in advance of the
final disposition of such action, suit or proceeding upon the receipt of an
undertaking by or on behalf of the director of officer to repay such amount if
it shall ultimately be determined that such director or officer is not entitled
to indemnification.
The Corporation may advance expenses (including attorneys'
fees) incurred by an employee or agent in advance of the final disposition of
such action, suit or proceeding upon such terms and conditions, if any, as the
Board of Directors deems appropriate.
ARTICLE 6 - GENERAL PROVISIONS
6.1 Fiscal Year. The fiscal year of the Corporation shall be the
twelve months ending on the last Friday of December of each calendar year that
is a business day, a day on
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which banks (as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended) are open for business in the city of Washington, D.C.
6.2 Corporate Seal. The corporate seal shall be in such form as
shall be approved by the Board of Directors.
6.3 Waiver of Notice. Whenever any notice whatsoever is required
to be given by law, by the Certificate of Incorporation or by these By-Laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or any
other available method, whether before, at or after the time stated in such
waiver, or the appearance of such person or persons at such meeting in person
or by proxy, shall be deemed equivalent to such notice.
6.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
6.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith
be conclusive evidence of such action.
6.6 Certificate of Incorporation. All references in these By-Laws
to the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the corporation, as amended and in effect from time to
time.
6.7 Transactions with Interested Parties. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, another organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or
transaction or solely because his or their votes are counted for such purpose,
if:
(a) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board or
committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less
than a quorum;
(b) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to
the stockholders entitled to vote
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<PAGE> 16
thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or, ratified, by the
Board of Directors, a committee of the Board of Directors, or
the stockholders.
Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
6.8 Severability. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these By-Laws.
6.9 Pronouns. All pronouns used in these By-Laws shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
ARTICLE 7 - AMENDMENTS
7.1 By the Board of Directors. These By-Laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the
Board of Directors at which a quorum is present.
7.2 By the Stockholders. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders
of a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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<PAGE> 1
EXHIBIT 10.1
TRUSTED INFORMATION SYSTEMS, INC.
EMPLOYEE CLASS B STOCK PURCHASE PLAN
AS AMENDED AND RESTATED
(INCENTIVE STOCK OPTIONS AND NON-QUALIFIED STOCK OPTIONS)
The Employee Class B Stock Purchase Plan (the "Plan") was
initially adopted by the Board of Directors of Trusted Information Systems,
Inc. (the "Company") and approved at a special meeting of the Company's
shareholders on September 12, 1986. The Plan was revised on March 9, 1988 and
July 13, 1994. This document is an amendment and restatement of the Plan,
which was adopted by the Board of Directors on March 8, 1996, 1996, and
approved by the shareholders of the Company on March 8, 1996, to be effective
March 8, 1996.
1. PURPOSE
The Plan provides an incentive and an encouragement for stock
ownership by employees of the Company and its Subsidiaries, as defined below.
The Plan is a means of inducing employees to remain associated with the
Company, encouraging employees to promote the best interests of the Company by
offering them a greater stake in success of the Company and enabling the
Company to compete effectively for the services of new personnel to assist in
the Company's expanding operations and continued development.
2. ADMINISTRATION
The Plan shall be administered by the Board of Directors of
the Company or any committee of the Board of Directors appointed by the Board
of Directors to administer the Plan (the "Administrator"). The Administrator
shall have the absolute authority, subject to the terms of the Plan, to
determine the times at which options are granted, the types of options to be
granted, the number of Shares to be covered by each option, the exercise price
of each option, and the terms and other conditions for the exercise of each
option.
The Administrator shall have absolute authority to interpret
the provisions of the Plan, to prescribe or rescind rules for its
interpretation and administration, and to prescribe or amend the terms of any
option agreements adopted under the Plan. Any determination by the
Administrator regarding the Plan or any option agreement under the Plan shall
be final. No member of the Administrator shall be liable for any action or
determination made in good faith under the Plan, and the members shall be
entitled to indemnification and reimbursement in the manner provided in the
Company's charter or by-laws and under the Company's directors and officers
liability insurance coverage.
<PAGE> 2
3. ELIGIBILITY
Those employees eligible to participate in the Plan shall be
selected from time to time by the Administrator from employees of the Company
or any Subsidiary. A "Subsidiary" is any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of the granting of the option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
4. STOCK
The stock subject to the options to be granted under the Plan
shall be authorized but unissued Class B Non-Voting Common Stock of the Company
(referred to as "Class B Common Stock" or "Shares"). Subject to adjustment as
provided in paragraph 7, the total number of Shares which may be issued
pursuant to stock options granted under the Plan shall not exceed 250,000
Shares (which total shall include Shares issued pursuant to options granted
prior to the amendment and restatement of the Plan as provided herein).
If any outstanding stock option under the Plan expires or is
terminated for any reason before the end of the term of the Plan, the Shares
covered by the expired option may be used to grant new options under the Plan.
5. AWARD OF OPTIONS
The Administrator may at any time authorize the granting of
options under the Plan to any eligible employee. The options may be (a)
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or (b) options that are
non-qualified with respect to any provision of the Code and which will not be
treated as incentive stock options. The Administrator shall determine the date
of grant, the number of Shares, the exercise price, and the other terms and
conditions of each option granted under the Plan.
6. TERMS AND CONDITIONS OF STOCK OPTION AGREEMENTS
Stock options granted to eligible employees under the Plan
shall be evidenced by Stock Option Agreements and/or such other documents
adopted by the Administrator from time to time (collectively, the "Stock Option
Agreements"). Each Stock Option Agreement shall be subject to the following
terms and conditions:
(a) Medium of Payment. The exercise price of any option
shall be payable in cash (or by check, bank draft, or money order
payable to the order of the Company) or, in the discretion of the
Administrator, through delivery of shares of Class B Common Stock
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<PAGE> 3
with a fair market value equal to all or part of the exercise price,
with any remaining balance to be paid in cash, or in any other medium
the Administrator may approve.
(b) Number of Shares. Each Stock Option Agreement shall
state the total number of Shares covered by the option.
(c) Option Price. The option price for Shares covered by
an incentive stock option shall be not less than 100% of the fair
market value of the Shares on the date of grant, except that the
option price shall be not less than 110% of the fair market value of
the shares on the date of grant with respect to an incentive stock
option granted to a participant who, at the time of the grant, owns
stock possessing more than 10% of the total combined voting of all
classes of stock of the Company or a Subsidiary (a "More-than-10%
Shareholder"). The option price for Shares covered by a non-qualified
stock option may be less than the fair market value of the Shares on
the date of grant.
(d) Term of Options. Each stock option granted under the
Plan shall expire not more than 10 years from the date of grant,
except that an incentive stock option granted to a More-than-10%
Shareholder shall expire not more than 5 years from the date of grant.
(e) Date of Exercise. The Administrator may in its
discretion provide that a stock option may not be exercised in whole
or in part for any period of time specified by the Administrator.
Unless the Administrator so provides, any stock option may be
exercised in whole or in part at any time during its term.
(f) Acceleration. If any option granted under the Plan
is not immediately exercisable in full, the Administrator may in its
discretion accelerate the time at which the option may be exercised.
(g) Termination of Employment. The Administrator shall
determine, in its sole discretion, the period of time following
termination of employment during which an employee's stock options
shall continue to be exercisable. The Administrator may waive any
restriction on the exercisability of any option following termination
of employment. Notwithstanding the foregoing, no stock option shall
be exercisable following expiration of the term of the option.
(h) Employee's Agreement. As a condition to the receipt
and exercise of any option, each employee shall enter into such stock
restriction agreement as the Administrator or the Company may require.
Each employee shall also agree, if counsel for the Company determines
it necessary or desirable at the time of the exercise of any stock
option for Shares, in order to comply with applicable securities law,
to acquire his or her Shares for investment only and without any
present intention to resell them, and to dispose of such Shares only
in compliance with applicable securities laws and
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<PAGE> 4
regulations. At the request of the Company, each employee will
execute and deliver to the Company a written agreement to that effect.
In addition, in the event that an employee desires to dispose of
Shares issued pursuant to options, such participant shall, at the
Company's request, provide the Company with a written opinion of
counsel reasonably satisfactory to the Company to the effect that any
such disposition of Shares is in compliance with applicable securities
laws and regulations.
(i) Certain Tandem Options Prohibited. An incentive
stock option may not be granted in tandem with a non-qualified option
in such a manner that the exercise of one affects a participant's
right to exercise the other.
(j) Delivery of Stock Certificates. All stock
certificates shall be issued as soon as practicable after the full
payment of the exercise price. Each stock certificate shall bear a
legend describing the applicable restrictions on transferability.
(k) Other Provisions. The Stock Option Agreements
authorized under the Plan may contain such other provisions as the
Administrator deems advisable, including a provision under which the
Company may agree to acquire stock options from participants for a
cash payment.
7. RECAPITALIZATION.
The aggregate number of Shares available for the granting of
stock options under the Plan, as set forth in paragraph 4, the number and type
of Shares covered by each outstanding stock option and the exercise price of
each stock option shall be proportionately adjusted for any modification or
increase or decrease in the number of issued shares of Class B Common Stock of
the Company resulting from a division or consolidation of shares, any other
capital adjustment, or any other increase or decrease in the number of
outstanding shares effected without receipt of consideration by the Company.
Any fractional shares resulting from any such adjustment shall be eliminated.
No adjustment to the exercise price of any stock option under the Plan may
reduce the exercise price to an amount less than the par value of the Shares
covered by the option.
If the Company is the surviving or resulting corporation in
any merger or consolidation, any outstanding option granted under the Plan
shall apply to those securities to which a holder of the number of shares of
Class B Common Stock subject to the stock option would have been entitled under
the merger or consolidation. If the Company is not the surviving or resulting
corporation in any merger or consolidation, the surviving or resulting
corporation shall tender stock options to purchase its shares on terms and
conditions that substantially preserve the rights and benefits of any stock
option outstanding under the Plan at the time of the merger or consolidation.
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<PAGE> 5
The term "Class B Common Stock" as used in the Plan shall
include the shares resulting from any change in the Company's Class B Common
Stock limited to a change in its designation to "capital stock" or other
similar designation, a change in the par value of the Class B Common Stock, or
a change from par value to no par value, in each case without any increase in
the number of issued shares. The Administrator shall notify all shareholders
of any such adjustments.
8. GRANTS IN SUBSTITUTION FOR OPTIONS AND STOCK
APPRECIATION RIGHTS GRANTED BY OTHER CORPORATIONS.
Stock options may be granted under the Plan from time to time
in substitution for stock options held by employees of corporations who become
or are about to become employees of the Company or a Subsidiary as the result
of a merger or consolidation of the employing corporation with the Company or
Subsidiary, or the acquisition by the Company or Subsidiary of the assets or
stock of the employing corporation. The terms and conditions of any substitute
options so granted may vary from the terms and conditions set forth in
paragraph 6 of this Plan to the extent that the Administrator deems appropriate
at the time of grant to conform the substitute options to the provisions of the
options for which they are substituted.
9. TERM AND EFFECTIVENESS OF PLAN
The Plan as amended and restated herein shall become effective
on the date it receives approval of the stockholders as provided in the
Company's Charter. When so approved, the Plan as amended and restated shall be
deemed to have been in effect from the date of its adoption by the Board of
Directors, provided, however, that the provisions of this amendment and
restatement shall apply to options granted prior to this amendment and
restatement, but only to the extent that such provisions do not result in a
material modification of any prior outstanding option which would cause such
option to no longer qualify as an incentive stock option. Before the amended
and restated Plan receives stockholder approval, the Administrator may grant
stock options under the amended and restated Plan but any such stock options
shall be void if the amendment and restatement of the Plan is not subsequently
approved by the stockholders. No stock option shall be granted under the Plan
after 10 years from the date the Plan as amended and restated herein was
approved by the Board of Directors. However, the Board of Directors reserves
the right to terminate the Plan at any time prior to the expiration of such
10-year period.
10. AMENDMENTS
The Board of Directors may at any time alter, amend, suspend, or
discontinue the Plan. To the extent required to comply with Section 422 of the
Code, the Board of Directors may not, however, without stockholder approval,
alter the provisions of the Plan so as to (i) increase the number of securities
that may be issued under the Plan or (ii) modify the requirements as to
eligibility for participation in the Plan.
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<PAGE> 6
11. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Class B
Common Stock to participants under the Plan will be used for general corporate
purposes.
12. NO OBLIGATION TO EXERCISE
Participants shall have no obligation to exercise any stock
option granted to them under the Plan.
13. CERTAIN TAX MATTERS
(a) Notification of Certain Events. The Stock Option
Agreements used under the Plan shall require the holder of an option
to notify the Company within 10 days of the occurrence of either of
the following events:
(i) the making of an election under Section 83(b)
of the Code to include in gross income in the year of transfer
the amount specified in Section 83(b); or
(ii) the disposition of any stock issued on the
exercise of an incentive stock option within 2 years of the
granting of the incentive stock option or one year of its
exercise.
(b) Withholding. Whenever under the Plan the exercise of
a stock option will result in the recognition of taxable income by an
employee, the Company shall be entitled to require as a condition of
delivery of Shares that the employee remit to the Company an amount
sufficient to satisfy all federal, state, and other withholding tax
requirements related to the income recognized by the employee. If an
employee makes a disqualifying disposition of stock acquired on the
exercise of an incentive stock option as described in paragraph
(a)(ii), the employee shall remit to the Company an amount sufficient
to satisfy all federal, state, and other withholding tax requirements
related to the income realized by the employee on the disqualifying
disposition. In any case under this subparagraph (b) where
withholding by the Company is required, the Company shall have the
right to withhold any such amounts from compensation or Shares
otherwise due to the employee.
14. EXCHANGE ACT: RULE 16b-3
(a) General. The Plan is intended to comply with Rule
16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934 (the
"Exchange Act") from and after the date on which the Company first
registers a class of equity securities under Section 12 of the
Exchange Act (the "Registration Date"). From and after the
Registration Date, any provision inconsistent with Rule 16b-3 (as in
effect on the Registration Date) shall, to the
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<PAGE> 7
extent permitted by law and determined to be advisable by the
Administrator (constituted in accordance with Section 14(b) hereof),
be inoperative and void. In addition, from and after the Registration
Date, the provisions set forth in this Section 14 shall apply.
(b) Stock Option Committee. From and after the
Registration Date, the Administrator of the Plan shall be a committee
appointed by the Board of Directors consisting of not fewer than two
members of the Board of Directors, neither of whom, during the period
of service on such committee and the year prior to service on such
committee, shall have been granted an Option under the Plan or been
granted or awarded an option or other security under any plan of the
Company other than as permitted under Rule 16b-3(c)(2)(i) and each of
whom shall qualify (at the time of appointment to such committee and
during all periods of service on such committee) in all respects as a
"disinterested person" as defined in Rule 16b-3.
(c) Additional Restriction on Transfer of Stock. From
and after the Registration Date, no director, officer or other
"insider" of the Company subject to Section 16 of the Exchange Act
shall be permitted to sell shares (which such "insider" had received
upon exercise of an option) during the six months immediately
following the grant of such option.
(d) Additional Requirement of Stockholders' Approval.
From and after the Registration Date, unless the Board of Directors
determines otherwise, no amendment of the Plan shall, without approval
by a majority of the votes cast at a duly held meeting of the
stockholders of the Company at which a quorum representing a majority
of all outstanding stock is present, either in person or by proxy, and
voting on the amendment, or by written consent in accordance with
applicable state law and the Certificate of Incorporation and Bylaws
of the Company, materially increase the benefits accruing under the
Plan to "insiders" as described in Section 16 of the Exchange Act or
take any other action that would require the approval of such
stockholders pursuant to Rule 16b-3.
15. MISCELLANEOUS PROVISIONS
(a) No Assignment or Alienation of Benefits. Except as
the Administrator may expressly allow in any Stock Option Agreement,
no stock option granted under the Plan shall be assignable or
transferable except by will or by the laws of descent and
distribution, and any attempted alienation, assignment, or attachment
of benefits under the Plan shall be void. During a participant's
lifetime, any stock option shall be exercisable only by the
participant. No benefit provided to participants under the Plan shall
be subject to alienation or assignment or to attachment or other legal
process. Stock certificates and cash payments shall be delivered only
to the participants entitled to receive them or to their authorized
legal representatives.
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<PAGE> 8
(b) No Employment Right. Neither the provisions of this
Plan nor any action taken under the Plan shall be construed as giving
the participants any right to be retained as an officer or employee of
the Company or any of its Subsidiaries.
(c) Fractional Shares. Any fractional shares resulting
from the exercise of stock options under the Plan shall be eliminated
at the time of exercise by rounding down for fractions of less than
1/2 and rounding up for fractions equal to or greater than 1/2. No
cash settlements shall be made with respect to fractional shares
eliminated by rounding.
(d) Rights as a Stockholder. A participant shall have no
rights as a stockholder with respect to shares covered by his or her
stock options until the date of issuance of the Shares to the
participant and the payment by the participant to the Company of the
full purchase price for the Shares. No adjustment will be made for
dividends or other rights for which the record date is prior to the
date of issuance of the Shares.
(e) Governing Law. All matters relating to the Plan or
to stock options granted under the Plan shall be governed by the laws
of the State of Maryland, without regard to the principals of conflict
of laws adopted by any Maryland courts.
(f) Fair Market Value. If the Shares are traded on a
national securities exchange, the fair market value of the Shares
shall be the closing price of the Shares as of the date on which the
fair market value is determined. If the Shares are traded on the
National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System, the fair market value of the Shares
shall be the last reported sale price for the Shares on the date the
fair market value is determined. If Shares are not traded on an
exchange or NASDAQ for such day, then the price of the Shares as
reported on the next succeeding business day for which a sales price
for the Shares is reported shall be deemed to be the fair market value
of the Shares. If the Shares are not traded on a national securities
exchange or NASDAQ, then the fair market value of the Shares shall be
determined in good faith by the Board of Directors.
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<PAGE> 1
EXHIBIT 10.2
TRUSTED INFORMATION SYSTEMS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE.
The purpose of this Stock Option Plan (the "Plan") is to secure
for Trusted Information Systems, Inc. (the "Company") and its stockholders the
benefits arising from capital stock ownership by key employees, officers and
consultants of the Company who are expected to contribute to the Company's
future growth and success. Notwithstanding anything to the contrary contained
herein, stock options may be granted only to employees (including officers who
are employees) and consultants of the Company. Non-employee members of the
Company's Board of Directors are ineligible to receive an award of options
under the Plan. Except where the context otherwise requires, the term
"Company" shall include the parent and all subsidiaries of the Company as
defined in Section 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code").
2. TYPE OF OPTIONS AND ADMINISTRATION.
(a) Types of Options. Options granted pursuant to the Plan
may be either incentive stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Code or non-statutory options, which are not
intended to meet the requirements of Section 422 of the Code.
(b) Administration. The Board of Directors shall, prior to
the date on which the Company first registers a class of equity securities
under Section 12 of the Securities Exchange Act of 1934, to the full extent
permitted by law, delegate any and all of its powers under the Plan to a
committee (the "Committee") appointed by the Board of Directors. The Committee
shall consist of not less than two (2) members, and each such member of the
Committee shall be a "disinterested person" for purposes of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Plan will be administered by the Committee, whose
construction and interpretation of the terms and provisions of the Plan shall
be final and conclusive. The Committee shall, in its sole discretion, grant
options to purchase shares of the Company's common stock (the "Common Stock")
as provided in the Plan. The Board of Directors shall have authority, subject
to the express provisions of the Plan: (i) to amend the Plan and (ii) to
prescribe, amend and rescind rules and regulations relating to the Plan. The
Committee shall have authority, subject to the express provisions of the Plan:
(i) to amend and construe the respective option agreements executed pursuant to
the Plan, including the authority to amend any such option agreement executed
prior to the adoption of the Plan; (ii) to establish and determine all of the
terms and provisions of the respective option agreements, which need not be
identical; and (iii) to make any other determination in the judgment of the
Committee necessary or desirable for the administration of the Plan. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option
<PAGE> 2
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of such expediency.
No member of the Committee or Director of the Company shall be liable for any
action or determination made in good faith.
3. ELIGIBILITY.
Options shall be granted only to persons who are, at the time of
grant, employees (including officers who are employees) or consultants of the
Company. A person who has been granted an option may, if he or she is
otherwise eligible, be granted an additional option or options if the Committee
shall so determine.
4. STOCK SUBJECT TO PLAN.
Subject to adjustment as provided in Section 15 below, the
maximum number of shares of Common Stock of the Company which may be issued
under the Plan is 60,000 shares. Such shares may be authorized and unissued
shares or may be shares issued and thereafter acquired by the Company. If an
option granted under the Plan shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares subject to such option
shall again be available for subsequent option grants under the Plan.
5. FORMS OF OPTION AGREEMENTS.
Each option granted under the Plan shall be evidenced by an
option agreement in such form not inconsistent with the Plan as shall be
specified by the Committee. Each option agreement shall state whether the
options granted thereby are intended to be Incentive Stock Options (to the
maximum extent possible) or non-statutory options.
6. PURCHASE PRICE.
(a) General. The purchase price per share of stock
deliverable upon the exercise of an option shall be determined by the
Committee, provided, however, that in the case of an Incentive Stock Option,
the purchase price shall not be less than 100% of the "fair market value" (as
defined herein) of such stock at the time of grant of such option, or less than
110% of such "fair market value" in the case of options described in paragraph
(b) of Section 11. For purposes of this Section 6 the "fair market value" of
the stock shall be either: (A) as determined by the Committee, or (B) in the
event the Company's Common Stock is publicly traded, the price of the Common
Stock on the date of grant of such option at the close of business of the
principal stock exchange or market upon which the Company's stock is listed.
(b) Payment of Purchase Price. Options granted under the
Plan may provide for the payment of the purchase price by delivery of cash or a
check to the order of the Company in an amount equal to the purchase price of
such options, or, to the extent allowed by the Committee, by delivery to the
Company of shares of Common Stock of the Company having a
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<PAGE> 3
fair market value at the time of such purchase equal in amount to the purchase
price of the options being exercised, or by any combination of such methods of
payment or any other method that the Committee may authorize.
7. OPTION PERIOD.
Each option and all rights thereunder shall expire on such date
as the Committee shall determine, but, in the case of Incentive Stock Options,
in no event after the expiration of ten (10) years from the day on which the
option is granted (or five (5) years in the case of options described in
paragraph (b) of Section 11) and, in the case of non-statutory options, in no
event after the expiration of ten (10) years from the day on which the option
is granted, and in either case, shall be subject to earlier termination as
provided in the Plan and the relevant option agreement.
8. EXERCISE OF OPTIONS.
Each option granted under the Plan shall be exercisable either
in full or in installments at such time or times and during such period as
shall be determined by the Committee and set forth in the agreement evidencing
such option, subject to the provisions of Section 7 above.
9. NONTRANSFERABILITY OF STOCK OPTIONS.
No Incentive Stock Option granted under the Plan shall be
assignable or transferable by the person to whom it is granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution. During the life of the optionee, an Incentive Stock Option shall
be exercisable only by such person. A non-statutory stock option may be
assigned or transferred in whole or in part only if so provided in the relevant
agreement or if permitted by the Committee.
10. EFFECT OF TERMINATION OF EMPLOYMENT OR CONSULTING SERVICES.
No option may be exercised unless, at the time of such exercise,
the optionee is, and has been continuously since the date of grant of his or
her option, in the case of an optionee who is an employee of the Company,
employed by the Company, or in the case of an optionee who is a consultant to
the Company, rendering services to the Company, except that if and to the
extent the option agreement so provides:
(a) an Incentive Stock Option may be exercised within the
period ending on the earlier of the tenth anniversary of the date of grant or
three (3) months after the optionee ceases to be employed by or in the service
of the Company (or within such lesser period as may be specified in the
applicable option agreement);
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<PAGE> 4
(b) if the optionee dies while employed by or in the
service of the Company, the option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the period
of one (1) year after the date of death (or within such lesser period as may be
specified in the applicable option agreement); and
(c) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while employed
by or in the service of the Company, the option may be exercised within the
period of one (1) year after the date the optionee ceases to be employed by or
in the service of the Company because of such disability (or within such lesser
period as may be specified in the applicable option agreement); provided,
however, that in no event may any option be exercised after the expiration date
of the option.
11. INCENTIVE STOCK OPTIONS.
Options granted under the Plan which are intended to be
Incentive Stock Options shall be specifically designated as Incentive Stock
Options and shall be subject to the following additional terms and conditions:
(a) Dollar Limitation. Incentive Stock Options granted to
any employee under the Plan (and any other incentive stock option plans of the
Company) shall not, in the aggregate, become exercisable for the first time in
any one (1) calendar year for shares of Common Stock with an aggregate fair
market value (determined as of the respective date or dates of grant) of more
than $100,000. In the event Section 422(d) of the Code is amended to alter the
limitation set forth therein so that following such amendment such limitation
shall differ from the limitation set forth in this paragraph (a), the
limitation of this paragraph (a) shall be automatically adjusted accordingly.
(b) 10% Shareholder. If any employee to whom an Incentive
Stock Option is to be granted under the Plan is, at the time of the grant of
such option, the owner of stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company (after taking into account
the attribution of stock ownership rules of Section 424(d) of the Code), then
the following special provisions shall be applicable to the Incentive Stock
Option granted to such individual:
(i) The purchase price per share of the Common
Stock subject to such Incentive Stock Option shall not be less
than 110% of the fair market value of one (1) share of Common
Stock at the time of grant; and
(ii) The option exercise period shall not exceed
five (5) years from the date of grant.
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12. ADDITIONAL PROVISIONS.
(a) Additional Option Provisions. The Committee may, in
its sole discretion, include additional provisions in any option granted under
the Plan, including, without limitation, restrictions on transfer, repurchase
rights, reload options, commitments to pay cash bonuses, make or arrange for
loans or transfer other property to optionees upon exercise of options, or such
other provisions as shall be determined by the Committee; provided that such
additional provisions shall not be inconsistent with any other term or
condition of the Plan and such additional provisions shall not cause any
Incentive Stock Option granted under the Plan to fail to qualify as an
Incentive Stock Option within the meaning of Section 422 of the Code.
(b) Acceleration. The Committee may, in its sole
discretion, accelerate the date or dates on which all or any particular option
or options granted under the Plan may be exercised.
13. GENERAL RESTRICTIONS.
(a) Investment Representations. The Company may require
any person to whom an option is granted, as a condition of exercising such
option, to give written assurances in substance and form satisfactory to the
Company to the effect that such person is acquiring the Common Stock subject to
the option for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws.
(b) Compliance With Securities Laws. Each option shall be
subject to the requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such option upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental or regulatory body, is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to the Committee. Nothing herein
shall be deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
14. RIGHTS AS A SHAREHOLDER.
The holder of an option shall have no rights as a stockholder
with respect to any shares covered by the option until the date of issue of a
stock certificate to him or her for such shares. No adjustment shall be made
for dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
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15. ADJUSTMENTS.
(a) General. If, as a result of a merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other distribution or adjustment with respect to the outstanding
shares of Common Stock or other securities, the outstanding shares of Common
Stock are increased or decreased, or are exchanged for a different number or
kind of shares or other securities, or additional shares or new or different
shares or other securities are distributed with respect to such shares of
Common Stock or other securities, an appropriate and proportionate adjustment
may be made in (i) the maximum number and kind of shares reserved for issuance
under the Plan, (ii) the number and kind of shares or other securities subject
to then outstanding options under the Plan, and (iii) the price for each share
subject to any then outstanding options under the Plan, without changing the
aggregate purchase price as to which such options remain exercisable.
(b) Committee Authority to Make Adjustments. Adjustments
under this Section 15 will be made by the Committee, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. REORGANIZATION.
(a) General. In the event of a consolidation or merger in
which the Company is not the surviving corporation, or which results in the
acquisition of substantially all of the Company's outstanding Common Stock by a
single person, entity or group of persons or entities acting in concert, or in
the event of the sale or transfer of all or substantially all of the assets of
the Company, or in the event of a reorganization or liquidation of the Company,
the Committee, or the Board of Directors of any corporation assuming the
obligations of the Company, shall, as to outstanding options, either (i)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such options substituted for Incentive Stock
Options shall meet the requirements of Section 424(a) of the Code, (ii) upon
written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization, liquidation, sale or transfer unless exercised by
the optionee within a specified number of days following the date of such
notice, or (iii) in the event of a merger under the terms of which holders of
the Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the merger (the "Merger Price"), make or
provide for a cash payment to the optionees equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
outstanding options (to the extent exercisable) and (B) the aggregate purchase
price of all such outstanding options in exchange for the termination of such
options. In any such case, the Committee may, in its discretion, advance the
lapse of any waiting or installment periods and exercise dates.
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<PAGE> 7
(b) Substitute Options. The Committee may grant options
under the Plan in substitution for options held by employees of another
corporation who become employees of the Company, or a subsidiary of the
Company, as the result of a merger or consolidation of the employing
corporation with the Company or a subsidiary of the Company, or as a result of
the acquisition by the Company, or one of its subsidiaries, of property or
stock of the employing corporation. Substitute options may be granted on such
terms and conditions as the Committee considers appropriate in the
circumstances.
17. CHANGE IN CONTROL.
Notwithstanding any other provision of the Plan, in the event of
a "Change in Control of the Company" (as defined below), any restrictions on
exercising outstanding options issued pursuant to the Plan prior to any given
date shall terminate with respect to the number of whole shares constituting
50% of the shares subject to any such restriction. For purposes of the Plan, a
"Change in Control of the Company" shall occur or be deemed to have occurred
only if :
(a) any "person", as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportion as their ownership of stock of the
Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities;
(b) during any period of two consecutive years ending
during the term of the Plan (not including any period prior to the adoption of
the Plan), individuals who at the beginning of such period constitute the Board
of Directors of the Company, and any new Director (other than a Director
designated by a person who has entered into an agreement with the Company to
effect any transaction described in clause (a), (c) or (d) of this Section 17)
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
Directors then still in office who were either Directors at the beginning of
the period or whose election or whose nomination for election was previously so
approved (collectively, the "Disinterested Directors"), cease for any reason to
constitute a majority of the Board of Directors;
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or
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<PAGE> 8
similar transaction) in which no "person" (as hereinabove defined) acquires
more than 50% of the combined voting power of the Company's then outstanding
securities; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or the sale of all or substantially all of
the Company's assets which, in either case, has not previously been approved by
a majority of the Disinterested Directors.
18. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option shall confer upon
any optionee any right with respect to the continuation of his or her
employment by or service to the Company or interfere in any way with the right
of the Company at any time to terminate such employment or service or to
increase or decrease the compensation of the optionee.
19. AMENDMENT OF THE PLAN.
The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that, without the approval of
the stockholders of the Company the Board of Directors may not increase the
maximum number of shares that may be issued under the Plan (except for
adjustments specifically provided in the Plan) or, except to the extent the
Board of Directors determines otherwise, amend the Plan in any manner that
would, to the extent applicable, require stockholder approval under Rule 16b-3,
Section 422 of the Code or Section 162(m) of the Code, as each may be in effect
at the time of such amendment. The termination or any modification or
amendment of the Plan shall not, without the consent of an optionee, affect his
or her rights under an option previously granted to him or her. With the
consent of the optionee affected, the Committee may amend outstanding option
agreements in a manner not inconsistent with the Plan.
20. WITHHOLDING.
The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to the prior approval of the
Company, which such approval may be withheld by the Company in its sole
discretion, such obligations may be satisfied, in whole or in part, (i) by
withholding shares of Common Stock otherwise issuable pursuant to the exercise
of an option, (ii) by delivering to the Company shares of Common Stock already
owned by the optionee or (iii) by such other means as the Company may require
or approve. The shares so delivered or withheld shall have a fair market value
equal to such withholding obligation. For purposes of this Section 20, the
"fair market value" of the stock issued upon the exercise of an option shall be
either: (A) as determined by the Committee, or (B) in the event the Company's
Common Stock is publicly traded, the price of the Common Stock on the date of
exercise of such option at the close of business of the principal stock
exchange or market upon which the Company's stock is listed.
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<PAGE> 9
21. CANCELLATION AND NEW GRANT OF OPTIONS.
The Committee shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees to the extent
required, the cancellation of any or all outstanding options under the Plan and
the grant in substitution therefor of new options under the Plan covering the
same or different numbers of shares of Common Stock, having an option purchase
price per share that may be lower or higher than the purchase price per share
of the canceled options and having such other terms as the Committee may
approve.
22. EFFECTIVE DATE AND DURATION OF THE PLAN.
(a) Effective Date. The Plan shall become effective when
adopted by the Board of Directors, but no Incentive Stock Option granted under
the Plan shall become exercisable unless and until the Plan shall have been
approved by the Company's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the date of the Board's adoption of
the Plan, any Incentive Stock Options previously granted under the Plan shall
terminate and no further Incentive Stock Options shall be granted. Amendments
to the Plan not requiring stockholder approval shall become effective when
adopted by the Board of Directors; amendments requiring stockholder approval
under Section 422 of the Code shall become effective when adopted by the Board
of Directors, but no Incentive Stock Option issued after the date of such
amendment shall become exercisable (to the extent that such amendment to the
Plan was required to enable the Company to grant such Incentive Stock Option to
a particular optionee) unless and until such amendment shall have been approved
by the Company's stockholders. If such stockholder approval is not obtained
within twelve (12) months of the Board of Directors' adoption of such
amendment, any Incentive Stock Options granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan was
required to enable the Company to grant such option to a particular optionee.
Subject to this limitation, options may be granted under the Plan at any time
after the effective date and before the date fixed for termination of the Plan.
(b) Termination. The Plan shall terminate upon the earlier
of (i) the close of business on the day next preceding the tenth anniversary of
the date of its adoption by the Board of Directors, or (ii) the date on which
all shares available for issuance under the Plan shall have been issued
pursuant to the exercise or cancellation of options granted under the Plan. If
the date of termination is determined under (i) above, then options outstanding
on such date shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such options.
Adopted by the Board of Directors as of the 19th day of April, 1996.
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EXHIBIT 10.2.1
TRUSTED INFORMATION SYSTEMS, INC.
INCENTIVE STOCK OPTION AGREEMENT
1. Grant of Option. Trusted Information Systems, Inc. a Maryland
corporation (the "Company"), hereby grants to _______________ (the "Optionee")
an option (the "Option"), pursuant to the Company's 1996 Stock Option Plan (the
"Plan"), to purchase an aggregate of _____ shares of common stock, par value
$_____ per share (the "Common Stock"), of the Company at a price of $_______
per share, purchasable as set forth in, and subject to the terms and conditions
of, this agreement (the "Agreement") and the Plan. Except where the context
otherwise requires, the term "Company" shall include the parent and all
subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Incentive Stock Option. This Option is intended to qualify as an
incentive stock option ("Incentive Stock Option") within the meaning of Section
422 of the Code.
3. Exercise of Option and Provisions for Termination.
(a) Vesting Schedule. Except as otherwise provided in this
Agreement, this option may be exercised prior to the fifth anniversary of the
date of grant (hereinafter the "Expiration Date"). The option granted hereby
shall vest as to [25%] shares on ______________ __, 1997 (the first anniversary
of the grant), thereafter in equal monthly installments of [2.08333%] shares on
the ___ day of each month, commencing on _____________ and ending on
__________, upon which time the option shall be fully vested. The right of
exercise shall be cumulative so that if the option is not exercised to the
maximum extent permissible during any exercise period it shall be exercisable,
in whole or in part, with respect to all shares not so purchased at any time
prior to the Expiration Date or the earlier termination of this option.
Notwithstanding the foregoing, in the event of the death or disability
of the Optionee, as set forth herein, all shares of Common Stock that would
have vested during the Exercise Period that would have next occurred had the
Optionee not died or become disabled shall vest and be exercisable immediately
pursuant to the terms of subsection 3(e) hereof.
This Option may not be exercised at any time on or after the Expiration
Date.
(b) Exercise Procedure. Subject to the conditions set forth in this
Agreement, this Option shall be exercised by the Optionee's delivery of written
notice of exercise to the Treasurer of the Company specifying the number of
shares to be purchased and the purchase price to be paid therefor and
accompanied by payment in full in accordance with Section 4. Such exercise
shall be effective upon receipt by the Treasurer of the Company of such written
notice together with the required payment. The Optionee may purchase fewer
than the total
<PAGE> 2
number of shares covered hereby, provided that no partial exercise of this
Option may be for any fractional share or for fewer than ten (10) whole shares.
(c) Continuous Employment Required. Except as otherwise provided in
this Section 3, this Option may not be exercised unless the Employee, at the
time he or she exercises this Option, is, and has been at all times since the
date of grant of this Option, an employee of the Company. For all purposes of
this Option, (i) "employment" shall be defined in accordance with the
provisions of Section 1.421-7(h) of the Income Tax Regulations (or any
successor regulations), and (ii) if this Option shall be assumed or a new
option substituted therefor in a transaction to which Section 424(a) of the
Code applies, employment by such assuming or substituting corporation
(hereinafter called the "Successor Corporation") shall be considered for all
purposes of this Option to be employment by the Company.
(d) Exercise Period Upon Termination of Employment. If the Employee
ceases to be employed by the Company for any reason other than death or
disability or a discharge for "cause", as provided below, the right to exercise
this Option shall terminate three (3) months after such cessation (but in no
event after the Expiration Date), provided that this Option shall be
exercisable only to the extent that the Employee was entitled to exercise this
Option on the date of such cessation.
(e) Exercise Period Upon Death or Disability. If the Optionee dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code or any
successor provision thereto) prior to the Expiration Date, this Option shall be
exercisable by the Optionee or by the person to whom this Option is transferred
by will or the laws of descent and distribution, provided that this Option
shall be exercisable only to the extent that this Option was exercisable by the
Optionee on the date of his or her death or disability. Except as otherwise
indicated by the context, the term "Optionee," as used in this Option, shall be
deemed to include the estate of the Optionee or any person who acquires the
right to exercise this Option by bequest or inheritance or otherwise by reason
of the death of the Optionee.
(f) Discharge for Cause. If the Optionee, prior to the Expiration
Date, ceases his or her employment or other relationship with the Company
because he or she is discharged for "cause" (as defined below), the right to
exercise this Option shall terminate immediately upon such cessation of
employment or relationship. "Cause" shall mean willful misconduct in
connection with the Optionee's duties or willful failure to perform his or her
responsibilities in the best interests of the Company (including, without
limitation, breach by the Optionee of any provision of any employment,
non-disclosure, non-competition or other similar agreement between the Optionee
and the Company), as determined by the Company, which determination shall be
conclusive.
4. Payment of Purchase Price.
(a) Method of Payment. Payment of the purchase price for shares
purchased upon exercise of this Option shall be made by delivery to the Company
of cash or a check to the order of the Company in an amount equal to the
purchase price of such shares, or, with the
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<PAGE> 3
separate consent of the Company, by delivery to the Company of shares of Common
Stock of the Company then owned by the Optionee having a fair market value
equal in amount to the purchase price of such shares, or by any combination of
such methods of payment.
(b) Valuation of Shares Tendered in Payment of Purchase Price. For
the purposes hereof, the fair market value of any share of the Company's Common
Stock which may be delivered to the Company in exercise of this Option shall be
determined in good faith by the Board of Directors of the Company.
(c) Delivery of Shares Tendered in Payment of Purchase Price. If the
Company permits the Optionee to exercise options by delivery of shares of
Common Stock of the Company, the certificate or certificates representing the
shares of Common Stock of the Company to be delivered shall be duly executed in
blank by the Optionee or shall be accompanied by a stock power duly executed in
blank suitable for purposes of transferring such shares to the Company.
Fractional shares of Common Stock of the Company will not be accepted in
payment of the purchase price of shares acquired upon exercise of this Option.
(d) Restrictions Upon Use of Option Stock. Notwithstanding the
foregoing, no shares of Common Stock of the Company may be tendered in payment
of the purchase price of shares purchased upon exercise of this Option if the
shares to be so tendered were acquired within twelve (12) months before the
date of such tender, through the exercise of an option granted under the Plan
or any other stock option or restricted stock plan of the Company.
5. Delivery of Shares; Compliance With Securities Law, Etc.
(a) General. The Company shall, upon receipt of the Optionee's
payment of the option price for the number of shares purchased and paid for,
make prompt delivery of such shares to the Optionee, provided that if any law
or regulation requires the Company to take any action with respect to such
shares before the issuance thereof, then the date of delivery of such shares
shall be extended for the period necessary to complete such action.
(b) Listing, Qualification, Etc. This Option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject hereto upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, is necessary as a condition
of, or in connection with, the issuance or purchase of shares hereunder, this
Option may not be exercised, in whole or in part, unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Board of Directors. Nothing herein
shall be deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
6. Nontransferability of Option. Except as provided in paragraph (e)
of Section 3, this Option is personal and no rights granted hereunder may be
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) nor shall any such rights be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign,
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<PAGE> 4
pledge, hypothecate or otherwise dispose of this Option or of such rights
contrary to the provisions hereof, or upon the levy of any attachment or
similar process upon this Option or such rights, this Option and such rights
shall, at the election of the Company, become null and void.
7. No Special Employment Rights. Nothing contained in the Plan or
this Agreement shall be construed or deemed by any person under any
circumstances to bind the Company to continue the employment of the Optionee
for the period within which this Option may be exercised. However, during the
period of the Optionee's employment, the Optionee shall render diligently and
faithfully the services which are assigned to the Optionee from time to time by
the Board of Directors or by the executive officers of the Company and shall at
no time take any action which, directly or indirectly, would be inconsistent
with the best interests of the Company.
8. Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares which may be purchased by exercise of
this Option unless and until a certificate representing such shares is duly
issued and delivered to the Optionee. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
9. Adjustments.
(a) General. If, as a result of a merger, consolidation, sale of all
or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other distribution with respect to the outstanding shares of Common
Stock or other securities, the outstanding shares of Common Stock are increased
or decreased, or are exchanged for a different number or kind of shares or
other securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (i) the
number and kind of shares or other securities subject to this Option and (ii)
the price for each share subject to this Option, without changing the aggregate
purchase price as to which this Option remains exercisable.
(b) Board Authority to Make Adjustments. Adjustments under this
Section 9 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under this Option
on account of any such adjustments.
(c) Limits on Adjustments. No adjustment shall be made under this
Section 9 which would, within the meaning of any applicable provision of the
Code, constitute a modification, extension or renewal of this Option or a grant
of additional benefits to the Employee.
10. Mergers, Etc. In the event of a merger or consolidation in which
the Company is not the surviving corporation, or which results in the
acquisition of substantially all of the Company's outstanding Common Stock by a
single person, entity or group of persons or
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<PAGE> 5
entities acting in concert, or in the event of the sale or transfer of all or
substantially all of the assets of the Company, or in the event of a
reorganization or liquidation of the Company, prior to the Expiration Date or
termination of this Option, the Optionee shall, with respect to this Option or
any unexercised portion hereof, be entitled to the rights and benefits, and be
subject to the limitations, set forth in Sections 15 and 16 of the Plan.
11. Withholding Taxes. The Company's obligation to deliver shares
upon the exercise of this Option shall be subject to the Optionee's
satisfaction of all applicable federal, state and local income and employment
tax withholding requirements.
12. Limitation on Disposition of Incentive Stock Option Shares. It is
understood and intended that this Option shall qualify as an "Incentive Stock
Option" as defined in Section 422 of the Code. Accordingly, the Optionee
understands that in order to obtain the benefits of an Incentive Stock Option
under Section 421 of the Code, no sale or other disposition may be made of any
shares acquired upon exercise of the Option within one (1) year after the day
of the transfer of such shares to him, nor within two (2) years after the grant
of the Option. If the Optionee intends to dispose, or does dispose (whether by
sale, exchange, gift, transfer or otherwise), of any such shares within said
periods, he or she will notify the Company in writing within ten (10) days
after such disposition.
13. Investment Representations; Legend.
(a) Representations. The Optionee represents, warrants and
covenants that:
(1) Any shares purchased upon exercise of this Option
shall be acquired for the Optionee's account for investment only and not with a
view to, or for sale in connection with, any distribution of the shares in
violation of the Securities Act of 1933 (the "Securities Act") or any rule or
regulation under the Securities Act.
(2) The Optionee has had such opportunity as he or she
has deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Optionee to evaluate the merits and
risks of his or her investment in the Company.
(3) The Optionee is able to bear the economic risk of
holding shares acquired pursuant to the exercise of this Option for an
indefinite period.
(4) The Optionee understands that (A) the shares acquired
pursuant to the exercise of this Option will not be registered under the
Securities Act and are "restricted securities" within the meaning of Rule 144
under the Securities Act; (B) such shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available; (C) in any
event, the exemption from registration under Rule 144 will not be available for
at least two (2) years and even then will not be available unless a public
market then exists for the Common Stock, adequate information concerning the
Company is then available to the public and
- 5 -
<PAGE> 6
other terms and conditions of Rule 144 are complied with; and (D) there is now
no registration statement on file with the Securities and Exchange Commission
with respect to any stock of the Company and the Company has no obligation or
current intention to register any shares acquired pursuant to the exercise of
this Option under the Securities Act.
By making payment upon exercise of this Option, the Optionee shall be
deemed to have reaffirmed, as of the date of such payment, the representations
made in this Section 13.
(b) Legend on Stock Certificates. All stock certificates
representing shares of Common Stock issued to the Optionee upon exercise of
this Option shall have affixed thereto a legend substantially in the following
form, in addition to any other legends required by applicable state law:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
transferred, sold or otherwise disposed of in the absence of an
effective registration statement with respect to the shares
evidenced by this certificate, filed and made effective under the
Securities Act of 1933, or an opinion of counsel satisfactory to
the Company to the effect that registration under such Act is not
required."
14. Miscellaneous.
(a) Except as provided herein, this Option may not be amended or
otherwise modified unless evidenced in writing and signed by the Company and
the Optionee.
(b) All notices under this Option shall be mailed or delivered
by hand to the parties at their respective addresses set forth beneath their
names below or at such other address as may be designated in writing by either
of the parties to one another.
(c) This Option shall be governed by and construed in accordance
with the laws of the State of Maryland.
Date of Grant: , 1996 TRUSTED INFORMATION
------------ SYSTEMS, INC.
By:
-------------------------------
Stephen T. Walker, President
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<PAGE> 7
OPTIONEE'S ACCEPTANCE
The undersigned hereby accepts the foregoing Option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1996 Stock Option Plan.
OPTIONEE
----------------------------------
Name:
Address:
--------------------------
----------------------------------
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<PAGE> 1
EXHIBIT 10.2.2
TRUSTED INFORMATION SYSTEMS, INC.
NON-STATUTORY STOCK OPTION AGREEMENT
1. Grant of Option. Trusted Information Systems, Inc., a Maryland
corporation (the "Company"), hereby grants to _____________ (the "Optionee") an
option (the "Option"), pursuant to the Company's 1996 Stock Option Plan (the
"Plan"), to purchase an aggregate of _______ shares of common stock, par value
$______ per share (the "Common Stock"), of the Company at a price of $________
per share, purchasable as set forth in, and subject to the terms and conditions
of, this agreement (the "Agreement") and the Plan. This Option is not intended
to qualify as an incentive stock option within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). Except where the
context otherwise requires, the term "Company" shall include the parent and all
subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the
Code.
2. Exercise of Option and Provisions for Termination.
(a) Vesting Schedule. Except as otherwise provided in this
Agreement, this option may be exercised prior to the fifth anniversary of the
date of grant (hereinafter the "Expiration Date"). The option granted hereby
shall vest as to [25%] shares on ______________ __, 1997 (the first anniversary
of the grant), thereafter in annual installments of [2.08333%] shares on the
____ day of each month, commencing on _____________ and ending on __________,
upon which time the option shall be fully vested. The right of exercise shall
be cumulative so that if the option is not exercised to the maximum extent
permissible during any exercise period it shall be exercisable, in whole or in
part, with respect to all shares not so purchased at any time prior to the
Expiration Date or the earlier termination of this option.
Notwithstanding the foregoing, in the event of the death or
disability of the Optionee, as set forth herein, all shares of Common Stock
that would have vested during the Exercise Period that would have next occurred
had the Optionee not died or become disabled shall vest and be exercisable
immediately pursuant to the terms of subsection 3(e) hereof.
This Option may not be exercised at any time on or after the Expiration Date.
(b) Exercise Procedure. Subject to the conditions set forth in
this Agreement, this Option shall be exercised by the Optionee's delivery of
written notice of exercise to the Treasurer of the Company specifying the
number of shares to be purchased and the purchase price to be paid therefor and
accompanied by payment in full in accordance with Section 4. Such exercise
shall be effective upon receipt by the Treasurer of the Company of such written
notice together with the required payment. The Optionee may purchase fewer
than the total
<PAGE> 2
number of shares covered hereby, provided that no partial exercise of this
Option may be for any fractional share or for fewer than ten (10) whole shares.
(c) Exercise Period Upon Death or Disability. If the Optionee
dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code or
any successor provision thereto) prior to the Expiration Date, this Option
shall be exercisable by the Optionee or by the person to whom this Option is
transferred by will or the laws of descent and distribution, provided that this
Option shall be exercisable only to the extent that this Option was exercisable
by the Optionee on the date of his or her death or disability. Except as
otherwise indicated by the context, the term "Optionee", as used in this
Option, shall be deemed to include the estate of the Optionee or any person who
acquires the right to exercise this Option by bequest or inheritance or
otherwise by reason of the death of the Optionee.
(d) Discharge for Cause. If the Optionee, prior to the
Expiration Date, ceases his or her employment or other relationship with the
Company because he or she is discharged for "cause" (as defined below), the
right to exercise this Option shall terminate immediately upon such cessation
of employment or relationship. "Cause" shall mean willful misconduct in
connection with the Optionee's duties or willful failure to perform his or her
responsibilities in the best interests of the Company (including, without
limitation, breach by the Optionee of any provision of any employment,
non-disclosure, non-competition or other similar agreement between the Optionee
and the Company), as determined by the Company, which determination shall be
conclusive.
3. Continuous Employment Not Required. The Optionee need not be
employed by the Company at the time this Option is exercised, nor does the
Optionee need to have been continuously employed by the Company since the date
of the grant in order to exercise this Option.
4. Payment of Purchase Price.
(a) Method of Payment. Payment of the purchase price for
shares purchased upon exercise of this Option shall be made by delivery to the
Company of cash or a check to the order of the Company in an amount equal to
the purchase price of such shares, or, with the separate consent of the
Company, by delivery to the Company of shares of Common Stock of the Company
then owned by the Optionee having a fair market value equal in amount to the
purchase price of such shares, or by any combination of such methods of
payment.
(b) Valuation of Shares Tendered in Payment of Purchase Price.
For the purposes hereof, the fair market value of any share of the Company's
Common Stock which may be delivered to the Company in exercise of this Option
shall be determined in good faith by the Board of Directors of the Company.
- 2 -
<PAGE> 3
(c) Delivery of Shares Tendered in Payment of Purchase Price.
If the Company permits the Optionee to exercise options by delivery of shares
of Common Stock of the Company, the certificate or certificates representing
the shares of Common Stock of the Company to be delivered shall be duly
executed in blank by the Optionee or shall be accompanied by a stock power duly
executed in blank suitable for purposes of transferring such shares to the
Company. Fractional shares of Common Stock of the Company will not be accepted
in payment of the purchase price of shares acquired upon exercise of this
Option.
(d) Restrictions Upon Use of Option Stock. Notwithstanding
the foregoing, no shares of Common Stock of the Company may be tendered in
payment of the purchase price of shares purchased upon exercise of this Option
if the shares to be so tendered were acquired within twelve (12) months before
the date of such tender, through the exercise of an Option granted under the
Plan or any other stock option or restricted stock plan of the Company.
5. Delivery of Shares; Compliance With Securities Law, Etc.
(a) General. The Company shall, upon receipt of the Optionee's
payment of the option price for the number of shares purchased and paid for,
make prompt delivery of such shares to the Optionee, provided that if any law
or regulation requires the Company to take any action with respect to such
shares before the issuance thereof, then the date of delivery of such shares
shall be extended for the period necessary to complete such action.
(b) Listing, Qualification, Etc. This Option shall be subject
to the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject hereto
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, is necessary as a condition
of, or in connection with, the issuance or purchase of shares hereunder, this
Option may not be exercised, in whole or in part, unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Board of Directors. Nothing herein
shall be deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
6. Nontransferability of Option. Except as provided in paragraph (c) of
Section 2, this Option is personal and no rights granted hereunder may be
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) nor shall any such rights be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of this Option or of such rights contrary to
the provisions hereof, or upon the levy of any attachment or similar process
upon this Option or such rights, this Option and such rights shall, at the
election of the Company, become null and void.
- 3 -
<PAGE> 4
7. No Special Employment Rights. Nothing contained in the Plan or this
Agreement shall be construed or deemed by any person under any circumstances to
bind the Company to continue the employment of the Optionee for the period
within which this Option may be exercised. However, during the period of the
Optionee's employment, the Optionee shall render diligently and faithfully the
services which are assigned to the Optionee from time to time by the Board of
Directors of by the executive officers of the Company and shall at no time take
any action which, directly or indirectly, would be inconsistent with the best
interests of the Company.
8. Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares which may be purchased by exercise of
this Option unless and until a certificate representing such shares is duly
issued and delivered to the Optionee. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
9. Adjustments.
(a) General. If, as a result of a merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other distribution with respect to the outstanding shares of Common
Stock or other securities, the outstanding shares of Common Stock are increased
or decreased, or are exchanged for a different number or kind of shares or
other securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (i) the
number and kind of shares or other securities subject to this Option and (ii)
the price for each share subject to this Option, without changing the aggregate
purchase price as to which this Option remains exercisable.
(b) Board Authority to Make Adjustments. Adjustments under
this Section 9 will be made by the Board of Directors, whose determination as
to what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under this Option
on account of any such adjustments.
10. Mergers, Etc. In the event of a merger or consolidation in which
the Company is not the surviving corporation, or which results in the
acquisition of substantially all of the Company's outstanding Common Stock by a
single person, entity or group of persons or entities acting in concert, or in
the event of the sale or transfer of all or substantially all of the assets of
the Company, or in the event of a reorganization or liquidation of the Company,
prior to the Expiration Date or termination of this Option, the Optionee shall,
with respect to this Option or any unexercised portion hereof, be entitled to
the rights and benefits, and be subject to the limitations, set forth in
Sections 15 and 16 of the Plan.
- 4 -
<PAGE> 5
11. Withholding Taxes. The Company's obligation to deliver shares upon
the exercise of this Option shall be subject to the Optionee's satisfaction of
all applicable federal, state and local income and employment tax withholding
requirements.
12. Investment Representations; Legend.
(a) Representations. The Optionee represents, warrants and
covenants that:
(1) Any shares purchased upon exercise of this
Option shall be acquired for the Optionee's account for investment only and not
with a view to, or for sale in connection with, any distribution of the shares
in violation of the Securities Act of 1933 (the "Securities Act") or any rule
or regulation under the Securities Act.
(2) The Optionee has had such opportunity as he or
she has deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Optionee to evaluate the merits and
risks of his or her investment in the Company.
(3) The Optionee is able to bear the economic risk
of holding shares acquired pursuant to the exercise of this Option for an
indefinite period.
(4) The Optionee understands that (A) the shares
acquired pursuant to the exercise of this Option will not be registered under
the Securities Act and are "restricted securities" within the meaning of Rule
144 under the Securities Act; (B) such shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available; (C) in any
event, the exemption from registration under Rule 144 will not be available for
at least two (2) years and even then will not be available unless a public
market then exists for the Common Stock, adequate information concerning the
Company is then available to the public and other terms and conditions of Rule
144 are complied with; and (D) there is now no registration statement on file
with the Securities and Exchange Commission with respect to any stock of the
Company and the Company has no obligation or current intention to register any
shares acquired pursuant to the exercise of this Option under the Securities
Act.
By making payment upon exercise of this Option, the Optionee shall be
deemed to have reaffirmed, as of the date of such payment, the representations
made in this Section 12.
(b) Legend on Stock Certificates. All stock certificates
representing shares of Common Stock issued to the Optionee upon exercise of
this Option shall have affixed thereto a legend substantially in the following
form, in addition to any other legends required by applicable state law:
"The shares of stock represented by this certificate have not
been registered under the Securities Act of 1933 and may not be
transferred, sold or otherwise
- 5 -
<PAGE> 6
disposed of in the absence of an effective registration
statement with respect to the shares evidenced by this
certificate, filed and made effective under the Securities Act
of 1933, or an opinion of counsel satisfactory to the Company to
the effect that registration under such Act is not required."
13. Miscellaneous.
(a) Except as provided herein, this Option may not be amended
or otherwise modified unless evidenced in writing and signed by the Company and
the Optionee.
(b) All notices under this Option shall be mailed or
delivered by hand to the parties at their respective addresses set forth
beneath their names below or at such other address as may be designated in
writing by either of the parties to one another.
(c) This Option shall be governed by and construed in
accordance with the laws of the State of Maryland.
Date of Grant: , 1996 TRUSTED INFORMATION
-------------- SYSTEMS, INC.
By:
------------------------------
Stephen T. Walker, President
- 6 -
<PAGE> 7
OPTIONEE'S ACCEPTANCE
The undersigned hereby accepts the foregoing Option and agrees
to the terms and conditions thereof. The undersigned hereby acknowledges
receipt of a copy of the Company's 1996 Stock Option Plan.
OPTIONEE
-------------------------------
Name:
Address:
-----------------------
-------------------------------
- 7 -
<PAGE> 1
EXHIBIT 10.3
TRUSTED INFORMATION SYSTEMS, INC.
1996 DIRECTORS' STOCK OPTION PLAN
1. PURPOSE.
The purpose of this 1996 Directors' Option Plan (the "Plan")
of Trusted Information Systems, Inc. (the "Company") is to promote the
recruiting and retention of highly qualified outside Directors and to
strengthen the commonality of interest between Directors and stockholders.
2. ADMINISTRATION.
The Plan will be administered by the Board of Directors of the
Company, whose construction and interpretation of the terms and provisions of
the Plan shall be final and conclusive. Grants of stock options under the Plan
and the amount and nature of the awards to be granted shall be automatic and
non-discretionary in accordance with Section 5. However, all questions of
interpretation of the Plan or of any options issued under it shall be
determined by the Board of Directors and such determination shall be final and
binding upon all persons having an interest in the Plan. No Director shall be
liable for any action or determination under the Plan made in good faith.
3. PARTICIPATION IN THE PLAN.
Directors of the Company other than (1) employees of the
Company or any subsidiary of the Company and (2) persons who are not
"disinterested persons" within the meaning of Rule 16b-3(c)(2)(i) promulgated
under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")
shall be granted options under the Plan.
4. STOCK SUBJECT TO THE PLAN.
(a) The maximum number of shares which may be issued under
the Plan shall be 200,000 shares of the Company's Common Stock, $0.01 par value
per share ("Common Stock"), subject to adjustment as provided in Section 9.
(b) If any outstanding option under the Plan for any reason
expires or is terminated without having been exercised in full, the shares
allocable to the unexercised portion of such option shall again become
available for grant pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory
options which are not intended to meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 2
5. TERMS, CONDITIONS AND FORM OF OPTIONS.
Each option granted under the Plan shall be evidenced by a
written agreement in such form as the Board of Directors shall from time to
time approve, which agreements shall comply with and be subject to the
following terms and conditions:
(a) Option Grant Dates. Following approval
of the Plan by the holders of a majority of the shares of
Common Stock present or represented at a meeting of the
Company's stockholders duly called and held in accordance with
the Company's by-laws and applicable law, options shall be
granted automatically to all eligible Directors as follows:
(i) each person who becomes an eligible Director after the
date of the Company's initial public offering of shares of its
Common Stock (the "Initial Public Offering") shall be granted
an option (the "IPO Option") to purchase 10,000 shares of
Common Stock on the close of business on the date of his or
her initial election or appointment to the Board of Directors;
and (ii) each eligible Director shall be granted an additional
option to purchase 2,000 shares of Common Stock (an "Annual
Grant") on the date of each annual stockholders' meeting,
including the meeting at which such Director is initially
elected, commencing with the 1997 annual stockholders'
meeting.
(b) Option Exercise Price. The option
exercise price per share for each option granted under the
Plan shall equal the closing price per share of the Company's
Common Stock on NASDAQ, or the principal exchange on which the
Common Stock is then listed, on the date of grant, and if no
such price is reported on such date, such price as reported on
the nearest preceding date on which such price is reported; if
any options are granted on or prior to the date that the
Company's Common Stock is listed on an exchange, the option
exercise price per share shall be the fair market value of the
Common Stock determined by the Board of Directors; provided,
however, that the option exercise price per share for each IPO
Option shall be equal to the price that the Common Stock is
offered to the public in the IPO.
(c) Options Non-Transferable. Each option
granted under the Plan by its terms shall not be transferable
by the optionee otherwise than by will or by the laws of
descent and distribution, or pursuant to a qualified domestic
relations order (as defined in Section 414(p) of the Code) and
shall be exercised during the lifetime of the optionee only by
such optionee.
(d) Exercise Period. Each option to
purchase 10,000 shares of Common Stock on the date of the
Director's election to the Board of Directors shall become
vested and exercisable with respect to one-third of the shares
upon each of the first, second, and third anniversaries of his
or her initial election or appointment to the Board of
Directors (or the date of the annual meeting of stockholders
in such year, if earlier), and may be exercised thereafter
from time to time, in whole or in part, prior to the earlier
of (i) 60 days after an optionee ceases
- 2 -
<PAGE> 3
to serve as a Director (180 days if the optionee ceased to
serve because of his or her death or permanent disability) or
(ii) the ninth anniversary of the date of grant. Each Annual
Grant shall become fully vested upon the earlier of (a) the
next annual stockholders' meeting or (b) the first anniversary
of the date of grant and may be exercised thereafter from time
to time, in whole or in part, prior to the earlier of (i) 60
days after an optionee ceases to serve as a Director (180 days
if the optionee ceased to serve because of his or her death or
permanent disability) or (ii) the ninth anniversary of the
date of grant.
(e) Exercise Procedure. Options may be
exercised only by written notice (in a form provided by or
acceptable to the Company) to the Company at its principal
office accompanied by payment of the full consideration for
the shares as to which they are exercised.
(f) Payment of Purchase Price. Payment of
the exercise price may be made, at the election of the
optionee, (i) by delivery of cash or check to the order of the
Company in an amount equal to the exercise price, (ii) by
delivery to the Company of shares of Common Stock of the
Company already owned and held by the optionee for at least
twelve months and having a fair market value equal in amount
to the exercise price of the options being exercised, or (iii)
by any combination of such methods of payment. The fair
market value of any shares of Common Stock which may be
delivered upon exercise of an option shall be determined by
the Company as of the date that such shares are delivered.
6. ASSIGNMENTS.
The rights and benefits under the Plan may not be assigned
except as provided in Section 5.
7. TIME FOR GRANTING OPTIONS.
All options for shares subject to the Plan shall be granted,
if at all, not later than ten years after the date of the Board's adoption of
the Plan.
8. LIMITATION OF RIGHTS.
(a) No Right to Continue as a Director. Neither the Plan,
nor the granting of an option nor any other action taken pursuant to the Plan,
shall constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain a Director for any period of time.
(b) No Stockholder Rights for Options. An optionee shall
have no rights as a stockholder with respect to the shares covered by his or
her option until the date that the optionee
- 3 -
<PAGE> 4
delivers all materials to exercise such option to the Company in proper form
with payment of the exercise price, and no adjustment will be made for
dividends or other rights for which the record date is prior to the date on
which such materials and payment are delivered.
9. ADJUSTMENT PROVISIONS.
(a) Recapitalizations. If, through or as a result of any
merger, consolidation, sale of all or substantially all of the assets of the
Company, reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split or other similar transaction, (i) the
outstanding shares of Common Stock are increased or decreased or are exchanged
for a different number or kind of shares or other securities of the Company, or
(ii) additional shares or new or different shares or other securities of the
Company or other non-cash assets are distributed with respect to such shares of
Common Stock or other securities, an appropriate and proportionate adjustment
may be made in (x) the maximum number and kind of shares reserved for issuance
under the Plan, (y) the number and kind of shares or other securities subject
to then outstanding options under the Plan, and (z) the price for each share
subject to any then outstanding options under the Plan, without changing the
aggregate purchase price as to which such options remain exercisable, provided
that no adjustment shall be made pursuant to this Section 9 if such adjustment
would cause the Plan to fail to comply with Rule 16b-3 under the Exchange Act,
or any successor rule ("Rule 16b-3").
(b) Mergers. In the event of a consolidation or merger or
sale of all or substantially all of the assets of the Company in which
outstanding shares of Common Stock are exchanged for securities, cash or other
property of any other corporation or business entity or in the event of a
liquidation of the Company, the Board of Directors of the Company, or the board
of Directors of any corporation assuming the obligations of the Company, may,
in its discretion, take any one or more of the following actions, as to
outstanding options: (i) provide that such options shall be assumed, or
equivalent options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), (ii) upon written notice to the
optionees, provide that all unexercised options will terminate immediately
prior to the consummation of such transaction unless exercised by the optionee
within a specified period following the date of such notice, and (iii) in the
event of a merger under the terms of which holders of the Common Stock of the
Company will receive upon consummation thereof a cash payment for each share
surrendered in the merger (the "Merger Price"), make or provide for a cash
payment to the optionees equal to the difference between (a) the Merger Price
times the number of shares of Common Stock subject to such outstanding options
(to the extent then exercisable at prices not in excess of the Merger Price)
and (b) the aggregate exercise price of all such outstanding options in
exchange for the termination of such options.
10. CHANGE IN CONTROL.
Notwithstanding any other provision of the Plan, in the event
of a "Change in Control of the Company" (as defined below), any outstanding
options issued pursuant to the Plan
- 4 -
<PAGE> 5
prior to the date of such Change in Control of the Company shall vest and be
exercisable as to 50% of the number of shares that remain unvested on the date
of such Change in Control of the Company. For purposes of the Plan, a "Change
in Control of the Company" shall occur or be deemed to have occurred only if :
(i) any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities;
(ii) during any period of two consecutive years ending during
the term of the Plan (not including any period prior to the adoption
of the Plan), individuals who at the beginning of such period
constitute the Board of Directors of the Company, and any new Director
(other than a Director designated by a person who has entered into an
agreement with the Company to effect any transaction described in
clause (i), (iii) or (iv) of this Section 10) whose election by the
Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
Directors then still in office who were either Directors at the
beginning of the period or whose election or whose nomination for
election was previously so approved (collectively, the "Disinterested
Directors"), cease for any reason to constitute a majority of the
Board of Directors;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than
50% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires more than 50%
of the combined voting power of the Company's then outstanding
securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or the sale of all or
substantially all of the Company's assets which, in either case, has
not previously been approved by a majority of the Disinterested
Directors.
- 5 -
<PAGE> 6
11. AMENDMENT OF THE PLAN.
(a) The provisions of Sections 3, 5(a) and 5(b) of the Plan
shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
the rules thereunder, or Rule 16b-3. Subject to the foregoing, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, except that if at any time the approval of the stockholders of the
Company is required as to such modification or amendment under Rule 16b-3, the
Board of Directors may not effect such modification or amendment without such
approval.
(b) The termination or any modification or amendment of the
Plan shall not, without the consent of an optionee, affect his or her rights
under an option previously granted to him or her. With the consent of the
optionees affected (if so required hereby), the Board of Directors may amend
outstanding option agreements in a manner not inconsistent with the Plan. The
Board of Directors shall have the right to amend or modify the terms and
provisions of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan and outstanding options under Rule 16b-3.
12. NOTICE.
Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Chief Financial Officer of the
Company and shall become effective when it is received.
13. EFFECTIVE DATE AND DURATION OF THE PLAN.
(a) Effective Date. The Plan shall become effective when
adopted by the Board of Directors, but no option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, all options
granted under the Plan shall terminate and no further options shall be granted
under the Plan. Amendments to the Plan not requiring stockholder approval
shall become effective when adopted by the Board of Directors; amendments
requiring stockholder approval (as provided in Section 11(a)) shall become
effective when adopted by the Board of Directors, but no option issued after
the date of such amendment shall become exercisable (to the extent that such
amendment to the Plan was required to enable the Company to grant such option
to a particular optionee) unless and until such amendment shall have been
approved by the Company's stockholders. If such stockholder approval is not
obtained within twelve months of the Board's adoption of such amendment, any
options granted on or after the date of such amendment to the Plan shall
terminate (to the extent that such amendment to the Plan was required to enable
the Company to grant such option to a particular optionee). Subject to this
limitation, options may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the Plan.
- 6 -
<PAGE> 7
(b) Termination. Unless earlier terminated pursuant to
Section 9, the Plan shall terminate upon the earlier of (i) April 19, 2006, or
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of options granted under the Plan.
If the date of termination is determined under (i) above, then options
outstanding on such date shall continue to have force and effect in accordance
with the provisions of the instruments evidencing such options.
14. GENERAL RESTRICTIONS.
(a) Investment Representations. The Company may require any
person to whom an option is granted, as a condition of exercising such option,
to give written assurances in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock subject to the option
for his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws.
(b) Compliance With Securities Laws. Each option shall be
subject to the requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such option upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such conditions is effected in a manner acceptable to the Board
of Directors. Nothing herein shall be deemed to require the Company to apply
for or to obtain such listing, registration or qualification, or to satisfy
such condition.
15. GOVERNING LAW.
The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware.
Adopted by the Board of Directors on
April 19, 1996
- 7 -
<PAGE> 1
EXHIBIT 10.4
EMPLOYEE AGREEMENT REGARDING
CONFIDENTIALITY AND INVENTIONS
This Agreement is intended to set forth in writing my responsibility
to Trusted Information Systems, Inc. ("TIS"). I recognize that TIS is engaged
in a continuous program of research, development, and production respecting its
business, present and future. As part of my employment with TIS, I have
certain obligations relating to the business interests of TIS, confidential and
proprietary information, and inventions which I develop during that employment.
As part of the conditions of employment by TIS, I acknowledge and
agree that:
1. Effective Date. This agreement ("Agreement") shall be effective as of
________________________, 19_______.
2. TIS Proprietary Information.
2.1 Confidentiality. I will maintain in confidence and will not
disclose or use, either during or after the term of my employment,
any proprietary or confidential information or know-how belonging to
TIS (referred to herein as "Proprietary Information"), whether or
not in written form, except to the extent required to perform duties
on behalf of TIS. Proprietary Information includes any information,
not generally known in the relevant trade or industry, which was
obtained from TIS, or which was learned, discovered, developed,
conceived, originated or prepared by me in the scope of my
employment. Such Proprietary Information includes, but is not
limited to, software, technical and business information relating to
TIS' inventions or products, research and development, production
processes, machines and equipment, finances, customers, marketing,
as well as production, marketing and future business plans, and any
other information which is identified as confidential by TIS. Upon
termination of my employment or at the request of my supervisor
before termination, I will deliver to TIS all written and tangible
material in my possession incorporating the Proprietary Information
or otherwise relating to TIS' business.
2.2 Third-Party Proprietary Information. I recognize that TIS has
received and will receive confidential or proprietary information
from third parties, subject to a duty on TIS' part to maintain the
confidentiality of such information and to use it only for certain
limited purposes. My obligations with respect to TIS Proprietary
Information shall also extend to confidential and/or proprietary
information belonging to customers and suppliers of TIS who may have
disclosed such information to me as the result of my status as an
employee of TIS. I will not use such third-party information for
the benefit of anyone other than TIS or such third party, or in any
manner inconsistent with TIS' agreement with such third party.
3. Inventions.
3.1 Definition of Inventions. As used in this Agreement, the term
"Inventions" means any new or useful art, discovery, contribution,
finding or improvement whether or not patentable, and all related
know-how. Inventions include, but are not limited to, all designs,
discoveries, algorithms, formulae, processes, manufacturing
techniques, computer software, inventions and improvements.
<PAGE> 2
3.2 Disclosure and Assignment of Inventions.
(a) I will promptly disclose and describe to TIS all Inventions
which I may solely or jointly conceive, develop, or reduce to
practice during the period of my employment with TIS (i) which
relate to TIS' business or actual or demonstrably anticipated
research or development, (ii) which were developed, in whole
or part, on TIS' time or with the use of any of TIS'
equipment, supplies, facilities or trade secret information,
or (iii) which resulted from any work I performed for TIS
(referred to herein as "TIS Inventions"). I hereby assign to
TIS all my right, title and interest worldwide in TIS
Inventions and in all intellectual property rights based on
TIS Inventions. However, I do not assign or agree to assign
any Inventions which were made by me prior to my employment
with TIS, which Inventions, if any, are identified on Exhibit
A to this Agreement. Exhibit A contains no confidential
information. I have no rights in any Inventions other than
the Inventions specified in Exhibit A. If no such list is
attached, I have no such Inventions or I grant an irrevocable,
non-exclusive, royalty-free, worldwide license to TIS to make,
use and sell Inventions developed by me prior to my employment
with TIS.
3.3 Non-Assignable Inventions. This Agreement does not apply to an
Invention which qualifies fully as a non-assignable Invention under
the provisions of Section 2870 of the California Labor Code.
4. Moral Rights. TIS retains moral rights for work done while at TIS.
"Moral Rights" means any personal rights which an author may have
under applicable law which are separate and apart from the
proprietary aspect of copyright, including, but not limited to,
rights to identification of authorship, rights of approval on
modifications or limitation on subsequent modification, and rights
to cause or suppress publication.
5. TIS Materials. Upon termination of my employment with TIS or at any other
time upon TIS' request I will promptly deliver to TIS all documents and
other materials furnished to me by TIS or prepared by me for TIS. I will
retain no copies of TIS' or other proprietary material.
6. Competitive Employment. During the term of my employment with TIS, I will
not engage in any employment, consulting, or other activity in any business
competitive with TIS without TIS' written consent.
7. Non-Solicitation. During the term of my employment with TIS and for a
period of two (2) years thereafter, I will not solicit or cause others to
solicit any employees of TIS to terminate their employment with TIS.
8. Acts to Secure Proprietary Rights.
8.1 Further Acts. I agree to perform, during and after my employment,
all acts deemed necessary or desirable by TIS to permit and assist
it, at its expense, in perfecting and enforcing the full benefits,
enjoyment, rights and title throughout the world in the TIS
Inventions. Such acts are intended primarily to include, but are
not limited to, execution of documents and assistance or cooperation
in the registration and enforcement of patents and copyrights or in
other legal proceedings.
8.2 Appointment of Attorney-In-Fact: In the event that TIS is unable
for any reason whatsoever to secure my signature to any lawful
document required to apply for or enforce any patent,
<PAGE> 3
copyright or other applications with respect to any TIS Inventions
(including improvements, renewals, extensions, continuations,
divisions or continuations in part thereof), I hereby irrevocably
appoint TIS and its duly authorized officers and agents as my agents
and attorneys-in-fact to execute and file any such application and
to do all other lawfully permitted acts to further the prosecution,
issuance and enforcement of patents, copyrights or other rights
therein with the same legal force and effect as if executed by me.
9. No Conflicting Obligation. My performance of this Agreement and as an
employee of TIS does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by me prior
to my employment with TIS. I will not disclose to TIS, or induce TIS to
use, any confidential or proprietary information or material belonging to
any previous employer or other person or entity. I am not a party to any
other agreement which will interfere with my full compliance with this
Agreement. I will not enter into any agreement in conflict with the
provisions of this Agreement.
10. Survival. Notwithstanding the termination of my employment, Sections 2, 3,
7 and 8 shall survive such termination. This Agreement does not in any way
restrict my right or the right of TIS to terminate my employment at any
time.
11. Specific Performance. A breach of any of the promises or agreements
contained herein will result in irreparable and continuing damage to TIS
for which there will be no adequate remedy at law, and TIS shall be
entitled to injunctive relief and/or a decree for specific performance, and
such other relief as may be proper.
12. Waiver. The waiver by TIS of a breach of any provision of this Agreement
by me will not operate or be construed as a waiver of any other subsequent
breach by me.
13. Severability. If any part of this Agreement is found invalid or
unenforceable, that part will be amended to achieve as nearly as possible
the same economic effect as the original provision and the remainder of the
Agreement will remain in full force.
14. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Maryland as applied to agreements
entered into and to be performed entirely within Maryland and Maryland
residents.
15. Choice of Forum/Attorney Fees. The parties hereby submit to the
jurisdiction of the United States District Court for the District of
Maryland and the Maryland State courts in any litigation arising out of the
Agreement. If court proceedings are required to enforce any provision or
to remedy any breach of this Agreement, the prevailing party shall be
entitled to an award of reasonable and necessary expenses of litigation,
including reasonable attorney's fees.
16. Entire Agreement. This Agreement, including all exhibits to this
Agreement, constitutes the entire agreement between the parties relating to
this subject matter and supersedes all prior or simultaneous
representations, discussions, negotiations, and agreements, whether written
or oral. This Agreement may be amended or modified only with the written
consent of both me and TIS. No oral waiver, amendment or modification will
be effective under any circumstances whatsoever.
17. Assignment. This Agreement may be assigned by TIS. I may not assign or
delegate my duties under this Agreement without TIS' prior written
approval. This Agreement shall be binding upon my heirs,
<PAGE> 4
successors, and permitted assignees.
EMPLOYEE:
Date:
------------------------- ----------------------------
Signature
----------------------------
Printed Name
Witnessed by:
Date: TRUSTED INFORMATION SYSTEMS, INC.
-------------------------
By:
-------------------------
Title:
----------------------
<PAGE> 5
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2870 of the California
Labor code that the above Agreement between you and TIS does not require you to
assign to TIS, any invention for which no equipment, supplies, facility or
trade secret information of TIS was used and which was developed entirely on
your own time, and (a) which does not relate (1) to the business of TIS or (2)
to TIS' actual or demonstrably anticipated research or development, or (b)
which does not result from any work performed by you for TIS. This limited
exclusion does not apply to any patent or invention covered by a contract
between TIS and the United States or any of its agencies requiring full title
to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
-----------------------------------
Signature
-----------------------------------
Printed Name of Employee
-----------------------------------
Date
Witnessed by:
TRUSTED INFORMATION SYSTEMS, INC.
- -----------------------------
Representative
Dated
------------------------
<PAGE> 1
EXHIBIT 10.5
TRUSTED INFORMATION SYSTEMS, INC.
SOFTWARE LICENSE AND RESELLER AGREEMENT
LEVEL 2
DRAFT 4/29/96
THIS SOFTWARE LICENSE AGREEMENT ("Agreement") is entered on the date
of execution of this Agreement by the last party hereto between
Trusted Information Systems, Inc. ("TIS"), a Maryland corporation
having its principal mailing address at 3060 Washington Road (Rt. 97),
Glenwood, Maryland 21738 and <RESELLER>, having a principal mailing
address at <ADDRESS>.
RECITALS
A. TIS is the owner of the TIS Software (as defined below)
B. <RESELLER> is engaged in the business of marketing and
installing certain software and hardware products and desires to obtain a
license from TIS to market, distribute, and install the TIS Software, and make
suitable modifications to the configuration of the software to serve the needs
of <RESELLER> customers.
AGREEMENT
NOW, THEREFORE, and in consideration of the mutual promises and
covenants set forth herein, TIS and <RESELLER> agree as follows:
LEVEL 2 Reseller 4/29/96
Page 1
<PAGE> 2
1. DEFINITIONS
The following terms when used in this Agreement shall have the following
meanings:
1.1 "End User Customer" means a person or entity obtaining the TIS
Software from <RESELLER>solely for personal or internal use (whether or not
such TIS Software is bundled with other software or hardware), and without
right to sublicense, transfer or assign to any other entity, except as
otherwise provided herein.
1.2 "License Fees" shall have the meaning set forth in Section 3.
1.3 "TIS Object Code" means any part of the TIS Software in
machine-readable object code form.
1.4 "TIS Software" means the software computer program(s) as
described in Exhibit "A" and the TIS Documentation associated therewith
including the TIS Object Code and TIS Source Code. "TIS Software" shall also
include any modifications, enhancements, improvements, or new versions of such
programs that may be provided under this agreement by TIS to <RESELLER>.
<RESELLER> shall have rights under this Agreement to receive modifications,
enhancements, improvements, or new versions of the TIS Software, as provided
under Section 4.
1.5 "TIS Source Code" means the mnemonic, high level statement
versions of the TIS Software written in the source
LEVEL 2 Reseller 4/29/96
Page 2
<PAGE> 3
language used by programmers.
1.6 "Territory" means those countries or portions of countries
listed in Exhibit "B" hereto.
1.7 "TIS Documentation" means the most current version of the TIS
Software system documentation at any time that TIS delivers to <RESELLER>
copies of the TIS Object Code and TIS Source Code.
1.8 "TIS Software Update" means software components that repair
bugs and/or provide additional functionality and/or increased assurance to the
TIS Software.
1.9 "TIS Software Subscription" means the software service as
described in Exhibit "A".
2. GRANT OF LIMITED LICENSES
2.1 Source and Object Code License. Subject to the limitations
set forth in Section 2.2 and 2.3 herein, TIS hereby grants <RESELLER>, and
<RESELLER> accepts, a non-exclusive, non-transferable, non-assignable limited
license in the Territory during the term specified in Section 8 below to:
2.1.1 Market, demonstrate, and distribute the TIS Source and
Object Code to End User Customers.
2.1.2 Use the Source and Object Code for its own internal use
for the sole purpose of providing demonstrations, training and End User
Customer support.
2.1.3 Except as may otherwise be provided in Exhibit "B",
use, market, and distribute the TIS Documentation to support
LEVEL 2 Reseller 4/29/96
Page 3
<PAGE> 4
End User Customer installations. All TIS proprietary notices must be included.
2.1.4 Perform usual and customary operations to configure the
TIS Software to support End User customer installations only.
2.2 Limitations On TIS Object and Source Code Licenses. The license
granted in Section 2.1 shall be limited as follows:
2.2.1 Any distribution of the TIS Object and Source Code
shall be only to End User Customers.
2.2.2 <RESELLER> may not in any way sell, rent, license,
sublicense or otherwise distribute the TIS Object Code or the right to use the
TIS Object Code in any manner not authorized herein or by any other product
name than that which is identified in Exhibit "A".
2.2.3 <RESELLER> is not authorized to distribute, loan,
license or in any manner make TIS Source Code available to any entity or
individual who is not a <RESELLER> employee directly involved with the support
of TIS Object Code for End User Customers or not a <RESELLER> End User Customer
for the TIS Object Code. <RESELLER> may disclose TIS Source Code to persons or
entities that may be contracted by <RESELLER> to assist it in performing its
duties or utilizing its rights under this Agreement, so long as they agree to
be bound by the pertinent provisions of this License Agreement.
2.3 Title.
Except for the limited licenses granted in Section 2.1
LEVEL 2 Reseller 4/29/96
Page 4
<PAGE> 5
above, as between the parties hereto, TIS shall at all times retain full and
exclusive right, title and ownership interest in and to the TIS Software and in
any and all related patents, trademarks, copyrights or proprietary or trade
secret rights therein. Except as otherwise provided herein, TIS retains unto
itself the right to distribute copies of the TIS Software as a standalone
product or bundled with other equipment or programs.
3. FEES
3.1 Per Copy License and Annual Subscription Fees. <RESELLER>
shall pay to TIS License Fees in the amount calculated as set forth on Exhibit
"B" hereto (the "Per Copy License Fee") for each copy of TIS Software used or
distributed by <RESELLER>. Additionally, <RESELLER> shall pay to TIS fees in
the amount calculated as set forth on Exhibit "B" hereto (the "Per Annual
Subscription Fee") for each TIS Software Annual Subscription provided to an End
User Customer.
3.2 Terms of Payment. Per Copy License Fees and Per Annual
Subscription Fees shall accrue with respect to TIS Software licensed by
<RESELLER> upon the earlier of the date of invoice or shipment of the TIS
Software by TIS to <RESELLER>. Fees due TIS hereunder shall be paid by
<RESELLER> to TIS at TIS's address set forth on page 1 of this Agreement on a
monthly basis on or before the thirtieth (30th) day from invoice or shipment,
whichever comes first. A late payment penalty of one-and-one-half percent
(1.5%) of any fees not paid when due shall be assessed for each
LEVEL 2 Reseller 4/29/96
Page 5
<PAGE> 6
thirty (30)-day period, or portion thereof, compounded monthly, not in advance,
during which such payment is delayed, beginning on the thirty-first (31st) day
after the last day of the month to which the delayed payment relates until
payment is made. <RESELLER>'s failure to provide to TIS the fees as specified
in Sections 3.1 and 3.2, and the Installation Report as specified in Section
3.4 herein, shall be considered a material breach of this Agreement.
3.3 Transaction Method. Within five (5) business days of receipt
of a purchase order from <RESELLER>, TIS will ship to <RESELLER> the number of
copies of media and documentation specified in such purchase order. TIS will
provide an invoice with each shipment specifying the license fees payable to
TIS pursuant to Section 3.2, above. Within five (5) business days of the end
of each calendar month, <RESELLER> shall provide TIS with an Installation
Report as described in Section 3.4 below, and the appropriate Per Annual
Subscription Fees as described in Section 3.1, if any. Within five (5) business
days of receipt of such Installation Report and Per Annual Subscription Fees,
TIS shall send an invoice to <RESELLER> reflecting such payment.
3.4 Installation Report. Within five (5) business days of the end
of each calendar month, <RESELLER> shall provide TIS with an Installation
Report in reasonably detailed form setting forth End User Customer information
from <RESELLER> and specifying whether such End User Customer(s) purchased a
Per Annual Subscription. The Installation Report shall be signed by a
responsible person of <RESELLER> and shall be delivered to TIS
LEVEL 2 Reseller 4/29/96
Page 6
<PAGE> 7
concurrently with Per Annual Subscription Fee payments made pursuant to this
Section 3. <RESELLER> shall provide TIS with an Installation Report each month
during the term of this Agreement even if <RESELLER> does not install TIS
Software during such month.
3.5 Audit Provisions. <RESELLER> shall keep separate, complete,
and accurate books of account relating to its licensing of the TIS Software and
TIS Software subscriptions. Subject to the confidentiality restrictions
provided in this Agreement, <RESELLER> hereby grants TIS or its authorized
representative the right, after reasonable notice, but no less than three (3)
working days, and during normal business hours, to enter <RESELLER> premises,
in which such accounts are located, no more frequently than annually, solely
for purposes of auditing all such books of account. The parties shall promptly
meet to review the results of such audit and resolve any discrepancies arising
from such audit. The cost of any such audit shall be borne solely by TIS,
unless discrepancies exceed ten percent (10%) of the TIS Software payments paid
by <RESELLER> during any quarter in which case the cost of such audit shall be
borne solely by <RESELLER>. All payments necessary to eliminate any
underpayments discovered in any such audit and costs of such audits by TIS
shall be made by <RESELLER> to TIS within thirty (30) days after the
discrepancy is reported to <RESELLER>.
3.6 U.S. Currency. All payments hereunder shall be made in lawful
United States currency. All fee currency rates identified in this Agreement and
Exhibits are in United States Dollars.
LEVEL 2 Reseller 4/29/96
Page 7
<PAGE> 8
3.7 Taxes. All taxes, duties, fees and other governmental charges
of any kind (except United States or state taxes based on the net income of
TIS, or Maryland sales taxes associated with TIS' license of software to
<RESELLER> under this Agreement) which are levied, assessed or otherwise
imposed by or under the authority of any government or any political
subdivision thereof on the fees payable hereunder, or any aspect of this
Agreement shall be borne by <RESELLER> and shall not be considered a part of, a
deduction from, or an offset against the fees.
4. MAINTENANCE
4.1 Maintenance. <RESELLER> has inspected the TIS Internet
Firewall Toolkit upon which the TIS Software and the TIS Documentation are
based and has determined the suitability, adequacy and proper operation of the
software to its satisfaction. TIS will provide <RESELLER> software technical
support by electronic mail, telephone and facsimile during substantially all
normal TIS working hours.
4.2 Customer Support. First line support for End User Customers
shall be provided either by TIS or by <RESELLER> as provided in Exhibit "B".
4.3 TIS Software Problem Resolution Team. Should <RESELLER>
provide first-line support services as provided in Exhibit "B", <RESELLER> will
establish a TIS Software Problem Resolution Team consisting of qualified UNIX
and internet software programmer personnel, with a maximum of five (5). These
personnel will gain
LEVEL 2 Reseller 4/29/96
Page 8
<PAGE> 9
familiarity with the TIS Software and the installation process and provide the
first line technical support for TIS Software for <RESELLER> and End User
Customers. <RESELLER> will identify the members of this TIS Software Problem
Resolution Team to TIS. The members of this team will be the only personnel
associated with <RESELLER> that TIS will provide with TIS Software technical
support.
4.4 Updates. Should <RESELLER> provide first-line support services
as provided in Exhibit "B", TIS shall provide <RESELLER> with copies of all
updates for the TIS Software, if any, for each End User Customer which has paid
the Per Annual Subscription Fee. <RESELLER> shall distribute reasonably
promptly TIS Software Updates to End User Customers with an active TIS Software
Subscription. Within five (5) business days of receipt of a purchase order,
TIS shall provide additional updates to <RESELLER> for End User Customers
without an active annual TIS Software Subscription and <RESELLER> shall pay TIS
the fees identified in Schedule "B" for TIS Software Updates so provided.
5. ADDITIONAL OBLIGATIONS OF <RESELLER>
5.1 Product Identification. <RESELLER> agrees that it shall
retain all TIS Software packaging, licensing and supporting documents, and
clearly identify on any of <RESELLER>'s advertisements that the firewall
software is "Trusted Information Systems' Gauntlet(TM) Internet Firewall",
except as otherwise provided in this Agreement, and shall include such
proprietary
LEVEL 2 Reseller 4/29/96
Page 9
<PAGE> 10
notices as may be reasonably requested by TIS.
6.2 Product Marketing. <RESELLER> is authorized to represent to
its End User Customers only such facts about the TIS Software as TIS states in
its product descriptions, advertising and promotional materials or as may be
stated in other non-confidential written material furnished by TIS. <RESELLER>
agrees to obtain written TIS concurrence, prior to publication, on the accuracy
of statements describing TIS Software that are developed by <RESELLER> for
advertising and promotional materials. TIS will use its best efforts to
provide written approval or corrections within three TIS working days following
the receipt of <RESELLER>'s request for concurrence, and if approval or
disapproval is not provided within five TIS working days, TIS waives its right
to approve the particular publication.
6.3 License Agreements. <RESELLER> shall cause to be delivered to
each End User Customer a license agreement as set forth in Exhibit "C".
<RESELLER> shall use its reasonable efforts to ensure that all End User
Customers abide by the terms of such license agreements and TIS shall retain
the right to enforce such license agreements directly.
6.4 Confidentiality.
6.4.1 Each party understands and agrees that in the other
party's performance of its duties and exercise of its rights hereunder, such
party will communicate certain confidential and proprietary information
concerning TIS Software, know-how, technology, techniques or marketing plans
(collectively, the "Know-How"). Neither party shall use the
LEVEL 2 Reseller 4/29/96
Page 10
<PAGE> 11
Know-How of the other for any purpose other than the performance of this
Agreement. To the extent such information is confidential and proprietary to
and trade secrets of the party disclosing such information, all such
disclosures are made in utmost confidence. Except as expressly authorized
herein, each party agrees to hold all the Know-How within its own organization
and shall not, without specific written consent of the disclosing party or as
authorized herein, utilize in any manner, publish, communicate or disclose any
part of such Know-How to third parties. Each party will take all reasonable
steps to protect the security, confidentiality and trade secret status of the
Know-How and will take such steps as are consistent with protection of its own
confidential and proprietary information (but will in no event exercise less
than reasonable care) to ensure that the provisions of this Agreement are not
violated by such party's End User Customers, employees, agents or any other
person to whom such has made lawful disclosure hereunder. A party's
obligations with respect to a particular portion of the Know-How will cease if
and when that portion (i) becomes part of the public domain without any
wrongful act attributable to such party; (ii) is lawfully received by such
party from a third party without violation of this Agreement or any similar
agreement; (iii) is approved for release by written authorization of the other
party; (iv) is already known by such party as evidenced by its written records;
or (v) is independently developed by such party, provided that the person or
persons responsible for development did not have access to the Know-How.
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6.4.2 <RESELLER> agrees to take all reasonable steps to
protect the security and confidentiality of all data, information, programs,
systems, materials, techniques and/or procedures relating to the TIS Source
Code and further agrees not to remove or destroy any copyright or proprietary
markings or confidential legends placed upon or contained within the TIS Source
Code or Documentation, and to insert such copyright or proprietary markings or
confidential legends in any copies of the TIS Source Code or Documentation.
Except as specifically permitted in this Agreement, <RESELLER> agrees that it
will not sell, license, distribute, copy or duplicate, or permit anyone else to
sell, license, distribute, copy or duplicate, any aspect of the TIS Source
Code.
6.4.3 Each party acknowledges that the restrictions
contained in this Section are reasonable and necessary to protect the other
party's legitimate interests, that remedies at law will be inadequate, that any
violation of these restrictions will cause irreparable damage within a short
period of time and that the non-breaching party will be entitled to injunctive
relief against such violation. Each party further agrees that all
confidentiality commitments hereunder shall survive the expiration or
termination of this Agreement or the license granted herein.
6.5 Protection of Proprietary Rights. <RESELLER> shall, at its
own costs and expense, maintain the TIS Software free and clear of all liens,
and claims of all creditors of <RESELLER> brought against <RESELLER>.
<RESELLER> shall immediately
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advise TIS in writing of the occurrence of any such claim or lien or legal
process, and TIS, at its option and expense, shall have the right at any time,
but not the obligation, to either monitor and participate in, or to control and
direct (but not with respect to any aspect involving solely the liability of
<RESELLER>), the investigation, preparation and settlement of any such claim or
lien and legal process. <RESELLER> shall fully cooperate with TIS in any such
action.
6.6 Notices. Each party shall promptly advise the other of any
legal notices served on such party which might affect the other party or other
party's products.
6.7 Costs and Expenses. Except as otherwise expressly provided in
this Agreement, each party shall be solely responsible for all of its costs,
salaries and other expenses incurred in connection with the performance of its
obligations hereunder, and the other party shall not have any liability,
obligation or responsibility whatsoever therefore.
6.8 INDEMNITY. <RESELLER> EXPRESSLY SAVES, INDEMNIFIES AND HOLDS
TIS, ITS SUBSIDIARIES, AGENTS AND AFFILIATES HARMLESS FROM (i) ANY AND ALL
LIABILITY OF ANY KIND OR NATURE WHATSOEVER TO <RESELLER>'S CUSTOMERS,
DISTRIBUTORS AND THIRD PARTIES WHICH MAY ARISE FROM ACTS OF <RESELLER> OR FROM
THE LICENSE OF THE TIS SOFTWARE BY <RESELLER> OR ANY DOCUMENTATION, SERVICES OR
ANY OTHER ITEM FURNISHED BY <RESELLER> TO ITS CUSTOMERS; AND (ii) ANY LIABILITY
ARISING IN CONNECTION WITH AN UNAUTHORIZED STATEMENT OR MISREPRESENTATION OF
FACT MADE BY <RESELLER> OR ITS AGENTS, EMPLOYEES OR DISTRIBUTORS TO ANY PARTY
WITH RESPECT TO THE TIS
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SOFTWARE.
7. DISCLAIMER, LIMITATION OF LIABILITY, WARRANTY AND
INTELLECTUAL PROPERTY INDEMNITIES
7.1 DISCLAIMER. TIS DISCLAIMS ALL WARRANTIES WITH REGARD TO THE
TIS SOFTWARE INCLUDING ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE AND ALL OBLIGATIONS OR LIABILITIES ON THE PART
OF TIS FOR DAMAGES INCLUDING BUT NOT LIMITED TO CONSEQUENTIAL DAMAGES ARISING
OUT OF, OR IN CONNECTION WITH, THE USE OR PERFORMANCE OF THE TIS SOFTWARE.
7.2 LIMITATION OF LIABILITY. IN NO EVENT WILL TIS BE LIABLE TO
<RESELLER>OR ANY THIRD PARTIES FOR INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES OR LOST PROFITS EVEN IF TIS HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
7.3 Proprietary Rights Infringement by TIS.
7.3.1 TIS shall indemnify and hold <RESELLER> harmless from
any and all liability, damages, costs or expenses (including reasonable
attorneys' fees) which may be sustained or incurred by <RESELLER> as a result
of any claim or claims that the unmodified TIS Software infringes on a U.S.
patent, copyright or trade secret. TIS shall have no obligation to <RESELLER>
pursuant to this Section 7.3 unless: (i) <RESELLER> gives TIS prompt written
notice of the claim; (ii) TIS is given the right to control and direct the
investigation, preparation, defense and settlement of the claim; and (iii) the
claim is based on <RESELLER>'s use of the unmodified TIS Software in accordance
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with this Agreement.
7.3.2 If TIS receives notice of an alleged infringement,
TIS shall have the right, at its sole option, to obtain the right to continue
use of the TIS Software or modify the TIS Software so that it is no longer
infringing. If neither of the foregoing options is reasonably available to
TIS, then the license rights granted pursuant to Section 2 of this Agreement
may be terminated at the option of any party hereto.
7.3.3 The rights and remedies set forth in Sections 7.3.1
and 7.3.2 above state the entire obligation of TIS and the exclusive remedies
of <RESELLER> concerning TIS's proprietary rights infringement.
7.4 Proprietary Rights Infringement by <RESELLER>.
7.4.1 <RESELLER> shall indemnify and hold TIS harmless from
any and all liability, damage, costs or expenses to third parties (including
reasonable attorneys' fees) which may be sustained or incurred as a result of
any claim or claims that any modifications to the Software made by <RESELLER>
or <RESELLER>'s resellers (if permitted by this Agreement) infringe on a
patent, copyright or trade secret. <RESELLER> shall have no obligation to TIS
pursuant to this Section 7.4.1 unless: (i) TIS gives <RESELLER> prompt written
notice of the claim; (ii) <RESELLER> is given the right to control and direct
the investigation, preparation, defense and settlement of the claim; and (iii)
the claim is not based solely on <RESELLER>'s use of the TIS Software as
modified by <RESELLER>.
7.4.2 If <RESELLER> receives notice of an alleged
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<PAGE> 16
infringement, <RESELLER> shall have the right, at its sole option, to obtain
the right to continued use of the Software Modifications or to replace or
modify the Software Modifications so that they are no longer infringing. The
foregoing notwithstanding, modifications to the TIS Software are not authorized
herein and would constitute a material breach of this Agreement. In such a
case the license rights granted pursuant to Section 2 of this Agreement may be
terminated at the option of TIS, and in the event of such termination, TIS
shall retain all License Fees paid by <RESELLER> hereunder. The
indemnification provided in Section 7.4.1 would survive such termination.
7.4.3 The rights and remedies set forth in Sections 7.4.1
and 7.4.2 above state the entire obligation of <RESELLER> and the exclusive
remedies of TIS concerning <RESELLER>'s proprietary rights infringement.
8. TERM AND TERMINATION
8.1 Term. The license rights granted pursuant to Section 2 hereof
shall be effective as of the date hereof and shall continue in full force and
effect until December 31, following the first anniversary of this Agreement
unless sooner terminated pursuant to the terms of this Agreement.
8.2 Renewal. Unless either party notifies the other in writing or
electronic mail of their intent to renegotiate the provisions of this Agreement
within 30 days of the expiration of the then-current term, the license rights
granted pursuant to
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<PAGE> 17
Section 2 of this Agreement shall be automatically extended for successive
one-year terms on the first day of the next calendar year following the
anniversary of the Agreement execution date, provided that <RESELLER>:
8.2.1 Is not in material breach of this Agreement.
8.2.2 Is not delinquent in any payments to TIS at the time
of the renewal.
8.2.3 Provides TIS with a minimum of $50,000 in combined
fees from Per Copy License Fees and Per Copy Annual Subscription Fees in the
preceding full calendar year. Failure shall result in the termination, at TIS'
option, of the license rights granted pursuant to Section 2 of this Agreement
effective as of the last day of the calendar year for which the minimum
combined fees from annual Per Copy License Fees and Per Copy Annual
Subscription Fees were not paid to TIS.
8.3 Termination. Notwithstanding the foregoing, either party
shall be entitled to terminate the license rights granted pursuant to this
Agreement at any time on written notice or via electronic mail to the other in
the event of a material breach of this Agreement by such other party and a
failure to cure such breach within a period of thirty (30) days following
receipt of written notice or electronic mail specifying that a breach has
occurred, or if such breach is not reasonably susceptive to cure within such 30
day period and the breaching party does not commence remedial action within
such 30 day period, and thereafter diligently continues such action until the
breach is cured. Notwithstanding the foregoing, should <RESELLER> on one
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<PAGE> 18
or more occasion in any twelve (12) month period perform or fail to perform any
act which gives TIS the right to terminate all or any part of the licensed
rights granted to <RESELLER>, but for <RESELLER>'s right to remedy such breach,
TIS may on such second or subsequent breach, terminate this agreement forthwith
by giving notice of such termination to <RESELLER> by mail or electronic mail.
8.4 Insolvency. In the event that <RESELLER> be adjudged
insolvent or bankrupt, or upon the institution of any proceedings by or against
it seeking relief, reorganization or arrangement under any laws relating to
insolvency, or upon any assignment for the benefit of creditors, or upon the
appointment of a receiver, liquidator or trustee of any of its property or
assets, or upon the liquidation, dissolution or winding up of its business,
then and in any such events the license rights granted pursuant to Section 2 of
this Agreement may forthwith be terminated or canceled by the other party upon
giving written notice thereof, and upon the giving of such notice the license
rights granted pursuant to Section 2 of this Agreement shall terminate
forthwith; provided that, the rights of any End User Customer with respect to
the TIS Software shall remain unaffected by such termination.
8.5 Transfer and Assignment. The license rights granted pursuant
to Section 2 of this Agreement may not be transferred, by operation of law or
otherwise, to any entity (including any successor or affiliate of <RESELLER>)
except with the prior written consent of TIS that will not be unreasonably
withheld.
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TIS may freely assign its rights under this Agreement.
8.6 Disposition of TIS Software and TIS Documentation on
Termination. Upon the expiration or termination of the license rights granted
pursuant to this Agreement for any reason, the license rights granted pursuant
to Section 2 of this Agreement shall immediately cease and terminate (except as
provided below) and the remaining provisions hereof (including without
limitation the confidentiality provisions of Section 6.4 hereof) shall remain
in full force and effect. If the license rights granted pursuant to Section 2
of this Agreement have expired or are terminated for any reason, <RESELLER>
shall cease using or sublicensing the TIS Software, except for such actions by
<RESELLER> as are reasonably necessary to provide for End User Customer
licenses previously distributed and orders placed with <RESELLER> in the
ordinary course of business prior to such expiration or termination.
Notwithstanding the above, for a period of two years after the date of
expiration or termination of the license rights granted under this Agreement,
<RESELLER> may retain one copy of the TIS Source Code and is hereby licensed
for such term to use such TIS Source Code internally solely for the purpose of
supporting End User Customers of TIS Software. Upon the expiration of such
two-year period, <RESELLER> shall destroy or return to TIS such single copy of
TIS Source Code.
9. MISCELLANEOUS PROVISIONS
9.1 Governing Laws. It is the intention of the parties
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<PAGE> 20
hereto that the internal laws of the State of Maryland, U.S.A. (irrespective of
its choice of law principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
9.2 Binding upon Successor and Assigns. Subject to, and unless
otherwise provided in this Agreement, each and all of the covenants, terms,
provisions, and agreements contained herein shall be binding upon, and inure to
the benefit of, the permitted successors, representatives, administrators and
assigns of the parties hereto. TIS (i) has investigated <RESELLER> in
connection with the execution and delivery of this Agreement by TIS, (ii) has
selected <RESELLER> as a licensee of the TIS Software hereunder because of
<RESELLER>'s business, reputation, and competitive posture and (iii) but for
<RESELLER>'s unique qualifications would not have entered into this Agreement.
9.3 Severability. If any provision of this Agreement, or the
application hereof, shall for any reason and to any extent, be invalid or
unenforceable, the remainder of this Agreement and application of such
provisions to other persons or circumstances shall be interpreted so as best to
reasonably effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provisions of this Agreement with valid
and enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provisions.
9.4 Entire Agreement. This Agreement and the exhibits
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<PAGE> 21
hereto constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and thereof and supersede all prior
and contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect hereto
and thereto. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and
the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
9.6 Expenses. Each party shall pay all of its own costs and
expenses incurred with respect to the negotiation, execution and delivery of
this Agreement and the exhibit hereto.
9.7 Amendment and Waivers. Any term or provision of this
Agreement (including the Exhibits) may be amended, and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a writing signed by
both parties. Any such amendment requested by either party will subject any
other provision of this Agreement to further modification upon approval of both
parties.
9.8 Survival of Agreements. All covenants, agreements,
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representations and warranties made herein shall survive the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby.
9.9 No Waiver. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
9.10 Other Remedies. Any and all remedies herein expressly
conferred upon a party shall be deemed cumulative with and not exclusive of any
other remedy conferred hereby or by law, and the exercise of any one remedy
shall not preclude the exercise of any other.
9.11 Resolution Of Problems; Attorney's Fees. In the event of any
problem, claim, or dispute arising from this Agreement, the aggrieved party
shall promptly notify the other party of the existence of the problem, claim,
or dispute, and such party shall promptly undertake all reasonable efforts to
resolve the matter within thirty days of such notice. If such efforts are not
successful, the parties shall meet promptly thereafter to resolve the matter
amicably, and each party shall exert its reasonable best efforts toward this
solution. If the matter cannot be resolved through this process, then the
parties shall submit the matter to binding arbitration, in accordance with the
rules of the American Arbitration Association. The arbitration shall be held
in Washington, D.C., and shall utilize a single arbitrator selected by the
parties. Each party shall bear one-half of the costs of the arbitration. In
the event the arbitration process does not lead to resolution of the problem,
then the parties
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shall then have recourse to all available rights and remedies under applicable
law. Should suit be brought to enforce or interpret any part of this
Agreement, the prevailing party shall be entitled to recover, as an element of
the costs of suit and not as damages, reasonable attorneys' fees to be fixed by
the court (including without limitation, costs, expenses and fees on any
appeal).
9.12 Notices. Whenever any party hereto desires or is required to
give any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States certified mail, postage
prepaid, return receipt requested, addressed as follows:
TIS: To the address set forth on page 1 hereof
<RESELLER>: To the address set forth on page 1 hereof
Such communications shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth above,
they shall be effective five (5) days after being deposited in the United
States mail. Any party may change its address for such communications by giving
notice thereof to the other party in conformity with this Section.
9.13 Time. Time is of the essence of this Agreement.
9.14 Construction of Agreement. This Agreement has been negotiated
by the respective parties hereto and the language hereof shall not be construed
for or against any party. A reference in this Agreement to any Section shall
include a reference to every Section the number of which begins with the
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number of the Sections to which reference is specifically made (e.g., a
reference to Section 2.1 shall include a reference to Section 2.1.2).
9.15 No Joint Venture. Nothing contained in this Agreement shall
be deemed or construed as creating a joint venture or partnership between any
of the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall have
the power to control the activities and operations of any other, and their
status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party shall have any power or
authority to bind or commit any other. No party shall hold itself out as having
any authority or relationship in contravention of this Section.
9.16 Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person, persons, entity or entities may require.
9.17 Further Assurances. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any party to better evidence and reflect the transactions
described herein and contemplated hereby, and to carry into effect the intents
and purposes of this Agreement.
9.18 Export. This Agreement is expressly made subject to any laws,
regulations, or other restrictions on the export from
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the United States of America of the TIS Software or of information about such
TIS Software which may be imposed from time to time by the government of the
United States of America. Notwithstanding anything contained in this Agreement
to the contrary, <RESELLER> shall not export or re-export, directly or
indirectly, any TIS Software or information pertaining thereto to any country
for which such government or any agency thereof requires an export license or
other governmental approval at the time of export or reexport without first
obtaining such license or approval.
9.19 Absence of Third Party Beneficiary Rights. No provisions of
this Agreement are intended nor shall be interpreted to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner of any party hereto or any other
person; unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof shall be personal solely between the parties to
this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date indicated below:
Trusted Information Systems, Inc. <RESELLER>
BY BY
-------------------------------- ---------------------------
TITLE TITLE
----------------------------- -------------------------
DATE DATE
------------------------------ --------------------------
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EXHIBIT "A"
DESCRIPTIONS AND TERRITORY
"Product Naming":
<RESELLER> shall retain TIS's name for its product.
"TIS Software" includes the following:
Gauntlet(TM) software, Trusted Information Systems' firewall product
which is based on the TIS Internet Firewall Toolkit, source and object
code.
Note: The TIS Software does NOT include the operating system software
that is required to control the hardware platform on which the TIS Software is
hosted.
"TIS Software Annual Subscription" includes the following:
TIS Software Annual Subscription provides <RESELLER> with the right to
redistribute software updates and TIS Documentation updates to
<RESELLER>'s customers who have licensed the TIS Software for each
year the Subscription is paid.
Approved (initials):
TIS:
--------------------------------------
<RESELLER>:
-------------------------------
Date:
-------------------------------------
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<PAGE> 1
EXHIBIT 10.6
[TIS Logo] Contract Number:___
CONSULTING SERVICES AGREEMENT
IMPORTANT: All Services will be provided only upon all of the
terms and conditions attached hereto, including WARRANTY
DISCLAIMER and LIMITATION OF LIABILITY. This Agreement is not
effective until accepted by TIS.
CUSTOMER: ________________________________________________ ("Customer")
ADDRESS: __________________________________________________________________
CITY: _________________ STATE: ________________________ ZIP: ____________
PROJECT MANAGER: _________________________ TELEPHONE: ____________________
Statements of Work Attached:
ACCEPTED:
CUSTOMER: TRUSTED INFORMATION SYSTEMS, INC.
By: By:
Title: Title:
Date: Date:
Trusted Information Systems, Inc., 3060 Washington Road (Route 97), Glenwood
Maryland 21738
<PAGE> 2
CONSULTING SERVICES AGREEMENT TERMS
1. Scope of Work. Subject to the terms hereof, Trusted Information Systems,
Inc. ("TIS") agrees to provide to the Customer identified on the face of hereof
(the "Customer") consulting services, including any deliverables (the
"Services"), as are described on such Statements of Work as are executed from
time to time by both parties (the "Statements"). Statements may be added to
this Agreement or may be modified by subsequent Statements by the mutual
agreement of the parties. Each Statement shall become effective only upon
execution by both parties, whereupon such Statement shall be deemed a part
hereof. Each Statement will contain a description of the tasks to be performed
and the deliverables, if any, to be delivered, a currently estimated timetable
for performance and a schedule of payments, if applicable. The Statement may
include such additional terms as the parties may desire, provided that such
terms are expressly stated and no additional or contrary terms shall be
implied.
2. Price and Payment. If the applicable Statement specifies that the Services
are to be performed on a time and materials basis, payment to TIS shall be made
monthly for all time and materials expended by TIS, on an hourly basis, during
the preceding month. Any estimated man-days for such work which may be set
forth in the Statement are solely TIS's current estimate, and should not be
construed as a limitation on services or a cap on fees. If the applicable
Statement specifies that the Services are to be performed on a fixed price
basis or specifies a schedule of payments, the Customer shall pay TIS in
accordance with such Statement. In any event, Customer shall pay TIS for all
expenses incurred by TIS in connection with performance hereunder. Customer
shall pay all invoices within 15 days of receipt thereof from TIS. Customer
shall pay a late payment of 1% per month on any unpaid amount for each month or
fraction thereof that any payments are in arrears.
3. Taxes. Customer shall pay all sales and other taxes, however designated,
which are levied or imposed by reason of the transactions contemplated hereby,
except for taxes based on TIS's net income. Customer and TIS agree that TIS is
acting solely as an independent contractor. TIS represents to Customer that it
is not subject to any back-up withholding requirements.
4. Customer Responsibilities. Customer shall: (a) provide TIS with specific
and detailed information concerning, and reasonable access to, Customer's
computer systems and networks as more fully set forth in the Statement; (b)
make available to each TIS employee physically located on Customer's premises,
test time on Customer's computer system sufficient for TIS to provide the
Services; (c) provide one employee of Customer who shall have substantial
computer systems and network and project management experience satisfactory to
TIS to act as project manager and as a liaison between Customer and TIS; and
(d) in general, to provide all information, access and full, good faith
cooperation reasonably necessary to facilitate the Services. If Customer fails
or delays in its performance of any of the foregoing, TIS shall be relieved of
its obligations hereunder to the extent such obligations are dependent on such
performance.
<PAGE> 3
5. Proprietary Rights. Customer agrees that TIS shall own exclusively any and
all object code, source code, flow charts, documentation, information, reports,
test results, findings, ideas and any and all other materials developed
hereunder (collectively, the "Work Product") and that title thereto is and
shall remain with TIS. All applicable patents, copyrights, trademarks, trade
secrets and other rights and interests in the Work Product are and shall remain
entirely in TIS. All copies made by Customer of the Work Product including
translations, compilations, partial copies with modifications and up-dated
works, are and shall remain the sole property of TIS. No work performed by TIS
hereunder or otherwise at Customer's request shall be considered as
constituting, producing or resulting in a "work-for-hire" under U.S. copyright
laws. However, TIS hereby grants to Customer a perpetual, non-transferable,
non-exclusive license to use the Work Product. Nothing contained herein shall
be deemed to afford TIS any right to any proprietary information of the
Customer derived from sources other than TIS.
6. Non-Disclosure. All data relating to Customer's business, operations,
proprietary information and customers which is acquired by TIS as a result of
performance hereunder shall be maintained as confidential by TIS. Customer
shall not sell, transfer, publish, disclose, display or otherwise make
available any Work Product to third parties, and shall take all reasonable
steps to prevent is agents, employees or independent contractors from doing any
of the foregoing. Customer shall protect the confidentiality of the Work
Product with the same degree of care that Customer uses to protect its own most
confidential information, but in no event less than reasonable care. Customer
recognizes that disclosure of any Work Product by Customer will give rise to
irreparable injury to TIS, inadequately compensable in damages. Accordingly,
TIS may seek and obtain injunctive relief against the breach or threatened
breach of the foregoing undertakings, in addition to any other legal remedies
which may be available.
7. Consent. Customer acknowledges and agrees that as an integral part of the
Services, TIS may deliberately attempt to penetrate the security systems of
Customer and may access Customer's configuration of networks, systems, computer
facilities and data (the "Configuration") through unauthorized means (the
"Vulnerability Tests"). Customer hereby expressly consents to the foregoing and
authorizes TIS to gain unlimited access to the Configuration. Customer
represents and warrants to TIS that Customer has full authority to effectively
grant the foregoing consent and authorization with respect to the
Configuration. Customer agrees that TIS shall have no liability whatsoever to
Customer for any matter arising out of or in connection with the Vulnerability
Tests.
8. Indemnity. Customer acknowledges and agrees that in the process of
performing the Vulnerability Tests, TIS may unintentionally penetrate the
security systems, and unintentionally gain unauthorized access to computer
systems, networks and files, of persons other than the Customer ("Third Party
Breaks"). Customer agrees to indemnify, defend and hold each of TIS and any
corporation affiliated with TIS and any director, officer, employee, agent,
successor or assign of any of them harmless from and against all actions,
prosecutions, claims for damages, liabilities, obligations, losses, costs
deficiencies or expenses, including reasonable attorney's fees, interest,
fines, penalties and forfeitures in connection therewith which may be sustained
by a
<PAGE> 4
party indemnified hereunder and result from, arise out of or relate to the
Vulnerability Tests, including all Third Party Breaks.
9. Warranty Disclaimer. ALL OF THE SERVICES ARE PROVIDED "AS IS." TIS MAKES
AND CUSTOMER RECEIVES ABSOLUTELY NO WARRANTIES, EXPRESS OR IMPLIED, AND THERE
ARE EXPRESSLY EXCLUDED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. CUSTOMER AGREES THAT TIS SHALL HAVE NO LIABILITIES OR
OBLIGATIONS UNDER WARRANTY OR OTHERWISE TO CUSTOMER FOR DAMAGES ARISING OUT OF
OR IN CONNECTION WITH THE DELIVERY, USE OR PERFORMANCE OF THE WORK PRODUCT
PROVIDED HEREUNDER INCLUDING ANY SERVICES.
10. Limitation of Liability. CUSTOMER AGREES THAT TIS SHALL HAVE NO LIABILITY
TO CUSTOMER FOR CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES ARISING OUT OF
OR IN CONNECTION WITH THIS AGREEMENT INCLUDING ANY WORK PRODUCT, EVEN IF TIS
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. In no event shall TIS be
liable for any damages arising out of or in connection with this Agreement or
the Services in excess of the amounts paid by Customer hereunder.
11. Term and Termination. This Agreement shall continue in full force and
effect until completion of the Services or until terminated in accordance with
the provisions hereof. In the event of any material breach of this Agreement
by either party, the other party may cancel this Agreement by giving 30 days'
prior written notice thereof (or 10 days notice in the case of non-payment);
provided, however, that this Agreement shall not terminate at the end of the
applicable period if the party in breach has cured the breach of which it has
been notified prior to the expiration of the applicable period.
12. No Hiring. During the term hereof and for six months thereafter, neither
party shall hire any employee of the other who is involved in providing or
utilizing the Services without the prior written consent of such other party.
13. General. This Agreement shall be binding upon the parties' respective
successors and permitted assigns. Neither party may assign this Agreement or
any of its rights or obligations hereunder without the prior written consent of
the other party, and any such attempted assignment shall be void; provided,
however, TIS may assign or subcontract any work to be performed hereunder
without the written consent of Customer. This Agreement shall be governed by
and construed in accordance with the laws of the State of Maryland (without
giving effect to conflicts of law). The sole jurisdiction and venue for any
litigation arising out of this Agreement shall be an appropriate federal or
state court located in the State of Maryland. A failure of either party to
exercise any right provided for herein, shall not be deemed to be a waiver of
any right hereunder. This Agreement and all Statements set forth the entire
understanding of the parties as to the subject matter herein and may not be
modified except in a writing executed by both parties. The rights and remedies
of the parties as set forth herein are not
<PAGE> 5
exclusive and are in addition to any other rights and remedies available to it
in law or in equity. All provisions hereof relating to the following paragraphs
shall survive the termination of this Agreement: 5, 6, 7, 8, 9 and 10.
<PAGE> 1
EXHIBIT 10.8
CONSTRUCTION LOAN AGREEMENT
THIS CONSTRUCTION LOAN AGREEMENT made and entered into this 26th day
of July, 1995, by and between TRUSTED INFORMATION SYSTEMS, INC., a Maryland
corporation ("Borrower"), and MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, a
Maryland banking corporation ("Bank").
W I T N E S S E T H:
WHEREAS, the Borrower is the owner in fee simple of that parcel of
land located in Howard County, Maryland and commonly known as 3060 Washington
Road, Glenwood, Maryland, as more particularly described in EXHIBIT A attached
hereto and by this reference made a part hereof, and of all improvements
located thereon (the "Property").
WHEREAS, Borrower has applied to Bank for a construction loan in a
principal amount not to exceed $1,800,000 (the "Construction Loan"), the
proceeds of which shall be used by Borrower to finance the construction of an
addition containing approximately 24,252 square feet to the Borrower's existing
building located on the Property and to finance certain other improvements on
the Property; and
WHEREAS, Bank has agreed to make the Construction Loan on the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and for Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Borrower and Bank agree as follows:
ARTICLE 1
TERMS AND DEFINITIONS
In addition to the other terms herein defined, the following terms
shall have the meaning set forth in this Article 1 whenever used in this
Agreement:
1.1 Architect: Nichols Architects.
1.2 Architect's Agreement: That certain Agreement between Owner
and Architect dated September 23, 1994, providing for the design and
supervision of the construction of the Improvements.
1.3 Assignment of Contracts: That certain Collateral Assignment
of Contracts of even date herewith executed by Borrower in favor of Bank, and
assigning to Bank as collateral for the Construction Loan all of Borrower's
rights under the Plans and Specifications and any other drawings, the
Construction Contract, the Architect's Agreement and all other agreements
relating to the construction of the Project.
1.4 Assignment of Leases: That general Assignment of Rents and
Leases executed by the Borrower in favor of Bank of even date herewith
assigning to Bank all of the Borrower's rights and interests in any existing
and future leases affecting the Property.
<PAGE> 2
1.5 Bank's Commitment: That commitment by Bank to provide
construction period financing dated May 11, 1995.
1.6 Business Day: Any day on which Bank is open for business of
the nature required by this Agreement.
1.7 Completion Date: The date on which the Project is required
to be completed in accordance with the Plans and Specifications, being August
1, 1996, subject to adjustments pursuant to the terms of the Construction
Contract, or such later date as may be agreed upon in writing by Bank.
1.8 Construction Contract: That certain Construction Agreement
Between Owner and General Contractor dated of even date herewith, providing for
the construction and equipment of the Improvements.
1.9 Construction Inspector: Such person as may be subsequently
named by the Bank to review the construction related documents and the loan
advance requests.
1.10 Deed of Trust: That certain Deed of Trust and Security
Agreement of even date herewith executed by the Borrower granting and
conveying to Bank a second priority lien and security interest on all real,
personal and miscellaneous property making up the Project.
1.11 Event of Default: Any one or more of the events described in
Section 7.1 hereof.
1.12 General Contractor: Manekin Corporation.
1.13 Improvements: A 24,252 square foot addition to the Borrower's
building located on the Property, together with all related structures,
improvements, fixtures, furnishings, and other miscellaneous and personal
property owned by Borrower, as more particularly described in the Plans and
Specifications.
1.14 Loan: The $1,800,000 construction loan, including any
amendments, extensions and/or increases thereof.
1.15 Loan Documents: Collectively, this Agreement, the Note, the
Personal Guaranty, the Deed of Trust, the Security Agreement, the Financing
Statements, the Assignment of Leases, the Assignment of Contracts, and any and
all certificates, opinions, assignments and other documents executed in
connection herewith, and all other documents upon which Bank has relied in
making the Loan.
1.16 Note: The Construction Loan Promissory Note from the Borrower
of even date herewith evidencing the Loan in the maximum principal amount of
$1,800,000.
1.17 Personal Guarantor: Stephen T. Walker.
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<PAGE> 3
1.18 Personal Guaranty: That certain Personal Guaranty Agreement
executed by the Personal Guarantor in favor of the Bank of even date herewith
guarantying the repayment of all obligations of Borrower to the Bank.
1.19 Plans and Specifications: Those certain plans and
specifications for the improvements as more particularly described on EXHIBIT
B attached hereto and by this reference made a part hereof.
1.20 Project: The Improvements and the Property.
1.21 Security Agreement: The Security Agreement from the Borrower
to the Bank of even date herewith granting to the Bank a lien on all of its
inventory and accounts receivable as security for the Loan.
1.22 Title Company: TICOR Title Insurance Company.
ARTICLE 2
THE LOAN
2.1 Commitment: Subject to Borrower's satisfaction of the
requirements and conditions set forth in this Agreement, Bank agrees to make
Construction Loan advances under the Construction Note to Borrower from time to
time prior to the Completion Date in an aggregate principal amount not to
exceed $1,800,000.
2.2 Borrowing Procedure: Borrower shall give Bank (i) at least 7
days prior notice of the amount of any proposed borrowing, and (ii) at least 2
days prior notice of the additional information with respect to such borrowing
as set forth in EXHIBIT C (which notice if given by telephone shall be promptly
confirmed in writing and a copy thereof sent to Bank). Bank may act on any
request or instruction believed by it in good faith to be genuine and
authentic, and shall incur no liability to Borrower as a result thereof.
2.3 Interest: Interest shall accrue on the aggregate amount of
advances outstanding under the Loan in accordance with the Note, and interest
shall be paid as provided in the Note.
2.4 Repayment of Principal: The principal amount outstanding
under the Loan shall be repaid in accordance with the repayment schedule and
terms set forth in the Note and shall be subject to certain mandatory repayment
as provided in the Note.
2.5 Due Date Extension: If any payment of principal of, or
interest on, the Loan falls due an a Saturday, Sunday or other day which is
not a Business Day, then such due date shall be extended to the next following
Business Day, and additional interest shall accrue and be payable for the
period of such extension.
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<PAGE> 4
2.6 Making of Payments: All payments (including prepayments) of
principal of, or interest on, the Loan, shall be made in U.S. Dollars and in
immediately available funds at the principal office of Bank in Baltimore,
Maryland. All such payments shall be made without any setoff or counterclaim,
and free and clear of any restrictions or conditions, and free and clear of and
without deduction for or on account of, any present or future taxes, levies,
imposts, duties, charges, fees, deductions or withholdings of any nature now or
hereafter imposed by any governmental or other authority. If Borrower or Bank
is compelled by law to make any such deductions or withholdings, Borrower will
pay such additional amounts as may be necessary in order that the net amounts
received by Bank after such deductions or withholdings shall equal the amount
Bank would have received had no such deductions or withholdings been required
to be made, and Borrower will provide Bank with evidence satisfactory to Bank
that it has paid such deductions or withholdings.
2.7 Prepayments: Borrower may prepay all or any portion of the
principal amount of the Loan at any time without premium or penalty.
2.8 Use of Loan Proceeds: Borrower covenants and agrees that all
advances received by Borrower under the Loan shall be used solely for purposes
of financing the construction of the Improvements, paying financing costs,
paying interest hereunder during construction of the Improvements, and such
other costs and expenses relating to the Project as may be approved by Bank.
2.9 Cross-Default: The Loan shall be and is hereby
cross-collateralized and cross-defaulted with all other loans from the Bank to
the Borrower.
2.10 Bank Fee: The Borrower covenants and agrees to pay to the
Bank a loan origination fee of one percent (1%) of the total maximum available
principal amount of the Loan, the amount of which is $18,000 (the "Bank Fee").
The Bank Fee shall be payable by the Borrower at the time of the closing.
ARTICLE 3
CONDITIONS AND REQUIREMENTS
FOR INITIAL LOAN ADVANCE
The Loan shall be closed and the Note and other Loan Documents shall
be delivered at the principal office of Bank or its counsel on July 26, 1995,
or a date prior thereto mutually agreeable to Borrower and Bank. The
obligation of Bank to make the initial advance of Loan proceeds and to proceed
to closing is subject to Borrower's satisfaction of the following requirements
and conditions unless waived in writing by Bank:
3.1 Delivery of Documents Prior to Initial Advance: Bank shall
have received the following documents, in form and substance satisfactory to
it, and its counsel, at least 1 Business Day prior to such initial Loan
advance:
(a) ATLA mortgagee's title insurance binder issued on
behalf of the Title Company for an aggregate amount not less than $1,800,000 on
the Property and Improvements, without exception
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<PAGE> 5
as to mechanic's or materialman's liens, and without exception as to survey for
that parcel of property described in Exhibit A hereto, guaranteeing to Bank as
mortgagee a second lien on the good and marketable title thereto in fee simple,
subject only to a first lien in favor of the Bank, and with only such other
title exceptions as Bank may approve in writing;
(b) A survey of the parcel of the Property described in
Exhibit A hereto, with a metes and bounds description, certified as to
accuracy, showing the location of existing and proposed easements (including
all title exceptions capable of being located on such survey), rights-of-way
and improvements, and showing the perimeter boundaries of the Land;
(c) Copy of the building permit and the grading permit
pertaining to the Project, and evidence that the Project as proposed meets all
zoning, subdivision and environmental requirements;
(d) Certificates evidencing coverage under All Builders
Risk Insurance, including extended coverage, fire, collapse, vandalism and
malicious mischief, naming Bank as mortgagee and loss payee under the mortgagee
clause, in an amount acceptable to Bank, and providing for not less than thirty
(30) days prior written notice to the Bank of any intended cancellation;
(e) Certificate of workmen's compensation insurance and
copies of a public liability insurance policy, both in amounts and with
insurance companies acceptable to Bank;
(f) Evidence as to the availability of adequate
sewer, water and other utilities to the Project and copies of all necessary
sewer, water and utility permits;
(g) Two sets of the final Plans and Specifications as
approved by Bank;
(h) Fully executed copy of the Construction Contract and
all contracts with major subcontractors and material suppliers then under
contract (major subcontractors shall be all those subcontractors each of whose
aggregate amount due from the Borrower is not less than $10,000);
(i) Cost breakdown of all Project costs setting forth in
such categories as reasonably required by Bank, the utilization of all proceeds
of the Loan, and any additional funds available or necessary for completion of
the Project;
(j) All governmental approvals and certifications
required under any of the Loan Documents;
(k) Written confirmation from the Construction Inspector
that (i) such Inspector has reviewed the Plans and Specifications, (ii) the
Construction contract satisfactorily provides for the construction and
equipment of the improvements, (iii) the Plans and Specifications have been
reviewed and approved by all governmental authorities to which such Plans and
Specifications are required to be submitted, and (iv) in the opinion of such
Inspector the improvements can be completed for an amount not greater than the
principal amount of the Construction Loan;
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<PAGE> 6
(l) Soil test report, together with certification by the
design architect or engineer that the results thereof have been incorporated
within the Plans and Specifications;
(m) A fully completed and executed "Phase I"
environmental survey of the Property in a form acceptable to the Bank,
certified to the Bank, and disclosing no conditions deemed adverse by the Bank;
and
(n) Copies of the Borrower's proposed construction draw
schedule and construction completion schedule, in form acceptable to the Bank.
3.2 Delivery of Loan Documents: Borrower shall have executed and
delivered to Bank at closing the respective Loan Documents to be executed, and
all other documents and instruments reasonably required in connection with the
Loan.
3.3 Agreement with General Contractor: The General Contractor
shall have executed and delivered to Bank at closing its agreement, pursuant to
which it agrees (i) to continue performance on Bank's behalf under its contract
on the occurrence of an Event of Default, if so requested by Bank, provided
that Bank gives the General Contractor notice of its intention to require
continued performance, and (ii) not to permit or execute any change order
materially increasing or decreasing the cost or scope of the Project without
the prior written consent of Bank.
3.4 Agreement with Architect: The Architect shall have executed
and delivered to Bank at closing its agreement, pursuant to which it agrees (i)
to continue performance on Bank's behalf under its contract on the occurrence
of an Event of Default, if so requested by Bank, provided that Bank gives the
Architect notice of its intention to require continued performance, and (ii)
not to permit or execute any change order materially increasing or decreasing
the cost or scope of the Project without the prior written consent of Bank.
3.5 Legal Opinions: Bank shall have received from counsel for
Borrower and the Personal Guarantor legal opinions in form and substance
satisfactory to Bank with respect to such matters incident to the Loan as Bank
may require.
3.6 Representations and Warranties: The representations and
warranties set forth in Article 5 hereof shall be true and correct on and as of
the closing date, and no Event of Default shall then exist under this
Agreement.
3.7 Recordation: The Deed of Trust and each of the related UCC
financing statements shall have been filed or recorded in the appropriate
public records as may be necessary and appropriate to evidence and perfect the
liens and security interests thereby created. All necessary easements shall
have been executed and recorded in the real property records of Howard County.
3.8 Title Insurance Policy: Bank shall have received the title
insurance policy issued by the Title Company pursuant to the binder described
in Section 3.1(a) hereof, in form and substance satisfactory to Bank, dated as
of the date of the initial Loan advance, insuring the lien of the Deed of
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<PAGE> 7
Trust as a valid first mortgage lien, and subject only to such title exceptions
as Bank has theretofore approved in writing.
3.9 Builders Risk Insurance Policy: Bank shall have received an
original policy of insurance issued pursuant to the binder described in Section
3.1(d) hereof, and providing for not less than 30 days prior written notice to
Bank of any intended cancellation.
3.10 Corporate Authority: The Bank shall have received evidence
acceptable to it and its counsel of the due organization, valid existence and
authority of the Borrower.
3.11 Other Documents: Bank shall have received such other
documents as it may have reasonably requested in connection with the Loan and
the Improvements.
ARTICLE 4
REQUIREMENTS AND CONDITIONS
FOR ALL CONSTRUCTION LOAN ADVANCES
The obligation of Bank to make any Loan advance is subject to
Borrower's satisfaction of the following requirements and conditions:
4.1 Submission of Disbursement Requests: Disbursements by Bank
shall be made on monthly requisitions on such forms as are acceptable to Bank
submitted by the General Contractor and Borrower, approved and certified by the
Architect and the Construction Inspector, and by such successors as may be
appointed by each party being so represented, prepared in trade breakdown form,
and in such detail as may be required by Bank. Each requisition shall indicate
the percentage of completion and the amounts expended or costs incurred for
work done and necessary material delivered to the Project, and shall be
accompanied by cost-to-completion projections and, at the request of the Bank,
shall be accompanied by a waiver or release of liens from the General
Contractor and all major subcontractors and suppliers (other than for any
tenant finish work not then completed). No advances will be made for materials
delivered to or stored on the Project site or elsewhere which have not been
physically incorporated into the Project, unless Borrower has made available
for inspection by Bank (i) written evidence from the seller or fabricator
identifying the stored materials and indicating that ownership of the materials
is vested, or upon payment therefor will vest, in Borrower free and clear of
liens, and (ii) evidence satisfactory to Bank that the materials are secured,
insured and protected against theft or damage.
4.2 Retainage: Loan advances for renovation and construction
costs shall be subject to retainage equal to 10% of each requisition, which
shall be held back until the Project is substantially complete (as approved by
the Construction Inspector), at which time the retainage shall be reduced to 5%
until the Project is fully completed, the Bank has received written
confirmation of that fact from the Construction Inspector, and all conditions
to the final advance of Loan proceeds have been satisfied.
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<PAGE> 8
4.3 Conditions to Disbursements: The obligation of Bank to make
any Loan disbursements hereunder shall be subject to satisfaction of the
following requirements and conditions:
(a) Borrower shall have submitted a complete and fully
executed disbursement request, duly approved and certified as provided in
Section 4.1 hereof, at least 7 days prior to the date funding is being
requested;
(b) If requested by Bank, Bank shall have received an
endorsement to its title insurance policy on the Project, issued at Borrower's
expense, indicating that there has been no change in the status of title and
containing no survey exceptions not theretofore approved by Bank;
(c) Bank shall have received written confirmation from
the Construction Inspector that, in the Construction Inspector's opinion, the
Project can be completed in accordance with the Plans and Specifications on or
prior to the Completion Date for an amount not greater than the undisbursed
portion of the Loan;
(d) Bank shall have received copies of all reports (if
any) required to satisfy requirements of all applicable governmental agencies
having jurisdiction over the project;
(e) No Event of Default, nor any event or state of facts
with which notice or passage of time or both would constitute an Event of
Default, shall then exist;
(f) Within fifteen (15) days after all footings and
foundations for the Project are constructed, the Borrower shall deliver to the
Bank an "as-built" survey depicting the location of all improvements and
structures on the Property and reflecting no encroachments of the Improvements
on any property or building restriction lines.
4.4 Additional Conditions for Final Advance: In addition to all
other conditions set forth in this Article 4, the obligation of Bank to make
the final advance under the Loan shall be subject to Bank's receipt of the
following:
(a) Final waivers of liens from the General Contractor
and all major subcontractors and suppliers (other than for any tenant finish
work not then completed);
(b) Certificates of completion, in form and substance
reasonably satisfactory to Bank, from the General Contractor and the
Construction Inspector;
(c) Copy of the certificate of use and occupancy (or such
other certificate or permit as may be necessary to entitle Borrower to the full
use and occupancy of the Project) issued for the entire Project;
(d) Copies of such additional permits and licenses for
operation of the Project as may be necessary or required by governmental
authorities having jurisdiction over the Project; and
(e) A final as-built survey reasonably acceptable to
Bank has been furnished.
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<PAGE> 9
4.5 Insufficiency of Loan Proceeds: If at any time during the
term of this Agreement, Bank determines in its reasonable judgment that the
remaining undisbursed portion of the Loan is insufficient for any reason to
complete fully the Improvements in accordance with the Plans and
Specifications, Borrower shall deposit with Bank or its designee such sums of
money in cash (from sources other than the Loan) as may be required to
eliminate such insufficiency. Any amount so deposited by Borrower shall stand
as additional security for Borrower's obligations under this Agreement, and may
be disbursed at Bank's option before any further Loan advances are made
hereunder.
4.6 Authorized Disbursements: Notwithstanding any other provision
of this Article 4, Borrower hereby irrevocably authorizes Bank, at the option
of Bank after the occurrence of an Event of Default hereunder, to make
disbursements of Loan proceeds (i) directly to the Title Company, the General
Contractor, any public authority for fees, assessments or taxes owed with
respect to the Project, any insurer of the Project to whom premiums are owed
for the maintenance of insurance required by the Loan Documents, or to any
subcontractor or materialmen furnishing labor, services or materials in the
construction of the Project for any amounts due them in connection therewith,
or (ii) directly to Bank for interest, fees and any other amounts advanced by
the Bank or required to be paid to Bank under the Note or the other Loan
Documents. No further authorization from Borrower shall be necessary for Bank
to make such direct disbursements, and all such disbursements shall satisfy pro
tanto the obligation of Bank hereunder and shall be secured by the Deed of
Trust.
4.7 Disbursements Do Not Constitute Waiver: No disbursement of
any Loan proceeds by Bank shall constitute a waiver of any of the conditions of
the obligation of Bank to make further disbursements nor, in the event Borrower
is unable to satisfy any such condition, shall any such disbursement have the
effect of precluding Bank from thereafter declaring such inability to be an
Event of Default.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Bank as of the date hereof, and is
deemed to represent and warrant as of the date it submits any disbursement
request to Bank hereunder, unless modification thereof has been approved by
Bank or where approval is not required, that:
5.1 Certificate of Borrower: All representations and warranties
made by Borrower in this Agreement or under any other Loan Document are true,
complete and correct in all material respects.
5.2 Organization and Authorization of Borrower: Borrower is a
duly organized and validly existing corporation formed under the laws of
Maryland, and has all necessary power and authority to execute and deliver, and
to consummate the transactions contemplated in this Agreement, the other Loan
Documents, and all other agreements and instruments herein mentioned to which
Borrower is a party. The Borrower is duly qualified and in good standing in
Maryland. The Loan Documents have been duly
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<PAGE> 10
executed on behalf of the Borrower and all deeds of trust, mortgages and
security agreements given in connection with the Loan constitute valid liens on
all real and personal property encumbered thereunder.
5.3 Actions Pending: There is no action, suit, investigation or
proceeding pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or the Project, or any properties or right of Borrower
before any court, arbitrator or administrative or governmental body which might
affect the Project or which might result in any material adverse change in the
business, financial condition or operations of Borrower.
5.4 Statutes, Judgments, etc.: To the Borrower's knowledge, there
is no law, statute, rule or regulation which would be contravened by the
execution, delivery, or performance of this Agreement or the other Loan
Documents, or the construction and equipping of the Improvements as herein
contemplated. There is no judgment, decree or order of any court or government
agency binding on Borrower which would be contravened by the execution,
delivery, or performance of this Agreement or the other Loan Documents, or the
construction and equipping of the Improvements as herein contemplated.
5.5 Plans and Specifications: Borrower has furnished Bank true
and complete copies of the final Plans and Specifications, and such Plans and
Specifications and the use of the Project as herein contemplated comply, in all
respect, to the Borrower's knowledge, with applicable restrictive covenants,
zoning ordinances, environmental regulations and controls, and other
requirements and regulations of governmental authorities having jurisdiction
over the Project or the uses thereof. The Plans and Specifications have been
approved by all governmental authorities to which such Plans and Specifications
are required to be submitted and said approvals have not been withdrawn.
5.6 Taxes: All federal, state and local tax returns and reports
of Borrower required by law to be filed have been duly filed, and all taxes,
assessments, fees and other governmental charges upon Borrower, and its
properties, assets, income and franchises which are due and payable have been
paid. Borrower maintains adequate reserves and/or accruals in respect of
federal, state and local taxes for all fiscal periods, and Borrower does not
know of any unpaid assessments for any taxes or any basis therefor.
5.7 No Default: Borrower is not in default in any material
respect in the payment of any of its indebtedness or in the performance of any
of its obligations under any mortgage, indenture, lease contract or other
agreement, instrument or undertaking to which it is a party or by which it or
any of its assets may be bound, and no Event of Default as herein provided has
occurred and is continuing. Borrower-is not in default under any order,
judgment, award or decree of any court, arbitrator, or governmental authority
binding on or affecting it or by which any of its assets may be bound or
affected, and no such order, judgment, award or decree materially adversely
affects Borrower's ability to carry on its business as now conducted or its
ability to perform its obligations under this Agreement or the other Loan
Documents.
5.8 Cost Breakdown: The cost breakdown (in trade breakdown form)
for the Project, submitted to the Bank as hereinbefore provided, is complete
and accurate in all material respects, as of
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<PAGE> 11
the date hereof based on all information now available to Borrower, and
Borrower has no knowledge of any material change in the amount shown thereon
which is likely to occur.
ARTICLE 6
COVENANTS
Borrower covenants and agrees that, so long as any portion of the Loan
remains unpaid it shall comply fully with each of the covenants contained in
this Article 6.
6.1 Financial Statements: Until repayment in full of the Loans:
(a) Borrower shall deliver to the Bank within forty-five
(45) days after the close of each of the first three quarters of each fiscal
year of Borrower, beginning with the quarter ending on June 30, 1995, an
unaudited balance sheet of Borrower as of the close of each quarter and
statements of income and retained earnings for that portion of the fiscal
year-to-date then ended, prepared in conformity with generally accepted
accounting principles applied on a basis consistent with that of the preceding
period (or containing disclosure of the effect on the financial position or
results of operations of any change in the application of generally accepted
accounting principles for a non-profit organization during the period); and
(b) Borrower shall deliver to the Bank within one hundred
twenty (120) days after the close of each fiscal year of the Borrower beginning
with the year ending December 31, 1995, a balance sheet of Borrower as of the
close of such fiscal year and statements of income and retained earnings (if
any) and source and application of funds for the year then ended, prepared in
conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding year (or containing disclosure of the
effect on financial position or results of operations of any change in the
application of generally accepted accounting principles during the year),
reviewed by a firm of independent certified public accountants selected by
Borrower and reasonably acceptable to the Bank;
(c) Borrower shall deliver to the Bank within thirty (30)
days upon such Borrower's issuance or receipt thereof, copies of all reports
submitted to the Borrower by its certified public accountants that contain an
opinion rendered in connection with an examination of any financial statements
of the Borrower.
(d) Borrower shall upon the Bank's written request,
deliver to the Bank promptly such other information about the financial
condition and operations of Borrower and/or the Guarantor as the Bank may, from
time to time, reasonably request.
(e) The Borrower shall deliver or caused to be delivered
to the Bank personal financial statements of the Personal Guarantor within one
hundred twenty (120) days after the close of each calendar year beginning with
the year ending December 31, 1995, and containing sufficient disclosure
information as shall be acceptable to the Bank.
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<PAGE> 12
6.2 Financial and Operating Covenants: Without the prior written
consent of Bank, the Borrower will not:
(a) Incur, create, assume or permit to exist any
obligation or obligations for money borrowed in excess of $50,000 (including
purchase money security interests), in the aggregate, other than loans to
Borrower by the Bank and trade indebtedness incurred in the ordinary course of
business.
(b) Indorse, guarantee or become surety for the
obligation of any person, firm or corporation, except that Borrower and the
Guarantor may indorse checks or other instruments for deposit or collection in
the ordinary course of business, and may guarantee the obligations of its or
their subcontractors and may assume liability to bonding agents in the ordinary
course of its or their business.
(c) Except as may be otherwise permitted in this
Agreement, sell, sell and leaseback, mortgage, pledge or otherwise encumber any
of Borrower's property, real or personal, now owned or hereafter acquired, or
permit any lien or security interest to exist thereon, except for sales or
transfers of goods in the ordinary course of business and liens (a) for taxes
not delinquent or being contested in good faith, (b) for mechanics or
materialmen with respect to obligations not overdue or being contested in good
faith, or (c) in favor of Bank.
(d) So long as any Event of Default shall exist under any
of the Loan Documents, pay or declare any dividends or make any other
distributions of capital or make any loans to any shareholders or partners.
(e) So long as any Event of Default shall exist under any
of the Loan Documents, cause or permit any change in the ownership or
management of the Borrower.
6.3 Bank of Account: At all times during the term of the Loan
the Bank shall be used as the primary bank of account by the Borrower.
6.4 Construction of Improvements: Borrower will cause the
Improvements to be completed in accordance with the Plans and Specifications on
or before the Completion Date, free and clear of all liens other than the Deed
of Trust. Each intended addition, deletion or modification to the Plans and
Specifications shall be approved in writing by Bank (which shall not be
unreasonably withheld or delayed so long as the Bank's collateral is not
impaired and the Bank is reasonably satisfied that funds are available for such
changes) and all governmental authorities to whom such Plans and Specifications
are required to be submitted. No modification of or amendment to the
Construction Contract shall be made without prior written approval of Bank, and
Borrower shall observe and perform all of the terms and provisions of the
Construction Contract to be observed or performed by Borrower.
6.5 Maintenance of Property; Insurance: Borrower will keep the
improvements and all of the property useful or necessary in the operation of
the Project in good working order and condition. Borrower will obtain or cause
to be obtained and maintain in full force and effect the All Builders Risk
Insurance as described in Section 3.9 hereof and all insurance required by the
Deed of Trust. Upon
- 12 -
<PAGE> 13
completion of the Project or the occupancy thereof, whichever shall first
occur, Borrower shall obtain and deliver to Bank, and thereafter maintain,
policies of fire and extended coverage insurance in form and with companies
reasonably satisfactory to Bank in an amount not less than the greater of the
full insurable value of the Project or $1,800,000 (and in any event not less
than amounts sufficient to prevent any co-insurance liability of Borrower or
Bank) with loss payable to Bank as lender and as its interest may appear, and
providing for not less than thirty (30) days prior written notice to the Bank
of any intended cancellation.
6.6 Availability of Funds: Upon request by Bank, Borrower will
furnish Bank satisfactory evidence that the funds necessary to complete the
Project in excess of the proceeds of the Construction Loan have been advanced
by or are available to Borrower.
6.7 Certifications, Licenses, Permits, etc.: Borrower will
obtain or cause to be obtained prior to the final advance all certifications,
licenses, permits and governmental approvals as may be necessary or required to
operate the Project as an office building.
6.8 Notices: Borrower will promptly give written notice to Bank
of (i) all litigation, regardless of amount, affecting Borrower or any portion
of the Project, and (ii) all complaints and charges made by any governmental
authority having jurisdiction over the Project which may delay or require
changes in the construction of the Improvements or otherwise impair the
security of bank.
6.9 Payment of Obligations: Borrower will pay and discharge at
or before maturity all its material obligations and liabilities, including
(without limitation) tax liabilities, the costs and expenses of constructing
and equipping the Improvements, and claims for labor, materials, and supplies
that, if unpaid, might become liens on Borrowers' property, except such as are
being contested in good faith by appropriate proceedings. Borrower will
maintain in accordance with generally accepted accounting principles
appropriate reserves for the accrual of any such obligations and liabilities.
6.10 Further Assurances: Upon request by Bank, Borrower shall do
any act or execute any additional documents (including, but not limited to,
security agreements and financing statements on any personalty owned by
Borrower and included or to be included in the Project) as may be reasonably
required by Bank to confirm the lien and security interest of the Deed of
Trust, or any other collateral documents.
6.11 Fees of Bank's Inspector and Engineer: Borrower will pay the
reasonable fees of the Bank's Construction Inspector in connection with the
Loan.
ARTICLE 7
DEFAULT; REMEDIES
7.1 Default: An Event of Default shall be deemed to have occurred
under this Agreement on the occurrence of any one or more of the following
events:
- 13 -
<PAGE> 14
(a) The Borrower defaults in the payment or performance,
when due or payable, of any liability of the Borrower or of any indorser,
guarantor or surety for any liability of the Borrower to the bank;
(b) The making by the Borrower or any guarantor
or any of its or their officers, representatives or partners, of any materially
adverse misrepresentation to the Bank for the purpose of obtaining credit or an
extension of credit;
(c) The failure of the Borrower or any guarantor
after request by the Bank to furnish financial information as required under
the terms of the Loan Documents or to permit the inspection of books or records
of the Borrower;
(d) The issuance of any injunction or of an attachment or
judgments in excess of $100,000 in the aggregate against the Borrower or any
guarantor or against the property of Borrower or any guarantor and which is not
discharged, or bonded within thirty (30) days after issuance;
(e) The entry of a decree or order for relief by a court
having jurisdiction against or with respect to the Borrower or any guarantor in
an involuntary case under the federal bankruptcy laws or any state insolvency
or similar laws ordering the liquidation of the Borrower or any guarantor, or
the appointment of a receiver, liquidator, assignee, custodian, trustee or
similar official for the Borrower or any guarantor or any of its or their
property and the failure to have such decree, order or appointment stayed,
discharged or dismissed within forty-five (45) days from the date of entry;
(f) The commencement by the Borrower or any guarantor of
a voluntary case under the federal bankruptcy laws or any state insolvency or
similar laws, or the consent by the Borrower or any guarantor to the
appointment of a receiver, liquidator, assignee, trustee, custodian or similar
official for the Borrower or any guarantor or any of its or their property, or
the making by the Borrower or any guarantor of any assignment for the benefit
of creditors or the failure by the Borrower or any guarantor generally to pay
its or their debts as they become due;
(g) The insolvency of the Borrower, or any indorser,
guarantor or surety for any liability of the Borrower to the Bank, which in the
Bank's reasonable opinion materially affects the financial condition of the
Borrower or of any such indorser, guarantor or surety, or the ability of the
Borrower or any such indorser, guarantor or surety, to meet its obligations
hereunder and/or under any of the other Loan Documents;
(h) The default in performance of any other obligation,
covenant or agreement contained or referred to herein or in any of the other
Loan Documents and not otherwise specifically referred to herein which is not
otherwise defined as an Event of Default under any of the Loan Documents,
unless the same is cured to the satisfaction of the Bank within thirty (30)
days after written notice to the Borrower from the Bank;
- 14 -
<PAGE> 15
(i) The failure of one or more of the "Conditions and
Requirements for Initial Loan Advance" set forth in Article 3 hereof, unless
same is cured to the satisfaction of the Bank within thirty (30) days after
written notice to Borrower from the Bank;
(j) The occurrence of an Event of Default under any of
the other Loan Documents following the expiration of any applicable grace or
notice and cure periods provided therein;
(k) Failure by Borrower to complete the Project on or
before the Completion Date, and Bank's giving Borrower written notice that such
failure constitutes a default under this Agreement;
(l) Suspension of work on the Project for a period in
excess of 15 days (except for suspensions caused by strike, war, acts of God,
or any other act or omission beyond Borrower's reasonable control to remedy or
overcome, not including lack of funds), or the reasonable determination by the
Construction Inspector that notwithstanding said suspensions or lack thereof,
the Improvements cannot be completed on or before the Completion Date, and
Banks's giving Borrower written notice that such suspension or determination
constitutes a default under this Agreement; or
(m) Borrower executes a chattel mortgage or other
security agreement with respect to any materials, fixtures or articles used in
the construction or equipment of the Improvements, or any such materials,
fixtures or articles are purchased pursuant to any conditional sales contract
or otherwise so that the ownership thereof will not vest unconditionally in
Borrower free from liens and security interests upon being made a part of the
Project, and any such liens or security interests shall not be discharged or
canceled within 30 days after Bank gives Borrower written notice thereof.
7.2 Remedies: Upon the occurrence of any Event of Default, or
any event or state of facts which with notice or passage of time or both would
constitute an Event of Default, the obligation of Bank to make any further
disbursements under the Loan shall terminate. Bank may, upon the occurrence of
an Event of Default, at the sole option of the Bank and without further notice
or demand, declare the Note to be immediately due and payable in full, together
with all interest accrued thereon. Upon such declaration, Bank may proceed to
exercise any and all remedies available to it under this Agreement, the other
Loan Documents, or under applicable law, all of which rights and remedies shall
be cumulative and may be exercised concurrently by Bank.
7.3 Completion of Improvements: Upon the occurrence of an Event
of Default and notice thereof to Borrower, Bank may, in addition to any other
remedies available to it and in its sole discretion, (i) enter upon the Land
and complete the Improvements in accordance with the Plans and Specifications
with such changes therein as Bank may deem reasonably appropriate, and employ
watchmen to protect the Project, (ii) at any time discontinue any work
commenced in respect of the Improvements, (iii) assume the Construction
Contract or any other contracts made by Borrower relating to the construction
or equipping of the Improvements, and take over and use all or any part of the
labor, materials, supplies and equipment contracted for by Borrower, or replace
such contractors with other contractors selected by the Bank, (iv) engage
builders, contractors, and others for the purpose of furnishing labor,
materials and equipment in connection with the construction and equipment of
the Improvements, and (v) pay, settle or compromise all bills or claims that
may become liens against the Project. Borrower shall be liable to Bank for all
sums paid or incurred by Bank to construct and equip the Improvements whether
the same
- 15 -
<PAGE> 16
shall be paid or incurred pursuant to the provisions of this Section 7.3 or
otherwise, and all payments made or liabilities incurred by Bank hereunder of
any kind whatsoever shall be paid by Borrower to Bank upon demand with interest
at the rate provided in the Note. For the purpose of exercising the rights
granted by this Section 7.3, Borrower hereby irrevocably constitutes and
appoints Bank its true and lawful attorney-in-fact to execute, acknowledge and
deliver any instruments and to do and perform any acts in the name and on
behalf of Borrower.
ARTICLE 8
MISCELLANEOUS
8.1 Expenses: Borrower agrees, whether or not the transactions
herein contemplated shall be consummated, to pay and save the Bank harmless
against liability for the payment of all reasonable out-of-pocket expenses
arising in connection with such transactions, including all stamp and other
taxes (including tangible personal property taxes) which may be payable in
respect of the execution and delivery of any of the Loan Documents, or the
execution, delivery, filing or recording of the Dead of Trust and financing
statements relating thereto, and all fees and expenses of counsel for Bank and
any participants of Bank in accordance with the terms of the Bank's Commitment
(including reasonable legal fees and any other fees incurred by Bank or its
participants subsequent to closing in connection with the disbursement, renewal
or collection thereof). Borrower's obligation under this Section 8.1 shall
survive the transfer of the loan by Bank and the payment of all indebtedness
thereunder.
8.2 Nonassignability: The Loan may not be assigned by Borrower
without the prior written consent of Bank. Neither the Loan nor any advances
hereunder shall be subject to the process of any court upon legal action by or
against Borrower or by or against anyone claiming under or through Borrower.
For the purposes of this Agreement, the Loan shall remain in the custody of
Bank until Borrower complies with each and all of the provisions hereof;
provided, however, that nothing herein contained shall be considered as in
anywise modifying, affecting or subordinating the obligations heretofore given
or to be given by Borrower as security for the Loan and the same shall be and
remain in full force and effect, this Agreement being intended only as
additional security and protection for the Loan and to assure its use for the
purposes intended by Bank and Borrower.
8.3 Liability of Bank: All conditions of the obligations of Bank
hereunder, including any obligation to make disbursements under the Loan, are
imposed solely and exclusively for the benefit of Bank and its successors and
assigns, and no other person or entity shall have standing to require
satisfaction of such conditions in accordance with their terms or be entitled
to assume that Bank will refuse to disburse under the Loan in the absence of
strict compliance with any and all thereof. No other person or entity shall,
under any circumstances, be deemed to be a beneficiary of such conditions, any
and all of which may be freely waived in whole or in part by Bank at any time
if in its discretion it deems it desirable to do so. Without limiting the
generality of the foregoing, Bank makes no representations and assumes no
obligations as to third parties concerning the quality of the Improvements or
the absence therefrom of any defects. Borrower agrees to indemnify Bank from
and against any liability, claim or loss arising during or after the term of
the Loan which may be sustained or incurred by Bank as a result of the
performance of its activities and obligations under this Agreement, except that
no such
- 16 -
<PAGE> 17
indemnification shall be required in connection with any acts or omissions of
Bank hereunder constituting gross negligence or willful misconduct. This
provision shall survive repayment of the Loan and shall continue in full force
and effect so long as a possibility of any such liability, claim or loss
exists. Borrower hereby releases Bank from any liability, and no claim shall
be made by Borrower against Bank, for or on account of any matter or thing in
excess of the balance of the Loan remaining in Bank's hands and undisposed of
in accordance with the terms of this Agreement.
8.4 No Partnership, Joint Venture, Agency: Borrower and Bank
acknowledge that the relationship between them created hereby and by the other
Loan Documents is that of debtor and creditor and is not intended to be and
shall not in any way be construed to be that of a partnership, joint venture,
or principal and agent; and that the activities of Bank in connection with the
construction and equipment of the Improvements and disbursement of the Loan
shall not be deemed to make Bank a partner, joint venturer, or principal or
agent of Borrower, but rather shall be deemed solely for the purpose of
protecting Bank's security for the Loan.
8.5 Financing Sign on Property, Publicity: The Borrower
authorizes the Bank, at the Bank's expense, to place signs at the Property at
any locations selected by the Bank until completion of construction of the
Project, and to prepare and furnish news releases at any. time to the news
media or any other publications selected by the Bank advertising the fact that
financial assistance for the facility has been obtained from the Bank.
8.6 Notices: All notices, requests and demands upon the
respective parties hereto shall be deemed to have been given or made when
delivered against hand receipt or two (2) business days after deposit in the
United States mail, postage prepaid, or one (1) business day after deposit with
a nationally recognized overnight delivery service, and addressed as follows:
If to Bank:
Mercantile-Safe Deposit & Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21203
Attention: Robert C. Barclay
Assistant Vice President
with a copy to:
Kevin J. Davidson, Esquire
Gallagher, Evelius & Jones
The Park Charles Building -.Suite 400
218 North Charles Street
Baltimore, Maryland 21201
- 17 -
<PAGE> 18
If to Borrower:
Trusted Information Systems, Inc.
3060 Washington Road
Glenwood, Maryland 21738
Attention: Stephen T. Walker
with a copy to:
David A. Carney, Esquire
Reese & Carney
10715 Charter Drive
Columbia, MD 21044
or to such other address and addressee with respect of any party as
such party shall notify the others in writing.
8.7 Amendment; No lmplied Waiver: This Agreement may be amended,
and Borrower may take any action herein prohibited, or omit to perform any act
required to be performed by it, only if Borrower shall first obtain the prior
written consent of Bank to such amendment, action or omission to act. No
failure of Bank to exercise and no delay in exercising any right, power or
privilege under this Agreement or the other Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
8.8 Survival of Agreements: All agreements, covenants,
representations and warranties of Borrower made in this Agreement shall survive
the execution and delivery of this Agreement and the other Loan Documents, and
the making of all disbursements hereunder, regardless of any investigation made
by or on behalf of Bank.
8.9 Entire Agreement; Successors and Assigns; Time of the
Essence: This Agreement and the other Loan Documents contain the entire terms
of the agreement with respect to the Loan, and no representations, inducements,
promises or agreements between Borrower and Bank not set forth herein or in the
other Loan Documents shall be of any force or effect. This Agreement shall be
binding upon and shall inure to the benefit of Borrower and Bank and their
respective successors and the Bank's assigns, whether so expressed or not. Time
is of the essence under this Agreement.
8.10 Severability: In case any one or more provisions contained
in this Agreement or the other Loan Documents should be deemed invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein or therein shall in no way be
affected or impaired thereby and shall be enforceable to the maximum extent
permitted by law.
8.11 Descriptive Headings: The headings of the articles, sections
and paragraphs of this Agreement are for the convenience of reference only, and
are not considered to be a part hereof and shall not limit or otherwise affect
any of the terms hereof.
- 18 -
<PAGE> 19
8.12 Governing Law: This Agreement is made, executed and
delivered in the State of Maryland, and Maryland law shall govern its
interpretation, performance and enforcement without regard to principles of
conflicts of laws.
IN WITNESS WHEREOF, Borrower and Bank have caused this Agreement to be
executed and delivered as of the day and year first above written.
<TABLE>
<S> <C>
WITNESS: TRUSTED INFORMATION SYSTEMS, INC.
/s/ Laurence Raber By: /s/ Stephen T. Walker (Seal)
- ---------------------------------- ----------------------------------------
Stephen T. Walker
President
MERCANTILE-SAFE DEPOSIT AND
TRUST COMPANY
/s/ By: /s/ Robert C. Barclay (Seal)
- ------------------------------ ----------------------------------------
Robert C. Barclay
Assistant Vice President
</TABLE>
- 19 -
<PAGE> 1
EXHIBIT 10.9
July 26, 1995 $1,800,000.00
CONSTRUCTION LOAN PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, TRUSTED INFORMATION SYSTEMS, INC.
(the "Borrower"), promises to pay to the order of Mercantile-Safe Deposit and
Trust Company (the "Bank") at the Bank's offices at 2 Hopkins Plaza, Baltimore,
Maryland 21201 at such other place as the holder of this Note may from time to
time designate, the principal sum of One Million Eight Hundred Thousand Dollars
($1,800,000.00), or such amount as may be advanced from time to time, together
with interest thereon at the rate hereinafter provided and any and all other
sums which may be owing to the holder of this Note by the Borrower, according
to the repayment schedule set forth in Section 2 hereof, but in no event later
than August 1, 2011, which is the final and absolute due date of this Note, or
on such earlier date in the event that this Note is called or accelerated
pursuant to Sections 6 or 8 hereof. The following terms shall apply to this
Note.
1. Interest Rate. Until all sums due and owing hereunder have
been paid in full, interest shall accrue on the unpaid balance hereunder at a
floating rate, adjusted daily, which shall equal that rate obtained by adding
one percentage point (1%) to the prime rate of interest of the Bank in effect
from time to time. The prime rate of interest as used herein refers to that
interest rate set by the Bank from time to time as an interest rate base for
borrowings. The prime rate is one of several interest rate bases used by the
Bank. The Bank lends at rates above and below the prime rate.
2. Repayment. Interest accrued hereunder at the applicable rate
or rates shall be paid over the term hereof in arrears in monthly installments
beginning on September 1, 1995 and continuing on the 1st day of each succeeding
calendar month until the final and absolute due date of this Note. Beginning
on September 1, 1996 and continuing on the 1st day of each succeeding calendar
month until the final and absolute due date of this Note, the unpaid principal
balance outstanding hereunder shall be paid in one hundred eighty (180) equal
monthly installments of Ten Thousand Dollars ($10,000.00). On the final and
absolute due date of this Note, the Borrower shall pay any remaining principal
amount outstanding hereunder, together with any accrued and unpaid interest, as
well as any other fees and charges due hereunder shall be due and payable in
full.
3. Calculation of Interest. Interest shall be calculated on the
basis of a three hundred sixty (360) days per year factor applied to the actual
days on which there exists an unpaid principal balance.
4. Application of Payments. All payments made hereunder shall
be applied first to late penalties or other sums owing the holder, next to
accrued interest, and then to principal, or in such other order of application
as the holder may elect.
<PAGE> 2
5. Optional-Prepayment. The Borrower shall have the option of
prepaying all or any portion of the amounts due hereunder at any time without
penalty.
6. Mandatory Prepayment. This Note shall be subject to mandatory
prepayment in full, together with all accrued and unpaid interest and other
amounts then due hereunder, at the option of the Lender at any time on the
following dates: August 1, 2001 and August 1, 2006. Demand for repayment
shall be made by written notice to the BORROWER as provided herein, and
BORROWER shall make the required repayment not later than one hundred and
eighty (180) days from the date of any such demand. Notice of demand for
repayment may be given at any time on or after the date which is one hundred
eighty (180) days prior to the first day of any applicable mandatory prepayment
period.
7. Acceleration Upon Default. At any time after a default in the
payment when due of any installment of interest or of principal and interest,
or in the payment of any other sums due hereunder, unless such payment is made
within fifteen (15) days from the date such payment became due and payable, or
upon a default in the performance of any of the covenants, conditions or terms
of the Construction Loan Agreement executed between the Borrower and the Bank
of even date herewith (the "Loan Agreement") or of any of the Loan Documents
(as defined in the Loan Agreement), the Bank may, in the Bank's sole and
absolute discretion and without notice or demand (unless otherwise specifically
required under an applicable document), declare the entire unpaid balance of
principal plus accrued interest and any other sums due hereunder immediately
due and payable.
8. Late Payment Penalty. Should any payment of interest, or
principal and interest, due hereunder be received by the holder of this Notice
more than Fifteen (15) days after its due date, the Borrower shall pay a late
payment penalty equal to five percent (5%) of the amount overdue for each month
or portion of a month until paid, beginning with the due date of the late
payment.
9. Default Interest Rate. Upon a default in the payment of any
amount due under this Notice, or in the performance of the covenants,
conditions, or terms of the Deed of Trust or other Loan Documents, and after
the expiration of any specifically provided grace period, and unless and until
cured, the Bank may raise the rate of interest accruing on the disbursed unpaid
principal balance by two (2) percentage points above the rate of interest
otherwise applicable, independent of whether Bank elects to accelerate the
unpaid principal balance as a result of such default.
10. Confession of Judgment; Jurisdiction and Venue. Upon any
default hereunder and after the expiration of any specifically provided grace
or cured period, the Borrower authorizes any attorney admitted to practice
before any court of record in the United States to confess judgment on behalf
of the Borrower against the Borrower in the full amount due on this Note plus
attorneys' fees of fifteen percent (15%) of such amount. Provided, however
that in no event shall the Bank collect and retain attorneys' fees in excess of
those fees actually incurred by the Bank. In any action brought on this Note,
whether a confessed judgment proceeding or
<PAGE> 3
otherwise, the Borrower hereby consents to the exercise of personal
jurisdiction over it by any state or federal court located in the State of
Maryland, and agrees that venue shall be proper in any County of the State of
Maryland or in Baltimore City, in addition to any other court where
jurisdiction and venue may be proper. The Borrower waives the benefit of any
and every statute, ordinance, or rule of court which may be lawfully waived
conferring upon the Borrower any right or privilege of exemption, stay or
execution, or supplementary proceedings, or other relief from the enforcement
or immediate enforcement of a judgment or related proceedings on a judgment.
11. Interest Rate After Judgment. If judgment is entered against
the Borrower on this Note, the amount of the judgment entered (which may
include principal, interest, default interest, late charges, fees and costs)
shall -bear interest at the highest rate authorized under this Notice as of the
date of entry of the judgment.
12. Expenses of Collection. Should this Note be referred to an
attorney for collection, whether or not judgment has been confessed or suit has
been filed, the Borrower shall pay all of the Bank's actual costs, fees
(including actual attorney's fees and expenses resulting from such referral.
These costs shall include the actual expense of counsel incurred at any time by
the Bank in enforcing its rights hereunder.
13. Waiver of Protest: Waiver of Jury Trial. The Borrower, and
all parties to this Note, whether maker, indorser, or guarantor, waive
presentment, notice of dishonor and protest. THE BORROWER, AND ALL PARTIES TO
THIS NOTE, MAKER, ENDORSER, OR GUARANTOR, WAIVE ANY RIGHT TO A JURY TRIAL IN
ANY ACTION BROUGHT AT ANY TIME OR FROM TIME TO TIME ON THIS NOTE OR ANY OTHER
LOAN DOCUMENT.
14. Extensions of Maturity. All parties to this Note, whether
maker, indorser, or guarantor, agree that the maturity of this Note, or any
payment due hereunder, may be extended at any time or from time to time without
releasing, discharging, or affecting the liability of such party.
15. Commercial Loan. The Borrower warrants that the Note is the
result of a commercial loan transaction.
16. Security. This Note is secured as provided in the Loan
Agreement and Loan Documents.
17. Waiver. No waiver of any power, privilege, right or remedy
(hereinafter collectively referred to as "Rights") hereunder shall be effective
unless in writing. No delay on the part of the Bank in exercising any Rights
hereunder, or under any other instrument executed by the Borrower or any other
party in connection with the transaction (including the Loan Documents) shall
operate as a waiver thereof, and no single or partial exercise of any such
Rights (including acceptance of late payments by the Bank) shall preclude other
or further exercise
<PAGE> 4
thereof, or the exercise of any other Rights. Waiver by the Bank of any
default by the Borrower, or any other party, shall not constitute a waiver of
any subsequent defaults, but shall be restricted to the default so waived. All
Rights of the Bank hereunder are irrevocable and cumulative, and not
alternative or exclusive, and shall be in addition to all Rights given
hereunder or in or by any other instrument or any laws now existing or
hereafter enacted.
18. Notices. All notices, requests and demands upon the
respective parties hereto shall be deemed to have been given or made when
delivered against hand receipt or two (2) business days after deposit in the
United States mail, postage prepaid, or one (1) business day after deposit with
a nationally recognized overnight delivery service, and addressed as follows:
If to the Bank:
--------------
Mercantile-Safe Deposit and Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Attention: Robert C. Barclay
With a copy to:
Kevin J. Davidson, Esquire
Gallagher, Evelius & Jones
Park Charles - Suite 400
218 North Charles Street
Baltimore, Maryland 21201
If to the Borrower:
------------------
Trusted Information Systems, Inc.
3060 Washington Road
Glenwood, Maryland 21738
Attention: Stephen T. Walker
With a copy to:
David A. Carney, Esquire
Reese & Carney
10715 Charter Drive
Columbia, MD 21044
or to such other address and addressee with respect of any party as such party
shall notify the others in writing.
<PAGE> 5
19. Choice of Law. This Note shall be governed, construed and
enforced in accordance with the law of the State of Maryland.
20. Invalidity of Any Part. If any provision or part of this Note
shall for any reason be held invalid, illegal, or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of the Note and this Note shall be construed as if such invalid,
illegal, or unenforceable provision or part thereof had never been contained
herein, but only to the extent of its invalidity, illegality, or
unenforceability.
21. Assignment. This Note may be assigned by the Bank at any time
without the approval of the Borrower.
22. Cross-Default. Any default or Event of Default by the
Borrower or by Stephen T. Walker in connection with any other indebtedness or
obligation to the Bank, whether now owing or incurred in the future, shall
construe a default hereunder.
WITNESS: THE BORROWER:
TRUSTED INFORMATION SYSTEMS, INC.,
a Maryland corporation
/s/ Laurence B. Raber By: /s/ Stephen T. Walker
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Stephen T. Walker,
President
<PAGE> 1
EXHIBIT 10.10
DEED OF TRUST AND SECURITY AGREEMENT
THIS DEED OF TRUST AND SECURITY AGREEMENT is made as of this 26th day
of July, 1995, from Trusted Information Systems, Inc., a Maryland corporation
(hereinafter referred to as the "Grantor"), to Philip G. Enstice and Robert C.
Barclay, as Trustees (hereinafter referred to as "Trustees"), for the benefit
of Mercantile-Safe Deposit and Trust Company (hereinafter referred to as
"Beneficiary"), and any successor holder of the Note secured by this Deed of
Trust.
SECTION 1. RECITALS
1.1 The Loan. Grantor is indebted to Beneficiary for a
loan in the principal sum of One Million Eight Hundred Thousand Dollars
($1,800,000.00) (the "Loan"), evidenced by a Construction Loan Promissory Note
from the Grantor to the Beneficiary of even date.
1.2 Obligations Secured. This Deed of Trust secures (a)
the full and punctual payment of the Loan according to the terms of the Note,
(b) the payment of all sums due to Beneficiary or Trustees according to the
terms of any of the Loan Documents, (c) future advances, which may be made by
Beneficiary for any reason, and (d) the performance of, and compliance with,
all of the obligations of the Grantor (express or implied) contained in the
Loan Documents.
SECTION 2. DEFINITIONS. Whenever capitalized in this Dead of
Trust, the following terms shall have the meaning given in this Section 2,
unless the context clearly indicates a contrary intent.
2.1 Beneficiary. "Beneficiary" means Mercantile-Safe
Deposit and Trust Company, its successors and assigns and any subsequent holder
of the Note.
2.2 Deed of Trust. "Deed of Trust" means this instrument,
including all current and future supplements, amendments and attachments
thereto.
2.3 Default. "Default" means: (a) the failure of Grantor
to perform, cause to be performed, abide by, comply with, or observe any duty
or obligation imposed upon Grantor by the Loan Documents; (b) the breach of any
of Grantor's warranties or covenants contained in any of the Loan Documents;
(c) a misrepresentation by Grantor, its counsel, or any other person on behalf
of Grantor, in any of the Loan Documents; and (d) any event, happening or
condition that would constitute an Event of Default, as described herein, if
not cured within any applicable grace period.
2.4 Encumbrances. "Encumbrances" includes all liens,
mortgages, rights, leases, restrictions, easements, deeds of trust, covenants,
agreements, rights of way, rights of redemption, security interests,
conditional sales agreements, land installment contracts, options, and all
other burdens or charges.
2.5 Environmental Requirements. "Environmental
Requirements" means any federal, state or local law, statute, ordinance or
regulation; or court or administrative order or decree; or private agreement
which requires special handling, collection, storage, treatment, disposal or
removal of any materials located in or on or about the Property.
2.6 Event of Default. "Event of Default" has the meaning
given and provided in Section 10.
2.7 Expense Account. "Expense Account" means the
Account which may be maintained pursuant to Section 6.2.
<PAGE> 2
2.8 Grantor. "Grantor" means the party identified as such
in the introductory paragraph of this Deed of Trust, its successors and
assigns, including any subsequent owner of all or any portion of Grantor's
interest in the Trust Property.
2.9 Land. "Land" means the Land more particularly
described in Exhibit A to this Deed of Trust.
2.10 Lease. "Lease" means each lease which purports
to convey any interest of Grantor in any portion of the Trust Property, as
defined in Section 3.6., and includes subleases and assignments of leases.
2.11 Loan Documents. "Loan Documents" means this Deed of
Trust, a Construction Loan Agreement between the Grantor and the Beneficiary
dated of even date herewith, the Note, the Assignment of Rents and Leases
executed by Grantor in favor of Beneficiary dated of even date herewith, and
any and all certificates, opinions, assignments and other documents executed in
connection herewith or therewith, and all current and future supplements,
amendments, and attachments thereto.
2.12 Note. "Note" means the Construction Loan
Promissory Note of even date herewith payable to the Beneficiary by Grantor
evidencing the loan made pursuant to the Loan Documents in a principal sum not
to exceed One Million Eight Hundred Thousand Dollars ($1,800,000.00), including
all current and future replacements, supplements, amendments and attachments
thereto.
2.13 Permitted Encumbrances. "Permitted
Encumbrances" shall mean those exceptions, if any, listed in the title policy
insuring the interest of the Trustees and Beneficiary hereunder, as accepted
and approved by the Beneficiary.
2.14 Rents. "Rents" includes all rents, profits,
royalties, issues, revenues, income, proceeds, earnings and products generated
by and arising out of the Trust Property.
2.15 Taking. "Taking" includes any taking by condemnation
or eminent domain, any sale in lieu of condemnation under threat thereof, the
alteration of the grade of any street, or any other injury to or decrease in
the value of the Trust Property by any public or quasi-public authority or
corporation or any other person having the power of eminent domain.
2.16 Taxes. "Taxes" includes all taxes, excises,
documentary stamp and transfer taxes, recording taxes, assessments, water
rents, sewer rents, metropolitan district charges, sanitary district charges,
public dues, and other public charges levied or assessed upon the Trust
Property, upon the Loan, or upon any Loan Document.
2.17 Tenant. "Tenant" means any lessee of Grantor under any
Lease, and any sub-lessee or assignee of a Lease.
SECTION 3. GRANT
3.1 Lien on Real Property. The Grantor, in consideration
of the Loan and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, grants and assigns to the Trustees all the Land
situate in Howard County, Maryland, described more particularly in Exhibit A
attached hereto as a part hereof, together with (a) all buildings and
improvements now or hereafter located thereon, (b) all rights, rights of way,
air rights, riparian rights, franchises, licenses, easements tenements,
hereditaments, appurtenances, accessions and other rights and privileges now or
hereafter belonging to the Land or the buildings and improvements
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<PAGE> 3
thereupon, now owned or hereafter acquired by the Grantor (hereinafter
collectively referred to as the "Real Property").
3.2 Lien on Fixtures and Personal Property. The Grantor
further grants and assigns to the Trustees all of the machines, apparatus,
equipment, fixtures and articles of personal property now or hereafter located
on the Land or in any improvements thereon (other than that owned by any
Tenant), including without limitation all furniture, fixtures, equipment and
building materials acquired with the proceeds of this Loan, and all the right,
title and interest of the Grantor in and to any of such property which may be
subject to any title retention or security agreement or instrument having
priority over this Dead of Trust.
3.3 Property. All of the property described in Sections
3.1 and 3.2 is hereinafter collectively called the "Property."
3.4 Lien on Rents and Other Rights. The Grantor further
grants and assigns to the Trustees (a) all Rents, including, without
limitation, all cash or security deposits to secure performance by Tenants
(whether such cash or securities are to be held until the expiration of the
terms of Leases or are to be applied to one or more of the installments of rent
coming due immediately prior to the expiration of such terms), (b) all of the
estate, right, title, use, claim and demand of every nature whatsoever, at law
or in equity, which the Grantor may now have or may hereafter acquire in and to
the Property, and (c) all right, title and interest of the Grantor in and to
all extensions, betterments, renewals, substitutes and replacements of, and all
additions and appurtenances to, the Property, hereafter acquired by or released
to the Grantor, or constructed, assembled or placed by or for the Grantor on
the Property, and all in conversion of the security constituted thereby.
3.5 Lien on Insurance Policies and Condemnation Awards.
The Grantor further grants and assigns to the Trustees all insurance policies
and insurance proceeds pertaining to the Property and all awards or payments,
including interest thereon and the right to receive the same, which may be made
with respect to any of the Property as a result of any taking or any injury to
or decrease in the value of the Property.
3.6 The Trust Property. All of the property described in
this Section 3 is collectively called the "Trust Property."
3.7 Security Interest Under the Uniform Commercial Code.
Any portion of the Trust Property which by law is or may be real property shall
be deemed to be a part of the Real Property for the purposes of this Deed of
Trust. The remainder of the Trust Property shall be subject to the Uniform
Commercial Code and this Deed of Trust shall constitute a Security Agreement
with respect thereto. Grantor hereby grants to the Beneficiary a security
interest in that portion of the Trust Property not deemed a part of the real
property for the purpose of securing performance of all of Grantor's
obligations under the Loan Documents. With respect to such security interest
(a) the Beneficiary may exercise all rights granted or to be granted a secured
party under the Uniform Commercial Code and (b) upon the occurrence of an Event
of Default the Beneficiary shall have a right of possession superior to any
right of possession of the Grantor or any person claiming through or on behalf
of the Grantor.
SECTION 4. HABENDUM CLAUSE AND DEFEASANCES
4.1 Habendum Clause. The Trustees shall have and hold the
Trust Property in fee simple, upon the terms and trust herein set forth.
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<PAGE> 4
4.2 Termination of the Trust. If all obligations
of Grantor under this Deed of Trust and the other Loan Documents are paid and
satisfied in accordance with the terms hereof and thereof, the estate hereby
granted shall cease and the Trust Property shall be released to the Grantor, at
the cost of the Grantor.
SECTION 5. REPRESENTATIONS AND WARRANTIES
5.1 Warranty of Title and Further Assurances. The Grantor
warrants that it has the right and authority to convey the Trust Property and
warrants specially title to the Trust Property and that it will execute such
further assurances as may be requested.
5.2 Purpose of the Loan. The Grantor warrants that
the Loan is a "commercial loan" as defined in Section 12-101(c) of the
Commercial Law Article of the Annotated Code of Maryland.
5.3 Existence, Good Standing, Power and Authority of
Grantor. Grantor is a corporation organized under the laws of the State of
Maryland, is in good standing in the State of Maryland, and in every other
state in which it transacts business, and will maintain its good standing and
existence until all of Grantor's obligations under the Loan Documents have been
performed and satisfied. The execution and delivery of the Loan Documents, the
carrying out of the transactions contemplated by the Loan Documents, and the
performance of Grantor's obligations under the Loan Documents, have been duly
authorized by all necessary action and will not conflict with or result in a
breach of law or any agreement or other instrument to which Grantor is bound,
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws heretofore or hereafter enacted affecting creditors' rights generally, to
the extent constitutionally applicable, and subject to general equitable
principles as applied by a court of law or a court of equity. The Loan
Documents are valid and binding on Grantor and are enforceable against Grantor
in accordance with their respective terms, as applicable.
SECTION 6. COVENANTS, RIGHTS, AND DUTIES OF GRANTOR GENERALLY
6.1 Covenant to Pay Loan and to Perform Obligations Under
the Terms of the Loan Documents. The Grantor covenants that it will punctually
(a) pay to the Beneficiary the principal and interest of the Loan and all other
costs and indebtedness secured hereby according to the terms of the Note and
other Loan Documents, and (b) perform and satisfy all other obligations of the
Grantor under the Loan Documents.
6.2 Compliance With Laws. The Grantor shall comply with
all laws a breach of which would adversely affect (a) the financial conditions
of the Grantor, (b) the ability to use buildings and other improvements on the
Land for the purposes for which they were designed or intended, (c) the value
or status of the Trust Property, or (d) the value or status of the Trustees'
title to the Trust Property.
6.3 RESERVED
6.4 Statement of Amount Owing. Within ten (10) days after
request from the Beneficiary, the Grantor shall certify, the writing, the
amount of principal and interest then owing on the Loan.
6.5 Changes in Applicable Tax Laws. In the event (a) any
law is hereafter enacted which imposes a tax upon the Loan, any of the Loan
Documents, or the transactions evidenced or contemplated by any of the Loan
Documents, or (b) any law now in force governing the taxation of deeds of
trust, debts secured by deeds of trust, or the manner of collecting any such
tax shall be changed or modified, in any manner, so as to impose a tax upon the
Loan, any of the Loan Documents, or the transactions evidenced or contemplated
by any of the Loan Documents, (including, without limitation, a requirement
that revenue stamps be affixed to any or all of the Loan Documents), the
Grantor will promptly pay any such tax. If the Grantor fails to make prompt
payment, or if any law either
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<PAGE> 5
prohibits the Grantor from making the payment or would penalize the Beneficiary
if Grantor makes the payments, then the failure, prohibition, or penalty, shall
entitle the Beneficiary to declare the entire unpaid principal balance of the
Loan, together with all accrued interest and any other amounts due, immediately
due and payable, provided that no Event of Default has occurred, and the
Grantor shall thereupon have thirty (30) days to pay the entire amount due
without penalty. If an Event of Default has occurred or if the Grantor fails
to make payment in full within thirty (30) days, than the Beneficiary shall be
entitled to exercise all rights hereunder as though an Event of Default had
occurred.
6.6 Further Assurances and Continuation Statements. The
Grantor from time to time will execute, acknowledge, deliver and record, at the
Grantor's sole cost and expense, all further instruments, deeds, conveyances,
supplemental deeds of trust, assignments, financing statements, transfers, and
assurances as in the opinion of the Beneficiary's counsel may be necessary (a)
to preserve, continue, and protect the interest of the Trustees or the
Beneficiary in the Trust Property, (b) to perfect the grant to the Trustees of
every part of the Trust Property, (c) to facilitate the execution of this
trust, (d) to secure the rights and remedies of the Trustees and the
Beneficiary under this Deed of Trust and the other Loan Documents, or (e) to
transfer to any new Trustees or purchaser at a sale hereunder the Trust
Property, funds, and powers now or hereafter hold in trust hereunder. The
Grantor, at the request of the Beneficiary, shall promptly execute any
continuation statements required by the Uniform Commercial Code to maintain the
lien on any portion of the Trust Property subject to the Uniform Commercial
Code.
6.7 Expenses. The Grantor shall reimburse the Beneficiary
and the Trustees for any sums, including reasonable attorney's fees and
expenses, incurred or expanded by them (a) in connection with any action or
proceeding to sustain the lion, security interest, priority, or validity of any
Loan Document, (b) to protect, enforce, interpret, or construe any of their
rights under the Loan ants, (c) for any title examination or title insurance
policy relating to the title to the Trust Property, or (d) for any other
purpose contemplated by the Loan Documents. The Grantor shall, upon demand,
pay all such sums together with interest thereon at the Default Interest Rate
defined in the Note accruing from the time the expense is paid. All such sums
so expanded by the Beneficiary and/or the Trustees shall be secured by this
Deed of Trust. In any action or proceeding to foreclose this Deed of Trust or
to recover or collect the Loan, the provisions of law allowing the recovery of
costs, disbursements, and allowances shall be in addition to the rights given
by this Section 6.8.
6.8 Environmental Requirements. The Grantor hereby
covenants and agrees that, if at any time it is determined that there are
materials (hereinafter, "Environmental Materials") located on the Property
which under any Environmental Requirements require special handling in
collection, storage, treatment, disposal or removal, the Grantor shall, within
thirty (30) days after written notice thereof, take or cause to be taken, at
its sole expense, such actions as may be necessary to comply with all
Environmental Requirements. If the Grantor shall fail to take such action, the
Beneficiary may make advances or payments towards performance or satisfaction
of the same but shall be under no obligation to do so; and all sums so advanced
or paid, including all sums advanced or paid in connection with any judicial or
administrative investigation or proceeding relating thereto, including, without
limitation, reasonable attorneys' fees, fines, or other penalty payments, shall
be at once repayable by Grantor and shall bear interest at the Default Interest
Rate defined in the Note or at the maximum interest rate which the Grantor may
by law pay, which ever is lower, from the date the same shall become due and
payable until the date paid, and all sums so advanced or paid, with interest as
aforesaid, shall become a part of the indebtedness secured. hereby. Failure of
the Grantor to comply with all Environmental Requirements shall constitute and
be a default under this Deed of Trust. Grantor shall defend, indemnify and
hold harmless the Beneficiary and Trustees against any loss, cost or expense
incurred by the Beneficiary or Trustees resulting from the presence on the
Property at any time of any Environmental Materials.
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SECTION 7. RIGHTS AND DUTIES OF GRANTOR WITH RESPECT TO MANAGEMENT
AND USE OF THE TRUST PROPERTY
7.1 Control by the Grantor. Until the happening of an
Event of Default, the Grantor shall have the right to possess and enjoy the
Trust Property and, except as prohibited by the Documents, to receive the Rents
(as defined hereinafter in Section 7.7).
7.2 Management. At all times the Grantor shall provide
competent and responsible management to maintain and operate the Trust
Property.
7.3 Financial Statements; Books and Records. The Grantor
shall furnish to the Beneficiary annual financial and operating statements of
the Grantor and of the Trust Property. Such statements shall show all items of
income and expense for the operation of the Trust Property, shall be certified
by the Grantor and shall be prepared in accordance with generally accepted
accounting principles applied on a consistent basis. All such financial and
operating statements shall be supplied not later than ninety (90) days after
the close of Grantor's fiscal year. At the request of Beneficiary, Grantor
shall provide audited financial statements prepared by an independent certified
public accountant approved by Beneficiary. The Grantor agrees to make its
books and records relating to the operation of the Trust Property available for
inspection by the Beneficiary, upon request at any reasonable time, at
Grantor's principal place of business or at such other location in the State of
Maryland as Beneficiary may reasonably request. This paragraph shall be
superseded by the financial reporting provisions, if any, set forth in the Loan
Documents.
7.4 Leases. All leases affecting any portion of the
Property ("Leases") shall be subject to the prior written approval of the
Beneficiary, and shall contain a provision prohibiting subleasing or assigning
by any Tenant without the prior written approval of the Beneficiary, which
approval shall not be unreasonably withheld. Upon the execution of any Leases,
the Grantor shall provide the Beneficiary with a subordination and attornment
agreement executed by the Tenant in a form acceptable to the Beneficiary. Upon
demand by the Beneficiary, Grantor will transfer and assign to the Beneficiary
or the Trustees, in a form satisfactory to the Beneficiary, Grantor's interest
in any specific lease as further security for the obligations secured hereby.
No such assignment shall impose upon the Trustees or the Beneficiary any
liability to perform the Grantor's obligations under any Lease.
7.5 Enforcement of Leases, Amendment, Waiver, etc. The
Grantor will enforce all Leases according to their terms and shall take such
action to that and as may be requested by the Trustees or the Beneficiary,
regardless of whether any such Lease has been assigned to the Beneficiary or
the Trustees. The Grantor shall not, without the prior written consent of the
Beneficiary (a) cancel or terminate, or consent to or accept any cancellation,
termination or surrender of any Lease, or permit any event within the Grantor's
control to which would cancel or terminate any Lease, (b) amend or modify any
Lease, (c) waive any default under or breach of any Lease, (d) consent to or
permit any prepayment or discount of rent or advance rent under any Lease, or
(e) give any consent, waiver, or approval under any Lease or take any other
action with respect to any Lease which may impair the value of the
Beneficiary's interest in the Trust Property or the position or interest of the
Trustees with respect to the Trust Property. Grantor shall comply with and
perform all duties and obligations imposed upon or assumed by it in all Leases.
7.6 Subordination and Attornment. In the event of a
foreclosure sale pursuant to this Deed of Trust, each tenant under a Lease
("Tenant") shall, upon request, attorn to and acknowledge any purchaser at
foreclosure or grantee in lieu of foreclosure as landlord and the purchaser
will not be required to credit any Tenant under any Lease with rent paid more
than one (1) month in advance. All Leases shall be subject and subordinate to
modifications of and amendments to the Loan Documents and any additional
financing or refinancing of the Trust Property by or for the Beneficiary. At
the request of the Grantor, the Beneficiary agrees that it will execute and
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deliver a non-disturbance agreement, in a form acceptable to the Beneficiary,
in connection with any Lease which has been entered into by Grantor in
accordance with the provisions of this Deed of Trust.
7.7 Restriction of Assignment of Rents. The Grantor shall
not assign the Rents arising from the Trust Property or any part thereof or any
interest therein ("Rents") without the prior written consent of the
Beneficiary. Any attempted assignment, pledge, hypothecation, or grant without
such consent shall be null and void.
7.8 Alterations and Improvements. Except for the Project
described in the Loan Agreement. the Grantor shall not make any alterations or
improvements on the Property without the prior written consent of the
Beneficiary. All alterations or improvements shall be erected (a) in a good
and workmanlike manner strictly in accordance with all applicable law, (b)
entirely on the Land (c) without encroaching upon any easement, right of way,
or land of others, (d) so as not to violate any applicable use, height,
set-back or other applicable restriction, and (e) without permitting any
mechanic's lien to attach to the Trust Property which is not being contested as
permitted in Section 7.13. All alterations, additions, and improvements to the
Trust Property shall automatically be a part of the Trust Property and shall be
subject to this Deed of Trust.
7.9 Restrictions on Sale and Transfer of the Trust
Property. The Grantor shall not permit the Trust Property, or any part or
portion thereof or any interest therein, to be transferred (whether by
voluntary or involuntary conveyance, merger, operation of law, or otherwise)
without the prior written consent of the Beneficiary. Any transferee of the
Trust Property or any part or portion thereof or any interest therein, by
virtue of its acceptance of the transfer, shall (without in any way affecting
Grantor's liability under the Loan Documents) be conclusively deemed to have
agreed to assume primary personal liability for the performance of the
Grantor's obligations under the Loan Documents. This section shall not apply
to any condemnation, any disposition permitted by Section 7.12, any Lease
entered into in compliance with Section 7.4, or any disposition by the Trustees
or the Beneficiary by foreclosure hereunder or as otherwise permitted by the
Loan Documents.
7.10 Restriction on Encumbrances. The Grantor shall not
allow any Encumbrances on the Trust Property except the Permitted Encumbrances.
The Grantor shall give the Beneficiary prompt notice of any default in or under
any Permitted Encumbrances and any notice of foreclosure or threat of
foreclosure. The Grantor shall comply with its obligations under all Permitted
Encumbrances. The Beneficiary may, at its election, satisfy any Encumbrance
(other than a Permitted Encumbrance not then in default), and the Grantor
shall, on demand, reimburse the Beneficiary for any sums advanced for such
satisfaction together with interest at the Default Interest Rate stated in the
Note accruing from the date of satisfaction, which sums shall be secured
hereby.
7.11 Maintenance, Waste, Repair and Inspection. Grantor
shall (a) keep and maintain the Trust Property in good order, condition, and
repair and make, in a prompt manner, all equipment replacements and repairs
necessary to insure that the security for the Loan is not impaired; (b) not
commit or suffer any waste of the Trust Property; (c) promptly protect and
conserve any portion of the Trust Property remaining after any damage to, or
partial destruction of, the Trust Property; (d) promptly repair, restore,
replace or rebuild any portion of the Trust Property which is damaged or
destroyed; (e) promptly restore the balance of the Trust Property remaining
after any Taking; (f) permit the Beneficiary or its designee to inspect the
Trust Property at all reasonable times; and (g) not make any material change in
the grade of the Trust Property or permit any material excavation of or on the
Trust Property, except as required for utility easements.
7.12 Removal and Replacement of Equipment and Improvements.
No part of the Trust Property, except supplies consumed or raw materials, work
in progress and finished goods sold or transferred in the ordinary course of
business and operations as they are currently conducted, shall be removed from
the Land, demolished, or materially altered without the prior written consent
of the Beneficiary. The Grantor may, without consent and free
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from the lien and security interest of this Deed of Trust, remove and dispose
of any worn out or obsolete fixtures or equipment which are a part of the Trust
Property, provided that prior to or simultaneously with their removal, such
fixtures and equipment shall be replaced with fixtures or equipment of equal or
greater value. The replacement fixtures or equipment shall be free of all
Encumbrances, shall automatically be subject to the lien and security interest
of this Deed of Trust, and shall automatically be subject to the granting
clauses hereof. Upon the sale of any removed fixtures and equipment which are
not replaced, the proceeds shall, at the election of the Beneficiary, be
applied as a prepayment of the Loan, to be applied in inverse order of
maturity. All sales shall be conducted in a commercially reasonable manner.
7.13 Taxes and Permitted Contests. The Grantor shall pay:
(a) all Taxes on or before the date any interest or penalty begins to
accrue or attach thereto; and (b) all lawful claims which, if unpaid, might
become a lien or charge upon the Trust Property to such an extent as to
materially and adversely affect the Grantor's ability to use the Trust Property
for the purposes for which it was designed or intended; provided however, that
the Grantor shall not be required to pay any Taxes or claim the amount,
validity or payment of which is being contested, in good faith, by appropriate
legal proceedings, and so long as, in the sole opinion of the Beneficiary, no
part of the Trust Property is in danger of being sold, forfeited or lost and
the contest is not impairing the security for the Loan. Upon payment thereof,
the Grantor shall promptly supply the Beneficiary with receipts showing the
payment of the Taxes or claim.
7.14 Restrictive Covenants, Zoning, etc. No restrictive
covenant, zoning change, or other restriction affecting the Trust
Property may be entered into, requested by or consented to by Grantor without
the prior written consent of the Beneficiary.
7.15 Preservation of Appurtenances. The Grantor will do all
things necessary to preserve intact and unimpaired, all easements,
appurtenances, and other interests and rights in favor of, or constituting any
portion of, the Trust Property.
SECTION 5. INSURANCE AND CONDEMNATION
8.1 Casualty and Liability Insurance. The Grantor shall at all
times keep the Trust Property insured for the benefit of the Grantor, the
Trustees and the Beneficiary against loss or damage by fire by fire insurance
and extended coverage insurance and against such other hazards, casualties, and
contingencies, all as Beneficiary may require from time to time. Such
insurance shall be written in amounts equal to one hundred percent (100%) of
the replacement value of the Property or such other amount as may be approved
by Beneficiary. such insurance shall be written in forms and by companies
satisfactory to the Beneficiary, and the losses thereunder shall be payable to
the Beneficiary alone and not to the Grantor and the Beneficiary or the
Trustees, jointly. The policy or policies of such casualty insurance shall, if
requested by Beneficiary, be delivered to and retained by the Beneficiary, and
the Grantor shall provide the Beneficiary with receipt evidencing the payment
of all premiums due on such policies. The Grantor shall give the Beneficiary
prompt notice of any loss covered by such casualty insurance, and the Trustees
or the Beneficiary shall have the right (subject to the approval of Grantor, so
long as no Event of Default has occurred) to adjust any loss covered by an
insurance policy. All monies received as payment for a loss covered by an
insurance policy ("Insurance Proceeds") shall be paid over to the Beneficiary
to be applied, at the option of the Beneficiary, either to the prepayment of
the indebtedness secured by the Deed of Trust or to the payment of other
charges or expenses actually incurred by the Grantor in the restoration,
reconstruction, repair, renovation or replacement of the Trust Property;
provided, however, that the application of Insurance Proceeds shall be made at
the option of the Grantor so long as no default or Event of Default has
occurred and so long as the Insurance Proceeds are sufficient, together with
other funds deposited for this purpose with the Beneficiary by Grantor, to
restore the Trust Property to a condition and value satisfactory to the
Beneficiary.
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The Grantor may not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
under the above paragraph unless the Beneficiary is included thereon as a named
insured with losses payable to the Beneficiary as above provided. The Grantor
shall immediately notify the Beneficiary whenever any such separate insurance
is taken out and shall promptly deliver to the Beneficiary the policy or
policies of such insurance.
If any of the Trust Property is located in an area which has
been identified as a flood hazard area, the Grantor will keep the Trust
Property covered by flood insurance in an amount at least equal to the full
amount secured by this Deed of Trust or the maximum limit of coverage available
for the Property.
Unless a written waiver from Beneficiary is obtained, Grantor
shall (a) keep all of its insurable properties insured against all risks
usually insured against by persons operating like properties in the localities
where the properties are located; (b) maintain public liability insurance
against claims for personal injury, death or property damage suffered by others
upon or in or about any premises occupied by it or occurring as a result of its
maintenance or operation of any automobiles, trucks or other vehicles or
airplanes or other facilities or as a result of the use of products sold by it
or services rendered by it; and (c) maintain all such worker's compensation or
similar insurance as may be required under the laws of any state or
jurisdiction in which it may be engaged in business.
8.2 Business Interruption Insurance. If requested by
Beneficiary, the Grantor shall also carry and maintain business interruption
insurance on the Trust Property in an amount equal to six (6) months projected
income, as approved by Beneficiary.
8.3 Condemnation and Allocation of Condemnation Awards.
Grantor, immediately upon obtaining knowledge of the institution of any
proceeding for a condemnation, will notify the Trustees and the Beneficiary of
such proceedings. The Trustees or the Beneficiary may participate in any such
proceedings, and Grantor will, from time to time, deliver to the Trustees or
the Beneficiary all instruments requested by them to permit such participation.
Any award or payment made as a result of any Taking shall be paid to the
Beneficiary, to be applied (a) if funds sufficient to restore the remainder of
the Trust Property are available from such award or payment (together with
other funds supplied or caused to be supplied by Grantor) and no Event of
Default is then outstanding, to the restoration of the remainder of the Trust
Property, or (b) if sufficient funds are not available to restore the remainder
of the Trust Property, or an Event of Default is then outstanding, to
prepayment of amounts due under the Note in inverse order of maturity. All
moneys not utilized for the repair or restoration of the remainder. of the
Trust Property shall be applied as a prepayment of amount due under the Note,
in inverse order of maturity. The application of any award or payment as a
prepayment of amounts due under the Note shall take effect only on the actual
date of the receipt of the payment or award by the Trustees and the
Beneficiary. In the event any payment or award is used to restore the Trust
Property, as aforesaid, neither the Trustees nor the Beneficiary shall be
obligated to see to the, proper allocation thereof nor shall any amount so used
be deemed a payment of any indebtedness secured by this Deed of Trust.
Payments or awards to be used for restoration purposes, as aforesaid, shall be
held by the Beneficiary and disbursed under such terms and conditions, to such
persons, and at such times, as Beneficiary may determine.
SECTION 9. THE TRUSTEES
9.1 Endorsement and Execution of Documents. Upon the
written request of the Beneficiary, the Trustees shall, without
liability or notice to the Grantor, execute, consent to, or join in any
instrument or agreement in connection with or necessary to effectuate the
purposes of the Loan Documents. The Grantor hereby irrevocably designates the
Trustees as its attorneys-in-fact to execute, acknowledge, and deliver, on the
Grantor's behalf and in the Grantor's name, all instruments or agreements
necessary to implement the provisions of Section 3.7, contemplated by Section
6.6, or necessary to further perfect the lien created by this Deed of Trust on
the Trust
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<PAGE> 10
Property. This power of attorney shall be deemed to be coupled with an
interest and shall survive any disability of the Grantor.
9.2 Substitution of Trustees. The Beneficiary may, by
filing a deed of appointment in the office where this instrument is
recorded, appoint additional or replacement trustees and may remove the
Trustees, from time to time, without notice to the Grantor or the Trustees and
without specifying any reason.
9.3 Multiple Trustees. Any Trustee, individually, may
exercise all powers granted to the Trustees collectively, without the
necessity of the joinder of the other Trustees.
9.4 Terms of Trustees Acceptance. The Trustees accept the
trust created by this Deed of Trust upon the following terms and conditions:
9.4.1 The Trustees may exercise any of their powers
through appointment of attorneys-in-fact or agents.
9.4.2 The Trustees shall not be liable for any matter
or cause arising under this Deed of Trust or in connection therewith except by
reason of their own willful misconduct.
9.4.3 After giving notice to the Grantor, the
Trustees may select and employ legal counsel in connection with the
Loan at the expense of Grantor; provided, however, that no notice shall be
necessary after a default.
9.4.4 The Trustees shall be under no obligation to
take any action upon any Event of Default unless they are furnished
security or indemnity, in form satisfactory, to the Trustees, against costs,
expenses, and liabilities which may be incurred by the Trustees.
9.4.5 A Trustee may resign upon five (5) days written
notice to the Beneficiary.
9.5 Trustees' Reimbursement. The Grantor shall reimburse
the Trustees for all reasonable disbursements and expenses incurred by reason
of this Deed of Trust.
9.6 Save Harmless Clause. The Grantor shall indemnify and
save harmless the Beneficiary and the Trustees, singularly and jointly, from
all costs and expenses, including reasonable attorneys' fees, incurred by then
or any of then by reason of this Dead of Trust, including any legal action to
which Beneficiary or the Trustees shall become a party. Any money so paid or
expended by Beneficiary or the Trustees shall be due and payable upon demand
together with interest at the Default Interest Rate stated in the Note from the
date incurred and shall be secured by this Deed of Trust.
SECTION 10. DEFAULT
10.1 Event of Default. The occurrence of any of the
following shall constitute an Event of Default.
10.1.1 Monetary Defaults. The failure of the Grantor
to pay any amounts due under the Loan Documents when due and payable, whether at
maturity by obligation or election to prepay, or otherwise, unless such payment
is made within fifteen (15) days from the date such payment became due and
payable.
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<PAGE> 11
10.1.2 Breach of Representations and Warranties. Any
representation or warranty made by the Grantor herein or any statement or
representation made in any of the Loan Documents shall prove to have been
incorrect in any material respect when made or shall be breached.
10.1.3 Insurance Provisions The failure of Grantor to
perform its obligations set forth in Section 8.1 or 8.2.
10.1.4 Receiver; Bankruptcy. If the Grantor (a)
applies for, or consents in writing to, the appointment of a receiver, trustee,
or liquidator for it of the Trust Property, or of all or substantially all of
its assets, (b) files a voluntary petition in bankruptcy or admits in writing
its inability to pay its debts as they become due, (c) makes an assignment for
benefit of creditors, (d) files a petition or an answer seeking a
reorganization, composition, adjustment arrangement with creditors, or takes
advantage of any insolvency law, (e) files an answer admitting the material
allegations of a petition filed against it in any bankruptcy, reorganization,
composition, adjustment, arrangement, or insolvency proceeding, or (f) is
dissolved as a result of an adversary suit or proceeding.
10.1.5 Receiver; Bankruptcy (Involuntary) . If (a) any
execution or attachment levied against the assets of the Grantor is not set
aside, discharged, or stayed within forty-five (45) days, (b) an order,
judgment, or decree is entered by any court of competent jurisdiction on the
application of a creditor, adjudicating the Grantor a bankrupt or insolvent, or
appointing a receiver, trustee, or liquidator for the Grantor of all or
substantially all of its assets, or (c) an order of relief is entered against
the Grantor pursuant to any bankruptcy statute or law and such order, judgment,
or decree continues unstayed and in effect for a period of forty-five (45)
days.
10.1.6 Assignment of Rents. Any attempted assignment
by the Grantor of the whole or any part of the Rents in contravention of
Section 7.7, which shall not be cured in full within fifteen (15) days after
Beneficiary give Grantor written notice thereof.
10.1.7 Prohibited Transfer or Encumbrance. Any
transfer or event in violation of Sections 7.9, 7.10, or 7.11.
10.1.8 Loss of License. The loss of any franchise
agreement, license or permit necessary for the operation, occupancy, or use of
the Trust Property , if the same is not restored within fifteen (15) days after
the loss.
10.1.9 Judgments. Any judgment against the Grantor
remains unpaid, unstayed, undischarged, unbonded or undismissed for a period of
forty-five (45) days following the date which the judgment becomes final or any
appeal thereof is finally determined.
10.1.10 Other Defaults. The failure of the Grantor to
perform or observe any of its obligations or covenants under this Deed
of Trust not previously specifically referred to in this Article 10, which
failure continues for a period of fifteen (15)days after written notice to
Grantor.
10.1.11 Default Under Other Loan Documents. The
failure of the Grantor to perform or observe any of its obligations or
covenants in any Loan Document other than this Deed of Trust, which failure is
not remedied within any applicable grace or cure period specified in such other
Loan Document.
10.1.12 Event of Default Under Other Loan Documents.
An "Event of Default" (if so defined) occurs under a Loan Document
other than this Deed of Trust.
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<PAGE> 12
10.2 Payment or Performance by Trustees or Beneficiary.
Upon the occurrence of any Default, the Trustees or the Beneficiary may, at
their option, make any payments or take any other actions they deem necessary
or desirable to cure the Default or conserve the Trust Property. The Grantor
shall, upon demand, reimburse the Trustees or the Beneficiary for all sums so
advanced or expenses incurred by them, together with interest at the Default
Interest Rate stated in the Note from the date of advance or payment of the
same, which sums shall be secured by this Dead of Trust. The Trustees or the
Beneficiary may enter upon the Trust Property without prior notice to the
Grantor or judicial process and may take any action to enforce its rights under
this Section 10. 2 without liability to the Grantor.
10.3 Possession by Trustees or Beneficiary. Upon the
occurrence of an Event of Default, the Trustees or the Beneficiary may enter
upon and take possession of the Trust Property with notice to the Grantor, but
without judicial process or the appointment of a receiver. The Trustees or the
Beneficiary may exclude all persons from the Trust Property and may proceed to
operate the Trust Property and receive all Rents. The Trustees or the
Beneficiary and the Trustees shall have the right as agent for the Grantor to
operate the Trust Property and carry on the business of the Grantor, either in
the name of the Grantor or otherwise. Neither the Trustees nor the Beneficiary
shall be liable to the Grantor for taking possession of the Trust Property, as
aforesaid, nor shall they be required to make repairs or replacements, and they
shall be liable to account only for Rents actually received by them. All Rents
collected by the Trustees or the Beneficiary shall be applied (a) first, to pay
all as incurred in taking possession of the Trust Property, (b) second, to pay
costs and expenses to operate the Trust Property and/or to comply with the
terms of the Documents, including reasonable attorney's fees, (c) third, to pay
all sums secured by the Loan Documents in the order of priority selected by
Beneficiary, and (d) fourth, with the balance, if any, to the Grantor or such
other person as may be entitled thereto. Neither the assignment of Rents and
Leases hereunder nor any other assignment of Leases shall impose upon Trustees
or Beneficiary any liability to perform Grantor's obligations under any Lease.
10.4 Acceleration of the Note. Upon an Event of Default,
Beneficiary may, at its option and by written notice to the Grantor, declare
the entire balance of the Note and all other amounts due under the Loan
Documents, immediately due and payable. Acceleration of maturity, once claimed
by the Beneficiary, may at the option of the Beneficiary, be rescinded by
written acknowledgment to that effect by the Beneficiary, but the tender and
acceptance of partial payments alone shall not in any way affect or rescind
such acceleration of maturity.
10.5 Collection of Rents. Upon the occurrence of an Event
of Default and the failure of the Grantor to cure the same within any notice
and cure periods set forth herein, and upon written demand by the Beneficiary
to the Tenants, all Rents shall be payable directly to the Beneficiary. Any
Tenant may rely upon such demand by Beneficiary pursuant to this Section 10.4
and Grantor hereby consents to such payment of Rents to Beneficiary.
10.6 Power of Sale and Assent to a Decree. The Grantor
assents to the passage of a decree for the sale of the Trust Property upon the
occurrence of an Event of Default, by any court having jurisdiction and the
Grantor authorizes and empowers the Trustees, upon the occurrence of an Event
of Default, to sell the Grantor's interest in the Trust Property, in accordance
with the Maryland Rules of Procedure or any other applicable law. The Trust
Property or any interest therein may be sold upon such terms and in as many
parcels as the parson conducting the sale may, in its sale discretion, elect.
No readvertisment of any sale shall be required if the sale is adjourned by
announcement at the time and place set therefor, of the date, time, and place
to which the same is to be adjourned.
10.7 Application and Proceeds of Sale. Upon a sale by the
Trustees under section 10.6, the purchaser shall receive that portion of or
interest in the Trust Property purchased by it free from any claims of the
Grantor and without any liability to see to the application of the purchase
money. The net proceeds from the sale, after deduction of all costs of the
sale, shall be applied (a) first, to pay all expenses incurred in taking
possession of the Trust Property, (b) second, to pay costs and expenses to
operate the Trust Property, including attorney's fees,
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<PAGE> 13
(c) third, to pay all sums secured by or due under the Loan Documents in the
order of priority determined by the Beneficiary, and (d) fourth, the balance,
if any, to the Grantor or to other persons entitled thereto.
10.8 Deficiency of Proceeds. If, after a sale by the
Trustees under Section 10.6, a deficiency exists in the not proceeds of such
sale, the Beneficiary shall be entitled to a deficiency judgment or decree for
such deficiency which shall bear interest at the Default Interest Rate stated
in the Note.
10.9 Trustee's Commission. Upon a sale by the Trustees
under Section 10. 6 of any portion of or interest in the Trust Property, the
Trustees shall be entitled to a commission equal to the commission allowed
trustees for making sales of property under decrees of the court having equity
jurisdiction. In the event any portion of the Trust Property is advertised for
foreclosure sale and not sold, the Trustees shall be entitled to a commission
equal to one-half (1/2) of the commission provided in case of foreclosure sale.
The person making the sale shall not be required to accept payment of the
amounts secured hereby unless accompanied by all expenses of the proceedings
and one-half (1/2) of the commission.
10.10 Insurance or Condemnation After Deficiency. If the
Trust Property is sold by the Trustees under Section 10.6 prior to receipt of a
condemnation award or payment, the Beneficiary shall receive and apply the
proceeds of the award or payment toward the satisfaction of any deficiency
resulting from the sale, whether or not a deficiency judgment is sought,
recovered, or denied.
10.11 Right of the Beneficiary to Bid. The Beneficiary
and/or the Trustees may bid and become the purchaser at foreclosure sale under
this Deed of Trust.
10.12 Trustee's Bond. The Grantor waives any right to
require the person authorized to make the sale hereunder to post a bond.
10.13 Appointment of a Receiver. Upon the occurrence of an
Event of Default and the failure of the Grantor to cure the same within any
applicable notice and cure periods set forth herein, the Beneficiary shall be
entitled to the immediate appointment of a receiver for the Trust Property,
without regard to the value of the Trust Property or the solvency of any person
liable for payment of the amounts due under the Loan Documents.
10.14 Remedies Cumulative. All rights, powers, and. remedies
of the Beneficiary or the Trustees provided for in the Loan Documents are
cumulative and concurrent and shall be in addition to and not exclusive of any
appropriate legal or equitable remedy provided by law or contract. Exercise of
any right, powers or remedy shall not preclude the simultaneous or subsequent
exercise of any other by the Beneficiary or the Trustees.
10.15 Consent to Jurisdiction and Venue. The Grantor
consents to be sued in any jurisdiction where any of the Trust Property is
located.
10.16 Rights Under the Uniform Commercial Code. Upon the
occurrence of an Event of Default, the Grantor shall assemble and make
available to the Beneficiary and the Trustees those portions of the Trust
Property which consist of personal property at a place to be designated by the
Trustees, and the Beneficiary and the Trustees may exercise all the rights and
remedies of a secured party under the Uniform Commercial Code. Any notices
required by the Uniform Commercial Code shall be deemed reasonable if mailed
certified mail, return receipt requested, postage prepaid, by the Beneficiary
or the Trustees to the Grantor. Disposition of the Trust Property shall be
deemed commercially reasonable if made pursuant to a public offering advertised
at least twice in a newspaper of general circulation in the County (or
Baltimore City) where the Trust Property is located.
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<PAGE> 14
10.17 Right to Determine Which Leases Survive. If disclosed
in the advertisement of sale, a sale by the Trustees may be made subject to one
or more Leases of the Trust Property.
SECTION 11. MISCELLANEOUS
11.1 Waivers. No term of any Loan Document shall be deemed
waived unless the waiver shall be in writing and signed by the parties making
the waiver. Any failure by the Beneficiary or the Trustees to insist upon the
Grantor's strict performance of any of the terms of the Loan Documents shall
not be deemed or construed as a waiver of those or any other terms. Any delay
in exercising or enforcing any rights with respect to a Default or an Event of
Default shall not bar the Beneficiary or the Trustees from exercising any
rights under the Loan Documents, or at law or in equity.
11.2 Consents.
11.2.1 The Beneficiary may (a) release any person
liable under the Loan Documents, (b) release any part of the security,
(c) extend the time of payment of the Loan, and/or (d) modify the terms of the
Loan Documents, regardless of consideration and without notice to or consent by
the holder of any subordinate lien on the Trust Property. No release,
extension or modification of the security held under the Loan Documents shall
impair or affect the lien of this Deed of Trust or the priority of such lien
over any subordinate lien.
11.2.2 Regardless of whether a person has been
given notice or has given its prior consent, it shall not be relieved of any
obligation under any Loan Documents by reason of (a) the failure of the
Beneficiary, the Trustees, or any other person to take any action, foreclose,
or otherwise enforce any provision of the Loan Documents, (b) the release of
any other person liable under any Loan Document, (c) the release of any portion
of the security under the Loan Documents, or (d) any agreement or stipulation
between any subsequent owners of the Trust Property and Beneficiary extending
the time of payment or modifying the terms of any Loan Document.
11.3 Headings. All section headings are for convenience
only and shall not be interpreted to enlarge or restrict the provisions of this
Deed of Trust.
11.4 Notices. All notices, requests and demands upon the
respective parties hereto shall be deemed to have been given or made
when delivered against hand receipt or two (2) business days after deposit in
the United States mail, postage prepaid, or one (1) business day after deposit
with a nationally recognized overnight delivery service, and addressed as
follows:
Beneficiary:
Mercantile-Safe Deposit and Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Attention: Robert C. Barclay
With a copy to:
Kevin J. Davidson, Esquire
Gallagher, Evelius & Jones
The Park Charles - Suite 400
218 North Charles Street
Baltimore, Maryland 21201
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<PAGE> 15
Trustees:
Philip G. Enstice/Robert C. Barclay
Mercantile-Safe Deposit and Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
With a copy to:
Kevin J. Davidson, Esquire
Gallagher, Evelius & Jones
The Park Charles - Suite 400
218 North Charles Street
Baltimore, Maryland 21201
Grantor:
Trusted Information Systems, Inc.
3060 Washington Road
Glenwood, Maryland 21738
Attention: Stephen T. Walker
With a copy to:
David A. Carney, Esquire
Reese & Carney
10715 Charter Drive
Columbia, Maryland 21044
or to such other address and addressee with respect of any party as such party
shall notify the others in writing.
11.5 Binding Effect. No transfer of any portion of the
Trust Property or any interest thereon shall relieve any transferor of its
obligations under the Loan Documents. No transferor of any obligation under
any Loan Document shall be relieved of its obligations by any modification of
any Loan Document subsequent to the transaction.
11.6 Amendment. This Deed of Trust may not be modified
except in writing signed by (a) the Beneficiary, (b) the Trustees, and (c)
Grantor.
11.7 Severability. In the event any provision of this Deed
of Trust shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
11.8 Notices from Governmental Authorities Affecting The
Trust Property. Any notice from any governmental or quasi-governmental
authority or corporation with respect to the Trust Property sent to or known by
the Grantor shall be promptly transmitted to the Beneficiary and the Trustees.
11.9 Applicable Law. All Loan Documents shall be governed
by the Laws of the State of Maryland.
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<PAGE> 16
11.10 Time of the Essence. Time is of the essence with
respect to the Loan Documents.
11.11 Effect of Payments. Any payment or other performance
made in accordance with the Loan Documents by any person other than Grantor
shall not entitle such person to any right of subrogation under the Loan
Documents, unless expressly consented to in writing by the Beneficiary.
11.12 Word Forms. The use of any gender, tense, or
conjugation herein shall be applicable to all genders, tenses and conjugations.
The use of the singular shall include the plural and the plural shall include
the singular.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
Grantor has executed this Deed of Trust and Security Agreement as of the day
and year first above written.
WITNESS: THE GRANTOR:
TRUSTED INFORMATION SYSTEMS, INC.
/s/ Laurence B. Raber By: Stephen T Walker
- ---------------------------------- -------------------------------
Stephen T. Walker,
President
STATE OF MARYLAND, CITY/COUNTY OF HOWARD, to wit:
I HEREBY CERTIFY, that on this 26th day of July, 1995, before me, the
undersigned Notary Public of the State of Maryland, personally appeared Stephen
T. Walker, President of Trusted Information Systems, Inc., known to me (or
satisfactorily proved) to be the person who executed the aforegoing Deed of
Trust and Security Agreement and acknowledged that he executed the same for the
purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Laurence B. Raber
-----------------------------------
Notary Public
My commission expires: 6-1-98
I hereby certify that this document was prepared by or under the supervision of
an attorney admitted to practice before the Court of Appeals of the State of
Maryland.
Date: 7/26/95 /s/ Kevin J. Davidson
-----------------------------------
Kevin J. Davidson, Esquire
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<PAGE> 17
EXHIBIT "A"
BEING KNOWN AND DESIGNATED as Parcel A-2 as shown on a Plat entitled "Trusted
Information, Lot 2 and Parcel A-2, A Resubdivision of Lot I and Parcel A-1 As
Shown on Plat Nos. 6255 and 7357", which Plat is recorded among the Land
Records of Howard County as Plat M.D.R. No. 11735.
TOGETHER WITH an easement for the installation, maintenance, repair and other
uses consistent with the operation of a private septic system over so much of
Lot No. 2 on the Plat hereinabove described and referred to as is designated as
"Primary Private Sewerage Easement for Parcel "A-2" To Construct and Maintain a
Septic System" and over so much of Lot No. 2 on the Plat hereinabove described
and referred to as is designated "Alternate Private Sewerage Easement for
Parcel "A-2" To Construct and Maintain a Septic System".
TOGETHER WITH an easement for the installation, construction, maintenance,
re-construction, repair and other uses consistent with a stormwater management,
access and utility easement, over so much of Lot No. 2 on the Plat hereinabove
described and referred to as is designated as "Private Stormwater Management,
Access & Utility Easement".
TOGETHER WITH an easement for the installation, construction, maintenance,
re-construction, repair and other uses consistent with a stormwater management,
access and utility easement, over Lot No. 1 on the Plat of Wellington, as more
particularly described in Exhibit "A-1" attached hereto and made a part hereof.
TOGETHER WITH an easement for the installation, construction, maintenance,
re-construction, repair of, and access to and from an existing well and water
line, (including any new well drilled) over so much of Lot No. 2, on the Plat
of "Trusted Information, Lot 2 and Parcel A-2" hereinabove referred to, as is
described in Exhibit B attached hereto and made a part hereof.
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<PAGE> 1
EXHIBIT 10.11
SECURITY AGREEMENT
IT IS HEREBY AGREED as of the 26th day of July, 1995, by and between
TRUSTED INFORMATION SYSTEMS, INC., a Maryland corporation (the "Grantor"),
Stephen T. Walker, individually and Mercantile-Safe Deposit and Trust Company,
a Maryland banking institution (hereinafter referred to as the "Bank"), as
follows:
1. Recitals.
1.1 Bank has agreed to land to Grantor an amount
totalling One Million Eight Hundred Thousand Dollars ($1,800,000.00) (the
"Loan"), upon the terms and conditions set forth in the Construction Loan
Agreement (the "Loan Agreement") between the Grantor and the Bank of even date
herewith and being evidenced by a $1,800,000 Construction Loan Promissory Note
executed by the Grantor (the "Note").
1.2 Pursuant to the Loan Agreement, and as security
required by the Bank for the repayment of the Loan, Grantor has agreed to grant
a security interest to the Bank in all of that property described in Exhibit A
attached hereto and made a part hereof (collectively, the "Collateral").
1.3 Grantors and Bank hereby desire to set forth their
agreement regarding the pledge of the above-described Collateral as security
for the Loan.
2. Grant.
2.1 As security for payment of the Loan, together with
interest charges and expenses, if any, incurred by Bank in enforcing this
Agreement, including reasonable attorneys' fees, for the payment of all other
indebtedness now or hereafter owing by Grantor to Bank, and the performance by
Grantor of the covenants, warranties and agreements contained herein, in the
Loan Agreement and other Loan Documents (as defined in the Loan Agreement) and
in any other present or future agreements between Bank and Grantor, Grantor
hereby grants to the Bank a security interest in the above-described
Collateral, together with all accessories, attachments, additions,
substitutions and replacements therefor, and including any proceeds thereof,
whether
<PAGE> 2
in the possession and control of Grantor or not and whether now owned or
hereafter acquired (collectively, the "Collateral").
2.2 In the event of a default by Grantor in the payment
of any indebtedness secured by this Agreement, or in the performance of any
covenant, warranty or obligation hereunder or under any of the other Loan
Documents, the Grantor authorizes and grants a power of attorney to Bank to
sell, assign or otherwise convey all of Grantor's interest in any of the
Collateral, in any commercially reasonable manner and to apply the proceeds of
such sale, assignment or conveyance to the payment of all sums owed by Grantor
to the Bank.
3. Warranties. Grantor represents and warrants as follows, all
of which representations and warranties shall be deemed to have been reiterated
as of the date of making of any loan under the Loan Agreement, and all of which
shall survive any applicable closings:
3.1 Grantor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland and the
nature of Grantor's business does not require qualification to do business in
any other state.
3.2 The execution, delivery and performance hereof are
within Grantor's powers, have been duly authorized, are not in contravention of
the terms of Grantor's articles of incorporation, bylaws or other governing
documents, or of any indenture, agreement or undertaking to which Grantor is a
party, or with respect to which it has assumed or undertaken the obligations of
a party, or by which it is bound.
3.3 The Grantor is or (as to Collateral to be acquired
after the date hereof) will be the owner of the Collateral, free from any and
all liens or encumbrances, and no financing statement or lien of any kind
covering any Collateral or any proceeds thereof, is or will be on file in any
public office, and it will keep and maintain the Collateral free. and clear of
all other claims, encumbrances, charges and liens, except as provided herein
and in the Loan Agreement,
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<PAGE> 3
except for liens in favor of the Bank, and except for real estate taxes and
public charges, which shall be paid before they become interest bearing.
3.4 The Collateral owned by the Grantor will at all times
be located and used at the following location: 3060 Washington Road, Glenwood,
Maryland 21738, or at the locations listed on Schedule I attached hereto.
Grantor shall not remove or permit to be removed any Collateral owned by it
from such location without the prior written consent of Bank, except inventory
sold in the normal course of business.
3.5 Grantor will keep and maintain all Collateral in good
order, repair, and working condition.
3.6 Grantor will keep its books and accounts in
accordance with generally accepted accounting principles and, from time to
time, at Bank's request, will permit Bank to examine and make extracts from its
books and records, including corporate records. Unless in the hands of an
accountant whose name and address Grantor has supplied to the Bank, the books
and records of the Grantor with regard to the Collateral will at all times be
kept at the location specified above and will not be moved without the prior
written approval of Bank.
3.7 All information furnished to Bank concerning the
Grantor for the purpose of obtaining credit or a continuation of such credit
is, or will be at the time the same is furnished, accurate and correct in all
material respects and complete insofar as its completeness may be necessary to
give Bank a true and accurate knowledge of the subject matter, and any adverse
change in the Grantor's business or financial condition from the date such
information was furnished until all obligations of Grantor to Bank have been
paid in full, shall be immediately disclosed to Bank.
3.8 There is not now pending or, to the knowledge of
Grantor or any of its officers, are there threatened or contemplated against
Grantor, its subsidiaries (if any) or against any of the assets of Grantor or
its subsidiaries (if any), including the Collateral, any actions at
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<PAGE> 4
law, suits in equity, mechanic's liens, which suits, if decided against the
Grantor, would have a materially adverse affect on the financial condition of
such Grantor.
3.9 The Grantor will not sell, exchange, assign, loan,
deliver, lease, mortgage or otherwise dispose of the Collateral without the
written consent of the Bank, except for inventory sold in the normal course of
business and except as provided in the Loan Agreement.
4. Covenants. Grantor covenants and agrees with Bank as follows,
all of which covenants and agreements shall be deemed to have been reiterated
as of the date of making of any loan under the Loan Agreement, and all of which
shall survive any applicable closings:
4.1 At Grantor's own cost and expense, it will maintain
insurance on the Collateral at all times against such hazards, with such
companies, in such amounts and in such form as shall be acceptable to Bank, and
the insurance policies shall be endorsed to make the same payable first to the
Bank, as its interests may appear. In the event of any loss thereunder, the
carriers named therein are hereby directed by Grantor to make payment for such
loss to the Bank and not to Grantor and Bank jointly. If any insurance losses
be paid by check, draft or other instrument payable to Grantor and the Bank
jointly, Bank may endorse the name of Grantor thereon and do such other things
as it may deem desirable in order to reduce the same to cash. All loss
recoveries received by the Bank upon any insurance may be applied and credited
by Bank at its discretion to the indebtedness hereunder, or to any other
amounts owing from Grantor to Bank; provided, however, that before applying or
crediting any such loss recoveries, Bank shall consult with the Grantor, and,
unless the Bank determines in its sole discretion that its security for the
Loan would be impaired thereby, shall follow the recommendation of the Grantor
as to the proper application of such funds.
4.2 If Grantor fails to keep any Collateral free and
clear of all encumbrances, liens and charges, except as herein provided, or to
pay tax or public charges thereon, to keep the Collateral in good order or
repair, or fully insured as herein required, then Bank, at its discretion,
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<PAGE> 5
may discharge such encumbrances, liens or charges, or pay such taxes or other
public charges or procure and maintain such insurance or make such repairs as
it may deem advisable. All sums of money thus expended, and all other monies
paid by Bank to protect its interest in the collateral shall be repayable by
Grantor to Bank on demand, and if not so repaid, shall be added to the
outstanding amount of Grantor's debt to Bank, bear interest at the highest
prevailing rate under the Note (as defined in the Loan Agreement) and be
secured hereby.
4.3 Grantor will execute and deliver to Bank, from time
to time, upon demand, any supplemental agreements, statements, assignments and
transfers or instruments or documents relating to the Collateral, and such
other instruments as Bank may request in order that Bank's security interest in
the Collateral, and any proceeds derived therefrom, may be and continue
perfected.
4.4 Grantor will notify Bank immediately upon the
occurrence of any Event of Default set forth in Section 8 below.
5. Further Agreements. Grantor shall not sell, lease or encumber
any item of the Collateral without the prior written consent and release of
Bank, except inventory sold in the normal course of business.
6. Further Security. Grantor agrees that the security interest
of Bank in other equipment, inventory, fixtures and other goods of Grantor
under any other present or future agreements between Bank and Grantor, is also
(or will be) security for Grantor's obligations hereunder and under the other
Loan Documents and for payment of the Loan.
7. Inspection. Bank, its agents and its employees, shall have
the right during the ordinary business hours of Grantor to enter into the
business premises of Grantor or any other premises upon which Collateral is
located to inspect the Collateral. In order to facilitate this inspection,
Grantor shall deliver to Bank at Bank's request a list of the location of each
and every item of Collateral.
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<PAGE> 6
8. Default. Grantor shall be in default under this Agreement and
under all supplemental agreements and assignments executed by Grantor to Bank
upon the happening of any of the following Events of Default:
8.1 Default by the Grantor in the payment when due (and
after any applicable grace period) of any installment of principal and interest
due under the Loan Agreement or any of the Notes referred to therein.
8.2 Default in the performance of any obligation,
covenant, representation or agreement contained or referred to herein.
Provided, however, that in the event of a default or a breach in the covenants
or warranties contained in Sections 3.1, 3.2, 3.6 and 4.3, the Bank shall
provide written notice to the Grantor of such breach or default and the Grantor
shall have ten (10) calendar days from the date of receipt of such notice to
cure the applicable breach or default.
8.3 The loss, substantial damage or destruction of any of
the Collateral, unless such loss, damage or destruction was covered by the
insurance required hereunder.
8.4 Discovery by Bank that any representation or warranty
made herein or in any supplemental security agreement, or assignment, or any
other writing connected with this transaction (including the Loan Documents) or
with any other indebtedness of Grantor to Bank whether now existing or
hereafter contracted or acquired, was at the time of making thereof false,
misleading or untrue in any respect deemed by Bank to be material.
8.5 Discovery by the Bank that any representation or
warranty made herein or in any supplemental security agreement, or assignment,
or any other writing connected with this transaction (including the Loan
Documents) or with any other indebtedness of Grantor to Bank whether now
existing or hereafter contracted or acquired has, subsequent to the date of
making thereof become false, misleading or untrue in any respect deemed by Bank
to be material, and continuance of such default for a period of thirty (30)
days after the Bank has given written
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<PAGE> 7
notice thereof to the Grantor in the manner provided in Section 13 hereof,
specifying such default and requiring the sane to be remedied.
8.6 Grantor becomes insolvent, unable to pay its debts as
they mature, discontinues business operations, commits an act of bankruptcy,
makes an assignment for creditors, files a petition under any of the bankruptcy
laws, is adjudicated bankrupt, petitions or applies to any court for any
receiver or trustee for it, or commences any insolvency or other proceeding for
the relief of debtors, either under any law now or hereafter in force for
dissolution or liquidation, or if any of the above actions or proceedings
whatsoever is commenced against the Grantor and either remains undismissed for
forty-five (45) days or the Grantor indicates consent to, approval of or
acquiescence in the same.
8.7 The occurrence of any default (together with the
expiration of any applicable grace period) or Event of Default specified in any
of the other Loan Documents.
8.8 Grantor's failure to give Bank notice of any and all Events of
Default set forth herein.
9. Remedies. If Grantor shall be in default, as set forth herein,
Bank at any time then or thereafter, in its discretion may:
9.1 Lawfully enter any of Grantor's premises or other
premises on which the Collateral is located and lawfully remove the Collateral
to such place as Bank may deem advisable, or require Grantor to make any or all
such Collateral available at such place as Bank may direct, and upon ten (10)
days notice by registered or certified mail to Grantor, sell the Collateral, or
any part thereof, at public auction, in one or more sales, at such price or
prices, and upon such terms either for cash, credit or future delivery, as Bank
may elect, and at any such public sale or sales Bank may bid for and become the
purchaser of any or all such Collateral and/or upon five (5) days notice by
registered or certified mail to Grantor of the date and details of such sale or
sales, sell the Collateral, or any part thereof, at private sale or sales, at
any time or
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<PAGE> 8
place, in one or more sales, at such price or prices, and upon such terms,
either for cash, credit or future delivery as Bank may elect, and/or foreclose
its security interest in the Collateral in any way permitted by law.
9.2 The proceeds of such sales or collections may be
applied by the Bank, at its discretion, in any order it deems advisable to
interest, principal or other charges (including reasonable attorneys' fees and
all reasonable costs and expenses incurred by the Bank in connection with this
Agreement). In connection with the notices given of such sales, it is agreed
that in all instances, five (5) days notice by registered or certified mail is
reasonable notice.
9.3 The Bank may enforce its security interest hereunder
either alternately or concurrently with its rights under other agreements
between it and Grantor and shall have the full right to realize upon all
available collateral, collecting on the same or instituting proceedings in
connection therewith, until the Bank has received payment in full of all
amounts owing to it under all of its agreements with Grantor, including
principal, interest, costs and expenses. Any surplus remaining after payment
in full of all indebtedness of Grantor to the Bank, shall be paid by the Bank
to Grantor along with the reassignment or release of any remaining Collateral.
9.4 If all or any part of the Collateral at any time
consists of inventory, accounts, or chattel paper, (a) the Bank may at any time
and from time to time after the occurrence of an Event of Default hereunder,
and the Grantor hereby irrevocably appoints the Bank as its attorney-in-fact
(which appointment is coupled with an-interest), with power of substitution, in
the name of the Bank or in the name of the Grantor or otherwise, for the use
and benefit of the Bank, but at the cost and expense of the Grantor and without
notice to the Grantor, (i) notify the account debtors obligated on any of the
Collateral to make payments thereon directly to the Bank, and to take control
of the cash and non-cash proceeds of any such Collateral; (ii) charge to any
banking account of the Grantor with the Bank (or any of its affiliates) any
checks, drafts, cash or other remittances in payment or on account of payment
of
- 8 -
<PAGE> 9
such inventory, accounts or chattel paper and the cash proceeds of any returned
goods, the sale or lease of which gave rise to an account or chattel paper (all
of the foregoing are hereinafter collectively referred to as "Items of
Payment") credited to any account of Grantor with the Bank or any of its
affiliates which is dishonored by the drawee or maker thereof; (iii)
compromise, extend, or renew any of the Collateral or deal with the same as it
may deem advisable; (iv) release, make exchanges or substitutions for, or
surrender all or any part of the Collateral; (v) remove from the Grantor's
place of business all books, records, ledger sheets, correspondence, invoices,
and documents relating to or evidencing any of the Collateral or, without cost
or expense to the Bank, make such use of the Grantor's place(s) of business as
may be reasonably necessary to administer, control, and collect the Collateral;
(vi) repair, alter, or supply goods, if any, necessary to fulfill in whole or
in part the purchase order of any account debtor; (vii) demand, collect,
receipt for, and give renewals, extensions, discharges, and releases of any of
the Collateral; (viii) institute and prosecute legal and equitable proceedings
to enforce collection of, or realize upon, any of the Collateral; (ix) settle,
renew, extend, compromise, compound, exchange, or adjust claims with respect to
any of the Collateral or any legal proceedings brought with respect thereto;
(x) endorse the name of the Grantor upon any Items of Payment relating to the
Collateral or upon any proof of claim in bankruptcy against an account debtor;
and (xi) receive and open all mail addressed to the Grantor and, if an Event of
Default exists hereunder, notify postal authorities to change the address for
the delivery of mail to the Grantor to such address as the Bank may designate;
and (b) the Grantor will (i) make no material change to the terms of any sale
or lease of inventory or of any account or chattel paper without the prior
written permission of the Bank; (ii) on demand, make available in form
acceptable to the Bank shipping documents and deliver receipts evidencing the
shipment of goods which gave rise to the sale or lease of inventory or of an
account or chattel paper, completion certificates, or other proof of the
satisfactory performance of services which gave rise to the sale or lease of
inventory or of an
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<PAGE> 10
account or chattel paper, copies of the invoices arising out of the sale or
lease of inventory or for an account, and the Grantor's copy of any written
contract or order from which the sale or lease of inventory, an account, or
chattel paper arose; and (iii) when requested regularly advise the Bank
whenever an account debtor returns or refuses to retain any goods, the sale or
lease of which gave rise to an account or chattel paper, and of any delay in
delivery or performance, or claims made, in regard to any sale or lease of
inventory, account, or chattel paper, and will comply with any instructions
which the Bank may give regarding the sale or other disposition of such
returns.
9.5 If the Grantor fails to perform, observe, or comply
with any of the conditions, terms, or covenants contained in this Agreement,
the Bank, without notice to or demand upon the Grantor and without waiving or
releasing any of the Grantor's obligations or any Event of Default, may (but
shall be under no obligation to) at any time thereafter perform such
conditions, terms, or covenants for the account and at the expense of the
Grantor, and may enter upon any place of business or other premises of the
Grantor for that purpose and take all such action thereon as the Bank may
consider necessary or appropriate for such purpose. All sums paid or advanced
by the Bank in connection with the foregoing and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
incurred in connection therewith (collectively, the "Expense Payments")
together with interest thereon at a per annum rate of interest which is equal
to the then highest rate of interest charged under the Note (as defined in the
Loan Agreement) from the date of payment until repaid in full, shall be paid by
the Grantor to the Bank on demand and shall constitute and become a part of the
obligations secured hereby.
10. Waiver. No waiver of any power, privilege, right or remedy
(hereinafter collectively referred to as "Rights") hereunder shall be effective
unless in writing. No delay on the part of the Bank in exercising any Rights,
hereunder, or under any other instrument executed
- 10 -
<PAGE> 11
by any party in connection with the transaction (including the Loan Documents)
shall operate as a waiver thereof, and no single or partial exercise of any
such Rights shall preclude other or further exercise thereof, or the exercise
of any other Rights. Waiver by the Bank of any default by the Grantor or any
other party shall not constitute a waiver of any subsequent defaults, but shall
be restricted to the default so waived. If any provision or part of any
provision of this Agreement shall be contrary to any law which the Bank might
seek to apply or enforce, or should otherwise be defective, the other
provisions, or parts of such provisions, of this Agreement shall not be
affected thereby, but shall continue in full force and effect. All Rights of
the Bank hereunder are irrevocable and cumulative, and not alternative or
exclusive, and shall be in addition to all Rights given hereunder or in or by
any other instruments or any laws now existing or hereafter enacted.
11. Expenses. Grantor shall pay all reasonable expenses and costs
of any nature whatsoever incurred by the Bank in connection with this Agreement
including, but not limited to, all filing fees and recording costs, stamp
taxes, and reasonable attorneys' fees. The Grantor further agrees to pay any
reasonable attorneys' fees incurred in the collection of or enforcement of this
Agreement, any of the other Loan Documents and any and all supplemental
security agreements and lease assignments executed and delivered by Grantor to
the Bank.
12. Assigns. This Agreement shall apply and inure to the benefit
of and bind Grantor and the Bank and their respective successors and assigns.
13. Notices. All notices, requests and demands upon the
respective parties hereto shall be deemed to have been given or made when
delivered against hand receipt or two (2) business days after deposit in the
United States mail, postage prepaid, or one (1) business day after deposit with
a nationally recognized overnight delivery service, and addressed as follows:
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<PAGE> 12
If to the Grantor:
-----------------
Trusted Information Systems, Inc.
3060 Washington Road
Glenwood, Maryland 21738
Attention: Stephen T. Walker
With Copies to:
David A. Carney, Esquire
Reese & Carney
10715 Charter Drive
Columbia, MD 21044
If to the Bank:
--------------
Mercantile-Safe Deposit and Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Attention: Robert C. Barclay
With copies to:
Kevin J. Davidson, Esquire
Gallagher, Evelius & Jones
Park Charles - Suite 400
218 North Charles Street
Baltimore, Maryland 21201
or to such other address and addresses with respect of any party as such party
shall notify the others in writing.
14. Termination. This Agreement and the Grantor's assignment of
rights hereunder shall terminate when all obligations of the Grantor to the
Bank have been paid in full.
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<PAGE> 13
IN WITNESS WHEREOF, the Grantor has executed this Agreement as of the
date first above written.
WITNESS: GRANTOR:
TRUSTED INFORMATION SYSTEMS, INC.
/s/ Laurence B. Raber By: /s/ Stephen T. Walker (SEAL)
- --------------------------- ------------------------------
Stephen T. Walker,
President
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<PAGE> 14
EXHIBIT A
All inventory, accounts receivable, book debts, notes, acceptances, drafts,
contracts, contract rights, choses in action, chattel paper, leases,
instruments, accounts and general intangibles arising out of or in connection
with the operation of the Grantor's businesses generally and/or located at
Grantor's business office located at 3060 Washington Road, Glenwood, Howard
County, Maryland.
<PAGE> 1
EXHIBIT 10.12
PERSONAL GUARANTY AGREEMENT
(Payment and Performance)
This Guaranty Agreement is made as of the 26th day of July, 1995, by
and between Stephen T. Walker (hereinafter referred to as "Guarantor") and
Mercantile-Safe Deposit and Trust Company, a Maryland banking institution
(hereinafter referred to as the "Bank.")
RECITALS
a. Trusted Information Systems, Inc., a Maryland corporation (the
"Borrower"), has requested a loan from the Bank in the amount of One Million
Eight Hundred Thousand Dollars ($1,800,000.00) (the "Loan").
b. The Bank is willing to make the Loan to the Borrower, pursuant
to the terms and conditions of a Construction Loan Agreement between the
Borrower and the Bank dated of even date herewith (the "Loan Agreement"), which
Loan is evidenced by a Construction Loan Promissory Note executed by the
Borrower in favor of the Bank as of the date hereof (the "Note"), but only if
the Guarantor guarantees the Loan in accordance with the terms and conditions
of this Guaranty Agreement.
c. The Guarantor is the President and a Director of the
Borrower and has ownership interests in the Borrower and will benefit from the
making of the Loan to the Borrower. He is willing to give the guaranty
requested so as to induce the Bank to make the Loan to the Borrower.
NOW THEREFORE, in consideration of these premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor gives the following guaranty of payment and of
performance to the Bank on behalf of the Borrower.
Section 1. The Guaranty. The Guarantor unconditionally and
irrevocably guarantees payment of any and all sums due and owing the Bank now
or in the future as a result of the Loan described above to the Borrower
(including any and all future loans from the Bank to the Borrower) including,
but not limited to, all amounts of principal, interest, late charges,
penalties, reimbursements, advancements, escrows, and fees. The Guarantor
further unconditionally and irrevocably guarantees that all sums due and owing
shall be paid when as due, whether by reason of installment, maturity,
acceleration or otherwise, time being of the essence. The Guarantor still
further unconditionally and irrevocably guarantees the prompt, complete, and
strict performance by the Borrower of any and all of the terms, covenants,
agreements and conditions contained in the Loan Agreement and other documents
referred to therein (the "Loan Documents").
Section 2. Nature of the Guaranty. The guaranty of the
Guarantor hereunder shall be direct, immediate, and primary and is one of
payment and not just collection.
Section 3. Bank Need Not Pursue Against Borrower, Any Guarantor,
or Collateral. The Bank shall be under no obligation to pursue the Bank's
rights against the Borrower or any other guarantor or Guarantor or any of the
Borrower's or any other guarantor's or Guarantor's collateral or any mortgage,
deed of trust, pledge agreement or any other instrument securing the Loan
before pursuing the Bank's rights against any Guarantor.
Section 4. Accuracy of Representations. The Guarantor warrants
that, to the best of his knowledge and belief, all of the Guarantor's
representations and those of the Borrower made in obtaining the Loan from the
Bank are true and correct and not knowingly misleading and Guarantor agrees to
indemnify the Bank from any loss or expense as a result of any representation
or statement of the Guarantor or of the Borrower being false, incorrect, or
knowingly misleading.
Section 5. Rights of Bank to Deal with Borrower, Guarantors, and
Collateral. The Bank may without compromising, impairing, or in any way
releasing the Guarantor from the Guarantor's obligations hereunder and without
obtaining the prior approval of the Guarantor at any time or from time to time
(a) waive or excuse a default or defaults by the Borrower or any guarantor or
Guarantor; (b) grant extensions of time for payment or
<PAGE> 2
performance by the Borrower or any guarantor or Guarantor; (c) release,
substitute, or add collateral of the Borrower or any guarantor or Guarantor;
(d) release the Borrower or any guarantor or Guarantor; (e) modify, change or
amend in any respect the Bank's agreement with the Borrower or any guarantor or
Guarantor.
Section 6. Waivers by the Guarantors. The guarantor or
Guarantor waives (a) presentment and demand for payment of any sum due from the
Borrower or any guarantor or Guarantor and protest of nonpayment; (b) notice of
default by the Borrower or any guarantor or Guarantor; (c) DEMAND FOR
PERFORMANCE BY THE BORROWER OR ANY GUARANTOR OR GUARANTOR; AND (d) ANY RIGHT TO
A JURY TRIAL IN ANY ACTION BROUGHT AT ANY TIME OR FROM TIME TO TIME ON THIS
GUARANTY AGREEMENT OR ANY OTHER LOAN DOCUMENT.
Section 7. Restrictions on Becoming a Creditor of the Borrower.
The Guarantor hereby waives any claim, as that term is defined in the United
States Bankruptcy Code, which the Guarantor might now have or might hereafter
acquire against the Borrower, including, but not limited to, claims arising by
way of subrogation, reimbursement, indemnity, exoneration, contribution,
extensions of credit or equity contributions, it being the intent of the
parties that the Guarantor shall not be a creditor of the Borrower under the
United States Bankruptcy Code.
Section 8. Events Authorizing Acceleration of Guaranty. Should
any of the following Events of Default occur with respect to a Guarantor or
with respect to the Borrower, the Bank may, in the Bank's sole and absolute
discretion, immediately and without notice or demand accelerate and call due as
to Guarantor the full unpaid amount of the Loan plus all interest and other
fees and charges then accrued: (a) the entry of a decree or order for relief by
a court having jurisdiction against or with respect to the Guarantor or the
Borrower in an involuntary case under the federal bankruptcy laws or any state
insolvency or similar laws ordering the liquidation of a Guarantor or the
Borrower or a reorganization of the Guarantor or the Guarantor's business and
affairs or of the Borrower or the Borrower's business and affairs or the
appointment of a receiver, liquidator, assignee, custodian, trustee, or similar
official for the Guarantor or the Guarantor's property or for the Borrower or
any of the Borrower's property and the failure to have such decree, order, or
appointment discharged or dismissed within thirty (30) days from the date of
entry; (b) the commencement by the Guarantor or the Borrower of a voluntary
case under the federal bankruptcy laws or any state insolvency or similar laws
or the consent by the Guarantor or the Borrower to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, or similar
official for the Guarantor of any of the Guarantor's property or for the
Borrower or any of the Borrower's property, or the making by the Guarantor or
by the Borrower of any assignment for the benefit of creditors, or the failure
by the Guarantor generally to pay such Guarantor's debts as the debts become
due or the failure by the Borrower generally to pay the Borrower's debts as
such debts become due; (c) the entry of a judgment against the Guarantor or the
Borrower and the failure to satisfy such judgment within thirty (30) days
(either by payment or by the filing of a supersedeas bond) unless such judgment
has been appealed in good faith and the legal affect of such appeal is to stay
the obligation to satisfy such judgment until resolution of the appeal; (d) a
default by the Borrower in payment or in performance of the Borrower's
obligations under any of the Loan Documents (together with the expiration of
any applicable grace period); (e) a default by the Guarantor in any of the
terms or provisions of this Guaranty Agreement and failure to cure same within
fifteen (15) days after the Bank gives written notice to the Guarantor; (f) the
occurrence of any default or Event of Default as defined in any of the Loan
Documents; and (g) the death of Stephen T. Walker.
Section 9. Financial Statements and Tax Returns. The Guarantor
covenants and agrees to furnish the Bank with un-audited annual personal
financial statements in form approved by the Bank promptly after the close of
each calendar year or at such other times as the Bank may request, and shall
furnish the Bank with true and correct copies of all state and federal tax
returns within ten (10) days after they are filed.
- 2 -
<PAGE> 3
Section 10. Confession of Judgment; Venue. Upon the occurrence
of any Event of Default hereunder the Guarantor authorizes any attorney
admitted to practice before any court of record in the United States to confess
judgment on behalf of the Guarantor against the Guarantor, in the full amount
due on the Loan plus attorneys' fees of fifteen percent (15%) of such amount.
Provided, however that in no event shall the Bank collect and retain attorneys'
fees in excess of those fees actually incurred by the Bank. In any action
brought under this Guaranty, whether a confessed judgment proceeding or
otherwise, the Guarantor hereby consents to the exercise of personal
jurisdiction over him by any state or federal court located in the State of
Maryland and agrees that venue shall be proper in any County of the State of
Maryland or in Baltimore City, as well as in any court of competent
jurisdiction in the State of Maryland. The Guarantor waives the benefit of any
and every statute, ordinance, or rule of court which may be lawfully waived
conferring upon the Guarantors any right or privilege of exemption, stay of
execution, or supplementary proceedings, or other relief from the enforcement
or immediate enforcement of a judgment or related proceedings on a judgment.
Section 11. Expenses of Collection. Should this Guaranty
Agreement or any claim hereunder be referred to an attorney for collection,
whether or not judgment has been confessed or suit has been filed, the
Guarantor shall pay all of the Bank's actual costs, fees (including actual
attorneys' fees) and expenses resulting from such referral.
Section 12. Binding Nature. This Guaranty Agreement shall inure
to the benefit of and be enforceable by the Bank and the Bank's successors and
assigns, and shall be binding upon and enforceable against the Guarantor and
the Guarantor's personal representatives, heirs, and assigns.
Section 13. Bank May Assign; Termination of Guaranty. This
Guaranty Agreement may be assigned by the Bank, and shall terminate upon the
performance by the Borrower and the Guarantor of all obligations to the Bank
under the Loan Documents and the repayment in full of all sums due the Bank,
whether principal, interest, fees, charges, assessments, or otherwise.
Section 14. Notices. All notices, requests and demands upon the
respective parties hereto shall be deemed to have been given or made when
delivered against hand receipt or two (2) business days after deposit in the
United States mail, postage prepaid, or one (1) business day after deposit with
a nationally recognized overnight delivery service, and addressed as follows:
If to the GUARANTOR:
--------------------
Stephen T. Walker
c/o Trusted Information Systems, Inc.
3060 Washington Road
Glenwood, Maryland 21738
With copies to:
David A. Carney, Esquire
Reese & Carney
10715 Charter Drive
Columbia, MD 21044
If to the BANK:
--------------
Mercantile-Safe Deposit and Trust Company
- 3 -
<PAGE> 4
Two Hopkins Plaza
Baltimore, Maryland 21201
Attention: Robert C. Barclay
With copies to:
Kevin J. Davidson, Esquire
Gallagher, Evelius & Jones
The Park Charles - Suite 400
218 North Charles Street
Baltimore, Maryland 21201-4033
or to such other address and addressee with respect of any party as such party
shall notify the others in writing.
Section 15. Waiver. No waiver of any power, privilege, right or
remedy (hereinafter collectively referred to as "Rights") hereunder shall be
effective unless in writing. No delay on the part of the Bank in exercising
any Rights hereunder, or under any other instrument executed by the Borrower or
any other person in connection with the transaction (including the Loan
Documents) shall operate as a waiver thereof, and no single or partial exercise
of any such Rights shall preclude other or further exercise thereof, or the
exercise of any other Rights. Waiver by the Bank of any default by the
Borrower or any other person shall not constitute a waiver of any subsequent
defaults, but shall be restricted to the default so waived. If any provision
or part of any provision of this Agreement shall be contrary to any law which
the Bank might seek to apply or enforce, or should otherwise be defective, the
other provisions, or parts of such provisions, of this Agreement shall not be
affected thereby, but shall continue in full force and effect. All Rights of
the Bank hereunder are irrevocable and cumulative, and not alternative or
exclusive, and shall be in addition to all Rights given hereunder or in or by
any other instruments or any laws now existing or hereafter enacted.
Section 16. Choice of Law. This Guaranty Agreement shall be
construed, interpreted and enforced in accordance with the law of the State of
Maryland.
Section 17. Tense, Gender, Captions. As used herein, the plural
shall refer to and include the singular, and the singular, the plural and the
use of any gender shall include and refer to any other gender as the context
may require. All captions are solely for the purpose of convenience.
Section 18. Terms of Loan Documents. The Guarantor has read the
Note and other Loan Documents and fully understand the terms thereof and the
extent of his obligations in guaranteeing payment and performance by the
Borrower thereunder.
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<PAGE> 5
IN WITNESS WHEREOF, and intending to be legally bound, the Guarantor
has hereunto set his hand and seal as of the day and year first above written.
WITNESS: GUARANTOR:
/s/ Laurence B. Raber /s/ Stephen T. Walker (SEAL)
- -------------------------------- --------------------------------
Stephen T. Walker
STATE OF MARYLAND, CITY/COUNTY Of HOWARD, to wit:
I HEREBY CERTIFY, that on this 26th day of July, 1995, before me, the
undersigned Notary Public of the State of Maryland, personally appeared Stephen
T. Walker, known to me (or satisfactorily proved) to be the person who executed
the aforegoing Personal Guaranty Agreement, and acknowledged that he executed
the same in the capacity and for the purposes therein recited.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Laurence B. Raber
-----------------------------------
Notary Public
My commission expires: 6-1-98
- 5 -
<PAGE> 1
EXHIBIT 10.13
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
REVOLVING NOTE
(Commercial)
$2,000,000.00 April 4, 1996
In this Note, the Bank named above is hereinafter referred to as
"Bank." The Undersigned means each and all parties who sign below, whether one
or more than one, and their obligations hereunder are joint and several.
On Demand, the Undersigned promises to pay to the order of Bank
$2,000,000.00 (Two Million & 00/100 U.S. Dollars), or so much thereof as Bank
in its discretion has advanced or readvanced and is outstanding hereunder
(being herein called "Principal Sum"), with interest as sated below on the
Principal Sum. Bank has established a revolving line of credit for Undersigned
from which Undersigned, subject to Bank's consent, may obtain one or more loans
from time to time, with the aggregate unpaid Principal Sum of such loans
actually advanced and remaining unpaid not to exceed the face amount of this
Note. Advances and readvances hereunder remaining unpaid from time to time
shall bear interest each day until paid at a daily periodic rate corresponding
to an annual percentage rate equal to 1% percent above Mercantile's prime rate
(being herein called the "Index"). The daily periodic interest rate will
increase or decrease as the Index increases or decreases. Where Bank's Prime
Rate is used as the Index, the "Prime Rate" is one of several rates set by Bank
from time to time as an interest rate base for borrowings. Bank may lend at
rates above and below the Prime Rate. Interest shall be due and payable
monthly beginning 5/1/96.
If Maker fails to pay any amount within 15 days after the date on
which it is due, Maker agrees to pay a late charge of the greater of $2 or 5%
of the delinquent amount. All payments will be applied in any manner we chose
except as otherwise required by applicable law. Generally, payments are
applied first to interest due; second to principal due; third to late charges;
fourth to any remaining interest and finally to the remaining principal.
Maker covenants to provide Bank such financial information as Bank may
request from time to time and authorizes Bank to make all inquiries it deems
necessary to verify the accuracy of the information provided, to protect and
maintain its assets in good condition and repair, free of all liens and
encumbrances, to keep its assets insured against loss by fire, theft and other
casualties as required by Bank in such amounts and by carriers satisfactory to
Bank, not to dispose of any assets except in the ordinary course of business,
and to pay all taxes and assessment when due.
Advances and readvances hereunder may be prepaid in whole or in part.
The fact that the balance hereunder may be reduced to zero from time to time
will not affect the continuing validity of this Note, and the balance may be
increased to the face amount of the Note after such reductions to zero. Bank
in its discretion may make an advance which causes the principal
<PAGE> 2
balance to exceed the face amount of the Note and such excess shall be paid by
the Undersigned upon demand with interest as provided above.
Each of the following events shall constitute a default hereunder; (a)
the breach of any representation in or the failure of any Obligor (which term
shall include each Maker, endorser, surety and guarantor of any of the
Liabilities) to perform any covenant or agreement under any of the Liabilities
(which term shall include all obligations under this Note, and any renewals,
extensions or modifications thereof, and all other obligations of any kind of
Maker to Bank and to any other party to the extent of Bank's interest therein,
now or hereafter existing, including liabilities to Bank of Maker as a member
of any partnership or other group and whether incurred by Maker as principal or
otherwise); (b) the death of any Obligor; (c) the filing of any petition under
the Federal Bankruptcy Code or any similar Federal or state statute, by or
against any Obligor; (d) and application or the appointment of a receiver for,
the making of a general assignment for the benefit of creditors by, or the
insolvency of any Obligor; (e) commencement of any proceeding under any Federal
or state statute or rule providing for the relief of debtors, composition of
creditors, arrangement, reorganization, receivership liquidation or any similar
event by or against any Obligor; (f) the entry of a judgment against any
Obligor; (g) the issuing of any attachment or garnishment, or the filing of any
lien, against any property of any Obligor; (h) the suspension by any Obligor of
the transaction of such Obligor's usual business; (i) the merger or
consolidation of any corporate Obligor with any other corporation or the
transfer, disposition or incumbrance of all or a substantial part of the assets
of any Obligor; (j) if any Obligor misinformed or failed to inform Bank as to
any matter which the Bank deems material to a Liability; (k) the determination
by an officer of Bank that an adverse change has occurred in the financial
condition of any Obligor from the condition of such Obligor as heretofore most
recently disclosed to Bank by a financial statement or in any other manner. If
this Note is payable upon demand, demand may be made whether or not an event
has occurred.
To secure payment of the Liabilities, the Bank is hereby granted a
lien and security interest in all property of any obligor held now or hereafter
by Bank in any capacity and upon the occurrence of any default hereunder Bank
shall have the right, immediately and without further action by it, to set-off
against any of the Liabilities, all such property, and Bank shall be deemed to
have exercised such right of set-off and to have made a charge against such
property immediately upon the occurrence of such default even though such
charge is made or entered subsequently on the books of Bank.
A delay by Bank in exercising any right or remedy shall not constitute
a waiver. A waiver of a default, right or remedy shall not constitute a waiver
of a subsequent default, right or remedy. A single or partial exercise of a
right or remedy shall not preclude or constitute a waiver of any unexercised
right or remedy. Bank will not waive a default by accepting partial payment of
any amount due. All rights and remedies hereunder and under applicable laws
shall be cumulative. Every obligation of each Obligor is joint and several.
Bank may exercise its rights against Collateral or an Obligor without first
having recourse against any other collateral or Obligor.
- 2 -
<PAGE> 3
Whenever any Obligor shall be in default hereunder, Bank at its option
(1) may cure the default at Maker's expense; (2) may refuse to make further
advances; (3) may declare any of the Liabilities immediately due and payable;
and (4) may exercise any or all rights and remedies available to it under the
Liabilities and applicable law.
Maker convenants to pay on demand, with interest until paid in full at
the rate imposed upon principal herein, all expenses incurred by Bank,
including legal fees, to cure any default herein, to enforce any provisions of
the Liabilities or to exercise any right or remedy.
Each Obligor waives presentment, notice of dishonor, protest and all
other demands and notices in connection with any of the Liabilities and with
respect to any collateral and waives any right to trial by jury and further
agrees that the courts of the State of Maryland shall have personal
jurisdiction over it in any legal proceedings with respect to any of the
Liabilities. Each Obligor without further notice assents to all extensions of
the time of payment of any Liability or any other indulgence or modification of
a Liability, to any substitution, exchange or release of collateral and to the
addition or release of any Obligor, whether or not done for consideration, all
without in any way affecting its obligation. Bank may unjustifiably and
without reservations of rights impair any Obligor's recourse against another
obligor or collateral. Except when invalid or unenforceable by statute or
otherwise, each and every Obligor authorizes any attorney designated by Bank to
confess judgment in any Court of Record and authorizes Bank to instruct the
clerk of any Court of Records to confess judgment against such Obligor at any
time after this Note is due by its terms or upon default, for the unpaid
balance of this Note and interest payable thereon, together with court costs
and all other amounts payable to Bank pursuant thereto, including an attorney's
fees of 15% of the total sum due, provided, however, that any lien arising from
such confession of judgment shall not without further proceedings, apply or
attach to any real property as described in section 12-40(i) of the Maryland
Secondary Mortgage Loan Law as the same may be amended from time to time unless
this is a loan to a corporation or a commercial loan in excess of $75,000.00.
The Undersigned hereby authorizes the Bank to accept instructions by
telephone from any of the Undersigned or a duly authorized representative of
the Undersigned to make advances or receive a repayment hereunder. All
advances made hereunder shall be credited to the Undersigned's deposit account
with the Bank. The Undersigned agrees that the actual crediting of the sum of
money so borrowed to the Undersigned's deposit account shall constitute
conclusive evidence that the advance was made, and the failure of the Bank to
forward to the Undersigned an advice of credit shall not affect the obligation
of the Borrower to repay such advance.
The Note contains the full agreement of the parties and may be
modified only by a writing executed by the party to be charged.
- 3 -
<PAGE> 4
This Note is executed and delivered the date above written as an
instrument under Seal, specifically intending it to be a specialty and shall be
governed by the Laws of the State of Maryland.
<TABLE>
<CAPTION>
<S> <C>
CORPORATIONS OR PARTNERSHIPS INDIVIDUALS SIGN BELOW
SIGN BELOW
Trusted Information Systems, Inc. (SEAL) (SEAL)
- ------------------------------------------- -------------------------
By: /s/ Stephen T. Walker (SEAL) (SEAL)
---------------------------------------- -------------------------
Stephen T. Walker, President
By: (SEAL) (SEAL)
---------------------------------------- -------------------------
</TABLE>
GUARANTY
In consideration of the loan or forebearance evidenced by the
foregoing Note, the undersigned (jointly and severally) absolutely and
unconditionally guarantees to Bank and every subsequent holder of the Note
(irrespective of its genuineness, validity, regularity or enforceability or any
other circumstance) the prompt payment of the Note when due, according to its
terms, which are incorporated herein, and as they may be modified subsequently
by any extension or renewal, in whole or in party, any change in the interest
rate or other term, or the exchange, assignment, extension, waiver,
modification or surrender of any related right or security; and Bank and every
subsequent holder of the Note at its option may proceed in the first instance
against the undersigned to collect any obligation covered by this Guaranty,
without first proceeding against any Collateral or other Obligor.
Any debt of Borrower to the Undersigned, now or hereafter existing, is
and shall be subordinated to the indebtedness and liability herein guaranteed.
The Undersigned agrees not to assert any right, directly or by subrogation,
against the Borrower or any assets securing payment of the indebtedness or
liability herein guaranteed, so long as this Guaranty is outstanding.
- 4 -
<PAGE> 5
Executed and delivered on the date of the foregoing Note under Seal
and specifically intending this to be a specialty, governed by the laws of the
State of Maryland.
<TABLE>
<S> <C>
CORPORATIONS OR PARTNERSHIPS INDIVIDUALS SIGN BELOW
SIGN BELOW
(SEAL)
- ------------------------------------------------- -------------------------------
Name of Corporation or Partnership Stephen T. Walker
By: (SEAL) (SEAL)
---------------------------------------- -------------------------------
Martha A. Branstad
By: (SEAL) (SEAL)
---------------------------------------- -------------------------------
</TABLE>
- 5 -
<PAGE> 1
EXHIBIT 10.14
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
SECURITY AGREEMENT
Name and Address of Borrower: Trusted Information Systems, Inc., 3060
Washington Road, Glenwood, MD 21738 (hereinafter called "Obligor") does hereby
grant to the above named bank (hereinafter called "Bank"), its successors and
assigns, a security interest in the following collateral (all hereinafter
called "Collateral"), Pledge of 100,000 shares of Cybercash, Inc. stock to
secure all liabilities of Obligor to Bank, now existing and hereafter arising,
of any kind and nature, primary, secondary, direct, contingent, joint and
several (hereinafter called the "Liability" or the "Liabilities").
(1) OBLIGOR'S WARRANTIES:
Obligor warrants:
(a) That it owns the Collateral free and clear of all liens and
encumbrances, defaults and adverse claims and conditions except as has been
disclosed to Bank by Obligor in writing.
(b) That it has the right to make this agreement and has duly authorized
its execution.
(c) That the collateral is used or bought for use primarily for business
purposes and is located at Obligor's primary place of business, unless Obligor
has otherwise notified Bank in writing.
(d) That Obligor's principal place of business is the address specified
above and all other places of business are specified below.
(e) That all financial information given to Bank about Obligor, the
Collateral and all other parties to and collateral for the Liabilities is
complete, accurate and not misleading.
(2) OBLIGOR'S AGREEMENTS:
Obligor agrees:
(a) To perform all obligations under each of the Liabilities when due.
(b) To maintain accurate and complete books and records (complying with
generally accepted accounting principles) relating to the Collateral.
(c) To provide Bank such financial information as Bank may request from
time to time and it authorizes Bank to make all inquiries Bank deems necessary
to verify the accuracy of the information provided.
(d) To protect and maintain the Collateral in good condition and repair,
free of all liens and encumbrances.
(e) To defend the Collateral against the claims and demands of all persons
and to pay all taxes and fees levied thereon or in connection with the use
thereof.
(f) To keep the Collateral insured against loss by fire, theft, and other
hazards for the benefit of, and as required by Bank (naming Bank either as loss
payee or as an additional insured at Bank's option) in such amounts and by
carriers satisfactory to Bank. All policies or certificates of insurance shall
be delivered to the Bank. Obligor assigns to Bank all right to receive
proceeds of insurance and returned premiums, directs any insurer to pay all
proceeds and returned
<PAGE> 2
premiums directly to Bank, and authorizes Bank to endorse any draft for the
proceeds or premiums, which shall be additional Collateral.
(g) Not to dispose of any Collateral except in the ordinary course of
business.
(h) To pay all taxes and assessments when due and to permit nothing to be
done which would impair the continued perfection and value of the security
interest granted herein.
(i) To pay on demand as part of the debt hereby secured all expenses (with
interest thereon until repaid in full at the highest rate charged against
principal in any Liability) incurred by Bank, including legal fees, to cure any
default herein, to determine the status of Bank's security interest in the
Collateral, to preserve and maintain the Collateral, to enforce any provision
herein and to exercise any right or remedy.
(j) To execute and deliver all documents tendered by Bank to perfect,
continue and confirm Bank's security interest in the Collateral. Bank is
authorized to file any documents it deems appropriate to perfect or maintain
the perfection of the security interest hereby or hereafter granted with
respect to Collateral without the signature of Obligor and to execute and file
any such document on behalf of Obligor.
(k) To pay all costs of any such filings, including recording taxes and
filing fees and to sign, upon request, any instruments, documents, or other
papers which Bank may request to confirm, perfect or maintain perfection of its
security interest in the Collateral.
(l) To promptly provide to Bank at its request, whether before or after
default, access to the Collateral and all books and records relevant to
Obligor's business, and after default, at Bank's request, to assemble the
Collateral and make it available to Bank at a place reasonably convenient to
both parties.
(m) To immediately advise Bank in writing of any change of Obligor's
places of business, or the opening of any new place of business.
(n) Bank is hereby appointed Obligor's attorney-in-fact to do all acts and
things which Bank may deem necessary to perfect and continue perfected the
security interest created by this security agreement and to protect the
Collateral.
(3) DEFAULT BY OBLIGOR:
Until default Obligor may retain possession of the Collateral and use it in
any lawful manner not inconsistent with the agreements herein, or with the
terms and conditions of any policy of insurance thereon.
Upon default by Obligor in the performance of any covenant or agreement in
any Liability, or if any warranty should prove untrue, or if Obligor should
become insolvent, seek protection from creditors under state or federal law,
suspend transaction of its usual business, dissolve, merge, consolidate or
reorganize, Bank shall have all of the rights and remedies of a secured party
under the Maryland Uniform Commercial Code or other applicable law and all
rights provided herein, in the Liabilities, or in any other applicable security
or loan agreement, all of which rights and remedies shall, to the full extent
permitted by law, be cumulative. In addition, Bank may cure the default at
Obligor's expense or take possession of Collateral and all records recording
thereto and for that purpose may enter Obligor's premises without legal
process. Obligor authorizes Bank to see Collateral and consents to a decree
for sale of Collateral. Any notice of sale or other action by Bank shall be
reasonable if sent by regular mail to Obligor's principal place of business
- 2 -
<PAGE> 3
as disclosed in Bank's records at least five days before the proposed action.
Obligor will repay on demand all expenses (including legal fees) incurred by
Bank in enforcing its rights with interest thereon until repaid in full at the
highest rate charged against principal in any Liability. The waiver of any
default hereunder shall not be a waiver of any subsequent default. No
provisions hereof may be modified except in writing signed by the party to be
charged. This agreement shall be governed by the laws of the State of
Maryland.
All rights of Bank hereunder shall inure to the benefit of its successors
and assigns; and all obligations of Obligor shall bind its heirs, executors,
administrators, successors and assigns.
IN WITNESS WHEREOF, Obligor has caused this Agreement under seal to be
executed as a specialty this 4th day of April, 1996.
Places of Business
<TABLE>
<S> <C>
3060 Washington Road Trusted Information Systems, Inc.
- ---------------------------------- -------------------------------------------------
Name of Corporation or Partnership
Glenwood, MD 21738
- ----------------------------------
By: /s/ Stephen T. Walker (SEAL)
---------------------------------------
Stephen T. Walker, President
By: (SEAL)
---------------------------------------
INDIVIDUALS SIGN BELOW
By: (SEAL)
---------------------------------------
By: (SEAL)
---------------------------------------
By: (SEAL)
---------------------------------------
</TABLE>
- 3 -
<PAGE> 1
EXHIBIT 10.15
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
REVOLVING NOTE
(Commercial)
$3,000,000.00 April 4, 1996
In this Note, the Bank named above is hereinafter referred to as
"Bank," The Undersigned means each and all parties who sign below, whether one
or more than one, and their obligations hereunder are joint and several.
On Demand, the Undersigned promises to pay to the order of Bank
$3,000,000.00 (Three Million & 00/100 U.S. Dollars), or so much thereof as Bank
in its discretion has advanced or readvanced and is outstanding hereunder
(being herein called "Principal Sum"), with interest as sated below on the
Principal Sum. Bank has established a revolving line of credit for Undersigned
from which Undersigned, subject to Bank's consent, may obtain one or more loans
from time to time, with the aggregate unpaid Principal Sum of such loans
actually advanced and remaining unpaid not to exceed the face amount of this
Note. Advances and readvances hereunder remaining unpaid from time to time
shall bear interest each day until paid at a daily periodic rate corresponding
to an annual percentage rate equal to 1% percent above Mercantile's prime rate
(being herein called the "Index"). The daily periodic interest rate will
increase or decrease as the Index increases or decreases. Where Bank's Prime
Rate is used as the Index, the "Prime Rate" is one of several rates set by Bank
from time to time as an interest rate base for borrowings. Bank may lend at
rates above and below the Prime Rate. Interest shall be due and payable
monthly beginning 5/1/96.
If Maker fails to pay any amount within 15 days after the date on
which it is due, Maker agrees to pay a late charge of the greater of $2 or 5%
of the delinquent amount. All payments will be applied in any manner we chose
except as otherwise required by applicable law. Generally, payments are
applied first to interest due; second to principal due; third to late charges;
fourth to any remaining interest and finally to the remaining principal.
Maker covenants to provide Bank such financial information as Bank may
request from time to time and authorizes Bank to make all inquiries it deems
necessary to verify the accuracy of the information provided, to protect and
maintain its assets in good condition and repair, free of all liens and
encumbrances, to keep its assets insured against loss by fire, theft and other
casualties as required by Bank in such amounts and by carriers satisfactory to
Bank, not to dispose of any assets except in the ordinary course of business,
and to pay all taxes and assessment when due.
Advances and readvances hereunder may be prepaid in whole or in part.
The fact that the balance hereunder may be reduced to zero from time to time
will not affect the continuing validity of this Note, and the balance may be
increased to the face amount of the Note after such reductions to zero. Bank
in its discretion may make an advance which causes the principal
<PAGE> 2
balance to exceed the face amount of the Note and such excess shall be paid by
the Undersigned upon demand with interest as provided above.
Each of the following events shall constitute a default hereunder; (a)
the breach of any representation in or the failure of any Obligor (which term
shall include each Maker, endorser, surety and guarantor of any of the
Liabilities) to perform any covenant or agreement under any of the Liabilities
(which term shall include all obligations under this Note, and any renewals,
extensions or modifications thereof, and all other obligations of any kind of
Maker to Bank and to any other party to the extent of Bank's interest therein,
now or hereafter existing, including liabilities to Bank of Maker as a member
of any partnership or other group and whether incurred by Maker as principal or
otherwise); (b) the death of any Obligor; (c) the filing of any petition under
the Federal Bankruptcy Code or any similar Federal or state statute, by or
against any Obligor; (d) and application or the appointment of a receiver for,
the making of a general assignment for the benefit of creditors by, or the
insolvency of any Obligor; (e) commencement of any proceeding under any Federal
or state statute or rule providing for the relief of debtors, composition of
creditors, arrangement, reorganization, receivership liquidation or any similar
event by or against any Obligor; (f) the entry of a judgment against any
Obligor; (g) the issuing of any attachment or garnishment, or the filing of any
lien, against any property of any Obligor; (h) the suspension by any Obligor of
the transaction of such Obligor's usual business; (i) the merger or
consolidation of any corporate Obligor with any other corporation or the
transfer, disposition or incumbrance of all or a substantial part of the assets
of any Obligor; (j) if any Obligor misinformed or failed to inform Bank as to
any matter which the Bank deems material to a Liability; (k) the determination
by an officer of Bank that an adverse change has occurred in the financial
condition of any Obligor from the condition of such Obligor as heretofore most
recently disclosed to Bank by a financial statement or in any other manner. If
this Note is payable upon demand, demand may be made whether or not an event
has occurred.
To secure payment of the Liabilities, the Bank is hereby granted a
lien and security interest in all property of any obligor held now or hereafter
by Bank in any capacity and upon the occurrence of any default hereunder Bank
shall have the right, immediately and without further action by it, to set-off
against any of the Liabilities, all such property, and Bank shall be deemed to
have exercised such right of set-off and to have made a charge against such
property immediately upon the occurrence of such default even though such
charge is made or entered subsequently on the books of Bank.
A delay by Bank in exercising any right or remedy shall not constitute
a waiver. A waiver of a default, right or remedy shall not constitute a waiver
of a subsequent default, right or remedy. A single or partial exercise of a
right or remedy shall not preclude or constitute a waiver of any unexercised
right or remedy. Bank will not waive a default by accepting partial payment of
any amount due. All rights and remedies hereunder and under applicable laws
shall be cumulative. Every obligation of each Obligor is joint and several.
Bank may exercise its rights against Collateral or an Obligor without first
having recourse against any other collateral or Obligor.
- 2 -
<PAGE> 3
Whenever any Obligor shall be in default hereunder, Bank at its option
(1) may cure the default at Maker's expense; (2) may refuse to make further
advances; (3) may declare any of the Liabilities immediately due and payable;
and (4) may exercise any or all rights and remedies available to it under the
Liabilities and applicable law.
Maker convenants to pay on demand, with interest until paid in full at
the rate imposed upon principal herein, all expenses incurred by Bank,
including legal fees, to cure any default herein, to enforce any provisions of
the Liabilities or to exercise any right or remedy.
Each Obligor waives presentment, notice of dishonor, protest and all
other demands and notices in connection with any of the Liabilities and with
respect to any collateral and waives any right to trial by jury and further
agrees that the courts of the State of Maryland shall have personal
jurisdiction over it in any legal proceedings with respect to any of the
Liabilities. Each Obligor without further notice assents to all extensions of
the time of payment of any Liability or any other indulgence or modification of
a Liability, to any substitution, exchange or release of collateral and to the
addition or release of any Obligor, whether or not done for consideration, all
without in any way affecting its obligation. Bank may unjustifiably and
without reservations of rights impair any Obligor's recourse against another
obligor or collateral. Except when invalid or unenforceable by statute or
otherwise, each and every Obligor authorizes any attorney designated by Bank to
confess judgment in any Court of Record and authorizes Bank to instruct the
clerk of any Court of Records to confess judgment against such Obligor at any
time after this Note is due by its terms or upon default, for the unpaid
balance of this Note and interest payable thereon, together with court costs
and all other amounts payable to Bank pursuant thereto, including an attorney's
fees of 15% of the total sum due, provided, however, that any lien arising from
such confession of judgment shall not without further proceedings, apply or
attach to any real property as described in section 12-40(i) of the Maryland
Secondary Mortgage Loan Law as the same may be amended from time to time unless
this is a loan to a corporation or a commercial loan in excess of $75,000.00.
The Undersigned hereby authorizes the Bank to accept instructions by
telephone from any of the Undersigned or a duly authorized representative of
the Undersigned to make advances or receive a repayment hereunder. All
advances made hereunder shall be credited to the Undersigned's deposit account
with the Bank. The Undersigned agrees that the actual crediting of the sum of
money so borrowed to the Undersigned's deposit account shall constitute
conclusive evidence that the advance was made, and the failure of the Bank to
forward to the Undersigned an advice of credit shall not affect the obligation
of the Borrower to repay such advance.
The Note contains the full agreement of the parties and may be
modified only by a writing executed by the party to be charged.
- 3 -
<PAGE> 4
This Note is executed and delivered the date above written as an
instrument under Seal, specifically intending it to be a specialty and shall be
governed by the Laws of the State of Maryland.
<TABLE>
<S> <C>
CORPORATIONS OR PARTNERSHIPS INDIVIDUALS SIGN BELOW
SIGN BELOW
Trusted Information Systems, Inc. (SEAL) (SEAL)
- ------------------------------------------- -------------------------
By: /s/ Stephen T. Walker (SEAL) (SEAL)
---------------------------------------- -------------------------
Stephen T. Walker, President
By: (SEAL) (SEAL)
---------------------------------------- -------------------------
</TABLE>
GUARANTY
In consideration of the loan or forebearance evidenced by the
foregoing Note, the undersigned (jointly and severally) absolutely and
unconditionally guarantees to Bank and every subsequent holder of the Note
(irrespective of its genuineness, validity, regularity or enforceability or any
other circumstance) the prompt payment of the Note when due, according to its
terms, which are incorporated herein, and as they may be modified subsequently
by any extension or renewal, in whole or in party, any change in the interest
rate or other term, or the exchange, assignment, extension, waiver,
modification or surrender of any related right or security; and Bank and every
subsequent holder of the Note at its option may proceed in the first instance
against the undersigned to collect any obligation covered by this Guaranty,
without first proceeding against any Collateral or other Obligor.
Any debt of Borrower to the Undersigned, now or hereafter existing, is
and shall be subordinated to the indebtedness and liability herein guaranteed.
The Undersigned agrees not to assert any right, directly or by subrogation,
against the Borrower or any assets securing payment of the indebtedness or
liability herein guaranteed, so long as this Guaranty is outstanding.
- 4 -
<PAGE> 5
Executed and delivered on the date of the foregoing Note under Seal
and specifically intending this to be a specialty, governed by the laws of the
State of Maryland.
<TABLE>
<S> <C>
CORPORATIONS OR PARTNERSHIPS INDIVIDUALS SIGN BELOW
SIGN BELOW
(SEAL)
- ------------------------------------------------- -------------------------
Name of Corporation or Partnership
By: (SEAL) (SEAL)
---------------------------------------- -------------------------
By: (SEAL) (SEAL)
---------------------------------------- -------------------------
</TABLE>
- 5 -
<PAGE> 1
EXHIBIT 10.17
MOUNTAIN BAY PLAZA
OFFICE BUILDING LEASE
by and between
PERINI INVESTMENT PROPERTIES, INC.
("Landlord")
and
Trusted Information Systems
("Tenant")
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TABLE OF CONTENTS
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. Annual Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Rental Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. Tenant's Share of Direct Expenses . . . . . . . . . . . . . . . . . . 2
7. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
11. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
12. Taxes on Tenant's Property . . . . . . . . . . . . . . . . . . . . . . 5
13. Condition of Premises . . . . . . . . . . . . . . . . . . . . . . . . 5
14. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
15. Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
16. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
17. Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . 6
18. Utilities and Services . . . . . . . . . . . . . . . . . . . . . . . . 6
19. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
20. Damage to Tenant's Property . . . . . . . . . . . . . . . . . . . . . 7
21. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
22. Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
23. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
24. Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . . . . 9
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25. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . 10
26. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
27. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 11
28. Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . 11
29. Conflict of Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
30. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 11
31. Surrender of Premises . . . . . . . . . . . . . . . . . . . . . . . . 12
32. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
33. Performance by Tenant . . . . . . . . . . . . . . . . . . . . . . . . 12
34. Mortgagee Protection . . . . . . . . . . . . . . . . . . . . . . . . . 12
35. Definition of Landlord . . . . . . . . . . . . . . . . . . . . . . . . 12
36. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
37. Identification of Tenant . . . . . . . . . . . . . . . . . . . . . . . 12
38. Terms and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 12
39. Examination of Lease . . . . . . . . . . . . . . . . . . . . . . . . . 12
40. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
41. Prior Agreements; Amendments . . . . . . . . . . . . . . . . . . . . . 13
42. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
43. Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
44. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
45. Tenant's Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
46. Modification for Lender . . . . . . . . . . . . . . . . . . . . . . . 13
47. Substitution of Premises . . . . . . . . . . . . . . . . . . . . . . . 13
48. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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MOUNTAIN BAY PLAZA
Date of Lease: February 1, 1990
Landlord: Perini Investment Properties, Inc., a New York
corporation
Address of Landlord: Perini Investment Properties, Inc.
101 Spear Street, Suite 200
San Francisco, California 94105
Tenant: Trusted Information Systems
A Maryland Corporation
Address of Tenant: 3060 Washington Road (Rt. 97)
Glenwood, Maryland 21738
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Contact: Mr. Richard Feiertag
Premises: Suite 800 in the Building
approximately 2,831 square feet of rentable area
Lease Term (Para. 2): Five years
Term Commencement Date (Para. 2): April 1, 1990
Lease Termination Date (Para. 2): March 31, 1995
(subject to any extension set forth in the Lease)
Annual Basic Rent (Para. 4): $34,651.44
$2,887.62 (per month)
Direct Expenses until the end of the first calendar year (Paragraph 6):
$1,783.53 per month
($ .63 per square foot of rentable area)
Tenant's Share of Direct Expenses (Para. 6): .02%
Other Charges and Costs (illustrative only):
Additional HVAC requirements: N/A
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Additional electrical requirements: N/A
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Other: N/A
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Security Deposit (Paragraph 7): $4,671.15
Uses of Premises (Paragraph 8): General office and other legally permitted
uses
Brokers of Record (Paragraph 10): Coldwell Banker & Cornish & Carey
Number of Allowed Parking Spaces (Paragraph 44): Ten
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ADDITIONAL DEFINITIONS
"Building" shall mean that building commonly known as Mountain Bay Plaza,
in which the Premises are located.
"Project" shall mean the land and other real property commonly known as
444 Castro Street, consisting of approximately 1.60 acres located between
Castro Street, Mercy Street, Bryant Street and California Street in the City
of Mountain View, California, the Building and related improvements
constructed or being constructed by Landlord thereon, and all other
improvements on or appurtenances to such land and other real property.
Exhibit A The Premises
Exhibit B Standards for Utilities and Services
Exhibit C Rules and Regulations
Exhibit D Improvements Work Letter
Exhibit E Asbestos Notification
The Basic Lease Information contained herein is hereby incorporated into
and made a part of the Lease. Each reference in the Lease to any of the Basic
Lease Information shall mean the respective information hereinafter set forth
and shall be construed to incorporate all of the terms provided under the
particular Lease paragraph pertaining to such information. In the event of
conflict between any Basic Lease Information and the Lease itself, the latter
shall be deemed correct.
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THIS LEASE is made of the First day of Febraury, 1990, by and between
PERINI INVESTMENT PROPERTIES ("Landlord"), and
Trusted Information Systems, A Maryland Corporation ("Tenant").
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord,
Suite Number(s) 800 (the "Premises") outlined on the floor plan attached
hereto and marked Exhibit A, being situated in the Project (as defined in the
Basic Lease Information), for the term and subject to the terms, covenants,
agreements and conditions set forth below, to each and all of which Landlord
and Tenant mutually agree.
1. DEFINITIONS.
(a) "BUILDING" shall have the meaning set forth on the Basic Lease
Information. (Page iv)
(b) "COMMON AREA" shall mean all lobby areas, vestibules,
corridors, atriums, promenades and restrooms in the Building or elsewhere in
the Project intended for the benefit of all tenants (or invitees) of the
Project; the areas on each individual floor devoted to corridors, vestibules,
elevator lobbies, other lobbies, electric and telephone closets, restrooms,
mechanical rooms, janitor closets and other similar facilities for the benefit
of all tenants (or invitees) on that floor; and those areas of the Project
devoted to mechanical and service rooms servicing more than one floor or the
Project as a whole. Common Area shall further include all portions of the
Project outside any building or structure which are usable by all tenants of
the Project and their employees and invitees, such as landscaped outdoor
areas, sidewalks, walkways and parking lots.
(c) "PREMISES" shall mean the portion of the Project leased to
Tenant hereunder, as outlined on the diagram attached hereto as Exhibit A.
Landlord and Tenant stipulate that for all purposes under this Lease the
Premises contain the rentable area specified in the Basic Lease Information.
The exact boundaries of the Premises shall be as constructed and shall extend
to the unfinished interior surface of all perimeter walls, except glazing,
which shall be included within the Premises, the unfinished surface of all
floors, and the underside of the structural concrete slab or other material
forming the ceiling of the Premises. Notwithstanding the foregoing, the
Premises shall not be deemed to include any structural portions of the Project
or any utility installations serving other portions of the Project.
(d) "PROJECT" shall have the meaning set forth on the he Basic
Lease Information. (Page iv)
(e) Except as the context otherwise requires, the term "RENT" shall
mean and refer to all monetary obligations required to be paid by Tenant to
Landlord under this Lease, including (without limitation) the Annual Basic
Rent, and the additional amounts for Direct Expenses to be paid pursuant to
Paragraph 6 below.
(f) The term "RENTAL SPACE" refers to all portions of the Project
(as defined above) which are leased to tenants or rentable for tenant use.
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(g) "TENANTS SHARE" shall mean the percentage figure specified in
the Basic Lease Information, which shall be used to calculate Tenant's
payments for a portion of Direct Expenses pursuant to Paragraph 6(b) below.
Landlord and Tenant acknowledge that Tenant's Share has been obtained by
dividing the rentable area of the Premises, as specified in the Basic Lease
Information, by the total rentable area of the Rental Space, exclusive of
rentable floor space occupied by tenants who are billed for and pay directly
any such items of the Direct Expenses. If either the rentable area of the
Premises or the total rentable area of the Rental Space is changed, Tenant's
Share shall be appropriately adjusted, and with respect to the calendar year
in which any such change occurs, for the purposes of Paragraph 6(b), Tenant's
Share shall be determined on the basis of the number of days during such
calendar year at each such percentage share.
2. TERM. The term of this Lease ("Term") shall be for Five years, -0-
months commencing on the First day of April, 1990, and ending on the 31st day
of March, 1995, unless sooner terminated as hereinafter provided.
3. POSSESSION. Tenant agrees that if Landlord is unable to deliver
possession of the Premises to Tenant on the date above specified for the
commencement of the Term of this Lease, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, but the expiration date of the Term shall be extended by
the same number of days that the Tenant's possession of the Premises was
delayed by Landlord's inability to deliver possession, and in such event
Tenant shall not be liable for any rent until such time as Landlord tenders
delivery of possession of the Premises to Tenant with Landlord's work therein,
if any, substantially completed. The above notwithstanding, there shall be no
delay in possession of the Premises due to any act, omission or delay of
Tenant. Should Landlord tender possession of the Premises to Tenant prior to
the date specified for commencement of the term hereof, and Tenant elects to
accept such prior tender, such early occupancy shall be subject to all of the
terms, covenants and conditions of this Lease, including the payment of rent,
and shall not alter or affect the expiration date of the Term as set forth in
Paragraph 2 above. In the event that Tenant commences occupancy of the
Premises on any date other than the commencement date of the term pursuant to
this Paragraph 3, Landlord and Tenant shall promptly execute a written
amendment to this Lease setting forth and confirming the date occupancy
commenced.
4. ANNUAL BASIC RENT.
(a) Tenant agrees to pay Landlord as annual basic rent ("Annual
Basic Rent") for the Premises the sum of Thirty Four Thousand Six Hundred
Fifty One and 44/00 Dollars ($34,651.44) (subject to adjustment as hereinafter
provided). Annual Basic Rent shall be paid in equal monthly installments of
Two Thousand Eight Hundred Eighty Seven and 62/00 Dollars ($2,887.62) each in
advance on the first day of each and every calendar month during the Term of
this Lease, except that the first month's rent shall be paid upon the
execution hereof and shall be applied to the first full calendar month of the
Term. If the Term of this Lease commences or ends on a day other than the
first day of a calendar month, then the rental for such calendar month shall
be prorated in the proportion that the number of days this Lease is in effect
during such month bears to thirty (30), and such rental shall be paid at the
commencement of the Term or of the last partial month of the Term, as the case
may be. In addition to Annual Basic Rent, Tenant agrees to pay the amount of
the rental adjustments as and when hereinafter
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provided in this Lease. All rental shall be paid to Landlord, without
deduction or offset, in lawful money of the United States of America, which
shall be legal tender at the time of payment, at the office of Landlord or to
such other person or persons or at such other places as Landlord may from time
to time designate in writing.
(b) Tenant acknowledges that late payment by Tenant to Landlord of
rent or other sums due hereunder will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which would be extremely
difficult and impractical to ascertain. Such costs include, but are not
limited to, processing and accounting charges, and late charges which may be
imposed on Landlord by the terms of any mortgage or trust deed covering the
Premises. Therefore, if Tenant should fail to pay any installment or rent or
any sum due within ten (10) days after such amount is due, Tenant shall pay to
Landlord as additional rent a late charge equal to 5% of each such
installment. Anything herein to the contrary notwithstanding, it is
understood that Landlord's right to collect any late charge as additional
rent, or Tenant's payment of such charge, shall not be deemed to limit or
impair any other rights or remedies of Landlord under this Lease or under law,
including (without limitation) the right to collect attorney's fees and costs
in accordance with Paragraph 32 of this Lease.
5. [Deleted]
6. TENANT'S SHARE OF DIRECT EXPENSES. Tenant shall pay as rent in
addition to the Annual Basic Rent a portion of Direct Expenses, as hereinafter
defined, in the manner set forth in this Paragraph 6. All payments made under
this provision shall be deemed a part of rent and shall be paid concurrently
with regular monthly installments of Annual Basic Rent, and shall be paid in
the manner and at the place designated for payment of Annual Basic Rent in
Paragraph 4(a) above. If the Term of this Lease commences or ends on a day
other than the first day of a calendar month, then the amount to be paid under
this Paragraph 6 for the month during which the Term commences or ends (as the
case may be) shall be prorated in the same manner as the monthly installments
of Annual Basic Rent as set forth in Paragraph 4(a). (Refer to addendum #50)
(a) Beginning on the commencement date of the Term and continuing
until the end of the calendar year in which the Term commences, Tenant shall
pay as rent in addition to the Annual Basic Rent One Thousand Seven Hundred
Eighty Three and 53/00 Dollars ($1,783.53) each month (based upon
approximately $0.63 per square foot of rentable area in the Premises) as its
share of Direct Expenses. Such sum represents Tenant's entire obligation for
payment of Direct Expenses hereunder until the end of the calendar year in
which the Term commences. Tenant shall have no obligation to pay any
additional portion of Direct Expenses irrespective of the actual amount of
such expenses during such period, nor shall Tenant be entitle to any refund or
reduction based upon the actual amount of Direct Expenses.
(b) Beginning at and as of the beginning of the calendar year
immediately following the calendar year in which the Term commences, Tenant
shall pay as rent, in addition to the Annual Basic Rent, the Tenant's Share of
Direct Expenses, as hereinafter defined, incurred or paid by Landlord during
such calendar year. Tenant's Share of Direct Expenses shall be paid in the
manner hereinafter set forth.
Prior to the beginning of each calendar year after the calendar year in
which the Term commences (or as soon as practicable after the commencement of
each such calendar year),
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Landlord shall give Tenant a written estimate of Tenant's Share of Direct
Expenses for the remaining or ensuing calendar year. Tenant shall pay such
estimated amount to Landlord in equal monthly installments, in advance, as set
forth above. Within ninety (90) days after the end of each calendar year
after the calendar year in which the Term commences, or as soon as practicable
thereafter, Landlord shall furnish to Tenant a statement showing in reasonable
detail the amount of Direct Expenses incurred or paid by Landlord during such
calendar year, and the parties shall promptly make any payment or allowance
necessary to adjust Tenant's estimated payment to Tenant's actual Share of
Direct Expenses as shown by such annual statement. Any delay by Landlord in
delivering such statement shall not limit or impair Landlord's ability to
collect from Tenant the sums shown to be due thereunder and under this
provision.
The dollar amount of Tenant's Share of Direct Expenses as shown by such
annual statement shall be conclusive and binding upon Tenant, unless within
forty-five (45) days after receipt of such statement, Tenant shall notify
Landlord that Tenant disputes the correctness of such statement, specifying
the respect in which the statement is claimed to be incorrect. Unless
otherwise mutually agreed, any such dispute shall be determined by
arbitration. The arbitration shall be conducted and determined in the county
in which the Project is located, and shall comply with and be governed by the
California Arbitration Act, Sections 1280 through 1294.2 of the California
Code of Civil Procedure; provided, however, that the arbitrators shall be
selected in the manner provided by the then-existing Commercial Rules of the
American Arbitration Association. Pending determination of the dispute,
Tenant shall pay any amounts due from Tenant in accordance with the statement,
but such payment shall be without prejudice to Tenant's position. If it is
determined that Tenant has paid less than it was obligated to under the terms
of this Lease, Landlord shall refund to Tenant the amount of any such
overpayment within thirty (30) days of the determination. Landlord shall not
be obligated to proceed with arbitration under this Lease and may proceed with
any remedy if Tenant fails to pay amounts required to be paid pending
arbitration pursuant to this Paragraph 6.
Even though the Term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's Share of Direct Expenses for
the year in which this Lease terminates, Tenant shall immediately pay any
increase due over the estimated expenses paid and, conversely, any overpayment
made shall be rebated by Landlord to Tenant.
(c) "Direct Expenses" as used in this Paragraph 6 shall include all
costs of management, operation and maintenance for the Project that are
properly allocable wholly or partly to the Project, as reasonably determined
by Landlord, and shall include the following by way of illustration but not
limitation:
(i) The following taxes, charges and assessments, assessed
against or allocable to the Project ("Property Taxes"): All real and personal
property taxes and assessments imposed by any governmental authority or agency
on the Project and the land on which the Project is located (including
non-progressive tax on or measured by gross rentals received from the rental
of space in the Project; and any other costs levied or assessed by, or at the
direction of, any federal state, or local government authority in connection
with the use or occupancy of the Project or the parking facilities serving the
Project, including without limitation, transit fees, parking charges and
utility surcharges; any tax on this Lease or this transaction or any document
to which Tenant is a party creating or transferring an interest in the
Premises; and any expenses, including costs of attorney or experts, reasonably
incurred by
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Landlord in seeking reduction by the taxing authority of the above-referenced
taxes, less tax refunds obtained as a result of an application for review
thereof; but Property Taxes shall not include any net income, franchise,
capital stock, estate or inheritance taxes.
(ii) Operating costs consisting of costs incurred by
Landlord in maintaining and operating the Project, and including (without
limiting the generality of the foregoing) costs and expenses of the following:
(a) maintaining, cleaning and repairing the floor, windows and other exterior
surfaces of all improvements in or to the Project (including painting and
window washing); (b) janitorial services and supplies and other supplies,
materials, tools and equipment used in the operation, maintenance and repair
of the Project; (c) insurance carried by Landlord pursuant to Paragraph 21
hereof or otherwise (including the payment of deductibles); (d) maintaining,
repairing and operating electrical, plumbing, sewage, HVAC, elevators and
other utility services to the Project, and also costs incurred pursuant to
Paragraphs 15 and 18 and the costs of supplying utilities, heating, air
conditioning and ventilation services; (e) complying with all laws,
ordinances, rules, regulations, judgments and court orders and the
requirements of any recorded easements, covenants, conditions and restrictions
applicable to the Project; (f) cleaning, repairing and replacing floor and
wall coverings within the Common Areas; (g) maintaining, repairing and
replacing of lights, ballasts, and light fixtures; (h) maintaining, repairing
and replacing of sidewalks, walkways, driveways, parking lots and signs
located within the Common Area; (i) care, maintenance and replacement of
flowers, trees, shrubs, and other plants in the Common Area; (j) providing,
maintaining and servicing such fire protection and security measures as
Landlord deems necessary including, without limitation, security personnel,
equipment and alarms; (k) salaries and other compensation (including
employment taxes and fringe benefits) of persons who perform regular and
recurring duties in connection with the operation, maintenance and repair of
the Project; (l) accounting and legal services pertaining to the operation,
maintenance and repair of the Project; (m) services of independent
contractors; (n) any property management fees paid to Landlord or its agent or
personnel or otherwise to manage the operation, maintenance and repair of the
Project; and (o) the fair rental value of the Project office.
(iii) Amortization of such capital improvements (including
reasonable interest on the costs thereof) as Landlord may have made,
constructed or installed: (a) for the purpose of reducing operating costs
(but only to the extent of such savings), (b) to comply with governmental
rules and regulations promulgated after completion of the Building, or (c) are
reasonably necessary for the health and safety of the occupants of the
Project.
The above notwithstanding, Direct Expenses shall not include (1)
depreciation on the Project; (2) costs of tenants' improvements; (3) real
estate brokers' commissions; (4) interest and capital items other than those
referred to in subparagraph (iii) above; (5) specific costs which are incurred
for the benefit of or separately billed to and paid by specific tenants; and
(6) repairs and maintenance costs paid by proceeds of insurance or by third
parties. Direct Expenses for each calendar year shall be adjusted to equal
Landlord's reasonable estimate of what such Direct Expenses would have been
had the total rentable area of the Project been occupied.
7. SECURITY DEPOSIT. Upon execution hereof, Tenant has deposited with
Landlord the sum of Four Thousand Six Hundred Seventy One and 15/00 Dollars
($4,671.15). Such sum shall be held by Landlord as security for the faithful
performance by Tenant of all of the terms, covenants and conditions of this
Lease to be kept and performed by Tenant during the term hereof. If Tenant
defaults with respect to any provision of this Lease, including but not
limited
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to the provisions relating to the payment of rent, Landlord may (but shall not
be required to) use, apply or retain all or any part of this security deposit
for the payment of any rent or any other sum in default, or for the payment of
any other amount which Landlord may spend or become obligated to spend by
reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any
portion of the security deposit is so used or applied, Tenant shall, upon
demand therefor, deposit with the Landlord an amount sufficient to restore the
security deposit to its original amount and Tenant's failure to do so shall be
a material breach of this Lease. Landlord shall not be required to keep this
security deposit separate from its general funds, and Tenant shall not be
entitled to interest on such deposit. If Tenant shall fully and faithfully
perform every provision of this Lease to be performed by it, the security
deposit or any balance thereof shall be returned to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interests hereunder) at the
expiration of the Term; provided, that Landlord may retain the security
deposit until such time as all amounts due from Tenant in accordance with
Paragraphs 4, 5 and 6 hereof have been determined and paid in full.
8. USE. Tenant shall use the Premises for the purpose set forth
in the Basic Lease Information and shall not use or permit the Premises to be
used for any other purpose without the prior written consent of Landlord.
Which consent shall not be unreasonably withheld. Tenant shall not use or
occupy the Premises in violation of law or of any certificate of occupancy
issued for the Building or Premises and shall, upon five (5) days written
notice from Landlord, discontinue any use of the Premises which is declared by
any governmental authority having jurisdiction to be a violation of law or of
any such certificate of occupancy. Tenant shall comply with any direction of
any governmental authority having jurisdiction, as well as the provisions of
any covenants, conditions and restrictions or similar recorded documents
affecting the Project which shall by reason of the nature of Tenant's use or
occupancy of the Premises, impose any duty upon Tenant or Landlord with
respect to the Premises or with respect to the use or occupancy thereof.
Tenant shall not do or permit to be done anything which will invalidate or
increase the cost of any fire, extended coverage or any other insurance policy
covering the Project or Premises or with respect to the use or occupancy
thereof. Tenant shall not do or permit to be done anything which will
invalidate or increase the cost of any fire, extended coverage or any other
insurance policy covering the Project or Premises or property located therein,
and shall comply with all rules, orders, regulations and requirements of the
Pacific Fire Rating Bureau or any other organization performing a similar
function. Tenant shall promptly upon demand reimburse Landlord for any
additional premium charged for such policy by reason of Tenant's failure to
comply with the provisions of this paragraph. Tenant shall not do or permit
anything to be done in or about the Premises or the Project which will in any
way obstruct or interfere with the rights of other tenants or occupants of the
Project, or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose; nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon the Premises
or the Project.
9. NOTICES. Any notice required or permitted to be given
hereunder must be in writing and may be given by personal delivery or by mail,
and if given by mail shall be deemed sufficiently given if sent by registered
or certified mail addressed to Tenant at the Building or at the address of
Tenant set forth under the Basic Lease Information, or to Landlord at the
address of Landlord set forth under the Basic Lease Information. Either party
may by
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written notice to the other specify a different address for notice purposes,
except that the Landlord may in any event use the Premises as Tenant's address
for notice purposes.
10. BROKERS. Tenant warrants that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this Lease,
excepting only the broker(s) identified in the Basic Lease Information, and
that it knows of no other real estate broker or agent who is or might be
entitled to a commission in connection with this Lease. If Tenant has dealt
with any other person or real estate broker with respect to leasing or renting
space in the Project, Tenant shall be solely responsible for the payment of
any fee due such person or firm, and Tenant shall be solely responsible for
the payment of any fee due such person or firm, and Tenant shall hold Landlord
free and harmless against any liability in respect thereto, including
attorney's fees and costs.
11. HOLDING OVER. If Tenant holds over after the expiration or
earlier termination of the term hereof without the express written consent of
Landlord, Tenant shall become a tenant at sufferance only, at a rental rate
equal to one hundred twenty five percent (125%) of the rent in effect upon the
date of such expiration and otherwise upon the terms, covenants and conditions
herein specified, so far as applicable. Acceptance by Landlord of rent after
such expiration or earlier termination shall not result in a renewal of the
term hereof. The foregoing provisions of this paragraph are in addition to
and do not affect Landlord's right of re-entry or any other rights of Landlord
hereunder or as otherwise provided by law. If Tenant fails to so surrender
the Premises upon the expiration of this Lease despite demand to do so by
Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or
liability, including without limitation, any claim made by an succeeding
Tenant founded on or resulting from such failure to surrender, and any
attorney's fees and costs.
12. TAXES ON TENANT'S PROPERTY.
(a) Tenant shall be liable for and shall pay, ten (10) working
days delinquency, taxes levied against any personal property or trade fixtures
placed by Tenant in the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property
or if the assessed value of Landlord's Premises is increased by the inclusion
therein of a value placed upon such personal property or trade fixtures of
Tenant and if Landlord, after written notice to Tenant, pays the taxes based
on such increased assessment (which Landlord shall have the right to do
regardless of the validity thereof, but only under proper protest if requested
in writing by Tenant), Tenant shall upon demand repay to Landlord the taxes so
levied against Landlord, or the proportion of such taxes resulting from such
increase in the assessment, as the case may be; provided, that in any such
event Tenant shall have the right, in the name of Landlord and with Landlord's
full cooperation, to bring suit in any court or competent jurisdiction to
recover the amount of any such taxes so paid under protest, and any amount so
recovered shall belong to Tenant.
(b) If the Tenant improvements in the Premises, whether
installed or paid for by Landlord or Tenant and whether or not affixed to the
real property so as to become a part thereof, are assessed for real property
tax purposes at a valuation higher than the valuation at which Tenant
improvements conforming to assessments levied against Landlord or the property
by reason of such excess assessed valuation shall be deemed to be taxes levied
against personal property of Tenant and shall be governed by the provisions of
subparagraph 12(a) above. If the
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records of the County Assessor are available and sufficiently detailed to
serve as a basis for determining whether such Tenant improvements are assessed
at a higher valuation than Landlord's "Building Standards", such records shall
be binding on both Landlord and Tenant. If the records of the County Assessor
are not available or sufficiently detailed to serve as a basis for making such
determination, the actual cost of construction shall be used.
13. CONDITION OF PREMISES. Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any representation or warranty
with respect to the Premises, the Building of the Project or with respect to
the suitability of either for the conduct of Tenant's business. The taking of
possession of the Premises by Tenant shall conclusively establish that the
Premises and the Project (and each portion thereof) were at such time in
satisfactory condition.
14. ALTERATIONS. Tenant shall make no alterations, decorations,
additions or improvements in or to the Premises without Landlord's prior
written consent, which consent shall not be unreasonably withheld and then
only by contractors or mechanics approved in writing by Landlord. As set
forth in Exhibit C, paragraph 36, Tenant agrees to not move any ceiling tiles
or light fixtures or disturb the spray on fire-proofing material located above
the ceiling tiles by drilling, scraping, cleaning, painting or otherwise
without prior written approval from the Management office. Without limiting
Landlord's rights under the foregoing sentence, it is understood that Landlord
may withhold its approval of any contractor or mechanic who is not able to
provide (or does not provide) such insurance and performance bonds, in such
form and written by such companies, as Landlord may specify. All work to be
done by or for Tenant shall be done at such times and in such manner as
Landlord may from time to time designate. Without limiting the generality of
any of the foregoing, Tenant agrees that there shall be no construction or
partitions or other obstructions which might interfere with Landlord's free
access to mechanical installations or service facilities of obstructions which
might interfere with Landlord's free access to mechanical installations or
service facilities of the Project or interfere with the moving of Landlord's
equipment to or from the enclosures containing said installations or
facilities. Tenant further covenants and agrees that all work done by Tenant
shall be performed in full compliance with all laws, rules, order, ordinances,
directions, regulations and requirements (including, without limitation, all
those relating to office safety and environmental quality) of all governmental
agencies, offices, departments, bureaus and boards having jurisdiction and in
full compliance with the rules, orders, directions, regulations and
requirements of the Pacific Fire Rating Bureau and of any similar body.
Before commencing any work, Tenant shall give Landlord at least ten (10) days
written notice of the proposed commencement of such work and shall, if
required by Landlord, for such work. Tenant further covenants and agrees that
any mechanic's lien filed against the Premises or against the Project, or any
portion thereof, for work claimed to have been done for, or materials claimed
to have been furnished to Tenant, will be discharged by Tenant, by bond or
otherwise, within ten (10) days after the filing thereof, at the sole cost and
expense of Tenant. All alterations, decorations, additions or improvements
upon the Premises made by either party, including (without limiting the
generality of the foregoing) all wall coverings, built-in cabinet work,
paneling and the like, shall, unless Landlord elects otherwise, become the
property of Landlord and shall remain upon, and be surrendered with the
Premises (as a part thereof) at the end of the term hereof; except that
Landlord may, by written notice to Tenant given at least thirty (30) days
prior to the end of the Term, require Tenant to remove all partitions,
counters, railings and the like and all other alterations, decorations,
additions, and improvements installed by or for Tenant, and to restore
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<PAGE> 15
the Premises to their original condition prior to the making, installation or
construction of such alterations, decorations, additions or improvements, and
Tenant shall perform such removal and restoration of the Premises at Tenant's
sole cost or, at Landlord's option, shall pay to the Landlord all costs
arising from such removal and restoration with the exception of normal wear
and tear of the Premises by Landlord.
All personal property, office machinery and equipment, furniture and
moveable partitions owned by Tenant or installed by Tenant at its expense in
the Premises ("Personal Property") shall be and remain the property of Tenant
and may be removed by Tenant at any time during the Term when Tenant is not in
default hereunder. If Tenant shall fail to remove all of its effects from the
Premises and the Project upon termination of this Lease for any cause
whatsoever, Landlord may, at its option, remove the same in any manner that
Landlord shall choose, and store such Personal Property without liability to
Tenant for loss thereof, and Tenant agrees to pay Landlord upon demand any and
all expenses incurred in such removal, including court costs and attorney's
fees and storage charges on such effects for any length of time that the same
shall be in Landlord's possession; or Landlord may, at its option and without
notice, sell Tenant's Personal Property at a private sale and without legal
process, for such price as Landlord may obtain, and apply the proceeds of such
sale to any amounts due under this Lease from Tenant to Landlord and upon the
expense incident to the removal and sale of such Personal Property.
15. REPAIRS. By entry hereunder Tenant accepts the Premises as
being in sanitary order and in good condition and repair. Tenant shall at
Tenant's sole cost and expense keep the Premises and every part thereof in
sanitary order and good condition and repair, damage thereto from ordinary
wear and tear expected. Tenant shall upon the expiration or sooner
termination of the Term surrender the Premises to Landlord in the same
condition as when received, ordinary wear and tear and damage from causes
beyond the reasonable control of Tenant excepted. Landlord shall have no
obligation to alter, remodel, improve, repair, decorate, or paint the Premises
or any part thereof and the parties hereto affirm that Landlord has made no
representations to Tenant respecting the condition of the Premises or the
Project except as specifically herein set forth.
Anything contained in the foregoing subparagraph to the contrary
notwithstanding, Landlord shall repair and maintain the structural portions of
the Building, including the basic plumbing, air conditioning and electrical
systems installed or furnished by the Landlord, unless such maintenance and
repairs are caused in part or wholly by the act (ordinary wear and tear
expected), neglect, fault or omission of Tenant, its agents, servants,
employees or invitees, in which case Tenant shall pay to Landlord, as
additional rent, the reasonable cost of such of such maintenance and repairs.
Landlord shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need for such repairs or maintenance is given
to Landlord by Tenant. Except as provided in Paragraph 22 hereof, there shall
be no abatement of rent and no liability of Landlord by reason of any injury
or interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Project or the
Premises or in or to fixtures, appurtenances and equipment therein. Tenant
waives the right to make repairs at Landlord's expense under Section 1942 of
the California Civil Code, or under any law, statute or ordinance now or
hereafter in effect.
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<PAGE> 16
Landlord shall also have the right, but not the obligation, to undertake
any work of repair or maintenance (including cleaning of the Premises) which
Tenant is required to perform hereunder or under any other provision of this
Lease and which Tenant fails or refuses to perform in a timely and efficient
manner. All such work shall be subject to a charge established by Landlord,
which shall be payable by Tenant to Landlord promptly upon demand.
16. LIENS. Tenant shall keep the Premises and the Project (and
each portion thereof) free from any liens arising out of the work performed,
materials furnished or obligations incurred by Tenant. Landlord shall have
the right at all reasonable times to post and keep posted on the Premises any
notices which it deems necessary for protection from such liens. If any such
liens are filed, Landlord may, without waiving its rights and remedies based
on such breach by Tenant and without releasing Tenant from any of its
obligations, cause such liens to be released by any means it shall deem
proper, including payments in satisfaction of the claim giving rise to such
lien. Tenant shall pay to Landlord at once, upon notice by Landlord, any sum
paid by Landlord to remove such liens together with interest at the maximum
rate per annum permitted by law from the date of such payment by Landlord
until the date fully repaid by Tenant.
17. ENTRY BY LANDLORD. Landlord reserves and shall at any and all
times have the right to enter the Premises to inspect the same, to supply
janitorial service and any other service to be provided by Landlord to Tenant
hereunder, to show the Premises to prospective purchasers or tenants, to post
notices of non-responsibility, to alter, improve or repair the Premises or any
other portion of the Building, all without being deemed guilty of an eviction
of Tenant and without abatement of rent, and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, provided that the business of the
Tenant shall be interfered with as little as is reasonably practicable.
Tenant hereby waives any claim for damages for any injury or inconvenience to
or interference with Tenant's business, any loss of occupancy or quiet
enjoyment of the Premises, and any other loss occasioned thereby. For each of
the aforesaid purposes, Landlord shall at all times have and retain a key with
which to unlock all of the doors in, upon and about the Premises, excluding
Tenant's vaults and safes, and Landlord shall have the right to use any and
all means which Landlord may deem proper to open such doors in an emergency in
order to obtain entry to the Premises. Any entry into the Premises obtained
by Landlord by any such means, or otherwise, shall not under any circumstances
be construed or deemed to be a forcible or unlawful entry into, or a detainer
of, the Premises, or an eviction of Tenant from the Premises or any portion
thereof, and any damages caused on account thereof shall be paid by Tenant.
It is understood and agreed that no provision of this Lease shall be construed
as obligating Landlord to perform any repairs, improvements, alterations or
decorations except as otherwise expressly agreed herein to be performed by
Landlord. It is further understood and agreed that no provision of this Lease
shall be construed as giving Tenant the right to change or alter the locks of
any door in, upon or about the Premises, and any such locks shall be changed
or altered only by Landlord at Tenant's request (and a Tenant's sole cost and
expense).
18. UTILITIES AND SERVICES. Provided that Tenant is not in default
hereunder, Landlord agrees to furnish to the Premises during reasonable hours
of generally recognized business days, subject to the conditions and in
accordance with the standards set forth in Exhibit B attached hereto and made
a part hereof, the utilities and services described therein. Tenant shall pay
directly to the billing entity for utilities separately metered to Tenant, and
shall reimburse Landlord within ten (10) days of receipt of a statement for
any utilities submetered to
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<PAGE> 17
the Premises by Landlord and billed to Landlord. Landlord shall not be liable
for, and Tenant shall not be entitled to any abatement or reduction of rent by
reason of, Landlord's failure to furnish any of the foregoing utilities or
services when such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character,
governmental regulation, moratorium or other governmental action, or any other
cause beyond Landlord's reasonable control. Except for gross negligence or
willful misconduct on the part of the Landlord.
Landlord shall furnish to the Premises utilities and services additional
to or in excess of those to be furnished in accordance with the standards set
forth in Exhibit B only upon Tenant's prior written request (except as
otherwise set forth herein) and at Tenant's sole cost and expense. Additional
charges shall be made (by way of illustration only and not limitation) for
such services as (i) providing utilities in excess of the standard set forth
in Exhibit B or at any times other than those set forth therein, (ii) for
removal of items from storage, (iii) for picture hanging or other assistance
in furnishing, decorating or moving into or out of the Building or the
Premises, and (iv) spot carpet cleaning or other special janitorial services
required because of Tenant's failure to keep and maintain the Premises in the
manner required under this Lease or services otherwise in excess of the
ordinary janitorial services to be provided in accordance with Exhibit B
hereto. It is understood that Tenant's obligation to pay for utilities
supplied to the Premises and separately metered or submetered and for
additional or excess utilities and services, as provided in this Paragraph 18,
is in addition to Tenant's obligations under Paragraph 6 above. Nothing here
shall be deemed to limit or impair Landlord's right to make any repairs or to
perform any cleaning or maintenance work without Tenant's request and to
charge Tenant therefor, in the manner (and to the extent) provided in
Paragraph 15 or any other provision of this Lease.
19. INDEMNIFICATION. Tenant shall defend, indemnify, protect and
hold harmless Landlord against and from any and all claims arising from
Tenant's use of the Premises or the conduct of its business or from any
activity, work done, permitted or suffered by the Tenant in or about the
Premises or the Project. Tenant shall further defend, indemnify, protect and
hold harmless Landlord against and from any and all claims excpet from
Landlord's gross negligence or willful misconduct arising from any breach or
default in the performance of any obligation on Tenant's part to be performed
under the terms of this Lease, or arising from any act, neglect, fault or
omission of Tenant, or of its agents, employees, or contractors, and from and
against all costs, attorney's fees, expenses and liabilities incurred in or
resulting from such claim or any action or proceeding brought thereon. In
case any action or proceeding is brought against Landlord by reason of any
such claim, Tenant, upon notice from Landlord, shall defend the same at
Tenant's expense by counsel approved in writing by Landlord. Tenant, as a
material part of the consideration to Landlord, hereby assumes all risk of
damage to property or injury to person in, the Premises from any cause
whatsoever except that which is caused directly by the willful misconduct of
Landlord or gross negligence caused by Landlord. Tenant hereby waives all its
claims in respect thereof against Landlord to the fullest extent permitted by
law.
20. DAMAGE TO TENANT'S PROPERTY. Notwithstanding the provisions of
Paragraph 19 to the contrary, Landlord and its employees and agents shall not
be liable for any damage to property entrusted to employees of the Project,
nor for loss of or damage to any property by theft or otherwise, nor for any
injury or damage to persons or property resulting from fire, explosion,
falling plaster, steam, gas, electricity, water or rain which may leak from
any part
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<PAGE> 18
of the Project or from the pipes, appliances or plumbing works therein or from
the roof, street or sub-surface or from any other place or resulting from
dampness or any other cause whatsoever, unless the same is caused by the
willful conduct or gross negligence of the Landlord. Landlord or its agents
shall not be liable for interference with the light or other incorporeal
hereditaments, nor shall Landlord be liable for any latent defect in the
Premises, the Building or the Project. Tenant shall give prompt notice to
Landlord in case of fire or accidents in the Premises, the Building or the
Project or of defects therein or in the fixtures or equipment located therein.
21. INSURANCE.
(a) Tenant shall, during the Term and any other period of
occupancy, at its sole cost and expense, keep in full force and effect the
following insurance:
(i) Standard form property insurance insuring against the
perils of fire, extended coverage, vandalism, malicious mischief, special
extended coverage ("All Risk") and sprinkler leakage. This insurance policy
shall be upon all property owned by Tenant, for which Tenant is legally liable
or that was installed at Tenant's expense or from Tenant's use, including
without limitation, furniture, fittings, installations, fixtures (other than
the improvements owned by Landlord), and any other property (personal or
other), in an amount of the full replacement cost thereof. In the event that
there shall be a dispute as to the amount which comprises full replacement
cost, the decision of Landlord or any mortgagees of Landlord shall be
conclusive. This insurance policy shall also be upon direct or indirect loss
of Tenant's earnings attributable to Tenant's inability to use fully or obtain
access to the Premises or Building in an amount as will properly reimburse
Tenant. Such policy shall name Landlord and any mortgagees of Landlord as
insured parties, as their respective interests may appear.
(ii) Comprehensive General Liability Insurance insuring
Tenant against any liability arising out of the lease, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be in the amount of $1,000,000 Combined Single Limit for injury to or
death of one or more persons in an occurrence, and for damage to tangible
property (including loss of use) in any occurrence, with such liability amount
to be adjusted from year to year to reflect increases in the Consumer Price
Index. The policy shall insure the hazards of premises and operations,
independent contractors, contractual liability (covering the indemnity
contained in Paragraph 19 hereof) and shall (1) name Landlord and any person
or party named by Landlord as additional insureds, (2) contain a cross
liability provision, and (3) contain a provision that "the insurance provided
the Landlord hereunder shall be primary and non-contributing with any other
insurance available to the Landlord."
(iii) Worker's Compensation and Employer's Liability
insurance as required by state law.
(iv) Any other form or forms of insurance as Landlord or
any mortgagees of Landlord may reasonably require from time to time in form,
in amounts and for insurance risks reasonably specified by Landlord or its
mortgagee.
(b) All policies required to be carried by Tenant shall be
written in a form satisfactory to Landlord and shall be taken out with
insurance companies holding a General Policyholders Rating of "A" and
Financial Rating of "X" or better, as set forth in the most
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<PAGE> 19
current issue of Best's Insurance Guide. Within ten days after the execution
of this Lease (and in any event prior to commencement of the term hereof),
Tenant shall deliver to Landlord copies of policies or certificates evidencing
the existence of the amounts and forms of coverage satisfactory to Landlord.
No such policy shall be cancelable or reducible in coverage except after
thirty (30) days prior written notice to Landlord. Tenant shall, within ten
days prior to the expiration of such policies, furnish Landlord with renewals
or "binders" thereof, or Landlord may order such insurance and charge the cost
thereof to Tenant as additional rent. If Landlord obtains any insurance that
is the responsibility of Tenant under this section, Landlord shall deliver to
Tenant a written statement setting forth the cost or any such insurance and
showing in reasonable detail the manner in which it has been computed.
(c) Landlord shall have the right (but not the obligation),
during the Term or another period of ownership, to obtain and keep in force
such casualty and public liability insurance as Landlord and Landlord's
mortgagees may deem appropriate, including (at Landlord's sole discretion) an
insurance policy providing earthquake coverage for the Project. Landlord also
may carry, but shall not be required to carry, casualty insurance policies on
any alteration, addition or improvement which Tenant may make to the Premises
in accordance with the terms of this Lease. Should earthquake coverage be
implemented expenses described in the Addendum, #50 monthly expenses shall not
be effected.
(d) The parties release each other, and their respective
authorized representatives, from any claims or injury to any person or damage
to the Premises, fixtures, personal property, Tenant's improvements, and
alterations of either Landlord or Tenant in or on the Premises or the Project
that are caused by or result from risks insured against under any insurance
policies carried by the parties and in force at the time of any such damage.
Each party shall cause each insurance policy obtained by it to provide
that the insurance company waives all right of recovery by way of subrogation
against either party in connection with any damage covered by such policy.
22. DESTRUCTION.
(a) In the event the Premises suffers damage or destruction
from (i) an uninsured casualty, or (ii) a casualty which cannot be repaired
within ninety (90) days from the date of destruction under the laws and
regulations or state, federal, county or municipal authorities, or other
authorities with jurisdiction, Landlord may terminate this lease as at the
date of the damage upon written notice to Tenant within forty-five (45) days
following the casualty.
(b) In the event of a casualty which damages or destroys the
Premises or a portion thereof and which may be repaired within ninety (90)
days from the date of the damage or destruction, or in the event Landlord does
not elect to terminate this Lease under the terms of Paragraph 22(a) above
following a casualty which cannot be repaired within ninety (90) days, then
this Lease shall continue in full force and effect and Landlord shall
forthwith undertake to make such repairs to reconstitute the Premises to as
near the condition as existed prior to that Tenant shall be entitled to a
proportionate abatement of rent pursuant to Paragraph 22(e) (provided that the
damage is not the result of the negligence or willful misconduct of Tenant or
Tenant's employees, contractors, licensees or invitees, in which event there
shall be no such abatement of rent).
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<PAGE> 20
(c) In the event of damage or destruction of any portion of
the Building (other than total destruction of the Building) beyond the
exterior boundary of the Premises that is necessary for Tenant's occupancy to
an extent not exceeding twenty-five percent (25%) of the full insurable value
of the Building, and if the damage thereto is such that the Building may be
repaired, reconstructed or restored within a period of ninety (90) days from
the date of the happening of such casualty and Landlord will receive insurance
proceeds sufficient to cover the cost of such repairs, reconstruction or
restoration, Landlord shall commence and proceed diligently with the work of
repair, reconstruction and restoration and the Lease shall continue in full
force and effect. If such work of repair, reconstruction and restoration is
such as to require a period longer than ninety (90) days or exceeds
twenty-five percent (25%) of the full insurable value of the Building, or if
such insurance proceeds will not be sufficient to cover the cost of such
repairs, reconstruction or restoration, Landlord may either elect to so
repair, reconstruct and restore the Building and the Lease shall continue in
full force and effect, or Landlord may elect not to repair, reconstruct or
restore the Building and the Lease shall in such event terminate. In any
event, Landlord shall give written notice to Tenant of its election within
ninety (90) days after the damage or destruction has occurred. If Landlord
elects not to repair, reconstruct or restore the Building, this Lease shall
terminate as of the date of Landlord's notice of such election to Tenant. In
all events, a total destruction of the Building shall terminate the Lease.
(d) Upon any termination of this Lease under any provision of
this paragraph, the parties shall be released thereby without further
obligation to the other from the date possession of the Premises is
surrendered to Landlord except for items which have theretofore accrued and
are then unpaid.
(e) Except as otherwise provided in this Lease, in the event
of repair, reconstruction of the Premises or the Building and restoration as
herein provided, the rental provided to be paid under this Lease shall be
abated proportionally in the ratio which Tenant's use of the Premises is
impaired during the period of such repair, reconstruction or restoration.
Tenant shall not be entitled to any compensation or damages for loss in the
use of the whole or any part of the Premises or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.
(f) Tenant shall not be released from any of its obligations
under this Lease except to the extent and upon the conditions expressly stated
in this Paragraph 22. Notwithstanding anything to the contrary contained in
this Paragraph 22, should Landlord be delayed or prevented from repairing or
restoring the damaged Premises within one (1) year after the occurrence of
such damage or destruction by reason of acts of God, war, governmental
restrictions, inability to procure the necessary labor or materials, or other
causes beyond the control of Landlord shall be relieved of its obligation to
make such repairs or restoration and this Lease shall terminate as of the end
of such one (1) year period.
(g) It is hereby understood that if Landlord is obligated to
or elects to repair or restore as herein provided, Landlord shall be obligated
to make repairs or restoration only of those portions of the Building and the
Premises which were originally provided at Landlord's expense; and the repair
and restoration of items not provided at Landlord's expense (including
alterations or improvements to the Premises) shall be the obligation of
Tenant.
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<PAGE> 21
(h) Notwithstanding anything to the contrary contained in this
paragraph, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises when the damage resulting from any
casualty covered under this paragraph occurs during the last twelve (12)
months of the Term or any extension thereof.
(i) The provisions of Section 1932, Subdivision 2, and Section
1933, Subdivision 4, of the Civil Code of the State of California which permit
termination of a lease upon destruction of the leased Premises, are hereby
waived by Tenant.
23. EMINENT DOMAIN. In case the whole of the Premises, or such
part thereof as shall substantially interfere with Tenant's use and occupancy
thereof, shall be taken for any public or quasi-public purpose by any lawful
power or authority by exercise of the right of appropriation, condemnation or
eminent domain, or sold to prevent such taking, either party may at its option
terminate this Lease effective as of the date possession is required to be
surrendered to such authority. Tenant shall not because of such taking assert
any claim against the Landlord or the taking authority for any compensation
because of such taking, and Landlord shall be entitled to receive the entire
amount of any award without deduction for any estate or interest of Tenant.
In the event the amount of property or the type of estate taken shall not
substantially interfere with the conduct of Tenant's interest of Tenant, and
Landlord at its option may terminate this Lease. If Landlord does not so
elect, Landlord shall promptly proceed to restore the Premises to
substantially their same condition prior to such partial taking, and a
proportionate allowance shall be made to Tenant for the rent corresponding to
the time during which such restoration is being made and to the part of the
Premises of which Tenant shall be so deprived on account of such taking and
restoration. Nothing contained in this paragraph shall be deemed to give
Landlord any interest in any award made to Tenant for the taking of personal
property and fixtures belonging to Tenant. Each party hereby waives the
provisions of Section 1265.130 of the California Code of Civil Procedure
allowing either party to petition the Superior Court to terminate this Lease
in the event of a partial taking of the Premises or Project.
24. DEFAULTS AND REMEDIES.
(a) The occurrence of any one or more of the following events
shall constitute a default hereunder by Tenant:
(i) The abandonment of the Premises by Tenant.
Abandonment is herein defined to include, but is not limited to, any absence
by Tenant from the Premises for five (5) days or longer while in breach of any
provision of this Lease.
(ii) The failure by Tenant to make any payment of rent or
additional rent required to be made by Tenant hereunder, as and when due.
(iii) The failure by Tenant to observe or perform any
of the express or implied covenants or provisions of this Lease to be observed
or performed by Tenant, other than as specified in (i) or (ii) above, except
that where such failure is subject to cure by Tenant, then Tenant shall not be
deemed in default unless such failure shall continue for a period of ten (10)
days after written notice thereof from Landlord to Tenant; provided, however,
that any such notice shall be in lieu of , and not in addition to, any notice
required under California
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<PAGE> 22
Code of Civil Procedure 1161; and provided further, that if such failure is
subject to cure by Tenant and the nature of Tenant's failure is such that more
than ten (10) days are reasonably required for its cure, then Tenant shall not
be deemed to be in default if Tenant shall commence such cure within such ten
(10) day period and thereafter diligently prosecute such cure to completion.
(iv) (1) The making by Tenant of any general assignment
for the benefit of creditors; (2) the appointment of a trustee to take
possession of substantially all of Tenant's assets located at the Premises or
of Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days; or (3) the attachment, execution of other judicial
seizure of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease where such seizure is not discharged within
thirty (30) days.
(b) In the event of such default by Tenant, in addition to any
other remedies available to Landlord at law or otherwise provided in this
Lease, to which Landlord may resort cumulatively or in the alternative:
(i) Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as long as
Landlord does not terminate Tenant's right to possession, and Landlord shall
have the right to collect rent when due as set forth in California Civil Code
Section 1951.4. During the period Tenant is in default, Landlord may enter
the Premises and relet them, or any part of them, to third parties for
Tenant's account, provided that any rental in excess of the monthly rental
due hereunder shall be payable to Landlord. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in reletting the
Premises, including, without limitation, broker's commission, expenses of
cleaning and redecorating the Premises required by the reletting, and like
costs. Reletting may be for a period shorter or longer than the remaining
term of this Lease. Tenant shall pay to Landlord the rent and other sums due
under this Lease on the dates the rent is due, less the rent and other sums
Landlord receives from any reletting. No act by Landlord allowed by this
paragraph shall terminate this Lease unless Landlord notifies Tenant in
writing that Landlord elects to terminate this Lease.
(ii) Landlord may terminate Tenant's right to possession
of the Premises at any time by giving written notice to that effect. No act
by Landlord other than giving written notice to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises or the appointment
of a receiver on Landlord's initiative to protect Landlord's interest under
this Lease shall not constitute a termination of Tenant's right to possession.
Upon termination, Landlord shall have the right to remove all personal
property of Tenant and store same at Tenant's cost and to recover from Tenant
as damages:
a) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
b) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental
loss Tenant proves could have been reasonably avoided;
plus
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<PAGE> 23
c) The worth at the time of award of the amount by which
unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; plus
d) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the
ordinary course of things would be likely to result
therefrom.
As used in subparagraphs 24(b)(ii)a. and 24(b)(ii) b. above, the "worth
at the time of award" shall be computed by allowing interest at the then
prevailing discount rate of the Federal Reserve Bank of San Francisco plus
five percent (5%). As used in subparagraph 24(b)(ii)c. above, the "worth at
the time of award" shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%).
(c) No waiver of any default of Tenant hereunder shall be implied
from any acceptance by Landlord of any rent or other payments due hereunder or
any omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect defaults
other than as specified in such waiver. The consent or approval of Landlord
to or of any act by Tenant requiring Landlord's consent or approval shall not
be deemed to waive or render unnecessary Landlord's consent or approval to or
of any subsequent similar acts by Tenant.
25. ASSIGNMENT AND SUBLETTING. Tenant shall not voluntarily assign
or encumber its interest in this Lease or in the Premises, or sublease all or
any part of the Premises, or allow any other person or entity to occupy or use
all or any part of the Premises, without first obtaining Landlord's prior
written consent, which consent shall not be unreasonably withheld. Any
assignment, encumbrance or sublease without Landlord's prior written consent
shall be voidable at Landlord's election and shall constitute a default and at
the option of Landlord shall result in termination of this Lease. No consent
to any assignment, encumbrance, or sublease shall constitute a waiver of the
provisions of this paragraph with respect to any subsequent assignment,
encumbrance or sublease. Tenant shall notify Landlord in writing of Tenant's
intent to sublease, encumber or assign this Lease in the manner described in
subparagraph (b) and Landlord shall, within seven (7) working days after
receipt of such written notice, consent to such proposed assignment,
encumbrance or sublease or refuse such consent in accordance with this
Paragraph 25. In no event shall Landlord's delay or failure to respond to any
request or notice by Tenant under the foregoing sentence constitute approval
of or consent to any proposed assignment encumbrance or sublease.
(a) As a condition for Landlord granting its consent to any
assignment, encumbrance or sublease, sixty (60) days prior to any anticipated
assignment, encumbrance or sublease Tenant shall give Landlord written notice
(the "Assignment Notice"), which shall set forth the name, address and
business of the proposed assignee, encumbrancer or sublessee, information
(including references) concerning the character, ownership, and financial
condition of the proposed assignee, encumbrancer or sublessee, the date of the
assignment, encumbrance or sublease, any ownership or commercial relationship
between Tenant and the
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<PAGE> 24
proposed assignee, encumbrancer or sublessee, and the consideration and all
other material terms and conditions of the proposed assignment, encumbrance or
sublease, all in such detail as Landlord shall reasonably require. If
Landlord requests additional detail, the Assignment Notice shall not be deemed
to have been received until Landlord receives such additional detail, and
Landlord may withhold consent to any assignment, encumbrance or sublease until
such additional detail is provided to it. Further, Landlord may require that
any sublessee or assignee remit directly to Landlord, on a monthly basis, all
monies due to Tenant from any assignee or sublessee.
(b) The consent by Landlord to any assignment, encumbrance or
sublease shall not be construed as relieving Tenant or any assignee of this
Lease or sublessee of the Premises from obtaining the express written consent
of Landlord to any further assignment, encumbrance or sublease; nor shall such
consent release the Tenant named herein or any assignee or sublessee of Tenant
from any liability or obligation hereunder, whether or not then accrued
(including, without limitation, any obligations for holding over which may
arise under Paragraph 11 above). In the event Landlord shall consent to an
assignment, encumbrance or sublease, Tenant shall pay Landlord as additional
rent its reasonable attorneys fees incurred in connection with evaluating the
Assignment Notice. This section shall be fully applicable to all further
sales, hypothecations, transfers, assignments and subleases of any portion of
the Premises by any successor or assignee of Tenant, of any sublessee of the
Premises.
(c) At Landlord's election, the subletting of substantially
all of the Premises for substantially all of the remaining term of this Lease
shall be deemed an assignment rather than a sublease. In addition, as used in
this Paragraph 25 the term "sublease" shall include any license or other right
or permission granted (or proposed to be granted) by Tenant to or for any
other person or entity to occupy or use any part of the Premises, whether or
not Tenant or such other person or party shall denominate such license, right
or permission a sublease.
(d) A further condition to Landlord's consent to any proposed
assignment or sublease shall be delivery by Tenant to Landlord of a true copy
of any such assignment or sublease (as the case may be), which instrument
shall clearly provide that the assignee or sublessee assumes and agrees to
perform all obligations of this Lease. If for any proposed assignment or
sublease, Tenant receives rent or other consideration, either initially or
over the term of the assignment or sublease, in excess of the rent called for
hereunder, or, in case of the sublease of a portion of the Premises, in excess
of such rent fairly allocable to such portion, after appropriate adjustments
to assure that all other payments called for hereunder are taken into account,
Tenant shall pay to Landlord as additional rent hereunder fifty percent (50%)
of the excess of each such payment of rent or other consideration received by
Tenant promptly after its receipt. The parties intend that the preceding
sentence shall not apply to any sublease rentals respecting a portion of the
Premises that during the entire term of this Lease was not occupied by Tenant
for its own use, but was always subleased by Tenant and or kept vacant. For
the purpose of this section, the rent for each square foot of floor space in
the Premises shall be deemed equal to the amount set forth in Paragraph 4, as
adjusted, divided by the rentable area of the Premises as set forth in the
Basic Lease Information.
26. SUBORDINATION. This Lease shall be subject and subordinate at
all times to (i) all ground and underlying leases which now exist or may
hereafter be executed affecting the Project or the land upon which the Project
is situated or both, (ii) the lien of any mortgages or
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<PAGE> 25
deeds of trust in any amount or amounts whatsoever now or hereafter place on
or against the land and Project or either thereof, or on Landlord's interest
or estate therein, or portion thereof, or on or against any ground or
underlying lease and (iii) any Declarations of Covenants, Conditions and
Restrictions or similar instrument now or hereafter recorded affecting the
Project, all without the necessity of the execution and delivery of any
further instruments on the part of Tenant to effectuate such subordination;
provided, however, that so long as Tenant is not in default, the terms of this
Lease shall not be affected by termination proceedings in respect to such
ground or underlying lease or foreclosure or other proceedings under such
mortgages or deeds of trust, Tenant hereby agreeing at the written request of
the landlord under such ground or underlying lease or the purchaser of the
Building in foreclosure or other proceedings, to attorn to such landlord or to
such purchaser or, at such Landlord's or such purchaser's option, to enter
into a new lease for the balance of the Term upon the same terms and
provisions as are contained in this Lease. Notwithstanding the foregoing,
Tenant will execute and deliver upon demand such further instrument or
instruments evidencing such subordination of this Lease to the lien of any
such mortgage or mortgages or deeds of trust as may be required by Landlord.
27. ESTOPPEL CERTIFICATE.
(a) Tenant shall, at any time and from time to time upon not
less than ten (10) days prior to written notice from Landlord, execute,
acknowledge and deliver to Landlord a statement in writing certifying (i) that
this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect), (ii) the dates to which the rental and
other charges are paid in advance, if any, (iii) that there is not, to
Tenant's knowledge, any uncured default on the part of the Landlord hereunder,
or specifying such defaults if any are claimed, and (iv) such other matters as
Landlord may specify or request. Any such statement may be relied upon by a
prospective purchaser or encumbrancer of all or any portion of the real
property of which the Premises are a part.
(b) Tenant's failure to deliver statement described in
Paragraph 27(a) above within the time specified shall be conclusive upon
Tenant (i) that this Lease is in full force and effect, without modification
except as may be represented by Landlord, (ii) that there are no uncured
defaults in Landlord's performance, and (iii) that not more than one month's
rental has been paid in advance.
28. RULES AND REGULATIONS. Tenant shall faithfully observe and
comply with the "Rules and Regulations," a copy of which is attached hereto
and marked Exhibit C, and all reasonable and nondiscriminatory modifications
thereof. Landlord shall not be responsible to Tenant for the violation or
nonperformance by any other tenant or occupant of the Building or Project of
any of the Rules and Regulations.
29. CONFLICT OF LAWS. This Lease shall be governed by and
construed pursuant to the laws of the State of California.
30. SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
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<PAGE> 26
31. SURRENDER OF PREMISES. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not work a merger,
and shall, at the option of Landlord, operate as an assignment to it of any or
all subleases or subtenancies.
32. ATTORNEY'S FEES. In the event that either party should bring suit
or proceeding under this Lease of because of the breach of any provision of
this Lease or to enforce to protect any rights ore remedies hereunder, then
all costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party therein shall be paid by the other party, which obligation on
the part of the other party shall be deemed to have accrued on the date of the
commencement of such action and shall be enforceable whether or not the action
is prosecuted to judgment.
33. PERFORMANCE BY TENANT. All covenants and agreements to be performed
by Tenant under any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of rent. If Tenant
shall fail to pay any sum of money, other than rent, required to be paid by it
hereunder or shall fail to perform any other act on its part to be performed
hereunder, and such failure shall continue for ten (10) days after notice
thereof by Landlord, Landlord may, without waiving or releasing Tenant from
any obligations of Tenant, but shall not be obligated to, make any such
payment or perform any other such action on Tenant's part to be made or
performed as in this Lease provided. Any amount due from Tenant to Landlord
hereunder which is not paid when due shall bear interest at an annual rate of
five percent (5%) per annum plus the then prevailing discount rate of the
Federal Reserve Bank of San Francisco (but not more than the maximum rate
permissible by law), until paid, unless otherwise specifically provided
herein, but the payment of such interest shall not excuse or cure any default
by Tenant under this Lease. It is understood that this Paragraph 33 is not
intended to impair any right Landlord may have to pay any sum or to take any
action for or on behalf of Tenant without giving notice as set forth above, if
(and to the extent) such right is provided elsewhere in this Lease or under
law.
34. MORTGAGE PROTECTION. In the event of any default on the part of
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgage of a mortgage covering the Premises
whose address shall have been furnished to Tenant, and shall offer such
beneficiary or mortgagee a reasonable opportunity to cure the default,
including time to obtain possession of the premises by power of sale or a
judicial foreclosure, if such should prove necessary to effect a cure.
35. DEFINITION OF LANDLORD. The term "Landlord" as used in this Lease,
so far as covenants or obligations on the part of Landlord are concerned,
shall be limited to mean and include only the owner or owners at the time in
question of the fee of the Premises, and in the event of any transfer,
assignment or other conveyance of any such title or leasehold, the Landlord
herein named (and in the case of any subsequent transfers or conveyances, the
then grantor) shall be automatically freed and relieved from and after the
date of such transfer, assignment or conveyance of all liability as respect to
the performance of any covenants or obligations on the part of Landlord
contained in this Lease thereafter to be performed. Without further
agreement, the transferee of such title shall be deemed to have assumed and
agreed to observe and perform any and all obligations of the Landlord
hereunder, during its ownership of the Premises. Landlord may transfer its
interest in the Premises without the consent of Tenant and such transfer or
subsequent transfer shall not be deemed a violation on Landlord's part of any
of the terms and conditions of this Lease.
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<PAGE> 27
36. WAIVER. The waiver by either party of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
any subsequent breach of the same or any other term, covenant or condition
herein contained, nor shall any custom or practice which may grow up between
the parties in the administration of the terms hereof be deemed a waiver of,
or in any way affect, the right of Landlord to insist upon the performance by
Tenant in strict accordance with such terms and any other term, covenant or
condition of this Lease. The acceptance of rent hereunder by Landlord
following any breach by Tenant of any term, covenant or condition of this
Lease, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent.
37. IDENTIFICATION OF TENANT. If more than one person executes this
Lease as Tenant:
(a) Each of them shall be jointly and severally liable for the
keeping, observing and performing of all of the terms, covenants, conditions,
provisions and agreements of this Lease to be kept, observed and performed by
Tenant; and
(b) The term "Tenant" as used in this Lease shall mean and include
each of them jointly and severally. The act of or notice from, or notice or
refund to, or the signature of, any one or more of them, with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
expiration, termination or modification of this Lease, shall be binding upon
each and all of the persons executing this lease as Tenant with the same force
and effect as if each and all of them had so acted or so been given such
notice or refund or so signed.
38. TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used in any
gender shall include other genders. The paragraph headings of this Lease are
for convenient reference only and shall have no effect upon the construction
or interpretation of any part hereof.
39. EXAMINATION OF LEASE. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option for the
Lease, and it is not effective as a Lease or otherwise until execution by and
delivery to both Landlord and Tenant.
40. TIME. Time is of the essence with respect to the performance of
every provision of this Lease in which time of performance is a factor.
41. PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all of the
agreements of the parties hereto with respect to any matter covered or
mentioned in this Lease, and no prior agreement or understanding pertaining to
any such matter shall be effective for any purpose. No provision of this
Lease may be amended or added to except by an agreement in writing signed by
the parties hereto or their respective successors in interest.
42. SEVERABILITY. Any provision of this Lease which shall prove to be
invalid, void or unenforceable shall in no way affect, impair or invalidate
any other provision hereof, and each provision thereof shall remain in full
force and effect and shall be enforceable to the fullest extent permitted by
law.
43. RECORDING. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum thereof without the consent of the other.
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<PAGE> 28
44. PARKING. Tenant shall be permitted to use the number of parking
spaces set forth on the Basic Lease Information on a nonexclusive basis and
upon such terms and conditions as may from time to time by imposed by
Landlord. Landlord reserves the right to impose a reasonable charge for the
use of any parking spaces.
45. TENANT'S REMEDY. If Landlord shall fail to perform any covenant,
term, or condition of this Lease upon Landlord's part to be performed, Tenant
shall be required to deliver to Landlord written notice of such failure. If,
as a consequence of any such failure, Tenant shall recover a money judgment
against Landlord, such judgment shall be satisfied only out of the proceeds of
sale received upon execution of such judgment and levied thereon against the
right, title and interest of Landlord in the Project and out of rents or other
income from such property receivable by Landlord or out of consideration
received by Landlord from the sale or other disposition of all or any part of
Landlord's right, title or interest in the Project, and neither Landlord nor
its partners, subsidiaries, directors, agents, officers, or employees shall be
liable for any deficiency.
46. MODIFICATION FOR LENDER. If, in connection with obtaining
construction, interior or permanent financing for the Building or Project the
lender shall request reasonable modifications in this Lease as a condition to
such financing, Tenant will not unreasonably withhold, delay or defer its
consent thereto, provided that such modifications do not adversely affect the
obligations of Tenant hereunder or materially and adversely affect the
leasehold interest hereby created or Tenant's rights hereunder.
47. SUBSTITUTION OF PREMISES. At any time after the execution of this
Lease, Landlord shall have the right to substitute for the Premises other
premises in the Project (the "New Premises"), provided that:
(a) the New Premises shall be substantially similar in size to the
Premises described herein and shall be reasonably appropriate for Tenant's use
and occupancy.
(b) if Tenant is occupying the Premises at the time of any such
substitution Landlord shall pay the expense of moving Tenant, its property and
equipment to the New Premises and shall, at its sole cost, improve the New
premises with improvements substantially similar to those located in the
Premises.
Upon substitution of the new Premises for the Premises described herein,
the New Premises shall be deemed to be the Premises for all purposes under
this Lease, and Landlord and Tenant shall promptly initial, date and attach to
this Lease a substitute Exhibit A showing the new Premises and new Basic Lease
Information identifying the New Premises as the Premises hereunder.
48. SURVIVAL. Termination of this Lease by expiration of the Term or
otherwise shall not terminate (i) Tenant's obligations arising from or
relating to any incident, occurrence or activity occurring prior to such
termination (including, without limitation, the obligations set forth in
Paragraphs 16 and 19) or (ii) any covenants or obligations which, by their
terms or nature, are to be performed after termination of this Lease.
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first above written.
TENANT LANDLORD
Trusted Information Systems PERINI INVESTMENT PROPERTIES, INC.
- ----------------------------------
a Maryland Corporation a New York Corporation
By: /s/ Stephen T. Walker By: /s/
----------------------------- ---------------------------------
Its: President Its:
---------------------------------
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<PAGE> 30
ADDENDUM
TO THAT CERTAIN LEASE DATED FEBRUARY 1, 1990
BETWEEN
PERINI INVESTMENT PROPERTIES (LANDLORD)
AND
TRUSTED INFORMATION SYSTEMS, INC. (TENANT)
49. CAP ON TAXES FROM SALE OF PROPERTY
At Tenant's request, Landlord agrees that expenses due to increased
property taxes related to the sale of the building after January 1990,
shall be passed through to tenants, but capped at an increase of 3 cents
per s.f.
50. RENTAL SCHEDULE
The following rental schedule will apply for the sixty (60) month lease
term.
<TABLE>
<CAPTION>
Basic Rent Month Expenses Total Monthly
Months Per Sq. Ft. Per Sq. Ft. Per Sq. Ft.
------ ----------- --------------- -----------
<S> <C> <C> <C>
1-12 $1.02 $.63 $1.65
13-24 $1.08 $.67 $1.75
25-36 $1.18 $.67 $1.85
37-48 $1.24 $.71 $1.85
49-60 $1.34 $.71 $2.05
</TABLE>
51. RIGHT OF FIRST REFUSAL
RE: EIGHTH FLOOR EXPANSION SPACE.
Landlord shall not lease all or any part of the area on the eighth floor
of the Building remaining unleased as of the date hereof and shown on
Exhibit "A" attached hereto (the "Expansion Space"). At any time that
Landlord determines to lease all or part of the Expansion Space, Landlord
shall notify Tenant of the Basic Rent, for which Landlord is willing to
lease the Expansion Space or portion thereof as described in Landlord's
notice, indicates in writing its agreement to lease the Expansion Space
on the terms set forth in Landlord's notice, the Expansion Space
described in the notice shall be included within the Leased Premises and
leased to Tenant pursuant to the terms of the amount of the same Basic
Rent attributable to the Existing Space and Tenant's proportionate share
of Actual Operating Costs and shall be adjusted to reflect the addition
of the Expansion Space to the Leased Premises. The parties shall
immediately execute an amendment to this Lease stating the addition of
the Expansion Space to the Leased Premises. If Tenant does not indicate
within seven (7) days its agreement to lease the Expansion space
described in the notice, Landlord thereafter shall have the right to
lease the Expansion Space described in the notice to a third party at the
Basic Rent stated in the notice or at a Basic Rent greater than that
stated in the notice. The provisions of this paragraph shall be
operative with respect to previously unleased portions of the Expansion
space each time Landlord
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<PAGE> 31
determines to lease all or part of the Expansion Space to a third person
until all of the Expansion space has been initially leased to other
tenants.
51. OPTION TO EXTEND TERM
Provided Tenant is not in material default of its obligations under this
Lease, Landlord grants to Tenant the option to extend the initial term of
this lease for one (1) consecutive period of five (5) years each. The
option to extend shall be exercised when Tenant notifies Landlord in
writing at least six (6) months prior to the end of the then existing
Term that Tenant exercises its option to extend the term.
Commencing on the date, if any, that Landlord receives Tenant's written
exercise of the option to extend, and continuing for a thirty (30) day
period thereafter, Landlord and Tenant shall negotiate in good faith the
amount of monthly rental to be paid by Tenant to Landlord during the
extended term of this Lease. Such monthly rental shall be equal to
ninety-five percent (95%) of the rental rate for comparable office space
in the area where the Premises are located after taking into account
standard rental concessions and Tenant Improvement allowances in the
area, provided, however that the rental during any twelve (12) month
period of the extended term shall in no event be less than the Rent
payable by Tenant during the last twelve (12) months of the term then
ending. If Landlord and Tenant are able to reach a written agreement as
to the monthly rental for such extended term within such thirty (30) day
period, the term of the Lease will be extended for the additional five
(5) years at the agreed upon monthly rental with all other terms and
conditions of the Lease remaining in full force and effect.
If Landlord and Tenant are unable to reach a written agreement as to the
monthly rental for the extended term with the thirty (30) day period
described above, the monthly rental to be paid by Tenant to Landlord
during such extended term will be determined by the appraisal process
described in this Section. On or before five (5) months prior to the end
of the then existing term, each party will select a real estate broker
with at least five (5) years full time commercial leasing experience in
the geographic area where the Premises is located. On or before four (4)
months prior to the end of the then existing term, the two brokers
selected by Landlord and Tenant shall petition the Landlord and Tenant
(or the single broker so selected if one party fails to select a broker)
shall jointly appoint (or if they are unable to agree, either Landlord or
Tenant shall petition the local court to appoint) a third real estate
broker with at lease five (5) years full time commercial leasing
experience in the geographic area where the Premises are located (the
"Appraiser"). The Appraiser so appointed shall appraise and determine
the monthly rental to be paid by Tenant to Landlord during the extended
term based on ninety-five percent (95%) of the rental rates for
comparable office space in the area where the Premises are located after
taking into account standard rental concessions and Tenant Improvement
allowances in the area; provided, however, in no event shall the monthly
rental to be paid by Tenant to Landlord during any twelve (12) month
period of the extended term be less than the Rent payable by Tenant
during the last twelve (12) months of the term then ending. The
Appraiser's decision (a) shall be in writing and delivered to Landlord
and Tenant on or before three (3) months prior to the end of the then
existing term, and (b) shall be final and binding upon Landlord and
Tenant. Upon receipt of the Appraiser's written decision, the term on
the Lease will be extended for the extended term at the monthly rental
determined by the Appraiser with all other terms and conditions of the
Lease remaining in full force; provided, however, that within fifteen
(15) days
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<PAGE> 32
of Tenant's receipt of the Appraiser's written decision, Tenant shall
have the right to terminate the exercise of its option to extend in which
event the Lease will terminate as of the last day of the then existing
term of this Lease. All costs, fees and expenses incurred in connection
with the appraisal process under this section shall be shared equally by
Landlord and Tenant.
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<PAGE> 1
EXHIBIT 10.18
LEASE AMENDMENT I
RENEWAL & EXPANSION
This Agreement dated May 26, 1994 ("Amendment I") is made by and between Robert
R. Walker. Jr., Receiver, ("Landlord") and Trusted Information Systems, Inc.
("Tenant"), and shall modify, the Lease dated February 1, 1990 as follows:
<TABLE>
<S> <C>
LANDLORD: Robert R. Walker. Jr.. Receiver
TENANT: Trusted Information Systems, Inc.
PREMISES: Existing Premises - Suite 800: 2831 rentable square feet
Expansion Premises - Suite 810: 963 rentable square feet
TERM: Existing Premises - Renewal: Two (2) years and one (1) month and fifteen (15) days:
April 1, 1995 through May 15,1997.
Expansion Premises: Two (2) years and eleven (11) months and fifteen (15) days: June
1, 1994 through May 15.1997.
OPTION: Lessor grants to lessee one (1) option to renew this lease for period of three (3)
years under the same terms and conditions set forth in their lease except rent which
shall be at 95% of the then current market rate for similar office space in downtown
Mountain View. but in no instance shall the rental rate for the option period be less
than the rate during the last year of the previous term.
TENANT IMPROVEMENTS: Lessor, at Lessor's sole cost and expense, shall complete the following interior
improvements:
A) Add two (2) offices (see floor plan for location)
B) Paint walls in Suite 810
C) Install carpet in Suite 810
D) Steam clean carpet in Suite 800
E) Install mini-blinds in entire space
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
F) Construct entryway from existing space into new space.
G) Construct a demising wall in the new space.
H) Construct a door from the hall into the conference room of the new space.
PARKING: Tenant shall have an additional two (2) unassigned parking spaces.
RENT: First month of rent schedule below begins with expansion premises. Existing premises
will be included in rent schedule as of 6/1/94 and follow same schedule outlined.
Months Rental Rate
------ -----------
01-12 $1.75/sq.ft./month, full service
13-24 $1.80/sq.ft./month, full service
25-36 $1.85/sq.ft./month, full service
SECURITY DEPOSIT: Lessee shall increase their existing security deposit to reflect the additional
square feet leased.
ENVIRONMENTAL: Tenant acknowledges that Landlord has informed Tenant that the Building contains
asbestos or asbestos containing materials. At Tenant's request, Landlord shall make
available to Tenant (but without warranty) at the Project office during normal
business hours, copies of any inspection reports, tests or similar documents in
Landlord's possession respecting the existence and the location of asbestos and the
presence (if any) of hazardous substances in or about the Building. To the extent
such reports, tests or other documents indicate any asbestos-containing material in
or about the Building or any release of hazardous materials, this Addendum and such
documents shall constitute notice and disclosure as required under California Health
and Safety Code Sections 25359.7 and 25915.5, as applicable, with respect to the
presence of asbestos or asbestos-containing material or the hazardous substance
disclosed on such documents during the duration of this Renewal Agreement.
FINANCIAL Tenant shall provide Landlord complete financial statements on the company. Tenant
also acknowledges that Landlord will run routine credit checks.
</TABLE>
<PAGE> 3
All other Terms and Conditions of the existing Lease Agreement shall be
enforced during the duration of this Amendment I.
LANDLORD: TENANT:
- --------- -------
ROBERT R. WALKER, JR. TRUSTED INFORMATION SYSTEMS,
RECEIVER INC., A CALIFORNIA CORPORATION
BY: /S/ ROBERT R. WALKER JR. BY: /S/ STEPHEN T. WALKER
------------------------------ -------------------------------
ROBERT R. WALKER, JR.
ITS: RECEIVER ITS: PRESIDENT
DATE: 5/23/94 DATE: MAY 19, 1994
----------------------------- -----------------------------
<PAGE> 1
EXHIBIT 10.19
STANDARD LEASE
Lease Preparation Date: APRIL 12, 1989
Lessor: R&B PROPERTY HOLDING COMPANY,
a California General Partnership
DBA: COMMERCE PLAZA--WEST LOS ANGELES
By: R & B Commercial Management Company
As Manager and Agent for Owner
2222 Corinth Avenue
Los Angeles, CA 90064
Lessee: TRUSTED INFORMATION SYSTEMS, INC.,
A MARYLAND CORPORATION
Trade Name: TRUSTED INFORMATION SYSTEMS, INC.
1. LEASE TERMS
1.01 Premises: The Premises referred to in this Lease contain
approximately 2,740 rentable square feet and is located on Exhibit "A" and
described in Exhibit "A1" attached. The address of the leased Premises is:
11340 West Olympic Blvd., Suite 265 & 375, Los Angeles, CA 90064.
1.02 Project: The Project consists of approximately 77,371
rentable square feet.
1.03 Lessee's Notice Address: Lessee's Notice Address is the
address of the leased Premises as defined in paragraph 1.01 unless otherwise
specified here:
1.04 Lessor's Notice Address: Lessor's Notice Address is: 11340
West Olympic Blvd., Suite 350, Los Angeles, California 90064.
1.05 Lessee's Permitted Use: INFORMATION SYSTEMS RESEARCH AND
DEVELOPMENT AND SALES/ADMINISTRATION
1.06 Lease Term: The Lease Term commences on MAY 1, 1989 and ends
on APRIL 30, 1994 (60 months, and 0 days).
1.07 Base Monthly Rent: $5,206.00 in lawful money of the United
States of America.
<PAGE> 2
1.08 Base Monthly Rent Increases - In the event that Lessee's Lease
Term is greater than twelve (12) months, Lessee's Base Rent will increase to
the amounts at the time noted below:
<TABLE>
<CAPTION>
Effective Date of Increase New Base Monthly Rent
-------------------------- ---------------------
<S> <C>
OCTOBER 1, 1991 $5,699.20
</TABLE>
1.09 Security Deposit: $7,809.00 in lawful money of the United
States of America, subject to adjustment pursuant to paragraph 5.01.
1.10 Lease Documentation Fee: N/A in lawful money of the United
States of America.
1.11 Proportionate Share: Lessee's Proportionate Share is .0354
1.12 Expense Base Year: The calendar year - 1989.
1.13 Expense Base Rate: If paragraph 4.03D is initialed, the
Expense Base Rate used for determining the Expense Base Year amount is N/A per
square foot.
1.14 Tax Base Year: The fiscal year commencing on JANUARY 1, 1989
and ending on DECEMBER 31, 1989.
2. DEMISE AND POSSESSION
2.01 Lessor leases to Lessee and Lessee leases from Lessor the
Premises described in 1.01. By entering the Premises, Lessee acknowledges that
it has examined the Premises and accepts the Premises in their present
condition subject to any additional work Lessor has agreed to do as stated on
Exhibit B.
2.02 If for any reason Lessor cannot deliver possession of the
Premises on the date the Lease commences, Lessor shall not be subject to any
liability nor shall the validity of this Lease be affected. If Lessee has not
caused such delay there shall be a proportionate reduction of the Base Monthly
Rent covering the period between the commencement of the Lease Term and the
date when Lessor can deliver possession. However, either Lessor or Lessee,
unless it is the cause of the delay, has the right to cancel this Lease by
written notification if possession of the Premises is not delivered within
ninety (90) days of the date the Lease Term commences.
3. BASE MONTHLY RENT
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<PAGE> 3
3.01 Base Monthly Rent: On the first day of each calendar month of
the Lease Term, Lessee will pay, without deduction or offset, prior notice or
demand, Base Monthly Rent at the place designated by Lessor. However, the
first month's rent is due and payable upon execution of this Lease. In the
event that the Term of this Lease commences or ends on a day other than the
first day of a calendar month, a prorated amount of Base Monthly Rent shall be
due upon execution and it will be calculated using a thirty (30) day month.
3.02 Any installment of rent or any other charge payable which is
not paid within ten (10) days after it becomes due will be considered past due
and Lessee will pay to Lessor as Additional Rent a late charge equal to ten
percent (10%) of such installment or the sum of twenty-five dollars ($25.00)
whichever is greater, for each month or fractional month transpiring from the
date due until paid. A twenty-five dollar ($25.00) handling charge will be
paid by Lessee to Lessor for each returned check and, thereafter, Lessee will
pay all future payments of rent or other charges due by money order or
cashier's check.
3.03 The amount of the Base Monthly Rent includes projected
construction of Lessee's improvements as indicated on Exhibit "B" attached. In
the event that Lessee requests Lessor to construct additional improvements
and/or final construction costs exceed original estimates, Lessor may increase
the Base Monthly Rent according to the terms and conditions outlined on Exhibit
"B", or elsewhere in this Lease.
4. ADDITIONAL RENT
4.01 All charges payable by Lessee other than Base Monthly Rent are
called "Additional Rent". Unless this lease provides otherwise, Additional
Rent is to be paid with the next monthly installment of Base Monthly Rent and
is subject to the provisions of 3.02. The term "rent" whenever used in this
Lease means Base Monthly Rent and Additional Rent.
4.02 Based on Lessee's Proportionate Share defined in 1.11, Lessee
agrees to pay as Additional Rent to Lessor its proportionate share of any
parking charges, utility surcharges, occupancy taxes, or any other costs
resulting from the statutes or regulations, or interpretations thereof, enacted
by any governmental authority in connection with the use or occupancy of the
Project or the parking facilities serving the Project, or any part thereof.
4.03 Operating Expenses
A. Definitions:
"Expense Comparison Year": Each calendar year after the Expense Base Year.
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<PAGE> 4
"Operating Expenses" are all costs and expenses of ownership, operation,
maintenance, management, repair and insurance of the Project, as determined
according to generally accepted accounting principles applied by Lessor in its
sole discretion, including, but not limited to the following costs: all
supplies, materials, labor and equipment, used in or related to the operation
and maintenance of the Project; all utilities, including but not limited to,
water, electricity, gas, heating, lighting, sewer, waste disposal, security,
air-conditioning and ventilating costs and all charges relating to the use,
ownership or operation of the Project; all maintenance, management, janitorial
and service agreements related to the Project; all legal expenses and
accounting costs; all insurance premiums and costs including but not limited to
the premiums and costs of fire, casualty and liability coverage, rent abatement
and earthquake insurance and any other type of insurance related to the
Project; all maintenance costs relating to the public and service areas within
and around the Project, including but not limited to, sidewalks, landscaping,
service areas, driveways, parking areas, walkways, building exteriors
(including painting), signs and directories, including for example, costs of
resurfacing and restriping parking areas; amortization (along with reasonable
financing charges) of capital improvements made to the Project which may be
required by any government authority or which will improve the operating
efficiency of the Project; all Lessor's costs in managing, maintaining,
repairing, operating and insuring the project, including for example, clerical,
supervisory and janitorial staff; however, such costs shall not include
depreciation on the Project, loan payments, executive salaries, or real estate
broker commissions.
B. If the Operating Expenses incurred or paid by Lessor for
any Expense Comparison Year during the Lease Term are greater then the
Operating Expenses incurred or paid by Lessor for the Expense Base Year, then
Lessee will pay as Additional Rent an amount equal to the increase multiplied
by Lessee's Proportionate Share as defined in 1.11. In the event of any
partial Expense Comparison Year, Lessee will pay the increase, if any, based on
the number of days of the Expense Comparison Year included within the Lease
Term.
C. By April 1st of each Expense Comparison Year, Lessor will
provide Lessee a statement of Lessor's best estimate of Lessee's share of the
increase in Operating Expenses for the coming year over the costs for the
Expense Base Year. This amount will be divided by twelve (12) and beginning
with the next regular Base Monthly Rent payment, Lessee will pay 1/12th of the
increase multiplied by the number of elapsed months from the commencement of
the Expense Comparison Year and thereafter will continue to pay 1/12th of' the
increase each month until Lessee receives the next Expense Comparison Year's
statement. By April 1st following each Expense Comparison Year, Lessor will
provide Lessee a statement showing the total actual Operating Expenses for the
calendar year just ended, and Lessee's share of any increase over the Expense
Base Year. If Lessee's estimates paid to date for the preceding calendar year
are less than Lessee's share of the increase, Lessee will pay the difference
concurrently with the next payment of Base Monthly Rent. In the event that
Lessee has paid
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<PAGE> 5
more than his share of estimates for the preceding calendar year, Lessor will
credit the amount towards Lessee's future Operating Expense obligations.
D. If this paragraph is initialed, Lessee understands that
upon execution of this Lease the Project is less then 50% occupied, and the
Operating Expense amount for the Expense Base Year will be established by
multiplying the Expense Base Rate shown in 1.13 by the Project square footage
reflected in 1.02.
E. Lessee will not be entitled to any reduction, refund,
offset, allowance or rebate in Base Monthly Rent or any other sums due if the
Operating Expenses for any Expense Comparison Year are less than those of the
Expense Base Year nor shall the failure by Lessor to provide Lessee with a
statement by April lst of each year constitute a waiver by Lessor of its right
to collect Lessee's share of any increase in Operating Expenses. In addition,
if for any reason Lessor should not elect to bill Lessee for lump sum Operating
Expense increases or estimates for a particular Expense Comparison Year,
Lessor's right to charge Lessee for such expenses in subsequent years is not
waived.
4.04 Taxes
A. As Additional Rent, Lessee will reimburse Lessor upon
demand for all taxes payable by Lessor (other than net income) as defined and
stated in the following paragraphs.
B. Definitions:
"Tax Base Year" is the tax fiscal year as indicated in 1.14. However, if the
project in which the Premises are located is not yet fully assessed or
completed as improved real property by the tax fiscal year shown in 1.14, the
Tax Base Year is the year in which the first tax bill reflects the full
assessed value of the Property.
"Tax Comparison Year" is each tax fiscal year commencing on the anniversary of
the Tax Base Year and ending twelve (12) months thereafter.
"Real Property Taxes" are: (i) any fee, license fee, license tax, business
license fee, commercial rental tax, levy, charge, assessment, penalty or tax
imposed by any taxing authority against the Property; (ii) any tax or fee on
Lessor's right to receive, or the receipt of, rent or income from the Property
or against Landlord's business of leasing the Property, (iii) any tax or charge
for fire protection, streets, sidewalks, and road maintenance, refuse or other
services provided to the Property by any governmental agency; (iv) any tax
imposed upon this transaction, or based upon a re-assessment of the Project due
to a change in ownership or transfer of all or part of Lessor's interest in the
Property; and (v) any charge or fee replacing, substituting for, or in addition
to any
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<PAGE> 6
tax previously included within the definition of real property tax. Real
Property Taxes do not, however, include Lessor's federal or state income,
franchise, inheritance or estate taxes.
C. If the Real Property Taxes Incurred or paid by Lessor for
any Tax Comparison Year ending or commencing during the Lease Term, are greater
than the Real Property Taxes incurred or paid by Lessor for the Tax Base Year,
then Lessee will pay Lessor an amount equal to the increase multiplied by
Lessee's Proportionate Share as indicated in 1.11. In the event of any partial
Tax Comparison Year, Lessee shall pay the increase, if any, based on the number
of days of such Tax Comparison Year included within the Lease Term.
D. Following the end of each Tax Comparison Year, Lessor will
provide Lessee a statement of Lessor's best estimate of Lessee's share of the
increase in Real Property Taxes for the coming year over the costs for the Tax
Base Year, but failure to do so by Lessor does not constitute a waiver of its
rights to collect Lessee's share of the increase in Real Property Taxes. This
amount will be divided by twelve (12) and beginning with the next regular Base
Monthly Rent payment, Lessee will pay 1/12th of the increase multiplied by the
number of elapsed months from the commencement of the Tax Comparison Year and
thereafter will continue to pay 1/12th of the increase each month until Lessee
receives the next Tax Comparison Year's statement. By April 1st following each
Tax Comparison Year, Lessor will provide Lessee a statement showing the total
actual Real Property Taxes for the fiscal year just ended, and Lessee's share
of any increase over the Tax Base Year. If Lessee's estimates paid to date for
the preceding fiscal year are less than Lessee's share of the increase, Lessee
will pay the difference concurrently with the next payment of Base Monthly
Rent.
In the event that Lessee has paid more than his share of
estimates for the preceding fiscal year, Lessor will credit the amount towards
Lessee's future Real Property Tax obligations. Thereafter if any succeeding
Tax Comparison Year results in a further increase in Real Property Taxes,
Lessee will pay, upon receipt of the statement, a lump sum equal to its share
of the total increase over the Tax Base Year less the total of the monthly
estimate installments paid in that Tax Comparison Year, and the monthly
estimate installments for the next Tax Comparison Year will be adjusted to
reflect Lessor's new best estimate.
E. Personal Property Taxes: Lessee will pay all taxes
charged against trade fixtures, furnishings, equipment or any other personal
property belonging to Lessee. Lessee will have personal property taxes billed
separately from the Project. If any of Lessee's personal property is taxed
with the Project, Losses will pay Lessor the taxes for the personal property
upon demand by Lessor.
5. SECURITY DEPOSIT
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<PAGE> 7
5.01 At the same time the Base Monthly Rent is increased per
paragraph 1.08 of this Lease, the Security Deposit will also be increased by a
like amount and the deficiency will be due concurrently with the next payment
of Base Monthly Rent.
5.02 If Lessee defaults with respect to any provision of this
Lease, Lessor my retain, use or apply all or any part of the Security Deposit
to compensate Lessor for any loss or damage suffered by Lessee's default
including but not limited to, the payment of Base Monthly Rent, Additional Rent
or other rental sums due, and for payment of amounts Lessor is obligated to
spend by reason of Lessee's default. If any portion is so retained, used or
applied, Lessee, upon demand, will deposit with Lessor an amount sufficient to
restore the deposit to its original amount, as adjusted per 1.08, except as
otherwise provided by law. Lessor will not be required to keep the Security
Deposit separate from its general funds, and Lessee will not be entitled to
interest on it. If Lessee fully and faithfully performs every provision of
this Lease, the Security Deposit or a balance thereof will be returned to
Lessee within the time frame permitted by law. In no event will Lessee have
the right to apply any part of the Security Deposit to any rents payable under
this Lease.
6. [DELETED]
7. USE OF PREMISES; QUIET CONDUCT
7.01 The Premises may be used and occupied only for Lessee's
Permitted Use as shown in 1.05 and for no other purpose, without obtaining
Lessor's prior written consent. Lessee will comply with all covenants,
conditions and restrictions affecting the Premises. Lessee will promptly
comply with all laws, ordinances, orders and regulations affecting the
Premises. Lessee will not perform any act or carry on any practices that may
injure the Project or the Premises or be a nuisance or menace, or disturb the
quiet enjoyment of other lessees in the Project including but not limited to
equipment which causes vibration, use or storage of chemicals, or heat or noise
which is not properly insulated. Lessee will not cause, maintain or permit any
outside storage on or about the Premises. In addition, Lessee will not allow
any condition or thing to remain on or about the Promises which diminishes the
appearance or aesthetic qualities of the Premises and/or the Project or the
surrounding property. The keeping of a dog or other animal an or about the
Premises is expressly prohibited.
7.02 Hazardous Material. Lessor represents and warrants that, with
respect to the Premises and the building and land upon which the Premises are
located, all of which are hereinafter referred to as the "Property", Lessor has
not received written notice from any government agency with respect to any
hazardous condition on the Property related to any toxic or contaminated
materials or substances. In the event
- 7 -
<PAGE> 8
Lessor does receive such a notice, Lessor agrees to take such action as is
necessary to bring the Property into compliance with notice subject to the
rights of Lessor to contest the validity of applicability of such notice. In
the event Lessor does not cure, in a timely fashion, the violation described in
such notice, Lessor shall have the right to terminate this lease upon 90 days
written notice to Lessor.
Lessee covenants not to introduce any toxic material onto the Project.
Without limiting the generality of the foregoing, Lessee shall not store, use
or dispose of any toxic material in or on the Project. Lessee shall comply
with all applicable Federal, State, and local Law or ordinances pertaining to
the storage, use or disposal of any toxic material.
8. TENANT IMPROVEMENTS
8.01 Tenant Improvements to be performed in the Premises, If any,
will be performed in accordance with the terms and provisions entitled
"Lessor's Work" contained in "Exhibit B" attached. Thereafter during the Lease
Term, Lessor will be under no obligation to alter, change, decorate or improve
the Premises.
9. PARKING
9.01 Lessee and Lessee's customers, suppliers, employees, and
invitees have the non-exclusive right to park in common with other lessees in
the parking facilities as designated by Lessor. Lessee agrees not to
overburden the parking facilities and agrees to cooperate with Lessor and other
lessees in the use of the parking facilities. Lessor reserves the right to, on
an equitable basis, assign specific spaces with or without charge to Lessee as
Additional Rent, make changes in the parking from time to time, and to
establish reasonable time limits on parking.
10. UTILITIES (delete 10.01 or 10.02)
10.01 Serviced Space: Lessor will provide to the Promises between
the hours of 8 a.m. and 6 p.m., Monday through Friday or any other time periods
established by Lessor:
A. All utilities, including heat, electricity, gas, power and
air-conditioning, if any, as are commercially reasonable for normal office use.
If Lessee uses heat, water, electricity, gas, power or air-conditioning in
excess of normal office use, Lessor may separately meter such services at
Lessee's expense where applicable, or Lessor, may, at its sole discretion,
measure or estimate the increased use and Lessee will pay Lessor, on demand,
the amount of the measured or estimated increase. Lessor will also provide
water for restroom facilities (if any). However, Lessee will pay all services
directly contracted for by Lessee.
B. Such janitorial service as is commercially reasonable.
10.02 [DELETED]
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<PAGE> 9
10.03 Lessor will not be liable or deemed in default to Lessee nor
will there be any abatement of rent for any interruption or reduction of
utilities or services not caused by any act of Lessor or any act reasonably
beyond Lessor's control. Lessee agrees to comply with energy conservation
programs implemented by Lessor by reason of enacted laws or ordinances.
10.04 Lessee will contract and pay for all telephone and such other
services for the Promises subject to the provisions of 11.03.
11. ALTERATIONS, MECHANIC'S LIENS
11.01 Lessee will not make any alterations to the Interior of the
Premises, without Lessor's prior written consent which will not be unreasonably
withheld. If Lessor gives its consent, no such alterations will proceed
without Lessor's prior written approval of (1) Lessee's contractor, (ii)
certificates of insurance by Lessee's contractor for public liability and
automobile liability and property damage insurance with limits not less than
$1,000,000/$250,000/$500,000 respectively endorsed to show Lessor as an
additional insured and for worker's compensation as required and (iii) detailed
plans and specifications for such work and (iv) Lessee agrees that it will have
its contractor execute a waiver of mechanic's lien and that Lessee will
guarantee that any mechanic's lien placed against the Project will be removed
within thirty (30) days of receipt of notice of intent to file lien. In
addition, before alterations may begin, valid building permits or other permits
or licenses required must be furnished to Lessor, and once the alterations
begin, Lessee will diligently and continuously pursue their completion. At
Lessor's option, any alterations may become part of the realty and belong to
Lessor. If requested by Lessor, Lessee will pay prior to the commencement of
construction an amount determined by Lessor necessary to cover the costs of
demolishing such alterations and/or the cost of returning the Premises to their
condition before such alteration. Lessor may also require Lessee to provide
Lessor, at Lessee's sole cost and expense, a payment and performance bond in
form acceptable to Lessor, in a principal amount not less than one and one-half
times the estimated cost of such alterations, to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure completion of
the work.
11.02 Notwithstanding anything in 11.01, Lessee may, with written
consent, install trade fixtures, equipment, and machinery in conformance with
the ordinances of the applicable city and county, and they may be removed upon
termination of this Lease provided the Premises are not damaged by their
removal.
11.03 All private telephone systems and/or other related
telecommunications equipment and lines may not be installed without Lessor's
prior written consent. In addition, if Lessor gives consent all equipment must
be installed within Lessee's Premises and, upon termination of this Lease
removed and the Premises restored to the same condition as before such
installation.
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<PAGE> 10
11.04 Lessee will pay all costs for alterations and will keep the
Premises, the Project and the underlying property free from any liens arising
out of work performed for, materials furnished, to or obligation incurred by
Lessee.
11.05 Lessor will have the right to construct or permit construction
of tenant improvements in or about the Project for existing and new lessees and
to alter any public areas in and around the Project. Notwithstanding anything
which may be contained in this Lease, Lessee understands this right of Lessor
and agrees that such construction will not be deemed to constitute a breach of
this Lease by Lessor and Lessee waives any such claim which it might have
arising from such construction.
12. FIRE INSURANCE; HAZARDS AND LIABILITY INSURANCE
12.01 Except as expressly provided as Lessee's Permitted Use, or as
otherwise consented to by Lessor in writing, Lessee shall not do or permit
anything to be done within or about the Premises which will increase the
existing rate of insurance on the Project or cause the cancellation of any
insurance policy covering the Project. Nor shall Lessee keep, use or sell, or
permit anyone to keep, use or sell, any article in or about the Premises, which
may be prohibited by the standard form of firm and other insurance policies.
Lessee shall, at its sole cost and expense, comply with any requirements
pertaining to the Premises or any insurance organization insuring the Project
or Project-related apparatus. Lessee agrees to pay to Lessor, as Additional
Rent, any increases in premiums on policies resulting from Lessee's Permitted
Use or other use consented to by Lessor which increases Lessor's premiums or
requires extended coverage by Lessor to insure the Premises.
12.02 Lessee, at the times during the term of this Lease and at
Lessee's sole expense, will maintain a policy of standard fire and extended
coverage insurance with "all risk" coverage on all Lessee's improvements and
alterations in or about the Premises and on all personal property and equipment
to the extent of at least ninety percent (90%) of their full replacement value.
The proceeds from this policy will be used by Lessee for the replacement of
personal property and equipment and the restoration of Lessee's improvements
and/or alterations. This policy will contain an express waiver, in favor of
Lessor, of any right of subrogation by the insurer.
12.03 Lessee, at all times during the term of this Lease and at
Lessee's sole expense, will maintain a policy of comprehensive general
liability coverage with limits of not less than $1,000,000 combined single
limit for bodily injury and property damage insuring against all liability of
Lessee and its authorized representatives arising out of or in connection with
Lessee's use or occupancy of the Premises. This policy of insurance will name
Lessor as an additional insured and will include an express waiver of
subrogation by the insurer in favor of Lessor and will release Lessor from any
claims for damage to any person, to the Premises, and to the Project,
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<PAGE> 11
and to Lessee's personal property, improvements and alterations in or on the
Premises of the Project, caused by or resulting from risks which are to be
insured against by Lessee under this Lease.
12.04 All insurance required to be provided by Lessee under this
Lease will (a) be issued by an insurance company authorized to do business in
the state in which the Premises are located and which is satisfactory to
Lessor, (b) be primary and noncontributing with any insurance carried by
Lessor, and (c) contain an endorsement requiring at least thirty (30) days
prior written notice of cancellation to Lessor before cancellation or change in
coverage, scope or limit of any policy. Lessee will deliver a certificate of
insurance or a copy of the policy to Lessor within thirty (30) days of
execution of the Lease and will provide evidence of renewed insurance coverage
at each anniversary, prior to the expiration of any current policies. Lessee's
failure to provide evidence of this coverage to Lessor may, in Lessor's sole
direction, constitute a default under this Lease.
13. INDEMNIFICATION AND WAIVER OF CLAIMS
13.01 Lessee waives all claims against Lessor for damage to any
property in or about the Premises and for injury to any persons, including
death resulting therefrom, regardless of cause or time of occurrence. Lessee
will defend, indemnify and hold Lessor harmless from and against any and all
claims, actions, proceedings, expenses, damages and liabilities, including
attorney's fees, arising out of, connected with, or resulting from any use of
the Premises by Lessee, its employees, agents, visitors or licensees,
including, without limitation, any failure of Lessee to comply fully with all
of the terms and conditions of this lease, except for any damage or injury
which is the direct result of intentional acts by Lessor, its employees,
agents, visitors or licensees.
13.02 Arbitration. Any claim for personal injuries, directly or
indirectly relating to or arising out of the existence of a hazardous substance
in, on or about the building, the leased premises, or both, whether based on
the theory of negligence, strict liability, breach of Lessor's warranty or
habitability, or any other theory, shall be submitted to and decided by binding
arbitration. Both parties to this lease, by initialing this provision, are
giving up their right to have such claim decided in a court of law before a
jury, and instead are accepting the use of binding arbitration. Such
arbitration shall be held in the city and state where the premises are located
in accordance with the American Arbitration Association rules for a single
arbitrator. The arbitrator shall award all costs and expenses, including
reasonable attorney's fees, to the prevailing party in the arbitration. The
arbitrator's award shall be enforceable in any court of competent jurisdiction.
Nothing in this section shall be deemed to limit Lessor's rights in the event
of Lessee's breach or default under this agreement, including without
limitation Lessor's right to bring an action for unlawful detainer under the
laws of the state where the premises are located.
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14. REPAIRS
14.01 Lessee shall, at its sole expense, keep and maintain the
Premises and every part thereof (excepting air-conditioning, common use
equipment, exterior walls and roofs, which Lessor agrees to repair unless
damages are due to the neglect or intentional acts of Lessee or its agents,
employees, visitors, or licensees), including interior windows, skylights,
doors, any store fronts and the interior of the Premises, in good and sanitary
order, condition and repair. Lessee will, also, at its sole cost keep and
maintain all utilities, fixtures, plumbing and mechanical equipment used by
Lessee in good order and repair and furnish all expendables (light bulbs
[unless provided by Lessor], paper goods, soaps, etc.) used in the Premises.
The standard for comparison and need of repair will be the condition of the
Premises at the time of commencement of this Lease and all repairs will be made
by a licensed and bonded contractor approved by Lessor.
14.02 Lessee will not make repairs to the Premises at the cost of
Lessor, whether by deduction of rent or otherwise or vacate the Premises or
terminate the Lease with abatement or termination of rent because repairs are
not made. If during the Term, any alteration, addition or change to the
Premises is required by legal authorities, Lessee, at its sole expense, shall
promptly make the same. Lessor reserves the right to make any such repairs not
repaired or maintained in good condition by Lessee or Lessee shall reimburse
Lessor for all such costs upon demand.
14.03 If repairs deemed necessary by Lessor or any government
authority are not made by Lessee within the prescribed time frame as requested
in writing, Lessee shall be in default of this Lease.
15. AUCTIONS, SIGNS, LANDSCAPING
15.01 Lessee will not conduct or permit to be conducted any sale by
auction on the Premises. Lessor will have the right to control landscaping and
approve the placement, size, and quality of signs. Lessee shall comply with
the terms and conditions regarding sign criteria set forth in Exhibit "C"
attached. Lessee will not make alterations or additions to the landscaping and
will not place signs which are visible from the outside of any buildings of the
Project without prior written consent of Lessor. Lessor will have the right in
its sole discretion to withhold its consent. Any signs not in conformity with
this Lease may be removed by Lessor at Lessee's expense.
16. ENTRY BY LESSOR
16.01 Lessee will permit Lessor and Lessor's agents to enter the
Premises at all reasonable times for the purpose of inspecting the same, or for
the purpose of maintaining the Project, or for the purpose of making repairs,
alterations or additions to any portion of the
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Project, including the erection and maintenance of such scaffolding, canopies,
fences and props as may be required, or for the purpose of posting notices of
nonresponsibility for alterations, additions or repairs, or for the purpose of
showing the Premises to prospective tenants during the last six months of the
Lease Term, or placing upon the Project any usual or ordinary "for sale" signs,
without any rebate of rents and without any liability to Lessee for any loss of
occupation or quiet enjoyment of the Premises thereby occasioned. Lessee will
permit Lessor at any time within sixty (60) days prior to the expiration of
this Lease, to place upon the Premises an usual or ordinary "to let" or "to
lease" signs. For each of the above purposes, Lessor will at all times have
and retain a key with which to unlock all of the doors in, upon and about the
Premises, excluding Lessee's vaults and safes and filing cabinets. Lessee will
not alter any lock or install a new or additional lock or any bolt on any door
of the Premises without the prior written consent of Lessor, which will not be
unreasonably withheld. If Lessor gives its consent, such work shall be
undertaken by a locksmith approved by Lessor, at Lessee's sole cost, and Lessee
will furnish Lessor with a key. Lessor retains the right to charge Lessee for
restoring any altered doors to their condition prior to the installation of the
new or additional locks.
17. ABANDONMENT
17.01 Lessee will not vacate or abandon the Promises at any time
during the Lease Term or permit the Premises to remain unoccupied for a period
longer than fifteen (15) consecutive days during the Lease Term. If Lessee
abandons, vacates or surrenders the Premises, or is dispossessed by process of
law, or otherwise, any personal property belonging to Lessee left in or about
the Premises will, at the option of Lessor be deemed abandoned and may be
disposed of by Lessor in the manner provided for by the laws of the state in
which the Premises are located.
18. DESTRUCTION
18.01 Should the Premises or the building on the Promises be
partially destroyed by any cause not the fault of Lessee (or any person in or
about the Premises with the consent, expressed or implied, of Lessee), this
Lease will continue in full force and effect and Lessor, at Lessee's own cost
and expense, will promptly commence the work of repairing and restoring the
Premises to their prior condition providing that the work can be accomplished
under all applicable government laws and regulations within sixty (60) working
days from the date of damage at a cost not exceeding twenty-five percent (25%)
of the total replacement cost of the Premises. Within thirty (30) days of the
occurrence of partial destruction, Lessor may terminate this Lease as of the
date of the occurrence if nine (9) months or less remain in the Lease Term.
Should the Premises or the building in which the Premises are a part be so far
destroyed by any cause not the fault of Lessee (or any person in or about the
Premises with the consent, expressed or implied, of Lessee) that they cannot be
repaired or restored to their former condition within sixty (60) days of the
date of damage or at a cost exceeding twenty-five (25%) of the total
replacement cost of the Premises or the building as the case may be, Lessor may
at Lessor's option either:
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A. Continue this Lease in full force and effect by repairing and
restoring, at Lessor's own cost and expense, the Premises to their former
condition; or
B. Terminate this Lease by giving Lessee written notice of such
termination.
Should the Premises be partially or totally destroyed by any cause of
Lessee, or any person in or about the Premises with the consent, expressed or
implied of Lessee, this Lease will remain in full force and effect and Lessee
shall immediately commence work to repair the damage and diligently pursue its
completion in accordance with the provisions of paragraph 11 hereof.
Any insurance proceeds received by Lessor because of the total or
partial destruction of the Premises or the building on the Premises will be the
sole property of Lessor, free from any claim of Lessee, and may be used by
Lessor for whatever purposes Lessor may desire.
Should Lessor elect to repair and restore the Premises to their former
condition, or should Lessor be required to restore the Premises to their former
condition, there will be a proportional abatement in the amount of rent payable
during the period of repair and restoration as long as Lessee (or any person in
or about the Premises with the consent, expressed or implied of Lessee) is not
the cause of the total or partial destruction. The rent due under the terms of
the Lease will be reduced between the date of destruction and the date of
completion of restoration and repairs based on the extent to which destruction
interferes with Lessee's use of the Premises.
19. ASSIGNMENT, SUBLETTING AND TRANSFERS OF OWNERSHIP
19.01 Lessee will not, without Lessor's prior written consent,
assign, sell, mortgage, encumber, convey or otherwise transfer all or any part
of Lessee's leasehold estate, or permit the Premises to be occupied by anyone
other than Lessee and Lessee's employees or sublet the Premises or any portion
thereof (collectively called "Transfer"). Lessee must supply Lessor with any
and all documents deemed necessary by Lessor to evaluate any proposed Transfer
at least sixty (60) days in advance of Lessee's proposed Transfer date.
19.02 Lessor, within thirty (30) days after receipt of such
documents, may terminate this Lease on the date the Transfer was to have taken
effect; in this event, Lessor may, but is not obligated to, effect a transfer
directly with the transferee. In the case of a sublease, Lessor will also have
the right to terminate this Lease with respect to that portion of the Premises
or that portion of the term during which the sublease is in effect, in which
event, Lessee's liability and this Lease will remain in full force and effect
for the remainder of the Premises or term.
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19.03 If Lessor does not terminate this Lease, in whole or in part,
as stated in Section 19.02, Lessor will not unreasonably withhold its consent
except that such consent need not be granted if: (a) in the reasonable
judgment of Lessor the transferee is of a character or is engaged in a business
which is not in keeping with the standards of Lessor for the Project; (b) in
the reasonable judgment of Lessor any purpose for which the transferee intends
to use the Premises is not in keeping with the standards of Lessor for the
Project; provided in no event may any purpose for which transferee intends to
use the Premises be in violation of this Lease; (c) the portion of the Premises
subject to the transfer is not regular in shape with appropriate means of
entering and exiting, including adherence to any local, county or other
governmental codes, or is not otherwise suitable for the normal purposes
associated with such a Transfer; or (d) Tenant is in default under this Lease
or any other Lease with Lessor.
19.04 In the event Lessor consents to a Transfer, Lessee will pay
Lessor the excess, if any, of the rent and other charges reserved in the
Transfer over the allocable portion of the rent and other charges hereunder for
that portion of the Premises subject to the Transfer. For the purpose of this
section, the rent reserved in the Transfer will be deemed to include any lump
sum payment or other consideration given to Lessee in consideration for the
Transfer. Lessee will pay or cause the transferee to pay to Lessor this
additional rent together with the monthly installments of rent due.
19.05 Any consent to any Transfer which may be given by Lessor, or
the acceptance of any rent, charges or other consideration by Lessor from
Lessee or any third party, will not constitute a waiver by Lessor of the
provisions of this Lease or a release of Lessee from the full performance by it
of the covenants stated herein; and any consent given by Lessor to any Transfer
will not relieve Lessee (or any transferee of Lessee) from the above
requirements for obtaining the written consent of Lessor to any subsequent
Transfer.
19.06 If a default under this Lease should occur while the Premises
or any part of the Premises are assigned, sublet or otherwise transferred,
Lessor, in addition to any other remedies provided for within this Lease or by
law, may at its option collect directly from the transferee all rent or other
consideration becoming due to Lessee under the Transfer and apply these monies
against any sums due to Lessor by Lessee; and Lessee authorizes and directs any
transferee to make payments of rent or other consideration direct to Lessor
upon receipt of notice from Lessor. No direct collection by Lessor from any
transferee should be construed to constitute a novation or a release of Lessee
or any guarantor of Lessee from the further performance of its obligations in
connection with this Lease.
20. BREACH BY LESSEE
20.01 Lessee will be in breach of this Lease if at any time during
the term of this Lease (and regardless of the pendency of any bankruptcy,
organization, receivership, insolvency or
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other proceedings in law, in equity or before any administrative tribunal which
have or might have the effect of preventing Lessee from complying with the
terms of this Lease):
A. Lessee fails to make payment of any installment of Base
Monthly Rent, Additional Rent, or of any other sum herein specified to be paid
by Lessee, and such failure is not cured within three (3) days after Lessor's
written notice to Lessee of such failure of payment; or
B. Lessee fails to observe or perform any of its other covenants,
agreements or obligations hereunder, and such failure is not cured within ten
(10) days after Lessor's written notice to Lessee of such failure; provided,
however, that if the nature of Lessee's obligation is such that more than ten
(10) days are required for performance, then Lessee will not be in breach if
Lessee commences performance within such 10 day period and thereafter
diligently prosecutes the same to completion; or
C. Lessee becomes insolvent, makes a transfer in fraud of its
creditors, makes a transfer for the benefit of its creditors, voluntarily files
for bankruptcy, is adjudged bankrupt or involvement in proceedings filed
against Lessee, a receiver, trustee, or custodian is appointed for all or
substantially all of Lessee's assets, fails to pay its debts as they become
due, convenes a meeting of all or a portion of its creditors, or performs any
acts of bankruptcy or insolvency, including the selling of its assets to pay
creditors; or
D. Lessee has abandoned the Premises as defined in paragraph 17
above.
21. REMEDIES OF LESSOR
21.01 Repossession of Premises: Upon any termination of this Lease,
whether by lapse of time or upon termination of Lessee's right to possession
without termination of the Lease, Lessee will surrender possession and vacate
the Premises immediately and deliver possession to Lessor. Lessee hereby
grants Lessor the full and free right, whether by changing or picking locks, if
necessary, to enter and repossess the Premises, with or without process of law.
Lessee releases Lessor of any liability for any damage resulting therefrom and
waives any right to claim damage for such re-entry. Lessee also agrees that
Lessor's right to re-lease or any other right given to Lessor hereunder or by
operation of law is not relinquished.
21.02 Termination of Lease After Breach: If Lessee breaches this
Lease and abandons the Premises before the end of the term, or if its right to
possession is terminated by Lessor because of Lessee's breach of this Lease,
then this Lease may be terminated by Lessor at its option. On such termination
Lessor may recover from Lessee, in addition to the remedies permitted by law;
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A. The worth, at the time of the award, of the unpaid Base
Monthly Rents and Additional Rents which had been earned at the time of
termination;
B. The worth, at the time of the award, of the amount by which
the unpaid Base Monthly Rents and Additional Rents which would have been earned
after termination until the time of award exceeds the amount of such rental
loss that Lessee proves could have been reasonably avoided;
C. The worth, at the time of the award, of the amount by which
the unpaid Base Monthly Rents and Additional Rents for the balance of the Lease
Term after the time of award exceeds the amount of such rental loss for such
period that Lessee proves could be reasonably avoided; and
D. Any other amount necessary to compensate Lessor for all
detriment proximately caused by Lessee's breach of its obligations under this
Lease, or which in the ordinary course of events would be likely to result
therefrom. The detriment proximately caused by Lessee's breach will include,
without limitation, (i) expenses for cleaning, repairing and restoring the
Premises, (ii) expenses for altering, remodeling or otherwise improving the
Premises for the purpose of reletting; (iii) brokers' fees and commissions,
advertising costs and other expenses of reletting the Premises, (iv) costs of
carrying the Premises such as taxes, insurance premiums, utilities and security
precautions, (v) expenses in retaking possession of the Premises, (vi)
attorneys' fees and court costs, (vii) any unearned brokerage commissions paid
in connection with this Lease, (viii) parking fees or occupancy taxes due under
the lease, (ix) reimbursement of any previously waived Base Rent, Additional
Rent, free rent, or reduced rental rate, and (x) any concession made or paid by
Lessor to the benefit of Lessee in consideration of this Lease including, but
not limited to, any moving allowances, contributions or payments by Lessor for
tenant improvements or build-out allowances, or assumption by Lessor of any of
Lessee's previous lease obligations.
21.03 Continuation of Lease After Breach: Notwithstanding the
foregoing, in the event Lessee has breached this Lease, this Lease, at Lessor's
option, will continue in full force and effect so long as Lessor does not
terminate Lessee's right to possession of the Premises, and in such event
Lessor may enforce all of its rights and remedies under this Lease, including
the right to recover rent as it becomes due. In addition, Lessor shall not be
liable in any way whatsoever for its failure or refusal to relet the Premises.
For purposes of this Subparagraph 21.03, the following acts by Lessor will not
constitute the termination of Lessee's right to possession of the premises:
A. Acts of maintenance or preservation or efforts to relet the
Premises, including, but not limited to, alterations, remodeling, redecorating,
repairs, replacements and/or painting as Lessor shall consider advisable for
the purpose of reletting the Premises or any part thereof; or
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B. The appointment of a receiver upon the initiative of Lessor to
protect Lessor's interest under this Lease or in the Premises.
21.04 In the event of bankruptcy, Lessee assigns to Lessor all its
rights, title and interest in the Premises as security for its obligations and
covenants set forth in this Lease.
21.05 Definitions and Incidental Rights
A. The "worth, at the time of the award: of the amounts referred
to in 21.02A, and 21.02B, will be computed by allowing interest at the rate of
ten percent (10%) per annum. "The worth, at the time of the award" of the
amount referred to above in 21.02C will be computed by discounting the amount
at the discount rate of the Federal Reserve Bank of San Francisco in effect at
the time of award, plus one percent (1%).
B. Any efforts by Lessor to lessen the damages caused by Lessee's
breach of this Lease will not waive Lessor's right to recover the damages set
forth above.
C. Nothing herein will be construed to effect other provisions of
this Lease regarding Lessor's right to indemnification from Lessee for
liability arising prior to the termination of this Lease for personal injuries
or property damage.
D. No right or remedy conferred upon or reserved to Lessor in
this Lease is intended to be exclusive of any other right or remedy granted to
Lessor by statute or common law, and each and every such right and remedy will
be cumulative.
22. SURRENDER OF LEASE NOT MERGER
22.01 The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, will not work a merger and will, at the option of
Lessor, terminate all or any existing transfers, or may, at the option of
Lessor, operate as an assignment to it of any or all of such transfers.
23. ATTORNEYS FEES/COLLECTION CHARGES
23.01 In the event of any legal action or proceeding between the
parties hereto, actual attorneys' fees and expenses of the prevailing party in
any such action or proceeding will be added to the judgment therein. Should
Lessor be named as defendant in any suit brought against Lessee in connection
with or arising out of Lessee's occupancy hereunder, Lessee will pay to Lessor
its costs and expenses incurred in such suit, including actual attorneys' fees.
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23.02 If Lessor utilizes the services of any attorney at law for the
purpose of collecting any rent due and unpaid by Lessee after three (3) days'
written notice to Lessee of such nonpayment of rent or in connection with any
other breach of this Lease by Lessee, Lessee agrees to pay Lessor actual
attorneys' fees as determined by Lessor for such services, regardless of the
fact that no legal action may be commenced or filed by Lessor.
24. CONDEMNATION
24.01 If twenty-five percent (25%) or more of the Premises is taken
for any public or quasi-public purpose by any lawful government power or
authority, by exercise of the right of appropriation, reverse condemnation or
eminent domain, or sold to prevent such taking, the Lessee or the Lessor may at
its option terminate this Lease as of the effective date thereof. Lessee will
not because of such taking assert any claim against the Lessor or the taking
authority for any compensation because of such taking, and Lessor will be
entitled to receive the entire amount of any award without deduction for any
estate of interest of Lessee. If less than twenty-five percent (25%) of the
Premises is taken, Lessor at its option may terminate this Lease. If Lessor
does not so elect, Lessor will promptly proceed to restore the Premises to
substantially its same condition prior to such partial taking, allowing for any
reasonable effects of such taking, and a proportionate allowance will be made
to Lessee for the rent corresponding to the time during which, and to the part
of the Premises which, Lessee is deprived on account of such taking and
restoration.
25. RULES AND REGULATIONS
25.01 Lessee will faithfully observe and comply with the Rules and
Regulations printed on or attached to this Lease and Lessor reserves the right
to modify and amend them as it deems necessary. Lessor will not be responsible
to Lessee for the nonperformance by any other lessee or occupant of the Project
of any of said Rules and Regulations.
25.02 In the event that Lessee fails to cure any violations of such
Rules and Regulations following ten (10) days' written notice by Lessor, such
failure to cure shall be deemed a material breach of Lease by Lessee.
26. ESTOPPEL CERTIFICATE
26.01 Lessee will execute and deliver to Lessor, upon not less than
ten (10) days prior written notice, a statement in writing certifying that this
Lease is in full force and effect and that the Base Rent and Additional Rent
payable hereunder is unmodified and in full force and effect (or, if modified,
stating the nature of such modification) and the date to which rent and other
charges are paid in advance, if any, and acknowledging that there are not, to
Lessee's knowledge, any uncured defaults on the part of the Lessor hereunder or
specifying such defaults if they are
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claimed. Any such statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises. Lessee's failure to deliver such
statement within such time shall be conclusive upon Lessee that (1) this Lease
is in full force and effect, without modification except as may be represented
by Lessor; (2) there are no uncured defaults in Lessor's performance; and (3)
not more than one (1) month's rent has been paid in advance.
27. SALE BY LESSOR
27.01 In the event of a sale or a conveyance by Lessor of the
Project the same shall operate to release Lessor from any liability upon any of
the covenants or conditions, expressed or implied, herein contained in favor of
Lessee, and in such event Lessee agrees to look solely to the responsibility of
the successor in interest of Lessor in and to the this Lease. This lease will
not be affected by any such sale, and Lessee agrees to attorn to the purchaser
or assignee.
28. NOTICES
28.01 All notices, statements, demands, requests, consents,
approvals, authorizations, offers, agreements, appointments, or designations
under this Lease by either party to the other will be in writing and will be
considered sufficiently given and served upon the other party if sent by
certified mail, return receipt requested, postage prepaid, and addressed as
indicated in 1.03 and 1.04.
29. NO WAIVER
29.01 The failure of Lessor to insist in any one or more cases upon
the strict performance of any term, covenant or condition of this Lease will
not be construed as a waiver of a subsequent breach of the same or any other
covenant, term or condition; nor shall any delay or omission by Lessor to seek
a remedy for any breach of this Lessee be deemed a waiver by Lessor of its
remedies or rights with respect to such a breach.
30. LESSEE'S INTENT
30.01 If Lessee intends to vacate the premises on the Lease
Expiration date, Lessee will give Lessor ninety (90) days prior written notice
of such intent to vacate the Premises. If Lessee remains in the Premises after
the Lease Expiration date, and has not given such prior written notice to
Lessor, such continuance of possession by Lessee will be deemed to be a
month-to-month tenancy at the sufferance of lessor terminable on thirty (30)
days notice at any time by either party. All provisions of this Lease, except
those pertaining to term and rent, will apply to the month-to-month tenancy.
Lessee will pay Base Monthly Rent in an amount equal to 150% of rents payable
for the last full calendar month during the regular term.
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31. PROJECT PLAN
31.01 In the event Lessor requires the Premises for use in
conjunction with another suite or for other reasons connected with the Project
planning program, Lessor, upon notifying Lessee in writing, shall have the
right to move Lessee to space in the Project of which the Premises forms a
part, at Lessor's sole cost and expense (excluding private telephone systems
which Lessee must bear the cost of moving and installing), and the terms and
conditions of the original Lease will remain in full force and effect excepting
that the Premises will be in a new location and the Base Monthly Rent and any
Additional Rent will be adjusted as necessary to reflect any increase or
decrease in square footage. However, if the new space does not meet with
Lessee's approval, Lessee will have the right to cancel this Lease upon giving
Lessor thirty (30) days' notice within ten (10) days of receipt of Lessor's
notification. Should Lessee elect to cancel the Lease as provided in this
paragraph, the effective expiration date will equal the projected move-in date
of the suite Lessor wishes Lessee to move to as indicated in Lessor's written
notification to Lessee.
32. DEFAULT OF LESSOR/LIMITATION OF LIABILITY
32.01 In the event of any default by Lessor hereunder, Lessee agrees
to give notice of such default, by registered mail, to Lessor at Lessor's
Notice Address as stated in 1.04 and to offer Lessor a reasonable opportunity
to cure the default.
In the event of any actual or alleged failure, breach or default
hereunder by Lessor, Lessee's sole and exclusive remedy will be against
Lessor's interest in the Project, and no partner of Lessor will be sued, be
subject to service of process, or have a judgment obtained against him in
connection with any alleged breach or default, and no writ of execution will be
levied against the assets of any partner, shareholder or officer of Lessor.
The covenants and agreements are enforceable by Lessor and also by any partner,
shareholder or officer of Lessor.
33. EXPANSION CLAUSE
33.01 If during the Lease Term, Lessee executes a lease within the
Project for space larger than the present Premises with a lease equal to that
which remains on this Lease or one (1) year, whichever is greater, with a Base
Monthly Rent amount at least equal to the present Base Monthly Rent of this
Lease, this Lease shall be terminated upon the commencement date of the Lease
for such substitute space. Notwithstanding the above-stated, Lessee shall
remain obligated to pay for any adjustments in rent pursuant to Paragraphs 3
and 4 due Lessor as a result of Lessee's tenancy hereunder and this obligation
shall survive the termination of this Lease pursuant to this Paragraph 33.
34. SUBORDINATION
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34.01 Without the necessity of any additional document being
executed by Lessee for the purpose of effecting a subordination, and at the
election of Lessor or any mortgagee with a lien on the Project or any ground
lessor with respect to the Project, this Lease will be subject and subordinate
at all times to (a) all ground leases or underlying leases which may now exist
or hereafter be executed in any amount for which the Project, ground leases or
underlying leases, or Lessor's interest or estate in any of said items is
specified as security. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
conveyance in lieu of foreclosure is made for any reason, Lessee will,
notwithstanding any subordination, attorn to and become the Lessee of the
successor in interest to Lessor, at the option of such successor in interest.
Lessee covenants and agrees to execute and deliver, upon demand by Lessor and
in the form requested by Lessor any additional documents evidencing the
priority or subordination of this Lease with respect to any such ground lease
or underlying leases or the lien of any such mortgage or deed of trust. Lessee
hereby irrevocably appoints Lessor as attorney-in-fact of Lessee to execute,
deliver and record any such document in the name and on behalf of Lessee.
35. MISCELLANEOUS PROVISIONS
35.01 Whenever the singular number is used in this Lease and when
required by the context, the same will include the plural, and the masculine
gender will include the feminine and neuter genders, and the word "person" will
include corporation, firm, partnership, or association. If there be more than
one Lessee, the obligations imposed upon Lessee under this Lease will be joint
and several.
35.02 The headings or titles to paragraphs of this Lease are not a
part of this Lease and will have no effect upon the construction or
interpretation of any part of this Lease.
35.03 This instrument contains all of the agreements and conditions
made between the parties to this Lease and may not be modified orally or in any
other manner than by an agreement in writing signed by all parties to this
Lease. Lessee acknowledges that neither Lessor nor Lessor's agents have made
any representation or warranty as to the suitability of the Premises to the
conduct of Lessee's business. Any agreements, warranties or representations
not expressly contained herein will in no way bind either Lessor or Lessee, and
Lessor and Lessee expressly waive all claims for damages by reason of any
statement, representation, warranty, promise or agreement, if any, not
contained in this Lease.
35.04 Time is of the essence of each term and provision of this
Lease.
35.05 Except as otherwise expressly stated, each payment required to
be made by Lessee is in addition to and not in substitution for other payments
to be made by Lessee.
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35.06 Subject to Paragraph 19, the terms and provisions of this
Lease are binding upon and inure to the benefit of the heirs, executors,
administrators, successors and assigns of Lessor and Lessee.
35.07 All covenants and agreements to be performed by Lessee under
any of the terms of this Lease will be performed by Lessee at Lessee's sole
cost and expense and without any abatement of rent.
35.08 In consideration of Lessor's covenants and agreements
hereunder, Lessee hereby covenants and agrees not disclose any terms, covenants
or conditions of this Lease to any other party without the prior written
consent of Lessor.
35.09 If Lessee shall request Lessor's consent and Lessor shall fail
or refuse to give such consent, Lessee shall not be entitled to any damages for
any withholding by Lessor of its consent; Lessee's sole remedy shall be an
action for specific performance or injunction, and such remedy shall be
available only in those cases where Lessor has expressly agreed in writing not
to unreasonably withhold its consent or where as a matter of law Lessor may not
unreasonably withhold its consent.
36. DEPOSIT AGREEMENT
36.01 Lessor and Lessee hereby agree that Lessor will be entitled to
immediately endorse and cash Lessee's good faith rent and the Security Deposit
check(s) accompanying this Lease. It is further agreed and understood that
such action will not guarantee acceptance of this Lease by Lessor, but, in the
event Lessor does not accept this Lease, such deposits will be refunded in full
to Lessee. This Lease will be effective only after Lessee has received a copy
fully executed by Lessor.
37. GOVERNING LAW
37.01 This Lease is governed by and construed in accordance with the
laws of the state in which the Premises are located, and venue of any suit will
be in the county where the Premises are located.
38. NEGOTIATED TERMS
38.01 This Lease is the result of the negotiations of the parties
and has been agreed to by both Lessor and Lessee after prolonged discussion.
39. SEVERABILITY
- 23 -
<PAGE> 24
39.01 If any provision of this Lease is found to be unenforceable,
all other provisions shall remain in full force and effect.
40. LANDLORD'S LIEN
40.01 LESSOR HEREUNDER WILL HAVE THE BENEFIT OF, AND THE RIGHT TO,
ANY AND ALL LANDLORD'S LIENS PROVIDED UNDER THE LAW BY WHICH THIS LEASE IS
GOVERNED.
41. SPECIAL PROVISIONS
41.01 Special provisions of this Lease number 42 through 44 are
attached hereto and made a part hereof. If none, so state in the following
space:
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of
the day and year indicated by Lessor's execution date as written below.
Individuals signing on behalf of a Lessee warrant that they have the
authority to bind their principals. In the event that Lessee is a corporation,
Lessee shall deliver to Lessor, concurrently with the execution and delivery of
this Lease, a certified copy of corporate resolutions adopted by Lessee
authorizing said corporation to enter into and perform the Lease and
authorizing the execution and delivery of the Lease on behalf of the
corporation by the parties executing and delivering this Lease. THIS LEASE,
WHETHER OR NOT EXECUTED BY LESSEE, IS SUBJECT TO ACCEPTANCE AND EXECUTION BY
LESSOR, ACTING ITSELF OR BY ITS AGENT ACTING THROUGH ITS SENIOR VICE PRESIDENT,
VICE PRESIDENT, REGIONAL VICE PRESIDENT, REGIONAL MANAGER, ASSISTANT REGIONAL
MANAGER, OR AREA MANAGER AT ITS HOME OFFICE.
- 24 -
<PAGE> 25
<TABLE>
<S> <C>
LESSOR LESSEE
R&B PROPERTY HOLDING COMPANY, TRUSTED INFORMATION SYSTEMS,
a California General Partnership INC.,
a Maryland Corporation
DBA: COMMERCE PLAZA--WEST LOST ANGELES
By: R & B Commercial Management
Company (Agent)
a division of R & B Enterprises,
a California partnership.
BY BY /s/
--------------------------- ---------------------------------
MARGARET E. WARREN, CPM STEPHEN T. WALKER
REGIONAL VICE PRESIDENT PRESIDENT
DATE DATE April 20, 1989
------------------------- -------------------------------
(Execution Date) (Execution Date)
BY BY
--------------------------- ---------------------------------
DATE DATE
------------------------- -------------------------------
(Execution Date) (Execution Date)
</TABLE>
- 25 -
<PAGE> 1
EXHIBIT 10.20
AMENDMENT TO LEASE - RENEWAL/CONTRACTION
This Amendment is executed at Los Angeles, California by and between Trusted
Information Systems, Inc a Maryland Corporation ("Lessee") and R&B Property
Holding Co., a California General Partnership, dba: Commerce Plaza - West Los
Angeles by R&B Commercial Management Company, as Manager and Agent for Owner
("Lessor"), for the premises located at 11340 W. Olympic Blvd., Suites 265 and
275, Los Angeles, California 90064.
Lessor and Lessee being parties to that certain Lease dated April 27, 1988,
hereby express their mutual desire to and intent to renew the terms of the
Lease and hereby express their desire and intent to decrease the area of the
lease premises by 25 square feet. Total square footage of leased premises
shall be 3,874 rentable square feet effective November 1, 1992, and amend by
this writing those terms, covenants, and conditions as hereinafter provided.
AMENDMENTS
<TABLE>
<S> <C>
"1.01 PREMISES" shall hereafter additionally provide as follows:
The square footage of the premises was 3,899 rentable square feet. The square footage of the leased premises shall
hereafter be 3,874 rentable square feet and is located and described in the attached Exhibit "A1". The address of the
premises shall hereafter be 11340 W. Olympic, Suite 265, Los Angeles, CA 90064.
"1.02 LEASE TERM" The Lease Term shall commence November 1, 1992 and end on October 31, 1999.
"1.07 BASE MONTHLY RENT" shall hereafter additionally provide as follows:
The Base Monthly rent for the renewal period shall be $7,748.00 in lawful money of the United states of America.
"1.09 SECURITY DEPOSIT" shall hereafter additionally provide as follows:
The Security Deposit for the renewal period shall be $11,964.50 which represents an increase of $ -0- over the amount
currently deposit with Lessor.
"1.11 PROPORTIONATE SHARE" shall hereafter additionally provide as follows:
Lessee's Proportionate Share was .0503. Lessee's Proportionate share shall hereafter be .0500.
"1.12 EXPENSE BASE YEAR" shall hereafter additionally provide as follows:
The Expense Base Year for the renewal period shall be the calendar year of 1992.
"1.14 TAX BASE YEAR" shall hereafter additionally provide as follows:
The Tax Base Year for the renewal period shall -be the fiscal year commencing on July 1, 1991 and ending on June 30,
1992.
"1.15 COST OF LIVING ADJUSTMENT" shall hereafter provide as follows:
The base for computing the increase ("Beginning Index") for the renewal period is the index which is in effect three
(3) months preceding November, 1992. The Cost of
</TABLE>
<PAGE> 2
Living Adjustment shall be in the 43rd month of the renewal lease
term and shall not exceed 10%.
SPECIAL PROVISIONS
Special Provisions of this Amendment number 46 through 49 are attached hereto
and made part of.
INCORPORATION
Except as modified herein, all other terms and conditions of the Lease between
the parties above described shall continue in full force and effect.
<TABLE>
<S> <C>
LESSOR LESSEE
R&B PROPERTY HOLDING CO., A TRUSTED INFORMATION
CALIFORNIA GENERAL PARTNERSHIP SYSTEMS, INC. A
dba:COMMERCE PLAZA - WEST LOS ANGELES MARYLAND CORPORATION
BY: R&B COMMERCIAL MANAGEMENT CO., INC.
(Agent), a California Corporation
By: /s/ Terry G. Argue By: /s/ Stephen T. Walker
------------------------------------------------ ----------------------------------------
TERRY G. ARGUE STEPHEN T. WALKER
REGIONAL MANAGER PRESIDENT
</TABLE>
<PAGE> 3
SPECIAL PROVISIONS
TRUSTED INFORMATION SYSTEMS, INC.
11340 W. OLYMPIC BLVD
SUITE 265
LOS ANGELES, CA 90064
SPECIAL PROVISIONS
PROVISION 46.00 FREE BASE MONTHLY RENT
In consideration of this Lease, Lessor agrees Lessee shall pay one - half Base
Monthly Rent in the amount of Three Thousand eight hundred seventy four and
00/100 dollars ($3,874.00) for the months of January 1993 through April 1993.
Lessee further acknowledges that if it should default on any terms and
conditions of this Lease, Lessee shall pay in full all Base Monthly Rent which
but for this provision would be due and owing. Such payment shall be make with
Lessee's next due payment of Base Monthly Rent.
PROVISION 47.00 TENANT IMPROVEMENTS
Landlord shall improve the premises according to the drawings prepared by
Lenoard Polan architect revision dated June 29, 1992, Exhibit "A" attached.
Tenant shall be given a tenant improvement allowance NOT TO EXCEED $57,900
which shall be used toward a building standard build-out, including building
standard carpet and paint throughout. Any additional expenses over and above
the tenant improvement allowance including code compliance or over standard
improvements shall be borne by the tenant. NOTE: Additional cost to soundproof
the walls between Room #1 and office #1 as well as corridor and adjacent tenant
space are to be included in the tenant improvement allowance.
PROVISION 48.00 OPTION TO RENEW
Provided Lessee is not in default of the Lease at the time it exercises this
option or has not been in default during any other period of the Lease Term,
Lessee is hereby granted one (1) five (5) year Option to Renew said Lease upon
such terms and conditions and at the rental then in effect for comparable space
in the Project at the effective date of the commencement of each such renewed
term. All such terms, conditions and rental provisions shall, upon the
exercise of the option, be evidenced upon the form of the Lease then in effect
for the Project. Each of such options shall be exercised by Lessee no sooner
than nine (9) months prior to the expiration of the preceding term of this
Lease. In the event Lessor and Lessee are unable to agree as to the terms,
conditions and rental applicable to such each renewed term within 90 days prior
to the expiration of the term, then the current and all future option rights
shall be terminated and Lessee shall have no right to exercise the same and
this Lease shall terminate as of the expiration date.
<PAGE> 4
SPECIAL PROVISIONS CON'T
PROVISION 49.00 SECOND RIGHT OF REFUSAL
In the event that any space contiguous to the leased premises becomes available
during the term of this Lease, Lessee shall notify Lessor in writing of its
desire to lease said premises within ten (10) days of notification by Lessor of
the availability of same, at the then current prevailing rent for comparable
space in the project and upon such notification Lessor shall execute such a
lease with Lessee subject to terms and conditions acceptable to Lessor.
Notwithstanding anything to the contrary above, Lessee's said right to lease
shall be effective only if Lessee is not in default under any provisions of
this Lease and Lessee notifies Lessor in writing within ten (10) days after the
space becomes available and the existing lessee of the contiguous premises
chooses not to continue its tenancy. In the event Lessee fails to exercise
said right to lease within the time frame specified above, Lessor shall be free
to lease said space on terms and conditions satisfactory to Lessor at its sole
discretion.
END OF PAGE
<PAGE> 1
EXHIBIT 10.21
DATED 1995
-----------------------
THEALE ESTATES LIMITED
and
TRUSTED INFORMATION SYSTEMS (UK) LIMITED
COUNTERPART
-----------
LEASE
-----
relating to
Unit 9 Commerce Park
Theale Berkshire
Clarks Solicitors
Great Western House
Station Road
READING
RG1 1SX
Ref: 17
<PAGE> 2
THIS LEASE dated 1995
WITNESSES
Definitions 1. In this Lease the following expressions have the
following meanings:-
(a) The Landlord: THEALE ESTATES LIMITED whose registered
office is at Station Road Theale Reading RG7 4AE
(b) The Tenant: TRUSTED INFORMATION SYSTEMS LIMITED whose
registered office is at 200 Aldersgate Street London
EC1A 4JJ
(c) The Term: Three years from 3 October 1995 and includes
the period of any holding over or any extension or
continuation whether by statute or common law
(d) The Rent:
(i) From 3 October 1995 to 30 November 1995 the
sum of one peppercorn; and
(ii) From 1 December 1995 the sum of pound sterling
26,750.00 (Twenty-Six Thousand Seven Hundred
and Fifty Pounds) per year payable in advance
on the usual quarter days the first payment to
be made on 1 December 1995
(e) The Permitted Use: Offices and/or Light Industrial
and/or any use which falls within Class B1 in the
Schedule to the Town and Country Planning (Use Classes)
Order 1987
(f) The Estate: Commerce Park Theale being the land edged
blue on the plan annexed hereto
(g) The Roads: The roads coloured brown on the plan
annexed hereto
(h) The Demised Premises: Unit 9 Commerce Park Brunel Road
Theale together with the ten car parking spaces
adjacent thereto all of which are shown edged red on
the plan annexed hereto together
<PAGE> 3
with the right to use the Roads (in accordance with the
Landlord's one way system and such other reasonable
traffic directions as the Landlord may make and notify
to the Tenant in writing from time to time) and the
parts of the Estate laid out for common use including
the pipes sewers and wires leading to or from the
Demised Premises and together with the Landlords
fixtures therein
(i) Defect: Any defect in the Demised Premises or the
Estate or in anything installed in or on the Demised
Premises or the Estate which is attributable to:-
(i) defective design; or
(ii) defective workmanship or materials; or
(iii) defective supervision or the construction of
or the installation of anything in or on the
Demised Premises or the Estate; or
(iv) defective preparation of the site upon which
the Demised Premises or the Estate are
constructed;
but shall not include any defect which might reasonably
be expected to have been apparent to a competent
professional person either on a visual inspection of
the Demised Premises carried out immediately before the
grant of this Lease or from any plans or other
documents copies of which were supplied by the Landlord
to the Tenant before the date of this Lease
Demise 2. In consideration of the Rent and of the covenants on
the part of the Tenant and the agreements and stipulations
hereinafter contained the Landlord demises the Demised Premises
to the Tenant except and reserving unto the Landlord and all
other persons entitled thereto in respect of the Estate or any
part thereof:
Exceptions & (a) the passage and running of water soil gas electricity
Reservations and all other services (if any) of whatever kind as
heretofore used and enjoyed by the Estate through all
sewers drains gutters channels pipes cables conduits
and conductors of whatever kind (with all ancillary
equipment) which may be in under or upon the Demised
Premises or any part thereof
- 2 -
<PAGE> 4
(b) full right and liberty at any time hereafter to execute
any works or erections or carry out any repairs to or
alter or rebuild the Estate or any part thereof
PROVIDED that the means of access and egress from the
Demised Premises and the access of light and air to the
Demised Premises shall not suffer interference
otherwise than for short and temporary periods
reasonably necessary in accordance with the principles
of good estate management
(c) full right and liberty at any time hereafter to lay
construct and use sewers drains gutters channels pipes
cables conduits and conductors of whatever kind (with
all ancillary equipment) through under or upon the
Demised Premises and the right at all reasonable times
with materials plant and equipment to enter upon the
Demised Premises upon giving at least forty-eight
hours' notice (except in an emergency) to carry out the
works aforesaid and also for the purposes of inspecting
cleaning repairing replacing and renewing the said
sewers drains gutters channels pipes cables conduits
conductors (and all ancillary equipment) and also for
the purposes of executing repairs to the Landlord's
Premises the persons exercising such right causing as
little damage and disturbance as reasonably possible
and the Landlord making good to the reasonable
satisfaction of the Tenant all damage done to the
Demised Premises by reason of the carrying out of any
such works
Habendum To hold the Demised Premises (except and reserved as aforesaid)
Reddendum unto the Tenant for the Term paying the Rent therefor yearly
and proportionately for any part of a year without any
deduction whatsoever (except as authorised notwithstanding any
agreement between the parties by any law for the time being in
force)
Insurance And also paying from time to time during the said term by way
Rent of further rent a sum equal to the reasonable sum or sums which
the Landlord shall from time to time pay by way of premium
(including any increased premium payable by reason of any act
or omission by the Tenant) for keeping the Demised Premises
insured against loss (including loss of not more than three
years' rent and a reasonable sum to cover architects' and
surveyors' fees and demolition clearance and other reasonable
expenses as the Landlord acting properly shall deem
appropriate) or damage by fire and such other risks as the
Landlord shall deem reasonably appropriate the said further
rent to be paid by the Tenant within twenty eight days after
receiving notice in writing of the amount thereof and if such
sum or sums
- 3 -
<PAGE> 5
payable by the Landlord shall be for the insurance of larger
premises of which the Demised Premises form part the sum
payable by the Tenant under this clause shall be a fair and
reasonable proportion thereof to be determined by the Landlord
acting reasonably and properly
Tenants 3. The Tenant hereby covenants with the Landlord to
Covenants observe and perform the covenants contained in the First
Schedule hereto
Landlords 4. The Landlord hereby covenants with the Tenant:-
Covenants
(a) That the Landlord will at all times during the term
insure and keep insured in the full reinstatement value
at least the Demised Premises against loss or damage by
fire and such other risks as the Landlord shall deem
appropriate acting properly and reasonably in some
insurance office or with underwriters of repute and
will whenever required so to do by the Tenant produce
the policy of such insurance and the receipt for the
last premium and in the case of destruction or damage
to the Demised Premises or any part thereof from any
cause covered by such insurance will lay out all monies
received in respect of such insurance (other than
monies received for loss of rent and architects' and
surveyors' fees and for demolition and clearance
expenses) in rebuilding and reinstating the Demised
Premises except that in any such rebuilding and
reinstating the Landlord shall not be obliged to
reinstate in accordance with the plans sections
elevations and specifications of the existing building
but shall use his best endeavours to provide the Tenant
with accommodation reasonably equivalent to that
demised including any improvements made by the Tenant
the covenants and conditions of this Lease to apply
thereto in all respects mutatis mutandis as they
applied to the accommodation originally demised
Quiet (b) That the Tenant paying the rents hereby reserved and
Enjoyment observing and observing and performing the several
stipulations on the part of the Tenant herein contained
shall peaceably hold and enjoy the Demised Premises
during the Term without any interruption by the
Landlord or any person rightfully claiming under or in
trust for the Landlord or by title paramount
- 4 -
<PAGE> 6
(c) That the Landlord shall at its own expense remedy any
Defect of whose existence the Tenant shall have
notified to the Landlord and any want of repair which
is attributable to any such defect and which manifests
itself at any time during the Term, such work to be
done in a good and workmanlike manner and with good and
sound materials and to the reasonable satisfaction of
the Tenant. Such work shall be carried out at times
reasonably convenient to the Tenant and so as to cause
as little damage and disturbance as reasonably
possible, and the Landlord shall indemnify the Tenant
against any damage so caused
(d) If the cost to the Tenant of complying with its
obligations under this Lease shall be increased by
reason of the existence of any Defect the Landlord
shall on demand indemnify the Tenant against the
reasonable amount of such increase
Provisos 5. Provided always and it is hereby agreed as follows:-
Forfeiture (a) if the rent hereby reserved or any part thereof shall
be unpaid for twenty-one days after becoming payable
(whether legally demanded or not) or if any covenant on
the Tenant's part herein contained shall not be
performed or observed or if the Tenant shall have any
execution levied on his property or if the Tenant
(being an individual) shall become bankrupt or make any
composition with creditors or if the Tenant (being a
Company) shall enter into liquidation whether
compulsory or voluntary (except for the purpose of
amalgamation or reconstruction of a solvent company) or
have an administrative receiver appointed or an
administration order is made in respect of it then and
in any of the said cases it shall be lawful for the
Landlord at any time thereafter to re-enter upon the
Demised Premises or any part thereof in the name of the
whole and thereupon this demise shall absolutely
determine but without prejudice to the right of action
of either party in respect of any breach of the
covenants herein contained
Interest on (b) if the rent hereby reserved or any part thereof shall
Arrears be unpaid for twenty-one days after becoming payable
(whether legally demanded or not) or if any sum due
from the Tenant shall remain unpaid for twenty-one days
after becoming due then the Tenant shall pay by way of
further rent interest on the sum outstanding
- 5 -
<PAGE> 7
from the date it became due until payment at a rate of
3% over Lloyds Bank PLC Base Rate for the time being
Suspension (c) if the Demised Premises or any part thereof or the
of Rent means of access thereto shall be destroyed or damaged
by fire or other risk against which the Landlord shall
have insured so as to render the Demised Premises unfit
for beneficial occupation and use or inaccessible then
(save to the extent that the insurance money shall be
wholly or partially irrecoverable by reason solely or
in part of any act or default of the Tenant) payment of
the Rent and of any sums payable as further rent in
accordance with clause 6(b) hereof or a fair and just
proportion thereof according to the nature and extent
of such destruction or damage shall be suspended until
the Demised Premises or the part so destroyed or
damaged shall be again rendered fit for occupation and
use
Accidents (d) the Landlord shall not be responsible to the Tenant or
the Tenant's visitors invitees employees licensees or
agents or other persons in or near the Demised Premises
for any accident happening or injury suffered or damage
to or loss of any chattel or property sustained in or
near the Demised Premises or in or outside any building
of which the Demised Premises form part howsoever
caused save where such accident happening injury damage
or loss arises out of the Landlord's negligence and the
Tenant shall indemnify the Landlord against all such
matters and all claims and costs in respect thereof
Value Added (e) the rents and all other sums payable under this Lease
Tax are exclusive of Value Added Tax and the Tenant shall
pay Value Added Tax thereon at the rate for the time
being in force as if the same were part thereof upon
being provided by the Landlord with a valid Value Added
Tax invoice addressed to the Tenant
Party Walls (f) every wall separating the Demised Premises from any
adjoining unit on the Estate shall be a party wall
Service of (g) the regulations as to service of notices contained in
Notices Section 196 of the Law of Property Act 1925 as amended
by the Recorded Delivery Service Act 1962 shall be
deemed to be incorporated herein for the purpose of
service of all notices hereby or by statute authorised
to be served
- 6 -
<PAGE> 8
No Waiver (h) neither the acceptance of rent nor any other act or
omission of the Landlord shall waive or be deemed to
waive any breach of covenant on the part of the Tenant
whether or not the same be capable of remedy Provided
that the Landlord may waive any such breach by written
notice to or agreement in writing with the Tenant
Definitions (i) the expression "the Landlord" where the context so
Interpretation admits and shall include the person from time to time
entitled in reversion immediately expectant on the
Term
(j) the expression "the Tenant" where the context so admits
shall include persons deriving title under the Tenant
(k) the expression "the Surety" shall include the Personal
Representatives of the Surety
(l) covenants made by any party shall be joint and several
if more than one person is comprised in that party
(m) references to any Statute shall be deemed to refer to
any statutory modification or re-enactment for the time
being in force
(n) the marginal notes are for convenience only and shall
not affect the construction or meaning of any clause or
affect the rights and liabilities of the parties hereto
Service Charge (a) The Landlord will subject to availability of supplies
6. of suitable labour materials and fuels use all
reasonable endeavours to keep the Estate including the
Roads in a reasonable and serviceable state of repair
(b) The Tenant will pay to the Landlord by way of
further rent a fair proportion to be reasonably and
properly determined (subject to the proviso to this
sub-clause) by the Landlord from time to time of the
cost to the Landlord of:-
(i) performing Clause 6(a)
(ii) repairing renewing mowing maintaining
cleansing heating operating lighting
ventilating and decorating as necessary the
Roads verges and other parts of the Estate not
- 7 -
<PAGE> 9
(iii) the reasonable cost incurred by the Landlord
of providing such services as the Landlord may
from time to time reasonably provide for the
convenience of tenants on the Estate or in the
interests of good estate management including
in particular but without in any way limiting
the generality of the foregoing security and
fire prevention services but (for the
avoidance of doubt) excluding any capital
costs of constructing installing or supplying
any building, fixture, plant or machinery for
the purpose of providing any such service
(iv) all rates and outgoings whatsoever payable in
respect of the Landlord's office on the Estate
(v) the reasonable cost to the Landlord (taking
into account any payments or commissions) of
maintaining or procuring the maintenance of
insurance against the risk of damage to or
destruction of the Landlord's property
mentioned in Paragraph (iv) of this clause and
such insurance against public or third party
liability as the Landlord may from time to
time effect acting reasonably and properly
(vi) the reasonable cost to the Landlord of
employing such employees (if any) as the
Landlord may from time to time reasonably
employ in connection with matters mentioned in
this clause
(vii) the reasonable cost to the Landlord of the
Estate water supply
(viii) reasonable Architects' Surveyors' Accountants'
and other fees directly in connection with the
matters mentioned in this clause and the
calculation and the preparation and issue of
accounts thereof
(ix) the reasonable fees and commissions of
managing agents appointed to manage the
functions of the Landlord under this clause or
alternatively 7 1/2% of the sums due under the
other parts of this sub-clause on account of
the Landlord's administrative expenses
- 8 -
<PAGE> 10
PROVIDED (for the avoidance of doubt) that the
said fair proportion shall not in any
circumstances be greater than it would be if
all the lettable units on the Estate at the
relevant time were let on terms making the
lessee liable to pay a fair proportion of the
said cost
(c) The Tenant will pay to the Landlord by way of
additional rent such quarterly sum as the
Landlord shall reasonably and properly demand
on account of the sums referred to in 6(b)
(d) The Landlord shall deliver to the Tenant not
less than once in each year a full account of
the cost referred to in 6(b) and 6(c) and of
the percentage due from the Tenant. The
Tenant shall within fourteen days of receipt
of the account properly showing the sums due
pay to the Landlord by way of additional rent
the sum shown due by such account after
allowing for any payments on account. If the
payments on account exceed the sum due by such
account then the overpayment shall be credited
to the Tenant against the next quarterly
payment of the additional rent payable in
accordance with clause 6(c) and if the
overpayment is such that it exceeds the sum in
respect of the next quarterly payment of the
additional rent payable in accordance with
clause 6(c0 then the overpayment shall be
credited to the next quarterly payment after
that. If there is no such further additional
rent payable the overpayment will be refunded
to the Tenant within 21 days of the account
referred to in this sub-clause
(e) Notwithstanding the provisions of this clause
6 the Landlord shall not recover or seek to
recover from the Tenant any costs incurred by
the Landlord in or incidental to the remedying
of any Defect or of any want of repair
attributable to such Defect
THE FIRST SCHEDULE
Tenants (1) To pay the said rents hereby reserved on the days and
Covenants in manner aforesaid by bankers standing order or such
Rent other means as the Landlord may reasonably require
Outgoings (2) To defray (or in the absence of direct assessment on
the Demised Premises to repay to the Landlord a fair
proportion to be determined by the
- 9 -
<PAGE> 11
Landlord acting reasonably and property of) all
existing and future rates assessments charges and
outgoings of every kind and description payable by law
in respect of the Demised Premises or any part thereof
or any greater premises of which the Demised Premises
form part by the owner landlord tenant or occupier
thereof (excluding any tax payable by the Landlord
occasioned by any disposition or dealing with the
reversion of this lease and also excluding any taxes
payable by the Landlord in respect of the rents and
further rents payable in accordance with this Lease)
Services (3) To pay to the suppliers thereof all charges for gas
electricity telephone and other services (including
meter rents and standing charges if any) consumed on or
relating to the Demised Premises
Repair (4) At all times to keep the Demised Premises and the
appurtenances thereof including the doors plate glass
and other windows fixtures fittings fastenings wires
waste water drain and other pipes and sanitary and
water apparatus therein and boundary walls fences gates
or other features thereof and the painting papering
and decoration thereof in good and substantial repair
and condition throughout the Term (damage by fire and
such other risks against which the Landlord is obliged
to insure save to the extent that the insurance monies
shall be irrecoverable by reason solely or in part of
any act or default of the Tenant only excepted) and to
renew and replace from time to time the whole or any
part of the Demised Premises and any Landlord's
fixtures fittings and appurtenances which may become or
be beyond repair at any time during or at the
expiration or sooner determination of the Term and
without prejudice to the generality of the foregoing
covenant to clean all plate glass and other windows in
the Demised Premises at least once in every month and
to notify the Landlord in writing forthwith if any
defect shall appear in premises which it is not the
Tenant's duty to repair PROVIDED that nothing in this
Lease shall be construed as obliging the Tenant to
remedy any Defect or any want of repair which is
attributable to such Defect
Decorate (5) To clean paint decorate and treat as appropriate using
Externally colours previously approved in writing by the Landlord
all the external parts of the Demised Premises in a
workmanlike manner in the last year of the tenancy
howsoever terminating
- 10 -
<PAGE> 12
Decorate (6) To paint decorate and treat as appropriate all the
Internally internal parts of the Demised Premises in a
workmanlike manner using colours materials and finishes
previously approved in writing by the Landlord such
approval not to be unreasonably withheld or delayed in
the last year of the tenancy howsoever terminating
Alterations (7) Not to make any alterations or additions to the Demised
Premises or any part thereof nor to commit or permit or
suffer any waste spoil or destruction in or upon the
Demised Premises nor to cut injure or remove any part
of the Demised Premises or of the roofs walls timbers
wires pipes drains appurtenances fixtures or fittings
thereof without the previous consent in writing of the
Landlord
Statutes (8) At all times during the said term to do and execute or
cause to be done and executed all such works and to do
all such things as under or by virtue of any Act or
Acts of Parliament now or hereafter to be passed and
bye-laws rules and regulations thereunder are or shall
be directed or necessary to be done or executed upon
or in respect of the Demised Premises or any part
thereof or in respect of the Tenant's user thereof by
the owner landlord tenant or occupier thereof and at
all times save harmless and keep indemnified the
Landlord against all claims and liability in respect
thereof and to pay all reasonable costs charges and
expenses incurred by the Landlord in abating a nuisance
and executing all such works as may properly and
reasonably be necessary for abating a nuisance or for
doing and executing all such works or things
reasonably necessary in connection with the Demised
Premises in obedience to a notice served by or
requirement of a competent authority (but excluding any
such works things costs charges and expenses
attributable to any Defect)
Common and (9) To pay and contribute a fair proportion (to be
Party determined by the Landlord acting reasonably and
Structures properly) of the reasonable expenses incurred in
respect of repairing rebuilding painting decorating and
cleansing all party walls and fences and all gutters
sewers drains channels sanitary apparatus pipes wires
passageways stairways entrance ways roads pavements and
other parts of buildings and things the use of which is
common to the Demised Premises and to other premises
on the Estate or of any works thereto as under or by
virtue of any Act or Acts of Parliament now or
hereafter to be passed and bye-laws rules and
regulations thereunder are or shall be directed or
necessary to be done or
- 11 -
<PAGE> 13
executed such expenses to include a similar proportion
of the Landlord's surveyor's and solicitor's reasonable
fees Provided that nothing in this Lease shall be
construed as obliging the Tenant to pay or contribute
to the cost of remedying any Defect or any want of
repair which is attributable to such Defect
Right of (10) To permit the Landlord and the Agents of the Landlord
Entry with workmen and others at all reasonable times during
the Term (upon forty-eight hours' previous written
notice save
in cases of emergency the persons exercising such
rights causing as little damage and disturbance as
reasonably possible and the Landlord making good any
damage done to the reasonable satisfaction of the
Tenant) to enter the Demised Premises:-
(a) to execute any works of cleansing or repair to
any adjacent or neighbouring premises or to
any building of which the Demised Premises
form part and so far as any defects remedied
or works done by the Landlord may be included
in the Tenant's covenants to repair
hereinbefore contained then the costs thereof
shall be a debt due from the Tenant to the
Landlord and be forthwith recoverable by
action
(b) to take inventories and view the condition and
user of the Demised Premises and upon notice
being served by the Landlord the Tenant shall
repair renew rebuild or reinstate in
accordance therewith within three months after
such notice or earlier if requisite so far as
the Tenant is liable under this Lease
(c) to allow the Landlord to show the Demised
Premises to prospective purchasers thereof and
(within six months of the expiry of the Term)
to prospective lessees thereof and to fix a
notice board to a prominent part thereof
Dangerous (11) Not to store or bring upon the Demised Premises any
Articles articles of a specially combustible or inflammable or
dangerous nature and not to do or permit anything by
reason whereof any insurance effected on the Demised
Premises may become void or voidable or whereby the
rate of premium thereon may be increased and to comply
with all proper requirements of the insurers notified
to the Tenant in writing as to fire precautions
relating to the Demised Premises
- 12 -
<PAGE> 14
Nuisance (12) Not to do cause permit or suffer upon the Demised
Premises anything which may be or become a nuisance or
annoyance or cause damage to the Landlord or to the
tenants or occupiers of any other premises of the
Landlord and the owners tenants or occupiers of any
neighbouring premises
Permitted Use (13) Not to use or occupy the Demised Premises except for
the Permitted Use without the consent in writing of the
Landlord such consent not to be unreasonably withheld
or delayed
Residential Use (14) Not to permit or suffer the Demised Premises or any
part thereof to be used for residential purposes
Alienation (15) Not to assign underlet transfer share or part with the
of part possession of part only of the Demised Premises
Alienation of (16) Not to assign transfer underlet share or part with the
Whole possession of the whole of the Demised Premises or this
Lease without the previous consent in writing of the
Landlord but such consent shall not be unreasonably
withheld or delayed if the assignee or underlessee
shall be a respectable and responsible person shown to
be such to the reasonable satisfaction of the Landlord
by and at the reasonable expense of the Tenant and such
assignee or underlessee joins in the licence to
covenant with the Landlord to pay the rent reserved by
the Lease or Underlease (as the case may be) and
observe and perform the covenants and conditions
therein contained and in the case of a limited company
a guarantor (being a person first approved in writing
by the Landlord, such approval not to be unreasonably
withheld) who joins in the licence to guarantee (in
such terms as the Landlord reasonably requires) payment
of the said rent and observance and performance of the
said covenants and obligations or a reasonable rent
deposit or a bank guarantee on reasonable terms
THE SECOND SCHEDULE
No Premium (1) Notwithstanding anything contained in the last
on Subletting preceding sub-clause the Tenant shall not create or
permit the creation of any interest derived out of the
Term howsoever remote or inferior upon the payment of
a fine or premium or at a rent less than the full
market rent (obtainable without taking a fine
- 13 -
<PAGE> 15
or premium) of the Demised Premises
Registration (2) Within 28 days after every assignment underlease
assignment of any underlease mortgage charge transfer
disposition or devolution of the Demised Premises or
any part thereof to give notice thereof in duplicate to
the Landlord's solicitor and to send to him a certified
copy of the instrument or instruments (including any
relevant Probate Letters of Administration or Assent)
Advertisements (3) Not without the previous consent in writing of the
Landlord to erect fix place or display or permit or
suffer to be erected fixed placed or displayed or
continue to be in upon or from any part of the Demised
Premises any advertisement or advertisement board or
sign or anything whatsoever in the nature of an
advertisement other than sign-boards and fascias of a
reasonable size setting forth the name and trade of the
Tenant upon the Demised Premises and subject as
aforesaid forthwith upon the written demand of the
Landlord to remove or cause to be removed any
advertisement which may without such previous consent
in writing as aforesaid have been erected fixed placed
or displayed or be in or upon any part of the Demised
Premises
Planning (4) At all times during the Term in respect of the Demised
Premises themselves and in respect of the Tenant's use
of the Demised Premises to comply in all respects with
the provisions and requirements of the Town and
Country Planning Act 1990 and all regulations or orders
made thereunder and to indemnify and keep indemnified
the Landlord against all actions proceedings costs
expenses claims and demands in respect of such matters
Notices (5) Within seven days of the receipt of notice of the same
to produce to the Landlord any permission notice order
or proposal for a notice or order made given or issued
to the Tenant by any government department local or
public authority under or by virtue of any statutory
powers in respect of the Demised Premises without delay
to take all reasonable or necessary steps to comply
with any such notice or order so far as the Tenant is
liable under this Lease and also at the request and
cost of the Landlord to make or join with the Landlord
in making such reasonable objections or representations
against or in respect of any such notice order or
proposal as aforesaid as the Landlord shall reasonably
deem expedient
- 14 -
<PAGE> 16
Planning (6) Not to make any application for Planning Consent in
Applications respect of the Demised Premises or any part thereof
without the consent in writing of the Landlord such
consent not to be unreasonably withheld or delayed
Yield Up (7) At the expiration or sooner determination of the Term
to yield up the Demised Premises and all additions
thereto and all Landlord's fixtures therein in such
repair and condition as shall be in accordance with
the Tenant's covenants hereinbefore contained
Fees (8) To pay to the Landlord all reasonable solicitors' costs
and reasonable surveyors' fees incurred by the Landlord
attendant upon or incidental to:-
(a) Every application made by the Tenant for a
consent or licence hereinbefore required or
made necessary whether the same be granted or
refused or proffered subject to qualification
or condition or whether the application be
withdrawn (except where the Landlord
unreasonably withholds a consent or licence
where it is not entitled to do so) including
(in the case of a licence to assign or
underlet) a reasonable fee for registration of
the assignment or underlease
(b) The preparation and service of a notice under
Section 146 of the Law of Property Act 1925 or
incurred in or in reasonable contemplation of
proceedings under Sections 146 or 147 of that
Act notwithstanding in any such case
forfeiture is avoided otherwise than by relief
granted by the Court
(c) The preparation and service of all proper
notices and schedules relating to wants of
repair of the Demised Premises whether the
same be served during or after the expiration
or sooner determination of the Term
(d) The recovery or reasonable preparations for or
attempts at recovery of any rent in arrear or
other payment due from the Tenant or any
Surety
(e) Any breach of covenant on the part of the
Tenant
(f) Any registration under paragraph (18) hereof
- 15 -
<PAGE> 17
SEALED AS A DEED by )
THEALE ESTATES LIMITED )
in the presence of:- )
/s/ Director
Secretary
SEALED AS A DEED by TRUSTED )
INFORMATION SYSTEMS (UK) )
LIMITED in the presence of:- )
/s/ Stephen T. Walker Director
/s/ Secretary
- 16 -
<PAGE> 1
EXHIBIT 10.23
THIS DEED AND CONFIRMATORY DEED, made this 26th day of July, 1995, by
and between STEPHEN T. WALKER, party of the first part and TRUSTED INFORMATION
SYSTEMS, INC., a Maryland corporation, party of the second part.
WHEREAS, Stephen T. Walker is the owner of all that lot or parcel of
ground known as Lot 1 as shown on a Plat entitled "Goldsmith Property", which
Plat is recorded among the Land Records of Howard County as Plat C.M.P. No.
6255 by virtue of a Deed dated October 8, 1992 and recorded among the Land
Records of Howard County in Liber M.D.R. No. 2762, folio 114 from Stephen T.
Walker and Nancy L. Walker; and
WHEREAS, Trusted Information Systems, Inc. is the owner of all that
lot or parcel of land known as Parcel A-1 as shown on a Plat entitled "Parcel
A-1, Goldsmith Property, A Resubdivison of Parcel A", which Plat is recorded
among the Land Records of Howard County as Plat C.M.P. No. 7357 by virtue of a
Deed dated September 2, 1987 and recorded among the Land Records of Howard
County in Liber C.M.P. No. 1716, folio 413; and
WHEREAS, the said Stephen T. Walker and Trusted Information Systems,
Inc. have caused their respective properties to be resubdivided by the
recordation of a Plat entitled "Trusted Information, Lot 2 and Parcel A-1, a
Resubdivision of Lot 1 and Parcel A-1 As Shown on Plat Nos. 6255 & 7357" among
the Land Records of Howard County as Plat M.D.R. No. 11735; and
WHEREAS, part of Lot No. 1 as hereinabove referred to belonging to the
said Stephen T. Walker has become part of Parcel A-2 which is intended to be
owned by Trusted Information Systems, Inc. and part of Parcel A-1 as
hereinabove referred to belonging to the said Trusted Information Systems, Inc.
has become part of Lot No. 2 which is intended to be owned by Stephen T.
Walker; and
WHEREAS, the parties desire to conform their ownership of the property
as shown on the subdivision plat entitled "Trusted Information, Lot 2 and
Parcel A-2, a Resubdivision of Lot 1 and Parcel A-1 As Shown on Plat Nos. 6255
& 7357" and to provide for certain easements on Lot No. 2 for the benefit of
Trusted Information Systems, Inc., wherefore this Deed and Confirmatory Deed
has been executed and delivered.
NOW, THEREFORE, THIS DEED AND CONFIRMATORY DEED WITNESSETH, that in
consideration of the premises, and other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, there being no
monetary consideration being paid for the within Deed and Confirmatory Deed,
the said Stephen T. Walker does hereby grant, convey and confirm unto the said
Trusted Information systems, Inc., its successors and assigns, in fee simple,
all that parcel of land formerly constituting a part of Lot No. 1 on the Plat
entitled
<PAGE> 2
"Goldsmith Property, Lot 1 and Parcel A" as recorded among the Land Records of
Howard County as Plat C.M.P. No. 6255, which is now shown as a part of parcel
A-2 as shown on the Plat entitled "Trusted Information, Lot 2 and Parcel A-2, A
Resubdivision of Lot 1 and Parcel A-1 As Shown on Plat Nos. 6255 & 7357", to
the extent that Trusted Information Systems, Inc., its successors and assigns,
shall be the owner of all that parcel of ground known as Parcel A-2 as shown on
the above described and referred to subdivision plat.
TOGETHER WITH an easement for the installation, maintenance, repair
and other uses consistent with the operation of a private septic system over so
much of Lot No. 2 on the Plat hereinabove described and referred to as is
designated as "Primary Private Sewerage Easement for Parcel "A-2" To Construct
and Maintain a Septic System" and over so much of Lot No. 2 on the Plat
hereinabove described as referred to as is designated "Alternate Private
Sewerage Easement for Parcel "A-2" To Construct and Maintain a Septic System".
TOGETHER WITH an easement for the installation, construction,
maintenance, re-construction, repair and other uses consistent with a
stormwater management, access and utility easement, over so much of Lot No. 2
on the Plat hereinabove described and referred to as is designated as "Private
Stormwater Management, Access & Utility Easement".
TOGETHER WITH an easement for the installation, construction,
maintenance, re-construction, repair of, and access to and from an existing
well and water line, (including any new well drilled) over so much of Lot No.
2, on the Plat of "Trusted Information, Lot 2 and Parcel A-2" hereinabove
referred to, as is described in Exhibit B attached hereto and made a part
hereof.
TOGETHER WITH the building thereupon, and the rights, alleys, ways,
waters, privileges, appurtenances and advantages to the same belonging in in
anywise appertaining.
TO HAVE AND TO HOLD the said described lot of ground and premises,
together with the rights, privileges, appurtenances and advantages thereto
belonging or appertaining unto and
- 2 -
<PAGE> 3
to the proper use and benefit of the said Trusted Information Systems, Inc.,
its successors and assigns, in fee simple.
AND THIS DEED AND CONFIRMATORY DEED WITNESSETH FURTHER, that in
consideration of the premises and other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, there being no
monetary consideration being paid for the within Deed and Confirmatory Deed,
the said Trusted Information Systems, Inc. does hereby grant, convey and
confirm unto Stephen T. Walker, his personal representatives and assigns, in
fee simple all those parcels of land formerly constituting a part of Parcel A-1
on the Plat entitled "Parcel A-1, Goldsmith Property, A Resubdivision of Parcel
A" as recorded among the Land Records of Howard County as Plat C.M.P. No. 7357,
which is now shown as a part of Lot No. 2 as shown on the Plat entitled
"Trusted Information, Lot 2 and Parcel A-2, A Resubdivision of Lot 1 and Parcel
A-1 As Sown on Plat Nos. 6255 & 7357", to the extent that Stephen T. Walker,
his personal representatives and assigns, shall be the owner of all that parcel
of ground known as Lot No. 2 as shown on the above described and referred to
subdivision plat.
TOGETHER WITH the building thereupon, and the rights, alleys, ways,
waters, privileges, appurtenances and advantages to the same belonging in in
anywise appertaining.
TO HAVE AND TO HOLD the said described lot of ground and premises,
together with the rights, privileges, appurtenances and advantages thereto
belonging or appertaining unto and to the proper use and benefit of the said
Stephen T. Walker, his personal representatives and assigns, in fee simple.
AND the said Trusted Information Systems, Inc. by the execution
hereof, hereby certifies that the within conveyance is not part of a
transaction in which there is a sale, lease or exchange of all, or
substantially all, of the property and assets of the said Trusted Information
Systems, Inc.
AND the said parties of the first and second part hereby covenant one
to the other that they have not done or suffered to be done any act, matter or
thing whatsoever, to encumber the
- 3 -
<PAGE> 4
property hereby conveyed; that they will warrant specially the property hereby
granted and that they will execute such further assurances of the same as may
be requisite.
IN WITNESS WHEREOF, the said Stephen T. Walker has hereunto set his
hand and seal the date first herein mentioned, and Trusted Information Systems,
Inc. has caused the execution hereof by Stephen T. Walker, its duly authorized
President
WITNESS OR ATTEST:
<TABLE>
<S> <C>
/s/ Laurence B. Raber /s/ Stephen T. Walker (SEAL)
- ------------------------------------------- ----------------------------------
Stephen T. Walker
TRUSTED INFORMATION SYSTEMS, INC.
/s/ Laurence B. Raber /s/ Stephen T. Walker (SEAL)
- ------------------------------------------- ----------------------------------
Stephen T. Walker
President
</TABLE>
STATE OF MARYLAND, CITY OF COUNTY OF HOWARD, TO WIT:
I HEREBY CERTIFY, that on this 26th day of July, 1995, before me, the
subscribed, a Notary Public of the State of Maryland, personally appeared
Stephen T. Walker and he, being known to me (or satisfactorily proven)
acknowledged that he executed the within and aforegoing Deed and Confirmatory
Deed for the uses and purposes therein contained, and in my presence signed and
sealed the same.
AT THE SAME TIME ALSO appeared Stephen T. Walker, the President of
Trusted Information Systems, Inc. and he, being known to me (or satisfactorily
proven) acknowledged that he executed the within and aforegoing Deed and
Confirmatory Deed in his capacity as the President of Trusted Information
Systems, Inc. as the corporate act of the said body corporate for the uses and
purposes therein contained, and in my presence signed and sealed the same.
AS WITNESS, my hand and Notarial Seal.
/s/ Laurence B. Raber
-----------------------------
Notary Public
My Commission Expires: 6/1/98
- 4 -
<PAGE> 5
Pursuant to the provisions of the Real Property Article of the
Annotated Code of Maryland, this is to certify that the within Deed and
Confirmatory Deed was prepared under the supervision of the undersigned
attorney at law.
/s/ Laurence B. Raber
----------------------------
Laurence B. Raber
AFTER RECORDING RETURN TO:
REESE AND CARNEY
10715 Charter Drive
Columbia, MD 21044
File No. 46363/8002
- 5 -
<PAGE> 6
EXHIBIT "A"
BEING KNOWN AND DESIGNATED as Parcel A-2 as shown on a Plat entitled
"Trusted Information, Lot 2 and Parcel A-2, A Resubdivision of Lot 1 and parcel
A-1 As Shown on Plat Nos. 6255 and 7357", which Plat is recorded among the Land
Records of Howard County as Plat M.D.R. No. 11735.
TOGETHER WITH an easement for the installation, maintenance, repair
and other uses consistent with the operation of a private septic system over so
much of Lot No. 2 on the Plat hereinabove described and referred to as is
designated as "Primary Private Sewerage Easement for Parcel "A-2" To Construct
and Maintain a Septic System" and over so much of Lot No. 2 on the Plat
hereinabove described and referred to as is designated "Alternate Private
Sewerage Easement for Parcel "A-2" To Construction and Maintain a Septic
System".
TOGETHER WITH an easement for the installation, construction,
maintenance, re-construction, repair and other uses consistent with a
stormwater management, access and utility easement, over so much of Lot No. 2
on the Plat hereinabove described and referred to as is designated as "Private
Stormwater Management, Access & Utility Easement".
TOGETHER WITH an easement for the installation, construction,
maintenance, re-construction, repair and other uses consistent with a
stormwater management, access and utility easement, over Not No. 1 on the Plat
of Wellington, as more particularly described in Exhibit "A-1" attached hereto
and made a part hereof.
TOGETHER WITH an easement for the installation, construction,
maintenance, re-construction, repair of, and access to and from an existing
well and water line, (including any new well drilled) over so much of Lot No.
2, on the Plat of "Trusted Information, Lot 2 and Parcel A-2" hereinabove
referred to, as is described in Exhibit A attached hereto and made a part
hereof.
- 6 -
<PAGE> 1
EXHIBIT 10.24
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, made and entered into as of this
30th day of May, 1996, is by and between Trusted Information Systems, Inc., a
Maryland corporation (the "Merging Corporation"), and Trusted Information
Systems, Inc., a Delaware corporation (the "Surviving Corporation").
WITNESSETH
WHEREAS, each of the Merging Corporation and the Surviving Corporation
desires that the Merging Corporation merge with and into the Surviving
Corporation;
WHEREAS, the Merging Corporation caused its Articles of Incorporation
to be filed in the offices of the Maryland Department of Assessments and
Taxation on March 13, 1983, and has authorized capital stock of One Million
(1,000,000) shares, consisting of Five Hundred Thousand (500,000) shares of
Class A Voting Stock, no par value (the "Class A Stock"), and Five Hundred
Thousand (500,000) shares of Class B Nonvoting Stock, no par value (the "Class
B Stock");
WHEREAS, the Merging Corporation has duly issued, as of the date
hereof, one hundred Thirty-Four Thousand Eight Hundred Forty (134,840) shares
of the Class A Stock, One Hundred Seventy-One Thousand Five Hundred
Seventy-Eight (171,578) shares of the Class B Stock and options (the "Options")
to purchase Forty-Four Thousand Eight Hundred Thirty-Four (44,834) shares of
the Class B Stock;
WHEREAS, the Surviving Corporation caused its Certificate of
Incorporation to be filed in the office of the Secretary of State of the State
of Delaware on May 30, 1996 and has authorized capital stock of Forty-Five
Million (45,000,000) shares, consisting of: (i) Forty Million (40,000,000)
shares of common stock, par value per share of one cent ($0.01) (the "Common
Stock"), the aggregate par value of which is Four Hundred Thousand Dollars
($400,000.00), and of which one share is duly issued and outstanding; and (ii)
Five Million (5,000,000) shares of preferred stock, par value per share of one
cent ($0.01) (the "Preferred Stock"), the aggregate par value of which is Fifty
Thousand dollars ($50,000.00), and of which no shares are issued and
outstanding;
WHEREAS, the registered office of the Merging Corporation in the State
of Maryland is located at 3060 Washington Road (Route 97), Glenwood, Maryland
21738 and the name and address of its registered agent is Stephen T. Walker,
3060 Washington Road (Route 97), Glenwood, Maryland 21738; and the registered
office of the Surviving Corporation in the State of Delaware is located at 1209
Orange Street, in the City of Wilmington, County of New Castle, and the name of
its registered agent at such address is The Corporation Trust Company; and
<PAGE> 2
WHEREAS, the respective Boards of Directors of the constituent
corporations desire that the merger provided for herein (the "Merger") be a
tax-free reorganization pursuant to Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and provisions hereinafter contained, the corporations that are the parties
hereto do hereby prescribe the terms and conditions of said Merger and mode of
carrying the same into effect as follows:
FIRST: At the time as of which the Merger (the "Merger") provided in
this Agreement shall become effective (the "Effective Time"), the Merging
Corporation shall be merged with and into the Surviving Corporation in
accordance with provisions of the Maryland General Corporation Law (the "MGCL")
and the General Corporation Law of the State of Delaware (the "DGCL"),
whereupon the separate existence of the Merging Corporation shall cease, and
the Surviving Corporation shall be the corporation surviving the Merger.
SECOND: The Certificate of Incorporation of the Surviving Corporation,
as in effect on the Effective Time, shall continue in full force and effect as
the Certificate of Incorporation of the corporation surviving the Merger.
THIRD: The manner and basis of converting or exchanging issued stock
of the Merging Corporation into stock of the Surviving Corporation shall be as
follows:
(a) At the Effective Time, (i) each share of the Class A
Stock and the Class B Stock that is issued and outstanding shall, by virtue of
the Merger and without further action by the Surviving Corporation or the
holder thereof, be converted into Forty (40) shares of the Common Stock, and
(ii) each Option shall, by virtue of the Merger and without further action by
the Surviving Corporation or the holder thereof, be converted into an option to
purchase that number of shares of the Common Stock equal to the product of (A)
the number of shares of Class B Stock issuable upon the exercise of such Option
and (B) Forty (40), at a purchase price per share of Common Stock equal to the
product of (I) the exercise price per share of Class B Stock issuable upon the
exercise of the Option and (II) a fraction, (x) the numerator of which is equal
to one and (y) the denominator of which is equal to Forty (40).
(b) After the Effective Time, the number of shares of
Common Stock held by each stockholder, or issuable to each holder of an Option
upon the exercise of such Option, is set forth opposite each such party's name
on Exhibit 1 hereto ("Exhibit 1").
(c) After the Effective Time, each outstanding
certificate representing shares of capital stock of the Merging Corporation
will be treated by the Surviving Corporation for all corporate purposes as
evidencing ownership of that number of shares
- 2 -
<PAGE> 3
of Common Stock of the Surviving Corporation determined in accordance with the
provisions of Section 1(a) hereof and each Option will be treated by the
Surviving Corporation for all corporate purposes as an option to purchase that
number of shares of Common Stock determined in accordance with the provisions
of Section 1(a) hereof.
(d) The sole share of Common Stock that is issued and
outstanding immediately prior to the Effective Date shall, by virtue of the
Merger and without further action, cease to exist and shall be canceled.
(e) Promptly after the Effective Time, each holder of
certificate(s) evidencing shares of capital stock of the Merging Corporation
may submit such certificate(s) to the Secretary of the Surviving Corporation,
and, upon receipt thereof, the Surviving Corporation shall issue and deliver a
new certificate(s) to the respective holder evidencing ownership of that number
of shares of the Surviving Corporation as set forth opposite such stockholder's
name on Exhibit 1 hereto under the caption "Number of Shares of the Surviving
Corporation".
(f) Promptly after the Effective Time, the Surviving
Corporation shall issue and deliver a new option to the respective holder
evidencing the right to purchase that number of shares of the Surviving
Corporation as set forth opposite such option holder's name on Exhibit 1 hereto
under the caption "Number of Shares of the Surviving Corporation Issuable upon
Exercise of Option".
(g) There are no shares of the Preferred Stock
outstanding.
FOURTH: The terms and conditions of the Merger are as follows:
(a) The By-laws of the Surviving Corporation as they
shall exist at the Effective Time shall be and remain the By-laws of the
Surviving Corporation until the same shall be altered, amended or repealed as
therein provided.
(b) The directors and officers of the Surviving
Corporation as of the Effective Time shall be the directors and officers of the
Surviving Corporation and shall continue in office for the terms provided by
law or in the By-laws, or until their respective successors are elected and
qualified.
(c) The Merger shall become effective upon acceptance of
the Certificate of Merger by the Office of the Secretary of State of the State
of Delaware in accordance with the provisions of paragraph (c)(3) of Section
103 of the DGCL.
(d) At the Effective Time, all property, rights,
privileges, franchises, patents, trademarks, licenses, registration, and other
assets of every kind and description of the Merging Corporation shall be
transferred to, vested in and devolved upon the Surviving Corporation without
further act or deed and all property, rights, and every other
- 3 -
<PAGE> 4
interest of the Merging Corporation and the Surviving Corporation shall be as
effectively the property of the Surviving Corporation as they were of the
Merging Corporation and the Surviving Corporation, respectively. All rights of
creditors of the Merging Corporation and all liens upon any property of the
Merging Corporation shall be preserved unimpaired, and all debts, liabilities
and duties of the Merging Corporation shall attach to the Surviving Corporation
and may be enforced against it to the same extent as if said debts, liabilities
and duties had been incurred or contracted by the Surviving Corporation. At
any time, or from time to time, after the Effective Time, the last acting
officers of the Merging Corporation, or the corresponding officers of the
Surviving Corporation, may, in the name of the Merging Corporation, execute and
deliver or cause to be executed and delivered all such deeds and instruments
and to take or cause to be taken such further or other action as the Surviving
Corporation may deem necessary or desirable in order to vest in and conform to
the Surviving Corporation title to and possession of any property of the
Merging Corporation acquired or to be acquired by reason of or as a result of
the Merger herein provided for and otherwise to carry out the intents and
purposes hereof, and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Merging Corporation or
otherwise to take any and all such action.
(e) The Surviving Corporation hereby (i) agrees that it
may be served with process in the State of Maryland in any proceeding for the
enforcement of any obligation of the merged corporation and in any proceeding
for the enforcement of the rights of a dissenting shareholder of the Merging
Corporation; (ii) irrevocably appoints the Secretary of State of Maryland as
its agent to accept service of process in any such proceeding; and (iii)
agrees that it will promptly pay to dissenting shareholders of the Merging
Corporation the amount, if any, to which they shall be entitled pursuant to the
laws of the State of Maryland.
FIFTH: Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated and abandoned by the board of directors of any
constituent corporation at any time prior to the date of filing of the
Certificate of Merger with the Office of the Secretary of State of the State of
Delaware. This Agreement may be amended by the boards of directors of the
constituent corporations at any time prior to the date of filing of the
Certificate of Merger with the Office of the Secretary of State of the State of
Delaware, provided that an amendment made subsequent to the adoption of this
Agreement by the stockholders of any constituent corporation shall not (a)
alter or change the amount or kind of shares, securities, cash, property and/or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of such constituent corporation, (b)
alter or change any term of the Certificate of Incorporation of the surviving
corporation to be effected by the Merger, or (c) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class or series thereof of such constituent
corporation.
- 4 -
<PAGE> 5
SIXTH: (a) This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Delaware.
(b) This Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective successors and assigns,
provided that this Agreement may be assigned by operation of law or otherwise
by any party without the consent of the other parties.
(c) This Agreement contains the entire agreement between
the parties hereto with respect to the transactions contemplated herein, and
supersedes all prior agreements and understandings, whether written or oral,
between the parties hereto with respect to the subject matter of this
Agreement.
(d) The Merging Corporation and the Surviving Corporation
each agree to execute and deliver such other documents, certificates,
agreements and other writings and to take such other actions as may be
necessary or desirable in order to consummate or implement expeditiously the
transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the
approval and authority duly given by resolutions adopted by their respective
boards of directors have caused these presents to be executed by the President
and attested by the Secretary of each party hereto as the respective act, deed
and agreement of each of said corporations, as of this 30th day of May, 1996.
<TABLE>
<S> <C>
ATTEST: TRUSTED INFORMATION SYSTEMS, INC.,
A MARYLAND CORPORATION (THE MERGING CORPORATION)
By: /s/ Homayoon Tajalli By: /s/ Stephen T. Walker
-------------------------------------- --------------------------------------
Homayoon Tajalli, Secretary Stephen T. Walker, President and CEO
ATTEST: TRUSTED INFORMATION SYSTEMS, INC.,
A DELAWARE CORPORATION (THE SURVIVING CORPORATION)
By: /s/ Harvey Weiss By: /s/ Stephen T. Walker
-------------------------------------- --------------------------------------
Harvey L. Weiss, Secretary Stephen T. Walker, President and CEO
</TABLE>
- 5 -
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
(1) Trusted Information Systems (UK) Limited, formed under the laws of the
United Kingdom.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated April 29, 1996 (except Note 10, as to which the date is
May 31, 1996), in the Registration Statement (Form S-1 No. 33-_____) and
related Prospectus of Trusted Information Systems, Inc. for the registration of
________ shares of its common stock.
ERNST & YOUNG LLP
Vienna, Virginia
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion of
earnings per share calculations, which is dependent upon the establishment of
the proposed offering price range for the issuance of shares of common stock of
Trusted Information Systems, Inc. covered by this Registration Statement.
ERNST & YOUNG LLP
Vienna, Virginia
June 7, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 29,
1995 AND THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
THREE MONTH PERIOD ENDED MARCH 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-29-1995 DEC-29-1995
<PERIOD-START> DEC-31-1994 DEC-30-1995
<PERIOD-END> DEC-29-1995 MAR-29-1996
<CASH> 53,859 393,228
<SECURITIES> 0 3,399,880
<RECEIVABLES> 4,348,536 3,707,895
<ALLOWANCES> 44,000 54,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,444,641 10,047,395
<PP&E> 5,032,730 6,291,783
<DEPRECIATION> 1,317,640 1,412,431
<TOTAL-ASSETS> 10,221,803 14,988,352
<CURRENT-LIABILITIES> 6,234,524 8,132,911
<BONDS> 1,580,000 2,573,599
0 0
0 0
<COMMON> 113,025 121,687
<OTHER-SE> 2,294,254 4,160,155
<TOTAL-LIABILITY-AND-EQUITY> 10,221,803 14,988,352
<SALES> 18,090,087 4,175,878
<TOTAL-REVENUES> 18,090,087 4,175,878
<CGS> 10,864,947 2,412,379
<TOTAL-COSTS> 10,864,947 2,412,379
<OTHER-EXPENSES> 4,872,438 2,419,046
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 158,778 8,883
<INCOME-PRETAX> 2,244,200 (739,450)
<INCOME-TAX> 900,137 (315,750)
<INCOME-CONTINUING> 1,344,063 (423,700)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,344,063 (423,700)
<EPS-PRIMARY> 0<F1> 0<F1>
<EPS-DILUTED> 0<F1> 0<F1>
<FN>
<F1>The completion of earnings per share calculations is dependent upon the
establishment of the proposed offering price range for the issuance of shares of
common stock of Trusted Information Systems, Inc. covered by the Registration
Statement.
</FN>
</TABLE>
